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FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Reason for Rating Committee: AIG and Prudential pic have terminated their agreement whereby
Prudential would have acquired AlA Group Limited (AlA) for total consideration of $35.5 bin. AlA is the
la
business that AIG is attem
to sell as
of its overnment-backed restructuri
Last Rating Action: 26-Feb-2010 - We affirmed the ratings of AIG and its core insurance subsidiaries
following the company's announcement of 1Q 2010 results and following a series of related RCMs to
address the stand-alone credit
of the main
units.
Scale
1 of 40
v. 2.0 rev 7/13/07
Rationale for Recommendation:
Termination of the AlA sale agreement is a credit negative for AIG. The transaction was expected to
generate $25 bin of cash by YE 2010, helping AIG to repay the approximate $16 bin preferred interest in AlA
held by the Federal Reserve Bank of New York (FRBNY), as well as a significant portion of AIG's borrowings
under its senior secured revolving credit facility with the FRBNY. AIG is now developing alternative plans for
AlA, including a possible IPO, for which much preparation had been done before the Prudential transaction
was announced on 01-Mar-2010. Any such alternative will likely take longer to generate $25 bin of cash and
may produce lower overall proceeds, especially given the volatility in the capital markets as well as some
large competing IPOs being planned for the Hong Kong market.
Nevertheless, our rating thesis for AIG still holds. We expect the US government to support AIG throughout
its restructuring, which involves revitalizing the core insurance businesses and exiting noncore businesses.
We believe that this approach will help the Treasury to maximize the recovery on its TARP preferred
investments in AIG (most likely by converting them to common equity to be sold through public offerings).
AIG's main operating units, Chartis and SunAmerica Financial Group (SFG), compete in part on the basis of
credit quality. Chartis sells long-tail commercial P&C policies to sophisticated corporate buyers, while SFG
sells annuities and life insurance through a variety of channels, including institutional partners who pay close
attention to the credit quality of their providers.
We believe that the existing government support facilities have sufficient unused availability to cover any
incremental costs of the restructuring. At the end of 1Q 2010, the unused availability totaled $34.8 bin ($12.5
bin under the FRBNY revolver, which matures in September 2013, plus $22.3 bin under the Treasury's
Series F preferred stock commitment, which expires in April 2014). Finally, despite the negative publicity
surrounding the ill-fated Prudential transaction, we believe that AIG and its sponsors at the FRBNY and
Treasury have demonstrated the value of taking a measured pace on divestitures. For instance, SFG and
AIG's two Japan-based life insurers are regaining traction after a disruptive period when all of these
operations were for sale.
Developments since rating affirmation of 26-Feb-2010:
AIG entered into sale agreements for AlA (now terminated) and American Life Insurance Company (ALlCO).
The ALiCO sale, for $15.5 bin to MetLife, Inc., is expected to close by YE 2010.
Continued stabilization of major operating units through 1Q 2010, with core insurance operations producing
pretax operating income (before net realized capital gains (losses)) of $2.2 bin.
International Lease Finance Corporation and American General Finance completed a variety of financing
transactions, securitizations and asset sales to cover their respective debt maturities through mid-to-Iate
2011.
AIG Financial Products Corp. continues its orderly unwinding and expects to substantially de-risk the
business by YE 2010.
Challenging market conditions continue, with soft pricing for commercial P&C insurance, a weak global
economy, and volatile capital markets that heighten the challenge of selling large noncore businesses.
No change in government support arrangements or expressions of support.
2 of 40
v. 2.0 rev 7/13/07
3 of 40
Contents
3-4
Subsidiary ratings and recommendations
AIG Q-tools and stock chart
5
6-12
AIG restructuring plan (from RCM memo of 25-Feb-201 0)
AIG capital structure at 31-Mar-201 0
13
AIG sources of value versus obligations
14
Liquidity update for AIG, ILFC, AGF
15-17
AIGFP exit plan (company presentation of 02-Jun-2010)
18-22
Government support for AIG
23-24
AIG segment results for 2007 - 1Q 2010
25-26
AIG financial statements for 1Q 2010
27-28
AIG credit opinion (19-May-201 0)
29-32
Frequently asked questions on AIG (24-Mar-2010)
33-40
Summary of subsidiary ratings and recommendations
Current Ratings on AIG Entities
June 3, 2010
Arrerican International Group, Inc.
Fully supported ratings
AIG Financial Products Corp. & subsidiaries
AIG Life Holdings (US), Inc.
AIG Retirerrent Services, Inc.
Arrerican General capital securities
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC
Core operations
AIG Edison Life Insurance Company
Chartis U.S. (8 rated corrpanies)
Chartis Insurance UK Lirrited
SunArrerica Financial Group (11 rated corrpanies)
Non-core operations
Arrerican General Finance Corporation
Arrerican Int'I Assurance Co. (Berrruda) Limited
Arrerican Life Insurance Company
International Lease Rnance Corporation
United Guaranty subsidiaries UGRIC & UGMIC
* Support agreement not a material factor m ratmg.
Latest/next
rating action
26-Feb-10
Rating Type
LT Issuer
Subord Debt
ST Issuer
Bkd LT Issuer
Bkd Sr Debt
Bkd Sr Debt
Bkd Tr Prfrd Stock
(Bkd) ST
SA 17-Feb-10
SA 24-Feb-10
SA 19-Feb-10
IFS
IFS
IFS
IFS
22-Dec-09
-Mar-10
-Mar-10
18-Dec-09
SA 4-Feb-10
Sr Unsec Debt
IFS
IFS
Sr Unsec Debt
IFS
3 of 40
Support
AIG
AIG
AIG
AIG
Curr
SA
Gtee
Gtee
Gtee
Gtee
AHACGtee
AIG Agmt
AIG Agrrt*
AIG Agmt
Curr
Curr
Public Outlook
A3
Neg
Ba2
P-1
A3
A3
A3
Ba2
P-1
Neg
Neg
Neg
Neg
Neg
A3
A1
A1
A2
A1
Aa3
A1
A1
Neg
Neg
Neg
Neg
B3
Aa3
A1
B2
Baa3
B2
Aa3
A1
B1
A3
Neg
Neg
Stable
Neg
Neg
Rec
SA
Rec
Rec
Public Outlook
A3
Neg
Ba2
P-1
v. 2.0 rev 7/13/07
Current Ratings on AIG Entities - June 3,2010
Ownership Structure *
American International Group, Inc. ("AI Gil)
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
Curr
Domicile
Business Segment
DE
Parent
Rating Type
LT Issuer
Sr Unsec Debt
Subord Debt
ST Issuer
Support
SA
IN
IN
Fin Svcs
ST Debt
Fin Svcs
LT Issuer
DE
IN
Puerto Rico
CA
B3
ST Debt
Bkd Tr Prfrd Stock
AGFC G'tee
Fin Svcs
Bkd ST Debt
AGFC G'tee
Fin Svcs
Sr Unsec Debt
Fin Svcs
DE
Fin Svcs
AIG Matched Funding Corp.
DE
Fin Svcs
AIG SunAmerica Global Financing Trusts
SunAmerica Annuity and Life Assurance Company
ASIF I & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
ALiCO Holdings LLC
American Life Insurance Company
Chartis Inc.
Chartis U.S., Inc.
American Home Assurance Company
Chartis Property Casualty Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
Chartis Specialty Insurance Company
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Mortgage Indemnity Company
Chartis International, LLC
AIU Insurance Company
Chartis Overseas Limited
Chartis Insurance UK Limited
N-P
B2
B2
N-P
Caa1
Sta
Neg
N-P
B1
N-P
B3
A3
P-1
A3
P-1
A3
A3
A3
A3
P-1
Stable
Neg
Fin Svcs
DE
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
DE
TN
TX
TX
NY
NY
TX
DE
DE
DE
DE
AZ
Fin Svcs
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
ILFC G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG
AIG
AIG
AIG
AIG
AIG
G'tee
G'tee
G'tee
G'tee
G'tee
G'tee
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
SFG
SFG
SFG
SFG
SFG
SFG
SFG
SFG
Funding for AIG LHUS
Funding for AIG LHUS
Fin Svcs
SFG
SFG
SFG
Caymans
SFG
SFG
SFG
SFG
DE
NY
ST Debt
Bkd Prfrd Stock
Bkd LT Issuer
Bkd ST Debt
Bkd Sr Debt
Bkd ST Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd ST Debt
B2
Frgn Life Ins & Ret Svcs
DE
AZ
Jersey
Neg
Fin Svcs
ILFC E-Capital Trusts I & II
AIG Financial Products Corp.
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Ltd.
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
American General Life Insurance Company of Delaware
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of NY
The United States Life Insurance Company in the City of NY
Western National Life Insurance Company
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Retirement Services, Inc.
SunAmerica Life Insurance Company ("SLlC")
Curr
Outlook
Neg
DE
Sr Unsec Debt
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
Curr
Public
A3
A3
Ba2
P-1
IFS
IFS
Bkd Sr Debt
AHAC G'tee
AIGAgmt"
AIG G'tee
A3
Aa3
A1
Aa3
A3
Neg
Neg
Neg
IFS
IFS
IFS
IFS
IFS
IFS
IFS
Bkd Tr Prfrd Stock
Bkd Tr Prfrd Stock
Bkd ST Debt
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
AIG Agmt
A2
A2
A2
A2
A2
A2
A2
A1
A1
A1
A1
A1
A1
A1
Ba2
Ba2
P-1
A3
A1
P-1
A1
A1
P-1
A1
A1
A1
A1
P-1
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
DE
DE
DE
DE
NY
PA
NY
PA
PA
AK
PA
NC
NC
NC
Frgn Life Ins & Ret Svcs
NY
Chartis U.S.
IFS
Chartis International
IFS
Frgn Life Ins & Ret Svcs
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
Chartis
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
U.S.
AIG Agmt
AIG
AIG
AIG
AIG
G'tee
G'tee
G'tee
G'tee
AIG Agmt
AIG Agmt
SLiC GICs
AIG Agmt
AIG Agmt
SLiC GICs
SLiC GICs
SLiC GICs
AIG Agmt
AIG Agmt
A2
A2
A2
Neg
Neg
Neg
Neg
Neg
Neg
IFS
A1
A1
Stable
IFS
IFS
IFS
IFS
IFS
IFS
IFS
A1
A1
A1
A1
A1
A1
A1
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Baa2
A3
A3
Neg
Neg
A1
Aa3
Neg
A1
A1
Neg
IFS
Bkd IFS
AIG Agmt
UGRIC G'tee
Bermuda
UK
* LIsting order mdlcates main ownershIp stake (or sponsorshIp m the case of trusts), not necessarily 100% ownershIp.
** Support agreement not a material factor in rating.
Source: Company reports & Moody's
4 of 40
AIG Agmt
Rec
SA
Rec
Public
A3
A3
Ba2
P-1
Rec
Outlook
Neg
AIG Q-tools 02-Jun-2010
American International Groll p, Inc.
;:;;3~.·4
.
;~.:.~
.~2~~~
,.,3-'
:=-5:3':-';:
:::-:;:;2-='
..:.•.•.•.•.:.::::::::::::..
;
'\
.::'
~\{.
.................................................................................................
11111
AIG Stock Chart 02-Jun-2010
American International Group, I
IIIlIlld(;
Sep09
.
:
lSlI'/olUlritl
~~
:.. ..
I
.. k&- .. :, ..
~ III i
fill
Market value of float: $4.7 billion
5 of 40
Profile of AI
Since September 2008, AIG has been working to protect and enhance the value
of Its key businesses, execute an orderly restructuring and asset disposition plan,
and position Itself for the future, while maintaining flexibility in its liquidity and
capital positions
III
AIG expects to emerge as one of the largest, rnost diversified P&C conlpanies in
the world) with a strong U.S. life and annuity operation and several other
businesses that wi!! enhance the nucleus
III
- World's premier insurance organization
- Strongly capitalized insurance subsidiaries
- Strong) diversified sources of earnings
- Delevered capital structure
- Financial flexibimy with access to the capita! rnarkets
- Strengthened rnanagement teanl
r-------AiG--~-~---p-~~-fii~---~ili--b~---~~~-~i~-t~~i-;iih---~---~i~g-i~-~-A---~~ti~-g---~t---th-~--ii-~-~--------1
I
!
of U.S. Government exit
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
6 of 40
I
!
4
Strengthened
anagement Team
AIG has been able to attract seasoned executives to join its senior
management team and retain key senior executives.
fL Benmosche
President & CEO
......
,'" ........ 'c ..
Co
...
[ : , : : , :. .
.,
...........
.,
..........
:,:u:,::,:u:'::'::mmmmmmmmmmuurmmmmmmmmmmmmmmmmrmmmmmmmuumr
P.Hancock
EVP, Finance,
Risk & Investments
,
K. Moor
EV?, Chartis
N. Walsh
EVP. Chartfs
.,
...........
.,
..... .
rmmmmmmmmmmmTmmmmmmmmmmmmmTmmmmmmmmmmmmmmm'1
W, Doo!ey
SVP. Financia!
Services
--------- ---------
R. Martin
DIP, ALiCO
,, ., ,. , ., ,. , .. , ., ,. , .,1, .. , ., ,. , ., ,. , .. , ., ,. ':
p, Mullings Bradnock
SVP, Director of
internal Au(ii!
M, Cowan
VP, Cf"lief Acfministrative
Officer
D. Herzog
EIlP, Chief Financia!
Officer
R Lewis
SVP. Chief rUsk Officer
~iPJ
M. Machon
SVP, Chief
frwestrnent Ottieer
\/~D.<
B. Schreiber
SVP, Strategic
to!annin{l
J. Cook
.
J. Wintrob
EVP. SunAmeriea
Financial Group
(ind, Star & Edison)
M. Wilson
President / CEO
AlA
: '..'. '.' .'.
J, Hurd
SVP, Hurnan Resources
& Cornrnunications
.
c••
'.'
.'.
'.'
' • • '.
'.'
.'.
J'.' .
To Russo
EVP, Lega!, Compliance.
Regulatory Affairs,
L-':;o't/srnrnent Affairs l~
Genera! Counsel
C. PreHo
SVP,
Comrnunieations
Con/roUer
R Gender
Treasurer
T, Watson
\/P, Investor Relations
and Rating Agency"
Reiations
{~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Recent additions to senior management team,
A!GFP
AIG Proprietary Commercia! and Financiai !nforrnation: FOiA Confidential Treatment F?equested.
7 of 40
5
Strengthened
anagement Team (continued)
" Robert Benmosche, President and CEO
~
CEO of Met Life from 1998 ~ 2006
~
Led transition of MetLife from a mutuai to a public company in 2000
~
Has served as member of Board of Directors of Credit Suisse Group since 2002
" Peter Hancock, Executive Vice President of Finance, Risk and investments
~
Former CFO of J.P. Morgan as wei! as former head of its fixed income division
~
Established Giobal Derivatives Group at J.P. Morgan
~
Earned Risk Magazine's Lifetime Achievement award in 2006
" Thomas Russo, Executive Vice President of Legal, Compliance, Regulatory Affairs. Government Affairs and General
Counsel
~ tiO-year
~ Senior
~ Vice
~ ~,,1ichael
~
career as a lawyer, regulator, author and academic
Counsel at Patton 80ggs LLP
Chairman of Leilman Brothers Inc. and Ciliet Legal Officer of Lehman 8rothers Holdings until December 2008
Cm'Jan, Senior Vice President and Chief Administrative Officer
Merriil Lynch from 1986 - 2009, with roles including: Senior Vice President, Giobal Corporate Services; CFO and
member of tile Executive ivianagement Committee for the Global Private Client business; Cilief Administrative
Officer EMEA
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
8 of 40
6
arid's Premier Insurance
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::llllill:::111111111:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
r~
;.;.;.;.Iffffffffffffffffffff
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ID&Jf;1rW!fmHg.m~:¢:.;.~
I~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
i::::I::o;::..
CHARTiS
~
rganizatian
SrmJ\.Jlu;:rirH
': : . : .:. . . . .:.: .:, . : ftn.alJ(:hil. G>rntlp
~
Worid's iargest commercia! insurance otganization
Leading position and scale player in the domestic life
insurance and retirement savings markets
- #1 U,S, property and casualty insurer in the U,S, 'Nith
approximately $27 biilion oj statutory surplus
- #4 life insurance organization in the U.S., with more
than $22'1 billion of admitted assets (9/30/09)
- 200,000 commercial customers worldwide
~
Long history, with underwriting experience tracing back 90
years
... Among the largest issuers of annuities and term life
insurance in the U.s.
~
Extensive giobal reach
- Leading provider of defined contribution plans in the
education and f1ealthcare markets
- Operations in over 80 countries
.... 34 principai underwriting companies
- Leader in both deveioped and emerging markets
~
Diversified platform, offering 500 products and services
~
Extensive, mu!ti-channel distribution netvlJork
~
Diversified product piatform, witi: innovative and
coliaborative product development capabilities
~
GAAP Equity: $217 bn {9!30!09PF}
~ GAAP Equity: $47.1 bn (9/30!09PF)
~7
AJG Star
m
t!g!~ur!;G~j!~~
~
Major provider of life, rnedicai and annuit.y products to botr1
individuals and groups in Japan
~
Multi .. channei distribution netvvork in Japan, including
captive agent, independent agent, corporate and
bancassurance channels
~ GAAP Equity: $7.4 bn (9!30!09)
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
9 of 40
7
Strong, Diversified Revenue and Earnings Base
Diversified Revenues
{;tJ9rti.~_§.f.'_W..f_oL~m_fll.Q_lng_::U2()lo_;)__'?_S.'lZ,_\iJl.a
SFG PDoe for 12m emjirlg lZ!31!D9E ~ $19,1 !m
L:CyG:~ P:"ogr;:-l!Tt,_ Av!zti':'11
!;-"::;'liciuol vOI-iable
E:~vi:
Brcker~ge
serv:c>::s &
On;net1101
J_jl}i,
PaVGU t. .4;~ ;~uj ij~s
4.8%
Ma;;2gf:!0.£;;t /
PrG~~ss:fJ::CiI
t iabi:it'y
Diversified Earnings
4.4%
l13%
2010 Pm forma Adius,ed Operating income e1< RCGfL)
(e:<ciw:iing Parent, fP & Other) ::: $8.8 bn <;1 (2)
AIG remains one of the largest and most diversified insurance companies in the world$ with its
core insurance companies expected to generate $8.8 billion in operating earnings this year
Notes: (i) Ba.sed on AIG 2010 Budget, but sMwn pm forma for tile exclusion of AlA, ALlCO, AGF, AI Credit, Consumer Finance, ILFC a.nd AIG Parent. (2) For purposes of
presentation, the following businesses are excluded from tile pie chart due to negative eanlings expectations: FP, UGC, CEfO.
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
10 of 40
10
Restructuring Plan
~
Assumptions and Valuation
i .7 - 2. Ox embedded vBJue {est $21 bn at E\/) !s vv'eii
\J\f:thin range of peer va~uB.tiGns (~o\rver vBJuation than
$35-40 bn
00
2Q1 I]
None
Chinese pure plays)
Ba~tetj
$15 bn
on reGent
NonE!
r.~:gotiH1jons
-
!PC}
507~
for $20
on
2011 - 25% oftering for $10 bn
2012 - 25% oftering for $10 bn
S0iect0d v!~h.w of $15 bn repr0,;()~t" 1.4:< 9!30/09 8\1
$6.9 bn Gast: GOn~;;d0rat:on at transactior. CIO~;0 :n 2H1 ()
$5.2 bn of cornn-l0n equ~tYl SU~~0Ct iO lockup
(~~X_ f\>:)C~)
$3.0 bn of mandatory convertibles, subject to iockup
p€!er Rt)E regres~;h:)r. (tj:$(;ount to
AFU\C mUi!ipi0 of 2.7'x BV 0X AOCi}
P/BV in
$35-45
Hn~~ V1:Ui
Rq;r~;""rrt" 07)( ···1.0x 9/30!09 PF BV
t)r.
of .$47.1
t)~
Purct',lS0 UGC ($1.8
Retain
blwirH~s"
bl)$ineiS:S; b,1$0 C"$0 ,1$SUm0S rH) (jivi(jen(j$
,md rea!!;:"
divi(j(~n(js
br.)
$15·20 bn
0.1 ···0.9>< 9/30/09 8V 01 $22.9 bn {Et< . .c\OC~}
NOr1€~
R0t<li~
.$2.1 bn
S~g ned 8.cqu~s~t:on
None
Sf·:ouid close transaction in 1 H1 0
None
PO$sibiiity of dividends beginning in 201 j frOfTl Star
None under
restructuri ng plan
F-unding sOiutions
$13.0··· $70 br:
rv1ear.:ngfui
agreen:€nt
or.go~r.Q
value to AiG
Expecting $0.~1 bn of operating incofTle in 2010 (ex.
RCG(LJ)
Book Va!U0 of $7,4 bn as of fj!SOl09
Up to $!3.0
on
Business can have significant vaiue once tunding
sOlutions are achieVed
- Secured financing (externa! and intemai)
- Aircraft sales
Deconsoiidating transaction
Minim~,i
Minim~,i
Fund;ng
~;i)!ution$ CHn (t1;nj!n:z~:
Poter.t:al v!3Jue
r~:(3!;~:!3,t:on
Gontributh:)rl by AiG
tt:rough
NO~~; !;n(j(~r
Dei(~v~;raging
re"tnxturing plml
DeCOr;2;()iid~Hing
ttlrougt'
!~S,,()1 $~tles
an(j securiti.w1ion2;
trar;2mction
$0 7 bn for UnC!
C;Hj!n~t
r\.f:gR~:.
rrmnaQ0n10n!
U:t:(t1!3,t~:ly
r 0i~;,lS0(j
.$'1.1) bn debt
issuance
Access to capitai markets wiii pwvide AIG with
additionai tinanciai flexibility
None
Conversion oi Equity Units
issue $ LO bn ot debt to public at the appropriate time
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
11 of 40
15
Execution Timeline
Timeline of Key Restrycturing Eyents
1Q10
2Q10
3Q10
4Q10
1Qll
2Qll
3Qll
4Qll
1Q12
2Q12
3Q12
AlA IPO / Secondaries!!)
ALiCO Sale
AIGFP Unwind / Run-off
Divestitures(2)
Capital Markets Transactions
CPFF Maturity (Including Nightingale)
AGF Asset Sales / Securitizations
ILFC Asset Sales / Securitizati ons
12/09
3/10
r':':':':':':':':':'~
iiiiiiii@
9/10
5/10
••
•
•
Initial PubllcOffenngs
IIIIII: Secondary Offerings
12/10
6/11
3/11
_
9/11
l2!11
3!12
5/12
9/12
12/12
Deconsolidating Transaction
::,:.
Quarterwith greater
than $1 bn of debt maturities
Sale of Business
Signing
r--Jotes· (1) T:rn~ng of AlA offerings are ~/e1 to bE: deterrn;ned. Dates StiO\lI..tr1 above are n:u~;!ra!~ve_ (2) Oiv0st~!Ures include Nan Shan; !nstitu!;ona; !-\~;S0t ~;lanagern0n1~ S\l\fiss
Uectitenstein certain UGC bus:ness0s, certain GFG businesses. (3) $1-8 bn tli3.S been funded H'lrough asset Si3.:0~; and intercOPlpany :oan repayrnents: rernainder repaid
Hlmugh FRaN'! borrowing initially, until fwtriel a,;set monetizatiGns can be compiet0d. (4) To be repaid tilrough FRBNY borrowing ini1iaiiy, untii furttler asset
rriOne!;zat:ons can be cornp:eted. (5) Repa:d !hrOUgtl securitiz(31ion~;, as~;et sa;es and cash on balance st:eet $2.9 ha~; been ra:sed to date (6) Repaid trlrougri secured
f:nanc:ng~ aircraft sa;es; seGurit~zat:on~; and debt ~;yndica1ion.
l
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
12 of 40
17
American International Group, Inc.
Debt and Capital
(dollars in millions)
March 31,
2010
-->.
W
o
.j::>.
o
Financial debt:
FRBNY Credit Facility
AIG notes and bonds payable
AIG loans and mortgage payable
AIG LH notes and bonds payable
Liabilities connected to trust preferred stock
AIG loans to financial services subsidiaries
AIG Funding loans to financial services subsidiaries
Total
Operating debt:
AIG Funding cOlmnercial paper
MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
AIGFP borrowings (d)
ILFC borrowings
AGF borrowings
AIGCFG borrowings
Other Subsidiaries
Borrowings of consolidated investments
AIG loans to financial services subsidiaries
AIG Funding loans to financial services subsidiaries
Total
Hybrid - debt securities:
Junior subordinated debt
Hybrid - mandatorily convertible units:
Junior subordinated debt attributable to equity units
Total
AIG capitalization:
Total equity
Hybrid - debt securities
Hybrid - mandatorily convertible units
Total consolidated equity and hybrid capital
Financial debt
Total capital
Ratios:
Total equity / Total capital
Hybrid - debt securities / Total capital
Hybrid - mandatorily convertible units / Total capital
Financial debt / Total capital
$
Debt and Hybrid Capital
Dec. 31,
2009
27,400
9,457
427
798
1,339
(706)
(4,848)
33,867
23,435
10,419
438
798
1,339
(1,213)
(3,505)
31,711
(41.8)
NM
6.8
12,642
3,868
15,085
28,710
17,283
68
458
4,315
706
4,848
87,983
1,997
13,371
3,913
15,937
26,173
20,119
216
295
5,141
1,213
3,505
91,880
NM
(5.5)
(1.2)
(5.3)
9.7
(14.1)
(68.5)
55.3
(16.1)
(41.8)
NM
(4.2)
11,699
12,001 (f)
5,880
139,429 $
5,880 (e)(f)
141,472
101,719
11,699
98,076
12,001 (f)
5,880 (e) (f)
115,957
31,711
147,668
~
119,298
33,867
'''~ 165 $
$======~
66.4%
7.6%
3.8%
22.1%
Interest Expense (a)
Three Months Ended
March 31, 2010
Dec. 31, 2009
Inc.
(DecL
16.9 %
(9.2)
(2.5)
833 (b) S
124
I
IS
27
- (c)
- (c)
1,000
3
98
76
(1.4)%
$
37
- (c)
- (c)
727
247
254
19
2
30
- (c)
- (c)
744
217
224
85
2,029
3.7 %
(2.5)
2.9
6.8
3.7 %
66.4%
8.1%
4.0%
21.5%
(a) Includes S112 million, S36 million of interest expense in the three-month periods ended March 31,2010 and December 31,2009, respectively,
reported in Other Income (loss) and Policy acquisition and other insurance expenses on the Consolidated Statement of Income (Loss).
(b) Includes interest expense ofSI83 million and SI90 million for the three months ended March 31, 2010 and December 31,2009, respectively,
allocated to discontinued operations.
(c) Aillounts are elilninated in consolidation.
(d) Borrowings are carried at fair value with fair value adjustments reported in Other income (loss) on the Consolidated Statement of Income (Loss).
Contractual interest payments amounted to S83.6 million and S584.1 million for the three months ended March 31, 2010 and twelve months ended December 31,2009, respectively.
(e) The equity units consist of an ownership interest in AIG junior subordinated debentures and a stock purchase contract obligating the holder of an equity unit to purchase, and obligating
AIG to sell, a variable number of shares of AIG COlmnon stock on three dates in 2011.
(f) The equity units and junior subordinated debentures receive hybrid equity treatment frOln the Inajor rating agencies under their current policies but are recorded as long-tenn borrowings
on the consolidated balance sheet.
8
13
103
76
235
258
IS
(2.5)
6,225 (b)
129
I
IS
27
- (c)
- (c)
6,397
$
85
7,450
AIG Sources of Value vs Debt & Hybrid Obligations ($ billions)
Sources of value
Noncore
AlA
ALI CO
Nan Shan
AGF
AIGFP
ILFC
MIP
UGC
AIG interests in ML II & ML III
Other
Total noncore
Core
Chartis
SunAmerica Financial Group
Star Edison
Total core
Total sources of value
Company indications - May 2009
-Selected
Low
High
20,0
12,0
30,0
20,0
25,0
15,0
00
00
00
00
00
00
5,9
12,0
49.9
11,3
20,1
81.4
29.4
13,8
6,0
49.2
99.1
39,2
23,2
7,0
69.4
150.8
Capital structu re
NY Fed preferred interests in AIA/ALICO
Financial debt & hybrids
NY Fed senior secured loan
Senior unsecured financial debt*
AIGLH trust preferreds
Total senior debt & trust preferreds
Junior subordinated debentures (hybrids)
Mandatory convertibles (hybrids)
Total financial debt & hybrids pre-<:onversior
Less conversion of mandatory convertibles
Total financial debt & hybrids post-<:onversion
0.0
March 31,2009
0.0
Moody's adjustments - Jun 2010
Low
High
Selected
8,2
14,9
63.1
45,0
20,0
2,1
00
5,0
5,0
00
1,0
10,5
40,0
17,0
2,1
00
2,5
2,5
00
0,5
5,3
35,0
15,0
2,1
00
00
00
00
00
00
40,0
15,0
2,1
00
5,0
5,0
00
00
10,5
40,0
15,0
2,1
00
2,5
2,5
00
00
5,3
30,0
15,5
2,1
00
00
00
00
00
00
35,0
15,5
2,1
00
5,0
5,0
00
00
10,5
30,0
15,5
2,1
00
2,5
2,5
00
00
5,3
52.1
88.6
69.9
52.1
77.6
67.4
47.6
73.1
57.9
32,6
15,0
6,0
53.6
116.7
35,0
15,0
2,5
52.5
104.6
45,0
20,0
4,5
69.5
158.1
40,0
17,5
3,5
61.0
130.9
35,0
15,0
6,0
56.0
108.1
45,0
20,0
7,0
72.0
149.6
40,0
17,5
6,5
64.0
131.4
35,0
15,0
6,0
56.0
103.6
45,0
20,0
7,0
72.0
145.1
40,0
17,5
6,5
64.0
121.9
December 31, 2009
25.0
25.0
25.0
25.1
36.4
12,0
5,9
54.3
5,9
48.4
36.4
12,0
5,9
54.3
5,9
48.4
23.4
11,7
1,3
36.4
12,0
5,9
54.3
5,9
48.4
0.0
September 30, 2009
0.0
0.0
0.0
55.0
12,0
5,9
72.9
5,9
67.0
41,0
12,6
1,3
55.0
12,0
5,9
72.9
5,9
67.0
44.6
44.6
41,6
3,0
44.6
46.8
46.8
41,6
5,2
46.8
114.3
111.7
111.7
111.7
120.2
120.2
89,7
78,1
55,6
44,0
103,1
91,1
2.4
75,9
63,8
19,2
46,7
34,7
-12,1
88,2
76,2
36,5
49,6
37.6
-7,1
00
12,0
63,8
75,9
0,0%
11,9%
4,5%
9,3
12,0
34,7
56,0
16,7%
32,7%
8,0%
61.1
11,5
5,9
78.5
5,9
72.7
41.6
41.6
41,6
00
41.6
Total financial obligations, incl TARP prfrds
114.3
114.3
Excess (shortfall) in value versus:
Fed preferreds, senior debt, trust preferreds
Fed preferreds, financial debt & hybrids
Total financial obligations, incl TARP prfrds
38,0
26.4
-15,2
AIG shareholders' equity
TARP Series E
TARP Series F
Total TARP preferred
Company indications - Feb 2010
-Selected
Low
High
35,0
15,0
2,1
00
00
00
00
00
00
47.4
12.4
1,3
61.1
11,5
5,9
78.5
5,9
72.7
61.1
11,5
5,9
78.5
5,9
72.7
Company indications - Dec 2009
-Selected
Low
High
55.0
12,0
5,9
72.9
5,9
67.0
46.4
Remaining capital structure~
2,9
11,2
Senior debt & trust preferreds
00
00
00
12,0
12,0
11,5
11,5
11,5
Junior subordinated debentures (hybrids)
78,1
44,0
37,6
91,1
26.4
Common stock (incl TARP conversion)
49,2
89,7
55,6
52,5
103,1
Total capital
22,8%
0,0%
0,0%
5,5%
0,0%
Senior debt % capital
Senior debt + 75% of hybrids % capital
9,6%
15,5%
22,7%
8,7%
40.4%
Hybrid equity credit % (common + hybrid eq credit)
9,8%
3,6%
6,1%
3,2%
7.4%
• Includes $5,6 billion of intercompany operating debt as of March 31, 2010.
•• Assumes that noncore assets are sold, with proceeds used to pay down the Fed preferred, the Fed revolver and senior debl. Any excess
14 of 40
is added to common equity
March 31, 2010
25.1
25.1
39.4
11,7
5,9
57.0
5,9
51.1
27.4
10,7
1,3
39.4
11,7
5,9
57.0
5,9
51.1
49.0
49.0
41,6
7.4
49.0
120.2
125.2
125.2
125.2
29.4
69,9
57,9
11,1
39,1
27.4
-21,6
80,6
68,9
19,9
57.4
45,7
-3,3
00
12,0
76,2
88,2
0,0%
10,2%
3,8%
00
12,0
57,9
69,9
0,0%
12,9%
4,9%
16,9
11,7
27.4
56,0
30,1%
45,8%
9,6%
00
11,7
68,9
80,6
0,0%
10,9%
4,1%
6,6
11,7
45,7
64,0
10.4%
24,1%
6,0%
39.4
11,7
5,9
57.0
5,9
51.1
American International Group, Inc., and Subsidiaries
Additional details regarding liquidity sources are included in Liquidity of Parent and Subsidiaries below.
AIG's Strategy for Stabilization and Repayment of its Obligations as They Come Due
Future Cash Requirements
AIG expects that the repayment of future debt maturities and the payment of the preferred returns and
liquidation preference on the Preferred Interests will be its primary uses of available cash. Unless otherwise
agreed with the FRBNY, the net proceeds from the cash consideration and the monetization of the securities
consideration from the sales of AIA and ALICO will first be used to pay the Preferred Interests, and then to
repay the FRBNY Credit Facility.
The following table summarizes the maturing debt at March 31, 2010 of AIG and its subsidiaries for the next
four quarters:
Second
Quarter
2010
Third
Quarter
2010
Fourth
Quarter
2010
First
Quarter
2011
ILFC
AGF
AIG Matched Investment Program
AIGFP
AIG
Other
$1,485
659
19
511
$2,501
210
776
269
500
7
$1,642
679
600
$2,003
2,797
888
270
189
12
6
$ 7,631
4,345
1,664
1,328
512
543
Total
$2,763
$6,469
$4,263
$2,528
$16,023
(in millions)
Total
AIG's plans for meeting these maturing obligations are as follows:
•
ILFC's sources of liquidity available to meet these needs include existing cash, future cash flows from
operations, debt issuances and aircraft sales (see Liquidity of Parent and Subsidiaries - Financial
Services - ILFC below). During March and April of 2010, ILFC significantly enhanced its liquidity position
through a combination of new secured and unsecured debt issuances of approximately $4.0 billion and an
extension of the maturity date of $2.16 billion of its $2.5 billion revolving credit facility from October 2011
to October 2012. Availability of $550 million of the approximate $4.0 billion of debt issuances and the
extension of $2.16 billion of the revolving credit facility are subject to the satisfaction of certain
collateralization milestones. In addition, in April 2010, ILFC signed an agreement to sell 53 aircraft, with an
aggregate book value of approximately $2.3 billion, which is expected to generate approximately $2.0 billion
in gross proceeds during 2010. Based on this level of increased liquidity and expected future sources of
funding, including future cash flows from operations and potential aircraft sales, AIG now expects that ILFC
will be able to meet its existing obligations as they become due for at least the next twelve months solely
from its own future cash flows. Therefore, while AIG has acknowledged its intent to support ILFC through
February 28, 2011, at the current time AIG believes that any further extension of such support will not be
necessary.
•
AGF anticipates that its primary sources of liquidity will be customer receivable collections, additional
on-balance sheet securitizations, portfolio sales and borrowings (see Liquidity of Parent and Subsidiaries Financial Services - AGF below). During March and April of 2010, AGF significantly enhanced its liquidity
position through the following actions: AGF received cash proceeds of more than $500 million from a
$1.0 billion asset securitization in March 2010 and executed and fully drew down a $3.0 billion secured term
loan transaction in April 2010. AGF used a portion of the proceeds from these transactions, cash on hand
and proceeds from AIG's repayment of two demand promissory notes to repay all of its outstanding
obligations under its $2.45 billion one-year term loans in March 2010 and its $2.125 billion five-year
revolving credit facility in April 2010 (both of which were due in July 2010). Based on this level of increased
95
15 of 40
American International Group, Inc., and Subsidiaries
liquidity and expected future sources of funding, including future cash flows from operations, AIG now
expects that AGF will be able to meet its existing obligations as they become due for at least the next twelve
months solely from its own future cash flows. Therefore, while AIG has acknowledged its intent to support
AGF through February 28, 2011, at the current time AIG believes that any further extension of such support
will not be necessary. AIG is continuing to explore strategic alternatives for AGF, including a potential sale
of a majority interest.
•
Debt maturities for the Matched Investment Program (MIP) are expected to be funded through cash flows
generated from invested assets, as well as the sale or financing of the asset portfolios in the program.
However, mismatches in the timing of cash flows of the MIP, as well as any shortfalls due to impairments of
MIP assets, would need to be funded by AIG Parent. In addition, as a result of AIG's restructuring
activities, AIG expects to utilize assets from its noncore businesses and subsidiaries to provide future cash
flow enhancement and help the MIP meet its maturing debt obligations.
•
Approximately $813 million of AIGFP's debt maturities through March 31, 2011 are fully collateralized, with
assets backing the corresponding liabilities; however, mismatches in the timing of cash inflows on the assets
and outflows with respect to the liabilities may require assets to be sold to satisfy maturing liabilities.
Depending on market conditions and AIGFP's ability to sell assets at that time, proceeds from sales may not
be sufficient to satisfy the full amount due on maturing liabilities. Any shortfalls would need to be funded by
AIG Parent.
•
AIG expects to meet its debt maturities primarily through borrowings under the FRBNY Credit Facility, and
dividends, distributions, and other payments from subsidiaries. The Department of the Treasury Commitment
is primarily used for capital support of subsidiaries. In the future, AIG may need to provide additional
capital support for its subsidiaries. AIG has developed certain plans, some of which have already been
implemented, to provide stability to its businesses and to provide for the timely repayment of the FRBNY
Credit Facility. In addition, certain of AIG's outstanding financial derivative transactions could require
collateral calls or termination payments based on a downgrade in AIG's credit rating. See Note 8 to the
Consolidated Financial Statements.
Sales of Other Businesses
Since September 2008 and through April 28, 2010, AIG entered into agreements to sell or completed the sale
of operations and assets, excluding AIA, ALICO and assets held by AIG Financial Products Corp. and AIG
Trading Group Inc. and their respective subsidiaries (collectively, AIGFP), that had aggregate assets and liabilities
with carrying values of $95.5 billion and $77.5 billion, respectively, at March 31, 2010 or the date of sale. Of these
amounts, pending transactions with aggregate assets and liabilities of $54.7 billion and $49.2, respectively, at
March 31, 2010 are expected to generate approximately $709 million of aggregate net cash proceeds that will be
available to reduce the amount of the FRBNY Credit Facility, after taking into account taxes, transaction
expenses, settlement of intercompany loan facilities, and capital required to be retained for regulatory or ratings
purposes. Gains and losses recorded in connection with the dispositions of businesses include estimates that are
subject to subsequent adjustment. Based on the transactions closed to date, AIG does not believe that such
adjustments will be material to future consolidated results of operations or cash flows.
See Notes 1 and 3 to the Consolidated Financial Statements for additional information.
96
16 of 40
American International Group, Inc., and Subsidiaries
Liquidity of Parent and Subsidiaries
AIG Parent
The following table presents AIG Parent's sources of liquidity:
As of
----------------------------------------------------------------------
March 31, 2010
April 28, 2010
Available borrowing under the FRBNY Credit Facility
Cash and short-term investments
Available capacity under the Department of the Treasury Commitment
$ 12,507
372
$ 11,007
375
22,292
22,292
Total
$ 35,171
$ 33,674
(In millions)
AIG believes that it has sufficient liquidity at the AIG Parent level to meet its obligations through at least the
next twelve months. However, no assurance can be given that AIG's cash needs will not exceed projected
amounts. Additional collateral calls, deterioration in investment portfolios affecting statutory surplus, higher
surrenders of annuities and other policies, further downgrades in AIG's credit ratings, catastrophic losses or
reserve strengthening, or a further deterioration in the super senior credit default swap portfolio may result in
significant additional cash needs, or loss of some sources of liquidity, or both. Regulatory and other legal
restrictions could limit AIG's ability to transfer funds freely, either to or from its subsidiaries.
Historically, AIG has depended on dividends, distributions, and other payments from subsidiaries to fund
payments on its obligations. In light of AIG's current financial situation, certain of its regulated subsidiaries are
restricted from making dividend payments, or advancing funds, to AIG. As a result, AIG has also been dependent
on the FRBNY as a primary source of liquidity, and on the Department of the Treasury Commitment to support
the capital needs of AIG's insurance company subsidiaries. In the first three months of 2010, AIG Parent collected
$323 million in dividends and other payments from subsidiaries (primarily from insurance company subsidiaries),
which included $250 million in dividends from Chartis U.S.
AIG's primary uses of cash flow are for debt service and subsidiary funding. In the first three months of 2010,
AIG Parent retired $850 million of debt and made interest payments totaling $345 million, excluding MIP and
Series AIGFP debt. AIG Parent made $2.2 billion in net capital contributions to subsidiaries in the three months
ended March 31, 2010, of which the majority was contributed to AIG Capital Corporation, enabling AIG Capital
Corporation to redeem its preferred securities held by a Chartis U.S. subsidiary. In addition, in March 2010, AIG
Parent repurchased AIG common stock from an insurance subsidiary and repaid $1.6 billion in loans to AGE
At the current time, AIG Parent has no access to the commercial paper market, one of its traditional sources
for its short-term working capital needs. While no assurance can be given that AIG will be able to access its
traditional sources of long-term or short-term financing through the public debt markets again, AIG periodically
evaluates its ability to access the capital markets.
General Insurance
AIG currently expects that its Chartis subsidiaries will be able to continue to meet their obligations as they
come due through cash from operations and, to the extent necessary, asset dispositions. One or more large
catastrophes, however, may require AIG to provide additional support to the affected General Insurance
operations. In addition, further downgrades in AIG's credit ratings could put pressure on the insurer financial
strength ratings of its subsidiaries. A downgrade in the insurer financial strength ratings of an insurance company
subsidiary could result in non-renewals or cancellations by policyholders and adversely affect the subsidiary's
ability to meet its own obligations and require AIG to provide capital or liquidity support to the subsidiary.
Increases in market interest rates may adversely affect the financial strength ratings of General Insurance
subsidiaries as rating agency capital models may reduce the amount of available capital relative to required capital.
Given the size and liquidity profile of AIG's General Insurance investment portfolios, AIG believes that
deviations from its projected claim experience do not constitute a significant liquidity risk. AIG's asset/liability
97
17 of 40
Hiahlv Confidential
FP Unwind Progress
• Portfolio has been significantly de-risked, with overall hedging volatility
reduced by 82% since 12/31/08
- Interest Rates - down 82%
- Commodities - down 99%
- Foreign Exchange - down 88%
• Headcount reduction of 38% is in line with ongoing unwind of portfolio and
operations since 12/31/08
• FP closed Tokyo office in Q3 2009
* Due to FAS 161, FP is changing its methodology for computing notional, leading to a slight increase of previously reported values; Sept and Dec FAS 161 notionals are estimates
** Unadjusted for FAS 161
*** The Gross Vega is calculated as the sum of all the individual positions' absolute vegas as if each position is not hedged. Although FP's books are almost completely hedged on a
net Vega basis, the Gross Vega measure will help monitor how well the volatility risk is being eliminated. The interest rate option vega denotes the change in value due to a 0.1 %
increase in normal volatility. For other derivatives (i.e., Equity, Commodity and FX option), vega denotes the change in value due to a 1% increase in lognormal volatility.
18 of 40
4
Hiahlv Confidential
2009 & 2010 VTD Unwind metrics -Directional risk and Vega
As of3/31/10:
Portfolio significantly de-risked; overall
hedging volatility reduced by 82%
- Interest Rates - down 82%
- Commodities - down 100%
- Foreign Exchange - down 88%
I-
$1.25 as of
12/31108
Corporate arbitrage COS
Exposure
15.74
16.37
22.07
(6.33)
-29%
Regulatory Capital CDS
Exposure
96.54
111.68
151.07
(54.53)
-32%
Credit Book Other
Exposure
11.05
11.69
13.79
(2.73)
-20%
GICs
Notional
2.01
2.1
2.17
(0.16)
-7%
Lease transactions
Notional
4.45
4.47
4.52
(0.07)
-2%
Asset Portfolio
Notional
27.72
28.36
30.78
(3.07)
-10%
Issued securities
Notional
7.98
9.44
11.05
(3.07)
-28%
Repos & reverse repos
Notional
11.44
9.36
8.23
3.22
39%
Pension BROs
Notional
26.13
27.88
28.04
(1.91)
-7%
BOll BROs
Notional
4.26
4.24
4.21
0.05
1%
Muni Swaps
Notional
1.46
1.46
1.5
(0.04)
3%
Fund derivatives - FOHF
Exposure
0.07
0.08
0.18
(0.11)
-61%
Fund derivatives - FOMF
Exposure
0.01
0.01
0.02
(0.01)
-50%
Energy / infrastructure
Notional
0.05
0.05
0.05
-
-
PROs
Notional
Prime brokerage
NA
TOG / Strategic
investments
NA
! II
II
r\
~
~
$0.58 as of
9/30/09
\
: II [
II ~
$0.31 as of
12/31/09
$0.24asof3/31/1~"
""
$0.14 as of
,... ,... 12/31/10
...
$0.19 as of 6/01/10
Jun
Dec
Jun
Dec
2009
2009
2010
2010
6
19 of 40
Hiahlv Confidential
Reg Cap book overview
l. .~.~.~.:.: ~.~: .:.:~:.:. ~. . . . . . . . . . . . . . .'
As of May 5, 2010
240
IE]
rnrn
$230b (Q4,2008)
$188b (Q2,2009)
180
160
$143b (Q4,2009)
140
$109b (Q1 ,201 0)
120
Corp
m RMBS
220
200
Other
100
• Current Reg Cap book is
$75B in notional1
• The overall portfolio is
projected to have
amortized to 50% by 01
2011
- RMBS deals have
uniform amortization
profile
- Corp deals expected to
be called in early 2011
and show steeper decline
• Blackrock projects zero
losses in all scenarios
80
• Annual Reg Cap income in
2011 will be -$57M and
cumulative annual income
between today at 2020 is
projected to be -$137M
60
40
20
o
04
2008
01
2010
Jan
2011
Jan
2012
Jan
2013
Jan
2014
1 Includes all trades which have been called, including $34B in notional (8 positions) will be settled in June 2010
7
20 of 40
Hiahlv Confidential
Quarterly P&l
Quarterly pal
USD$ M
Commentary (Q1 10)
Q210
(Through
June 1)
$5 B in credit and asset book
appreciation since Value Max
$6.6 BN in the past year.
• Asset portfolio gain of $869 M
reflects overall improvement of
asset prices over the quarter
Q1 10
Q409
Q309
Q209
Q109
2009
6
(6)
(14 )
26
79
(99)
(8)
Credit books
(40)
159
265
1,347
737
(672)
1,677
Asset portfolio
248
869
725
1,645
855
(1,178)
2,047
CVA on liabilities
471
(626)
(338)
(683)
(868)
1,803
(86)
• Loss due to CVA on liabilities
($626 M) and derivatives
($178 M), largely driven by
narrowing of AIG Inc. spreads
II - AIG's 5yr CDS spread was
at 279 bps as of 3/31/10 vs.
581 as of 12/31/09
II
CVA on derivatives
(49)
(178)
(42)
(232)
(7)
1,056
775
II •
(316)
(454)
(462)
(502)
(635)
(866)
(2,465)
10
7
18
(6)
(196)
(188)
(372)
Hedged books
Int. paid to parent
Reserves
-------------------------------~------------------------------I
I
I
I
I
I
II
Interest paid to parent remains
a significant expense item
($433 M)
- Balance as of 3/31/10 was
$55.3B and the rate was
3.276%
(75)
132
110
(595)
(428)
(96)
(138)
(131 )
(154 )
2
98
(237)
(76)
(230)
(299)
79
1,352
(132)
(1,123)
(519) II • Credit gain of $159 M driven
by continuing improvement in
(445) II
multi-sector and some spread
improvement in Corp Arb and
176 II
underlying CDS Asset
valuations
Unwind P&L
(13)
(28)
Expenses
(58)
(65)
Other
6.3
Total pal
291
8
Source: Management P&L
21 of 40
Hi
Disaggregation strategy - Remaining Book Resolutions
Key facts
,
,: BROs
,,: • $32 B Notional
,,, • Average MV/BV has
,
recovered from 91 .5% in
,,,
,,
0409 to 99.7% in 01 10
• Overview of positions by trade count
......................................................................................................................
,
,,,
,
,,,
,
,,,
,.. Assets
,,, ,,.. • $29 B Notional
,
- $22 B MTM
,"
,, ,
- $5 B potential upside
,
,:,, ,,,
Liabilities
,~
• $24 B Notional
,: '
, :,: ,
,:
,:
'»
I
'" ""
".
I
"
I
:1
,
I
I
I:
,"
:::
,
Jun
2009
Dec
2009
Jun
De~\
2010
2010 •: "" ,
:..............................................................................................................................:
Proposed disposition
• Engage a 3rd party for outsourcing/
transfer of the portfolio
• Potential partners could include:
- Specialty finance
- New issuers
- Existing market players
• Transfer to AIG Inc (AMG)
• Opportunistically unwind assets based on
prioritized criteria (e.g., volatility)
• Transfer to AIG Treasury, managed with
other RemainCo liabilities
• Contract management of derivatives to
AIG or 3rd party entities
,.---------------------------------------------------------------------------------
'.
, / RemainCo
•,,/
• 3.5-5k positions
/
• $400-500 B notional
Dec
2008
"l' ~~:: .: : :;.
",
,
""
• Structure a small RemainCo to passively
manage significantly de-risked portfolio
with minimal maintenance
• Requires tradeoffs between complexity of
RemainCo and capturing upside from
remaining positions
• Key decision areas include
- Securitization swaps/CDO swaps
- Credit books (e.g., Corp Arb, Reg Cap)
- Some illiquid derivative positions
22 of 40
Q
Extensive Government Support for AIG
The attached sheet from AIG's Financial Supplement summarizes the financial support provided to
AIGby the US government through March 31, 2010, as well as additional available amounts under
committed facilities. Other indications of support are noted below.
Supportive statements in SEC filings: AIG's 2009 lO-K and its 1Q 2010 lO-Q included the following
expression of support, consistent with the language in prior filings:
"As first stated by the U.S. Treasury and the Federal Reserve in connection with the announcement of
the AIG Restructuring Plan on March 2, 2009, the U.S. Government remains committed to continuing to
work with AIG to maintain its ability to meet its obligations as they come due."
Focus on credit ratings: Fed and Treasury representatives have repeatedly assured us that they plan to
keep the government support in place, specifically the TARP funding, until AIG can achieve a senior debt
rating in the A range or better without the need for such support. We believe that the government has
the ability (through structures already in place), the willingness (through supportive actions/comments
to date) and the economic incentive to deliver this result. Our Fed/Treasury contacts confirm that the
most likely exit plan would be for the Treasury to convert its TARP interests to common stock to be sold
through public offerings. To maximize the proceeds from such offerings, we expect that the Treasury will
support AIG throughout its restructuring, i.e., until the core insurance businesses have more fully
recovered and the noncore businesses are largely unwound or divested.
Jim Millstein's written statement to COP: Jim Millstein, the Treasury's chief restructuring officer and
point person on AIG, recently testified at a Congressional Oversight Panel hearing on AIG. Jim's written
testimony cited the Treasury's goal of achieving a standalone parent senior debt rating in the A range as
a critical element of the AIG restructuring plan.
Responsive to credit concerns: The government intervention at AIG has been designed first to avoid
systemic risk, and thereafter to support AIG's policyholders and creditors, so as to stabilize the markets
and ultimately recover as much as possible of the TARP investment. With each major step of the
restructuring, AIG and Fed/Treasury officials have been keenly interested in rating implications and have
consistently followed a creditor-friendly path.
GAO sees ratings as critical indicator: The Government Accountability Office (GAO) is the audit,
evaluation and investigative arm of Congress, charged with examining the use of public funds under
various federal programs and policies, including TARP. In September 2009, the GAO published a detailed
report on the AIG rescue and the ongoing government efforts to support the company. The report
contains numerous references to credit ratings as a critical business factor for AIG, citing comments to
this effect by senior representatives of the company, Fed and Treasury. One appendix to the report lists
nearly 20 indicators that the GAO will monitor to gauge the success of the rescue effort. The first item
on the list is credit ratings.
23 of 40
American International Group, Inc.
U.S. Government Support
As of March 31, 2010
(in millions)
Amount of
Assistance Authorized
Debt
Equity
$34,156 (a)
Description of Support
Federal
Reserve
Bank of New
York
FRBNY Credit Facility:
The FRBNY created this facility to enhance the liquidity of AIG and its subsidiaries. In consideration for
the facility, Series C preferred stock was issued at a purchase price of $0.5 million to a trust established
for the sole benefit of the United States Treasury. The Series C preferred stock represents approximately
79.8 percent of each of (i) the voting power of AIG's shareholders entitled to vote on any particular
matter and (ii) the aggregate dividend rights of the outstanding shares of AIG common stock and the
Series C preferred stock. (a)
FRBNY Credit Facility Interest and Fees:
Accrued compounding interest and fees owed by AIG paid with additional borrowings (paid in kind)
Preferred Interests in AlA and ALICO:
On December 1,2009 AIG and the FRBNY completed two transactions pursuant to which AIG
transferred to the FRBNY preferred equity interests in newly-forrued special purpose vehicles (SPYs) in
exchange for a $25 billion reduction of the balance outstanding and the maximum credit available under
the FRBNY Credit Facility. The FRBNY holds a preferred interest in the AlA Aurora LLC with a
liquidation preference of $16 billion and preferred interests in the ALICO Holdings LLC with a
liquidation preference of $9 billion.
Maiden Lane II Loan:
The FRBNY created this Spy to provide AIG liquidity by purchasing residential mortgage-backed
securities from AIG life insurance and retirement services companies. The FRBNY provided a loan to
the Spy for the purchases. It also terruinated a previously established securities lending program with
AIG. The actual amount funded was $19.494 billion.
Maiden Lane III Loan:
The FRBNY created this Spy to provide AIG liquidity by purchasing CDOs from AIG Financial
Products' counterparties in connection with the termination of credit default swaps. The FRBNY again
provided a loan to the Spy for the purchases. The actual amount funded was $24.339 billion.
1'0
.j::>..
0
.j::>..
0
Series DIE Preferred Shares:
The United States Department of the Treasury (Department of the Treasury) purchased Series D
cumulative preferred stock from AIG. AIG used the proceeds to pay down the FRBNY Credit Facility.
These shares were later exchanged for Series E noncumulative preferred shares. Unpaid dividends on the
Series D shares were added to the liquidation preference of the Series E shares.
Series F Preferred Shares:
Through the purchase of AIG's Series F noncumulative preferred shares, the Departruent of the Treasury
originally committed to provide to AIG up to $29.835 billion, subject to certain conditions. The
liquidation preference of each share of the Series F preferred stock increases by the pro rata amount of
any drawdown on the commitment.
Total authorized and outstanding assistance (b)
Less: Maiden Lane II and Maiden Lane III loans
Amounts retlected on AIC's consolidated balance sheet
* Refer to page 10 for discussion of capital structure and ranking of obligations.
Balance Outstanding
Remaining
March 31,
Dec. 31,
Inc.
Available Balance
2010
2009
(Dec.)
March 31, 2010
$12,507
$21,649
$17,900
$3,749
5,751
5,535
216
25,059
24,540
519
22,500
15,283
16,004
(721)
30,000
17,323
18,499
(1,176)
40,000
41,605
41,605
29,835
7,543
5,344
2,199
22,292
$134,213
(32,606)
$101,607
$129,427
(34,503)
$94,924
$4,786
(1,897)
$6,683
$34,799
25,000
U.S. Dept. of
the Treasury
$86,656
$94,835
(a) The FRBNY Credit Facility was initially $85 billion, but was reduced to $60 billion in November 2008 and was further reduced by an additional $25 billion in December 2009 to
$35 billion, as a result of the completion of the transactions described in this table under Preferred Interests in AlA and ALICO. As of March 31, 2010, the facility
availability was reduced to $34.156 billion as a result of mandatory prepayments relating to asset sales which occurred in the first quarter of 201 O.
(b) Does not include AIG's participation in the FRBNY Commercial Paper Funding Facility.
9
AlA and ALiCO were moved from Foreign Life to discontinued ops in 1Q 2010. This worksheet does not restate prior periods.
202008
3 mos
102008
-1.053
-1.052
6.079
5.924
951
-535
416
5.124
5.410
943
-164
779
2.678
3.347
-36
-727
-763
3.647
3.532
107
-313
-206
3.726
3.740
770
42
812
4.339
3.468
831
-82
749
7,736
8,281
713
-608
105
7,088
8,663
-1,680
-2,269
-3,949
9,277
9,294
108
-1,366
-1,258
9,805
9,664
1,721
493
1,228
9,463
8,878
1,774
-246
1,528
1.470
1.059
348
-78
270
1.550
1.091
162
-460
-298
1.728
1.158
-8
-4.447
-4.455
2.296
1.573
474
-4.381
-3.907
2.066
1.353
369
-1.368
-999
1.815
1.312
399
-1.268
-869
3.048
265
804
-1.256
-452
2.636
272
-94
24
-70
3.594
258
-343
-1.186
-1.529
3.367
330
-900
-9.873
-10.773
4.620
347
-393
-9.039
-9.432
5.180
363
633
-3.206
-2.573
5.718
356
800
-2.740
-1.940
5,366
1,279
1,034
-364
670
4,446
1,277
1,207
-1,429
-222
4,106
1,331
254
-54
200
5,144
1,440
-160
-1,667
-1,827
5,095
1,673
-835
-14,393
-15,228
6,916
2,061
87
-13,426
-13,339
7,246
1,967
1,002
4,574
-3,572
7,533
1,943
1,210
4,019
-2,809
1,231
864
220
-135
85
8,272
6,201
1,054
291
1,345
8,012
5,527
1,068
-159
909
7,520
5,590
1,169
-653
516
7,584
5,456
1,269
-818
451
8,785
6,332
1,218
4,637
-3,419
13,830
6,178
777
-2,442
-1,665
16,040
6,318
1,544
-577
967
15,823
5,882
1,337
-552
785
2,222
-794
1,428
335
79
414
2,997
-1,625
1,372
2,440
-744
1,696
1,822
-3,093
-1,271
-1,297
-21,299
-22,596
972
-17,234
-16,262
4,267
-5,644
-1,377
4,321
4,817
496
-56
-298
-91
-29
474
344
80
-302
-30
92
365
1.352
-139
-18
1,560
316
-1.123
-233
-50
-1,090
35
439
95
-129
1,428
335
-132
-270
-36
-103
4
223
124
207
-17.167
-616
-16
-17,592
-20
-329
-17,941
306
-8.250
-434
31
-8,347
177
-33
-8,203
352
-6.244
-22
34
-5,880
40
15
-5,905
272
-8.851
24
10
-8,545
-76
-151
-8,772
Op inc (loss) before net RCG(L) & NODH
Non-qualifying derivative hedging (NQDH)
Net RCG(L)
Operating income (loss)
1,748
427
82
509
2,337
4
-521
1,820
732
-759
989
4,557
-3
-1.754
2,800
-3.135
-2,401
-18,889
-20
-21.628
40,537
-7,375
177
-17.267
-24,465
-1,613
-40
-5.629
-7,282
4,224
-76
-4.968
-9,268
Other income (loss) before net RCG(L)
Other net RCG(L)
Consolidation & eliminations before net RCG(L)
Consolidation & eliminations net RCG(L)
Pretax income (loss) from continuing ops
-353
59
-12
152
835
-7.319
50
-553
-289
-7,602
-2.658
-869
-117
488
-356
-1.779
265
1.411
-1.197
520
-3.537
78
-298
-52
-6,210
-12.644
-4.690
-4.121
2.867
-59,125
-2.622
-729
-233
540
-27,509
-994
-31
-159
-221
-8,687
-637
-1.325
-353
376
-11,207
-91
926
414
-8,016
-407
51
-731
1,251
-1.154
-5,056
2.642
-61,767
-4.674
-22,835
-3.342
-5,345
-3.520
-7,687
1.173
2,099
-994
-9,010
-66
-15
594
1,845
-77
-5,133
-789
-62,556
-1.870
-24,705
-54
-5,399
-40
-7,727
648
1,451
-137
-8,873
-470
455
23
1,822
-780
4,353
-897
-61,659
-237
-24,468
-42
-5,357
78
-7,805
3 mos
102010
402009
3 mos
302009
3 mos
202009
3 mos
102009
402008
3.787
4.562
733
-3
730
4.219
4.796
-1.292
-104
-1.396
5.002
4.807
583
10
593
4.968
4.948
654
-82
572
4.184
5.227
279
-503
-224
4.410
5.316
-1.644
-1.542
-3.186
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
3.857
3.079
146
140
286
2.711
3.234
-461
256
-205
3.074
3.132
139
-47
92
2.954
3.076
363
45
408
3.552
3.054
434
-105
329
Total General Insurance
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
7,644
7,641
879
137
1,016
6,930
8,030
-1,753
152
-1,601
8,076
7,939
722
-37
685
7,922
8,024
1,017
-37
980
Operating income (loss)
1.323
1.040
367
-140
227
1.375
999
397
20
417
1.398
1.012
403
-173
230
Domestic Retirement Services
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
3.414
275
756
-656
100
3.991
280
637
-384
253
Total DLRS
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
4,737
1,315
1,123
-796
327
A1G Segment Results
($ Millions)
3mos
3mos
3 mos
302008
3mos
General Insurance (Chartis)
A1GCI
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
5.630
5.762
Foreign General
Net premiums written
Net premiums earned
Domestic Life Insurance & Retirement Svcs
Domestic Life
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Foreign Life Insurance & Retirement Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Core insurance operations
Op inc (loss) before net RCG(L) & NODH
Net RCG(L)
Operating income (loss)
Financial Services
Op inc before net RCG(L) & NODH
Aircraft Leasing
Capital Markets
Consumer Finance
Other, incl intercompany adjustments
Total op inc (loss) before net RCG(L) & NODH
Non-qualifying derivative hedging (NQOH)
Net RCG(L)
Total operating income (loss)
-3
2
42
-1,130
Total Segments
Income tax expense (benefit)
Net income (loss) from continuing ops
Net income (loss) from discontinued ops
Net income (loss)
Net income (loss) attrib to noncontrolling interests
Net income (loss) attrib to AlG
o
25 of 40
AlA and ALiCO were moved from Foreign Life to discontinued ops in 1Q 2010. This worksheet does not restate prior periods.
3 mos
302007
12mos
12 mos
202007
3 mos
102007
12 mos
402007
2009
2008
2007
5.650
5.896
1.525
-11
1.514
5.986
5.916
1.871
-60
1.811
6.449
5.956
1.965
-81
1.884
5.971
5.939
1.820
76
1.896
18.373
19.778
224
-679
-455
21.243
22.412
251
-3.294
-3.043
24.056
23.707
7.181
-76
7.105
2.921
3.299
822
-195
627
3.270
3.112
648
-24
624
3.242
3.030
874
18
892
3.618
2.908
892
35
927
12.291
12.496
475
149
624
14.390
14.087
1.672
-1.080
592
13.051
12.349
3.236
-166
3.070
8,571
9,195
2,347
-206
2,141
9,256
9,028
2,519
-84
2,435
9,691
8,986
2,839
-63
2,776
9,589
8,847
2,712
111
2,823
30,664
32,274
699
-530
169
35,633
36,499
1,923
4,374
-2,451
37,107
36,056
10,417
-242
10,175
1.739
1.228
340
-473
-133
2.032
1.398
339
-277
62
1.822
1.260
392
-20
372
1.847
1.425
359
-16
343
5.793
4.161
1,310
-691
619
7.905
5.396
1,234
-11.464
-10.230
7.440
5.311
1.430
-786
644
4.418
385
919
-1.251
-332
4.526
385
863
-356
507
5.073
377
1.267
-295
972
4.592
359
1.316
-37
1.279
13.269
1.075
1,004
-2.802
-1.798
18.885
1.396
140
-24.858
-24.718
18.609
1.506
4.365
-1.939
2.426
6,157
1,829
1,263
-1,728
465
6,558
1,880
1,216
-647
569
6,895
1,746
1,653
-309
1,344
6,439
1,887
1,673
-51
1,622
19,062
5,327
2,335
-3,514
-1,179
26,790
7,644
1,464
-36,412
-34,948
26,049
7,342
5,805
-2,735
3,070
17,036
5,860
1,275
-187
1,088
15,797
5,423
1,356
153
1,509
13,139
5,304
1,466
-5
1,461
12,384
5,149
1,380
-86
1,294
31,388
22,774
4,560
-1,339
3,221
54,478
24,710
4,876
-8,208
-3,332
58,356
21,736
5,477
-125
5,352
4,885
-2,121
2,764
5,091
-578
4,513
5,958
-377
5,581
5,765
-26
5,739
7,594
-5,383
2,211
8,263
48,994
40,731
21,699
-3,102
18,597
248
-10.493
-7
-10,246
396
-673
-10,523
269
-58
80
16
307
428
-66
669
190
273
58
-9
512
-528
63
47
193
153
74
24
444
-85
-67
292
1.360
177
-944
-134
459
55
517
1.137
-40.512
-1.048
59
40,364
41
-498
40,821
900
-10.125
205
37
-8,983
211
-743
-9,515
-5,361
396
-2.794
-7,759
5,398
428
-644
5,182
6,470
-528
-314
5,628
6,209
-85
-93
6,031
8,053
3
-5.328
2,728
-32,101
41
-49.492
-81,552
12,716
211
-3.845
9,082
-412
-708
-139
179
-8,839
-407
-398
85
193
4,655
-97
386
341
-123
6,135
-34
-29
14
201
6,183
-15.293
-476
443
-1.050
-13,648
-16.897
-6.775
-4.866
3.562
-106,528
-950
-749
301
450
8,134
-3.413
-5,426
1.463
3,192
1.679
4,456
1.726
4,457
-1.878
-11,770
-8.894
-97,634
1.455
6,679
Net income (loss)
-5,426
3,192
4,456
4,457
-543
-12,313
-2.753
-100,387
6,679
Net income (loss) attrib to noncontrolling interests
269
-5,695
331
2,861
372
4,084
316
4,141
-1,364
-10,949
-1.098
-99,289
1.288
5,391
A1G Segment Results
($ Millions)
3mos
3mos
General Insurance (Chartis)
A1GCI
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Foreign General
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Total General Insurance
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Domestic Life Insurance & Retirement Svcs
Domestic Life
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Domestic Retirement Services
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Total DLRS
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Foreign Life Insurance & Retirement Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Core insurance operations
Op inc (loss) before net RCG(L) & NODH
Net RCG(L)
Operating income (loss)
Financial Services
Op inc before net RCG(L) & NODH
Aircraft Leasing
Capital Markets
Consumer Finance
Other, incl intercompany adjustments
Total op inc (loss) before net RCG(L) & NODH
Non-qualifying derivative hedging (NQOH)
Net RCG(L)
Total operating income (loss)
Total Segments
Op inc (loss) before net RCG(L) & NODH
Non-qualifying derivative hedging (NQDH)
Net RCG(L)
Operating income (loss)
Other income (loss) before net RCG(L)
Other net RCG(L)
Consolidation & eliminations before net RCG(L)
Consolidation & eliminations net RCG(L)
Pretax income (loss) from continuing ops
Income tax expense (benefit)
Net income (loss) from continuing ops
Net income (loss) from discontinued ops
Net income (loss) attrib to A1G
26 of 40
American International Group, Inc.
Consolidated Statement of Segment Operations
(in millions, except per share data)
Three Months Ended
March 31,
March 31,
2010
2009
%
Inc.
(Dec.)
Dec. 31,
2009
%
Inc.
(Dec.)
General Insurance
Net premimns -written
7,644
7,727
Net premiums earned
Claims and claims adjustment expenses incurred
Change in deferred acquisition costs
Other lUlderwriting expenses
7,641
5,459
(18)
2,392
8,272
5,787
Underwriting loss
Net investment income
(192)
1,071
275
435
Operating income (loss) before net realized capital gains (losses)
Net realized capital gains (losses)
Pre-tax income (loss)
879
137
1,016
1,315
Domestic Life Insurance & Retirement Services
Premiums and other considerations
Deposits and other considerations not included in
revenues lUlder GAAP
Premiums, deposits and other considerations
Net investment income
Operating income (loss) before net realized capital gains (losses)
Net realized capital losses
Pre-tax income (loss)
Foreign Life Insurance & Retirement Services (1)
Premiums and other considerations
Deposits and other considerations not included in
revenues lUlder GAAP
Premiums, deposits and other considerations
Net investment income
Operating income before net realized capital gains (losses)
Net realized capital gains (losses)
Pre-tax income (loss)
(1.1) % S
(7.6)
(5.7)
NM
8.5
6,922
10.4 %
8,023
7,936
295
2,396
(4.8)
(31.2)
NM
(0.2)
NM
146.2
(2,604)
855
NM
25.3
710
(608)
102
23.8
NM
NM
(1,749)
lSI
(1,598)
NM
(9.3)
NM
1,440
(8.7)
1,279
2.8
2,205
3,422
3,624
(5.6)
3,996
(14.4)
4,737
2,707
1,123
(796)
5,064
1,930
(160)
(1,667)
(6.5)
40.3
NM
NM
5,275
2,663
1,034
(364)
(10.2)
1.7
NM
NM
327
(1,827)
NM
670
(51.2)
864
925
(6.6)
967
(10.7)
40.1
367
337
8.9
262
1,231
346
220
(135)
1,262
324
358
(486)
(2.5)
6.8
(38.5)
NM
1,229
324
165
187
0.2
6.8
33.3
NM
85
(128)
NM
352
(75.9)
(474)
NM
NM
NM
92
35
(1,090)
2
(42)
NM
NM
NM
(439)
(1,130)
NM
95
NM
(353)
59
140
(3,522)
78
(89)
NM
(24.4)
NM
(7,296)
50
(651)
NM
18.0
NM
835
(91)
926
(6,516)
(1,303)
(5,213)
NM
NM
NM
(8,378)
2
(8,380)
NM
NM
NM
Financial Services
Operating income (loss), excluding non-qualifying derivative hedging
activities and net realized capital gains (losses) (2)
Non-qualifying derivative hedging activities
Net realized capital gains (losses)
Pre-tax income (loss)
Other before net realized capital gains (losses)
Other net realized capital gains
Consolidation and elimination adjustments (3)
Income (loss) from continuing operations before
income tax expense (benefit)
Income tax expense (benefit) (4)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net oftax
1,173
80
NM
(630)
NM
Net income (loss)
Less:
Net income (loss) from continuing operations attributable to noncontrolling interests:
Noncontrolling nonvoting, callable, jlUlior and senior preferred interests
held by Federal Reserve Bank of New York
Other
2,099
(5,133)
NM
(9,010)
NM
519
129
(774)
NM
NM
140
(314)
NM
NM
(774)
(6)
NM
NM
(174)
37
NM
NM
Total income (loss) from continuing operations attributable to noncontrolling interests
Income (loss) from discontinued operations attributable to noncontrolling interests
648
648
(780)
NM
(137)
NM
Net income (loss) attributable to AIG
Total net income (loss) attributable to noncontrolling interests
1,451
(4,353)
NM
(8,873)
NM
Income (loss) attributable to AIG from discontinued operations, net of tax
Net gain (loss) on sale of divested businesses, net of tax
Net realized capital losses, net of tax
Non-qualifying derivative hedging activities,
excluding net realized gains (losses), net of tax
Adjusted net income (loss)
1,173
(77)
(360)
86
175
(2,410)
NM
NM
NM
(667)
(322)
(516)
NM
NM
NM
(94)
809
(118)
(2,086)
NM
NM % S
176
(7,544)
NM
NM %
Income (loss) per common share attributable to AIG - diluted:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Adjusted net income (loss)
Weighted average shares outstanding - diluted
Effective tax rates (5):
Income (loss) before income tax and noncontrolling interest
Net income (loss) attributable to AIG
Adjusted net income (loss)
Return on equity attributable to AIG
0.41
(40.29)
NM
(60.59)
NM
1.75
1.21
135.7
0.62
(22.90)
135.3
182.3
NM
(4.92)
(55.69)
135.4
NM
NM
(10.9)%
(287.6)%
1.3%
8.0%
(See Accompanying Notes on Page 4)
27
6f 40
20.0%
22.8%
32.3%
(0.0)%
(0.9)%
0.3%
American International Group, Inc.
Consolidated Balance Sheet
(in millions)
March 31,
2010
December 31,
2009
Assets:
Investments
Fixed maturity securities (1)
Equity securities
Mortgage and other loans receivable, net of allowance
Finance receivables, net of allowance
Flight equipment primarily under operating leases, net of accumulated depreciation
Other invested assets
Securities purchased under agreements to resell, at fair value
Short-tenn invesunents
Total investments
Cash
Accrued investment income
Premiums and other receivables, net of allowance
Reinsurance assets, net of allowance
Current and deferred income taxes
Deferred policy acquisition costs
Real estate and other fixed assets, net of accmnulated depreciation
Unrealized gain on swaps, options and forward transactions, at fair value
Goodwill
Other assets, including prepaid commitment asset
Separate accOlmt assets, at fair value
Assets of businesses held for sale (2)
Total assets
283,235
7,444
22,533
18,912
43,258
33,250
1,615
38,800
449,047
2,133
3,467
18,718
25,791
6,805
19,064
3,259
7,383
2,565
17,072
51,953
256,440
863,697
396,794
17,840
27,461
20,327
44,091
45,235
2,154
47,263
601,165
4,400
5,152
16,549
22,425
4,108
40,814
4,142
9,130
6,195
18,976
58,150
56,379
847,585
86,489
26,350
47,752
142,932
7,493
2,874
4,004
708
3,418
458
6,296
1,030
21,015
2,285
27,400
109,744
51,953
217,837
760,038
85,386
21,363
116,001
220,128
13,252
4,950
4,393
774
3,505
1,030
5,403
1,641
22,503
4,739
23,435
113,298
58,150
48,599
748,550
1,940
959
41,605
7,378
23,000
354
6,356
41,605
5,179
23,000
354
6,358
(1,042)
8,086
(106)
1,206
(1,091)
(9,871)
(874)
75,001
(1,810)
7,145
(128)
1,630
(1,144)
(11,491)
(874)
69,824
25,059
1,659
26,718
101,719
863,697
24,540
3,712
28,252
98,076
847,585
Liabilities:
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
Commissions, expenses and taxes payable
Insurance balances payable
Funds held by companies under reinsurance treaties
Securities sold under agreements to repurchase, at fair value
Securities and spot commodities sold but not yet purchased, at fair value
Unrealized loss on swaps, options and forward transactions, at fair value
Trust deposits and deposits due to banks and other depositors
Other liabilities
Federal Reserve Bank of New York Commercial Paper Funding Facility
Federal Reserve Bank of New York Credit Facility
Other long-tenn debt
Separate accOlmt liabilities
Liabilities of businesses held for sale (2)
T otalliabilities
Commitments, contingencies and guarantees
Redeemable non controlling interests in partially mvned consolidated subsidiaries
AIG shareholders' equity:
Preferred Stock, Series E
Preferred Stock, Series F
Preferred Stock, Series C
Common stock
Additional paid-in capital
Unrealized appreciation (depreciation) of fixed maturity investments on which
other-than-temporary credit impainnents were taken, net of tax
Unrealized appreciation (depreciation) of all other investments, net of tax
Net derivative gains (losses) arising from Cash flow hedging activities, net of tax
Foreign currency translation adjustments, net of tax
Retirement plan liabilities adjustment, net of tax
Accumulated deficit
Treasury stock, at cost
Total AIG shareholders' equity
Noncontrolling interests
N oncontrolling nonvoting, callable, junior and senior preferred
interests held by Federal Reserve Bank of New York
Other
Total noncontrolling interests
Total eq uity
Total liabilities and equity
(See Accompanying Notes on Page 7)
28
Jt 40
l\100DY~S
~N'VcSTOf.tS
HRV;C!:
Credit Opinion: AflwfiGim hi0mdi0nd Group,
~m::,
New York, New York, United States
Ratings
Category
Rating Outlook
Senior Unsecured
Senior Unsecured MrN
LT Issuer Rating
Junior Subordinate
Moody's Rating
NEG
A3
A3
A3
Ba2
Rated Intercol11>3ny Pool Merrbers
Rating Outlook
Insurance Financial Strength
NEG
Aa3
American General Life Ins. Co of Delaware
Rating Outlook
Insurance Financial Strength
NEG
A1
American General Life Insurance C0l11>3ny
Rating Outlook
Insurance Financial Strength
NEG
A1
Contacts
Analyst
Bruce Balientine/New York
Laura Bazer/New York
Robert Riegel/New York
Phone
1.212.553.1653
Key Indicators
American International Group, Inc.[1]
Total Assets ($ Mil.)
AIG Shareholders' Equity ($ MI.)
Total Equity ($ MI.)
Total Revenue ($ Mil.)
Net Income (Loss) Attributable toAIG ($ Mil.)
Adjusted Financial Leverage [2]
Total Leverage, Incl. Guaranteed Amounts [2]
Earnings Coverage (1 yr.)
Cashflow Coverage (1 yr.)
1Q2010
2009
2008
2007
2006
$ 863,697
$ 75,001
$101,719
$16,330
$ 1,451
60.7%
$ 847,585
$ 69,824
$ 98,076
$ 96,004
$ (10,949)
61.3%
$ 860,418
$ 52,710
$ 60,805
$6,896
$ (99,289)
80.7%
$1,048,361
$ 95,801
$104,273
$103,632
$ 6,200
17.4%
$ 979,414
$ 101,677
$107,037
$106,926
$14,048
15.2%
72.5%
73.2%
88.6%
51.7%
46.4%
NM
NM
NM
NM
5.0x
8.4x
20.4x
9.1x
[1] Information based on consolidated GA/lP financial statements. [2] In calculating leverage, we treat the Series C preferreds and noncontrolling
interests as equity, and we treat the Series D, E & F preferreds as basket B hybrids, subject to Moody's cap on hybrid equity credit.
Opinion
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG - long-term issuer rating of A3, short-term issuer rating of Prime 1, negative outlook) is a leading
international insurance organization with operations in more than 130 countries and jurisdictions. AIG's core insurance operations consist of
global property & casualty (P&C) insurance branded as Chartis; U.S. life insurance and retirement services conducted by SunAmerica Financial
Group (SFG); and two Japanese life insurers, A1G Star Life Insurance Co., Ltd. (Star) and AIG Edison Life Insurance Company (Edison). A1G also
owns substantial noncore operations, including its Financial Services and Mortgage Guaranty units, as well as discontinued operations,
consisting of large international life insurers that are subject to sale agreements.
The current insurance financial strength ratings (IFSRs) of Chartis U.S. (Aa3, negative outlook) and SFG, (A1, negative outlook) incorporate one
notch of rating uplift versus their respective intrinsic credit profiles, based on existing and authorized support from the U.S. government. The
senior unsecured debt rating of AIG is notched downward from the IFSRs of its main operating units to reflect the parent's structural
subordination. The parent rating also incorporates further government support, which offsets the downward rating pressure from various
noncore businesses with weaker credit profiles. We believe that the government support will allow Chartis and SFG to further recover from the
29 of 40
disruptions of 2008, as A1G continues to unwind and exit its noncore businesses. The ratings are positioned at levels expected to be appropriate
for the group on a stand-alone basis when the restructuring is complete and the government concludes its ownership and support. The negative
rating outlook reflects the headwinds of a weak economy and soft commercial P&C market as well as the execution risk in AIG's restructuring
plan.
Moody's maintains credit ratings on several A1G operating units, whose credit profiles are summarized below under the headings of Core
Insurance Operations, Financial Services, Other Activities and Discontinued Operations. For more information on the rated businesses, please
see the respective operating company credit opinions via our website at www.moodys.com/insurance.
Credit Profile of Significant Subsidiaries
CORE INSURANCE OPERATIONS [Pretax income (loss): $1.4 billion in 102010, ($1.9 billion) in 102009]
CHARTIS: TheAa31FSRs (negative outlook) of eight U.S.-domiciled members of Chartis incorporate one notch of uplift versus the group's
intrinsic credit profile, given the government support. Chartis's intrinsic credit strengths include its strong market position in commercial and
specialty lines, its expertise in writing large and complex risks, and its broad business and geographic diversification. These strengths are offset
by the group's diminished premiums and profits over the past two years, the potential for adverse loss development and the exposure to natural
and man-made catastrophes. A majority of Chartis's business is in casualty lines, which heightens the risk and uncertainty surrounding the
estimation of loss reserves.
Moody's also maintains an IFSR of A1 (negative outlook) on Chartis Insurance UK Limited, one of the leading members of Chartis International.
This rating reflects the company's strong market position in the UK, its healthy profitability on managed business, and its generally conservative
investment strategy. Offsetting these strengths is the company's focus on commercial lines, which we view as inherently more volatile than
personal lines.
SFG: The A1 IFSRs (negative outlook) of 10 members of SFG are based on their strong (and sometimes leading) positions in a number of life
insurance, individual annuity and retirement product markets, despite the business disruptions and asset losses related to AIG over the past two
years. SFG remains the largest provider of 403(b) retirement plans sold to grade-school teachers, and it recently regained its ranking as the
market leader in bank-distributed fixed annuities. The group is also an important provider of individual life insurance and variable annuities - the
former, in particular, a business with solid earnings capacity. The SFG ratings incorporate one notch of uplift versus the group's intrinsic credit
profile, given the government support. The negative outlook reflects the challenges of rebuilding lost market share and stabilizing net cash
outflows. Moreover, the group is exposed to further losses on commercial mortgage loans and commercial mortgage-backed securities, albeit
this exposure is mitigated by strong regulatory capital levels and the availability of parental support if needed.
STAR & EDISON: A1G elected to retain Star and Edison in 402009 after a year-long attempt to sell them. The divestiture effort constrained
product development and new business sales, but these activities have picked up since AIG decided to retain ownership. Edison's A1 IFSR
(negative outlook) incorporates two notches of uplift versus its intrinsic credit profile, based on a general guarantee from American Home
Assurance Company (AHAC), one of the leading members of Chartis U.S. AHAC carries an IFSR of Aa3, but we believe that the guarantee in
favor of Edison ranks junior to AHAC's own policyholder obligations, resulting in the A1 IFSR at Edison. Edison's intrinsic strengths include its
diversified product mix and relatively loyal sales force, offset by its limited market presence and its declining business in force over the past few
quarters.
FINANCIAL SERVICES [Pretax (loss): ($439 million) in 102010, ($1.1 billion) in 102009]
ILFC: Moody's maintains a corporate family rating (CFR) of B1 (negative outlook) on International Lease Finance Corporation (ILFC), a major
owner-lessor of commercial aircraft. The rating reflects ILFC's fundamental credit strengths, such as its strong presence in the aircraft leasing
industry, modern aircraft fleet and history of solid earnings. The company's main credit challenge is its weak liquidity profile. ILFC has taken
steps to improve this profile in recent months by issuing secured and unsecured debt, extending the maturity date on most of its revolving credit
facility, and agreeing to sell a portfolio of aircraft. ILFC's CFR incorporates one notch of uplift based on parental support, although AIG has said
that it does not think it will be necessary to extend its support beyond February 2011. We believe thatAIG will seek to divest ILFC, partly or fully,
over the next few years, but that it will provide additional support, if needed, while it holds a controlling interest.
AGFC: American General Finance Corporation (AGFC), AIG's U.S. consumer finance business, carries a CFR of B2 (negative outlook). AGFC's
asset quality has deteriorated during the economic downturn but has compared favorably to that of other subprime mortgage lenders. AGFC's
earnings will likely remain weak through the next several quarters, based on high unemployment and continuing pressure on home values. We
expect thatAGFC will increasingly raise funds through asset sales, securitizations and secured borrowings to repay maturing debt. AGFC's CFR
reflects one notch of uplift based on parental support. AIG has said that it does not think it will be necessary to extend its support beyond
February 2011, and moreover, that it is exploring strategic alternatives for AGFC, including a potential sale of a majority interest. As with ILFC, we
believe that A1G will remain supportive while it holds a controlling interest, but the disclosures suggest that a divestiture of AGFC is more likely in
the near term.
AIGFP: A1G Financial Products Corp. (AIGFP) and its major subsidiaries have general and deal-specific guarantees from A1G covering all of their
borrowing and derivative activities, resulting in backed senior unsecured ratings of A3 (negative outlook). AIGFP has been unwinding its business
since the A1G credit crisis of 2008. The notional amount of its derivative portfolio has been reduced from $1.6 trillion at YE 2008 to $755 billion at
the end of 102010, while the number of outstanding trade positions has been reduced from about 35,000 to 14,300. AIGFP attempts to strike a
balance between reducing its exposures rapidly and limiting the costs and cash outflows related to the unwinding. The company also prioritizes
the unwinding of positions that are relatively volatile and/or difficult to hedge. The pace and costs of the unwinding depend on many factors,
including general market conditions, the behavior of counterparties and AIGFP's access to liquidity. We expect that the AIGFP risks will be
substantially reduced or eliminated over the next couple of years.
OTHER ACTIVITIES [Pretax (loss): ($294 million) in 102010, ($3.4 billion) in 102009]
AIG's other activities include Mortgage Guaranty, a Matched Investment Program, a subordinated interest in Maiden Lane III (an unaffiliated
special purpose vehicle that has assumed credit default swap exposures from AIGFP) and other noncore holdings. We expect thatAIG will exit
or unwind substantially all of these activities as part of its restructuring.
UGRIC: Moody's maintains an A3 IFSR (negative outlook) on United Guaranty Residential Insurance Company (UGRIC), the lead member of
AIG's Mortgage Guaranty unit. The same rating applies to a subsidiary of UGRIC that carries an UGRIC guaranty. The IFSR incorporates three
30 of 40
notches of uplift versus UGRIC's intrinsic credit profile, based on a net worth maintenance agreement from AlG. UGRIC's intrinsic credit profile
reflects the heightened level of mortgage delinquencies and uncertainty surrounding the future structure of the mortgage market, including the
future roles of Fannie Mae and Freddie Mac. These risks are tempered by a reinsurance agreement with an affiliate which stabilizes UGRIC's
loss ratio on business written prior to 2009, and by favorable terms on the limited volume of new business available in the market.
DISCONTINUED OPERATIONS [Pretax income: $1.0 billion in 102010, $149 million in 10 2009]
Discontinued operations consist of three international life insurers: AlA Group Limited (AlA), a leading pan-Asian insurer; American Life Insurance
Company (ALICO), a multi-national insurer with a significant presence in Japan; and Nan Shan Life Insurance Company, Ltd. (Nan Shan), which
operates in Taiwan. These operations are subject to sale agreements totaling approximately $53 billion, with transactions expected to close by
YE 2010. Collectively, the businesses are performing well and have good growth prospects. Still, these are large, cross-border divestitures
involving significant execution risk.
AlA: AlA is one of the largest life insurance groups in Asia with businesses spanning 15 markets. Moody's has assigned an IFSR of Aa3 (negative
outlook) to American International Assurance Company (Bermuda) Limited (AlAB) , which represents about 40% of AlA's assets and which
operates mostly in Hong Kong and Korea. AlAB's rating reflects its leading market positions in several countries, improved operating
performance, sound balance sheet and efficient agency force. Offsetting these strengths is the competition for agents and customers, as well
as the challenge of broadening distribution, particularly in bancassurance. In March 2010, AIG agreed to sell AlA to Prudential pic for
approximately US$35.5 billion. The transaction is subject to approval by Prudential shareholders, regulatory approvals and customary closing
conditions. We expect that the merger will ultimately provide AlA with a strong, complementary business platform, but the deal carries significant
execution risk.
ALICO: The A1 IFSR (stable outlook) of ALICO is based on the company's good position in the Japanese life insurance market as well as its
important (and often leading) market positions in some 50 other markets around the globe. Captive distribution channels and consistent
operating performance are also credit strengths. Sales have improved somewhat and surrender activity has stabilized in recent quarters,
following disruptions related to theAIG credit crisis of 2008. In March 2010, AlG agreed to sell ALICO to MetLife, Inc. for approximately US$15.5
billion. The transaction is subject to certain U.S. and international regulatory approvals and customary closing conditions. The planned sale
resolves the ownership question and enhances growth prospects for ALICO. Mitigating these strengths are the risks involved with separating
ALICO from AlG and integrating its global operations into those of MetLife. ALICO is also exposed to additional impairments on various asset
types, including commercial mortgage loans, commercial and residential mortgage-backed securities and sovereign securities.
Credit Strengths
Credit strengths/opportunities of the group include:
- Leading market positions in various business lines and geographic areas
- Historically strong earnings and cash flows of insurance operations
- Expected government support throughout the restructuring
Credit Challenges
Credit challenges/risks include:
- Weak global economy and soft commercial P&C market facing core insurance operations
- Execution risk surrounding planned divestitures of AlA, ALICO and Nan Shan
- Need to divest or unwind other noncore businesses that face adverse market conditions (particularly businesses tied to the housing market
and/or heavily dependent on wholesale funding)
- Uncertainty regarding timing and terms of government exit
Rating Outlook
The negative rating outlook reflects the headwinds of a weak economy and soft commercial P&C market as well as the execution risk in AIG's
restructuring plan.
What Could Change the Rating - Up
Factors that could lead to a stable rating outlook include:
- Improvement in the intrinsic credit profiles of Chartis and SFG
- Disposition of noncore businesses
- Transition toward a stand-alone capital structure that is consistent with current ratings (e.g., adjusted financial leverage in the range of 20%30% with pretax interest coverage in mid-to-high single digits)
- Government support throughout the restructuring
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
- Another downturn in the market position or operating performance of Chartis or SFG
- Material delays in divesting or unwinding noncore businesses
31 of 40
- Transition toward a stand-alone capital structure that is indicative of lower ratings (e.g., adjusted financial leverage exceeding 30% with pretax
interest coverage in mid-single digits or lower)
- A reduction or withdrawal of government support before the restructuring is complete
Recent Results
AIG continued to stabilize its core insurance operations during 102010, while taking further steps to divest or unwind its noncore businesses.
Net income attributable toAIG improved to $1.5 billion in 102010 from a net loss of $4.4 billion in 102009, based on stronger operating results
in overall core and noncore businesses as well as lower realized capital losses in 10 2010. Shareholders' equity attributable toAIG was $75.0
billion as of IV1arch 31,2010.
Capital Structure and Liquidity
AIG's main sources offinancial flexibility are the support arrangements provided by the Federal Reserve Bank of New York (FRBNY) and the U.S.
Treasury. AIG increased its borrowing under the FRBNYs revolving credit facility (excluding accrued interest and fees) from $17.9 billion at YE
2009 to $21.6 billion at the end of 102010. Proceeds were used mainly to repay commercial paper borrowings under the FRBNYs Commercial
Paper Funding Facility, which has been terminated. Drawdowns under the Treasury's Series F preferred stock commitment increased from $5.3
billion at YE 2009 to $7.5 billion at the end of 102010. Proceeds were used mainly to fund AIG's purchase of securities of certain non-P&C
affiliates from Chartis. AIG's remaining availability under these facilities at the end of 10 2010 totaled $34.8 billion ($12.5 billion under the FRBNY
revolver, which matures in September 2013, plus $22.3 billion under the Series F preferred stock commitment, which expires in April 2014). We
believe that these facilities provide sufficient flexibility to cover any incremental costs of A1G's restructuring.
1Ii'o0dy's expects that the government ownership and support of AIG will remain in place until the group can improve the performance of core
operations, substantially exit the noncore businesses, and achieve a stand-alone capital structure that is consistent with the current ratings. We
believe that this approach would allow the Treasury to maximize its recoveries on the Series E and Series F preferred interests, most likely
through a conversion to common stock to be sold through one or more public offerings. We therefore regard AIG's financial flexibility as
consistent with a company rated in the Arange rather than the (unadjusted) Baa level indicated by the IFS rating scorecard. My shortfall in the
government support relative to these expectations could lead to rating downgrades atAIG and its core operating units.
SUBORDINATED DEBT 1Ii'o0dy's has assigned Ba2 ratings to the junior subordinated debentures of AIG and the trust preferred securities
backed by junior subordinated debentures of AIG Life Holdings (US), Inc. (AIGLH). The trust preferred securities are guaranteed on a conditional
basis by AIG. All of these instruments pay cumulative coupons that are subject to optional deferral. The Ba2 ratings, five notches below A1G's
long-term issuer rating, are intended to signal the potential for a coupon deferral or discounted exchange in the event of another market
downturn. In the current environment, we see little incentive for AIG to defer coupons given that (i) the firm has ample liquidity through the
government funding facilities, and (ii) the coupons are cumulative. We believe that the trust preferred stock backed by AIGLH would have
advantages over the junior subordinated debentures of A1G in a liquidation. First, A1GLH, as the direct or indirect parent of various SFG
companies, is structurally senior to AIG; and second, the trust preferred securities carry the conditional guarantees from A1G. Nevertheless, we
currently rate the trust preferred securities the same as A1G's junior subordinated debentures based mainly on the coupon deferral provisions.
IviOODYS
INVr$TO~£
SmVICE
© Copyright 2010, 1Ii'o0dy's Investors Service, Inc. and/or its licensors including 1Ii'o0dy's Assurance Company, Inc.
(together, "MOODYS"). All rights reserved.
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S ("MIS") CURRENT OPINIONS OF THE
RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. MIS DEFINES CREDIT RISK~ THE RISK THAT AlII ENTITY MAY NOT MEET ITS
CONTRACTUAL, FINAillCIAL OBLIGATIONS ~ THEY COME DUE AIIID AIIIY ESTIMATED FINAillCIAL LOSS
IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESSAillY OTHER RISK, INCLUDING BUT
NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE
NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE
INVESTMENT OR FINAillCIAL ADVICE, AIIID CREDIT RATINGS ARE NOT RECOMMENDATIONS TO
PURCH~E, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE
SUITABILITY OF AlII INVESTMENT FORAillY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS
WITH THE EXPECTATION AIIID UNDERSTAillDING THAT EACH INVESTOR WILL MAKE ITS OWII STUDY
AIIID EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCH~E, HOLDING, OR
SALE.
32 of 40
Frequently Asked Questions on AIG
ISSUER COMMENT
FollOWIng IS a lIst ofquestIOns on AlG that we .frequently hear.from Investors, along wIth our responses.
(Please see AppendIX I for a key to abbreVIatIOns used In thzs report.)
TabLe of Contents:
RATING RATIONALE AND DRIVERS
2
CORE AND NON-CORE BUSINESSES
CURRENT AND EXPECTED CAPITAL
STRUCTURE
3
CONTINUING GOVERNMENT
SUPPORT
4
PRIORITY OF CLAIMS
5
APPENDIX I: KEY TO ABBREVIATIONS
MOODY'S RELATED RESEARCH
7
QI: What is the rating rationale for AIG's core operations and parent company?
7
AnaLyst Contacts:
NEWYORK
1.212.553.1653
Bruce BaLLentine
212 553 7212
Vice Presldent-SentorCredlt Officer
Bruce Ballentme@moodys com
Laura Bazer
212 553 7919
Vice Presldent-SentorCredlt Officer
Laura Bazer@moodys com
Robert Riegel
Team Managmg Director
Rating Rationale and Drivers
2125534663
AI: The current insurance financial strength ratings (IFSRs) of Chartis US (Aa3) and
SunAmerica Financial Group, (SFG - AI) incorporate one notch of rating uplift
versus their respective intrinsic credit profiles, based on the existing and authorized
government support. The senior unsecured debt rating of American International
Group, Inc. (AIG - A3) is notched downward from the IFSRs of its main operating
units to reflect the parent's structural subordination. The parent rating also
incorporates further government support, which offsets the downward rating
pressure from various non-core businesses with weaker credit profiles. We believe
that the government support will allow Chart is and SFG to more fully recover from
the disruptions of 2008, as AIG continues to unwind and exit its non-core
businesses. The ratings are positioned at levels expected to be appropriate for the
group on a stand-alone basis when the restructuring is complete and the
government concludes its ownership and support. The negative rating outlook
reflects the headwinds of a weak economy and soft P&C market as well as the
execution risk in AIG's restructuring plan.
Robert Rlegel@moodys com
Q2: What factors could lead to a change in AIG's rating or outlook?
A2: Factors that could lead to a stable rating outlook for AIG include (i) improvement
in the intrinsic credit profiles of Chartis and SFG, (ii) disposition of substantially all
non-core businesses, and (iii) government ownership and support until these
objectives are achieved. A shortfall on any of these items could lead to a downgrade
of AIG's ratings.
Q3:
What would be the repercussions of an AIG rating downgrade?
A3:
The direct contractual impact of an AIG rating downgrade has declined significantly over the
past year. For example, AIG estimates that as of February 17, 2010, one-notch downgrades of
its senior unsecured debt rating to Baal by Moody's and BBB+ by Standard & Poor's could
prompt an additional $1.8 billion of collateral postings and termination payments on AIC's
outstanding derivative transactions (mainly at AIGFP). This compares to a prior-year estimate
(as of February 18, 2009) of an additional $8 billion of collateral postings and termination
payments in the event of similar one-notch downgrades. AIG cites other potential
repercussions of rating downgrades, such as a diminished ability to sell certain insurance
products if the IFSRs of its insurance subsidiaries were downgraded.
Core and Non-core Businesses
2
MARCH 2010
Q4:
Which businesses does AIG plan to keep and which ones does it plan to exit?
A4:
As we understand AIG's plans, the core businesses to be retained include global P&C insurance
(Chartis), US life insurance and retirement services (SFG) and two Japanese life insurers (AIG
Edison Life Insurance Company and AIG Star Life Insurance Co., Ltd.). AIG recently
announced agreements to sell its major international life insurance businesses (AIA and
ALICO). The company is steadily unwinding its capital markets unit (AIGFP), and it is
pursuing a range of funding solutions for its aircraft leasing (ILFC) and consumer finance
(AGFC) units. Over time, we expect AIG to unwind or divest substantially all of its non-core
businesses.
Q5:
How are AIG's core businesses performing?
A5:
The core businesses have generally stabilized since AIG's credit crisis in 2008. At the time of
the crisis, all of these businesses experienced higher client surrenders and non-renewals, lower
new business volumes and an erosion of market share. Some business lines saw their premium
volumes shrink by 20% or more versus pre-crisis levels. Gradually, the government
intervention has given greater confidence to AIC's clients, distributors and employees, leading
to more favorable client retentions and new business volumes in recent quarters.
Q6:
What are your views on profitability and reserve adequacy at Chartis?
A6:
Profitability at Chartis will likely remain below historic levels for the foreseeable future based
on business attrition following the AIG credit crisis and the persistent soft market for
commercial P&C insurance. Moreover, given its propensity to write large and complex risks,
we believe that Chartis is more prone to adverse loss development than are similarly rated
peers, as evidenced by the 4Q 2009 reserve charge. On the other hand, Chartis has extensive
product offerings and a geographic scope that few competitors can match. We expect the
company to maintain a strong market presence among large accounts in the US and abroad
and to benefit from even a moderate economic recovery.
34 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
Q7:
What are your views on sales versus surrenders at SFG?
A7:
Net sales of retirement-type products are still somewhat of a challenge for SFG. While
surrender levels have generally stabilized in the past two quarters, and sales have improved particularly of bank-sold fixed annuities - gross cash outflows are still outpacing gross inflows.
The recent loss of some pension business at VALlC also contributed to this. We will monitor
the group's ability to reverse this trend in the coming quarters.
Q8:
What are AIG's plans for non-core businesses and how do these businesses affect the overall
credit profile?
A8:
Our understanding is that AIG is pursuing customized exit plans for each of its non-core
businesses, such as the planned sales of AIA and ALlCO, the continued unwinding of AlGFP,
new funding solutions for lLFC and AGFC, and the managed run-off of the MlP. Over time, we
expect AlG to unwind or divest substantially all of its non-core businesses. To the extent that the
company retains businesses with intrinsic credit profiles that are materially weaker than those of
the core insurance operations, that could place downward pressure on the group's ratings.
Current and Expected Capital Structure
Q9:
What are AIG's total debts and how will they be repaid?
A9:
AlC's total debt as ofYE 2009 amounted to $141.5 billion. The major components (and
Moody's expectations for repayment) were: (i) $91.9 billion of operating debt (to be repaid
largely or fully through proceeds from the related asset portfolios, mainly at AIGFP, lLFC,
AGFC and the MlP, with any shortfalls to be funded by the parent); (ii) $23.4 billion due to the
FRBNY under its senior secured revolving credit facility (to be repaid largely or fully through
proceeds from divestitures, most importantly the sales of AIA and ALlCO); (iii) $8.3 billion of
senior unsecured financial debt, including liabilities connected to trust preferred stock (most or all
likely to remain outstanding beyond the restructuring); (iv) $12.0 billion of junior subordinated
debt (most or all likely to remain outstanding beyond the restructuring); and (v) $5.9 billion of
mandatorily convertible units (likely to be converted to common equity in 2011).
Q10 What will AIG's capital structure look like at the end of the restructuring?
AIO: We expect that the restructuring efforts will continue until AlG can achieve a stand-alone
capital structure that is consistent with current ratings on the core operations and the parent
company (e.g., a debt-to-capital ratio in the range of20%-30% and pretax interest coverage at
mid-to-high single digits). We believe that this approach would generate the greatest value for
the enterprise and, therefore, the greatest recovery for the Treasury on its Series E and Series F
preferred interests.
Q11: When will AIG tap the capital markets?
All: AlG continuously tests the market appetite for various types offunding, which has led to a series
of securitizations for AGFC and recent secured term loans and senior unsecured notes issued by
lLFC. As the restructuring continues, we expect that AlG will look for other opportunities to
raise funds in the capital markets as an alternative to the funding available under the FRBNY's
senior secured credit facility and the Treasury's Series F preferred commitment.
3
MARCH 2010
35 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
Continuing Government Support
Q12: The government rescued AIG in September 2008 to avoid systemic risk. Such risk has been
sharply reduced or eliminated. Why does Moody's expect the government to continue
supporting AIG?
A12: To the extent that systemic risk has been reduced, we believe that the government's most
compelling motivation for continued support is to protect/enhance the values of its debt and
equity interests in AlG and affiliates. We expect that the sales of AlA and ALICO will generate
sufficient proceeds to repay the FRBNY's preferred interests in AlA and ALICO as well as most
or all of AlG's borrowings under the FRBNY's senior secured credit facility. Once the FRBNY
is fully repaid, the most likely repayment mechanism for the Treasury, in our view, would be to
convert its Series E and Series F preferred interests to common stock to be sold through one or
more public offerings. We believe that such sales would generate the greatest value for the
Treasury if AlG's core insurance operations were performing well and the non-core businesses
were either divested or no longer material to AlG's risk profile.
Q13: Will AIG require additional support from the government to complete its restructuring?
A13: From a credit perspective, we do not expect the company to need additional support beyond
the amounts already committed. We believe that any incremental costs of the restructuring can
be funded through the remaining availability under the FRBNY's revolving credit facility and
the Treasury's Series F preferred commitment. These are five-year commitments maturing in
September 2013 and April 2014, respectively, with unused availability totaling $41.6 billion as
ofYE 2009.
Q14: How long will the restructuring take?
A14: The timing is difficult to predict but it could take another 12-36 months to enhance the
performance of AlG's core businesses and exit the non-core businesses. To the extent that the
Treasury attempts to sell its Series E and Series F preferred interests before the restructuring is
substantially completed, we believe that the value of its stake would be diminished.
Q15: How much assistance has the US government provided to AIG and how will it be repaid?
A15: The government's total authorized assistance to AlG as ofYE 2009 amounts to $182.3 billion
(excluding accrued interest and fees and borrowings under the Fed's CPFF). This total includes
amounts funded or available to AlG, to subsidiaries of AlG or to unaffiliated SPVs that have
assumed certain exposures from AlG. The major components (and Moody's expectations for
repayment) are: (i) $25.0 billion of preferred interests held by the FRBNY in AlA and ALICO
(first in line to be repaid through proceeds from the AlA and ALICO sales); (ii) a $35.0 billion
senior secured revolving credit facility provided by the FRBNY to AlG (outstanding balance of
$23.4 billion, to be repaid largely or fully through proceeds from divestitures, most
importantly the sales of AlA and ALICO); (iii) a $40.0 billion investment by the Treasury in
AlG Series E preferred stock (likely to be converted to common equity and sold through public
offerings); (iv) a commitment by the Treasury to fund up to $29.8 billion of AlG Series F
preferred stock (outstanding balance of $5.2 billion, likely to be converted to common equity
and sold through public offerings); and (v) $52.5 billion ofloan authorization from the
FRBNY for Maiden Lane II and Maiden Lane III, two unaffiliated SPVs (outstanding balance
of $34.5 billion, to be repaid to the extent of proceeds from the related asset portfolios).
4
MARCH 2010
36 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
Q16: How do you view the potential gains to the FRBNY and AIG from Maiden Lane II and III?
A16: Maiden Lane II and III were funded mainly by senior loans from the FRBNY and to a lesser
extent by subordinated funding from AIG. The two SPVs paid approximately half of par value
to acquire their respective asset portfolios. To the extent that the ultimate proceeds from these
assets exceed the funding provided by the FRBNY and AIG, such excess proceeds would be
shared by the FRBNY and AIG (five-sixths to the FRBNY and one-sixth to AIG for Maiden
Lane II; two-thirds to the FRBNY and one-third to AIG for Maiden Lane III). We believe that
any potential gains to the FRBNY could offset a like amount of potential losses to the US
Treasury on its Series E and Series F preferred interests in AIG. Any potential gains to AIG
from Maiden Lane II and III would boost the company's equity base.
Priority of CLaims
Q17: Does Moody's expect AIG and the government to try to impose losses on AIG's
subordinated debt holders, perhaps through the deferral of coupons and! or through a
discounted exchange?
A17: We see little incentive for AIG to defer coupons given that (i) the firm has significant liquidity
through the government funding facilities, and (ii) all of its subordinated debts have
cumulative interest obligations. Moreover, a discounted exchange or repurchase, even if
voluntary for investors, could be interpreted by some market participants as a sign of distress.
This would be contrary to the theme of stability conveyed by the government support to date.
Nevertheless, we have assigned a rating ofBa2 to the subordinated debt (five notches below the
senior unsecured debt) to signal the potential for a coupon deferral or discounted exchange in
the event of another market downturn.
Q18: What protection do creditors derive from the 30% ownership provision in AIG's Series E
and Series F preferred agreements?
A18: The Series E and Series F preferred interests are non-cumulative perpetual securities on which
no dividends have been paid. Agreements for both instruments include a provision saying, in
effect, that the securities may not be redeemed if the Treasury (or any successor entity) owns
more than a 30% voting interest in AIG or if any holder of the securities has a controlling
interest in AIG. Given that the Treasury beneficially owns nearly 80% of the voting interest in
AIG, this provision suggests that AIG would need to attract much broader ownership (e.g., by
issuing common equity) before redeeming the preferred interests. However, we regard this
protection as limited by the lack of enforcement rights on the part of creditors, and by the
possibility that AIG and the Treasury could waive or amend the provision. Nevertheless, we
expect that the Treasury will seek to maximize its recovery on the preferred interests by helping
AIG to complete its restructuring, followed by a recapitalization of the remaining core
businesses (most likely through conversion of the preferred interests to common stock to be
sold through one or more public offerings).
MARCH 2010
37 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
Q19: What protection do creditors derive from the replacement capital covenant (RCC) in the
Series E preferred agreement?
A19: The Series E (but not the Series F) preferred agreement includes an RCC that limits AIG's
ability to redeem the securities prior to April I?, 2012. In effect, the RCC says that that any
such redemption would need to be funded through the issuance of similarly junior securities
(or predominantly through the issuance of common stock). The RCC grants enforcement
rights to a representative group of senior unsecured bondholders (holders of AIG's 6.25% notes
due 2036). This creditor protection is limited, however, by the scheduled expiration of the
RCC in April 2012.
Q20: Does Moody's expect that US financial reforms, if enacted, would lead to a re-ranking of
AIG's capital structure, with the Treasury's preferred equity interests gaining priority over
creditors?
A20: The financial reform bill being considered by the US Senate and the reform bill already passed
by the US House of Representatives include resolution provisions for failing systemically
significant financial institutions that seek to impose losses on shareholders and unsecured
creditors, rather than taxpayers. It remains uncertain which of these provisions, if any, will
become law, or whether such provisions would be applied to AIG. Each bill seems to recognize
the ordinary priority of claims (e.g., with losses borne first by equity holders, then subordinated
creditors, then senior unsecured creditors). At the same time, each bill would rank any
amounts owed to the US government among the highest-priority claims. It is unclear at this
point whether or not the favored ranking of amounts owed to the government would apply to
preferred equity interests held by the Treasury. To the extent that the pending reforms become
law, with provisions that could lift the Treasury's preferred interests ahead of AIG's creditors,
there could be significant downward pressure on AIG's ratings. A more likely scenario, in our
view, would be for the Treasury to promote stability in AIG's capital structure and further
recovery of the core insurance operations, thereby enhancing the value of the firm and of the
Treasury's preferred stake. Any further disruption to AIG's ownership structure or strategic
direction could erode its overall value, negating some of the Treasury's potential benefit from
stepping ahead of creditors.
6
MARCH 2010
38 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
Appendix I: Key to Abbreviations
AGFC
American General Finance Corporation
AlA
AlA Group Limited
AIG
American Intemational Group, Inc.
AIGFP
AIG Financial Products Corp.
ALiCO
American Life Insurance Company
CPFF
Commercial Paper Funding Facility
IFSR
Insurance Financial Strength Rating
ILFC
International Lease Finance Corporation
FRBNY
Federal Reserve Bank of New York
MIP
Matched Investment Program
P&C
Property & Casualty
RCC
Replacement Capital Covenant
SFG
SunAmerica Financial Group
SPV
Special Purpose Vehicle
VALIC
The Variable Annuity Life Insurance Company
Moody's Related Research
Company Research
»
AIG Edison Life Insurance Company
»
AIG Funding, Inc.
»
American General Finance Corporation
»
Chartis Insurance UK Limited
»
International Lease Finance Corporation
»
SunAmerica Financial Group
Rating Methodologies:
»
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»
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To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of
this report and that more recent reports may be available. All research may not be available to all clients.
7
MARCH 2010
39 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
Report Number: 123923
Author
Bruce Ballentine
Senior Production Associates
Cassina Brooks
Shubhra Bhatnagar
© 2010 Moody's Investors Service, Inc. andlor its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC'S ("MIS") CURRENT OPINIONS OF THE RELATIVE FUTURE
CREDIT RISK OF ENlillES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES. MIS DEFINES CREDIT RISK AS THE
RISK THAT AN ENTllY MAY NOT MEET ITS CONTRAClUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY
ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK,
INCLUDING BUT NOT LIMITED TO: lIQUIDllY RISK, MARKET VALUE RISK, OR PRICE VOlATILIlY. CREDIT RATINGS ARE
NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE INVESTMENT OR
FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO PURCHASE, SElL, OR HOlD PARTICULAR
SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR
INVESTOR. MIS ISSUES ITS CREDIT RATINGS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR
WILL MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURllY THAT IS UNDER CONSIDERATION FOR PURCHASE,
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8
MARCH 2010
40 of 40
ISSUER COMMENT: FREQUENTLY ASKED QUESTIONS ON AIG
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Rationale for parent recommendation
• AIG has reported approximately $38 bin of after-tax realized and unrealized losses and unrealized
investment depreciation, mainly related to the US residential mortgage market, over the past nine months
(pg 2).
• AIGFP's collateral requirements, mainly on super-senior COS, have grown from $9.7 bin on April 30 to
about $16 bin on July 31, 2008. The requirements could grow significantly in the event of further market
value declines and/or rating agency downgrades.
• The RMBS portfolio is held mainly by the OLiRS companies. Realized capital losses (OTTI) on this
portfolio have caused the combined RBC of OLiRS to fall from 292% on March 31 to around 240% on
June 30, 2008. As of June 30, it would take a capital infusion of about $6.5 billion to restore a combined
RBC of 350%, which AIG has committed to do by YE 2008. Further aging of RMBS in the AOCI account
at today's market prices would raise this funding requirement to about $9 bin by YE 2008.
economic losses on CDS and RMBS remain conside
smaller than the MTM amounts.
• E
•
•
•
•
Based on severe stress-case scenarios, AIG estimates that economic losses could be about $4 bin on
the CDS portfolio and in the range of $3-8 bin on the RMBS portfolio. Moody's modelling efforts indicate
smaller levels of expected and stress-case losses - near zero on the CDS and perhaps up to $4 bin on
the RMBS. (pg 26).
AIG raised approximately $20 bin of capital (common equity and Basket D hybrids) during May 2008 (pg
2), almost half of which has been allocated to AIGFP.
To enhance its overall liquidity, AIG has increased its consolidated cash and ST investments from $29 bin
at YE 2006 to $82 bin as of June 30, 2008. The company generated yearly cash from operations
averaging $22 bin over the past three years.
AIG remains one of the world's largest and most diversified financial services firms, with leading market
positions in many business lines and geographic regions (pgs 5-7).
AIG's management team has expressed a willingness to take any steps necessary - including raising
additional capital and cutting the dividend - to meet our capital expectations for DLiRS and the group.
AIG CDS & Investment Related Losses/Writedowns
After-tax amounts ($ bins)
AIGFP super-senior CDS
Unrealized market valuation losses
AIG investments
Realized capital losses
Unrealized depreciation during quarter
Total investment losses/writedowns
Total CDS & investment losses/writedowns
Net loss
AIG Consolidated Equity ($ bins)
Shareholders' equity
Change in equity vs 9/30/2007 ($)
Change in equity vs 9/30/2007 (%)
AIG Capital Raised in May 2008 ($ bins)
Common equity
Mandatory convertibles (Basket 0)
Junior subord debs (Basket 0)
Junior subord debs (Basket 0) - EUR 750 min
Junior subord debs (Basket 0) - GBP 900 min
Total
402007
102008
202008
Totals
-7.2
-5.9
-3.6
-16.8
-1.7
-2.5
-4.3
-3.4
-6.9
-10.3
-4.0
-2.6
-6.6
-9.1
-12.1
-21.2
-11.5
-16.2
-10.2
-37.9
-5.3
-7.8
-5.4
-18.5
9/30/2007
104.1
12/31/2007
95.8
313112008
79.7
6/30/2008
78.1
-26.0
-25.0%
Net Proceeds
7.475
5.880
4.000
1.160
1.750
20.265
Orders
10
20
2 of 50
Current & Recommended Ratings on AIG Subsidiaries
Rating Type
Explicitly supported ratings
AIG Capital Trusts I & II
Bkd Tr Prfrd Shelf
AIG Financial Products Corp. & subsidiaries
Bkd LT Issuer
AIG Life Holdings (US), Inc.
Bkd Sr Debt
AIG Program Funding, Inc.
Bkd Sr Debt
AIG Retirement Services, Inc.
Bkd Sr Debt
American General capital securities
Bkd Tr Prfrd Stock
Additional recommendations
AIG Capital Corporation
LT Issuer
AIG Domestic Life Insurance & Retirement Services (10)
IFS
AIG Edison Life Insurance Company
IFS
AIG General Insurance (Taiwan) Co., Ltd.
IFS
Sr Unsec Debt
American General Finance Corporation
American Life Insurance Company
IFS
International Lease Finance Corporation
Sr Unsec Debt
Transatlantic Holdings, Inc.
Sr Unsec Debt
United Guaranty subsidiaries UGRIC of NC & UGCIC
IFS
Affirm
AIG Commercial Insurance Group (8)
IFS
AIG UK Limited
IFS
American International Assurance Company (Bermuda) Limited
IFS
Transatlantic Reinsurance Company
IFS
United Guaranty subsidiaries UGRIC & UGMIC
IFS
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC, SunAmerica (3)
(Bkd) ST
Support
AIG
AIG
AIG
AIG
AIG
AIG
SA
Public Current
Rec
Rec
Rating Rating Outlook Rating Outlook
G'tee
G'tee
G'tee
G'tee
G'tee
G'tee
AIG Agmt
AIG Agmt
AIG Agmt
AIG Agmt
(P)A1
Aa3
Aa3
(P)Aa3
Aa3
A1
Aa2
Aa3
A3
A2
Aa2
A3
A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Negative (P)A1
Negative
Aa3
Negative
Aa3
Negative (P)Aa3
Negative
Aa3
Negative
A1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
A2
Aa2
Aa2
A1
A1
Aa2
A1
A2
Aa3
Negative
Stable
Stable
Negative
Negative
Stable
Negative
Stable
Negative
A2
Aa2
Aa2
A1
A1
Aa2
R-Dn
R-Dn
Negative
R-Dn
R-Dn
Negative
A2
A1
R-Dn
R-Dn
Aa3
Aa3
Aa3
Aa3
Aa3
P-1
Stable
Stable
Stable
Stable
Negative
Stable
Aa3
Aa3
Aa3
Aa3
Aa3
P-1
Stable
Stable
Stable
Stable
Negative
Stable
Rationale for subsidiary recommendations
• Explicitly supported ratings should move with parent.
• AIG Capital is notched off of AGF and ILFC, both of which receive rating uplift from AIG.
• AIG DLiRS holds the bulk of the RMBS portfolio and needs a significant capital boost by YE 2008 to meet
our RBC expectations.
• ALiCO may be called upon to pay extraordinary dividends to the parent if market conditions deteriorate
further.
• AIG Edison depends on ALiCO for rating uplift.
• AIGGI Taiwan depends on AIG for rating uplift.
• TRH depends on AIG for rating uplift.
• United Guaranty subsidiaries UGRIC of NC and UGCIC depend on AIG for rating uplift.
3 of 50
Contents
AIG Business Mix
5
AIG Financial Highlights
6
AIG Segment Detail
7
AIG Composite Scorecard
8
Peer Comparisons
9-12
Press Release of May 22,2008
13-16
Credit Opinion (published June 14, 2008)
17-22
Q-tools
23
Stock Chart
24
Rating History
24
Organizational Structure with Rated Entities
25
Summary of Modeled Losses
26
AIG Financial Leverage and Fixed-Charge Coverage
27-28
AIG Domestic Life & Retirement Services Scorecard
29
AIG Financial Statements
30-41
AIG Financial Update
42-45
AIG Liquidity Review
46-50
4 of 50
American International Group, Inc.
Revenues and Income Graphs
Twelve Months Ended December 31,2007
Revenues
Asset Management
5.8%
Foreign Life
Insurance &
Retirement Services
33.8%
Domestic General
Insurance
33.5%
Financial Services
revenues were (0.6%)
Domestic Life
Insurance &
Retirement Services
15.4%
Foreign General
Insurance
12.1%
Income Before Income Taxes and Minority Interest
Foreign Life
Insurance &
Retirement
Services
44.3%
Asset Management
15.0%
Domestic General
Insurance
51.9%
Domestic Life
Insurance &
Retirement
Services
29.2%
Foreign General
Insurance
21.9%
Financial Services
operating loss was
(62.3)%
Note: The effects of net realized capital gains (losses) and Capital Markets other-than-temporary impairments,
F AS 133, other and consolidation and elimination adjustments are excluded.
5 of 50
4
AIG Financial Highlights (from Company Profile)
($ Mil.)
General Insurance
Gross Premiums Written
Net Premiums Written
Net Investment Income
Pretax Operating Income
Loss Ratio (%)
Expense Ratio (%)
Combined Ratio (%)
Life Insurance & Retirement Services
GAAP Premiums
Net Investment Income
Pretax Operating Income
Financial Services
Revenues
Pretax Operating Income
Asset Management
Revenues
Pretax Operating Income
AIG Consolidated
Total Revenues
Pretax Operating Income
Net Income
Total Assets
Total Debt
Shareholders' Equity
2007
2006
2005
2004
2003
2002
58,798
47,067
6,132
10,526
65.6%
24.7%
89.7%
56,280
44,866
5,696
10,412
64.6%
24.5%
89.1%
52,725
41,872
4,031
2,315
81.1%
23.6%
104.7%
52,046
40,623
3,196
3,177
78.8%
21.5%
100.3%
46,938
35,031
2,566
4,502
73.1%
19.6%
92.7%
36,678
26,718
2,350
923
83.1%
21.8%
104.9%
30,627
22,341
8,186
30,766
20,024
10,121
29,400
18,134
8,965
28,088
15,269
7,968
23,496
12,942
6,970
20,694
11,243
5,258
-1,309
-9,515
7,777
383
10,525
4,424
7,495
2,131
6,242
1,302
6,822
2,125
5,625
1,164
4,543
1,538
5,325
1,963
4,714
1,947
3,651
521
3,467
1,125
110,064
8,943
6,200
1,060,505
176,049
95,801
113,194
21,687
14,048
979,414
148,679
101,677
108,905
15,213
10,477
853,051
109,849
86,317
97,666
14,845
9,839
801,007
96,899
79,673
79,421
11,907
8,108
675,602
80,349
69,230
66,171
7,808
5,729
561,131
71,010
58,303
6 of 50
AIG Segment Detail (from Company Profile)
2007
2006
2005
2004
51,708
53,570
-1,309
5,625
470
110,064
49,206
50,878
7,777
4,543
983
113,387
45,174
48,020
10,677
4,582
328
108,781
41,961
43,402
7,495
4,714
94
97,666
7,305
661
67
-637
7,396
3,137
-7
10,526
5,845
589
432
328
7,194
3,228
-10
10,412
-820
-39
195
363
-301
2,601
15
2,315
777
282
357
399
1,815
1,344
18
3,177
642
1,347
1,989
3,044
3,153
6,197
8,186
917
2,323
3,240
3,821
3,060
6,881
10,121
1,495
2,164
3,659
3,020
2,286
5,306
8,965
1,023
2,054
3,077
2,393
2,455
4,848
7,925
Total Financial Services
-9,515
578
-873
668
10
383
769
2,661
922
Other
873
-10,557
171
-2
4,424
642
662
786
90
2,180
784
469
1,164
732
438
368
1,538
1,194
387
382
1,963
1,328
515
282
2,125
Other IEliminations
-1,418
-767
-2,454
-562
Consolidated Pretax Operating Income
8,943
21,687
15,213
14,845
($Mil.)
Revenues
General Insurance
Life Insurance & Retirement Services
Financial Services
Asset Management
Other IEliminations
Consolidated Revenues
Pretax Operabng Income
General Insurance
Domestic Brokerage Group
Transatlantic Holdings, Inc.
Personal Lines
Mortgage Guaranty
Total Domestic
Total Foreign
Other IEliminations
Total General Insurance
Life Insurance & Retirement Services
Domestic Life Insurance
Domestic Retirement Services
Total Domestic
Japan and Other
Asia
Total Foreign
Total Life Insurance & Retirement Services
Financial Services
Aircraft Leasing
Capital Markets
Consumer Finance
72
Asset Management
-89
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
7 of 50
Instructions:
1) Modify adjusted scorecard ratings in column H (white cells) for each factor as needed.
2) Add notches for Other Considerations and Support if applicable. Please enter whole numbers only. Positive numbers
result in a worse rating and negitive numbers result in a better rating.
Rating Factors
American International Group, Inc.
x
x
x
X
X
X
X
X
40.8%
24.1%
9.8%
9.0%
A2
12.7%
24.5%
95.4%
5.5%
19.4%
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
8 of 50
A2
COMPANY NAME
Analyst
Domicile
AccountinQ Convention
Allianz SE
Boudkeev
Germany
IFRS
EURO
YE2006
Assicurazioni
Generali S.p.A
Morago
Italy
IFRS
EURO
YE2006
Aa3
STA
Aa3
Aa3
NEG
A1
A2
A2
AA
AA·
AA
AA
A+
A+
21,668
63,547
44,511
27,242
58,538
24,570
65,288
21,614
43,674
60,620
44,069
42,613
25,667
72,099
2,802
16,551
25,130
7,021
1,053,226
50,481
2,405
3,543
5,085
377,641
18,733
434,100
20,857
727,555
A1G Inc.
Ballentine
USA
GAAP
USD
YE2007
AEGON
Morago
NL
IFRS
EURO
YE2006
RATING & RCM INFO
IFSR
Outlook
Senior Debt
Sub Debt
Aa2
NEG
Aa2
Aa3
STA
A2
A3
COMPETITOR RATINGS
S&P (IFSR)
Fitch (IFSR)
AM Best (IFSR)
AA
AA·
A++
MARKET DATA
Market Capitalisation (AIG as of May 20, 2008)
96,100
Aviva pic
Morago
UK
IFRS
EURO
YE2006
AXA
Boudkeev
France
IFRS
EURO
YE2006
STA
A1
A3
Aa3
STA
A2
A3
AA
AA
FUNDAMENTALS (MM)
Gross Premiums Written - Total
Gross Premiums Written - Life
Gross Premiums Written - Non-life
Net Income
Total Assets
Shareholders' Equity
1,010,505
95,801
2,789
314,813
23,185
QUANTITATIVE MEASURES
Scorecard Completed (Life/Non-Life/Composite)
Composite
Composite
Composite
Composite
Composite
Composite
3.3612.88
Aa21Aa2
4.7214.44
A11Aa3
4.3913.24
Aa31Aa3
4.57 I 4.19
A1 I Aa3
3.8413.87
Aa31Aa3
4.18 I 3.58
Aa3 I Aa3
Public
Global
High
Public
Global
Medium
Public
Worldwide
High
Public
International
High
Public
Global
Medium to High
Public
International
Medium
Aa11Aaa
Aa21Aa1
Aa21Aa2
Aa21Aa3
A11A1
A11A1
Aa11Aaa
Aa11Aa1
Aa2/Aa2
Aaa I Aa2
Aa3 I Aa3
Aa2 I Aa3
Aa21Aa2
Aa21Aa2
Aa21Aa2
Aa2 I Aa1
A1 I Aa3
Aa2 I Aa2
A11A1
Aa21Aa2
A2IA2
Aaa/Aaa
Baa21A1
Aa11Aa1
AaalAa3
A21Aa3
Baa21A2
AaalAa3
Aa21Aa2
A11Aa3
Aa31Aa3
Baa21Aa3
Baa21A2
Aaa/Aaa
AaalAa2
A11A1
Aa2 I Aa3
Baa2 I Aa3
Baa1 I A1
Aaa I Aa3
Aa2 I Aa2
A21 A2
Aa31A1
Aa21Aa3
Baa11A2
AaalAa2
AaalAaa
A11A1
A11A1
A21 Aa2
A11A1
Aaa / Aaa
Aaa I Aaa
A21 A2
10.0%
5.0%
10%
14.0%
3.5 x
na
1.6 x
na
4.8 x
na
4.1 x
na
8.0%
2.0 x
na
Aa
Aa
na
Aa
Aa
A
Aa
Aaa
Aa
A
Aaa
Aa
Aa
Aa
A
A
Aa
Aaa
Aaa
Aa
A
A
A
Aa
Aa
Aaa
Aa
Aa
A
Aaa
Aa
Aa
Aa
Aaa
A
A
Aa
Aaa
Aa
40.8%
7.1%
17.1%
1.0%
25.4%
31.7%
21.1%
27.0%
27.3%
52.2%
11.9%
20.7%
20.0%
24.0%
32.0%
7.4%
na
5.4%
na
4.5%
na
8.0%
24.5%
8.8%
Negative
8.5%
n.a
10.1%
0.0%
Negative
9.7%
88.1%
95.4%
105.0%
91.3%
83.3%
96.3%
101.2%
Raw Factor vs. Adjusted Factor Score
Raw vs. Adjusted Scorecard Rating
Adjustments (Acc Policy, Implicit I Explicit Support, etc)
DESCRIPTIVE STATISTICS
Ownership - Public, Private, Subsidiary
Geographic Spread
Business Diversification (Banking, Asset Mgmt, Insurance)
RAW FACTOR RATING I ADJUSTED FACTOR RATING
Business Profile
Market Position and Brand
Distribution
Product Focus and Diversification
Financial Profile
Asset Quality
Capital Adequacy
Profitability
Liquidity and Asset/Liability Management
Reserve Adequacy
Financial Flexibility
SCORECARD METRICS
Business Profile
Market Position and Brand
Market Share Ratio
Relative Market Share Ratio
Expense Ratio % NPW
Distribution
Distribution Control
Diversity of Distribution
Product Focus and Diversification
Product Risk - P&C
Product Risk - Life
Product Diversification
Geographic Diversification
Financial Profile
Asset Quality
High Risk Assets % Invested Assets
Reinsurance Recoverables % Equity
Goodwill % Equity
Capital Adequacy
Capital % Total Assets
Gross Underwriting Leverage
Profitability
Return on Average Equity (5 yr. avg.)
Sharpe Ratio of Growth in Net Income (5 yr.)
Liquidity and Assel/Liability Management
Liquid Assets % Policyholder Reserves
Reserve Adequacy
Adv. I (Fav.) Loss Reserve Dev. % Beg. Reserves (5yr.)
Financial Flexibility
Financial Leverage
Earninas Coveraae (5 vr. avo.)
93,383
34,585
58,798
6,200
24.1%
9.8%
9.0%
na
12.70%
21,768
22.4%
na
12.0%
48,644
23,455
50,168
6.9%
na
5.5%
1.0%
-3.4%
1.8%
-1.3%
-5.4%
19.4%
9.4 x
27.3%
4.8 x
28.2%
4.9 x
35.6%
7.4 x
29.4%
4.6 x
30.6%
9 of 50
5.5 x
(USD Bins)
Secured Rating (IFSR)
HoldCo Senior Rating
Outlook
Accounting Basis
Market Capitalization
Market Cap I Equity
Total Assets
Total Equity
Equity % Assets
Debt % Capital
Revenues
Net Income
Return on Average Assets (%)
Cash Flow from Operations
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
AIG, Inc.
UBS
B of A
Aa2/Aa3
Aa3
Negative
USGAAP
Aa1
Aa2
Stable
IFRS
2008
1008
NA
NA
108
57
2008
1008
2007
NA
NA
1.4x
1.5x
3.5x
2.8x
2008
1008
NA
NA
1,051
2,231
NA
NA
80
16
35
2008
1008
2007
96
Credit Suisse JPMorgan
Aa2
Aa2
Negative
US GAAP
106
169
Aa1
Aa2
Stable
USGAAP
48
51
Aaa
Aa2
Stable
USGAAP
118
146
Aa2
91
106
Aa3
75
A1/A2
27
35
0.7x
1.1x
1.2x
1.3x
1.4x
1.6x
0.9x
1.2x
1.2x
0.9x
1.8x
1.7x
1.2x
1.5x
1.8x
1.0x
1.2x
1.4x
1,717
1,737
1,230
1,208
1,776
1,643
1,574
1,705
1,407
1,169
447
554
163
156
147
37
38
43
133
126
123
111
84
72
87
59
59
32
33
32
9.5%
9.0%
8.6%
3.0%
3.1%
3.2%
7.5%
7.6%
7.9%
6.7%
5.1%
5.3%
4.7%
5.2%
5.4%
7.8%
7.2%
7.3%
92.4%
92.0%
92.2%
80.9%
79.6%
78.3%
84.2%
83.8%
86.9%
89.2%
78.8%
78.2%
47.4%
52.9%
53.3%
40
71
52
67
28
2
2
o
-2
-2
8
2
15
-3
8
o
6
10
10
-1
6
8
3
0.1%
-0.2%
0.6%
0.5%
0.1%
0.1%
1.1%
1.0%
0.1%
-0.1%
0.6%
0.9%
0.1%
-0.1%
0.7%
1.1%
-0.1%
0.1%
0.9%
1.2%
(2)
-111
-50
-38
6
-52
(4)
o
-58
-49
-39
-18
-15
-22
-14
-5
-25
-4
-4
23
-578%
-746%
-1037%
-102%
-720%
-309%
-290%
-100%
-312%
-384%
-391%
-92%
-73%
41%
-115%
2008
1008
2007
NA
NA
7.6%
9.0%
0.7%
1.5%
2008
1008
2007
NA
69.5%
65.8%
NA
NA
96.6%
79.3%
79.7%
80.6%
2007
110
32
67
2008
1008
2007
5 yr avg.
NA
NA
3
-8
-12
6
-5
10
7
15
15
2008
1008
2007
5 yr avg.
NA
NA
-0.7%
0.6%
1.4%
-0.5%
-0.2%
0.5%
0.2%
0.1%
0.9%
1.7%
2008
1008
2007
5 yr avg.
35
6
26
19
-52
(4)
11
-5
15
-28
7
2008
1008
2007
5 yr avg.
-106%
567%
309%
-164%
993%
46%
-317%
74%
51%
44
37
106.2%
12.2%
11
25.9%
6.1%
1.0 of 50 19
o
8
8
NA
45.9%
20
NA
NA
18
12
70
2
NA
8
(USD Bins)
Secured Rating (IFSR)
HoldCo Senior Rating
Outlook
Accounting Basis
Market Capitalization
Market Cap I Equity
Total Assets
Total Equity
Equity % Assets
Debt % Capital
Revenues
Net Income
Return on Average Assets (%)
Cash Flow from Operations
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
AIG, Inc.
Aa2/Aa3
Aa3
Citigroup
Aa3
Aa3
Morgan Stanley
Aa1
Aa3
Aa3
Aa3
Allianz
ManuLife
Aa3
Aa3
Aa1
Aa3
Stable
Stable
Negative
Stable
Negative
RUR t
USGAAP
USGAAP
70
67
USGAAP
91
112
US GAAP
49
47
1.6x
1.6x
2.1x
0.7x
0.9x
1.3x
1.4x
1.4x
1.8x
NA
NA
1.3x
1.4x
2.3x
2.5x
1,088
1,189
2,100
2,200
1,031
1,091
NA
NA
1,127
357
45
43
43
136
128
113
34
33
31
NA
NA
45
48
25
24
4.1%
3.6%
3.8%
6.5%
5.8%
5.2%
3.3%
3.1%
3.0%
NA
NA
4.0%
4.5%
7.0%
6.9%
NA
2008
1008
108
2008
1008
2007
1.4x
1.5x
2008
1008
1,051
2008
1008
2007
Goldman
NA
NA
NA
80
96
NA
US GAAP CDN GAAP
NA
NA
57
59
Aa2
Aa3
A1IA2
91
106
70
75
27
35
0.9x
1.8x
1.7x
1.2x
1.5x
1.8x
1.0x
1.2x
1.4x
1,574
1,705
1,407
1,169
447
554
111
84
87
72
59
59
32
33
32
6.7%
5.1%
5.3%
4.7%
5.2%
5.4%
7.8%
7.2%
7.3%
2008
1008
2007
7.6%
9.0%
2008
1008
2007
90.4%
91.9%
91.5%
85.1%
86.8%
88.6%
92.1%
92.8%
93.0%
NA
NA
69.5%
65.8%
90.7%
89.2%
41.0%
41.0%
84.2%
83.8%
86.9%
89.2%
78.8%
78.2%
47.4%
52.9%
53.3%
2007
110
46
81
28
100
35
52
67
28
2008
1008
2007
5 yr avg.
NA
2
2
12
NA
NA
-2
2
1
-1
4
3
8
4
2
-3
8
o
-5
6
2
7
17
5
5
3
10
8
3
0.2%
0.1%
1.2%
1.2%
-0.1%
-0.2%
0.2%
1.4%
0.1%
0.1%
0.3%
0.7%
NA
NA
0.1%
0.7%
0.5%
0.2%
1.2%
1.3%
0.1%
-0.1%
0.6%
0.9%
0.1%
-0.1%
0.7%
1.1%
-0.1%
0.1%
0.9%
1.2%
(23)
-68
-58
-38
2
-71
(19)
6
13
21
17
7
7
6
-52
-15
-22
(4)
-18
-14
6
-25
-4
-4
-290%
-100%
-312%
-384%
-391%
-92%
-73%
41%
-115%
NA
-8
6
10
NA
2008
1008
2007
5 yr avg.
-0.7%
0.6%
1.4%
2008
1008
2007
5 yr avg.
35
6
26
2008
1008
2007
5 yr avg.
-106%
567%
309%
44
8
-2
o
-22
-11
-61
-26
(21)
-31%
-1975%
-389%
NA
NA
-1499%
-588%
-542%
-1231%
-688%
-494%
489%
160%
373%
77%
177%
191%
45.9%
2
4.7%
41
35.9%
12
38.1%
2
3.8%
20
o
6
o
NA
5
11 Q,f 50
8
o
o
-5
(USD Bins)
Secured Rating (IFSR)
HoldCo Senior Rating
Outlook
Accounting Basis
Market Capitalization
Market Cap I Equity
Total Assets
Total Equity
Equity % Assets
Debt % Capital
Revenues
Net Income
Return on Average Assets (%)
Cash Flow from Operations
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
2008
1008
AIG, Inc.
Wachovia
Aa2/Aa3
Aa2
Aa3
A1
Negative
Negative
USGAAP
USGAAP
NA
34
108
54
NA
2008
1008
2007
1.4x
1.5x
2008
1008
1,051
2008
1008
2007
NA
NA
80
96
NA
Allstate
Merrill Lynch
Aa2
A1
A1
A2
RUR t
Stable
US GAAP
US GAAP
25
31
40
27
Lehman
A2
A2
Negative
USGAAP
20
28
MetLife
Sun Life
Aa2
Aa2
A2
A2
Stable
Stable
US GAAP CDN GAAP
37
23
43
27
Hartford
Aa3
A2
Stable
US GAAP
20
24
Aa2
Aa3
A1IA2
91
106
70
75
27
35
O.4x
0.7x
1.0x
1.3x
1.3x
1.3x
0.9x
1.1x
1.6x
0.8x
1.1x
1.5x
1.2x
1.3x
1.3x
1.3x
1.5x
1.8x
1.2x
1.3x
1.4x
0.9x
1.8x
1.7x
1.2x
1.5x
1.8x
1.0x
1.2x
1.4x
812
809
151
152
NA
1,042
639
786
556
557
187
187
334
344
1,574
1,705
1,407
1,169
447
554
75
78
77
20
20
22
35
37
32
26
25
22
33
33
35
18
18
17
17
18
19
111
84
87
72
59
59
32
33
32
9.3%
9.6%
9.8%
13.1%
13.3%
14.0%
NA
3.5%
3.1%
4.1%
3.2%
3.3%
5.9%
5.9%
6.3%
9.4%
9.3%
9.2%
5.0%
5.2%
5.3%
6.7%
5.1%
5.3%
4.7%
5.2%
5.4%
7.8%
7.2%
7.3%
2008
1008
2007
7.6%
9.0%
2008
1008
2007
69.5%
65.8%
76.1%
75.0%
73.3%
22.3%
21.7%
20.5%
93.4%
94.3%
92.3%
93.9%
94.1%
39.8%
38.6%
37.0%
24.0%
23.0%
32.1%
29.6%
25.0%
21.7%
84.2%
83.8%
86.9%
89.2%
78.8%
78.2%
47.4%
52.9%
53.3%
2007
110
32
37
11
19
53
21
26
52
67
28
2008
1008
2007
5 yr avg.
NA
-9
-1
o
o
1
o
o
-2
o
-1
6
10
6
6
5
6
2
3
-5
-2
-8
3
-3
-8
NA
-1.1%
-0.1%
0.8%
1.3%
0.0%
0.2%
3.0%
2.7%
NA
NA
2008
1008
2007
5 yr avg.
-0.7%
0.6%
1.4%
2008
1008
2007
5 yr avg.
8
(7)
35
6
26
-9
2008
1008
2007
5 yr avg.
-106%
567%
309%
NA
2
-3
NA
1104%
-150%
-65%
44
8
45.9%
10.1%
20
18
1
5
5
5
NA
322%
117%
184%
NA
2
2
3
3
4
4
2
-3
8
2
10
8
3
-0.2%
-0.8%
0.7%
-0.4%
0.1%
0.7%
0.8%
0.2%
0.1%
0.8%
1.1%
0.3%
0.3%
1.2%
1.2%
0.2%
0.0%
0.9%
0.7%
0.1%
-0.1%
0.6%
0.9%
0.1%
-0.1%
0.7%
1.1%
-0.1%
0.1%
0.9%
1.2%
15
-72
-24
-26
(11)
-46
-36
-21
o
1
6
6
6
-52
-15
-22
(4)
-18
-14
4
-25
-4
-5
-4
-290%
-100%
-312%
-384%
-391%
-92%
-73%
41%
-115%
NA
4
3
-744%
930%
-15%
-2175%
-1088%
-566%
34
107.4%
17.8%
12 of ~O
4
6
4
10
7
8
4
3
2
554%
231%
212%
35%
46%
161%
o
o
3
391%
203%
-717%
Moody's downgrades AIG (senior to Aa3) and certain subsidiaries
Parent outlook negative; Domestic Life companies downgraded to Aa2 (stable);
Commercial Insurance companies downgraded to Aa3 (stable)
New York, May 22, 2008 -- Moody's Investors Service has downgraded the senior
unsecured debt rating of American International Group, Inc. (NYSE: AIG) to Aa3 from
Aa2. The rating agency has also downgraded the ratings of several subsidiaries (see list
below), including those whose ratings have relied on material support from the parent
company, as well as those with significant exposure to the US residential mortgage
market. These rating actions largely conclude the reviews for possible downgrade
announced by Moody's on May 9 and May 15, 2008, following AIG's announcement of a
$7.8 billion net loss for the first quarter of 2008. The rating outlook for AIG (parent
company) is negative, reflecting the company's exposure to further volatility in the US
mortgage market as well as uncertainty surrounding the strategic direction for AIG
Financial Products Corp. (AIGFP).
When announcing the review for possible downgrade, Moody's said that the review
process could lead to a rating downgrade of one or two notches at the parent company.
Today's one-notch downgrade reflects AIG's sizable mortgage related losses and writedowns to date. Over the past two quarters, AIG has recorded after-tax unrealized market
valuation losses exceeding $13 billion on mortgage-exposed credit default swaps (CDS)
at AIGFP, and after-tax realized capital losses exceeding $5 billion, largely from otherthan-temporary impairment (OTTI) of residential mortgage-backed securities (RMBS)
held by AIG's Domestic Life and Retirement Services (DLRS) subsidiaries. Also during
this period, AIG posted to its equity account more than $9 billion in after-tax unrealized
depreciation of investments, again mostly RMBS. Moody's noted that AIG's ultimate
economic losses on CDS and RMBS may be materially smaller than estimated market
values would suggest.
In response to these losses and write-downs, AIG has raised more than $20 billion of
capital during May 2008 -- a clear positive for creditors, in Moody's view. The new
issuance includes approximately $7.5 billion of common stock, $5.9 billion of equity
units (hybrids) and $6.9 billion of junior subordinated debentures (hybrids). The hybrid
securities have been designed to receive significant equity treatment for financial
leverage calculations.
"The recent issuance of common stock and hybrids enhances the company's capital and
liquidity profiles," said Moody's Bruce Ballentine, lead analyst for AIG. "The fresh
capital restores some of the equity that was eroded by declining market values of CDS
and RMBS, and it will help AIG to absorb economic losses that may develop over time."
As part of today's rating action, Moody's also downgraded the insurance financial
strength ratings (IFSRs) of the DLRS companies to Aa2 from Aal. These entities hold a
majority of AIG's RMBS, both through their securities lending collateral and directly.
Moody's expects that AIG will allocate a portion of its new capital to life insurance
13 of 50
subsidiaries whose statutory capital has been reduced by OTTI of RMBS. The rating
outlook on these companies is stable.
"AIG's DLRS group is a leading US life insurer, with a diversified product portfolio and
multi-faceted distribution network," said Laura Bazer, lead analyst for these operations.
"The stable outlook reflects Moody's view that, at the current rating level, these
companies could likely withstand some degree of additional market value fluctuations
and potential economic losses related to RMBS."
Moody's also downgraded to Aa3 from Aa2 the IFSRs of the Commercial Insurance
Group companies as well as AIG UK Limited and American International Assurance
Company (Bermuda) Limited. These IFSRs previously received some uplift from the
ownership and support of AIG. The downgrades reflect the fact that the strength of the
parental support has diminished somewhat, as indicated by the parent company
downgrade. Moody's believes that all of these operating companies can now support their
Aa3 IFSRs through their own intrinsic financial strength. As a result, the rating outlook
for these entities is stable.
Over the next few days, Moody's will update its credit opinions on AIG and its major
operating units to explain the current rating rationale for each, along with factors that
could change the ratings up or down.
Moody's last rating actions on these entities took place on May 9 and May 15,2008,
when the respective ratings were placed on review for possible downgrade.
Moody's has downgraded the following ratings and assigned a negative outlook:
American International Group, Inc. -- long-term issuer rating to Aa3 from Aa2, senior
unsecured debt to Aa3 from Aal, subordinated debt to A 1 from Aa3, senior unsecured
debt shelf to (P)Aa3 from (P)Aa2, subordinated debt shelf to (P)Al from (P)Aa3,
preferred stock shelf to (P)A2 from (P)A 1;
AIG Capital Trusts I & II -- backed trust preferred stock shelf to (P)Al from (P)Aa3;
AIG Life Holdings (US), Inc. -- backed senior unsecured debt to Aa3 from Aa2;
AIG Program Funding, Inc. -- backed senior unsecured debt shelf to (P)Aa3 from (P)Aa2;
AIG Retirement Services, Inc. -- backed senior unsecured debt to Aa3 from Aa2, backed
preferred stock to A2 from AI;
American General Capital II -- backed trust preferred stock to Al from Aa3;
American General Institutional Capital A & B -- backed trust preferred stock to Al from
Aa3;
14 of 50
Capital Markets subsidiaries -- AIG Financial Products Corp., AIG Matched Funding
Corp., AIG-FP Capital Funding Corp., AIG-FP Matched Funding Corp., AIG-FP
Matched Funding (Ireland) P.L.e., Banque AIG -- backed senior unsecured debt to Aa3
from Aa2.
Moody's has downgraded the following ratings and assigned a stable outlook:
AIG UK Limited -- backed insurance financial strength to Aa3 from Aa2;
American International Assurance Company (Bermuda) Limited -- insurance financial
strength to Aa3 from Aa2;
Commercial Insurance Group subsidiaries -- AIG Casualty Company; AIU Insurance
Company; American Home Assurance Company; American International Specialty Lines
Insurance Company; Commerce and Industry Insurance Company; National Union Fire
Insurance Company of Pittsburgh, Pennsylvania; New Hampshire Insurance Company;
The Insurance Company of the State of Pennsylvania -- insurance financial strength to
Aa3 from Aa2;
Domestic Life Insurance & Retirement Services subsidiaries -- AIG Annuity Insurance
Company, AIG Life Insurance Company, American General Life and Accident Insurance
Company, American General Life Insurance Company, American International Life
Assurance Company of New York, The United States Life Insurance Company in the
City of New York, The Variable Annuity Life Insurance Company -- insurance financial
strength to Aa2 from Aa 1.
Moody's has confirmed the following ratings and assigned a stable outlook:
AIG SunAmerica funding agreement-backed note programs -- AIG SunAmerica Global
Financing Trusts, ASIF I & II, ASIF III (Jersey) Limited, ASIF Global Financing Trusts - senior secured debt at Aa2;
AIG SunAmerica subsidiaries -- AIG SunAmerica Life Assurance Company, First
SunAmerica Life Insurance Company, SunAmerica Life Insurance Company -- insurance
financial strength at Aa2.
Moody's has affirmed the following rating with a negative outlook:
AIG General Insurance (Taiwan) Co., Ltd. -- insurance financial strength at AI.
Moody's has affirmed the following ratings with a stable outlook:
American International Group, Inc. -- short-term issuer rating at Prime-I;
AIG Financial Products Corp. -- backed short-term debt at Prime-I;
15 of 50
AIG Funding, Inc. -- backed short-term debt at Prime-I;
AIG Liquidity Corp. -- backed short-term debt at Prime-I;
AIG Matched Funding Corp. -- backed short-term debt at Prime-I;
AIG SunAmerica subsidiaries -- AIG SunAmerica Life Assurance Company, First
SunAmerica Life Insurance Company, SunAmerica Life Insurance Company -- shortterm insurance financial strength at Prime-I;
Transatlantic Holdings, Inc. -- senior unsecured debt at A2; senior unsecured debt shelf at
(P)A2, subordinated debt shelf at (P)A3;
Transatlantic Reinsurance Company -- insurance financial strength at Aa3.
The following ratings remain on review for possible downgrade:
AGFC Capital Trust I -- backed preferred stock at A3;
AIG Edison Life Insurance Company -- insurance financial strength at Aa2;
American General Finance Corporation -- long-term issuer rating at AI, senior unsecured
debt at AI;
American Life Insurance Company -- insurance financial strength at Aa2;
ILFC E-Capital Trusts I & II -- backed preferred stock at A3;
International Lease Finance Corporation -- senior unsecured debt at AI;
Mortgage Guaranty subsidiaries -- United Guaranty Commercial Insurance Company of
North Carolina, United Guaranty Mortgage Indemnity Company, United Guaranty
Residential Insurance Company, United Guaranty Residential Insurance Company of
North Carolina -- backed insurance financial strength at Aa2.
AIG, based in New York City, is a leading international insurance and financial services
organization, with operations in more than 130 countries and jurisdictions. The company
is engaged through subsidiaries in General Insurance, Life Insurance & Retirement
Services, Financial Services and Asset Management. AIG reported total revenues of
$14.0 billion and a net loss of $7.8 billion for the first quarter of 2008. Shareholders'
equity was $79.7 billion as of March 31, 2008.
16 of 50
Global Credit Research
Credit Opinion
14 JUN 2008
Credit Opinion: American International Group, Inc.
American International Group, Inc.
New York, New York, United States
Ratings
Category
Rating Outlook
Senior Unsecured
Moody's Rating
NEG
Aa3
Contacts
Analyst
Bruce Ballentine/New York
Alan Murray/New York
Robert Riegel/New York
Max Zormelo/New York
Phone
1.212.553.1653
Key Indicators
American International Group, Inc.[1]
Total Assets ($ MiL)
TTM 3/08
2007
2006
2005
2004
2003
$ 1,051,086
$ 1,060,505
$979,410
$ 853,048
$ 801,007
$ 675,602
Equity ($ MiL)
$ 79,703
$ 95,801
$ 101,677
$ 86,317
$ 79,673
$ 69,230
Total Revenue ($ MiL)
$ 93,450
$110,064
$ 113,387
$ 108,781
$ 97,823
$ 79,601
Net Income ($ MiL)
$ (5,735)
$ 6,200
$ 14,048
$ 10,477
$ 9,839
$ 8,108
20.0%
Financial Leverage [2]
18.3%
16.5%
14.9%
15.7%
16.6%
Earnings Coverage (1 yr.) [2]
6.5x
20.5x
21.0x
23.9x
19.6x
Cashflow Coverage (1 yr.) [2]
11.2x
9.1x
12.5x
13.7x
11.9x
[1] Information based on consolidated GAAP financial statements. [2] Some financial leverage and coverage ratios
have changed versus prior Moody's reports because of reclassification of portions of debt and interest between
financial and operating amounts. Also, AIG changed its reporting basis for unrestricted subsidiary dividend
capacity in 2007, so cashflow coverage at YE 2007 is not directly comparable to prior·year levels.
Opinion
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG . senior unsecured debt rated Aa3, negative outlook) is a leading
global insurance and financial services firm, with operations in more than 130 countries and jurisdictions. The
company is engaged through subsidiaries in General Insurance, Life Insurance & Retirement Services, Financial
Services and Asset Management. Just over 40% of the company's 2007 revenues were derived from domestic
(US) operations, with nearly 60% coming from other markets around the world. AIG's extraordinary diversification
helps it to withstand challenges in particular business lines or geographic regions and to generate substantial
earnings and capital over time.
On May 22, 2008, Moody's downgraded AIG's senior unsecured debt rating to Aa3 from Aa2, and assigned a
negative outlook. This rating action concluded a brief review for possible downgrade that followed AIG's
announcement of a $7.8 billion net loss for the first quarter of 2008. The loss included significant unrealized market
valuation losses on mortgage·exposed credit default swaps (CDS) at AIG Financial Products Corp. (AIGFP), as
well as realized capital losses on investments, largely other·than·temporary impairment (OTTI) on residential
mortgage· backed securities (RMBS) held by AIG's Domestic Life Insurance & Retirement Services subsidiaries.
AIG has also posted to its equity account substantial unrealized depreciation of investments, again mostly RMBS.
Moody's notes that AIG's ultimate economic losses on CDS and""Rfv1I!:3f3!in).y be materially smaller than estimated
market values would suggest. The negative outlook on AIG (and on subsidiaries whose ratings rely on meaningful
explicit or implicit parental support) reflects the company's exposure to further volatility in the US mortgage market
as well as uncertainty surrounding the strategic direction of AIGFP.
AIG's ratings reflect its leading market positions in all major business segments, its broad business and geographic
scope, its historically strong earnings and cash flows, and its excellent financial flexibility. These strengths are
tempered by the intrinsic volatility in certain General Insurance and Financial Services business units, by the
significant volume of spread-based investment business in the Asset Management segment, and by the company's
sizable exposure to the US residential mortgage market.
Credit Profile of Significant Subsidiaries/Activities
AIG Property Casualty Group (2007 revenues: $38.0 billion, 35% of consolidated total)
The AIG Property Casualty Group (formerly Domestic General Insurance) encompasses the AIG Commercial
Insurance Group (CIG - formerly Domestic Brokerage Group), Transatlantic Holdings, Inc. (TRH), Personal Lines
and Mortgage Guaranty. Moody's maintains Aa3 insurance financial strength (IFS) ratings (stable outlook) on eight
members of CIG, reflecting CIG's position as the largest US writer of commercial insurance, its broad
diversification and its expertise in writing large and complex risks. These strengths are somewhat offset by CIG's
relatively high, albeit improving, gross underwriting leverage and its history of adverse loss development following
the last soft market for property & casualty insurance.
TRH, approximately 59% owned by AIG, is a holding company for Transatlantic Reinsurance Company (TRC), a
leading US-based broker-market reinsurer with expertise in specialty casualty lines. TRC's Aa3 IFS rating (stable
outlook) reflects its lead position on many treaties, relatively steady profitability and sound capitalization. These
strengths are partly offset by competition from larger global reinsurers and by the inherent volatility of catastrophe
exposed business.
Moody's Aa2 IFS ratings (negative outlook) on four members of AIG's Mortgage Guaranty unit are under review for
possible downgrade. Ratings on this group, led by United Guaranty Residential Insurance Company (UGRIC),
reflect its historically sound underwriting, strong lender relationships and explicit support from affiliates. Three of
the companies are supported by net worth maintenance agreements from AIG plus excess-of loss reinsurance
covers provided by a CIG member. The fourth company is supported by an unconditional guaranty from UGRIC.
Absent such explicit support, these companies would have lower stand-alone ratings. The rating review will
address the degree to which the stand-alone credit profiles have been weakened by losses in the insured portfolios
of subprime and non-prime first-lien and second-lien mortgage loans. The review will also address the nature of
the continuing support from AIG and affiliates.
Foreign General Insurance (2007 revenues: $13.7 billion, 12% of consolidated total)
Foreign General Insurance consists of several property & casualty insurance agencies and underwriting
companies offering commercial and consumer insurance through a range of marketing and distribution channels.
The group operates in Asia, the Pacific Rim, the UK, Europe, Africa, the Middle East and Latin America, adapting
to local laws and customs as needed.
AIG UK Limited (AIG UK) is the group's flagship property & casualty insurer in the UK, having absorbed the UK
business of a CIG company in December 2007. The Aa3 IFS rating (stable outlook) on AIG UK reflects its strong
market position, healthy profitability and generally conservative investment strategy. Offsetting these strengths to
some extent is the focus on commercial lines, which Moody's views as inherently more volatile than personal lines.
The rating on AIG UK incorporates explicit and implicit support, including a net worth maintenance agreement from
AIG and extensive reinsurance from affiliates.
In 2006, AIG acquired Central Insurance Co. Ltd., a diversified non-life insurer in Taiwan with a solid market
presence but a record of volatile operating results over the past few years. During 2007, AIG changed the
company's name to AIG General Insurance (Taiwan) Co., Ltd. (AIGGI Taiwan), and merged the Taiwan branch of
a CIG company into AIGGI Taiwan. Moody's upgraded the IFS rating of AIGGI Taiwan from Baa1 to A2 in July
2007 and to A 1 in March 2008. With a stand-alone rating of A3, AIGG I Taiwan receives two notches of rating uplift
from parental support in the form of financial flexibility, transfer of technical knowledge, management expertise and
risk sharing. Because its rating relies on significant parental support, AIGGI Taiwan's rating outlook is negative,
following that of AIG.
Domestic Life Insurance & Retirement Services (2007 revenues: $15.3 billion, 14% of consolidated total)
Moody's maintains Aa2 IFS ratings (stable outlook) on ten members of the Domestic Life Insurance & Retirement
Services segment, based on the group's multi-faceted distribution network, broad and varied product portfolio, and
leading market positions in several products, including term life, universal life, structured settlements and certain
classes of annuities. The ratings also reflect the strategic and financial benefits of AIG ownership, such as the AIG
brand, cross-selling arrangements, and common investment management and administrative services. These
strengths are tempered by persistent competition in the mature U$, mi}r~ for protection and savings products,
and by the group's significant exposure to US subprime and Alt-A<Ri'Js§,lfleld directly and through securities
lending activities.
Foreign Life Insurance & Retirement Services (2007 revenues: $38.3 billion, 35% of consolidated total)
The Foreign Life Insurance & Retirement Services segment encompasses international and local subsidiaries with
operations in Europe, Latin America, the Caribbean, the Middle East, Australia, New Zealand and Asia, including
extensive operations in Japan. The group sells products largely to indigenous persons through multiple distribution
channels, including full-time and part-time agents, independent producers, direct marketing, brokers and financial
institutions.
Moody's maintains a Aa2 IFS rating (stable outlook) on American Life Insurance Company (ALlCO), based on its
well established operations in more than 50 overseas markets (particularly in Japan, which accounts for about twothirds of ALI CO's operating income), along with its favorable record of growing organically in existing markets and
expanding into new markets. The rating also recognizes the company's strong brand name and distribution
channels, healthy capitalization and consistent operating performance. These strengths are tempered by
competition from local and foreign players in Japan, political risk in certain emerging markets, and ALI CO's
relatively large exposure to affiliated investments, mainly AIG common stock.
ALI CO's Japanese operations are complemented by those of AIG Edison Life Insurance Company (AIG Edison IFS rating of Aa2, stable outlook) and AIG Star Life Insurance Co., Ltd. (not rated), giving AIG a strong and
diversified presence in the Japanese life insurance market. The AIG Edison rating reflects the company's healthy
profitability, solid capital base and diversified distribution channels, tempered by agent retention and business
persistency rates that are below expectations for the rating level. The rating incorporates one notch of uplift from
the close affiliation with ALiCO. Without such support, AIG Edison would have a stand-alone rating of Aa3.
American International Assurance Company, Limited (not rated) and its affiliates, including American International
Assurance Company (Bermuda) Limited (AIAB - IFS rating of Aa3, stable outlook), make up the largest and most
diversified life insurance group in Southeast Asia. The rating on AIAB reflects its leading position in the life
insurance market in Hong Kong, where it has garnered the largest market share and is supported by a strong
brand name. The rating also recognizes the company's consistent operating performance, well established and
efficient agency force, and healthy capitalization. These strengths are somewhat offset by the possible threat to
AIAB's market position, given the intense competition in Hong Kong and Korea, by the challenge AIAB faces in its
effort to broaden distribution channels, and by its exposure to affiliated investments, mainly AIG common stock.
Financial Services (2007 revenues: -$1.3 billion, -1 % of consolidated total)
The Financial Services segment engages in aircraft and equipment leasing, capital market transactions, consumer
finance and insurance premium financing. The Aircraft Finance business, conducted by International Lease
Finance Corporation (ILFC - senior unsecured debt rated A 1, negative outlook), is a global leader in leasing and
remarketing advanced technology commercial jet aircraft. ILFC's ratings reflect its high-quality aircraft portfolio and
solid relationships with aircraft manufacturers and airlines. Tempering this view is the cyclical nature of the
business, as well as ILFC's sizable order position and residual value risk. The ratings incorporate AIG ownership
and support, evidenced by capital contributions to ILFC totaling more than $1 billion since 2001. Absent such
support, ILFC's ratings would be lower. ILFC's negative rating outlook follows that of AIG.
The Capital Markets unit comprises the global operations of AIGFP (backed long-term issuer rating of Aa3,
negative outlook) and subsidiaries. AIGFP engages as principal in a variety of standard and customized financial
products with corporations, financial institutions, governments, agencies, institutional investors and high net-worth
individuals worldwide. This unit also raises funds through municipal reinvestment contracts and other private and
public note offerings, investing the proceeds in a diversified portfolio of debt, equities and derivatives. The Aa3
ratings on AIGFP and several of its subsidiaries are based on general and deal-specific guarantees from AIG.
AIGFP has substantial notional exposure to the US residential mortgage market through super-senior CDS and
cash CDOs, a portfolio that is now in runoff. In February 2008, AIG appointed an interim CEO to oversee this
operation and launched a search for a new permanent CEO. In connection with this management shift, Moody's
expects that AIG will take a fresh look at the strategic direction and risk appetite at AIGFP.
The Consumer Finance unit includes US operations conducted mainly by American General Finance Corporation
(AGFC - senior unsecured debt rated A 1, negative outlook) and international operations conducted by AIG
Consumer Finance Group, Inc. (AIGCFG). AGFC's ratings are based on its strong US market presence, disciplined
approach to the business and implicit support from AIG. Over the past decade, AGFC has focused its growth
efforts on real estate secured loans, which accounted for about three-fourths of the loan portfolio as of year-end
2007. The portfolio, which includes meaningful levels of subprime and non-prime loans, has experienced some
deterioration in credit quality along with the overall US housing sector, but AGFC's delinquency and charge-off
rates remain within the company's target bands. We believe that AGFC's adherence to conservative underwriting
standards have enabled the company to weather the housing market slump reasonably well compared to many
other financial institutions. Nevertheless, AGFC's core profitability has fallen, and will continue to be pressured by
rising loss provisions and the sharp fall-off in mortgage banking activity. Absent the implicit parental support,
AGFC's ratings would be lower. AGFC's negative rating outlook follows that of AIG.
Asset Management (2007 revenues: $5.6 billion, 5% of consolidated total)
19 of 50
The Asset Management segment comprises a variety of investment related products and services for institutions
and individuals worldwide. The group's main activities are spread-based investing, institutional asset management,
brokerage services and mutual funds. The spread-based investment business, formerly conducted through the
SunAmerica companies, is now conducted through AIG's Matched Investment Program. The institutional asset
management business, known as AIG Investments, provides a range of equity, fixed income and alternative
investment products and services to AIG subsidiaries and affiliates, other institutional clients and high-net-worth
individuals. The brokerage services and mutual funds operations provide broker/dealer services and mutual funds
to retail investors, group trusts and corporate accounts through an independent network of financial advisors.
Credit Strengths
Credit strengths/opportunities of the group include:
- One of the world's largest and most diversified financial service firms, with leading market positions in various
business lines and countries
- Historically strong earnings and cash flows across all major business segments
- Excellent financial flexibility, although this has been weakened somewhat by earnings and capital volatility related
to US residential mortgage exposures
Credit Challenges
Credit challenges/risks include:
- Sizable exposure to US residential mortgage market through various business units and activities, particularly
CDS written by AIGFP and RMBS held by US life insurance subsidiaries
- Intrinsic volatility in certain General Insurance and Financial Services business units
- Significant volume of spread-based investment business within the Asset Management segment
Rating Outlook
The negative outlook on AIG (and on subsidiaries whose ratings rely on meaningful explicit or implicit parental
support) reflects the company's exposure to further volatility in the US residential mortgage market as well as
uncertainty surrounding the strategic direction of AIGFP.
What Could Change the Rating - Up
Given the current negative outlook, there is limited upward pressure on the rating; however, factors that could lead
to a stable outlook include:
- Improving or stable stand-alone credit profiles of major operating units
- Strong group profitability, with returns on equity exceeding 15%
- Remediation of all material weaknesses in internal controls over financial reporting
- Adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type
operations and match-funded investment programs) comfortably below 20%
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
- A decline in the stand-alone credit profile of one or more substantial operating units
- Weak group profitability, with returns on equity remaining below 10% over the next few quarters
- A decline in financial flexibility, with adjusted financial leverage exceeding the low 20s (percent), or adjusted
pretax interest coverage remaining below 8x over the next few quarters
- Substantial incremental losses on investments or derivatives
shareholders' equity)
(t2~, @ft~oa.x
losses exceeding 10% of
- A material shift in the company's strategic emphasis away from insurance (e.g., Financial Services accounting for
more than 20% of consolidated operating income)
Recent Results
AIG reported total revenues of $14.0 billion and a net loss of $7.8 billion for the first quarter of 2008. Shareholders'
equity was $79.7 billion as of March 31,2008. Over the past two quarters, AIG has recorded after-tax unrealized
market valuation losses exceeding $13 billion on mortgage-exposed CDS at AIGFP, and after-tax realized capital
losses exceeding $5 billion, largely from OTTI of RMBS held by Domestic Life Insurance and Retirement Services
subsidiaries. Also during this period, AIG posted to its equity account more than $9 billion in after-tax unrealized
depreciation of investments, again mostly RMBS.
Capital Structure and Liquidity
Moody's believes that AIG's financial flexibility has been weakened by the firm's exposure to the US mortgage
market and the related losses, write-downs and decline in shareholders' equity. On the other hand, the company
has demonstrated broad access to the capital markets through its issuance of more than $20 billion of capital
during May 2008 - a positive for creditors in Moody's view. The new issuance includes approximately $7.5 billion of
common stock, $5.9 billion of equity units (hybrids) and $6.9 billion of junior subordinated debentures (hybrids).
The hybrid securities have been designed to receive significant equity treatment for financial leverage calculations.
Most of the proceeds are being retained at the holding company, at least for the near term, giving the company
flexibility to support any operations that may face capital or liquidity needs.
As of March 31,2008, AIG reported total borrowings of $172.2 billion, a majority of which was "operating" debt
(i.e., supporting assets of the Financial Services segment and AIG's Matched Investment Program). AIG's adjusted
"financial" debt (reflecting Moody's standard pension and lease adjustments, our basket treatment of hybrids, and
the exclusion of operating debt) amounted to $24.4 billion. AIG's adjusted financial leverage has increased from
18.3% at year-end 2007 to 20.0% as of March 31,2008, as a result of mortgage-related losses and write-downs
recorded during the first quarter. On a pro forma basis, giving effect to the recent capital issuance, the ratio at
March 31,2008, would have been approximately 19.4%. Moody's notes that the newly issued hybrid securities
carry significant fixed charges that will reduce AIG's earnings coverage and dividend capacity coverage of fixed
charges going forward. We expect that earnings coverage will decline from a historic range of 20-24 times to a
normalized range of about 8-12 times, while dividend capacity coverage will decline from a historic range of 9-14
times to a normalized range of about 6-8 times. Moody's believes that AIG will continue to benefit from its broad
business diversification and access to capital market funding.
Moody's believes that AIG has sufficient liquidity - through cash on hand, dividends from diversified subsidiaries,
external credit facilities and an intercompany credit facility - to service parent company obligations and to support
subsidiaries as needed. The company generates strong operating cash flows on a consolidated basis, with yearly
amounts averaging about $22 billion over the past three years. A majority of the cash flows pertain to insurance
operations that are subject to regulatory limits on the payment of dividends to a parent company. Still, the pro
forma dividend capacity coverage of fixed charges (6-8 times) is reasonable for AIG's current rating category. AIG
has taken steps to enhance its liquidity in response to credit market turmoil over the past year. The company has
increased its holdings of cash and short-term investments across major business units, and has established an
interdisciplinary Liquidity Risk Committee to monitor and manage liquidity risks throughout the firm. AIG's
consolidated cash and short-term investment position has grown from $29.4 billion at year-end 2006 to $63.6
billion as of March 31,2008. The recent capital issuance has further enhanced the liquidity position. The large
position in cash and short-term investments is constraining AIG's investment income and overall profitability to
some degree. Moody's regards this as a prudent trade-off in the current unsettled credit markets.
AIG gets a portion of its funding through a $7 billion commercial paper program ($5.0 billion outstanding at March
31,2008). The commercial paper is issued through subsidiary AIG Funding, Inc. (AIG Funding) and guaranteed by
AIG. The program is backed by external and intercompany credit facilities. External facilities include two
syndicated bank revolvers totaling $3.75 billion, primarily to back commercial paper. One of these facilities ($2.125
billion) expires in July 2008 (with a one-year term-out option) and the other ($1.625 billion) expires in July 2011.
AIG and AIG Funding also share a $3.2 billion bank facility expiring in December 2008 (with a one-year term-out
option) which allows for the issuance of letters of credit with terms of up to eight years. As of March 31,2008,
nearly all of this facility was being used for letters of credit. Finally, AIG has a $5.335 billion intercompany credit
facility provided by several of its insurance subsidiaries, expiring in September 2008 (with a one-year term-out
option). Moody's expects that these facilities will be renewed in similar form before they expire.
In addition to its guarantee of AIG Funding debt, AIG guarantees the debt and counterparty obligations of certain
subsidiaries, most importantly AIGFP. AIGFP manages its liquidity position to withstand severe market disruptions
without the need for parental support. AIGFP conducts regular liquidity stress tests that assume no access to
capital markets, contingent liability payouts at the earliest possible dates, and haircuts on relatively liquid
investment securities. The stress tests also consider the impact of potential rating downgrades on AIGFP's
collateral posting requirements. As of April 30, 2008, AIGFP had posted collateral in respect of super-senior CDS
in an aggregate net amount of $9.7 billion. At that time, AIG's senior unsecured debt ratings (and AIGFP's backed
long-term issuer ratings) were Aa2 by Moody's and AA by Stand9.q:j .&.!:p~f\r's. The company estimated as of that
date that a downgrade to Aa3 by Moody's and/or to AA- by Stanttcfrd-'& ~b'or's would permit AIGFP's counterparties
to call for approximately $1.8 billion of incremental collateral, while a downgrade to A 1 by Moody's and/or to A+ by
Standard & Poor's would permit counterparties to call for approximately $9.8 billion of incremental collateral.
Further downgrades could result in substantial additional collateral requirements. Moody's believes that AIGFP has
sufficient liquidity to cover its stated and contingent obligations at the current rating level, and that the parent would
provide additional support to AIGFP as needed in the event of further downgrades.
© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All
information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the
possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty
of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall
MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or
relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or
any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis,
interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential,
compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in
advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings
and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be
construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY
MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any
investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly
make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for,
each security that it may consider purchasing, holding or selling.
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and
commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody's Corporation (MCO)
and its wholly-owned credit rating agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures to
address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to
the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody's website at www.moodys.com under the
heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."
22 of 50
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23 of 50
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24 of 50
Organizational Structure with Rated Entities -Current & Recommended Ratings
August 6 , 2008
Ownership Structure'
American International Group, Inc. ("AIG")
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
Domicile
DE
Business Segment
Parent
DE
IN
IN
DE
IN
Puerto Rico
CA
Fin Svcs
Fin Svcs
Fin
Fin
Fin
Fin
Svcs
Svcs
Svcs
Svcs
ILFC E-Capital Trusts I & II
AIG Capital Trusts I & II
AIG Financial Products Corp.
DE
DE
Fin Svcs
Funding for Parent
Fin Svcs
AIG Matched Funding Corp.
DE
Fin Svcs
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
AIG Annuity Insurance Company
AIG Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of New York
The United States Life Insurance Company in the City of NY
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Program Funding, Inc.
AIG Property Casualty Group, Inc.
AIG Commercial Insurance Group, Inc.
AIG Casualty Company
AI U Insurance Company
AIG General Insurance (Taiwan) Co., Ltd.
American Home Assurance Company
Transatlantic Holdings, Inc.
DE
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
TX
DE
TN
TX
TX
NY
NY
DE
DE
DE
DE
DE
DE
PA
NY
Taiwan
NY
DE
Fin Svcs
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Transatlantic Reinsurance Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
American International Specialty Lines Insurance Company
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Commercial Insurance Company of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Insurance Company of NC
AIG Retirement Services, Inc.
NY
NY
PA
PA
AK
PA
NC
NC
NC
NC
NC
DE
SunAmerica Life Insurance Company ("SUC")
AZ
AIG SunAmerica Global Financing Trusts
AIG SunAmerica Life Assurance Company
DE
AZ
ASIF I & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Caymans
Jersey
DE
NY
SA
Public Current
Rec
Rec
Rating Type
Support
Rating Rating Outlook Rating Outlook
R-Dn
LT Issuer
Aa3
Negative
Aa3
R-Dn
Sr Unsec Debt
Aa3
Aa3
R-Dn
Sr Unsec Shelf
(P)Aa3
(P)Aa3
R-Dn
Subord Shelf
(P)A1
(P)A1
R-Dn
(P)A2
(P)A2
Prlrd Shelf
P-1
P-1
ST Issuer
Stable
Stable
R-Dn
LT Issuer
A2
Negative
A2
P-1
ST Issuer
P-1
P-1
R-Dn
ST Debt
Negative
R-Dn
LT Issuer
A2
A1
Negative
A1
R-Dn
Sr Unsec Debt
A2
A1
A1
P-1
P-1
ST Debt
Stable
R-Dn
Bkd Tr Prlrd Stock AGFC G'tee
A3
Negative
A3
Bkd ST Debt
AGFC G'tee
Sr Unsec Debt
ST Debt
Bkd Prlrd Stock
ILFC G'tee
Bkd Tr Prlrd Shelf AIG G'tee
Bkd LT Issuer
AIG G'tee
AIG G'tee
Bkd ST Debt
Bkd Sr Debt
AIG G'tee
AIG G'tee
Bkd ST Debt
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd ST Debt
AIG G'tee
IFS
IFS
Bkd Sr Debt
AIG Agmt
AIG G'tee
A3
Aa3
Aa3
Domes Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Funding for AIG LHUS
Bkd Tr Prlrd Stock AIG G'tee
Funding for AIG LHUS
Bkd Tr Prlrd Stock AIG G'tee
Fin Svcs
Bkd ST Debt
AIG G'tee
Funding for Parent
Bkd Sr Shelf
AIG G'tee
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Frgn Gen Ins
IFS
A3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
Sr Unsec Debt
A3
Sr Unsec Shelf
Subord Shelf
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
Domes Gen Ins
IFS
AIG Agmt
Aa3
Domes Gen Ins
IFS
AIG Agmt
Caa2
Domes Gen Ins
Bkd IFS
UGRICG'tee Aa3
Domes Gen Ins
IFS
AIG Agmt
C
Bkd Sr Debt
AIG G'tee
Bkd Prlrd Stock
AIG G'tee
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
AIG Agmt
Bkd ST IFS
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
Bkd ST IFS
AIG Agmt
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
Bkd ST IFS
AIG Agmt
American International Underwriters Overseas, Ltd.
Bermuda
AIG UK Limited
UK
Frgn Gen Ins
American Life Insurance Company
DE
Frgn Life Ins & Ret Svcs
0
LIsting order indIcates main ownershIp stake (or sponsorshIp In the case of trusts), not necessarily 100%
ownershIp.
Source: Company reports & Moody's
25 of 50
IFS
IFS
AIG Agmt
Aa3
Aa2
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
Aa3
P-1
Aa2
Aa3
Aa3
Negative
Negative
Negative
Stable
Negative
Stable
Negative
Negative
Negative
Negative
Stable
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
Aa3
P-1
Stable
R-Dn
Stable
R-Dn
R-Dn
R-Dn
Stable
R-Dn
Stable
R-Dn
R-Dn
R-Dn
R-Dn
Stable
Stable
Stable
Negative
Aa2
Aa3
Aa3
Negative
Stable
R-Dn
Negative
Negative
Aa2
Stable
Aa2
Aa2
Stable
Aa2
Aa2
Stable
Aa2
Aa2
Stable
Aa2
Aa2
Stable
Aa2
Aa2
Stable
Aa2
Aa2
Stable
Aa2
A1
Negative
A1
A1
Negative
A1
P-1
P-1
Stable
(P)Aa3 Negative (P)Aa3
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Stable
R-Dn
Aa3
Aa3
A1
Aa3
A2
(P)A2
(P)A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Stable
Stable
Negative
Stable
Stable
Aa3
Aa3
A1
Aa3
A2
(P)A2
(P)A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Stable
Stable
R-Dn
Stable
R-Dn
R-Dn
R-Dn
Stable
Stable
Stable
Stable
Stable
Stable
Aa3
A1
Aa3
A1
Aa3
A2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
Negative
Negative
Negative
Negative
Negative
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Aa3
A1
Aa3
A1
Aa3
A2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
Negative
R-Dn
Negative
R-Dn
R-Dn
R-Dn
R-Dn
Stable
R-Dn
R-Dn
Stable
R-Dn
R-Dn
R-Dn
R-Dn
Stable
Aa3
Aa2
Stable
Stable
Aa3
Aa2
Stable
R-Dn
Stable
Stable
Stable
Stable
Stable
Stable
Summary of Modeled Losses
AIG CDS-COO and RMBS Portfolios
Expected & stress case losses modeled by Chris Mann
($ Mlns)
CDS & coo notional as of March 31, 2008 - Modeled as of June 13, 2008
Modeled portion
Not modeled
Total
exposures
64,562
57,765
6,797
RMBS par as of Dec. 31, 2007 - Modeled as of Aug. 4, 2008
Modeled portion
Expected
losses
(% of modeled)
Stress case
losses
(% of modeled)
o
3
-1,045
-1.8%
-2,886
-4.8%
75,254
59,633
Not modeled
15,621
AIG RMBS Portfolio - Data as of March 31,2008 - Modeled as of Aug. 4, 2008
Expected losses modeled by RMBS team (Greg Bessermann)
($ Mlns)
RMBS excluding Agencies
Agencies
Total RMBS
Par
73,003
Modeled portion
Of which:
Reviewed recently
Not reviewed recently
46,629
43,000
3,629
Not modeled
26,374
Book
value
67,784
14,500
82,284
Market
value
56,778
14,900
71,678
26 of 50
Markdown
to 3/31/08
(% of par)
-16,225
-22.2%
Expected
losses
(% of modeled)
Volatility case
losses
(% of modeled)
-800
-1.7%
-1,200
-2.6%
AIG Financial Leverage and Fixed-Charge Coverage
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Financial Leverage
Unadjusted debt ($ mil)
Adjusted debt ($ mil)
Unadjusted equity ($ mil)
Adjusted equity & minority interest ($ mil)
Unadjusted debt % capital
Adjusted debt % capital
Earnings Coverage of Interest & Prfrd Divs
Unadjusted EBIT ($ mil)
Adjusted EBIT ($ mil)
Unadjusted interest & preferred dividends ($ mil)
Adjusted interest & preferred dividends ($ mil)
Unadjusted earnings coverage (x)
Adjusted earnings coverage (x)
Adjusted earnings coverage (x) - 5-yr avg
Dividend CaE!acity Coverage of Int & Prfrd Divs
Portion of equity not immediately available (%)
Unrestricted subsidiary dividend capacity ($ mil)
Unadjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x) - 5-yr avg
Goodwill EXE!0sure
Goodwill ($ mil)
Goodwill % equity
Balance Sheet InE!uts ($ mil)
Total assets
Unadjusted debt
Operating debt
Financial debt
Minority interest
Unadjusted equity
"Yes" if life investments> 50% total investments
Net unrealized investment appreciation
Income Statement Inputs ($ mil)
Total revenue
Unadjusted interest expense
Operating interest expense
Financial interest expense
Income tax expense
Minority interest expense
Net income
Preferred dividends
Pro forma
TIM 3/08
184,960
27,642
87,178
114,583
68.0%
TIM 3/08
2007
2006
2005
2004
2003
172,170
24,445
79,703
97,516
68.4%
20.0%
176,049
23,719
95,801
106,205
64.8%
148,679
19,638
101,677
99,372
59.4%
109,849
14,467
86,317
82,367
56.0%
96,899
13,705
79,673
73,600
54.9%
80,349
12,544
69,230
63,147
53.7%
18,631
10,527
9,688
1,625
1.9x
28,672
22,781
6,951
1,112
4.1x
20,886
15,910
5,673
758
3.7x
19,128
15,276
4,427
638
4.3x
16,135
12,493
4,219
638
3.8x
18.3x
19.6x
81%
18,202
1.9x
90%
10,168
1.5x
89%
9,495
1.7x
89%
8,764
2.0x
89%
7,615
1.8x
11.7x
11.4x
23,920
2,536
18,202
81%
18,202
10,182
11.7%
10,182
12.8%
1,071,351
184,960
148,848
23,322
10,835
87,178
Yes
-2,554
1,051,086
172,170
148,848
23,322
10,835
79,703
Yes
-2,554
1,060,505
176,049
153,519
22,530
10,422
95,801
Yes
4,375
979,410
148,679
134,221
14,458
7,778
101,677
Yes
10,083
853,048
109,849
100,371
9,478
5,124
86,317
Yes
8,348
801,007
96,899
88,056
8,843
4,831
79,673
Yes
10,326
675,602
80,349
72,376
7,973
3,547
69,230
Yes
9,071
93,450
110,064
9,688
8,361
1,327
1,455
1,288
6,200
0
113,387
6,951
6,110
841
6,537
1,136
14,048
0
108,781
5,673
5,175
498
4,258
478
10,477
0
97,823
4,427
4,041
386
4,407
455
9,839
0
79,601
4,219
3,817
402
3,556
252
8,108
0
-3,808
1,050
-5,735
0
Pro forma TTM 3/08 assumptions:
• Unadjusted and adjusted debt and equity give effect to the capital raised in May 2008
• Adjusted EBIT based on 2006 amount plus 5%
• Adjusted interest and preferred dividends based on 2006 amount plus full-year fixed charges associated with hybrids
27 of 50
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Pension Adjustments ($ mil)
Assumed borrowing rate (%)
Assumed tax rate (%)
Projected benefit obligation (end of year)
Fair value of plan assets (end of year)
Pension asset recorded
Pension liability recorded
Debt adjustment
Shareholders' equity adjustment
Interest expense adjustment
Lease Adjustments ($ mil)
Assumed debt multiplier (x)
Rent expense
Debt adjustment
Interest expense adjustment
EBIT adjustment
Other Adjustments ($ mil)
Hybrid securities #1
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Hybrid securities #2
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Lloyd's LOCS
0E!erating Debt Detail ($ mil)
MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
AIG-guaranteed borrowings of AIGFP
Non-guaranteed borrowings of fin svcs, invest & other
Less borrowings of insurance operations
CP issued by AIG Funding on behalf of AI Credit et al.
Hybrid securities issued by ILFC
Total operating debt
Pro forma
TIM 3/08
TIM 3/08
2007
2006
2005
2004
2003
4,901
4,901
5%
35%
4,901
4,657
820
820
820
1,047
4,481
3,260
703
807
1,221
-726
61
4,126
2,871
523
888
1,255
-579
63
3,950
2,715
566
941
1,235
-559
62
771
4,626
257
257
771
4,626
257
257
6x
771
4,626
257
257
657
3,942
219
219
597
3,582
199
199
568
3,408
189
189
524
3,144
175
175
100
Mezzanine
A
100
0
18,688
Debt
D
4,672
14,016
100
Mezzanine
A
100
0
5,898
Debt
D
1,475
4,424
100
Mezzanine
A
100
0
5,809
Debt
D
1,452
4,357
191
Mezzanine
A
191
0
186
Mezzanine
A
186
0
199
Mezzanine
A
199
0
192
Mezzanine
A
192
0
15,080
1,071
59,254
68,254
-578
5,667
100
148,848
15,080
1,071
59,254
68,254
-578
5,667
100
148,848
14,267
874
65,447
67,881
-567
5,517
100
153,519
5,468
72
67,048
59,277
-459
2,715
100
134,221
0
0
47,274
52,272
-474
1,199
100
100,371
0
0
41,614
45,736
-180
786
100
88,056
0
0
32,941
38,990
-181
526
100
72,376
6.0%
6.1%
5.4%
4.9%
5.5%
3.5%
5.0%
2.9%
5.6%
ImE!lied Interest Rate
On total debt (%)
On financial (non-operating) debt (%)
28 of 50
AIG Domestic Life & Retirement Services Scorecard
Rating Factors
AIG Domestic Life & Retirement Svcs
29 of 50
American International Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
2007
2006
397,372
21,581
$386,869
21,437
9,982
10,836
17,900
21,376
2,370
13,256
14,855
2,539
33,727
28,418
41,984
40,305
4,197
238
16,442
6,467
20,950
39,875
47,205
5,031
220
19,252
4,317
30,291
31,234
75,662
58,823
51,351
29,573
69,306
42,111
27,483
851,961
2,284
792,874
1,590
6,587
18,395
23,103
43,150
654
5,518
78,684
9,414
20,755
6,091
17,789
23,355
37,235
1,101
4,381
70,277
8,628
16,089
$1,060,505
$979,410
(in millions)
Assets:
Investments and financial services assets:
Fixed maturities:
Bonds available for sale, at fair value (amortized cost: 2007 - $393,170; 2006 - $377,163)
Bonds held to maturity, at amortized cost (fair value: 2007 - $22,157; 2006 - $22,154)
Bond trading securities, at fair value (includes hybrid financial instruments: 2007 - $555;
2006-$522)
Equity securities:
Common stocks available for sale, at fair value (cost: 2007 - $12,588; 2006 - $10,662)
Common and preferred stocks trading, at fair value
Preferred stocks available for sale, at fair value (cost: 2007 - $2,600; 2006 - $2,485)
Mortgage and other loans receivable, net of allowance (2007 - $77; 2006 - $64) (includes loans
held for sale: 2007 - $399)
$
Financial services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation (2007 -
$10,499; 2006 -
$8,835)
Securities available for sale, at fair value (cost: 2007 - $40,157; 2006 - $45,912)
Trading securities, at fair value
Spot commodities
Unrealized gain on swaps, options and forward transactions
Trade receivables
Securities purchased under agreements to resell, at contract value
Finance receivables, net of allowance (2007 - $878; 2006 - $737) (includes finance receivables
held for sale: 2007 - $233; 2006 - $1,124)
Securities lending invested collateral, at fair value (cost: 2007 - $80,641; 2006 - $69,306)
Other invested assets
Short-term investments, at cost (approximates fair value)
Total investments and financial services assets
Cash
Investment income due and accrued
Premiums and insurance balances receivable, net of allowance (2007 - $662; 2006 - $756)
Reinsurance assets, net of allowance (2007 - $520; 2006 - $536)
Deferred policy acquisition costs
Investments in partially owned companies
Real estate and other fixed assets, net of accumulated depreciation (2007 - $5,446; 2006 - $4,940)
Separate and variable accounts
Goodwill
Other assets
Total assets
See Accompanying Notes to Consolidated Financial Statements.
30 of 50
130
AIG 2007 Form lO-K
American International Group, Inc. and Subsidiaries
Consolidated Balance Sheet
Continued
December 31,
(in millions. except share data)
Liabilities:
Reserve for losses and loss expenses
Unearned premiums
Future policy benefits for life and accident and health insurance contracts
Policyholders' contract deposits
Other policyholders' funds
Commissions, expenses and taxes payable
Insurance balances payable
Funds held by companies under reinsurance treaties
Income taxes payable
Financial services liabilities:
Securities sold under agreements to repurchase, at contract value
Trade payables
Securities and spot commodities sold but not yet purchased, at fair value
Unrealized loss on swaps, options and forward transactions
Trust deposits and deposits due to banks and other depositors
Commercial paper and extendible commercial notes
Long-term borrowings
Separate and variable accounts
Securities lending payable
Minority interest
Other liabilities (includes hybrid financial instruments at fair value: 2007 - $47; 2006 -
$
$111)
Total liabilities
Preferred shareholders' equity in subsidiary companies
2007
2006
85,500
28,022
136,068
258,459
12,599
6,310
4,878
2,501
3,823
$ 79,999
26,271
121,004
248,264
10,986
5,305
3,789
2,602
9,546
8,331
10,568
4,709
20,613
4,903
13,114
162,935
78,684
81,965
10,422
30,200
19,677
6,174
4,076
11,401
5,249
13,363
135,316
70,277
70,198
7,778
26,267
964,604
877,542
100
191
Commitments, Contingencies and Guarantees (See Note 12)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2007 and 2006-
2,751,327,476
Additional paid-in capital
Payments advanced to purchase shares
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost; 2007 - 221,743,421; 2006 -150,131,273 shares of common stock
(including 119,293,487 and 119,278,644 shares, respectively, held by subsidiaries)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
6,878
2,590
6,878
2,848
(912)
89,029
4,643
84,996
9,110
(6,685)
(1,897)
95,801
101,677
$1,060,505
$979,410
See Accompanying Notes to Consolidated Financial Statements.
31 of 50
AIG 2007 Form lO-K
131
American International Group, Inc. and Subsidiaries
Consolidated Statement of Income
Years Ended December 31,
2006
2005
$ 79,302
28,619
(3,592)
$ 74,213
26,070
106
$ 70,310
22,584
341
(11,472)
17,207
12,998
15,546
110,064
113,387
108,781
66,115
35,006
60,287
31,413
64,100
29,468
101,121
91,700
93,568
8,943
21,687
15,213
5,489
1,048
2,587
1,671
2007
(in millions, except per share data)
Revenues:
Premiums and other considerations
Net investment income
Net realized capital gains (losses)
Unrealized market valuation losses on
AIGFP super senior credit default swap portfolio
Other income
Total revenues
Benefits and expenses:
Incurred policy losses and benefits
Insurance acquisition and other operating expenses
Total benefits and expenses
Income before income taxes, minority interest and cumulative effect of
accounting changes
Income taxes (benefits):
Current
Deferred
3,219
(1,764)
Total income taxes
1,455
6,537
4,258
7,488
15,150
10,955
(1,288)
(1,136)
(478)
6,200
14,014
10,477
Income before minority interest and cumulative effect of accounting changes
Minority interest
Income before cumulative effect of accounting changes
34
Cumulative effect of accounting changes, net of tax
Net income
$
Earnings per common share:
Basic
Income before cumulative effect of accounting changes
Cumulative effect of accounting changes, net of tax
Net income
Diluted
Income before cumulative effect of accounting changes
Cumulative effect of accounting changes, net of tax
Net income
Average shares outstanding:
Basic
Diluted
See AccompanYing Notes to Consolidatea Financial Statements.
32 of 50
132
AIG 2007 Form lO-K
6,200
$ 14,048
$ 10,477
$2.40
$5.38
0.01
$4.03
$2.40
$5.39
$4.03
$2.39
$5.35
0.01
$3.99
$2.39
$5.36
$3.99
2,585
2,598
2,608
2,623
2,597
2,627
American International Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31,
Summary:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
$ 35,171
694
1,590
Cash at end of year
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
Net gains on sales of securities available for sale and other assets
Foreign exchange transaction (gains) losses
Net unrealized (gains) losses on non-AIGFP derivative assets and liabilities
Equity in income of partially owned companies and other invested assets
Amortization of deferred policy acquisition costs
Amortization of premium and discount on securities and long-term borrowings
Depreciation expenses, principally flight equipment
Provision for finance receivable losses
Other-than-temporary impairments
Changes in operating assets and liabilities:
General and life insurance reserves
Premiums and insurance balances receivable and payable - net
Reinsurance assets
Capitalization of deferred policy acquisition costs
Investment income due and accrued
Funds held under reinsurance treaties
Other policyholders' funds
Income taxes payable
Commissions, expenses and taxes payable
Other assets and liabilities - net
Bonds, common and preferred stocks trading
Trade receivables and payables - net
Trading securities
Spot commodities
Net unrealized (gain) loss on swaps, options and forward transactions
Securities purchased under agreements to resell
Securities sold under agreements to repurchase
Securities and spot commodities sold but not yet purchased
Finance receivables and other loans held for sale - originations and purchases
Sales of finance receivables and other loans - held for sale
Other, net
Total adjustments
See Accompanying Notes to ConsoJidateej Rnancia! Staternents,
33 of 50
6,287
(67,952)
61,244
114
2005
$ 23,413
(61,459)
38,097
(163)
(307)
1,897
$
2,284
$
$
6,200
$ 14,048
1,590
(112)
2,009
$
1,897
$ 10,477
11,472
(1,349)
(104)
116
(4,760)
11,602
580
2,790
646
4,715
(763)
1,795
(713)
(3,990)
11,578
699
2,374
495
944
(1,218)
(3,330)
878
(1,421)
10,693
207
2,200
435
598
16,242
(207)
923
(15,846)
(401)
(151)
1,374
(3,709)
989
3,657
(3,667)
2,243
835
(18)
1,413
9,341
(11,391)
633
(5,145)
5,671
477
12,930
(1,214)
1,665
(15,363)
(249)
(1,612)
(498)
2,003
408
(77)
(9,147)
(197)
1,339
(128)
(1,482)
(16,568)
9,552
(1,899)
(10,786)
10,602
541
27,045
192
(5,365)
(14,454)
(171)
770
811
1,543
140
2,863
(5,581)
2,272
(3,753)
442
934
9,953
(12,534)
571
(13,070)
12,821
(1,535)
28,971
(7,761)
$ 35,171
Net cash provided by operating activities
AIG 2007 Form lO-K
$
(68,007)
33,480
50
Change in cash
Cash at beginning of year
134
2006
2007
(in millions)
$
6,287
12,936
$ 23,413
American International Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Continued
Years Ended December 31,
(in millions;
2007
2006
2005
$ 132,320
$112,894
$ 140,076
12,475
11,661
Cash flows from investing activities:
Proceeds from (payments for)
Sales and maturities of fixed maturity securities available for sale and hybrid investments
Sales of equity securities available for sale
9,616
295
303
14,109
9,062
12,553
(139,184)
(10,933)
(266)
(4,772)
(25,327)
(1,361)
(12,439)
(15,271)
(12,303)
(870)
(23,484)
(55)
Proceeds from fixed maturity securities held to maturity
Sales of flight equipment
Sales or distributions of other invested assets
Payments received on mortgage and other loans receivable
Principal payments received on finance receivables held for investment
Purchases of fixed maturity securities available for sale and hybrid investments
Purchases of equity securities available for sale
Purchases of fixed maturity securities held to maturity
Purchases of flight equipment
Purchases of other invested assets
Acquisitions, net of cash acquired
Mortgage and other loans receivable issued
Finance receivables held for investment - originations and purchases
Change in securities lending invested collateral
Net additions to real estate, fixed assets, and other assets
Net change in short-term investments
Net change in non-AIGFP derivative assets and liabilities
$ (68,007)
Net cash used in investing activities
205
46
697
14,084
573
14,899
5,165
3,679
12,586
12,461
(146,465)
(14,482)
(175,657)
(13,273)
(197)
(3,333)
(6,009)
(6,193)
(16,040)
(15,059)
(7,438)
(5,310)
(13,830)
(17,276)
(9,835)
(1,097)
(10,301)
(941)
(10,620)
1,801
(45)
688
$ (67,952)
$ (61,459)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholders' contract deposits
$
Policyholders' contract withdrawals
Change in other deposits
Change in commercial paper and extendible commercial notes
Long-term borrowings issued
Repayments on long-term borrowings
Change in securities lending payable
64,829
(58,675)
(182)
(338)
103,210
(79,738)
11,757
57,197
51,699
(43,413)
(36,339)
1,269
2,960
(957)
(702)
71,028
67,061
(36,489)
(51,402)
9,789
10,437
163
(100)
82
(1,638)
(1,421)
(20)
398
(176)
(85)
Redemption of subsidiary company preferred stock
206
(6,000)
(1,881)
(16)
308
Issuance of treasury stock
Payments advanced to purchase treasury stock
Cash dividends paid to shareholders
Acquisition of treasury stock
Other, net
Net cash provided by financing activities
$
33,480
$
61,244
$
38,097
$
$
8,818
5,163
$
$
6,539
4,693
$
$
4,883
2,593
$
$
11,628
5,088
$
10,746
$
9,782
$
$
$
791
$
$
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest
Taxes
Non-cash financing activities:
Interest credited to policyholder accounts included in financing activities
Treasury stock acquired using payments advanced to purchase shares
Non-cash investing activities:
Debt assumed on acquisitions and warehoused investments
See accompanying Notes to Consolidated Financial Statements.
34 of 50
AIG 2007 Form lO-K
135
American International Group, Inc. and Subsidiaries
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
CONSOLIDATED BALANCE SHEET
.cU_~!!_J!!l[~~(~?:L{~~(~?~~~~f~~L
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _
March 31,
December 31,
2008
2007
Assets:
Investments and Financial Services assets:
Fixed maturities:
Bonds available for sale, at fair value (amortized cost: 2008 - $396,168; 2007$393,170)
$
Bonds held to maturity, at amortized cost (fair value: 2008 - $21,839; 2007 - $22,157)
Bond trading securities, at fair value
395,487
$ 397,372
21,566
21,581
9,375
9,982
Equity securities:
Common stocks available for sale, at fair value (cost: 2008 - $12,387; 2007 - $12,588)
16,122
17,900
Common and preferred stocks trading, at fair value
21,671
21,376
2,451
2,370
34,373
33,727
Preferred stocks available for sale, at fair value (cost: 2008 - $2,609; 2007 - $2,600)
Mortgage and other loans receivable, net of allowance (2008 - $87; 2007 - $77) (held for
sale: 2008 - $6; 2007 - $377 (amount measured at fair value: 2008 - $810)
Financial Services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation
(2008 - $10,932; 2007 - $10,499)
Securities available for sale, at fair value (cost: 2008 - $1,143; 2007 - $40,157)
Trading securities, at fair value
Spot commodities, at fair value in 2008
Unrealized gain on swaps, options and forward transactions, at fair value
Trade receivables
Securities purchased under agreements to resell, at fair value in 2008
42,832
41,984
1,096
40,305
35,998
4,197
728
238
20,598
16,442
8,896
6,467
19,708
20,950
32,601
31,234
Finance receivables, net of allowance (2008 - $985; 2007 - $878) (receivables held for
sale: 2008 - $80; 2007 - $233)
Securities lending invested collateral, at fair value (cost: 2008 - $73,610; 2007 - $80,641)
64,261
75,662
Other invested assets (amount measured at fair value: 2008 - $21,688; 2007 - $20,827)
61,191
58,823
Short·term investments (amount measured at fair value: 2008 - $2,801)
52,298
51,351
841,252
851,961
Total Investments and Financial Services assets
Cash
2,489
2,284
Investment income due and accrued
6,696
6,587
Premiums and insurance balances receivable, net of allowance (2008 - $638; 2007 - $662)
20,437
18,395
Reinsurance assets, net of allowance (2008 - $526; 2007 - $520)
22,895
23,103
Deferred policy acquisition costs
44,066
43,150
710
654
Investments in partially owned companies
Real estate and other fixed assets, net of accumulated depreciation (2008 - $5,630; 2007 -
5,635
5,518
Separate and variable accounts, at fair value
$5,446)
72,973
78,684
Goodwill
10,182
9,414
Income taxes receivable
2,762
Other assets (amount measured at fair value: 2008 - $5,123; 2007 - $4,152)
Total assets
See Accompanying Notes to Consolidated Financial Statements.
35 of 50
1
20,989
20,755
$1,051,086
$1,060,505
American International Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(continued)
(~.~!?}!!!!9.Q?:"?:~!:!!!'~!!'~!::.!!.~!!?L(,!!.~~.,!.q!!.'C.qL. ....................................................................................................................................................................................................
March 31,
2008
December 31,
2007
Liabilities:
$
Reserve for losses and loss expenses
86,860
$
85,500
28,889
28,022
Future policy benefits for life and accident and health insurance contracts
143,425
136,068
Policyholders' contract deposits (amount measured at fair value: 2008 - $4,118; 2007 - $295)
261,264
258,459
13,191
12,599
5,523
6,310
Insurance balances payable
5,504
4,878
Funds held by companies under reinsurance treaties
2,505
Unearned premiums
Other policyholders' funds
Commissions, expenses and taxes payable
Income taxes payable
2,501
3,823
Financial Services liabilities:
Securities sold under agreements to repurchase (amount measured at fair value: 20089,674
8,331
Trade payables
$8,271)
9,494
10,568
Securities and spot commodities sold but not yet purchased, at fair value
3,806
4,709
Unrealized loss on swaps, options and forward transactions, at fair value
30,376
20,613
Trust deposits and deposits due to banks and other depositors (amount measured at fair value:
2008-$262)
Commercial paper and extendible commercial notes
Long·term borrowings (amount measured at fair value: 2008 - $59,254)
5,662
4,903
13,261
13,114
158,909
162,935
Separate and variable accounts
72,973
78,684
Securities lending payable
77,775
81,965
Minority interest
10,834
10,422
Other liabilities (amount measured at fair value: 2008 - $6,295; 2007 - $3,262)
31,358
30,200
971,283
964,604
100
100
6,878
6,878
2,938
2,848
Total liabilities
Preferred shareholders' equity in subsidiary companies
Commitments, Contingencies and Guarantees (See Note 6)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2008 and
2007 - 2,751,327,476
Additional paid·in capital
Payments advanced to purchase shares
(179)
(912)
Retained earnings
79,732
Accumulated other comprehensive income (loss)
(1,271)
4,643
Treasury stock, at cost; 2008 - 255,499,218; 2007 - 221,743,421 shares of common stock
(8,395)
(6,685)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
See Accompanying Notes to Consolidated Financial Statements.
36 of 50
2
89,029
79,703
95,801
$1,051,086
$1,060,505
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (LOSS)
{!!!'JI!Hijg_r.L!?!__~!:'~~j?L£'~L?:.t2?"~~_~9..!~LJ~!!!~~~!~{!~~L _______________________________________________________________________________________________________________________________________________________________________________________________ _
Three Months
Ended March 31,
2008
2007
Revenues:
Premiums and other considerations
$ 20,672
$19,642
4,954
7,124
Net investment income
Net realized capital gains (losses)
(6,089)
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
(9,107)
Other income
Total revenues
(70)
3,601
3,949
14,031
30,645
15,882
16,146
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Incurred policy losses and benefits
.........!~~.~!.~~!?!:..~!?9.~!~.~!!!?~.~.~~..~!.~.~~.!?1?~!.~.!!!;.~.~.~1?~!;.~~~...........................................................................................................................~!~~~••••••••••••~!.~.?I.
.........!~!~~..~~.~~!~!~..~~.~.~.~P.~~~.~~.....................................................................................................................................................................~~!~~.~.........:?~!.~.?::?
Income (loss) before income taxes (benefits) and minority interest
(11,264)
6,172
Income taxes (benefits)
(3,537)
1,726
Income (loss) before minority interest
(7,727)
4,446
Minority interest
(78)
Net income (loss
(316)
$
7,805)
$ 4,130
$
(3.09)
$
Earnings (loss) per common share:
Basic
1.58
$ (3.09) $ 1.58
._-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Diluted
2l~j:~~:~:~~::~~~1.!!.!.~!Le=L~~.!.!I:!!.!~!!:~:!!!!.!.~::::::::::::::::::::::::::::::::::::=::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::!:::::!L~.2.2:::::::l::S.Ll:§:~
Average shares outstanding:
Basic
2,528
2,612
Diluted
2,528
2,621
See Accompanying Notes to Consolidated Financial Statements.
37 of 50
3
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
[[!!.I!2!ijjg.(}.~}.J.I!.(}.CJ.I!E!!~EL....................................................................................................................................................................................................................................
Three Months
Ended March 31,
2008
2007
Summary:
$
Net cash provided by operating activities
Net cash provided by (used in) investing activities
8,293
$
3,529
Net cash provided by (used in) financing activities
(18,024)
(11,675)
Effect of exchange rate changes on cash
8,216
58
Change in cash
Cash at beginning of year period
9,930
(10)
205
112
2,284
1,590
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
$ 2,489
Cash at end of year period
$
1,702
Cash flows from operating activities:
..........~~.~.!.~.~~~.~..(!~~.~L................................................................._...............................................................................................................~...t!!.~~~l...J ....~!.~~.Q
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income (loss):
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
9,107
Net gains on sales of securities available for sale and other assets
Foreign exchange transaction (gains) losses
Net unrealized (gains) losses on non·AIGFP derivatives and other assets and liabilities
(245)
(250)
996
305
2,124
Equity in income of partially owned companies and other invested assets
61
(79)
Amortization of deferred policy acquisition costs
(1,329)
3,156
2,868
Depreciation and other amortization
885
824
Provision for mortgage, other loans and finance receivables
251
87
5,642
467
Other·than·temporary impairments
Changes in operating assets and liabilities:
General and life insurance reserves
Premiums and insurance balances receivable and payable - net
Reinsurance assets
4,855
4,380
(1,588)
(1,192)
241
Capitalization of deferred policy acquisition costs
223
(4,183)
(3,697)
(37)
(109)
Funds held under reinsurance treaties
(12)
(158)
Other policyholders' funds
289
Investment income due and accrued
Income taxes receivable and payable - net
412
(2,635)
1,076
Commissions, expenses and taxes payable
(27)
661
Other assets and liabilities - net
814
Trade receivables and payables - net
636
(3,503)
1,805
Trading securities
1,079
(1,453)
Spot commodities
(490)
Net unrealized (gain) loss on swaps, options and forward transactions
147
(2,646)
962
Securities purchased under agreements to resell
1,241
889
Securities sold under agreements to repurchase
1,283
(2,100)
Securities and spot commodities sold but not yet purchased
(914)
(20)
Finance receivables and other loans held for sale - originations and purchases
(166)
(2,473)
Sales of finance receivables and other loans - held for sale
363
2,574
Other, net
297
204
16,098
5,800
Total adjustments
$
Net cash provided by operating activities
See Accompanying Notes to Consolidated Financial Statements.
38 of 50
4
8,293
$
9,930
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(in rnflilons) (unaudited)
Three Months
Ended March 31,
2008
2007
Cash flows from investing activities:
Proceeds from (payments for)
Sales and matu rities of fixed maturity securities available for sale and hybrid investments
$ 21,208
$ 30,073
2,772
2,137
46
18
Sales of equity securities available for sale
Proceeds from fixed maturity securities held to maturity
14,196
Sales of trading securities
128
27
Sales or distributions of other invested assets
4,895
2,701
Payments received on mortgage and other loans receivable
1,843
733
Principal payments received on finance receivables held for investment
3,510
3,349
Sales of flight equipment
Purchases of fixed maturity securities available for sale and hybrid investments
Purchases of equity securities available for sale
Purchases of fixed maturity securities held to maturity
(21,054)
(34,016)
(2,512)
(2,436)
(16)
(9)
Purchases of trading securities
(9,126)
Purchases of flight equipment (including progress payments)
(1,388)
(1,917)
Purchases of other invested assets
(6,363)
(5,740)
Mortgage and other loans receivable issued
(1,711)
(2,543)
Finance receivables held for investment -
(4,978)
(3,409)
4,153
(5,521)
originations and purchases
Change in securities lending invested collateral
Net additions to real estate, fixed assets, and other assets
Net change in short·term investments
Net change in non·AIGFP derivative assets and liabilities
(237)
(259)
(1,682)
(1,250)
(155)
Net cash provided by (used in) investing activities
$
3,529
38
$(18,024)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholders' contract deposits
$ 16,439
Policyholders' contract withdrawals
$ 14,001
(15,600)
(15,309)
Change in other deposits
629
Change in commercial paper and extendible commercial notes
112
396
12,559
24,358
Repayments on long·term borrowings
(19,908)
(16,324)
Change in securities lending payable
(4,200)
Long·term borrowings issued
(1,340)
5,716
14
Issuance of treasury stock
Payments advanced to purchase treasury stock
Cash dividends paid to shareholders
52
(1,000)
(3,000)
(498)
(430)
(222)
112
Acquisition of treasury stock
(16)
Other, net
Net cash provided by (used in) financing activities
$(11,675)
$
8,216
Interest
$
$
1,901
Taxes
$
(901)
$
640
Interest credited to policyholder accounts included in financing activities
$
1,241
$
2,879
Treasury stock acquired using payments advanced to purchase shares
$
1,733
$
149
$
638
Supplementary disclosure of cash flow information:
Cash paid (received) during the period for:
1,615
Non-cash financing activities:
Non-cash investing activities:
$
Debt assumed on acquisitions and warehoused investments
See Accompanying Notes to Consolidated Financial Statements.
39 of 50
5
Table of Contents
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information of Registrant
Balance Sheet - Parent Company Only
Schedule II
December 31,
(in millions)
2006
2007
Assets:
Cash
Invested assets
Carrying value of subsidiaries and partially owned companies, at equity
Premiums and insurance balances receivable - net
Other assets
Total assets
$
84
14,648
111,714
311
9,103
135,860
$
76
7,346
109,125
222
3,767
120,536
Liabilities:
43
3,916
20,397
500
14,274
874
55
40,059
Insurance balances payable
Due to affiliates - net
Notes and bonds payable
Loans payable
AIG MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
Other liabilities
Total liabilities
Shareholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total shareholders' eguity
Total liabilities and shareholders' eguity
21
1,841
8,917
700
5,468
72
1,840
18,859
6,878
1,936
89,029
4,643
(6,685)
95,801
$135,860
6,878
2,590
84,996
9,110
(1,897)
101,677
$120,536
See Accompanying Notes to Financial Statements - Parent Company Only.
Statement of Income - Parent Company Only
Years Ended December 31,
(in millions)
Agency income (loss)
Financial services income
Asset management income (loss)
Cash dividend income from consolidated subsidiaries
Dividend income from partially-owned companies
Equity in undistributed net income of consolidated subsidiaries and partially owned companies
Other expenses, net
Cumulative effect of an accounting change
Income before income taxes
Income taxes (benefits)
Net income
2006
2007
$
10
69
99
4,685
9
3,121
(2,566)
5,427
(773)
$ 6,200
$
9
531
34
1,689
11
13,308
(1,371)
34
14,245
197
$14,048
2005
$
3
507
(3)
1,958
127
10,156
(2,203)
10,545
68
$10,477
See Accompanying Notes to Financial Statements - Parent Company Only.
AIG 2007 Form lO-K
40 of 50
227
Table of Contents
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information of Registrant Continued
Statement of Cash Flows - Parent Company Only
Schedule II
Years Ended December 31,
2007
2006
2005
$ 6,200
$ 14,048
$ 10,477
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Equity in undistributed net income of consolidated subsidiaries and partially owned companies
Foreign exchange transaction (gains) losses
Changes in operating assets and liabilities:
Change in premiums and insurance balances receivable and payable
Loan receivables held for sale - purchases
Sales of loan receivables - held for sale
Other, net
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of investments
Sale of investments
Change in short-term investments
Contributions to subsidiaries and investments in partially owned companies
Mortgage and other loan receivables - originations and purchases
Payments received on mortgages and other loan receivables
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Notes, bonds and loans issued
Repayments of notes, bonds and loans
Issuance of treasury stock
Cash dividends paid to shareholders
Payments advanced to purchase shares
Acquisition of treasury stock
Other, net
Net cash (used in) provided by financing activities
Change in cash
Cash at beginning of year
Cash at end of year
(9,941)
333
(13,308)
232
(44)
(404)
40
3,046
(6,970)
(770)
(423)
(1,139)
(14,638)
(590)
(7,640)
3,057
(3,631)
(755)
(2,026)
498
(240)
(10,737)
(7,875)
3,402
414
(3,017)
(423)
15
(159)
(7,643)
(117)
(1,681)
20,582
(1,253)
217
(1,881)
(6,000)
(16)
(134)
11,515
8
76
84
$
12,038
(2,417)
163
(1,638)
2,101
(607)
82
(1,421)
(20)
(7)
8,119
(114)
190
76
$
(176)
21
(10,156)
15
1,518
(8,623)
1,854
(598)
(966)
$
173
17
190
NOTES TO FINANCIAL STATEMENTS - PARENT COMPANY ONLY
(J) Agency operations conducted in Nnt' York through the North American Division
(~fAIU
are included in the financial statements
(~f the
parent company.
(2) Certain prior period amounts have been reclass{fied to conform to the current period presentation.
(3) "Equity in undistributed net income (~fc()ns()lidated subsidiaries and partially (J1rned companies" in the accompanying Statement (~flncome - Parent Company Only - includes equity in
income (~f the minority-01t'ned insurance operations.
228
AIG 2007 Fonn lO-K
41 of 50
,.Q)
OJ
co
0...
...as
Q)
-c
c.
::J
as
.-U
c:
as
c:
.LL
co
0
0
C\J
....
0
~
L()
'+-
+-'
C'\J
en
::::J
C)
::::J
«
0
-.::t
Total Capital ($ in mil)
June 30,
March 31,
December 31,
2008
2008
2007
Shareholders' Equity
Junior Subordinated Debt
Junior Subordinated Debt Attributable to Equity Units
Total Capital
$
43 of 50
$78,088
$79,703
$95,801
12,866
5,898
5,809
5,880
o
o
96,834
$ 85,601
$ 101,610
Page 2
Shareholders' Equity Roll Forward
($ in mil)
$ 79,703
March 31, 2008 Shareholders' Equity
Net Loss for Second Quarter
- Adjusted Net Income (ex. Capital Markets Unrealized Market Valuation Losses)
- Capital Markets Unrealized Market Valuation Losses
- Net Realized Capital Losses
- FAS 133 Gains (Losses) , Net
Net Loss
Unrealized Appreciation (Depreciation) of Investments, Net
Foreign Currency Translation Adjustment, Net
Dividends to Shareholders
2,296
(3,617)
(4,019)
(17)
(5,357)
(2,617)
(111 )
(633)
Sale of Equity Units
- Present Value of Future Contract Adjustment Payments
o
(431 )
7,343
Common Stock Issued
Change in All Other Comprehensive Income, Net
191
$ 78,088
June 30, 2008 Shareholders' Equity
44 of 50
Page 3
Estimated Effects of Market Disruption on Equity
Three Months Ended
March 31,
June 30,
2008
AIGFP unrealized market valuation loss
Realized capital losses:
Severity
EITF 99-20
Intent
Issuer-specific
Income tax benefit
Net
Change in unrealized depreciation, net
Less foreign portfolio changes, net (interest, FX, etc.)
Income taxes on foreign portfolio changes
Net
2008
($3,617)
($5,920)
($4,105)
(137)
(779)
(171 )
1,817
($4,843)
(738)
(241)
(322)
2,150
(3,994)
(6,929)
1,504
(526)
(2,617)
3,543
(997)
Total
45 of 50
(3,375)
(71)
(5,951 )
($7,682)
($15,246)
Page 4
Commercial Paper - Funding Liquidity for AIG, ILFC & AGF
• Summary of commercial paper programs versus the backstop facilities for each entity
Commercial Paper Outstanding vs. Backstop Coverage
As of 7/25/08
$25,000
•
If AIG were unable to issue commercial paper
due to a severe disruption in the CP market, or
to AIG-specific issues, the commercial paper
issuing entities could draw down $20.2 billion
under existing, committed backstop facilities.
This compares against a total of $15.0 billion in
CP currently outstanding for these issuers with
$5.2 billion still available.
•
This cash could then be used to meet all
liquidity needs, including repayment of maturing
CP, payment of all principal and interest on
debt when due, payment of quarterly
shareholder dividends ($1.95 billion through 1st
quarter of 2009).
$20,233
$20,000
~
$15,000
I
j--------------
" - - - - - - - 1 1 AIG Bilateral
'f
$73
""
$10,000
$5,0001_,
$0
I
;';';';';';';';';';';';';';';';';';1
';';';';';';';';';';';';';';';';';-1
CP Outstanding
Backstop Facilities
Projected Combined Liquidity Position· AlG, ILFC & AGF
As of 7/28/08
$18,000
$15,000
1...-'\.
$12,Oooi
.............
F+ ....
~ ----------~::====~'~c=~~~-~~~=========--==--:~~
:E
$9,0001
,6
$,000
$3,000
o
This projection does not include any
unusual events, such as extraordinary
dividends or other cash calls
t l - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - '.......=
+-1- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
~~~~~~~~~--------~of50
o
AIG Financial Products
• Liquidity Position for FP under Stress Scenarios 1 & 2
AIGFP Liquidity Projection Scenarios
$10,000
FP 1
($8,719)
:$
:!:
:!:
I:
;'::.:;::,:
($28,729)
;'::,
co~~
"co
~
':;.."
Q)
,,0
Q)\
~
Q)\
':;..~
,,~
~
,,~
\"~
~
,," ,,"
rVCO
"
0/
,,'V
"fJ
"\,,Q)
'l>'l;
\,,10
'V
n}'l;
n}"ro
n}":>~
47 of 50
1
AIG Combined Views
AIG developed two stress scenarios in order to test the Company's ability to
meet its near term obligations and maintain solvency and confidence.
Combined Liquidity Projection· Scenario 1
$40,000
Scenario 1
Key Assumptions
• Utilization of liquidity through CP or backstop facilities, MIP
assets and the remaining proceeds from capital raise
• A significant deterioration in FP's liquidity position from
inability to roll its maturing liabilities or repos
• Offset by monetization of unencumbered assets, portfolio
trades, and various other transactions providing liquidity at FP
$30,000
"~
+1------------------
$20,000
1
$10,000
1
$0
=-- """""""
$6,002
~""-==-""-----~
~I--------------------------------
~~~~,~~~~~~~~~~~~~
Scenario 1 results through 1Q'09 projects a cash
position of $6.0 bill.
Scenario 2
Combined Liquidity Projection· Scenario 2
Key Assumptions
•
All assumptions from Scenario 1 are incorporated
•
FP experiences additional margin calls resulting from severe
adverse market developments
•
•
Additional collateral calls due to a one notch downgrade by
Moody's and S&P
Additional liquidity withdrawals from FP clients due to credit
concerns
::::::: +--rm_"_ _ _ __
$20,000 +c-::-----------------~
::
~
$10,000
$0
1--l
1
""""""c-"""""----------------
....
"""""~------------
($14,008)
:':;.):";
..,-,
~~~~#~~~~~~~~~~~~#
48 of 50
Scenario 2 results through 1 Q'09 projects a cash
deficit of ($14.0) bill.
2
Explanation of Differences in Key Assumptions between Mayand July Analyses
Stress Scenario 1
Ma~
Cate9or~
Opening Cash balance
Maturing debt
Other scheduled cashflows
Nightingale
Collateral/margin calls
Gold leases
Curzon CP
Monetization of assets
MTN and EMTN
Repo Rollover issues
2a7 liquidity puts
Portfolio trades
Private Equity
Difference
7,660,000
1,681,000
(5,979,000)
(10,902,708)
(940,573)
(4,183,281 )
(7,993,920)
4,038,642
(2,274,278)
2,908,788
4,979,215
1,909,003
(523,850)
(2,500,000)
(394,500)
(1,514,649)
17,000,000
(392,660)
(699,583)
(857,966)
156,000
(10,000,000)
(100,686)
6,500,000
(265,960)
(1,647,018)
(680,756)
(250,000)
Closing balance
A
Jul~
6,089,511
(8,718,698)
523,850
(7,500,000) A
394,500
1,413,963 B
(10,500,000) C
126,700
(947,435)
177,210
(156,000)
(250,000)
(14,808,209)
In the July analysis, AIG employed a significantly more severe assumption for the potential future collateral calls
related to AIGFP's super senior credit derivatives as compared to the assumptions used in the May analysis. For
the May analysis, AIG has assumed an additional $2.5 billion in collateral calls, based on the premise of markets
remaining stable. Since then, AIG FP had posted an additional $6 billion, bringing the total posting to $16 billion. In
the July analysis, AIG is assuming an additional $10 billion on top of the $16 billion already posted. In order for AIG
to post an additional $10 billion, the valuations of the super senior COO securities would have to further deteriorate
by an amount in excess of the $10 billion.
As the majority of the mark to market losses recognized and collateral postings to date relate to the portion of the
portfolio that includes some exposure to sub-prime, a further $13 billion deterioration of the value of these positions
would equate to a drop in price by 17 points (ignoring amortization). If reduced by 17 points, then the average price
for AIGFP's hi-grade COOs will be 51 and the average price for the mezzanine COOs would be 42.
AIGFP's Super Senior COO Portfolio Containing Sub-prime RMBS
Notional
($ billion)
Hi-grade
Mezzanine
$
$
$
41.956
15.842
57.798
AIG June Avg
Price
67.81%
58.82%
AIG June Avg
Prices
Adjusted by
17
50.81%
41.82%
B
The May analysis assumed that $1.5 billion in short-term debt issued by Curzon will not roll. AIG revised this
assumption in the July analysis as only $100 million is currently rolling overnight.
C
The July analysis only considers unencumbered assets at AIGFP. It does not consider unencumberred assets at
Banque AIG or assets held by AIG Inc on behalf of AIGFP. Total amount of additional unencumbered assets
available to AIGFP to monetize that are not reflected above are approximatey $7.5 billion. While not considered in
this analysis, these are assets available to AIG to monetize.
49 of 50
Explanation of Differences in Key Assumptions between May and July Analyses
Stress Scenario 2
Category
May
Opening Cash balance
July
Difference
7,660,000
1,681,000
(5,979,000)
Maturing debt
Other scheduled cashflows
(10,902,708)
(940,573)
(4,183,281)
(7,993,920)
4,038,642
(2,274,278)
2,908,788
4,979,215
1,909,003
Nightingale
Collateral! margin calls
Gold leases
Curzon CP
Monetization of assets
Commodity call
Ratings downgrade
Liquidity withdrawals
MTN and EMTN
Repo Rollover issues
2a7 liquidity puts
Portfolio trades
Private Equity
(523,850)
(11,500,000)
(394,500)
(6,392,216)
21,500,000
(817,197)
(8,698,898)
(1,400,000)
(392,660)
(699,583)
(857,966)
156,000
Closing balance
(14,204,151 )
(250,000)
523,850
(1,500,000)
394,500
819,807
(10,000,000)
67,197
(4,717,609)
(971,958)
126,700
(947,435)
177,210
(156,000)
(250,000)
(28,728,886)
(14,524,735)
(13,000,000)
(5,572,409)
11,500,000
(750,000)
(13,416,507)
(2,371,958)
(265,960)
(1,647,018)
(680,756)
A
B
C
D
D
A
In the July analysis, AIG employed a significantly more severe assumption for the potential future collateral calls
related to AIGFP's super senior credit derivatives as compared to the assumptions used in the May analysis. For the
May analysis, AIG has assumed an additional $11.5 billion in collateral calls. Since then, AIG FP had posted an
additional $6 billion, bringing the total posting to $16 billion. In the July analysis, AIG is assuming an additional $13
billion on top of the $16 billion already posted. In order for AIG to post an additional $13 billion, the valuations of the
super senior COO securities would have to further deteriorate by an amount in excess of the $13 billion.
As the majority of the mark to market losses recognized and collateral postings to date relate to the portion of the
portfolio that includes some exposure to sub-prime, a further $13 billion deterioration of the value of these positions
would equate to a drop in price by 22 points (ignoring amortization). If reduced by 22 points, then the average price
for AIGFP's hi-grade COOs will be 46 and the average price for the mezzanine COOs would be 37.
AIGFP's Super Senior CDO Portfolio Containing Sub-prime RMBS
Notional
($ billion)
Hi-grade
Mezzanine
$
$
$
41.956
15.842
57.798
AIG June Avg
Price
67.81%
58.82%
AIG June Avg
Prices Adjusted
bi 22
45.81%
36.82%
B
The July analysis only considers unencumbered assets at AIGFP. It does not consider unencumberred assets at
8anque AIG or assets held by AIG Inc on behalf of AIGFP. Total amount of additional unencumbered assets
available to AIGFP to monetize that are not reflected above are approximatey $7.5 billion. While not considered in
this analysis, these are assets available to AIG to monetize.
C
A two-notch downgrade from Aa2 by Moody's only was assumed in the May analysis, while a one-notch downgrade
from Aa3 by both Moody's and S&P is assumed in the July analysis. A split rating between Moody's and S&P
reduces the liquidity demands by approximately $3 billion.
D
More severe assumptions were assumed for the contagion effect of a rating downgrade on AIGFP's outstanding
business from counterparties electing to terminate trades with AIGFP.
50 of 50
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Reason for Rating Committee: Address AIG's 1008 results, including incremental unrealized MTM losses
on CDC ($9.1 bin pretax), net realized capital losses on investments ($6.1 bin pretax) and unrealized
depreciation investments ($10.8 bin pretax), as well as AIG's plan to raise $12.5 - 15.0 bin of capital,
includin common stock and
rids.
Last Rating Action (include date and reason): March 3, 2008 - Affirmed AIG's ratings following its
2007 results.
announcement of 40 and ful
Aaa
Aaa
Aaa
Fo
Fo
Fo
Aaa
Aaa
Aaa
Rationale for Recommendation
Neg: AIG has reported large realized and unrealized losses and unrealized depreciation over the past six
months, nearly all related to the US residential mortgage market, as summarized below.
A1G Mortgage Related Losses/Writedowns
($ Bins)
Unrealized market valuation losses on
AIGFP's super-senior CDS portfolio
Net realized capital losses *
Operating losses at United Guaranty
Totals through IS
Unrealized depreciation of investments
Totals through IS & BS
* Market severity OTT I included above
Italicized amounts estimated by BB
402007
Pretax
After-tax
102008
Pretax
After-tax
40 & 10 Totals
Pretax
After-tax
11.1
2.6
0.3
14.0
3.9
17.9
2.2
7.2
1.7
0.2
9.1
2.5
11.6
9.1
6.1
0.4
15.6
10.8
26.4
4.0
5.9
3.9
0.3
10.1
6.9
17.0
20.2
8.7
0.7
29.6
14.7
44.3
6.2
12 mos
12/31/2006
113.4
21.7
14.0
979.4
101.7
9mos
913012007
91.6
17.4
11.5
1,072.1
104.1
12 mos
12/31/2007
110.1
8.9
6.2
1,060.5
95.8
3mos
313112008
--
--
3mos
12/31/2007
18.4
-8.4
-5.3
1,060.5
95.8
-8.3
-8.0%
13.1
5.6
0.5
19.2
9.4
28.6
Where
reported
IS
IS
IS
BS
A1G Consolidated Financial Highlights
($ Bins)
Revenues
Pretax income
Net income (loss)
Total assets
Shareholders' equity
Change in equity vs 9/30/2007 ($)
Change in equity vs 9/30/2007 (%)
-7.8
79.7
-24.4
-23.4%
Neg: AIG is exposed to mortgage markets on multiple fronts - super-senior CDS at AIGFP; insurance
investments (including securities lending collateral), insured mortgages at United Guaranty, and owned
mortgages at American General Finance. These exposures have added volatility to AIG's financial results
(thereby reducing financial flexibility), and have management time and energy. The CEO of AIGFP has
resigned and the company is making an internal change in leadership of the Financial Services segment.
Neg: The mortgage exposures heighten liquidity risk in the affected operations. As of Feb. 26, 2008, AIGFP
had posted $5.3 bin of collateral against super-senior CDS positions. The company estimated that it would
need to post an additional $1.4 bin in the event of a downgrade to Aa3 by Moody's and/or AA- by S&P. The
securities lending book could face withdrawals/exits by securities borrowers, prompting AIG to sell RMBS at a
loss or to draw upon more liquid securities in other areas, although the borrowing has been steady to date.
Pos/neg: AIG plans to raise $12.5 - $15 bin of common equity and Basket D hybrids (mandatory convertible
securities and junior subordinated debentures) to replenish much of its equity. The new capital will far exceed
the expected economic losses related to mortgages. On the other hand, the hybrids will increase the
company's fixed charge burden, reducing earnings coverage from historic levels of about 20x to a likely range
of 9x - 13x.
Pos/neg: AIG remains one of the world's largest and most diversified financial service firms, with an ability to
generate capital quickly. However, core earnings appear to have flattened or weakened over the past year,
reflecting a softening P&C market, slow growth in the US life operations, and weaker results in mortgageexposed businesses such as AIGFP, United Guaranty and American General Finance.
Pos: We continue to believe that the ultimate economic losses on AIG's mortgage exposures will be a modest
fraction of the MTM losses/depreciation. The super-senior CDS portfolio is well underwritten and the RMBS
portfolio is of generally high quality. We believe that AIG will recoup a large portion of the recent declines
through income and equity as the mortgage market recovers.
Subsidiary ratings: See page 13 for recommendations.
2
Contents
Press Release of March 3, 2008
4-5
Credit Opinion (published March 18, 2008)
6-10
Q-tools
11
Stock Chart
12
Rating History
12
Orqanizational Structure with Rated Entities
13
Weighted Average Stand-alone Rating
14
Summary of Reported and Modeled Losses
15-16
AIG Response to MBS/CDO/FG Survey
17-18
Notes from 1Q08 Earninqs Preview Call with AIG
19-21
AIG's Capital Raising Plan
22
AIG Financial Leverage and Fixed-Charge Coverage
23-24
Liquidity Risk Assessment: AIG Funding, Inc. (published March 18, 2008)
25-26
AIG Liquidity Review
27-31
AIGFP Five-year Cash Profile as of Dec. 31,2007
22-38
AIG Financial Highlights
39
AIG Segment Detail
40
AIG 2007 Financial Statements
41-43
AIG Revenue & Income Charts
44
AIG Domestic Life Insurance & Retirement Services Group Scorecards
45
3
Press Release of March 3, 2008
Moody's affirms AIG's ratings and maintains negative outlook
New York, March 03, 2008 -- Moody's Investors Service has affirmed the ratings of American International
Group, Inc. (NYSE: AIG -- senior unsecured debt rating of Aa2), following the company's announcement of a
$5.3 billion net loss for the fourth quarter of 2007. The net result includes significant unrealized market
valuation losses on super-senior credit default swaps (CDS) on multi-sector collateralized debt obligations with
subprime mortgage content. Moody's said that AIG's super-senior CDS have more moderate exposure to
recent mortgage vintages than those of many other market participants, such that AIG's ultimate economic
losses may be materially smaller than estimated market values would suggest. Nevertheless, the rating agency
said that a material increase in market valuation losses and/or a realization of significant economic losses on
this portfolio could lead to a downgrade of AIG's ratings. The rating outlook for AIG remains negative.
AIG's fourth-quarter 2007 results included a $7.2 billion after-tax unrealized market valuation loss on supersenior CDS as well as $2.1 billion of after-tax realized capital losses, mainly from other-than-temporary
impairment of investment securities. Also in the fourth quarter, AIG posted to its equity account $2.5 billion in
after-tax unrealized depreciation of investments. All of these charges pertained largely to subprime mortgage
exposures.
Moody's changed AIG's rating outlook to negative from stable on February 12, 2008, based on the company's
sizable exposure to the US subprime mortgage market, where credit quality and liquidity remain under
pressure, along with the company's trend toward higher operating and financial leverage over the past few
years. The rating agency noted that uncertainty surrounding the valuation of subprime mortgage exposures
could add significant volatility to AIG's earnings and capital position over the near-to-medium term, thereby
weakening the firm's financial flexibility to some extent.
In addition to the super-senior CDS portfolio, Moody's is monitoring the residential mortgage-backed securities
(RMBS) held by AIG's insurance subsidiaries, both directly and through securities lending activities. Moody's
noted that AIG generally holds well diversified senior tranches within RMBS pools, such that the ultimate
economic losses on these securities may be significantly smaller than current market values would suggest.
Still, Moody's is concerned that market value fluctuations on RMBS could add volatility to the earnings and
capital levels of specific insurance subsidiaries and to AIG as a whole.
Other areas of potential volatility for AIG are the subprime and second-lien mortgage portfolios insured by the
Mortgage Guaranty unit, as well as the subprime and non-prime mortgage loans held by the Consumer
Finance unit.
According to Moody's, AIG's ratings reflect its leading positions in many insurance markets, its broad business
and geographic scope, its strong earnings and cash flows, and its excellent financial flexibility. These strengths
are tempered by the intrinsic volatility in certain General Insurance and Financial Services businesses, by the
significant volume of spread-based investment business in the Asset Management segment, and by the
company's sizable exposure to the US subprime mortgage market. Moody's expects that AIG will maintain its
strategic focus on insurance, with Financial Services accounting for no more than 20% of consolidated
operating income.
Moody's cited the following factors that could lead to a stable rating outlook for AIG: (i) improvements in standalone credit profiles of major operating units, (ii) continued strong group profitability, with returns on equity
exceeding 15%, (iii) remediation of all material weaknesses in internal controls over financial reporting, and (iv)
adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type
operations and match-funded investment programs) comfortably below 20%.
Moody's cited the following factors that could lead to a rating downgrade for AIG: (i) a decline in the standalone credit profile of one or more substantial operating units, (ii) a decline in group profitability, with returns on
equity remaining below 12% over the next few quarters, (iii) a decline in financial flexibility, with adjusted
financial leverage exceeding 20% or adjusted pretax interest coverage remaining below 15x over the next few
quarters, or (iv) incremental subprime-related realized and/or unrealized after-tax losses exceeding $5 billion.
4
The last rating action on AIG took place on February 12, 2008, when Moody's changed the rating outlook to
negative from stable.
AIG, based in New York City, is a leading international insurance and financial services organization, with
operations in more than 130 countries and jurisdictions. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
reported total revenues of $110.1 billion and net income of $6.2 billion for the year 2007. Shareholders' equity
was $95.8 billion as of December 31,2007.
For more information, please visit our website at www.moodys.com/insurance.
5
Credit Opinion (published March 18, 2008)
Credit Opinion: American International Group, Inc.
American International Group, Inc.
New York, New York, United States
Key Indicators
American International Group, Inc. [1]
Total Assets ($ Mil.)
Equity ($ Mil.)
Total Revenue ($ Mil.)
Net Income ($ Mil.)
Financial Leverage
Earnings Coverage (1 yr.)
Cashflow Coverage (1 yr.)
2007
$1,060,505
95,801
$
$ 110,064
6,200
$
2006
$ 979,410
$ 101,677
$ 113,387
$ 14,048
2005
$ 853,048
$ 86,317
$ 108,781
$ 10,477
2004
$ 801,007
$ 79,673
$ 97,823
$
9,839
2003
$ 675,602
$ 69,230
$ 79,601
8,108
$
18.2%
6.5x
11.2x
16.5%
20.5x
9.1x
14.9%
21.0x
12.5x
15.7%
23.9x
13.7x
16.6%
19.6x
11.9x
[1] Information based on consolidated GAAP financial statements.
NB: Some financial leverage and coverage ratios have changed versus prior Moody's reports because of
reclassification of portions of debt and interest between financial and operating amounts.
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG - senior unsecured debt rated Aa2, negative outlook) is a leading global
insurance and financial services firm, with operations in more than 130 countries and jurisdictions. The company is
engaged through subsidiaries in General Insurance, Life Insurance & Retirement Services, Financial Services and Asset
Management. Just over 40% of the company's 2007 revenues were derived from domestic (US) operations, with nearly
60% coming from other markets around the world. AIG's extraordinary diversification helps it to withstand challenges in
particular business lines or geographic regions and to generate substantial earnings and capital over time.
Moody's changed the rating outlook for AIG to negative from stable on February 12, 2008, based on the company's
sizable exposure to the US subprime mortgage market, where credit quality and liquidity remain under pressure, along
with the company's trend toward higher financial and operating leverage over the past few years. Moody's also changed
the rating outlooks to negative from stable on several AIG subsidiaries (i) that have substantial exposure to the US
subprime mortgage market, or (ii) whose ratings rely on significant explicit or implicit support from the parent company.
The Capital Markets unit has written large notional amounts of super-senior credit default swaps (CDS) against multisector collateralized debt obligations (COOs) with subprime mortgage content. The CDS contracts are highly customized
and illiquid, particularly in the current market, making it difficult to determine their fair value for financial reporting purposes.
AIG's auditors have concluded that the company had a material weakness related to the valuation process as of
December 31,2007.
Moody's notes that AIG's multi-sector COOs have more moderate exposure to recent vintages than those of many other
participants in this market, such that the ultimate economic losses may be materially smaller than estimated market
values would suggest. Moreover, the internal control weakness appears to be narrow in scope and may be relatively easy
for AIG to remediate. Nevertheless, a material increase in market valuation losses and/or a realization of significant
economic losses on this portfolio could lead to a downgrade of AIG's ratings.
AIG also faces volatility in connection with its investments in residential mortgage-backed securities, including subprime
and Alt-A securities, a majority of which are held by AIG's US life insurance subsidiaries, both directly and through
securities lending activities. AIG generally holds well diversified senior tranches within RMBS pools, such that the ultimate
economic losses on these securities may be significantly smaller than current market values would suggest. Still, Moody's
is concerned that market value fluctuations on RMBS could add volatility to the earnings and capital levels of specific
insurance subsidiaries and to AIG as a whole. Other areas of potential volatility are the subprime and second-lien
mortgage portfolios insured by the Mortgage Guaranty unit, as well as the subprime and non-prime mortgage loans held
by the Consumer Finance unit.
6
Moody's has applied various market stress scenarios to AIG's subprime exposures over the past several months, with AIG
demonstrating sufficient capital strength and earnings power to support the existing ratings. We will continue this process
in the months ahead, incorporating our revised expectations for cumulative losses across different loan types.
AIG's ratings reflect its leading market positions in all major business segments, its broad business and geographic scope,
its historically strong earnings and cash flows, and its excellent financial flexibility. These strengths are tempered by the
intrinsic volatility in certain General Insurance and Financial Services business units, by the significant volume of spreadbased investment business in the Asset Management segment, and by the company's sizable exposure to the US
subprime mortgage market.
Credit Profile of Significant Subsidiaries/Activities
Domestic General Insurance (2007 revenues: $38.0 billion, 35% of consolidated total)
The Domestic General Insurance segment encompasses the Domestic Brokerage Group (DBG), Transatlantic Holdings,
Inc. (TRH), Personal Lines and Mortgage Guaranty. Moody's maintains Aa2 insurance financial strength (IFS) ratings
(negative outlook) on eight members of DBG, reflecting DBG's position as the largest US writer of commercial insurance,
its broad diversification and its expertise in writing large and complex risks. These strengths are somewhat offset by
DBG's relatively high, albeit improving, gross underwriting leverage and its history of adverse loss development following
the last soft market for property & casualty insurance. The DBG ratings incorporate a notch of uplift from the affiliation with
AIG, which has a history of supporting these and other subsidiaries. Absent such support, the DBG members would have
stand-alone ratings of Aa3.
TRH, approximately 59% owned by AIG, is a holding company for Transatlantic Reinsurance Company (TRC), a leading
US-based broker-market reinsurer with expertise in specialty casualty lines. TRC's Aa3 IFS rating (stable outlook) reflects
its lead position on many treaties, relatively steady profitability and sound capitalization. These strengths are partly offset
by competition from larger global reinsurers and by the inherent volatility of catastrophe exposed business.
Moody's maintains Aa2 IFS ratings (negative outlook) on four members of AIG's Mortgage Guaranty unit, led by United
Guaranty Residential Insurance Company (UGRIC). The ratings are based on the group's historically sound underwriting,
strong lender relationships and explicit support from affiliates. Three of the companies are supported by net worth
maintenance agreements from AIG plus excess-of loss reinsurance covers provided by a DBG member. The fourth
company is supported by an unconditional guaranty from UGRIC. Absent such explicit support, these companies would
have lower stand-alone ratings. The stand-alone credit profiles have been weakened by growing losses in the insured
portfolios of subprime and non-prime first-lien and second-lien mortgage loans.
Foreign General Insurance (2007 revenues: $13.7 billion, 12% of consolidated total)
Foreign General Insurance consists of several property & casualty insurance agencies and underwriting companies
offering commercial and consumer insurance through a range of marketing and distribution channels. The group operates
in Asia, the Pacific Rim, the UK, Europe, Africa, the Middle East and Latin America, adapting to local laws and customs as
needed.
AIG UK Limited (AIG UK) is the group's flagship property & casualty insurer in the UK, having absorbed the UK business
of a DBG company in December 2007. The Aa2 IFS rating (negative outlook) on AIG UK reflects its strong market
position, healthy profitability and generally conservative investment strategy. Offsetting these strengths to some extent is
the focus on commercial lines, which Moody's views as inherently more volatile than personal lines. The rating on AIG UK
incorporates explicit and implicit support, including a net worth maintenance agreement from AIG and extensive
reinsurance from affiliates. Absent such support, AIG UK's stand-alone rating would be Aa3.
In 2006, AIG acquired Central Insurance Co. Ltd., a diversified non-life insurer in Taiwan with a solid market presence but
a record of volatile operating results over the past few years. During 2007, AIG changed the company's name to AIG
General Insurance (Taiwan) Co., Ltd. (AIG GI Taiwan), and merged the Taiwan branch of a DBG company into AIG GI
Taiwan. Moody's upgraded the IFS rating of AIG GI Taiwan from Baa1 to A2 in July 2007 and to A 1 (stable outlook) in
March 2008. With a stand-alone rating of A3, AIGGI Taiwan receives two notches of rating uplift from parental support in
the form of financial flexibility, transfer of technical knowledge, management expertise and risk sharing.
Domestic Life Insurance & Retirement Services (2007 revenues: $15.3 billion, 14% of consolidated total)
Moody's maintains Aa1 IFS ratings (negative outlook) on seven members of the Domestic Life Insurance & Retirement
Services segment, based on the group's multi-faceted distribution network, broad and varied product portfolio, and leading
market positions in several products, including term life, universal life, structured settlements and certain classes of
annuities. The ratings also reflect the strategic and financial benefits of AIG ownership, such as the AIG brand, cross-
7
selling arrangements, and common investment management and administrative services. These strengths are tempered
by persistent competition in the mature US market for protection and savings products, and by the group's significant
exposure to US subprime and Alt-A RMBS, held directly and through securities lending activities.
Moody's maintains Aa2 ratings (negative outlook) on three SunAmerica companies that have booked substantial spreadbased investment business through the sale of GIC-backed notes to investors. In 2005, AIG shifted this activity to a new
Matched Investment Program (MIP - now part of the Asset Management segment) and placed the SunAmerica GIC
portfolio into runoff. Our Aa2 ratings on these companies reflect the heightened asset and liquidity risks associated with a
runoff portfolio, although we believe that AIG is managing the runoff effectively. AIG also provides net worth maintenance
agreements in support of the SunAmerica companies.
Foreign Life Insurance & Retirement Services (2007 revenues: $38.3 billion, 35% of consolidated total)
Foreign Life Insurance & Retirement Services encompasses international and local subsidiaries with operations in Europe,
Latin America, the Caribbean, the Middle East, Australia, New Zealand and Asia, including extensive operations in Japan.
The group sells products largely to indigenous persons through multiple distribution channels, including full-time and parttime agents, independent producers, direct marketing, brokers and financial institutions.
Moody's maintains a Aa2 IFS rating (stable outlook) on American Life Insurance Company (ALlCO), based on its well
established operations in more than 50 overseas markets (particularly in Japan, which accounts for about two-thirds of
ALlCO's operating income), along with its favorable record of growing organically in existing markets and expanding into
new markets. The rating also recognizes the company's strong brand name and distribution channels, healthy
capitalization and consistent operating performance. These strengths are tempered by competition from local and foreign
players in Japan, political risk in certain emerging markets, and ALlCO's relatively large exposure to affiliated investments,
mainly AIG common stock.
ALlCO's Japanese operations are complemented by those of AIG Edison Life Insurance Company (AIG Edison - IFS
rating of Aa2, stable outlook) and AIG Star Life Insurance Co., Ltd. (not rated), giving AIG a strong and diversified
presence in the Japanese life insurance market. The AIG Edison rating reflects the company's healthy profitability, solid
capital base and diversified distribution channels, tempered by agent retention and business persistency rates that are
below expectations for the rating level. The rating incorporates one notch of uplift from the close affiliation with ALiCO.
Without such support, AIG Edison would have a stand-alone rating of Aa3.
American International Assurance Company, Limited (not rated) and its affiliates, including American International
Assurance Company (Bermuda) Limited (AIAB - IFS rating of Aa2, negative outlook), make up the largest and most
diversified life insurance group in Southeast Asia. The rating on AIAB reflects its leading position in the life insurance
market in Hong Kong, where it has garnered the largest market share and is supported by a strong brand name. The
rating also recognizes the company's consistent operating performance, well established and efficient agency force, and
healthy capitalization. These strengths are somewhat offset by the possible threat to AIAB's market position, given the
intense competition in Hong Kong and Korea, by the challenge AIAB faces in its effort to broaden distribution channels,
and by its exposure to affiliated investments, mainly AIG common stock. The AIAB rating incorporates one notch of uplift
from the AIG ownership and support. Absent such support, the stand-alone rating would be Aa3.
Financial Services (2007 revenues: -$1.3 billion, -1 % of consolidated total)
The Financial Services segment engages in aircraft and equipment leasing, capital market transactions, consumer finance
and insurance premium financing. The Aircraft Finance business, conducted by International Lease Finance Corporation
(ILFC - senior unsecured debt rated A 1, stable outlook), is a global leader in leasing and remarketing advanced
technology commercial jet aircraft. ILFC's ratings reflect its high-quality aircraft portfolio and solid relationships with aircraft
manufacturers and airlines. Tempering this view is the cyclical nature of the business, as well as ILFC's sizable order
position and residual value risk. The ratings incorporate AIG ownership and support, evidenced by capital contributions to
ILFC totaling more than $1 billion since 2001. Absent such support, ILFC's ratings would be lower.
The Capital Markets unit comprises the global operations of AIG Financial Products Corp. (AIGFP - backed long-term
issuer rating of Aa2, negative outlook) and subsidiaries. AIGFP engages as principal in a variety of standard and
customized financial products with corporations, financial institutions, governments, agencies, institutional investors and
high net-worth individuals worldwide. This unit also raises funds through municipal reinvestment contracts and other
private and public note offerings, investing the proceeds in a diversified portfolio of debt, equities and derivatives. The Aa2
ratings on AIGFP and several of its subsidiaries are based on general and deal-specific guarantees from AIG. AIGFP has
substantial notional exposure to the US subprime mortgage market through super-senior COS and cash COOs, as noted
above.
8
The Consumer Finance unit includes US operations conducted mainly by American General Finance Corporation (AGFC senior unsecured debt rated A 1, stable outlook) and international operations conducted by AIG Consumer Finance Group,
Inc. (AIGCFG). AGFC's ratings are based on its strong US market presence, disciplined approach to the business and
modest lift from the AIG relationship. Over the past decade, AGFC has focused its growth efforts on real estate secured
loans, which accounted for about three-fourths of the loan portfolio as of year-end 2007. The portfolio, which includes
meaningful levels of subprime and non-prime loans, has experienced some deterioration in credit quality along with the
overall US housing sector, but AGFC's delinquency and charge-off rates remain within the company's target bands. We
believe that AGFC's adherence to conservative underwriting standards will help the company to weather the housing
market slump relatively well.
Asset Management (2007 revenues: $5.6 billion, 5% of consolidated total)
The Asset Management segment comprises a variety of investment related products and services for institutions and
individuals worldwide. The group's main activities are spread-based investing, institutional asset management, brokerage
services and mutual funds. The spread-based investment business, formerly conducted through the SunAmerica
companies, is now conducted through AIG's MIP. The institutional asset management business, known as AIG
Investments, provides a range of equity, fixed income and alternative investment products and services to AIG
subsidiaries and affiliates, other institutional clients and high-net-worth individuals. The brokerage services and mutual
funds operations provide broker/dealer services and mutual funds to retail investors, group trusts and corporate accounts
through an independent network of financial advisors.
Credit Strengths
Credit strengths/opportunities of the group include:
- One of the world's largest and most diversified financial service firms, with leading market positions in various business
lines and countries
- Historically strong earnings and cash flows across all major business segments
- Excellent financial flexibility, although this has been weakened somewhat by earnings and capital volatility related to US
subprime mortgage exposures
Credit Challenges
Credit challenges/risks include:
- Intrinsic volatility in certain General Insurance and Financial Services business units
- Significant volume of spread-based investment business within the Asset Management segment
- Sizable exposure to the US subprime mortgage market through various business units and activities
Rating Outlook
AIG's rating outlook was changed to negative from stable on February 12, 2008, based on the company's sizable
exposure to the US subprime mortgage market, where credit quality and liquidity remain under pressure. A material
increase in market valuation losses and/or a realization of significant economic losses on this portfolio could lead to a
downgrade of AIG's ratings.
What Could Change the Rating - Up
Given the current negative outlook, there is limited upward pressure on the rating; however, factors that could lead to a
stable outlook include:
- Improvements in stand-alone credit profiles of major operating units
- Continued strong group profitability, with returns on equity exceeding 15%
- Remediation of all material weaknesses in internal controls over financial reporting
- Adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type operations and
match-funded investment programs) comfortably below 20%
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
9
- A decline in the stand-alone credit profile of one or more substantial operating units
- A decline in group profitability, with returns on equity remaining below 12% over the next few quarters
- A decline in financial flexibility, with adjusted financial leverage exceeding 20% or adjusted pretax interest coverage
remaining below 15x over the next few quarters
- Incremental subprime-related realized and/or unrealized after-tax losses exceeding $5 billion
- A material shift in the company's strategic emphasis away from insurance (e.g., Financial Services accounting for more
than 20% of consolidated operating income)
Recent Results
AIG reported total revenues of $110.1 billion and net income of $6.2 billion for 2007, as compared to $113.4 billion and
$14.0 billion for 2006. AIG's 2007 results included a $7.5 billion after-tax unrealized market valuation loss on super-senior
CDS as well as $2.8 billion of after-tax realized capital losses, mainly from other-than-temporary impairment of investment
securities. These charges pertained largely to subprime mortgage exposures. Shareholders' equity was $95.8 billion as of
December 31,2007.
Capital Structure and Liquidity
Moody's believes that AIG's financial flexibility has been weakened somewhat by the firm's exposure to the US subprime
mortgage market and the related earnings and capital volatility, as reflected in the negative rating outlook. AIG's adjusted
financial leverage has increased from 14.9% at year-end 2005 to 18.2% at year-end 2007. The company issued
approximately $5.6 billion of junior subordinated debentures (Basket 0 hybrids) during 2007, using substantially all of the
net proceeds to repurchase common stock. Moody's expects the company to keep its adjusted financial leverage below
20%.
AIG's adjusted pretax interest coverage fell from 20.5x in 2006 to 6.5x in 2007, mainly because of the large subprimerelated charges in 2007 as well as the incremental interest expense on hybrid securities issued during the past year.
Moody's expects this coverage to return to stronger levels over time, but notes that it could be subject to subprime-related
earnings volatility in the near term.
Moody's believes that AIG has sufficient liquidity - through dividends from diversified subsidiaries, external credit facilities
and an intercompany credit facility - to service parent company obligations and to support subsidiaries as needed. The
company generates strong operating cash flows on a consolidated basis, with yearly amounts averaging about $22 billion
over the past three years. A majority of the cash flows pertain to insurance operations that are subject to regulatory limits
on the payment of dividends to a parent company. Largely as a result of such regulations, approximately 81 % of the
aggregate equity of AIG's consolidated subsidiaries was restricted from immediate transfer to the parent company as of
year-end 2007. Still, barring a major disruption, the parent has access to approximately $18.2 billion (19% of consolidated
equity at year-end 2007) from its subsidiaries during 2008. This amounts to 11.2x coverage of adjusted interest expense
for 2007 - a level consistent with the rating category.
AIG gets a portion of its funding through a $7 billion commercial paper program ($4.2 billion outstanding at year-end 2007).
The commercial paper is issued through subsidiary AIG Funding, Inc. (AIG Funding) and guaranteed by AIG. The
program is backed by external and intercompany credit facilities. External facilities include two syndicated bank revolvers
totaling $3.75 billion, primarily to back commercial paper. One of these facilities ($2.125 billion) expires in July 2008 (with
a one-year term-out option) and the other ($1.625 billion) expires in July 2011. AIG and AIG Funding also share a $3.2
billion bank facility expiring in December 2008 (with a one-year term-out option) which allows for the issuance of letters of
credit with terms of up to eight years. As of December 31,2007, a majority of this facility was used for letters of credit, with
the remaining $210 million available to back commercial paper. Finally, AIG has a $5.335 billion intercompany credit
facility provided by several of its insurance subsidiaries, expiring in September 2008 (with a one-year term-out option).
10
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11
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Market capitalization: $114 billion
Rating History
Aaai
Aa1
i
Aa2 :
..................................... ;.............:.......................... :............. :.
......................................
. ...................................... .
04!'35 02!'36 1 2!'36 10m 08!'38 06!'39 04!D0 02!D1 1 2!D1 1 om 08!D3 06!D4 04!D5 02!D6 12!D6 1 om
12
Organizational Structure with Rated Entities
Ownership Structure'
American International Group, Inc. ("AIG")
Domicile
DE
Business Segment
Parent
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
DE
IN
IN
Fin Svcs
Fin Svcs
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
DE
IN
Puerto Rico
CA
Fin
Fin
Fin
Fin
Svcs
Svcs
Svcs
Svcs
ILFC E-Capital Trusts I & II
AIG Capital Trusts I & II
AIG Financial Products Corp.
DE
DE
Fin Svcs
Funding for Parent
Fin Svcs
AIG Matched Funding Corp.
DE
Fin Svcs
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
AIG Annuity Insurance Company
AIG Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of New York
The United States Life Insurance Company in the City of NY
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Program Funding, Inc.
AIG Property Casualty Group, Inc.
AIG Commercial Insurance Group, Inc.
AIG Casualty Company
AIU Insurance Company
AIG General Insurance (Taiwan) Co., Ltd.
American Home Assurance Company
Transatlantic Holdings, Inc.
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
TX
DE
TN
TX
TX
NY
NY
DE
DE
DE
DE
DE
DE
PA
NY
Taiwan
NY
DE
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Transatlantic Reinsurance Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
American International Specialty Lines Insurance Company
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Commercial Insurance Company of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Insurance Company of NC
AIG Retirement Services, Inc.
SunAmerica Life Insurance Company ("SUC")
NY
NY
PA
PA
AK
PA
NC
NC
NC
NC
NC
DE
AZ
AIG SunAmerica Global Financing Trusts
AIG SunAmerica Life Assurance Company
DE
AZ
ASIFI & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Caymans
Jersey
DE
NY
Rating Type
LT Issuer
Sr Unsec Debt
Sr Unsec Shelf
Subord Shelf
Prfrd Shelf
ST Issuer
Support
ST Debt
LT Issuer
Sr Unsec Debt
ST Debt
Bkd Tr Prfrd Stock AGFC G'tee
Bkd ST Debt
AGFC G'tee
Sr Unsec Debt
ST Debt
Bkd Prfrd Stock
ILFC G'tee
Bkd Tr Prfrd Shelf
AIG G'tee
Bkd LT Issuer
AIG G'tee
Bkd ST Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd ST Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd ST Debt
AIG G'tee
IFS
IFS
Bkd Sr Debt
AIG Agmt
AIG G'tee
Domes Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Domes Life Ins & Ret Svcs
IFS
Funding for AIG LHUS
Bkd Tr Prfrd Stock AIG G'tee
Funding for AIG LHUS
Bkd Tr Prfrd Stock AIG G'tee
Fin Svcs
Bkd ST Debt
AIG G'tee
Funding for Parent
Bkd Sr Debt
AIG G'tee
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
IFS
Domes Gen Ins
IFS
Frgn Gen Ins
IFS
Domes Gen Ins
IFS
Domes Gen Ins
Sr Unsec Debt
Sr Unsec Shelf
Subord Shelf
Domes Gen Ins
IFS
Domes Gen Ins
IFS
Domes Gen Ins
IFS
Domes Gen Ins
IFS
Domes Gen Ins
IFS
Domes Gen Ins
IFS
Domes Gen Ins
Domes Gen Ins
IFS
AIG Agmt
Domes Gen Ins
IFS
AIG Agmt
Domes Gen Ins
Bkd IFS
UGRIC G'tee
Domes Gen Ins
IFS
AIG Agmt
Bkd Sr Debt
AIG G'tee
Asset Mgmt
Bkd IFS
AIG Agmt
Bkd ST IFS
AIG Agmt
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Bkd ST IFS
AIG Agmt
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Bkd ST IFS
AIG Agmt
American International Underwriters Overseas, Ltd.
Bermuda
AIG UK Limited
UK
Frgn Gen Ins
American Life Insurance Company
DE
FrQn Life Ins & Ret Svcs
• Listing Order mdlcates mam ownership stake (or sponsorship m the case ot trustS), not necessanty 100% ownership.
IFS
IFS
AIG Agmt
SA
Public
Rec
Current
Rec
Rating Rating Rating Outlook Outlook
Aa2
Aa3
Negative Stable
Aa2
Aa3
(P)Aa2 (P)Aa3
(P)Aa3 (P)A1
(P)A1
(P)A2
P-1
P-1
P-1
A1
A1
P-1
A3
P-1
A1
A1
P-1
A3
Stable
Stable
Stable
Stable
Stable
Stable
P-1
A1
P-1
A3
(P)Aa3
Aa2
P-1
Aa2
P-1
Aa2
Aa2
Aa2
P-1
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
P-1
Stable
Stable
Stable
Stable
Stable
Negative
Negative
Stable
Stable
Stable
Negative
Stable
Negative
Negative
Negative
Stable
Stable
Stable
Stable
Stable
Aa3
Aa3
Aa2
Aa2
Aa2
Aa2
Aa2
Aa3
Stable
Stable
Negative Negative
Negative Stable
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa1
Aa3
Aa3
P-1
Aa2
Aal
Aal
Aal
Aal
Aal
Aal
Aal
A1
A1
P-1
Aa3
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Stable
Negative
Aa3
Aa3
A3
Aa3
A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa2
Aa2
A1
Aa2
A2
(P)A2
(P)A3
Aa3
Aa2
Aa2
Aa2
Aa2
Aa2
Aa2
Aa2
A1
Aa2
A2
(P)A2
(P)A3
Aa3
Aa2
Aa2
Aa2
Aa2
Aa2
Aa3
Aa2
Aa2
Aa2
Aa2
Aa2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
Aa2
Aa2
Aa3
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
A2
A2
A3
Aa3
Aa2
Note: Ratings marked in italics may need input from the lead analyst and/or a separate ReM
13
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Stable
Stable
Stable
Stable
Negative Negative
Negative Negative
Stable
Stable
Negative Negative
Stable
Stable
Stable
Negative
Negative
Negative
Negative
Negative
Stable
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Stable
Negative
Negative Negative
Negative Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative Negative
Stable
Stable
Weighted Average Stand-alone Rating
(:>Mil.)
Pretax Operating Income by Segment
YTD
YTD
9/30/2007
9/30/2007
Rated
Not
Rated %
Rated %
SA
SA
Public
Rated
of Total
of Rated
Rating
Rating
Rating
General Insurance
5,662
5,662
5,662
29.9%
39.6%
Aa3
4
Aa2
Transatlantic Holdings, Inc.
Domestic Brokerage Group
508
508
508
2.7%
3.5%
Aa3
4
Aa3
Personal Li nes
252
252
301
1.6%
2.1%
Aa3
4
Aa2
24
24
0.1%
0.2%
A3
7
A1
1,291
1,291
6.8%
9.0%
Aa3
4
Aa2
Aa1
Mortgage Guaranty'
Total Domestic
·289
301
6,133
6,723
AIG General Insurance (Taiwan) Co., Ltd.
AIG UK Limited
Other Foreign General
Total Foreign
Other /Eliminations
Total General Insurance
252
1,069
2,383
1,069
2,383
·5
·595
8,511
8,511
-595
Life Insurance B: Retirement Services
Domestic Life Insurance
774
774
Domestic Retirement Services
1,452
1,452
Total Domestic
2,226
2,226
American Life Insurance Company
AIG Edison Life Insurance Company
Japan and Other
2,753
American Life Insurance Company
2,226
887
11.7%
15.6%
Aa1
2
887
4.7%
6.2%
Aa2
3
Aa2
1,140
1,140
6.0%
8.0%
Aa3
4
Aa2
2,027
444
444
2.3%
3.1%
Aa2
3
Aa2
1,028
1,028
5.4%
7.2%
Aa3
4
Aa2
3.3%
4.4%
A3
7
A1
0.9%
1.3%
A2
6
A1
75%
100%
Aa3
3.8
American Int'I Assurance Co. (Bermuda) Limited
Asia
1,921
1,471
Other Foreign
Total Foreign
4,674
4,674
Total Life Insurance B: Retirement Services
6,900
6,900
1,176
1,176
Financial Services
Aircraft Leasing
625
625
Capital Markets
183
183
Consumer Finance
180
180
20
20
1,008
1,008
Other
Total Financial Services
625
183
180
20
Asset Management
Spread· based Investment Business
I nstitutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
Total Pretax Segment Operating Income
Other/Eliminations
Consolidated Pretax Operating Income
759
759
759
1,406
1406
1406
376
376
376
2,541
2,541
18,960
18,960
·1,581
·1,581
17,379
17,379
14,315
Weighted Average Stand-alone Rating
* Mortgage Guaranty weighted based on earnings in prior-year period
14
4,645
Summary of Reported and Modeled Losses
AIG Mortgage Related Losses/Writedowns
402007
Pretax
After-tax
($ Bins)
Unrealized market valuation losses on
AIGFP's super-senior CDS portfolio
Net realized capital losses *
Operating losses at United Guaranty
Totals through IS
Unrealized depreciation of investments
Totals through IS & BS
* Market severity OTT I included above
Italicized amounts estimated by BB
102008
Pretax
After-tax
40 & 10 Totals
Pretax
After-tax
11.1
2.6
0.3
14.0
3.9
17.9
2.2
7.2
1.7
0.2
9.1
2.5
11.6
9.1
6.1
0.4
15.6
10.8
26.4
4.0
5.9
3.9
0.3
10.1
6.9
17.0
20.2
8.7
0.7
29.6
14.7
44.3
6.2
12 mos
12/31/2006
113.4
21.7
14.0
979.4
101.7
9mos
913012007
91.6
17.4
11.5
1,072.1
104.1
3mos
12/31/2007
18.4
-8.4
-5.3
1,060.5
95.8
-8.3
-8.0%
12 mos
12/31/2007
110.1
8.9
6.2
1,060.5
95.8
3mos
313112008
13.1
5.6
0.5
19.2
9.4
28.6
Where
reported
IS
IS
IS
BS
AIG Consolidated Financial Highlights
($ Bins)
Revenues
Pretax income
Net income (loss)
Total assets
Shareholders' equity
Change in equity vs 9/30/2007 ($)
Change in equity vs 9/30/2007 (%)
-7.8
79.7
-24.4
-23.4%
S ummary resu It so f AIG COO & RMBS s t ress es ts (Ch'rlS Mann s mo d eI)
Total
exposures
($ mlns)
COO notional as of Sept. 30, 2007
RMBS par as of Dec. 31, 2007
Modeled
losses
RMBS losses
grossed up*
0
460
580
50
1,372
1,731
65,421
75,276
Base case (15% losses on 2006 subprime first-lien)
COO
RMBS
Stress case (21% losses on 2006 subprime first-lien)
COO
RMBS
Extreme stress case (24% losses on 2006 subprime first-lien)
COO
211
RMBS
2,047
2,582
* RMBS losses grossed up by 75.3/ (75.3 - 15.6) to account for the $15.6 bin of securities not found in Moody's system.
AIG RMBS Portfolio as of March 31, 2008
Expected losses modeled by RMBS team (Greg Bessermann)
Book
($ Mlns)
Par
value
RMBS excluding Agencies
73,003
67,784
Agencies
14,500
82,284
Total RMBS
Modeled portion
Of which:
Reviewed in 2008
Not reviewed in 2008
46,583
Not modeled
26,420
Market
value
56,778
14,900
71,678
42,382
4,202
15
Markdown
to date ($)
-16,225
Markdown
to date (%)
-22.2%
Modeled
losses ($)
Modeled
losses (%)
-805
-1.7%
Feedback on European regulatory capital portfolio
AIGFP provided data on its super-senior COS portfolio designed to provide regulatory capital relief to
European banks. As of March 31,2008, this portfolio consisted of about 75 deals with total notional exposure
of $336 bin. Underlying assets are mostly corporate loans and residential mortgages but also include derivative
contracts, leveraged loans, SME(?) and trade receivables. AIGFP's average attachment point is just over 20%.
Our structured finance colleagues in London (Guillaume Lucien-8augas, Tony Parry) reviewed the portfolio
and provided the following feedback:
The portfolio of senior exposures from AIG is in good shape. The COO positions would all be classified in our lowest
concern assets for haircut purposes which corresponds to "strong shape, no credit issues, but illiquidity discount due
to market conditions". We would apply (for the time being, but this has not been committeed) a 6% haircut for MTM
reasons to the COO positions. These haircuts are due only to MTM movements and are useful to estimate potential
writedowns when the securities are held in trading books.
The RMBS positions would warrant haircuts of between 4% and 6%.
There are no widespread rating actions on these asset classes in Europe right now.
The 6% MTM haircut is intended for ordinary Aaa tranches, and not for the full breadth of the super-senior
positions of AIGFP. Upon further discussion, Guillaume suggested that a reasonable preliminary estimate for
the portfolio MTM haircut would be $5 - $10 bin.
AIGFP asked two of its banks to estimate the market value of this portfolio and they responded as follows:
•
•
One bank regarded the portfolio as strictly providing reg cap relief and estimated the portfolio MTM haircut
as $750 min.
The other bank regarded the portfolio as providing both a reg cap and an economic benefit and estimated
the portfolio MTM haircut as $5 bin.
AIGFP notes that counterparties either terminated or delivered termination notices on ~20 reg cap transactions
during 1008, reducing the number of outstanding deals from ~95 to ~ 75. Several terminations involved
contractual exit fees paid to AIGFP by counterparties and none of the terminations involved payments to
counterparties by AIGFP. These terminations were a key factor supporting AIGFP's contention that close-out
values in this portfolio are generally zero (resulting in no MTM loss and no related liability). We believe that the
ultimate economic losses on this portfolio will be minimal.
Bank analysis of multi-sector COO portfolio
As part of its due diligence for AIG's capital raising plan, JP Morgan reviewed AIGFP's multi-sector COO
portfolio of super-senior CDS. JP Morgan looked at just under half of the transactions and extrapolated to
develop MTM and expected loss numbers. The bank's cumulative MTM estimate is $25 - $30 bin, versus about
$20 bin of pretax unrealized market valuation losses booked by AIGFP to date. The bank's economic loss
estimate is $9 - $11 bin, versus AIGFP's stress case loss estimate of $1.25 - $2.4 bin. The JP Morgan
estimates will be disclosed in AIG's financial statements.
16
AIG Response to MBS/CDO/FG Survey
ISummary MBS/CDO/FG Holdings
Holdings ($ millions)
CMBS
Prime - Non Agency 1st lien RMBS
Prime - Non Agency 2nd lien RMBS
Alt A RMBS (1 st or 2nd lien)
Subprime 1st lien RMBS
Subprime 2nd lien RMBS
HELOC RMBS
Home equity/Closed end 2nd lien RMBS
Market Value
22,998.8 I
21,072.9
850.1
24,892.2
21,189.1
Amortized Cost
23,918.0
I
21,551.7
955.1
26,616.4
24,073.6
-
-
1,861.5
1,989.0
-
-
COO with subprime/Alt A exposures
COOA2 with subprime/Alt A exposures
Financial Guarantor direct exposure *
Financial Guarantor wrapped investments**
38.51
I
56.61
I
Investment % Total
Invest.
3%
Investment % of
Equity
25%
3%
0%
4%
3%
0%
0%
0%
22%
1%
28%
25%
0%
2%
0%
0%
0%
0%
0%
0%
6%
0%
44%
693,004.0
688,123.0
Total cash and investments
Shareholders' equity
95,801.0
95,801.0
* Represents amortized cost and fair value related to $58MM in bonds and $136MM notional of COS exposure.
** We recognize that this exposure may already be included in the lines above, but request you to identify it separately here
17
Moody's Test 1: Fail (amortized cost of at-risk assets> 20% of equity)
At risk investment % of Equity
AIG Inc. x FP
Munich Re America Corp
Allstate
CNA Financial Corporation
XL CONSOLIDATED
Industry
HIG
Selective Insurance Group, Inc
Oil Insurance Limited
Max Capital Ltd.
Flatiron Re Ltd.
PMA Capital
Endurance
Transatlantic Holdings Inc
Nationwide Group
Infinity P&C Group
AXIS Capital Limited
Safety National Casualty Corp
Progressive
Home
CDOA2 with
AltA RMBS Subprime
Subprime
equity/Close CDOwith
(1 st or 2nd 1st lien
2nd lien
HELOC
subprime/Alt subprime/Alt Grand
d end 2nd
lien)
RMBS
RMBS
RMBS
lien RMBS
A exposures A exposures Total
28%
25%
2%
0%
0%
0%
55%
0%
52%
32%
21%
0%
0%
0%
0%
0%
16%
4%
27%
6%
0%
0%
0%
0%
1%
24%
12%
5%
0%
6%
0%
0%
23%
10%
11%
1%
0%
0%
0%
0%
18%
1%
0%
0%
0%
8%
8%
0%
17%
2%
13%
1%
0%
0%
0%
0%
1%
1%
10%
0%
8%
0%
0%
0%
10%
1%
0%
0%
0%
5%
3%
0%
1%
1%
0%
0%
8%
3%
3%
0%
1%
0%
0%
0%
6%
5%
0%
0%
1%
0%
0%
0%
5%
5%
0%
0%
0%
0%
0%
5%
5%
0%
0%
0%
1%
0%
0%
0%
5%
5%
0%
0%
1%
0%
0%
0%
5%
3%
0%
0%
2%
2%
0%
0%
0%
5%
0%
0%
4%
2%
0%
0%
0%
3%
0%
0%
4%
2%
2%
0%
0%
0%
0%
0%
4%
1%
0%
0%
0%
3%
0%
0%
Moody's Test 2: Pass (potential incremental haircut> 10% of equity)
Further market value haircut % of Equity
HIG
Munich Re America Corp
PMA Capital
XL CONSOLIDATED
Allstate
Progressive
AIG Inc. x FP
CNA Financial Corporation
Endurance
Industry
Selective Insurance Group, Inc
Max Capital Ltd.
Oil Insurance Limited
Flatiron Re Ltd.
AXIS Capital Limited
ACE Ltd
Chubb
Nationwide Group
Penn National
Arch
Alleghany Consolidated
Haircut Tot
-5%
-3%
-3%
-3%
-3%
-2%
-2%
-2%
-2%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
18
AIG 1008 Earnings Preview Call (notes by BB, WE)
April 30, 200S
AIG participants
Steve Bensinger, CFO
Bill Dooley, SVP - Financial Services
Bob Gender, Treasurer
Elias Habayeb, CFO - Financial Services
Bob Lewis, Chief Risk Officer
Kevin McGinn, Chief Credit Officer
Richard Scott, Head of Fixed-income Investments
Teri Watson, Rating Agency Relations
Moody's participants
Bruce Ballentine
Laura Bazer
Ted Collins
Wally Enman
Shachar Gonen
Alan Murray
Sarah Hibler
Robert Riegel
I. Overview of 1008 results
After-tax amounts - $ bins
Net loss
(7.S)
Normal quarterly adjustments:
Net realized capital losses
FAS 133 losses
Adjusted net loss
(3.9)
[pretax (6.1)]
.&lli
(3.6)
Additional adjustment:
Unrealized MTM loss on CDS
~
Adjusted net income excl CDS MTM
[pretax (9.1)]
2.3
The adjusted net income (excl CDS MTM) of $2.4 bin was below the normal run rate partly because partnership income
dropped to - 0 in 1OOS versus -$1 bin in 1007. AIG expects volatility in this area, with long-term returns in the range of
10-20%. Partnership income was relatively strong in 2007, with returns approaching 20%.
Pretax operating income highlights - $ mlns
General Insurance
1,600
2,500
Life Insurance & Retirement Services
Asset Management
150
Financial Services
11
AGF
ILFC - did not discuss
AIGFP - mainly the CDS MTM above
[incl u/w income of 400, UGC loss of (350)]
The company also booked a FIN 4S reserve of $577 min on AIGFP tax preference transactions. There have been IRS
rulings against such transactions (not against AIG) and the company received an IRS notice about this activity.
II. AIGFP CDS portfolio
Pretax amounts - $blns
Unrealized MTM loss
(9.1)
Consisting of:
Multi-sector COOs
(S.O)
19
Corporate arbitrage
Regulatory capital
(0.9)
(0.2)
[versus ($226 min) in 4007]
[actually ($174 min)]
Cumulative pretax MTM losses on this portfolio now exceed $20 bin. The valuation methods used at the end of 1008
were largely the same as those used at YE 2007.
Multi-sector COOs
Transaction values are based on a combination of the modified BET and direct quotes from counterparties/dealers. The
modified BET uses prices on securities in underlying collateral pools to calculate the NAV of pools and of the super-senior
tranche. AIGFP obtained quotes on -70% of the underlying pool assets. AIGFP compares the BET results to direct
counterparty/dealer quotes with respect to the super-senior tranches (typically 1-2 quotes per transaction). AIGFP adjusts
the BET result down if the quote is lower but does not adjust the BET result up if the quote is higher.
Corporate arbitrage
Transaction values are based mainly on iTraxx indices, which widened materially in March but have since recovered to
some degree. AIGFP's notional exposure in this area is down from -$70 bin at YE 2007 to -$57 bin at the end of 1008.
Regulatory capital
Counterparties either terminated or delivered termination notices on -20 reg cap transactions during 1008, reducing the
number of outstanding deals from -95 to -75. Several terminations involved contractual exit fees paid to AIGFP by
counterparties and none of the term inations involved payments to counterparties by AIG FP. These term inations were a
key factor supporting AIGFP's contention that close-out values in this portfolio are generally zero (resulting in no MTM
loss and no related liability). The modest MTM loss of $174 min in this area pertains to a portion of the portfolio (notional
amount of $5.7 - $5.9 bin) where AIGFP has exposure below the senior-most tranche. The underlying collateral pools of
the reg cap portfolio have experienced minimal losses.
Stress testing on multi-sector COOs
AIGFP has run two types of stress tests on its multi-sector COO book. The first matches what did at YE 2007 and applies
specific losses/haircuts to subprime RMBS, Alt-A RMBS and ABS COOs in the collateral pools, based on ratings and
vintages. Under this test, AIGFP's stress case loss increased from $903 min at YE 2007 to $1.26 bin at the end of 1008,
mainly because of rating downgrades affecting the underlying securities/COOs. The second type of stress test
incorporates loss distributions on certain underlying mortgages based on actual loss experience observed to date,
including deterioration on 2H05-vintage loans that exceed previous expectations. This approach results has produced a
stress case loss of just under $2 bin.
Steve Bensinger noted that the market tone surrounding this portfolio seems to have improved in the latter half of March
and in April, although the company has not attempted to value the portfolio beyond March 31 because of the substantial
effort involved.
III. Investment portfolio
Income statement - pretax amounts - $blns
Net realized capital losses
(6.1)
[after-tax (3.9)]
Of which:
OTTI
(5.5)
Of which:
Market severity related
Credit related
Shifting portfolio
(4.0)
(0.2)
(0.8)
[versus (2.2) in 4007]
[changes in intention to hold bonds to maturity]
The remaining losses are mostly related to EITF 99-20 (cash flow testing on ABS rated below Aa) or FX. The main driver
of the market severity charge is AIG's practice of writing down any security where MV drops below 60% of BV for any
period of time.
Balance sheet - after-tax amount - $blns
To AOCI:
Unrealized depreciation on investments
(6.9)
[pretax (10.8)]
20
The unrealized depreciation relates mostly to RMBS. AIG's equity account now reflects more than $14 bin in after-tax
reductions related to the investment portfolio.
Deterioration in Alt-A
The gulf between market and economic values of AIG's RMBS continued to widen during 1008, with Alt-A securities as a
major driver of the MV deterioration. Many Aaa-rated Alt-A securities were valued below Aaa-rated subprime securities at
quarter-end. Alt-A securities have recovered somewhat since the end of the quarter.
Stress testing on RMBS portfolio
AIG has modeled expected outcomes and stress scenarios on its RMBS portfolio. One of the severe stress scenarios,
developed by Lehman, includes such assumptions as: (i) nearly 30% cumulative losses on '06 and '07 vintage subprime
loans, (ii) all loans that are presently delinquent default, (iii) 20% of '07 vintage jumbo loans default, (iv) 50% loss severity
on defaulted first-lien loans, (v) 80% of second-lien loans default with 100% severity. Under this severe stress case, AIG
experiences ultimate losses of $4 bin on its RMBS portfolio. Under the company's expected case, ultimate losses are
$500 min. Both of these loss estimates are well below the approximate $16 bin of MTM impact (realized losses - mostly
OTTI - and unrealized depreciation on the RMBS portfolio.
Ratings migration in RMBS portfolio (excl Agencies) - $blns
74.0
Total par value
65.5
Rated Aaa at purchase
60.5
[<10% downward migration]
Rated Aaa at end of 1008
-2
Rated <Baa at end of 1008
Rated <A at end of 1008
-4
Further downgrades in this portfolio since the end of 1008 have been minimal. The portfolio is amortizing at a rate of
about $2 bin per quarter and AIG is keeping the proceeds in cash.
Support for life subsidiaries involved in sec lending
AIG has an agreement to reimburse life subsidiaries that experience losses on their sec lending invested collateral, which
accounts for a large portion of AIG's RMBS portfolio. The agreement pertains only to cash losses (e.g., upon sale) and not
MV declines or OTTI. Nevertheless, AIG will review the capital positions of all subsidiaries and make contributions where
needed. The company will provide estimated RBC ratios for the life companies as of the end of 1008.
IV. Balance sheet
Shareholders' equity has fallen to -$79.7 bin at the end of 1008, versus $95.8 bin at YE 2007, $104.1 bin at the end of
3007 and $101.7 bin at YE 2006. Included in these numbers are -$5 bin of share repurchase activity over the past year.
V. Capital raising
At the time of its earning announcement on the afternoon of May 8, AIG will announce a plan to raise $12.5 - $15.0 bin of
capital in three components, as follows:
Capital raising plan - $blns
1. Common stock
2. Mandatory convertible
3. Hybrids (junior subord)
2.5 - 4.0
4.0 - 6.0
Up to 5.0
[Basket D, multi-tranche, 3-year conversion]
[Basket D, institutional market in US & Europe]
AIG will begin pre-marketing these securities next week, subject to confidentiality agreements. The company hopes to
launch (1) and (2) by Friday, May 9, and price by Mon-Wed, May 12-14. AIG sees the market for (3) as more volatile than
for (1) or (2). The company hopes to launch (3) by May 9 or May 12-13 and price soon after. Back-up plans for (3) include
tapping the retail or preferred markets.
AIG will keep proceeds of these offerings at the holding company, giving it flexibility to support operating units as needed.
The company estimates that its adjusted financial leverage will increase to about 20% at the end of 1008 (before capital
raising), versus 18.3% at YE 2007. The company projects that the ratio will decline to -17.3% by YE 2008.
21
AIG's Capital Raising Plan
r p s d
pital
Ian
Undervvriters:Citi &. JPfvlorqan
'"'
Trf.,nci1e
Size {Stn)
C:ClmrnCtn StCJck
$2.0 - ,,; G
(n89:s1i3ri3d)
!,,'lnndntorv
Cc:nverUbk,
~
8!
US Dolif:H·
i nstltutiona 1
[}::~cnunt
Launch :3ize
{Sbn)
$2'.5
to
mm\et p·ric8
S4 0 - :}G
(ReQ~steredj
Hybri,]
lndcal:ve
Pdcin9 Ranr}8
7 "7:~ - g 2.:,)J:,'Q
is - 22'~{:
u~s:
a.so E~ .O[r~:·~
(a~~gf:3.gatf:·)
Euro:
.s. 75 9
Eur()p·e{~n
in stitationtll
{-144a)
~ [)ee;)
~
A~J~HTlX
S5!.G
premiun:
LJp to $5.0
c.>:ecunon
g
8
Ris~~s
/
Conside,-at~ons
rnrirkel C;;}Pt1f:!ty
P,-ice. risk ,·eiJardinr; to A!e.;·", story i op8futnq p8rl'or,-nzmce
Uppe:- end of mnrket r:tlP,:~dty
::~on12 pri::c.e nSt\ to n:~:hie;1/8 ~!~:ze- in
t~
v:j8.ah ::nark·ei.
g
HernDi'keUilQ requirecl in yeo~ 2; to f:Kh,eVe ttl>; deduclibHt/
TrEl::ieo'if t:-et\:veen pren:iurr:: finil CGupon
8
20 - 24%, premiurn
8
Cf':D )each~eved
\vith 25 t)PS higne,-
to $5.0
~ (~~:)pacHy rfsk rB!ate:d t~) QeneraHy \tci:atHe rna:ket condHio:ns for
{aggn::'g':;j!E' }:nstHutoncd hybrid tn:H'rSilctions
8 He:9t1bneclr"i'3k to Ew·openn 1ranche 8yecut!on in pa:-tcu!ar
may n::;quire i'e·i:anc's on aih::n:ative· nK'jrh3ls
g US re.t.::d mart<e.t up to 'Yl.Sbn !yovide.:~ p~lftial . shuck
L.~p
u:bs. orbe(:
:~ .'~.t t.~Jn{{:b~2 C(f:>1.:.
inC-CiTli.:; cap:tal
AH3 CFHl
iT,~':'l:::
(;;)n5klBr[~tdy
de .. ~tsk the fj:>~e{j
b\i r'~Fs,U!nq a~,innle tranche D[=:;D
Dif8;~~n~~
i\pprox
Total
cGu!y)n
$11.0 - $.15.0bn
S12.5bn
S~ 2'5: :,(::1, .'
-/<:3ilf fo;-
c~
S5bn off':Ying
AIG Financial Leverage and Fixed-Charge Coverage
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Financial Leverage
Unadjusted debt ($ mil)
Adjusted debt ($ mil)
Unadjusted equity ($ mil)
Adjusted equity & minority interest ($ mil)
Unadjusted debt % capital
Adjusted debt % capital
TIM
Pro forma
Pro forma
12/31/2008
313112008
2007
2006
2005
2004
2003
24,774
93,086
118,441
24,461
79,703
97,558
176,049
23,719
95,801
106,205
64.8%
148,679
19,638
101,677
99,372
59.4%
109,849
14,467
86,317
82,367
56.0%
96,899
13,705
79,673
73,600
54.9%
80,349
12,544
69,230
63,147
53.7%
18,631
10,527
9,688
1,625
1.9x
28,672
22,781
6,951
1,112
4.1x
20,886
15,910
5,673
758
3.7x
19,128
15,276
4,427
638
4.3x
16,135
12,493
4,219
638
3.8x
81%
18,202
1
90%
10,168
1
89%
9,495
1.7x
89%
8,764
89%
7,615
1
Earnings Coverage of Interest & Prfrd Divs
Unadjusted EBIT ($ mil)
Adjusted EBIT ($ mil)
Unadjusted interest & preferred dividends ($ mil)
Adjusted interest & preferred dividends ($ mil)
Unadjusted earnings coverage (x)
Adjusted earnings coverage (x)
Adjusted earnings coverage (x) - 5-yr avg
23,920
2,555
Dividend Ca~acit:l Coverage of Int & Prfrd Divs
Portion of equity not immediately available (%)
Unrestricted subsidiary dividend capacity ($ mil)
Unadjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x) - 5-yr avg
81%
18,202
Goodwill Ex~osure
Goodwill ($ mil)
Goodwill % equity
Balance Sheet In~uts ($ mil)
Total assets
Unadjusted debt
Operating debt
Financial debt
Minority interest
Unadjusted equity
"Yes" if life investments> 50% total investments
Net unrealized investment appreciation
Income Statement In~uts ($ mil)
Total revenue
Unadjusted interest expense
Operating interest expense
Financial interest expense
Income tax expense
Minority interest expense
Net income
Preferred dividends
9
31,252
10,835
93,086
Yes
-2,596
23,439
10,835
79,703
Yes
-2,596
1,060,505
176,049
153,519
22,530
10,422
95,801
Yes
4,375
979,410
148,679
134,221
14,458
7,778
101,677
Yes
10,083
853,048
109,849
100,371
9,478
5,124
86,317
Yes
8,348
801,007
96,899
88,056
8,843
4,831
79,673
Yes
10,326
675,602
80,349
72,376
7,973
3,547
69,230
Yes
9,071
110,064
9,688
8,361
1,327
1,455
1,288
6,200
0
113,387
6,951
6,110
841
6,537
1,136
14,048
0
108,781
5,673
5,175
498
4,258
478
10,477
0
97,823
4,427
4,041
386
4,407
455
9,839
0
79,601
4,219
3,817
402
3,556
252
8,108
0
TTM pro forma inputs as of 3/31/2008:
•
•
•
•
Adjusted debt, unadjusted equity and adjusted equity estimated by AIG
Adjusted EBIT based on 2006 amount plus 5%
Adjusted interest and preferred dividends based on 2006 amount plus ($6 bin x 8%) plus ($5 bin x 9%) to reflect fixed
charges associated with hybrids
Unrestricted dividend capacity and goodwill carried over from 2007
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Pension Adjustments ($ mil)
Assumed borrowing rate (%)
Assumed tax rate (%)
Projected benefit obligation (end of year)
Fair value of plan assets (end of year)
Pension asset recorded
Pension liability recorded
Debt adjustment
Shareholders' equity adjustment
Interest expense adjustment
Lease Adjustments ($ mil)
Assumed debt multiplier (x)
Rent expense
Debt adjustment
Interest expense adjustment
EBIT adjustment
Other Adjustments ($ mil)
Hybrid securities #1
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Hybrid securities #2
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Lloyd's LOCS
TIM
Pro forma
Pro forma
12/31/2008
313112008
2007
2006
2005
2004
2003
4,901
4,901
5%
35%
4,901
4,657
41
41
41
52
4,481
3,260
703
807
1,221
-726
61
4,126
2,871
523
888
1,255
-579
63
3,950
2,715
566
941
1,235
-559
62
771
4,626
257
257
771
4,626
257
257
6x
771
4,626
257
257
657
3,942
219
219
597
3,582
199
199
568
3,408
189
189
524
3,144
175
175
191
Mezzanine
A
191
0
186
Mezzanine
A
186
0
199
Mezzanine
A
199
0
192
Mezzanine
A
192
0
5,899
Debt
D
1,475
4,424
100
Mezzanine
A
100
0
5,809
Debt
D
1,452
4,357
14,267
874
65,447
67,881
-567
5,517
100
153,519
5,468
72
67,048
59,277
-459
2,715
100
134,221
0
0
47,274
52,272
-474
1,199
100
100,371
0
0
41,614
45,736
-180
786
100
88,056
0
0
32,941
38,990
-181
526
100
72,376
6.0%
6.1%
5.4%
4.9%
5.5%
3.5%
5.0%
2.9%
5.6%
15,899
Debt
D
3,975
11,924
O~erating
Debt Detail ($ mil)
MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
AIG-guaranteed borrowings of AIGFP
Non-guaranteed borrowings of fin svcs, invest & other
Less borrowings of insurance operations
CP issued by AIG Funding on behalf of AI Credit et al.
Hybrid securities issued by ILFC
Total operating debt
Im~lied Interest Rate
On total debt (%)
On financial (non-operating) debt (%)
24
Liquidity Risk Assessment: AIG Funding, Inc. (published March 18, 2008)
AIG Funding, Inc. (AIG Funding) has a Prime-1 rating on its $7 billion authorized commercial paper program, based on
the unconditional and irrevocable guarantee from the parent company, American International Group, Inc. (NYSE: AIG senior unsecured debt rated Aa2, negative outlook; short-term issuer rating of Prime-1). AIG is a leading global insurance
and financial services firm, with operations in more than 130 countries and jurisdictions. The company is engaged through
subsidiaries in General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
Funding, a wholly-owned finance subsidiary, issues commercial paper to meet the short-term cash needs of AIG and
certain subsidiaries.
Moody's believes that AIG has sufficient liquidity - through dividends from diversified subsidiaries, external credit facilities
and an intercompany credit facility - to service parent company obligations and to support subsidiaries as needed. The
company generates strong operating cash flows on a consolidated basis, with yearly amounts averaging about $22 billion
over the past three years, although payments of dividends by insurance subsidiaries to the parent company are subject to
regulatory restrictions. Largely as a result of such regulations, approximately 81 % of the aggregate equity of AIG's
consolidated subsidiaries was restricted from immediate transfer to the parent company as of year-end 2007. This
suggests that, barring a major disruption, the parent has access to approximately $18.2 billion (19% of consolidated equity
at year-end 2007) from its subsidiaries during 2008. Although Moody's gives some credit for dividends and loans available
from insurance subsidiaries to a holding company, we recognize that the actions of insurance regulators during a time of
stress could create a delay or uncertainty in accessing such sources.
AIG and AIG Funding are parties to two syndicated bank facilities totaling $3.75 billion, primarily to back commercial
paper. These facilities include a $2.125 billion 364-day revolver expiring in July 2008 (with a one-year term-out option)
and a $1 .625 billion five-year revolver expiring in July 2011. AIG and AIG Funding also share a $3.2 billion 364-day bank
facility expiring in December 2008 (with a one-year term-out option) which allows for the issuance of letters of credit with
terms of up to eight years. As of year-end 2007, a majority of this facility was used for letters of credit, with the remaining
$210 million available to back commercial paper. Borrowings by AIG Funding under these facilities are guaranteed by AIG.
None of these facilities has a material adverse change clause as a condition to borrowing. The five-year facility includes a
financial covenant requiring AIG to maintain shareholders' equity of at least $50 billion (versus a reported level of $95.8
billion at year-end 2007). Finally, AIG has a $5.335 billion intercompany 364-day credit facility provided by certain of its
insurance subsidiaries, expiring in September 2008 (with a one-year term-out option). Documentation for the
intercompany facility matches that of the 364-day bank facilities.
As of year-end 2007, AIG reported total borrowings of $176.0 billion, a majority of which was "operating" debt (i.e.,
supporting assets of the Financial Services segment and AIG's Matched Investment Program). AIG's adjusted "financial"
debt (reflecting Moody's standard pension and lease adjustments, our basket treatment of hybrids, and the exclusion of
operating debt) amounted to $23.7 billion at year-end 2007. AIG's adjusted financial leverage has increased from 14.9%
at year-end 2005 to 18.2% at year-end 2007. The company issued approximately $5.6 billion of junior subordinated
debentures (Basket D hybrids) during 2007, using substantially all of the net proceeds to repurchase common stock.
Moody's expects AIG to keep its adjusted financial leverage below 20%. The parent company's financial debt maturities
are well laddered over the next 40 years, with approximately $2.2 billion and $1.4 billion maturing in 2008 and 2009.
For the quarter ended December 31,2007, AIG Funding had average commercial paper outstandings of approximately
$5.6 billion, maximum outstandings of $6.6 billion, and quarter-end outstandings of $4.2 billion. A majority of these
borrowings are being used to fund relatively liquid assets within AIG's Financial Services segment.
In addition to its guarantee of AIG Funding debt, AIG guarantees the debt and counterparty obligations of certain
subsidiaries, most notably AIG Financial Products Corp. (backed long-term issuer rating of Aa2, negative outlook; backed
short-term debt rating of Prime-1) and its subsidiaries (collectively, AIGFP). AIGFP manages its liquidity position to
withstand severe market disruptions without the need for parental support. AIGFP conducts regular liquidity stress tests
that assume no access to capital markets, contingent liability payouts at the earliest possible dates, and haircuts on liquid
investment securities. The stress tests also consider the impact of potential rating downgrades. For instance, the
company has estimated that as of February 14, 2008, a downgrade of AIG's senior unsecured debt rating (and of AIGFP's
backed long-term issuer rating) to Aa3 by Moody's and/or to AA- by Standard & Poor's would permit AIGFP's
counterparties to call for approximately $1.4 billion of incremental collateral. Further downgrades could result in
substantial additional collateral requirements. Moody's believes that AIGFP has sufficient liquidity to cover its stated and
contingent obligations.
AIG has taken steps to enhance its overall liquidity in response to credit market turmoil during the past nine months. The
company has increased its holdings of cash and short-term investments across major business units, and has established
an interdisciplinary Liquidity Risk Committee to monitor and manage liquidity risks throughout the firm. AIG's consolidated
25
cash and short-term investment position grew to $65.6 billion at year-end 2007 from $29.4 billion at year-end 2006.
AIGFP's cash and short-term investments (included in the consolidated amounts) grew to $9.2 billion at year-end 2007
from about $400 million at year-end 2006.
In evaluating AIG's liquidity profile, Moody's also considers the company's ownership of non-guaranteed subsidiaries,
including International Lease Finance Corporation (ILFC - senior unsecured debt rated A 1, stable outlook; short-term debt
rated Prime-1) and American General Finance Corporation (AG FC - senior unsecured debt rated A 1, stable outlook;
short-term debt rated Prime-1). Each of these firms maintains its own sources of primary and secondary liquidity. For
additional information on these, please see Moody's separate liquidity opinions on ILFC and AGFC.
26
AIG Liquidity Review
Risk Overview
•
The following areas vvere identified as key areas of examination
-
The CP programs are vulnerable to market disruptions but have external
backstop facilities that are greater than current outstanding issuances.
-
AIG FP could experience a lack of access to capital or repo markets. It is
developing plans to increase conlmitted liquidity facilities.
•
-
Sec Lending could experience unusual cQunterparty behavior. It has
increased its liquidity position and could access $20 - $30 billion vvithin a
fevv days from its cash reserves, the dissolution of the pools and the
repo/sale of highly liquid securities.
-
ALICO offers a nloney market account in the UK that could experience
increased v\I'ithdravvals. It has increased its liquidity position and can nO\iV
payoff 26 % of its liabilities vvithin one \lveek and 46% within 90 days.
The insurance companies do not face any imminent concerns but are
being evaluated using rating agency models.
Funding Liquidity for AIG, ILFC & AGF
.,
Summary of commercial paper programs versus the backstop facilities for each erltity
Commercial Paper Outstanding vs. Backstop Coverage as of 4/3/08
$25,000
520,713
$20,000
I
I A!G
Intercompany
55,335
$15,000
$5.000
$(~
E.H<itef(i~
5:378
r::::::::::·,·:,;::;;,;:::i.i.i,::::::::::;·,·::::::::::::::::'-:------------'
$11.876
.:i
:i
,g
$10,000
Ale-;
11------
AIG Funding
...11_ _ _ _ __
:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:o7':.:.:,,:,:.:v..:.:.:.:.~.:~
:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:1
.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·:·1
CP Outstanding
Backstop Facilities
28
Financial Products
•
Cash on hand is approximately $6.0 billion
•
Sources of liquidity
-
Monetization of unencumbered assets
• FP has $8.2 billion of unencumbered assets in US entities and $1.3
billion in 8anque AIG
• Access professional repo markets vvhen available
• Utilize existing tenll facilities to finance unencumbered assets
• Execute collateral sV\I'aps that win provide AIG-FP vvithmore readily
liquid assets including those vvhich are eligible for existing term
facilities
• Continue to develop nevv funding facilities vvith third parties 'who can
take renlaining assets
• Pursue internlediation opportunities vvith third parties J primary dealers
vvho can access the FED! ECB progranls on our behalf
- FP has $3.5 billion in US entities that are Fed-eligible under
standards announced on 3/18
- 8anque .AIG has $1.1 billion that nleet the ne\AI standards
-
Issuance of debt
29
Securities Lending
•
Cash on hand is $10.6 biilion
•
Collapse pools
- Enables insurance companies to directly settle security lending obligations
\'\lith counterparties
• Access to $10 billion in cash held by pool participants
- Limited by participants Gash on hand and pro-rata share in pool
t
•
Pool liquidity options
- Repo collateral investments
• Possible insurance regulatory limits
- Sell pool collateral to third parties
., No regulatorylinlits
• Make Whole agreement from parent provides $SOOmillion of protection
• Possible· insurance regulatory limits
- Intercompanyloans
., Linlited by insurance regulations
30
A,LICO UK PAB
•
•
Money Market Product in UK
-
£5.7 billion r or $11.5 billion
-
Distributed through a netvvork of brokers to high net vlorth clients
-
Approximately 26% of these funds are held in overnight Gash or other cashlike instrUtllents that have a term of less than 7 days
B
Contingency plans for a run on the bank scenario
- 38% of the funds are available vvithin 30 days and 46°/0 vvithin 90 days
H
-
ALICOis permitted contractually to freeze the product for up to 90 days
-
In a \iVOfst case scenario, the PAB book can be unwound vvith any asset
losses passed back to the custOtller
Composition of Asset Portfolio as of 3/27
Cash to 30 days
37.2%,
Comnlercia! Paper (7 - 180 days)
2.6%
Term Deposits (30 - 360 days)
12,9c,/0
Asset Backed Securities
18.1%
Floating Rate Notes
29.2%
31
AIGFP Five-year Cash Profile as of Dec. 31, 2007
FIVE-YEAR CASH PROFILE
Assumptions for Base Case Cash Profile
•
All derivatives. liability and asset flows as of December 31.
2007.
•
All contingent liability payouts assutlling earliest possible
payout dates (see Sumlllary Table 011 page 2).
•
No ability to access the capital markets for funding,
•
Additional liquidity from selling liquid portfolio securities
(with mark-to-Illarket and 3 % (non-COO) and 50% (COO)
haircut) and from refinancing (with 500/~) haircut) CBO
securities put to AIG-FP in connection WiUl assumed
contingent liability payouts (see Summary Table on page
l
2).
32
SUMMARY TABLE
CONTINGENT LIABILITIES AND ADDITIONAL LIQUIDITY
(USD OOO~s)
Comh:lg+.!nt
DATE
I
Aircraft
Fa(:mt!~H);
12!31!(j7 ·1'12.iC,,9
102008
2C!200B
3C!200B
40200S
102009
20.2009
302009
402009
1C!201 I)
20201 [)
~~0201 0
402010
102011
202011
:302011
402011
102012
2C!2012
302012
402012
TOTAL
<."
ee ;:,:otes
'l.'
(1)
(I
(.27~O75)
(I
C27~(175)
CB02il-]
PWs(2:1
G
(35,<A13)
':2!~l3,755)
(I
,:242,928)
(38,205)
28,240
;58,O@)
33/3713
(13,52S)
2Gl,531
0
{2.34~:173)
77A42
(227,01%)
;70,4"S4:1
88,403
58,303
0
1~.2~~~292)
(\
(I
(I
°
(I
(I
0
0
°°
(\
(I
(0)
011
U~ibjHtkl:s
(4~~180)
(941 )
76~758
6,708
11,292
(38,421 )
(925,194)
Uabmty
Total
MUitary
Portfolio
HQusing(3)
.ASSf'IS (·ll
0
(12,260)
138,128)
112,21;~0)
eM,S7B)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(97,526)
page ""!.
UK PmfeH'&d
Shares (5)
n
19,170,757
3,87608.(1
r15~329)
3~B47!774
(I
1)31,138.3)
(282264)
3~256~H9:5
I)
117,582
464,800
70,992
404,7133
18,730
1,025,957
e,G.OJl
I}
(:rlOK~)
4,949
(5\1069)
38'c(f16
(13525)
29;531
I}
23)048)1938
3 H4f fT4
3)2Se)!9!}5
117,582
464,800
70);19.2
404,7rB3
18,730
1,025,957
.8e,071
10Y1B
0
906)27.2
(I
f'"
(I
10,305
0
I}
I}
(I
I)
I}
{284~.373)
10,1q~,
()
(149J318)
(70A54)
88AG:3
0
906!272
0
lC],:}.!)S
0
fJ06 562
67!268
10,549
I}
56c3G~3
(43800)
(941)
78]58
8]08
11292
(36A21)
(1 ,1)2Z' ,720)
Cl..mmliHhi+.!
Net
Asset
Total
Lhlllldity
j
j
2:1048,,8.:38
268W,2S3
29,744,~95
2~J,.57~~ J314
29.971,331
~~O.:O47.!.272
80 . 89S.!965
30 444,:m
3104%,8.03
31,572,405
:31.:14B,22~1
~~ 1. 1@gml
~nt\M,42"~
32122,8.32
3212&,440
:32,1 &S,060
:33,090,6:81
~~3.:2:?~4.}' 07
()
I)
()
I}
g06,S6.2
'B7 2'oH
10,549
0
I)
(;
321 . 263.!.257
10,457
'30,:383.933
(I
10,457
34.260.1)14
3:1.2:I1.!.~94
1,876,080
1
I}
J
~~3.:2S1.!965
2
33
UJ
-
...J
U.
oc:
a.
::I:
en
<J:
o
w
en
<t
w
u
en
<.(
OJ
c~
i!~)
= = =
.;:::::- =
.;:::::i!~) (=~
<:::> ~, ~::::;-~
~:=:.t ~.:=:) 0'
<=> <=> .=. .
<:::> <:::> ~=i
"'"-:t" 0J
<:~
C-"1o
=
~:.~
~~~
c:.
~
c.~ i!~)
~
~~)
e;.
<:=, <:=, '.~ ~.:=:) ~.:=:)
C.;. C.;.
~=~ ~=~
C~
=
C
~,
i!~)
C)
~~~, q.~,~ ~,~ {~~
c:;. c:;. ~2t
i!~)
~.:=:)
=
.;:::::-
c:.
~=~ ~~~.
c.'::,
q
=
.;:::::-
c:;. c:;. <:=,
C,'~
=~ c.;.
q
.
'.~
1:=;':-
<:=,
.0 .0
~=~
e;. e;.
C)
{~~
gg8g~~~:8 <=>
<:::> c'
cd .:.:;.i' "'I:'!f"
0J 0J 0J
0J
('"~
~~)
('"~
,~::6' -:.t.-::" ~
.~
~
~
0J
(:::>
~=~ ~=~
~'::>
~
= =
c.:" cO" .:.:;.i' """f" c . ..j
~~~.
c.;.
c:.
~'::>
q
'.~
=
.0
C-U """f"
COLLATERAL OR CASH PAYMENT REQUIREMENTS
RESULTING FROM AIG DOWNGRADE
usn millions
A 1(; l)o;Yngraded
Obligations Unth:r
InY('stuwnt
Contracts
'[0
Aa3fAA- (by" ont: or both Agencit~~)
A IIA+ (hy
011(:
or both Agencies)
() hti gal ions
Under ()ther
(~u mula1i\t,
()bJigatinns
1.63
592
j'="", .....
6JB9
2275
(]-t-:'l' !o "")"14"
....). ":
6."202
2,867
9J)69
I,))
The Cash Profile graphs on the folll)"l,ving t\VO pages h~tve been adjusted to rdl:~d the (:<)n;~ter;"d and ~:a;-;h
re.qnirt'nwms quantifb.l ;'tbo'.,.e (b<Jth Ih(~ "immei..hat(~ Inss of liquidity du(:' lO HK~tn(~~;f of assnmedd!)\vngr;.Klt~,
,md i~llpn)v(~d hrp. udity oY;::~r tinwas n;dlaterilljsn:~lurtled in ((Hull:~(h()n with s(:l1(~dukd n,:~pi'"tynK~nb ulhkr
hl""'qult'tH
Cnntr'l"ls
Sllb;
..,",t In. :;.."u"'h
n:"IVIF'
" '( lo.......
.•.' • . . ' « \..,
YJ1o...I.....
.... 1....
. ( . , lo... 11'11'
'".•nt""~
.
::-.
>
I.
!".
I•••
4
35
CASH PROFILE
BASE CASE WITH OBLIGATIONS RESULTING FROM
AIG DOWNGRADE TO Aa3/AA-
34:CC(J,O:::-O,OJO
:32,('CO,oJ'.!,('oo
JO,!))':),OCO,OOO
28,(.co,OX'J'(oO
2:6:0)J.c(o.c~JO
24:0))CCO,C~JO
22,CCO:WJ,CtJo
2.'iJ,o)JCOJ,OJO
18,CCO,o:Or.JJO
16:(}J.J,OYJ,OJO
14:CC(J,O:::-O,OJO
12mJ,CCO,c'()O
10,('(O,oJ),(00
f!,,!))':),OCO,OOO
6:o)J.cOJ.c~JO
4,(.(0,0):),(00
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36
CASH PROFILE
BASE CASE WITH OBLIGATIONS RESULTING FROM
AIG DOWNGRADE TO A+IA 1
34.000,000,000
~Q, 000 ,000 ,000
3D. 000,000 ,ODD
28, NJO ,000 ,000
26.000,000,000
24: 000,000 ,000
22.000,000,000
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1So 000,000 ,000
16:000,000,000
14,000,000,000
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AIG Financial Highlights (from Company Profile)
($ Mil.)
General Insurance
Gross Premiums Written
Net Premiums Written
Net Investment Income
Pretax Operating Income
Loss Ratio (%)
Expense Ratio (%)
Combined Ratio (%)
Life Insurance & Retirement Services
GAAP Premiums
Net Investment Income
Pretax Operating Income
Financial Services
Revenues
Pretax Operating Income
Asset Management
Revenues
Pretax Operating Income
AIG Consolidated
Total Revenues
Pretax Operating Income
Net Income
Total Assets
Total Debt
Shareholders' Equity
YTD 9/30107
2006
2005
2004
2003
2002
45,754
36,068
4,585
8,511
64.3%
24.0%
88.3%
56,280
44,866
5,696
10,412
64.6%
24.5%
89.1%
52,725
41,872
4,031
2,315
81.1%
23.6%
104.7%
52,046
40,623
3,196
3,177
78.8%
21.5%
100.3%
46,938
35,031
2,566
4,502
73.1%
19.6%
92.7%
36,678
26,718
2,350
923
83.1%
21.8%
104.9%
24,895
16,468
6,900
30,636
19,439
10,032
29,400
18,134
8,904
28,088
15,269
7,925
23,496
12,942
6,929
20,694
11,243
5,258
7,109
1,008
8,010
524
10,525
4,276
7,495
2,180
6,242
1,182
6,822
2,125
5,721
2,541
5,814
2,346
5,325
2,253
4,714
2,125
3,651
1,316
3,467
1,125
91,631
17,379
11,492
1,072,105
176,185
104,067
113,194
21,687
14,048
979,414
148,679
101,677
108,905
15,213
10,477
853,051
109,849
86,317
97,666
14,845
9,839
801,007
96,899
79,673
79,421
11,907
8,108
675,602
80,349
69,230
66,171
7,808
5,729
561,131
71,010
58,303
39
AIG Segment Detail (from Company Profile)
(SMil.)
YTD 9/30107
YTD 9/30106
2006
2005
2004
38,589
40,337
7,109
5,721
-125
91,631
36,438
37,303
5,923
3,647
68
83,379
49,206
50,163
8,010
5,814
113,194
45,174
47,376
10,525
5,325
505
108,905
41,961
43,402
7,495
4,714
94
97,666
5,662
508
252
-289
4,322
427
352
5,985
589
432
-646
-39
195
777
282
357
301
328
363
399
Revenues
General Insurance
Life Insurance 8: Retirement Services
Financial Services
Asset Management
Other IEliminations
Consolidated Revenues
Pretax Operatmg Income
General Insurance
Domestic Brokerage Group
Transatlantic Holdings, Inc_
Personal Lines
Mortgage Guaranty
6,133
5,402
7,334
-127
1,815
2,415
3,088
2,427
1,344
Other I Eliminations
2,383
-5
2
-10
15
18
Total General Insurance
8,511
7,819
10,412
2,315
3,177
Total Domestic
Total Foreign
Life Insurance 8: Retirement Services
Domestic Life Insurance
774
862
917
1,495
1,023
Domestic Retirement Services
1,452
1,588
2,323
2,164
2,054
Total Domestic
2,226
2,450
3,240
3,659
3,077
2,393
Japan and Other
2,753
2,946
3,732
2,959
Asia
Total Foreign
1,921
2,087
3,060
2,286
2,455
4,674
5,033
6,792
5,245
4,848
Total Life Insurance 8: Retirement Services
6,900
7,483
10,032
8,904
7,925
625
421
639
679
642
Capital Markets
183
-457
-873
2,661
662
Consumer Finance
180
529
876
786
20
48
761
-3
60
90
1,008
541
524
4,276
2,180
759
467
947
1,185
1,328
1,406
721
1,031
686
515
Financial Services
Aircraft Leasing
Other
Total Financial Services
Asset Management
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
Other IEliminations
Consolidated Pretax Operating Income
376
257
368
382
282
2,541
1,445
2,346
2,253
2,125
-1,581
-953
-1,627
-2,535
-562
17,379
16,335
21,687
15,213
14,845
40
American IntJ£lHlatilicmal Group. Inc,
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:.. ::::':': Insurance Rating Methodology
Rating Summary Profile
IAIG Domestic Life & Retirement Services Grup
2007/2006
Market Position and
Brand
01 20081 2007
Not changed from 2006
Not changed from 2007
Not changed from 2006
Not changed from 2007
Not changed from 2006
INot changed from 2007
Distribution
Product Risk and
Diversification
Asset Quality
Change to AI from Aa3 reflects deterioration of
subprime/structured assets vs. 2006 & worsening of
credit quality measured by increase in risk asset ratio
to 16% in 2007 from 14% in 2006.
INot changed from 2007
Not changed from 2006
Losses in sec lending collateral pool thate are not
covered by AIG Inc. guarantee reduced est.
Iconsolidated RBC of lifecos to 292%, in the A range
Profitability
Decline in profitability rating reflects flat and modest
(10%) ROE and declining Sharpe ratio, as profit
growth has been negative.
INot changed from 2007
Liquidity and ALM
Decline in liquidity metric reflects tighened liquidity of
lifecos due to spread widening in their sec lending
collateral pool in 207
INot changed from 2007
Capital Adequacy
Financial Flexibility
Financial flexibility of AIG consolidated worsened, and
particularly coverage worsened with impact of looses
and OTTI to shareholders equity and earnings
INot changed from 2007
INSURANCE GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Issuer Name(s}: American International Group, Inc.
2.
Meeting Date: 02/09/2006
All rating committee members noted
via email) that they had no potential conflicts of
es or
interest with the above referenced i
Issuer has been notified of the date of this rating committee meeting and understands that the company will be given
the opportunity to briefly review and comment on Moody's press release prior to public dissemination? (IZI Yes or
No or
Not
No)
Current Rating(s) and Recent Rating Action(s}:
Senior debt rating Aa2; Short-term issuer rating P-1
Recent Rating Action(s}:
Ratings on the parent and most subsidiaries were confirmed with a stable outlook on May 31 , 2005, although the IFS
ratings of AIG Domestic Brokerage Group remained on RUR-D. The AIG DBG ratings were then confirmed with a stable
outlook on Dec. 27, 2005.
Published Rati
If the rating
"What
What Could Change the Rating - UP
- Consistently favorable loss development in general insurance operations
- Favorable resolution of regulatory investigations and related litigation
- Full remediation of material weaknesses in internal controls over financial reporting
What Could Change the Rating - DOWN
- Further adverse loss development in general insurance operations, exceeding 5% of net reserves
- Adjusted financial leverage exceeding 15%
- Significant charges stemming from regulatory investigations or related litigation
Rationale for Analyst Recommendation(s}: (Maximum Text Limit - 1 Page / Bullet-Format Commentary Preferred)
Notes of conference call with AIG, Feb. 8, 2006
AIG participants: S
Moody's participants:
AIG expects that on Thursday, Feb. 9, there will be settlement announcements by the SEC, NYAG, NYDOI and DOJ.
After all of these announcements, AIG expects to announce: (i) total settlement charges of $1.64 bin pretax ($1.15 bin
after tax), and (ii) P&C reserve increases of $1.69 bin pretax ($1.1 bin after tax).
The $1.64 bin pretax settlement charges include: $800 min fund to be administered by the SEC (incl. $700 min
disgorgement of profits and $100 min penalty) to cover shareholder litigation; $375 min fund to be administered by
NYAG and NYDOI for benefit of insureds who bought XS casualty policies via MMC; $343 min fund to be administered
by NYAG and NYDOI to compensate states for underpaid workers' compensation taxes (largely interest dating back to
1985-96); $100 min fine to NY State; and $25 min payment to DOJ (technically to the US Postal Service) to settle
General Re and related matters. Settlement costs will all be borne by AIG (parent), not the operating units. All amounts
are tax deductible except the $100 min SEC penalty and the $100 min NYS fine. Other aspects of the settlement include:
(i) AIG will hire an independent consultant to monitor internal controls for three years, (ii) AIG will stop paying contingent
commissions on XS casualty business and will support legislation to eliminate all/additional contingents, and (iii)
regulators will cite AIG's cooperation in the settlement process.
The $1.69 bin pretax reserve charge includes $870 min for A&E and $820 min for other exposures. The total charge
represents about 3% of carried reserves, and the non-A&E portion represents about 1.5% of non-A&E carried reserves.
A charge was widely expected, as Milliman has been conducting the first-ever external review of AIG's total P&C
reserves. The resulting reserves will match Milliman's best estimate. We contemplated a charge of up to 5% of carried
reserves in our AIG DBG RCM in December 2005.
AIG will also increase its loss estimate for Hurricanes Katrina and Rita (3005) by $150 min or nearly 10%. The company
stands by its previously announced loss estimate of $400 min for Hurricane Wilma in 4005.
On remediation of the five material weaknesses cited in AIG's 2004 1O-K, AIG expects to be done with two items (control
environment, risk transfer) in time for its 2005 filings. The remaining three items will take longer: derivatives (to be
completed around mid-2006), balance sheet reconciliations (no estimate), and income taxes (no estimate).
AIG's press release will address the settlements, the reserve charges and the catastrophe losses, but not the
remediation process.
Conclusion: These charges fall within ranges that we have contemplated during prior RCMs and discussed in published
reports on AIG. AIG remains one of the world's strongest and most diverse financial institutions, with substantial profits
and a large capital base.
2
Q- Tool Commentary: (Brief Discussion of any Significant Outliers)
Moody's
Aa2 / Stable
Senior Debt
Fitch
AA / Watch Neg
S&P
AA / Negative
American International Group, Inc,
2/8/2006
A2
AA
(45500)
A.M. Best
AJ
Baa2
JUnE!ric:an IntE!rnatiDnal GrDup. Inc.
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New/Revised Financial Metrics to be Incorporated into Proposed Rating(s)
- Adjusted financial leverage in 10-15% range
- Ad'usted interest covera e exceedin 20x
What Factors Could Move the Newly Proposed Rating(s} Higher?
- Continued strong profits, with returns on equity consistently exceeding 15%
- A sustained period with no adverse development of property and casualty reserves
- Full remediation of material weaknesses in internal controls
What Factors Could Move the Newly Proposed Rating(s} Lower?
- A deterioration in profits, with returns on equity falling below 10%
- Further adverse development of property and casualty reserves, which, in combination with today's reserve charge,
would exceed 5% of net reserves
- Adjusted financial leverage exceeding 15%
3
Required Attachments l1(As Applicable}:
Latest Credit Opinion
Stock Chart
GAAP Financials IU
Table of Contents:
Exhibit 1 (pp 5-7)
Exhibit 2 (p 8)
Exhibit 3 (pp 9-13)
Consolidated GAAP Peer Comparisons
Exhibit 4 (pp 14-16)
Draft Press Release - Domestic General Insurance
Exhibit 5 (p 17)
Exhibit 6 (p 18)
Notes From Follow-up Call on Control Weaknesses
°Cut and paste all required attachments into the Rating Committee Memo. "Statutory financials should follow the same
one-page format as published in the Moody's Statistical Handbook. 10 Balance sheet, income statement, and statement
of cash flows only.
4
EXHIBIT 1
CREDIT OPINION
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EXHIBIT 2
STOCK CHART
~
or: ...
'I
urn
(fflF'
: h ....
~
"1;',]\
~""" '\(,,,/1
,
.:Oy)
l,
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~-~ ........................................................................................................
:
.................... .
II .. 10': •••• ·II .....:·:.!)-JPM.·:..... ·
Splits:18-Nov-86 [2:1], 23-Jul-90 [5:4], 30-Jul-93 [3:2], 31-Jul-95 [3:2], 28-Jul-97 [3:2], 03-Aug-98 [3:2], 02-Aug-99 [5:4], 31-Jul-00 [3:2]
Last Trade:
66.38
Day's Range:
65.68 - 66.50
Trade Time:
4:00PM ET
52wk Range:
49.91 - 73.46
Change:
'£'''0.58 (0.88%)
Volume:
4,941,900
Prey Close:
65.80
Avg Vol (3m):
6,776,490
Open:
66.15
Market Cap:
172.30B
Bid:
N/A
PIE (ttm):
15.20
Ask:
N/A
EPS (ttm):
4.37
1y Target Est:
76.47
Div & Yield:
0.60 (0.90%)
8
EXHIBIT 3
GAAPINCOMESTATEMENT
(in millions, except per share data) (unaudited)
Nine Months
Ended September 30,
2005
Three Months
Ended September 30,
2004
2005
(Restated)
Revenues:
Premiums and other considerations
Net investment income
Realized capital gains (losses)
Other revenues
$
Total revenues
52,470
16,196
216
12,660
2004
(Restated)
49,418 $
13,563
(88)
9,685
17,244
5,629
79
3,409
81,542
72,578
26,361
25,280
$
$
17,237
4,501
(83)
3,625
Benefits and expenses:
Incurred policy losses and benefits
Insurance acquisition and other operating
expenses
45,665
42,273
16,503
15,166
20,966
17,719
7,381
6,023
Total benefits and expenses
66,631
59,992
23,884
21,189
Income before income taxes, minority
interest and cumulative effect of an
accounting change
14,911
12,586
2,477
4,091
2,355
2,204
2,639
1,196
372
334
203
1,061
4,559
3,835
706
1,264
10,352
8,751
1,771
2,827
Income taxes (benefits):
Current
Deferred
Income before minority interest and
cumulative effect of an accounting change
(329)
Minority interest
Income before cumulative effect of an
accounting change
(317)
10,023
8,434
Cumulative effect of an accounting change,
net of tax
(54)
(142)
1,717
2,685
(144)
Net income
$
10,023
$
8,290
$
1,717
$
2,685
Earnings per common share:
Basic
Income before cumulative effect of an
accounting change
Cumulative effect of an accounting
change, net of tax
Net income
$
3.86
$
3.24
$
0.66
$
1.04
$
3.86
$
(0.06)
3.18 $
0.66
$
1.04
$
3.82
$
$
0.65
$
1.02
$
3.82
$
(0.06)
3.14 $
0.65
$
1.02
$
0.40
$
$
0.15
$
0.08
Diluted
Income before cumulative effect of an
accounting change
Cumulative effect of an accounting
change, net of tax
Net income
Cash dividends per common share
Average shares outstanding:
Basic
Diluted
2,597
2,624
9
3.20
0.21
2,608
2,639
2,597
2,624
2,606
2,638
GAAP BALANCE SHEET - Assets
September 30,
December 31,
2005
2004
(Restated)
Assets:
Investments, financial services assets and cash:
Fixed maturities:
Bonds available for sale, at market value
(amortized cost: 2005 - $348,028; 2004 $329,838)
Bonds held to maturity, at amortized cost
(market value: 2005 - $22,028; 2004 $18,791)
Bond trading securities, at market value
(cost: 2005 - $3,953; 2004 - $2,973)
Equity securities:
Common stocks available for sale, at market
value (cost: 2005 - $9,981; 2004 - $8,569)
Common stocks trading, at market value
(cost: 2005 - $7,382; 2004 - $5,651)
Preferred stocks, at market value
(cost: 2005 - $2,206; 2004 - $2,017)
Mortgage loans on real estate, net of allowance
(2005 - $53; 2004 - $65)
Policy loans
Collateral and guaranteed loans, net of
allowance (2005 - $15; 2004 - $18)
Financial services assets:
Flight equipment primarily under operating
leases, net of accumulated depreciation
(2005 - $7,145; 2004 - $6,390)
Securities available for sale, at market
value (cost: 2005 - $37,466; 2004 - $30,779)
Trading securities, at market value
Spot commodities, at market value
Unrealized gain on swaps, options and forward
transactions
Trading assets
Securities purchased under agreements to
resell, at contract value
Finance receivables, net of allowance (2005 $646; 2004 - $571)
Securities lending collateral, at cost
(approximates market value)
Other invested assets
Short-term investments, at cost (approximates
market value)
Cash
$
Total investments, financial services assets
and cash
Investment income due and accrued
Premiums and insurance balances receivable, net of
allowance (2005 - $469; 2004 - $425)
Reinsurance assets, net of allowance (2005 - $512;
2004 - $500)
Deferred policy acquisition costs
Investments in partially owned companies
Real estate and other fixed assets, net of
accumulated depreciation (2005 - $4,989; 2004 $4,650)
Separate and variable accounts
Goodwill
Income taxes receivable - current
Other assets
362,194
$
21,532
18,294
3,975
2,984
12,368
9,917
8,098
5,894
2,269
2,040
14,202
7,082
13,146
7,035
2,257
2,282
35,535
32,130
37,872
6,667
234
32,768
3,142
95
20,427
909
22,670
3,331
12,129
26,272
27,701
23,574
57,627
24,808
49,169
22,471
16,238
2,108
16,102
2,009
676,232
5,955
639,724
5,556
15,177
14,788
22,023
32,083
1,149
19,857
29,740
1,496
6,841
61,157
8,354
6,192
57,741
8,556
109
16,283
14,426
Total assets
$
10
344,399
843,397
$
800,042
GAAP BALANCE SHEET - Liab & Equity
September 30,
December 31,
2005
2004
(Restated)
Liabilities:
Reserve for losses and loss expenses
Reserve for unearned premiums
Future policy benefits for life and accident and
health insurance contracts
Policyholders' contract deposits
Other policyholders' funds
Reserve for commissions, expenses and taxes
Insurance balances payable
Funds held by companies under reinsurance treaties
Income taxes payable
Financial services liabilities:
Borrowings under obligations of guaranteed
investment agreements
Securities sold under agreements to repurchase,
at contract value
Trading liabilities
Securities and spot commodities sold but not yet
purchased, at market value
Unrealized loss on swaps, options and forward
transactions
Trust deposits and deposits due to banks and
other depositors
Commercial paper
Notes, bonds, loans and mortgages payable
Commercial paper
Notes, bonds, loans and mortgages payable
Liabilities connected to trust preferred stock
Separate and variable accounts
Minority interest
Securities lending payable
Other liabilities
$
Total liabilities
Preferred shareholders' equity in subsidiary companies
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares
authorized; shares issued 2005 - 2,751 ,327,476;
2004 - 2,751,327,476
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost; 2005 - 155,719,651; 2004154,904,286 shares of common stock
Total shareholders' equity
Total liabilities, preferred shareholders' equity in
subsidiary companies and shareholders' equity
$
11
71,161
24,228
$
62,371
23,094
108,461
227,241
10,682
5,096
4,178
3,948
8,551
104,756
216,474
10,280
4,539
3,686
3,404
6,768
19,953
18,919
10,694
1,707
23,581
2,304
5,223
4,866
15,721
17,611
4,255
7,723
66,270
1,978
7,411
1,489
61,157
5,120
58,430
23,245
4,248
6,724
59,683
2,969
5,502
1,489
57,741
4,584
49,972
23,750
753,922
719,315
193
199
6,878
2,249
73,246
9,175
6,878
2,094
64,254
9,513
(2,266)
(2,211)
89,282
80,528
843,397
$
800,042
GAAP CASH FROM OPERATIONS
(in millions) (unaudited)
2005
Nine Months Ended September 30,
2004
(Restated)
Summary:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
$
Change in cash
Cash at beginning of period
23,080 $
(41,666)
19,341
(656)
19,611
(53,675)
35,027
187
1,150
922
99
2,009
Cash at end of period
$
2,108
$
2,072
Cash flows from operating activities:
Net income
$
10,023
$
8,290
Adjustments to reconcile net income to net cash provided by
operating activities:
Noncash revenues, expenses, gains and losses included in
income:
Change in:
General and life insurance reserves
Premiums and insurance balances receivable
and payable - net
Reinsurance assets
Deferred policy acquisition costs
Investment income due and accrued
Funds held under reinsurance treaties
Other policyholders' funds
Current and deferred income taxes - net
Reserve for commissions, expenses and taxes
Other assets and liabilities - net
Trading assets and liabilities - net
Trading securities, at market value
Spot commodities, at market value
Net unrealized (gain) loss on swaps, options
and forward transactions
Securities purchased under agreements to
resell
Securities sold under agreements to
repurchase
Securities and spot commodities sold but not
yet purchased, at market value
Realized capital (gains) losses
Equity in income of partially owned companies and other
invested assets
Amortization of premium and discount on securities
Depreciation expenses, principally flight equipment
Provision for finance receivable losses
Other - net
13,850
16,261
103
(2,166)
(1,748)
(399)
544
402
2,526
557
(165)
1,825
(3,525)
(139)
(1,364)
663
(2,364)
(823)
396
586
2,371
(30)
988
(3,308)
380
117
2,950
353
14,143
(10,184)
(12,887)
4,585
357
(216)
(563)
88
(1,263)
240
1,311
315
(961)
(897)
231
1,511
282
(555)
13,057
Total adjustments
$
Net cash provided by operating activities
12
23,080
11,321
$
19,611
GAAP CASH FROM INVESTING & FINANCING
(in millions) (unaudited)
2005
Nine Months Ended September 30,
2004
(Restated)
Cash flows from investing activities:
Cost of bonds, at market sold
Cost of bonds, at market matured or redeemed
Cost of equity securities sold
Realized capital gains (losses)
Purchases of fixed maturities
Purchases of equity securities
Mortgage, policy and collateral loans granted
Repayments of mortgage, policy and collateral
loans
Sales of securities available for sale
Maturities of securities available for sale
Purchases of securities available for sale
Sales of flight equipment
Purchases of flight equipment
Net additions to real estate and other fixed
assets
Sales or distributions of other invested
assets
Investments in other invested assets
Change in short-term investments
Investments in partially owned companies
Finance receivable originations and purchases
Finance receivable principal payments received
$
$
Net cash used in investing activities
Cash flows from financing activities:
Receipts from policyholders' contract deposits
Withdrawals from policyholders' contract
deposits
Change in trust deposits and deposits due to
banks and other depositors
Change in commercial paper
Proceeds from notes, bonds, loans and
mortgages payable
Repayments on notes, bonds, loans and
mortgages payable
Liquidation of zero coupon notes payable
Proceeds from guaranteed investment agreements
Maturities of guaranteed investment agreements
Redemption of subsidiary company preferred
stock
Proceeds from common stock issued
Cash dividends to shareholders
Acquisition of treasury stock
Other - net
$
99,133 $
12,832
10,162
216
(133,692)
(13,361)
(3,859)
92,777
10,776
10,621
(88)
(140,608)
(13,490)
(2,208)
2,883
4,913
2,190
(13,390)
1,384
(5,482)
1,655
2,032
3,603
(8,922)
1,155
(3,869)
(1,216)
(531)
7,480
(8,441)
1,029
(5)
(37,792)
33,350
5,533
(8,349)
452
3
(18,026)
13,809
(41,666) $
(53,675)
37,278
$
40,372
(26,562)
(16,965)
7
8
160
3,286
43,302
22,471
(34,578)
(16,120)
(189)
8,006
(4,882)
8,919
(7,885)
(200)
130
(535)
(508)
1
44
(1,031)
(170)
9
Net cash provided by financing activities
$
19,341
$
35,027
Supplementary information:
Taxes paid
$
2,031
$
2,011
Interest paid
$
3,587
$
3,119
l3
EXHIBIT 4
GAAP COMPARISONS
DIC
D/Market C
D/Tang Cap
Equity
GAAP Underwriting
Leverage
GAAP_Combined_Ratio
ACE
ALL
AIG
HIG
ORI
PGR
STA
XL
CHUBB
200502
18.7
18.9
55.6
23.1
3.4
18.7
20.6
24.5
20.0
200501
19.5
20.1
60.0
25.7
3.6
19.5
23.3
25.8
21.3
2004Y
19.7
19.6
59.1
25.7
3.6
19.9
23.8
28.5
21.7
2003Y
21.2
19.8
56.8
32.7
3.7
22.8
18.2
24.6
24.8
2002Y
29.6
20.3
58.5
29.0
4.3
28.3
25.4
22.2
22.3
2001Y
33.2
19.3
60.5
30.6
5.4
25.2
21.8
22.8
19.2
59.3
30.9
8.9
20.7
29.8
7.5
9.7
2000Y
35.4
19.0
200502
17.1
14.4
48.2
19.8
3.2
9.3
19.1
22.4
16.6
200501
18.1
15.7
52.3
22.2
3.4
9.8
21.7
23.3
17.8
2004Y
18.0
15.7
48.1
22.2
3.3
10.4
22.3
25.0
18.4
2003Y
18.8
16.6
43.4
28.5
3.3
11.4
15.6
20.4
20.9
2002Y
27.6
17.0
44.2
28.2
4.2
17.0
21.7
18.0
19.9
2001Y
26.8
16.7
38.0
24.5
4.9
13.4
#NAME?
15.3
14.5
2000Y
28.0
14.2
31.1
22.2
7.1
12.5
#NAME?
5.2
6.4
200502
23.6
19.4
58.1
25.2
#NAME?
18.7
23.5
#NAME?
20.7
200501
24.7
20.7
62.6
28.3
3.6
19.5
26.8
#NAME?
22.0
2004Y
25.0
20.3
61.8
28.3
3.7
19.9
29.4
34.1
22.6
2003Y
27.9
20.5
59.6
36.3
3.8
22.8
21.8
30.4
25.9
2002Y
42.2
21.2
61.1
32.7
4.4
28.3
30.8
27.4
23.6
2001Y
47.6
20.6
63.4
35.3
5.6
25.2
26.9
29.3
20.4
2000Y
53.6
20.1
#NAME?
34.8
#NAME?
20.7
36.7
10.1
10.4
200502
10,496
22,324
88,879
15,590
4,069
5,591
22,369
8,372
11,258
200501
9,965
21,325
82,683
14,211
3,881
5,295
20,732
7,815
10,401
2004Y
9,836
21,823
80,607
14,238
3,866
5,155
21,201
7,739
10,126
2003Y
8,835
20,565
71,253
11,639
3,554
5,031
11,987
6,937
8,522
2002Y
6,389
17,438
59,103
10,734
3,156
3,768
10,137
6,570
6,826
2001Y
6,107
17,196
52,150
9,013
2,784
3,251
10,686
5,437
6,525
2000Y
5,420
17,451
47,438
7,464
2,439
2,870
9,214
5,574
6,982
200502
3.5
#NAME?
#NAME?
#NAME?
#NAME?
1.6
2.9
2.8
#NAME?
200501
3.6
#NAME?
#NAME?
#NAME?
#NAME?
1.7
3.1
3.0
#NAME?
2004Y
4.8
2.1
1.8
2.3
#NAME?
3.7
3.8
4.0
3.3
2003Y
4.7
2.1
1.8
2.8
#NAME?
3.3
4.2
3.8
3.6
2002Y
5.8
2.3
1.9
2.5
#NAME?
3.6
4.7
3.4
4.0
2001Y
5.1
2.3
1.8
2.9
#NAME?
3.3
4.0
3.2
3.6
2000Y
4.6
2.2
1.8
3.2
#NAME?
3.3
4.2
1.6
2.7
200502
90.2
85.2
93.1
87.0
87.6
86.1
87.6
97.9
88.3
200501
89.0
85.3
94.3
88.6
88.5
85.0
90.5
89.7
89.4
2004Y
96.4
93.0
100.4
95.3
89.3
85.1
107.7
95.9
92.3
2003Y
91.0
94.6
93.3
96.5
86.4
87.3
96.3
102.8
98.0
2002Y
101.7
98.9
105.1
99.1
88.1
92.4
116.6
97.0
106.7
2001Y
111.6
102.9
99.6
112.5
88.9
95.2
108.9
139.7
113.4
2000Y
95.5
99.2
95.5
102.9
91.6
104.4
100.9
106.2
100.4
14
GPW
Loss and LAE Reserves
Net Income
ACE
ALL
AIG
HIG
ORI
PGR
200502
4,213
#NAME?
#NAME?
#NAME?
#NAME?
3,672
200501
4,543
#NAME?
#NAME?
#NAME?
#NAME?
3,684
2004Y
16,098
26,973
81,232
11,498
#NAME?
13,694
2003Y
14,637
25,505
71,277
11,081
#NAME?
12,188
2002Y
12,819
24,260
58,775
9,835
#NAME?
2001Y
10,165
22,892
49,618
8,660
2000Y
7,587
22,119
42,975
Operating Cash Flow
Operating Cash Flow /
Revenue
Pre-tax Interest Cov
XL
CHUBB
5,909
3,966
#NAME?
5,921
3,524
#NAME?
22,273
11,124
13,399
15,475
9,706
12,604
9,666
14,075
8,986
10,605
#NAME?
7,379
11,668
5,421
8,060
8,074
#NAME?
6,402
10,648
3,129
7,126
200502
32,101
18,795
65,327
21,104
4,706
5,491
58,114
19,775
21,092
200501
31,426
18,958
64,061
21,301
4,544
5,348
58,630
19,908
20,876
2004Y
31,513
19,338
62,371
21,329
4,404
5,286
59,070
19,838
20,292
2003Y
27,155
17,714
56,118
21,715
4,023
4,576
34,573
16,559
17,948
2002Y
24,315
16,690
51,539
17,091
3,677
3,813
33,736
13,203
16,713
2001Y
20,728
16,500
44,792
17,036
3,451
3,238
30,737
11,807
15,515
2000Y
17,388
16,859
40,613
15,874
3,390
2,986
28,442
5,668
11,905
456
1,149
3,992
602
172
394
1,067
136
496
200502
422
1,123
3,684
666
114
413
210
443
470
2004Y
1,094
3,181
11,048
2,115
435
1,649
949
1,126
1,548
2003Y
1,381
2,705
9,274
(91)
460
1,255
1,696
372
809
2002Y
51
1,134
5,519
1,000
393
667
(27)
396
223
2001Y
(172)
1,158
5,363
507
347
411
1,065
(576)
112
2000Y
525
2,211
6,639
974
297
46
1,312
506
715
200501
NPW
STA
200502
2,909
6,993
17,947
2,722
#NAME?
3,594
5,216
3,493
3,113
200501
3,365
6,582
18,337
2,581
#NAME?
3,605
4,780
2,982
3,056
2004Y
11,528
26,531
68,689
9,894
#NAME?
13,378
19,045
8,959
12,053
2003Y
10,215
25,187
58,515
9,065
#NAME?
11,913
13,201
7,616
11,068
2002Y
8,068
23,917
47,735
8,584
#NAME?
9,452
11,945
6,973
9,047
2001Y
6,364
22,609
39,164
7,585
#NAME?
7,260
9,846
3,566
6,962
2000Y
4,879
21,858
34,689
7,248
#NAME?
6,196
8,843
2,116
6,333
200502
1,147
1,778
12,951
763
176
764
703
2,360
882
200501
1,210
1,390
654
666
196
659
1,028
271
1,011
2004Y
4,953
5,468
35,581
2,634
828
2,663
5,066
4,444
4,089
2003Y
4,225
5,691
36,155
3,896
720
2,437
3,833
3,430
3,364
2002Y
2,407
4,418
19,093
2,577
638
1,912
2,926
3,036
2,216
2001Y
1,353
2,291
8,801
2,261
527
1,235
1,219
1,438
1,019
2000Y
(427)
1,731
9,080
2,435
344
822
664
262
964
200502
35.1
20.2
48.2
12.6
18.6
21.3
11.6
57.5
25.6
200501
38.3
16.0
2.4
11.1
22.2
18.9
16.8
11.3
29.4
2004Y
40.1
16.1
36.0
11.6
23.7
19.3
22.1
44.0
31.1
2003Y
39.5
17.7
44.5
20.8
21.9
20.5
25.3
42.9
29.6
2002Y
33.8
14.9
28.3
15.7
23.2
20.6
20.5
46.2
24.3
2001Y
20.4
7.9
14.2
14.9
22.2
16.5
10.0
35.1
13.2
2000Y
-8.1
5.9
16.1
16.6
16.6
12.2
6.0
9.5
13.3
200502
14.8
21.0
4.0
13.9
70.4
29.3
19.5
2.8
#NAME?
200501
14.0
19.3
4.0
15.5
85.3
30.6
17.7
6.5
#NAME?
2004Y
8.7
15.9
4.9
11.1
74.1
31.3
5.6
4.8
15.9
2003Y
10.6
14.0
4.4
-1.0
83.9
20.5
14.4
3.2
8.2
2002Y
0.8
6.5
3.2
5.0
64.7
14.2
-0.7
3.7
3.0
2001Y
0.0
6.2
3.0
2.2
35.3
12.3
7.8
-5.7
-0.2
2000Y
3.9
14.3
3.7
6.7
25.9
1.4
7.3
7.3
17.1
15
ACE
Pre-tax Operating
Income Covg of Fixed
Chgs
Reins Rec / Equity
ROAE
Total Debt
ALL
AIG
HIG
ORI
PGR
STA
XL
CHUBB
200502
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
200501
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
2004Y
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
2003Y
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
2002Y
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
2001Y
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
2000Y
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
#NAME?
200502
1.38
0.19
0.22
0.37
0.51
0.07
0.82
0.89
0.31
200501
1.47
0.20
0.24
0.42
0.52
0.07
0.91
1.02
0.34
2004Y
1.55
0.20
0.25
0.43
0.50
0.07
0.90
1.04
0.34
2003Y
1.59
0.15
0.38
0.51
0.50
0.05
0.93
1.03
0.40
2002Y
2.19
0.17
0.49
0.47
0.50
0.06
1.08
0.95
0.60
2001Y
1.87
0.16
0.52
0.57
0.53
0.06
1.03
1.16
0.69
2000Y
1.66
#NAME?
0.51
0.61
0.60
0.08
1.02
0.28
0.27
200502
18.3
21.1
18.6
16.2
17.3
29.0
19.8
7.2
18.3
200501
17.5
20.9
18.1
18.7
11.8
31.6
4.0
23.3
18.3
2004Y
12.2
15.0
12.9
16.1
11.7
29.3
5.5
15.9
16.8
2003Y
18.4
14.2
14.1
-0.8
13.4
29.0
15.4
6.1
10.2
2002Y
1.2
6.6
9.9
10.1
13.2
19.4
-0.3
7.1
3.4
2001Y
-2.7
6.7
11.9
6.0
13.3
13.6
10.7
-10.7
1.6
2000Y
11.2
13.0
15.3
15.5
13.1
1.7
16.8
9.1
10.9
200502
2,408
5,187
111,402
4,681
143
1,285
5,802
2,722
2,813
200501
2,408
5,355
124,238
4,922
143
1,285
6,295
2,722
2,809
2004Y
2,408
5,334
116,527
4,929
143
1,284
6,624
3,091
2,814
2003Y
2,370
5,076
93,770
5,660
138
1,490
2,675
2,258
2,814
2002Y
1,895
4,240
81,046
2,911
142
1,489
2,544
1,878
1,834
2001Y
1,845
3,921
77,549
2,564
159
1,096
2,078
1,605
1,425
2000Y
1,789
3,331
65,632
2,097
238
749
3,006
450
629
Total Losses Paid /
200502
0.63
1.03
0.78
0.94
#NAME?
0.94
#NAME?
#NAME?
0.85
Total Losses Incurred
200501
0.69
1.05
0.72
0.98
#NAME?
0.97
#NAME?
#NAME?
0.72
2004Y
0.57
0.96
0.65
1.00
0.75
0.93
0.76
0.63
0.69
2003Y
0.64
0.94
0.75
0.66
0.82
0.91
0.91
0.61
0.73
2002Y
0.81
0.99
0.79
0.95
0.87
0.91
0.72
0.86
0.73
2001Y
0.82
1.02
0.94
0.91
0.96
0.95
0.98
0.63
0.82
2000Y
1.40
1.06
0.99
1.03
1.05
0.89
1.09
1.16
0.93
16
EXHIBIT 5
DRAFT PRESS RELEASE
MOODY'S AFFIRMS AIG'S RATINGS (SENIOR DEBT AT Aa2); OUTLOOK REMAINS STABLE
Moody's Investors Service has affirmed the ratings of American International Group, Inc. (NYSE: AIG - senior unsecured debt rating
Aa2; short-term issuer rating Prime-I) and all rated subsidiaries following AIG's announcement of fourth-quarter 2005 charges
associated with regulatory settlements and the completion of an independent actuarial review of property and casualty reserves. The
rating outlook for AIG and its subsidiaries is stable.
AIG announced today that it has settled regulatory investigations into its accounting, financial reporting and insurance brokerage
practices by the U.S. Department of Justice, the Securities and Exchange Commission, the Office of the New York Attorney General,
and the New York State Department ofInsurance. Total charges associated with these settlements amount to $l.64 billion on a pretax
basis ($l.15 billion after taxes). As part of the settlements, AIG has agreed to appoint an independent consultant to monitor its internal
controls for a period of three years.
Based on the independent actuarial review, AIG is increasing its property and casualty insurance reserves by $l.69 billion, resulting in
an after-tax charge of $1.10 billion. The additional reserves include $870 million for asbestos and environmental exposures and $820
million for all other exposures. The total pretax amount represents a 3.4% increase in AIG's net property and casualty reserves as of
September 30,2005. AIG also announced a $150 million after-tax charge for incremental losses from third-quarter 2005 catastrophes,
principally Hurricane Katrina. This incremental charge represents a 9.4% increase in third-quarter catastrophe losses.
Moody's commented that these charges fall within ranges contemplated by the rating agency and discussed in prior press releases on
AIG. Specifically, Moody's cited an expectation that the aggregate costs of AIG's reserve increases, accounting adjustments,
regulatory settlements, and related litigation would not exceed 10% of the firm's shareholders' equity. The aggregate costs to date
remain within this range. Moreover, profits from AIG's diverse businesses helped to boost shareholders' equity to $89 billion as of
September 30, 2005, from $81 billion (restated) at year-end 2004.
Moody's noted that corporate governance has been a credit weakness at AIG. Internal control failures and regulatory problems were
the primary reasons for Moody's downgrading the company's ratings twice in early 2005 to the current level. However, AIG has
adopted important governance improvements over the past year, according to Moody's. The board has changed the company's bylaws
and governance guidelines to call for an independent chairman and at least two-thirds board independence, using New York Stock
Exchange standards. Six new independent directors have been appointed during the past year, including two with accounting
backgrounds and two with strong financial services experience. Just two company executives remain on the board, putting AIG in line
with other large U.S. companies in this regard.
Moody's noted that AIG continues to face challenges with regard to internal controls over financial reporting. In its 2004 Form lO-K,
AIG identified five areas of material weakness in its internal controls, as follows: control environment, evaluation of risk transfer,
certain balance sheet reconciliations, accounting for certain derivative transactions, and income tax accounting. AIG is working to
remedy these weaknesses. It is Moody's view that such material weaknesses indicate a heightened risk of accounting adjustments.
Moody's current rating is based on the assumption that any further adjustments would not significantly affect AIG's financial strength.
The stable rating outlook reflects Moody's view that AIG will remain a leader in worldwide insurance and financial services. Moody's
identified the following factors that could lead to a rating upgrade: continued strong profits, with returns on equity consistently
exceeding 15%; a sustained period with no adverse development of property and casualty reserves; and full remediation of material
weaknesses in internal controls. Factors that could lead to a downgrade include: a deterioration in profits, with returns on equity
falling below 10%; further adverse development of property and casualty reserves, which, in combination with today's reserve charge,
would exceed 5% of net reserves; or adjusted financial leverage exceeding 15%.
AIG, based in New York City, is a leading international insurance and financial services organization, with operations in more than
l30 countries and jurisdictions. The company is engaged through subsidiaries in general insurance, life insurance & retirement
services, financial services, and asset management. For the first nine months of 2005, AIG reported total revenues of $82 billion and
net income of $10 billion. Shareholders' equity was $89 billion as of September 30,2005.
17
EXHIBIT 6
NOTES FROM FOLLOW-UP CALL ON CONTROL WEAKNESSES
-----Original Message----From:
Hall, Christopher
Sent:
Thursday, February 09, 2006 12:24 PM
To:
Levenstein, Laura; Collins, Ted; Riegel, Robert; Isaacs-Lowe, Arlene; Hibler, Sarah; Jonas, Gregory; Ballentine, Bruce; Watson, Mark;
Lee, Tse Wing (Kevin)
Subject:
AIG call on control weaknesses
Bruce, Sarah and I spoke with Steve Bensinger, AIG CFO, after the RCM concerning the material weaknesses. This info
is not/will not be made public by AIG.
•
•
•
Derivatives issue - the new controls/systems are in place. Unfortunately not enough time has passed to give the
auditors comfort that these controls are operating effectively. The issue is a hedge effectiveness documentation
issue. He thinks this will be put to bed in 02.
Balance sheet reconciliations - They're close to finishing this one. The issue here was reconciliations were a very
manually intensive process and "unreconciled items" were not being cleared in a timely fashion. Most have been
cleared and they have identified some adjustments that will be booked in the 2005 YE numbers --- they are not
material to the 3rd quarter 100, so they will not restate that filing. Because this issue was more pervasive, Steve
feels this one will take a bit more time to get the auditors comfortable that the new controls, that are currently being
finalized, are operating effectively.
Income taxes --- this one has the most work left to do. No adjustments have been found to date, but they think that if
there is a issue from the control weaknesses, it is isolated to when FAS 109 was adopted (1990s) --- they believe if
there is an adjustment it will not impact the 2004, 2003 or 2002 income statements or cash flows and that any
balance sheet impact would be immaterial (of course, its tough to have a material error in that balance sheet).
Steve closed with emphasizing that its been all hands on deck from management and PWC working these issues. He
indicated they will declare victory on each issue by having PWC sign-off on each on a real time basis. Right now, he
thinks the resolution of the derivatives issue will be communicated in the 2nd quarter 100. The other issues he hopes to
declare victory in the 03 100, but it could end up being finished in time for 2006 10K filing.
18
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Reason for Rating Committee: Consider whether or not AIG's earnings and restructuring announcements
of Nov. 10, 2008, are consistent with scenario considered in RAS RCM of Nov. 5, 2008.
Last Rating Action (include date and reason): Oct. 3, 2008 - Downgraded AIG ratings by one notch (senior
unsecured debt to A3 from A2, RUR-down) following announcement of global restructuring plan, and took
various rati
actions on subsidiaries.
Recommendation
Maintain current ratings and RUR-down, consistent with outcome of RAS RCM of Nov. 5, 2008. AIG's earnings
and restructuring announcements of Nov. 10, 2008, are substantially consistent with the scenario considered
by the RAS RCM.
Current & Recommended Ratings on AIG Entities
November 5,2008
American International Group, Inc.
Fully supported ratings
AIG Financial Products Corp. & subsidiaries
AIG Life Holdings (US), Inc.
AIG Retirement Services, Inc.
American General capital securities
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC
Businesses to be retained
AIG Commercial Insurance Group (8)
AIG General Insurance (Taiwan) Co., Ltd.
AIG UK Limited
American General Finance Corporation
United Guaranty subsidiaries UGRIC & UGMIC
United Guaranty subsidiaries UGRIC of NC & UGCIC
Businesses to be sold
AIG Domestic Life Insurance & Retirement Services (9)
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
American Life Insurance Company
International Lease Finance Corporation
SunAmerica Life Insurance Company
Transatlantic Holdings, Inc.
Transatlantic Reinsurance Company
Rating Type
LT Issuer
ST Issuer
Bkd LT Issuer
Bkd Sr Debt
Bkd Sr Debt
Bkd Tr Prfrd Stock
(Bkd) ST
IFS
IFS
IFS
Sr Unsec Debt
IFS
IFS
IFS
IFS
IFS
IFS
Sr Unsec Debt
IFS
Sr Unsec Debt
IFS
Curr
SA
Support
AIG
AIG
AIG
AIG
A3
A3
A3
Baa1
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
C/Caa2
Aa3
A3
A1
Baa1
Aa3
Baa1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Aa3
Aa3
Aa3
Aa3
Baa2
Aa3
A3
Aa3
Aa3
Aa3
Aa3
Aa3
Baa1
Aa3
A3
Aa3
R-Dn
R-Dn
R-Dn
R-Dn
R-Unc
R-Dn
R-Unc
R-Unc
G'tee
G'tee
G'tee
G'tee
AIG Agmt
AIG Agmt
AIG Agmt
AIG Agmt
Curr
Curr
Public Outlook
R-Dn
A3
P-1
R-Dn
Aa3
A3
A1
Baa1
Aa3
Rec
SA
Rec
Rec
Public Outlook
R-Dn
A3
P-1
R-Dn
A3
A3
A3
Baa1
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
C/Caa2
Aa3
A3
A1
Baa1
Aa3
Baa1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Aa3
Aa3
Aa3
Aa3
Baa2
Aa3
A3
Aa3
Aa3
Aa3
Aa3
Aa3
Baa1
Aa3
A3
Aa3
R-Dn
R-Dn
R-Dn
R-Dn
R-Unc
R-Dn
R-Unc
R-Unc
Aa3
A3
A1
Baa1
Aa3
Additional Contents
AIG PR Announcing 3Q08 Earnings
AIG PR Announcing Recapitalization and De-risking Plans
AIG Slides on Shareholders' Equity Roll Forward (Received Nov. 4, 2008)
AIG Slides on Shareholders' Equity Roll Forward (Revised Nov. 7, 2008)
Moody's Draft PR
RAS ReM Memo of Nov. 5,2008
10 pages
3 pages
2 pages
2 pages
2 pages
42 pages
Contact:
Charlene Hamrah (Investment Community)
(212) 770-7074
Nicholas Ashooh (News Media)
(212) 770-3523
AIG REPORTS THIRD QUARTER 2008 RESULTS
Consolidated Premiums and Other Considerations Totaled $21 Billion, up 7 Percent
Quarterly Loss Reflects Ongoing Market Disruption and
Restructuring-Related Activities
NEW YORK, NY, November 10, 2008 - American International Group, Inc. (AIG)
today reported a net loss for the third quarter of 2008 of $24.47 billion or $9.05 per diluted
share compared to 2007 third quarter net income of $3.09 billion or $1.19 per diluted share.
Third quarter 2008 adjusted net loss, as defined below, was $9.24 billion or $3.42 per
diluted share, compared to adjusted net income of $3.49 billion or $1.35 per diluted share
for the third quarter of 2007. AIG's results in the third quarter were negatively affected by
financial dislocation in global markets, as well as catastrophe losses and charges related to
ongoing restructuring-related activities. Insurance premiums and other considerations grew
nearly 7 percent, despite these challenging conditions.
Commenting on third quarter 2008 results, AIG Chairman and Chief Executive
Officer Edward M. Liddy said, "Third quarter results reflect extreme dislocations and
volatility in the capital markets and significant charges related to restructuring activities.
Reported earnings are not indicative of the underlying core earnings power of our insurance
businesses, which remain solidly capitalized. Retention of our customers remains strong
and reflects the support and loyalty of our long-term partners, intermediaries and sponsors."
THIRD QUARTER
(in millions, except per share data)
Net income (loss)
Net realized capital gains (losses),
net of tax (a)
FAS 133 gains (losses), excluding net realized
capital gains (losses), net of tax (b)
Adjusted net income (loss)
Weighted average shares outstanding (c)
2008
$(24,468)
2007
$3,085
(15,056)
(600)
(172)
196
$ (9,240)
$3,489
ArrH.~~iean Int0n!iatk:ma~ GrO:Uf~$hu;.
70
Pin~::
StrmH,f\J,h,vYct'k, ;\lY lOnO
Per Diluted Share
2008
2007
$(9.05)
$1.19
(5.57)
(0.06)
$(3.42)
2,703
(0.23)
0.07
$1.35
2,589
The following table summarizes the significant items, some of which are recurring, affecting
reported earnings in third quarter 2008:
(in millions)
Pre-tax
After Tax
$(28,185)
$(24,468)
Income (loss)
Net realized capital gains (losses) (a)
Minority interest
FAS 133 gains (losses), excluding net realized capital gains (b)
(18,312)
(134)
(265)
(15,056)
Adjusted loss-reported
(9,474)
(9,240)
Significant items affecting the quarter
Market disruption:
AIGFP unrealized market valuation loss, credit valuation
adjustment, net of deferred compensation reversal
ALICO u.K. investment-linked products
Domestic Retirement Services deferred acquisition cost (DAC) charges
DAC/sales inducement asset benefit for realized capital losses
Partnership and mutual fund losses
Sub-total market disruption
(7,576)
(501)
(728)
478
(1,664)
(9,991)
(4,924)
(326)
(473)
311
(1,082)
(6,494)
Restructuring-related activities:
Tax reversal of permanent reinvestment assertion for foreign businesses
Fed facility interest expense
Goodwill impairment
UGC premium deficiency reserve (PDR) on second-lien business
Sub-total restructuring-related
(802)
(432)
(465)
(1,699)
(3,628)
(521)
(432)
(302)
(4,883)
Other:
Catastrophe losses
AGF operating results (excluding goodwill impairment)
UGC operating results (excluding PDR)
Sub-total other
(1,391)
(105)
(651)
(2,147)
(904)
(68)
(423)
(1,395)
$(13,837)
$(12,772)
Total significant items
2
(172)
Net loss for the first nine months of2008 was $37.63 billion or $14.40 per diluted
share, compared to net income of $11.49 billion or $4.40 per diluted share in the first nine
months of 2007. Adjusted net loss for the first nine months of 2008 was $14.12 billion or
$5.40 per diluted share, compared to adjusted net income of $12.51 billion or $4.79 per
diluted share in the first nine months of 2007.
NINE MONTHS
(in millions, except per share data)
Net income (loss)
Net realized capital gains (losses),
net of tax (a)
FAS 133 gains (losses), excluding net realized
capital gains (losses), net of tax (b)
Adjusted net income (loss)
Weighted average shares outstanding (c)
Per Diluted Share
2008
2007
$(14.40)
$4.40
2008
$(37,630)
2007
$11,492
(23,038)
(673)
(8.82)
(0.26)
(470)
(341)
(0.18)
(0.13)
$ (5.40)
$4.79
2,609
$(14,122)
$12,506
2,613
(a) Represents primarily non-cash other-than-temporary impairment charges.
(b) Represents the effect of hedging activities that did not qualify for hedge accounting treatment under F AS 133,
including the related foreign exchange gains and losses.
(c) As a result of the losses reported in the third quarter and nine months of 2008, basic shares outstanding were used
for these periods.
OVERVIEW
Included in the third quarter 2008 net loss and adjusted net loss was a pre-tax charge
of approximately $7.05 billion ($4.59 billion after tax) for a net unrealized market valuation
loss related to the AIG Financial Products Corp. (AIGFP) super senior credit default swap
portfolio and a pre-tax net loss of $1.09 billion ($705 million after tax) for a credit valuation
adjustment on AIGFP's assets and liabilities in accordance with FAS 157 and FAS 159.
Additionally, third quarter 2008 results included pre-tax net realized capital losses of
$18.31 billion ($15.06 billion after tax) arising primarily from other-than-temporary
impairment charges on AIG's investment portfolio. The Securities Lending program
accounted for $11.7 billion of these losses, of which $6.9 billion resulted from AIG's change
in intent to hold these securities to recovery as the program winds down. The other-thantemporary impairment charges also included $3.9 billion resulting from the severe, rapid
decline in fair value of securities outside of the Securities Lending program, for which AIG
concluded it could not reasonably assert that the impairment period would be temporary.
Also contributing to the loss in the third quarter were losses on partnership and
mutual fund investments of $1.7 billion before tax ($1.1 billion after tax) compared to $454
million of income ($295 million after tax) in the third quarter last year.
Included in charges related to restructuring activities, are $3.6 billion of additional
deferred tax expense for the reversal of historical permanent reinvestment assertions related
primarily to AIG's foreign life businesses.
At September 30,2008, shareholders' equity was $71.18 billion, including the
addition of $23 billion of consideration received for preferred stock not yet issued.
Consolidated assets at September 30,2008 were $1.022 trillion.
3
GENERAL INSURANCE
General Insurance third quarter 2008 operating loss before net realized capital gains
(losses) was $899 million, compared to a profit of $2.51 billion in the third quarter of 2007.
The comparison reflects significant catastrophe losses of $1.39 billion, primarily related to
hurricanes Gustav and Ike, compared to $24 million in the third quarter of 2007, an increase
in operating losses at United Guaranty Corporation (UGC) of $901 million, which included
a premium deficiency reserve established on the second-lien business, and a decline in net
investment income of $659 million, primarily due to losses from partnership and mutual
fund investments.
General Insurance net premiums written were $11.73 billion in the third quarter of
2008, a slight decline compared to last year's third quarter. Commercial Insurance, which
remains a core part of AIG, reported net premiums written during the third quarter of 2008
of $5.60 billion, a 6.9 percent decline from the third quarter of 2007 reflecting continued
underwriting discipline, particularly in workers compensation, and economic conditions in
certain key industries, including construction, transportation and real estate. Despite the
difficult economic climate and other challenges, Commercial Insurance retained the vast
maj ority of its customers and continued to write new business as customers recognized the
ongoing value of the company's market-leading capabilities. Foreign General and Private
Client Group, also core AIG businesses, reported net premiums written growth of 11.5
percent, including favorable foreign exchange, and 30.2 percent, respectively.
At September 30,2008, General Insurance net loss and loss adjustment reserves
totaled $73.75 billion, an increase of $1.42 billion in the third quarter 2008 and $4.47 billion
for the nine months ended September 30,2008. For the third quarter of 2008, net loss
development from prior accident years, excluding accretion of loss reserve discount, was
favorable by $144 million, largely due to a $120 million commutation. The overall favorable
development consisted of approximately $473 million of favorable development from
accident years 2004 through 2007, partially offset by approximately $329 million of adverse
development from earlier accident years.
LIFE INSURANCE & RETIREMENT SERVICES
Life Insurance & Retirement Services third quarter 2008 operating income before net
realized capital gains (losses) was $1.01 billion, compared to $2.49 billion in the third
quarter of 2007. Results were adversely affected by losses from partnership and mutual
fund investments due to the poor performance of equity markets and trading account losses
related to certain investment-linked products in the u.K. Results were also negatively
affected by increases in deferred acquisition cost expenses primarily in the Domestic
Retirement Services business.
Premiums and other considerations increased 12.7 percent, including favorable
foreign exchange, to $9.35 billion. Premiums, deposits and other considerations amounted
to $22.92 billion, a decline of 5.2 percent, primarily related to lower variable annuity sales
both in the U.S. and internationally.
Realized capital losses totaled $16.34 billion before tax, including $12.89 billion in
the Domestic Life Insurance & Retirement Services business. Capital contributions to the
Domestic Life Insurance & Retirement Services companies during the third quarter of 2008
totaled $14.9 billion, thereby maintaining strong Risk Based Capital ratios in all operating
companies. In addition, capital contributions totaling $1.3 billion were made to ALICOJapan branch and American International Assurance in Hong Kong to maintain capital and
solvency ratios.
4
Liquidity pressures related to the Securities Lending program have abated and will
be fully resolved with the restructuring plan AIG has announced. As of September 30,
2008, total program liabilities to third parties including the Federal Reserve Bank of New
York approximated $33.2 billion and the fair value of assets backing those liabilities
approximated $33.3 billion. These amounts include securities lending activities for the
SunAmerica Guaranteed Investment Contract business, which is reported in Asset
Management.
FINANCIAL SERVICES
Financial Services reported an $8.35 billion operating loss before net realized capital
gains (losses) and the effect ofFAS 133 in the third quarter of2008, compared to a $307
million operating profit in the third quarter of2007. AIG Financial Products Corp.,
currently in run-off, continued to be pressured by the deteriorating U.S. housing and credit
market conditions, as well as ratings downgrades. Consumer Finance reported a $434
million loss, which included a goodwill impairment charge and an increase in the allowance
for finance receivable losses due to higher delinquencies and charge offs. American General
Finance has closed branches this year and reduced loan originations to a minimal level.
International Lease Finance Corporation reported a 13.8 percent increase in operating
income to $306 million, compared to $269 million in third quarter 2007, driven by a larger
aircraft fleet, higher lease rates and lower interest rates during most of the quarter.
ASSET MANAGEMENT
Asset Management reported a third quarter 2008 operating loss before net realized
capital gains (losses) of $28 million, compared to a $353 million operating profit in the third
quarter of2007. The quarter's results reflect lower partnership income and valuation
adjustments on certain real estate investments.
OTHER OPERATIONS
The third quarter 2008 operating loss from Other Operations, before net realized
capital gains (losses) and consolidation and elimination adjustments, was $1.56 billion
compared to a $428 million loss in the third quarter of2007. These results include higher
interest expense that resulted from increased borrowings, including interest on the debt and
equity units issued in May 2008 and borrowings under the Fed Facility.
#
#
#
Additional supplementary financial data, and a presentation on AIG's
businesses with exposure to the current credit market disruption are available in the
Investor Information section ofwww.aigcorporate.com.
A conference call for the investment community will be held today, November 10,
2008 at 8:30 a.m. EST. The call will be broadcast live on the Internet at
www.aigwebcast.com. A replay will be archived at the same URL through Wednesday,
November 26,2008.
5
#
#
#
It should be noted that the remarks made in this press release or on the conference
call may contain projections concerning financial information and statements concerning
future economic performance and events, plans and objectives relating to special purpose
vehicles formed with the Federal Reserve Bank of New York, asset dispositions, liquidity,
collateral posting requirements, management, operations, products and services, and
assumptions underlying these projections and statements. It is possible that AIG's actual
results and financial condition may differ, possibly materially, from the anticipated results
and financial condition indicated in these projections and statements. Factors that could
cause AIG's actual results to differ, possibly materially, from those in the specific
projections and statements include developments in global credit markets and such other
factors as are discussed in Item 1A. Risk Factors of AIG's Annual Report on Form 10-K for
the year ended December 31,2007, and in Item 1A. Risk Factors and Item 2. Management's
Discussion and Analysis of Financial Condition and Results of Operations of AIG's
Quarterly Report on Form 10-Q for the period ended September 30,2008. AIG is not under
any obligation (and expressly disclaims any such obligation) to update or alter its projections
and other statements whether as a result of new information, future events or otherwise.
#
#
#
American International Group, Inc. (AIG), a world leader in insurance and financial
services, is the leading international insurance organization with operations in more than 130
countries and jurisdictions. AIG companies serve commercial, institutional and individual
customers through the most extensive worldwide property-casualty and life insurance
networks of any insurer. In addition, AIG companies are leading providers of retirement
services, financial services and asset management around the world. AIG's common stock is
listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and
Tokyo.
6
Comment on Regulation G
This press release, including the financial highlights, includes certain non-GAAP
financial measures. The reconciliations of such measures to the most comparable GAAP
figures in accordance with Regulation G are included within the relevant tables or in the
Third Quarter 2008 Financial Supplement available in the Investor Information section of
AIG's corporate website, www.aigcorporate.com.
Throughout this press release, AIG presents its operations in the way it believes will
be most meaningful and useful, as well as most transparent, to the investing public and
others who use AIG's financial information in evaluating the performance of AIG. That
presentation includes the use of certain non-GAAP measures. In addition to the GAAP
presentations, in some cases, revenues, net income, operating income and related rates of
performance, and out of period adjustments are shown exclusive of market disruption items,
restructuring-related activities, realized capital gains (losses), the effect of FIN 46(R), the
effect ofEITF 04-5, the effect ofFAS 133, the effect of trading account losses, the effect of
remediation activities, the effect of change in actuarial estimate, the effect of expenses of
industry wide reviews, goodwill impairments and the effect of catastrophe-related losses.
AIG excludes the effects of FIN 46(R) and EITF 04-5, and the effect of hedging
activities that did not qualify for hedge accounting treatment under F AS 133, although they
are economically effective hedges, because AIG believes that excluding these items permits
investors to better assess the performance of the underlying businesses. AIG believes that
providing information in a non-GAAP manner is more useful to investors and analysts.
Likewise, AIG excludes certain entities consolidated pursuant to FIN 46(R) or EITF 04-5,
including certain AIG managed partnerships, private equity and real estate funds, where
AIG does not in fact have the economic interest that is presumed to be held by
consolidation, because AIG believes this presentation is more meaningful than the GAAP
presentati on.
Although the investment of premiums to generate investment income (or loss) and
realized capital gains or losses is an integral part of both life and general insurance
operations, the determination to realize capital gains or losses is independent of the
insurance underwriting process. Moreover, under applicable GAAP accounting
requirements, losses can be recorded as the result of other than temporary declines in value
without actual realization. In sum, investment income and realized capital gains or losses for
any particular period are not indicative of underlying business performance for such period.
AIG believes that underwriting profit (loss) provides investors with financial
information that is not only meaningful but critically important to understanding the results
of property and casualty insurance operations. Operating income of a property and casualty
insurance company includes three components: underwriting profit (loss), net investment
income and realized capital gains (losses). Without disclosure of underwriting profit (loss),
it is impossible to determine how successful an insurance company is in its core business
activity of assessing and underwriting risk. Including investment income and net realized
capital gains (losses) in operating income without disclosing underwriting profit (loss) can
mask underwriting losses. The amount of net investment income may be driven by changes
in interest rates and other factors that are totally unrelated to underwriting performance.
7
Underwriting profit (loss) is an important measurement used by AIG senior
management to evaluate the performance of its property and casualty insurance operations.
AIG includes the measurement required in statutory financial statements filed with state
insurance departments and adjusts for changes in deferred acquisition costs in order to make
the measure more consistent with the information provided in AIG's consolidated financial
statements. Further, the equity analysts who follow AIG exclude the realized capital
transactions in their analyses for the same reason and consistently request that AIG provide
the non-GAAP information.
Life and retirement services production (premiums, deposits and other
considerations), gross premiums written, net premiums written and loss, expense and
combined ratios are presented in accordance with accounting principles prescribed or
permitted by insurance regulatory authorities because these are standard measures of
performance used in the insurance industry and thus allow for more meaningful comparisons
with AIG's insurance competitors.
8
American International Group, Inc.
Financial Highlights*
(in millions, except per share data)
Three Months Ended September 30,
2008
2007 (a) Change
Nine Months Ended September 30,
2008
2007 (a) Change
General Insurance Operations:
11,726 $
11,823
Net Premiums Earned
11,731
11,433
Underwriting Profit (Loss)
(1,634)
1,114
Net Premiums Written
$
Net Investment Income
Income (Loss) before Net Realized Capital Gains (Losses)
1,394
(899)
2,508
(1,658)
Net Realized Capital Gains (Losses) (b)
Operating Income (Loss)
735
$
Loss Ratio (c)
Expense Ratio (c)
Combined Ratio (c)
(2,557) $
(0.8) % $
2.6
(47.3) %
2,439
82.28
64.64
31.33
113.61
36,068
35,241
34,015
(1,006)
3,937
3,107
4,585
(32.2)
2,101
8,522
(75.3) %
(2,494)
(69)
$
(0.1) %
36,026 $
(393) $
3.6
(11)
8,511
75.02
64.24
25.53
27.68
24.02
90.17
102.70
88.26
Life Insurance & Retirement Services Operations:
Premiums and Other Considerations
$
9,354 $
8,300
12.7 % $
28,257 $
24,895
13.5 %
Net Investment Income
2,345
4,823
(51.4)
11,734
16,468
(28.7)
Income before Net Realized Capital Gains (Losses)
1,012
2,490
(59.4)
6,159
7,926
(22.3)
Net Realized Capital Gains (Losses) (b)
(16,341)
(491)
(25,720)
(1,026)
Operating Income (Loss)
(15,329)
1,999
(19,561)
6,900
(8,347)
307
(22,772)
1,263
177
428
Financial Services Operations:
Operating Income (Loss) excluding F AS 133 and
Net Realized Capital Gains (Losses) (d) (e)
FAS 133 (b)
(33)
Net Realized Capital Gains (Losses) (b)
Operating Income (Loss)
61
(58.6)
(66)
(8,203)
669
(28)
353
(185)
(169)
(70)
(22,880)
1,008
Asset Management Operations:
Operating Income (Loss) before Net Realized
Capital Gains (Losses)
276
1,706
Net Realized Capital Gains (Losses) (b)
(1,116)
(232)
(2,985)
100
Operating Income (Loss)
(1,144)
121
(2,709)
1,806
(1,555)
(428)
(2,803)
(1,331)
Other Net Realized Capital Gains (Losses) (b)
139
(199)
Consolidation and Elimination Adjustments (b) (f)
464
278
Other before Net Realized Capital Gains (Losses)
66.9 %
(96)
(226)
237
711
Income (Loss) before Income Taxes (Benefits)
and Minority Interest
(28,185)
4,879
(48,205)
17,379
Income Taxes (Benefits) (g)
(3,480)
1,463
(10,374)
4,868
(24,705)
3,416
(37,831)
12,511
Income (Loss) before Minority Interest
Minority Interest, after-tax:
Income (Loss) before Net Realized
140
Capital Gains (Losses)
97
Net Realized Capital Gains (Losses)
Net Income (Loss)
$
(24,468) $
9
97
(323)
104
(8)
3,085
$
(37,630) $
(1,005)
(14)
11,492
(83.8)
(66.7) %
Financial Highlights
Three Months Ended September 30,
2008
2007 (a) Change
Net Income (Loss)
Net Realized Capital Gains (Losses), net of tax (h)
FAS 133 Gains (Losses), excluding Net Realized
Capital Gains (Losses), net of tax
Adjusted Net Income (Loss)
$
Effect of Capital Markets Unrealized Market
Valuation (Losses) on Super Senior Credit
Default Swaps, net of tax, included in
Adjusted Net Income (Loss) above
(24,468) $
(15,056)
3,085
(600)
(172)
(9,240)
(4,585)
Effect of Capital Markets Credit Valuation
Adjustment, net of tax, included in
Adjusted Net Loss above
(37,630) $
(23,038)
11,492
(673)
196
3,489
(470)
(14,122)
(341)
12,506
(229)
(14,122)
(229)
Effect of Capital Markets Unrealized Market
Valuation (Losses) on Super Senior Credit
Default Swaps, net of tax, included in
Adjusted Net Income (Loss) above
(9.05)
(5.57)
1.19
(0.23)
(14.40)
(8.82)
4.40
(0.26)
(0.06)
(3.42)
0.07
1.35
(0.18)
(5.40)
(0.13)
4.79
(0.09)
(5.40)
(0.09)
(1.70) $
$
(1,066)
(0.26)
(0.41)
Book Value Per Share
Weighted Average Diluted Shares Outstanding (i)
$
(705)
Earnings Per Share - Diluted:
Net Income (Loss)
Net Realized Capital Gains (Losses), net of tax (h)
FAS 133 Gains (Losses), excluding Net Realized
Capital Gains (Losses), net of tax
Adjusted Net Income (Loss)
Effect of Capital Markets Credit Valuation
Adjustment, net of tax, included in
Adjusted Net Loss above
Nine Months Ended September 30,
2008
2007 (a) Change
$
2,703
2,589
26.46 $
40.81
2,613
2,609
* Including reconciliation in accordance with Regulation G.
(a) Certain amounts have been reclassified in 2007 to conform to the 2008 presentation.
(b) Includes gains (losses) from hedging activities that did not qualify for hedge accounting treatment under FAS 133
"Accounting for Derivative Instruments and Hedging Activities", including the related foreign exchange gains and losses.
(c) Ratios for all periods include the underwriting results of Mortgage Guaranty's second-lien business which was placed
in run-off in September 2008.
(d) Includes $7.05 billion and $21. 73 billion of pre-tax net unrealized market valuation losses on AIGFP's super senior credit
default swap portfolio in the third quarter and nine months of 2008, respectively.
(e) Includes changes in pre-tax credit spreads on the valuation of Capital Markets' assets of $(2.28) billion and $(5.26) billion and
liabilities of $1.19 billion and $3.62 billion (but excluding $98 million and $207 million of gains on the super senior credit
default portfolio reported with the unrealized market valuation loss), in the third quarter and nine months of 2008, respectively.
(f) Includes income from certain AIG managed partnerships, private equity and real estate funds that are consolidated. Such income
is offset in minority interest expense, which is not a component of operating income.
(g) Includes $3.63 billion of deferred tax expense attributable to the potential sale offoreign businesses, and a $3.33 billion valuation
allowance to reduce tax benefits on capital losses in both third quarter and nine months of 2008.
(h) Includes $3.33 billion deferred income tax valuation allowance in the third quarter and nine months of 2008, with respect to the
utilization of capital loss carry forwards.
(i) As a result of the losses reported in third quarter and nine months of 2008, basic shares outstanding were used for these periods.
10
(35.2) %
Contact:
Charlene Hamrah (Investment Community)
(212) 770-7074
Nicholas Ashooh (News Media)
(212) 770-3523
Joe Norton (News Media)
(212) 770-3144
u.s. TREASURY, FEDERAL RESERVE AND AIG
ESTABLISH COMPREHENSIVE SOLUTION FOR AIG
Designed to Create Durable Capital Structure, Resolve Liquidity Issues from Credit
Default Swaps and U.S. Securities Lending, Facilitate Orderly Asset Sales, and Enable
Repayment of Loan Plus Interest
NEW YORK, November 10, 2008 - American International Group, Inc. (AI G) today
announced agreements with the US. Treasury and the Federal Reserve to establish a durable
capital structure for AIG, and facilities designed to resolve the liquidity issues AIG has
experienced in its credit default swap portfolio and its US. securities lending program.
Edward M. Liddy, AIG Chairman and CEO, said these agreements are a dramatic step
forward for AIG and all of its stakeholders: "Today's actions send a strong signal to our
policyholders, business partners and counterparties that AIG is on the road to recovery. Our
comprehensive plan addresses the liquidity issues that threatened AIG, and gives us the
financial flexibility to complete our restructuring process successfully for the benefit of all
of our constituencies."
Liddy continued, "The $85 billion emergency bridge loan was essential to prevent an AIG
bankruptcy, which would have caused incalculable damage to AIG, our economy and the
global financial system. Thanks to decisive action by Congress, Treasury and the Federal
Reserve, there are now additional tools available to create a durable capital structure that
will make possible an orderly disposition of certain of AIG' s assets and a successful future
for the company. Our goal is to repay taxpayers in full with interest, and emerge as a
focused global insurer that will create meaningful value for taxpayers and other
stakeholders."
The actions announced today include both ongoing financing facilities and one-time
transactions designed to address AIG's liquidity issues. The ongoing financing facilities
include:
•
Preferred Equity Investment: The US. Treasury will purchase, through TARP, $40
billion of newly issued AIG perpetual preferred shares and warrants to purchase a
number of shares of common stock of AIG equal to 2% of the issued and outstanding
shares as of the purchase date. All of the proceeds will be used to pay down a portion of
the Federal Reserve Bank of New York (FRBNY) credit facility. The perpetual
preferred shares will carry a 10% coupon with cumulative dividends.
-moreArrH.~~iean Int0n!iatk:ma~ GrO:Uf~$hu;.
70
Pin~::
StrmH,f\J,h,vYct'k, ;\lY lOnO
u.s. Treasury, Federal Reserve and AIG Establish Comprehensive Solution for AIG...
November 10, 2008
Page two
•
Revised Credit Facility: The existing FRBNY credit facility will be revised to reflect,
among other things, the following: (a) the total commitment following the issuance of
the perpetual preferred shares will be $60 billion; (b) the interest rate will be reduced to
LIBOR plus 3.0% per annum from the current rate of LIB OR plus 8.5% per annum; (c)
the fee on undrawn commitments will be reduced to 0.75% from the current fee of8.5%;
and (d) the term of the loan will be extended from two to five years. The extension of the
term of the loan will give AIG time to complete its planned asset sales in an orderly
manner. Proceeds from these asset sales will be used to repay the credit facility. In
connection with the amendment to the FRBNY credit facility, the equity interest that
taxpayers will hold in AIG, coupled with the warrants described above, will total 79.9%.
The one-time transactions involve the creation of two financing entities capitalized with
loans from AIG and the FRBNY. These entities will purchase assets related to AIG's US.
securities lending program and Multi-Sector Collateralized Debt Obligations (CDOs) on
which AIG has written credit default swap (CDS) contracts. The entities will collect cash
flows from the assets and pay interest on the debt. FRBNY and AIG will share in any
recoveries in the market prices of the assets.
•
Resolution of U.S. Securities Lending Program: AIG will transfer residential
mortgage-backed securities (RMBS) from its securities lending collateral portfolio to a
newly-created financing entity that will be capitalized with $1 billion in subordinated
funding from AIG, and senior funding from the FRBNY up to $22.5 billion. After both
amounts have been repaid in full by the financing entity, the parties will participate in
any further returns on RMBS. As a result of this transaction, AIG's remaining exposure
to losses from its US. securities lending program will be limited to declines in market
value prior to closing and its $1 billion of funding.
This financing entity, together with other AIG funds, will eliminate the need for the US.
securities lending liquidity facility established bJ;' AIG and FRBNY in October, which
had $19.9 billion outstanding as of November 5 . Upon repayment to all participants,
AIG will terminate its US. securities lending program.
•
Reduction of Exposure to Multi-Sector Credit Default Swaps: AIG and FRBNY will
create a second financing entity that will purchase up to approximately $70 billion of
Multi-Sector CDO exposure on which AIG has written CDS contracts. Approximately
95% of the write-downs AIG Financial Products has taken to date in its CDS portfolio
were related to Multi-Sector CDOs.
In connection with this transaction, CDS contracts on purchased Multi-Sector CDOs will
be terminated. AIG will provide up to $5 billion in subordinated funding and FRBNY
will provide up to $30 billion in senior funding to the financing entity. As a result of this
transaction, AIG's remaining exposure to losses on the Multi-Sector CDOs underlying
the terminated CDS's will be limited to declines in market value prior to closing and its
up to $5 billion funding to the financing entity. As with the securities lending program,
FRBNY and AIG will share in any recoveries in the market prices of assets.
AIG will continue to have exposure to CDS contracts on Multi-Sector CDOs that are not
terminated. As AIG winds down its Financial Products division, it will also have
exposure to other types of remaining CDS contracts, which have generated substantially
smaller total collateral demands than the CDS contracts on Multi-Sector CDOs.
-more-
u.s. Treasury, Federal Reserve and AIG Establish Comprehensive Solution for AIG ...
November 10, 2008
Page two
Taxpayers will benefit from the transactions with AIG as follows: fees, interest and
repayment of the FRBNY loan in full, payment of a 10% coupon on the newly issued
preferred shares, cash payments from the assets purchased by the two financing entities and
potential asset appreciation in the underlying securities held by those entities. Taxpayers
will own 77.9% of the equity of AIG and will hold warrants to purchase an additional 2%
equity interest, and so will benefit from any future appreciation in AIG shares.
AIG will also continue to participate in the recent government program being utilized by
many companies for the sale of commercial paper. The Commercial Paper Funding Facility
(CPFF) has allowed AIG to reenter the commercial paper market. AIG is authorized to
issue up to $20.9 billion to the CPFF and has currently issued approximately $15.3 billion as
of November 5, 2008.
Mr. Liddy continued, "All of these steps, which would not have been possible in September,
will benefit AIG, its stakeholders and the American taxpayers. This plan contributes to
stabilizing the financial system and provides the opportunity for the public to realize gains
on its AIG investment in the future. These measures will also put AIG on track to emerge as
a nimble competitor with good long-term growth prospects."
"This innovative solution enhances AIG's liquidity position. At the same time, American
taxpayers will be fairly compensated for funds lent to AIG, and they will capture the
majority of any appreciation in the value of the securities involved in the program in the
years ahead."
Liddy added, "Today's announcement would not have been possible without the vision and
extraordinary hard work, dedication and cooperation of officials from the U.S. Treasury, the
Federal Reserve Bank of New York, the Federal Reserve Board and the state insurance
departments. On behalf of AIG, I would like to extend sincere thanks to all of those
involved in crafting this mutually beneficial solution."
#
#
#
It should be noted that the remarks made in this press release may contain projections
concerning financial information and statements concerning future economic performance
and events, plans and objectives relating to special purpose vehicles formed with the Federal
Reserve Bank of New York, asset dispositions, liquidity, collateral posting requirements,
management, operations, products and services, and assumptions underlying these
projections and statements. It is possible that AIG's actual results and financial condition
may differ, possibly materially, from the anticipated results and financial condition indicated
in these projections and statements. Factors that could cause AIG's actual results to differ,
possibly materially, from those in the specific projections and statements include
developments in global credit markets and such other factors as are discussed in Item 1A.
Risk Factors of AIG's Annual Report on Form 10-K for the year ended December 31,2007,
and in Item 1A. Risk Factors and Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations of AIG's Quarterly Report on Form 10-Q for
the period ended September 30, 2008. AIG is not under any obligation (and expressly
disclaims any such obligation) to update or alter its projections and other statements whether
as a result of new information, future events or otherwise.
American International Group, Inc. (AIG), a world leader in insurance and financial
services, is the leading internationalmsurance organization with operations in more than 130
countries and jurisdictions. AIG companies serve commercial, institutional and individual
customers through the most extensive worldwide l?roperty-casualty and life insurance
networks of any insurer. In addition, AIG compames are leading providers of retirement
services, financial services and asset management around the world. AIG's common stock is
listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and
Tokyo.
#
#
#
Shareholders' Equity Roll Forward ($ in mil)
June 30, 2008 Shareholders' Equity
Estimated Net Loss for Third Quarter
- Adjusted Net Loss (ex. AIGFP Unrealized Market Valuation Losses)
- AIGFP Unrealized Market Valuation Losses
- AIGFP Credit Valuation Adjustment on Other Assets and Liabilities
Estimated Adjusted Net Loss
- Net Realized Capital Losses
- FAS 133 Gains (Losses), Net
$ 78,088
(3,878)
(4,493)
(705)
(9,076)
(13,491)
(172)
Estimated Net Loss
Estimated Other Comprehensive Loss
Unrealized Appreciation (Depreciation) of Investments, Net
Foreign Currency Translation Adjustment, Net
Change in All Other Comprehensive Income, Net
All Other
Estimated Other Comprehensive Loss
Estimated Change in APIC
Consideration Received for Preferred Stock Not Yet Issued
September 30, 2008 Estimated Shareholders' Equity
(22,739)
(3,942)
(1,563)
(72)
139
(5,438)
23,000
$ 72,911
Page 3
Significant Items in the Quarter
302008
Pretax
GAAP Income (Loss) - Estimated Reported
$
Adjustments:
Minority interest (afffects pretax only)
Net realized capital gains (losses)
FAS 133
Adjusted Income (Loss) - Estimated Reported
(27,911)
202008
After Tax
$
(22,739)
Pretax
$
(8,756)
After Tax
$
(5,357)
(284)
(18,161)
(265)
(13,491)
(172)
18
(6,074)
(26)
(4,019)
(17)
(9,201)
(9,076)
(2,674)
(1,321)
Restructuri ng-re lated:
Taxes:
Reversal of permanent reinvestment assertion for foreign businesses
(3,627)
Fed Facility interest expense
(802)
(521)
Goodwill impairment
(432)
(432)
(465)
(302)
(1,699)
(4,882)
AIGFP unrealized market valuation loss
(6,912)
(4,493)
(5,565)
(3,617)
AIGFP credit valuation adjustment
(1,085)
(705)
(518)
(337)
(133)
(86)
212
138
UGC 2nd lien exit
Total restructuring-related
Market disruption:
AIGFP deferred compensation rel.€rsal
563
366
UK inl.€stment-linked products
(501)
(326)
Domestic Retirement Services DAC unlocking
(616)
(400)
569
370
DAC/SIA benefit for realized capital losses
Partnership & mutual fund income (losses)
(1,664)
(1,082)
190
124
Total market disruption
(9,646)
(6,270)
(5,814)
(3,778)
2,144
2,076
3,140
2,4571
IAdjusted Income -estimated excluding restructuring and market disruption
Other:
(1,391)
(904)
AGF operating results
Catastrophes
(446)
(290)
(40)
(26)
UGC operating results (excluding PDR)
(651)
(423)
(518)
(337)
(2,488)
(1,617)
(558)
(363)
Total other
Adjusted Income - estimated excluding all noteworthy items
$
4,632
$
3,693
$
3,698
$
2,820
Page 4
Shareholders' Equity Roll Forward ($ in mil)
$ 78,088
June 30, 2008 Shareholders' Equity
Net Loss for Third Quarter
- Adjusted Net Loss (ex. AIGFP Unrealized Market Valuation Losses)
- AIGFP Unrealized Market Valuation Losses
- AIGFP Credit Valuation Adjustment on Other Assets and Liabilities
Adjusted Net Loss
- Net Realized Capital Losses
- FAS 133 Gains (Losses), Net
(3,950)
(4,585)
(705)
(9,240)
(15,056)
(172)
Net Loss
Other Comprehensive Loss
Unrealized Appreciation (Depreciation) of Investments, Net
Foreign Currency Translation Adjustment, Net
Change in All Other Comprehensive Income, Net
Other Comprehensive Loss
Change in APIC
Consideration Received for Preferred Stock Not Yet Issued
Other Changes to Shareholders' Equity
September 30, 2008 Shareholders' Equity
(24,468)
(3,942)
(1,563)
(72)
(5,577)
23,000
139
$ 71,182
Page 3
•
Significant Items In the Quarter
3Q 2008
Pretax
GAAP Income (Loss) - Reported
$
Adjustments:
Minority interest (affects pretax only)
Net realized capital gains (losses)
FAS 133
Adjusted Income (Loss) - Reported
2Q 2008
After Tax
(28,185)
$
Pretax
(24,468)
$
After Tax
(8,756)
$
(5,357)
(134)
(18,312)
(265)
(15,056)
(172)
18
(6,074)
(26)
(4,019)
(17)
(9,474)
(9,240)
(2,674)
(1,321)
Restructuring-related:
Taxes - reversal of permanent reinvestment assertion for foreign businesses
(3,628)
Fed Facility interest expense
(802)
(521)
Goodwill impairment
(432)
(432)
UGC 2nd lien exit
(465)
(302)
(1,699)
(4,883)
AIGFP unrealized market valuation loss
(7,054)
(4,585)
(5,565)
(3,617)
AIGFP credit valuation adjustment
(1,085)
(705)
(518)
(337)
(133)
(86)
Total restructuring-related
Market disruption:
AIGFP deferred compensation reversal
563
366
UK investment-linked products
(501)
(326)
Domestic Retirement Services DAC/SIA charges
(728)
(473)
212
138
Partnership & mutual fund income (losses)
DAC/SIA benefit for realized capital losses
(1,664)
478
(1,082)
190
124
Total market disruption
(9,991)
(6,494)
(5,814)
(3,778)
2,216
2,137
3,140
2,457
IAdjusted Income - excluding restructuring and market disruption
311
Other:
Catastrophes
AGF operating results (excluding goodwill impairment)
UGC operating results (excluding 2nd lien exit)
Total other
Adjusted Income - excluding all noteworthy items
$
(1,391)
(904)
(105)
(68)
(40)
(26)
(651)
(423)
(518)
(337)
(2,147)
(1,395)
(558)
(363)
4,363
$
3,532
$
3,698
$
2,820
Page 4
DRAFT
Moody's comments on AIG's 3008 results and restructuring plan
Moody's Investors Service is maintaining its present ratings on American International Group, Inc. (NYSE:
AIG - senior unsecured debt at A3, short-term debt at Prime-1, on review for possible downgrade) following
announcements of AIG's large net loss for the third quarter of 2008 and of a government-supported
restructuring plan.
Moody's noted that the restructuring plan, which includes a large infusion of preferred stock, will restore
much of the capital lost in recent periods and will also help AIG to reduce or eliminate some of its most
troublesome investment and derivative exposures. The current ratings of AIG incorporate Moody's
expectation that the insurer will continue to benefit from strong government support while it executes its
asset sales plan. The continuing review for possible downgrade reflects the substantial execution risk in
AIG's restructuring efforts, particularly efforts to sell multiple business units during a period of economic
stress.
AIG reported a net loss of $-?41;i!iliQp for the third quarter of 2008, driven mainly by net realized capital
losses (mostly other-than-temporary impairment of investments), unrealized market valuation losses on
derivatives, and other charges related to financial market turmoil and the restructuring plan. Over the past
four quarters, AIG has reported cumulative net losses of :M::3billi6ri and net unrealized depreciation on
investments totaling $jE\~@qn. These losses and write-downs pertain largely to mortgage-related
exposures in the credit default swap (CDS) portfolio of AIG Financial Products Corp. (AIGFP) and in the
securities lending collateral pool of AIG's US life insurance subsidiaries. Significant cash collateral calls and
reductions/terminations of securities borrowing arrangements have strained AIG's liquidity and capital
resources.
To help AIG meet its obligations, the Federal Reserve Bank of New York (the Fed) provided the company
with an $85 billion two-year secured revolving credit facility on September 16, 2008. As part of this
transaction, the Fed obtained a 79.9% equity interest in AIG. Also, on October 8, 2008, the Fed entered into
a $37.8 billion securities borrowing facility with certain of AIG's US insurance subsidiaries. Under the
restructuring plan announced 160<l.Y, the Fed intends to replace the $85 billion revolving credit facility with a
$40 billion redeemable perpetual preferred stock issue and a $60 billion five-year secured revolving credit
facility, with pricing and other terms that are more favorable to AIG than the current Fed credit facility.
In addition to the recapitalization, AIG and the Fed have announced a de-risking plan that would cap AIG's
exposure to further market value deterioration in its mortgage-related securities lending collateral pool and in
the multi-sector component of its CDS portfolio. In each case, AIG would transfer these exposures to an
unaffiliated special purpose vehicle (SPV) funded by a large tranche of senior financing provided by the Fed
and a smaller tranche of junior financing (equity) provided by AIG. The exposures would be transferred to
the SPVs at estimated current market values. The transaction with the securities lending collateral pool is
intended to allow for termination of AIG's securities lending program and of the Fed's $37.8 billion securities
borrowing facility. Although AIG will crystallize substantial losses on its mortgage-related exposures through
these transactions, the $40 billion preferred stock investment mitigates that concern, providing significant
incremental protection for senior creditors.
To repay its borrowings under the Fed revolving credit facility, AIG is attempting to sell a broad range of
businesses, including many of its Life Insurance & Retirement Services, Financial Services and Asset
Management operations, as well as some modest-sized General Insurance units. Remaining core
operations are intended to include the US-based Commercial Insurance Group, Foreign General Insurance
and a majority stake in American International Assurance.
Moody's said that the proposed recapitalization and de-risking transactions will provide AIG with additional
time and flexibility to facilitate asset sales and bolster AIG's operating performance. Terminating the
securities lending pool may make the participating life insurers more attractive to potential buyers. In
addition, the more favorable capital structure may give various constituents - customers, distributors,
employees, creditors, potential business buyers - greater confidence that AIG can complete its asset sales
and repay the Fed revolving credit facility within a reasonable time frame.
Moody's noted, however, that AIG faces serious headwinds, including the weak global economy and limited
availability of financing alternatives for potential business buyers. The company also faces the daunting task
1
DRAFT
of unwinding the remaining operations of AIGFP (beyond the multi-sector component of the CDS portfolio).
The costs and timing of this likely prolonged and complex unwinding process are difficult to estimate, but
could be substantial. Finally, AIG's ultimate capital structure, assuming successful completion of the global
divestiture plan and repayment of the Fed revolving credit facility, would still likely include substantial debt
and hybrid securities with large fixed charge requirements. Moody's has estimated that AIG's financial
leverage and coverage metrics at that time, absent other capital raising or restructuring initiatives, would be
somewhat weak for the single-A debt rating.
Offsetting these challenges and weaknesses is the strong support demonstrated by the Fed. The Fed has
shown flexibility in adjusting the amount and terms of its support with changing circumstances at AIG and in
the broader financial markets. The current ratings on AIG and its subsidiaries reflect Moody's expectation of
continuing Fed support, not only to fund immediate liquidity needs but also to facilitate the global divestiture
plan and the unwinding of AIGFP. Without such support, the ratings of AIG and many of its subsidiariesincluding core operations and businesses identified for sale - would be lower.
Moody's continuing review of the ratings on AIG and its subsidiaries will focus on (i) the firm's evolving
liquidity profile, including the level of borrowing under the Fed revolving credit facility; (ii) execution of the derisking transactions for the securities lending pool and the multi-sector component of the CDS portfolio; (iii)
the timing and amounts of cash proceeds generated from asset sales; (iv) development of a comprehensive
plan to unwind AIGFP, including estimated costs and timing; (v) the performance of major operating units,
whether they are core operations or targeted for sale; and (vi) the resulting financial profile (e.g., financial
leverage and fixed charge coverage) of AIG following the asset sales. For those operations being sold,
Moody's will consider their intrinsic financial strength as well as the rating profiles of potential acquirers.
The last rating action on AIG took place on October 3, 2008, when Moody's downgraded the senior
unsecured debt rating to A3 from A2, with a continuing review for possible downgrade, following the
announcement of AIG's global divestiture plan.
AIG, based in New York City, is an international insurance and financial services organization, with
operations in more than 130 countries and jurisdictions. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
reported total revenues of $xxxbil!iQO and a net loss of $@;¢bil!iQO for the third quarter of 2008.
Shareholders' common equity was $;j.~I:#IliPh as of September 30, 2008.
Moody's insurance financial strength ratings are opinions of the ability of insurance companies to punctually
pay senior policyholder claims and obligations. For more information, please visit our website at
www.moodys.com/insu rance.
2
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Chair: Ted Collins
Attendee: Robert Ri el,
Other voting members: Greg Bauer, Jeff Berg, Wally Enman, Shachar Gonen, Barbara Havlicek, Steve
Hess, Sarah Hibler, Arlene Isaacs-Lowe, Joel Levine, David Masters, Mark Wasden, Tentative: Navneet
Agarwal, Jack Dorer, Blaine Frantz, Joel Levine, Michel Madelain, Masahiko Miwa, Ifigenia Palimeri,
Jonathan Polan
Detlef Scho Amita Shrivastava Mutsuo Suzuki Nicolas Weill Bob You
Non-voting members: Cindy Do
Reason for Rating Committee: RAS to consider comprehensive plan proposed by AIG and the Fed to
strengthen AIG's capital structure and eliminate the risk of further market declines in the company's sec
lendin
rtfolio holds substantial RM
and its multi-sector COO/CDS rtfolio.
Last Rating Action (include date and reason): Oct. 3, 2008 - Downgraded AIG ratings by one notch (senior
unsecured debt to A3 from A2, RUR-down) following announcement of global restructuring plan, and took
various rati
actions on subsidiaries.
Strengths of comprehensive plan
• Caps downside risk in RE-exposed RMBS and CDS portfolios
• Provides a substantially more favorable capital structure by virtue of:
o Larger available amount from Fed ($40 bin prfrd + $60 bin debt vs $85 bin debt)
o Longer term (perpetual prfrd + 5-yr debt vs 2-yr debt)
o Lower cost (10% on prfrd + 75bp/L+3% on debt vs 8.5%/L+8.5% on debt)
o Subordination of Fed's preferred interest to senior unsecured creditors, while the preferred remains
outstanding
• Sec lending exit leaves cleaner financial statements for insurance units to be sold
• New capital structure also facilitates asset sales by reducing the proceeds required and the speed at which
sales must be completed to retire primary Fed facility
e of more achievable ob·ectives asset sales stabilizi
to all
• Con
1
•
constituents
In addition, some operations (e.g., AIGCI, AlA) seem to have largely stabilized relative to the trying days of
mid-September
Concerns regarding comprehensive plan
• Locks in losses on RMBS and CDS portfolios at today's market values (albeit with potential minority stake
in residual value over time)
• Asset sales highly challenging in light of soft global economy and limited availability of credit
• Operating results also likely to be constrained by soft economy
• Any delays/disruptions in de-risking and sales processes could erode value in core operations and in
assets to be sold
• Company's estimated financial leverage and coverage metrics as of YE 2010-2011 are indicative of IFS
ratings in the A range and a parent senior unsecured debt rating in the Baa range
• Significant uncertainties/variability surrounding AIGFP wind-down, including process, timing, costs,
counterparty behavior, market performance
• AIGFP exposed to significant additional rating triggers in Baa range
Recommendation
AIG faces serious headwinds in its efforts to shed RMBS and CDS, sell non-core businesses, unwind AIGFP,
maintain economic value other operations, and develop a sustainable capital structure. Offsetting these
headwinds is the extraordinary support from the Fed - starting with the $85 bin secured revolving credit facility,
followed by the $38 bin sec lending facility, the proposed $100 bin refinancing package (to replace the $85
bin), and the proposed solutions for the sec lending and CDS portfolios. The Fed and its advisors appear to
have significant resources dedicated full-time to AIG. The Fed now has a large financial interest in AIG, but its
main goal, we believe, is the same as it was in mid-September - to enable AIG to "sell certain of its businesses
in an orderly manner, with the least possible disruption to the overall economy." The Fed support is likely to
continue for as long as it takes AIG to sell major non-core businesses and to unwind much of AIGFP's
portfolio. These projects, particularly AIGFP, could take years, by which time we may have seen the worst of
the economic and housing slumps. We believe that the Fed support is sufficient to sustain AIG's short-term
and long-term ratings at current levels. The continuing RUR-down would focus on the sec lending and CDS
solutions, to be completed over the next couple of months, as well as any tangible progress on asset sales and
the AIGFP runoff.
Current & Recommended Ratings on AIG Entities
November 5,2008
American International Group, Inc.
Fully supported ratings
AIG Financial Products Corp. & subsidiaries
AIG Life Holdings (US), Inc.
AIG Retirement Services, Inc.
American General capital securities
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC
Businesses to be retained
AIG Commercial Insurance Group (8)
AIG General Insurance (Taiwan) Co., Ltd.
AIG UK Limited
American General Finance Corporation
United Guaranty subsidiaries UGRIC & UGMIC
United Guaranty subsidiaries UGRIC of NC & UGCIC
Businesses to be sold
AIG Domestic Life Insurance & Retirement Services (9)
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
American Life Insurance Company
International Lease Finance Corporation
SunAmerica Life Insurance Company
Transatlantic Holdings, Inc.
Transatlantic Reinsurance Company
Rating Type
LT Issuer
ST Issuer
Bkd LT Issuer
Bkd Sr Debt
Bkd Sr Debt
Bkd Tr Prfrd Stock
(Bkd) ST
IFS
IFS
IFS
Sr Unsec Debt
IFS
IFS
IFS
IFS
IFS
IFS
Sr Unsec Debt
IFS
Sr Unsec Debt
IFS
2
Support
AIG
AIG
AIG
AIG
Curr
SA
A3
A3
A3
Baa1
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
C/Caa2
Aa3
A3
A1
Baa1
Aa3
Baa1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Aa3
Aa3
Aa3
Aa3
Baa2
Aa3
A3
Aa3
Aa3
Aa3
Aa3
Aa3
Baa1
Aa3
A3
Aa3
R-Dn
R-Dn
R-Dn
R-Dn
R-Unc
R-Dn
R-Unc
R-Unc
G'tee
G'tee
G'tee
G'tee
AIG Agmt
AIG Agmt
AIG Agmt
AIG Agmt
Curr
Curr
Public Outlook
R-Dn
A3
P-1
R-Dn
Aa3
A3
A1
Baa1
Aa3
Rec
SA
Rec
Rec
Public Outlook
R-Dn
A3
P-1
R-Dn
A3
A3
A3
Baa1
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
C/Caa2
Aa3
A3
A1
Baa1
Aa3
Baa1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Aa3
Aa3
Aa3
Aa3
Baa2
Aa3
A3
Aa3
Aa3
Aa3
Aa3
Aa3
Baa1
Aa3
A3
Aa3
R-Dn
R-Dn
R-Dn
R-Dn
R-Unc
R-Dn
R-Unc
R-Unc
Aa3
A3
A1
Baa1
Aa3
Contents
Rating History
QTools
Stock Chart
Organizational Chart with Rated Entities
CDS & RMBS Losses & Writedowns
Press Release (Oct. 3,2008)
Business Mix (2007)
Financial Highlights (2002-2007)
Segment Detail (2004-2007)
Consolidated Financial Statements (2Q08)
Invested Assets (June 30, 2008)
Super-senior CDS Portfolio (June 30, 2008)
Financial Highlights (3Q08)
Proposed Changes to Capital Structure
Proposed Solution for Sec Lending
Proposed Solution for Multi-sector CDOs
Unwinding of AIGFP
Asset Sale Plans
Pro Forma Financial Leverage & Coverage
AIG Commercial Insurance Scorecards
Rating Triggers
4
4
5
6
7
8-11
12
13
14
15-17
18-22
23
24-28
29-30
31-32
33
34-35
36-37
38-39
40-41
42
3
Rating History
American International Group, Inc. senior unsecured debt
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
04195 02196 12196 10197 08198 06199 04100 02101 12101 10102 08103 06104 04105 02106 12106 10107 08108
QTools
American International Group, Inc .
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4
AIG Stock Chart
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as of 4-Nov-2008
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Market capital as of Nov. 4, 2008: $6.5 bIn
5
Organizational Chart with Rated Entities
Current & Recommended Ratings on AIG Entities - November 5, 2008
Ownership Structure *
Domicile
American International Group, Inc. ("AIG")
DE
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
Business Segment
Parent
Rating Type
LT Issuer
Sr Unsec Debt
Subord Debt
ST Issuer
Support
Curr
SA
Curr
Curr
Public Outlook
R-Dn
A3
R-Dn
A3
R-Dn
Baa1
P-1
R-Dn
DE
Fin Svcs
Fin Svcs
IN
IN
DE
IN
Puerto Rico
CA
Fin
Fin
Fin
Fin
Svcs
Svcs
Svcs
Svcs
ILFC E-Capital Trusts I & II
AIG Financial Products Corp.
DE
Fin Svcs
Fin Svcs
AIG Matched Funding Corp.
DE
Fin Svcs
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Ltd.
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
AIG Annuity Insurance Company
AIG Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of NY
The United States Life Insurance Company in the City of NY
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Property Casualty Group, Inc.
AIG Commercial Insurance Group, Inc.
AIG Casualty Company
AIU Insurance Company
AIG General Insurance (Taiwan) Co., Ltd.
American Home Assurance Company
Transatlantic Holdings, Inc.
DE
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
TX
DE
TN
TX
TX
NY
NY
DE
DE
DE
DE
DE
PA
NY
Taiwan
NY
DE
Fin Svcs
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Transatlantic Reinsurance Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
American International Specialty Lines Insurance Co.
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Commercial Insurance Company of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Insurance Company of NC
AIG Retirement Services, Inc.
NY
NY
PA
PA
AK
PA
NC
NC
NC
NC
NC
DE
SunAmerica Life Insurance Company ("SLlC")
AZ
AIG SunAmerica Global Financing Trusts
AIG SunAmerica Life Assurance Company
DE
AZ
ASIF I & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Caymans
Jersey
DE
NY
ST Debt
LT Issuer
Sr Unsec Debt
ST Debt
Bkd Tr Prfrd Stock AGFC G'tee
Bkd ST Debt
Sr Unsec Debt
ST Debt
Bkd Prfrd Stock
Bkd LT Issuer
Bkd ST Debt
Bkd Sr Debt
Bkd ST Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd ST Debt
IFS
IFS
Bkd Sr Debt
Baa2
Baa1
AGFC G'tee
Baa2
ILFC G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIGAgmt
AIG G'tee
Aa3
Aa3
P-2
Baa1
Baa1
P-2
Baa3
R-Dn
R-Dn
R-Dn
Negative
R-Dn
P-2
Baa1
P-2
Baa3
A3
P-1
A3
P-1
A3
A3
A3
A3
P-1
Negative
R-Unc
R-Unc
R-Unc
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Aa3
Aa3
A3
R-Dn
R-Dn
R-Dn
Domes Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
IFS
Aa3
Aa3
Domes Life Ins & Ret Svcs
IFS
AIGAgmt
Aa3
Aa3
Domes Life Ins & Ret Svcs
IFS
Aa3
Aa3
Domes Life Ins & Ret Svcs
IFS
Aa3
Aa3
Domes Life Ins & Ret Svcs
IFS
Aa3
Aa3
Domes Life Ins & Ret Svcs
IFS
AIGAgmt
Aa3
Aa3
Domes Life Ins & Ret Svcs
IFS
Aa3
Aa3
Funding for AIG LHUS
Bkd Tr Prfrd Stock AIG G'tee
Baa1
Funding for AIG LHUS
Bkd Tr Prfrd Stock AIG G'tee
Baa1
P-1
Fin Svcs
Bkd ST Debt
AIG G'tee
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
IFS
Aa3
Aa3
Frgn Gen Ins
IFS
A3
A3
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
Sr Unsec Debt
A3
A3
Sr Unsec Shelf
(P)A3
Subord Shelf
(P)Baa1
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
IFS
Aa3
Aa3
Domes Gen Ins
Domes Gen Ins
IFS
AIGAgmt
Aa3
Aa3
Domes Gen Ins
IFS
AIGAgmt
Caa2
Baa1
Domes Gen Ins
Bkd IFS
UGRIC G'tee Aa3
Aa3
Baa1
Domes Gen Ins
IFS
AIGAgmt
C
Bkd Sr Debt
AIG G'tee
A3
AIG G'tee
Baa2
Bkd Prfrd Stock
Asset Mgmt
Bkd IFS
AIGAgmt
Aa3
Aa3
P-1
AIGAgmt
Bkd ST IFS
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Aa3
Asset Mgmt
Bkd IFS
AIGAgmt
Aa3
Aa3
P-1
AIGAgmt
Bkd ST IFS
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Aa3
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Aa3
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Aa3
Asset Mgmt
Bkd IFS
AIGAgmt
Aa3
Aa3
P-1
AIGAgmt
Bkd ST IFS
American International Underwriters Overseas, Ltd.
Bermuda
AIG UK Limited
UK
Frgn Gen Ins
American Life Insurance Company
DE
Frgn Life Ins & Ret Svcs
* Listing order indicates main ownership stake (or sponsorship In the case of trusts), not necessanly 100% ownership.
Source: Company reports & Moody's
6
IFS
IFS
AIGAgmt
A1
Aa3
A1
Aa3
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Unc
R-Unc
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
CDS & RMBS Reported LosseslWritedowns
AIG CDS & Investment Related Losses/Writedowns
($ Bins)
AIGFP super-senior CDS
Unrealized market valuation losses
402007
Pretax After tax
102008
Pretax After tax
202008
Pretax After tax
302008
Pretax After tax
Totals
Pretax After tax
-11.1
-7.2
-9.1
-5.9
-5.6
-3.6
-6.9
-4.5
-32.7
-21.3
-2.6
-3.8
-6.4
-1.7
-2.5
-4.3
-6.1
-10.6
-16.7
-3.4
-6.8
-10.2
-6.1
-3.7
-9.8
-4.0
-2.6
-6.6
-18.2
-24.2
-13.5
-3.9
-17.4
-33.0
-24.1
-57.1
-22.6
-15.9
-38.5
-17.6
-11.5
-25.8
-16.1
-15.3
-10.2
-31.1
-21.9
-89.8
-59.8
-8.4
-5.3
-11.3
-7.8
-8.8
-5.4
-27.9
-22.7
-56.4
-41.2
AIG investments
Realized capital losses
Unrealized depreciation during quarter
Total investment losses/writedowns
Total CDS & invest losses/writedowns
Pretax loss I Net loss
AIG Consolidated Equity ($ Bins)
Common equity
Change in equity vs 9/30/2007 ($)
Change in equity vs 9/30/2007 (%)
9/30/2007
104.1
12/31/2007
95.8
313112008
79.7
6/30/2008
78.1
-26.0
-25.0%
-6.1
9/30/2008
50.1
-54.0
-51.9%
CDS & RMBS Modeled Losses (from RCM memos of Sept. 15 & 17,2008) & Fed Solutions
AlG CDS & RMBS Portfolios
Expected & stress case pretax losses modeled by BlackRock as of Sept. 9, 2008
Number of
Base Case Losses
($ Bins)
Transacs
Notional
Undisc
Disc
CDS
109
77.0
-5.6
-7.3
-7.3%
-9.5%
Loss % of notional
Par
66.0
RMBS (preliminary results)
Loss % of par
-9.0
-13.6%
Stress Case Losses
Undisc
Disc
-12.9
-15.6
-16.8%
-20.3%
-17.0
-25.8%
Total CDS & RMBS estimated losses
-14.6
-29.9
NB: For CDS portfolio, discounted losses are greater than undiscounted because discount has greatest impact on positive
cash flows in years 6-25.
AIG CDS-COO & RMBS Portfolios
Expected & stress case pretax losses modeled by Chris Mann as of Sept. 13, 2009
Number of
($ Bins)
Transacs
CDS-COO with subprime content (data as of March 31,2008)
178
Modeled portion
31
Loss % of notional
Not modeled
Notional
64.6
56.0
Stress Case
Losses
-0.7
-1.3%
-4.8
-8.6%
-1.8
-3.0%
-6.7
-11.2%
-2.5
-11.5
8.6
Par
75.3
59.6
RMBS (data as of Dec. 31, 2007)
Modeled portion
Loss % of par
Not modeled
Expected
Losses
15.6
Total CDS-COO and RMBS estimated losses
AIG CDS & RMBS Portfolios - Proposed Fed Solutions - 40 2008
($ Bins)
CDS on multi-sector COOs with cash bonds
RMBS in US sec lending pool
Notionall
Par Value
65.0
39.8
Market
Value
32.0
23.5
7
Pretax
Loss
Amount
33.0
16.3
Pretax
Loss %
-50.8%
-41.0%
B'Rock
Stress
Loss %
-16.8%
-25.8%
Moody's
Stress
Loss %
-8.6%
-11.2%
Global Credit Research
Rating Action
3 OCT 2008
Rating Action: American International Group, Inc.
Moody's downgrades AIG (senior to A3); ratings remain under review
New York, October 03, 2008 -- Moody's Investors Service has downgraded the senior unsecured debt rating
of American International Group, Inc. (NYSE: AIG) to A3 from A2. This rating action reflects Moody's view
that if AIG successfully completes the divestiture and restructuring plan announced today, its business
diversification will be significantly reduced. AIG's long-term ratings and its Prime-1 short-term rating remain
on review for possible downgrade, reflecting the substantial execution risk in the restructuring plan,
particularly given the current turbulent credit market.
In the past year, AIG has reported substantial losses and write-downs associated with mortgage-backed
securities, largely through its credit default swap and securities lending portfolios. Significant cash collateral
calls and maturities related to these activities in recent weeks have caused the company to borrow heavily
under the $85 billion revolving credit facility recently provided by the Federal Reserve Bank of New York (as
authorized by the Federal Reserve Board (the Fed)). Total borrowings under the two-year secured facility
amounted to $61 billion as of September 30,2008, and more borrowings are expected in the months ahead.
Moody's believes that the asset sales plan announced today, if successful, will enable the company to repay
borrowings under the Fed facility and emerge as a more focused, albeit less diversified, insurance firm. The
continuing review for possible downgrade incorporates the risk that the situation may deteriorate, either
because of shortfalls in executing the restructuring plan or because of declines in the business or financial
profiles of the operations to be retained. Moody's believes that the risk of such deterioration is materially
mitigated by the involvement of the Fed and the enhanced market liquidity that will likely result from the US
Government's pending $700 billion financial rescue plan.
Following the restructuring, AIG's core businesses are expected to include the US-based Commercial
Insurance Group (CIG), Foreign General Insurance (Foreign General) and a majority stake in American
International Assurance (AlA). The parent company's A3 senior debt rating is now three notches below the
Aa3 insurance financial strength ratings of the CIG companies, the largest core operating unit. A three-notch
differential is common among US insurance groups, but this represents an expansion of the notching for AIG,
based on Moody's view that AIG will be materially less diversified following the restructuring. AIG's Prime-1
short-term rating reflects the significant protection to short-term creditors afforded by the Fed credit facility in
the near term.
Moody's also announced rating actions on several AIG subsidiaries whose ratings depend on explicit or
implicit parental support (see list below). Ratings on most AIG units remain on review for possible
downgrade. Moody's expects to revisit the stand-alone ratings, and perhaps the public ratings, for the major
life insurance operations over the next few weeks. Certain operating units have been placed on review with
direction uncertain, signaling potential sales to buyers whose credit profiles could be stronger, weaker or
similar to that of AIG.
The success of the restructuring plan, in Moody's view, hinges largely on AIG's ability to contain and reduce
risk in its mortgage exposed investment and derivative portfolios. A majority of the borrowings under the Fed
credit facility have been used to address liquidity and capital needs stemming from these exposures. Moody's
noted that further deterioration in market values within these portfolios could further strain the company's
resources through such mechanisms as increased collateral calls or reductions/terminations of funding
arrangements. Such strains could weaken the company's credit profile, which may lead to additional rating
downgrades. In such an event, contingent additional capital and liquidity needs could be triggered. The rating
agency expects that AIG -- with the support and interest of the Fed -- will pursue various means to limit the
risks associated with market value volatility in its investment and derivative portfolios.
AIG's core insurance operations are fundamentally solid, said Moody's. CIG is the largest US commercial
insurer, with a sound capital base, well diversified product offerings and expertise in writing large and
complex risks. Foreign General is the top provider of accident & health insurance globally, operating in some
80 countries and adapting to local laws and customs as needed. The AlA companies make up one of the
largest and most diversified life insurance groups spanning Asia and Australia.
The insurance and other operations identified for sale include market leaders in many business lines and
geographic areas. Major units expected to be sold include Domestic Life Insurance and Retirement Services,
one of the largest and most diversified life insurance groups in the ~; American Life Insurance Company,
one of the largest international life insurers, with operations in more tnan 50 countries; International Lease
Finance Corporation, a global leader in leasing and remarketing advanced technology commercial aircraft;
and a minority stake in AlA. AIG's sales plans encompass well over a dozen substantial businesses.
Moody's noted that all of AIG's operations are subject to significant reputational risk in connection with the
recent liquidity strains that gave rise to the Fed credit facility. Challenges facing AIG managers include
retaining clients, distributors and employees; demonstrating that the operating companies have ample
resources to meet their obligations; generating new business; and facilitating divestitures. It will take time to
determine the extent to which recent events may have weakened the companies' standing in their respective
markets.
Moody's continuing review of the ratings on AIG and its subsidiaries will focus on (i) the firm's evolving
liquidity profile, including the level of borrowing under the Fed credit facility; (ii) steps taken to contain and
reduce risk in the investment and derivative portfolios, including any associated losses or costs as well as
any potential benefit from the US Govemment's pending $700 billion financial rescue plan; (iii) the timing and
amounts of cash proceeds generated from asset sales; (iv) the performance of major operating units,
whether they are core operations or targeted for sale; and (v) the resulting financial flexibility profile (e.g.,
financial leverage and fixed charge coverage) of AIG following the asset sales. For those operations being
sold, Moody's will consider their intrinsic financial strength as well as the rating profiles of potential acquirers.
The last rating action on AIG took place on September 18, 2008, when Moody's reiterated the existing ratings
and the review for possible downgrade, following the activation of the Fed credit facility.
Moody's has downgraded the following ratings and kept them on review for possible further downgrade:
American International Group, Inc. -- long-term issuer rating to A3 from A2, senior unsecured debt to A3 from
A2, subordinated debt to Baa1 from A3;
AGFC Capital Trust I -- backed preferred stock to Baa3 from Baa2;
AIG General Insurance (Taiwan) Co., Ltd. -- insurance financial strength to A3 from A1;
AIG Life Holdings (US), Inc. -- backed senior unsecured debt to A3 from A2;
AIG Retirement Services, Inc. -- backed senior unsecured debt to A3 from A2, backed preferred stock to
Baa2 from Baa 1;
American General Capital II -- backed trust preferred stock to Baa1 from A3;
American General Finance Corporation -- long-term issuer rating to Baa1 from A3, senior unsecured debt to
Baa1 from A3;
American General Institutional Capital A & B -- backed trust preferred stock to Baa1 from A3;
Capital Markets subsidiaries -- AIG Financial Products Corp., AIG Matched Funding Corp., AIG-FP Capital
Funding Corp., AIG-FP Matched Funding Corp., AIG-FP Matched Funding (Ireland) P.L.C., Banque AIG -backed senior unsecured debt to A3 from A2;
Mortgage Guaranty subsidiaries (second-lien and student loans) -- United Guaranty Commercial Insurance
Company of North Carolina, United Guaranty Residential Insurance Company of North Carolina -- backed
insurance financial strength to Baa1 from A3.
Moody's has placed the following rating on review for possible downgrade:
American General Finance, Inc. -- short-term debt at Prime-2.
The following ratings remain on review for possible downgrade:
American International Group, Inc. -- short-term issuer rating at Prime-1;
AIG Edison Life Insurance Company -- insurance financial strength at Aa3;
AIG Financial Products Corp. -- backed short-term debt at Prime-1;
AIG Funding, Inc. -- backed short-term debt at Prime-1;
9
AIG Liquidity Corp. -- backed short-term debt at Prime-1;
AIG Matched Funding Corp. -- backed short-term debt at Prime-1;
AIG SunAmerica funding agreement-backed note programs -- AIG SunAmerica Global Financing Trusts,
ASIF I & II, ASIF III (Jersey) Limited, ASIF Global Financing Trusts -- senior secured debt at Aa3;
AIG SunAmerica subsidiaries -- AIG SunAmerica Life Assurance Company, First SunAmerica Life Insurance
Company, SunAmerica Life Insurance Company -- insurance financial strength at Aa3; short-term insurance
financial strength at Prime-1;
AIG UK Limited -- insurance financial strength at A 1;
American International Assurance Company (Bermuda) Limited -- insurance financial strength at Aa3;
American Life Insurance Company -- insurance financial strength at Aa3;
Commercial Insurance Group subsidiaries -- AIG Casualty Company; AIU Insurance Company; American
Home Assurance Company; American International Specialty Lines Insurance Company; Commerce and
Industry Insurance Company; National Union Fire Insurance Company of Pittsburgh, Pennsylvania; New
Hampshire Insurance Company; The Insurance Company of the State of Pennsylvania -- insurance financial
strength at Aa3;
Domestic Life Insurance & Retirement Services subsidiaries -- AIG Annuity Insurance Company, AIG Life
Insurance Company, American General Life and Accident Insurance Company, American General Life
Insurance Company, American International Life Assurance Company of New York, The United States Life
Insurance Company in the City of New York, The Variable Annuity Life Insurance Company -- insurance
financial strength at Aa3;
Mortgage Guaranty subsidiaries (first-lien loans) -- United Guaranty Mortgage Indemnity Company, United
Guaranty Residential Insurance Company -- backed insurance financial strength at Aa3.
Moody's has downgraded the following ratings and placed them on review with direction uncertain:
ILFC E-Capital Trusts I & II -- backed preferred stock to Baa3 from Baa2;
Intemational Lease Finance Corporation -- senior unsecured debt to Baa1 from A3, preferred stock to Baa3
from Baa2, senior unsecured debt shelf to (P)Baa 1 from (P)A3.
Moody's has placed the following ratings on review with direction uncertain:
Intemational Lease Finance Corporation -- short-term debt at Prime-2;
Transatlantic Holdings, Inc. -- senior unsecured debt at A3, senior unsecured debt shelf at (P)A3,
subordinated debt shelf at (P)Baa1;
Transatlantic Reinsurance Company -- insurance financial strength at Aa3.
Moody's maintains a negative outlook on the following ratings:
American General Finance Corporation -- short-term debt at Prime 2;
CommoLoco, Inc. -- backed short-term debt at Prime-2.
The following ratings have been (downgraded and) withdrawn for business reasons:
AIG Capital Corporation -- long-term issuer rating to Baa2 from Baa1; short-term issuer rating at Prime 2.
AIG, based in New York City, is a leading international insurance and financial services organization, with
operations in more than 130 countries and jurisdictions. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
reported total revenues of $19.9 billion and a net loss of $5.4 billion for the second quarter of 2008.
Shareholders' equity was $78.1 billion as of June 30, 2008.
Moody's insurance financial strength ratings are opinions of the abilit~ of insurance companies to punctually
pay senior policyholder claims and obligations. For more informatio~,l.please visit our website at
www.moodys.com/insurance.
New York
Bruce Ballentine
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
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heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."
11
American International Group, Inc.
Revenues and Income Graphs
Twelve Months Ended December 31, 2007
Revenues
Asset Management
5.8%
Foreign Life
Insurance &
Retirement Services
33.8%
Domestic General
Insurance
33.5%
Financial Services
revenues were (0.6%)
Domestic Life
Insurance &
Retirement Services
15.4%
Foreign General
Insurance
12.1%
Income Before Income Taxes and Minority Interest
Foreign Life
Insurance &
Retirement
Services
44.3%
Asset Management
15.0%
Domestic General
Insurance
51.9%
Domestic Life
Insurance &
Retirement
Services
29.2%
Foreign General
Insurance
21.9%
Financial Services
operating loss was
(62.3)%
Note: The effects of net realized capital gains (losses) and Capital Markets other-than-temporary impairments,
FAS 133, other and consolidation and elimination adjustments are excluded.
12
4
AIG Financial Highlights (from Company Profile)
($ Mil.)
General Insurance
Gross Premiums Written
Net Premiums Written
Net Investment Income
Pretax Operating Income
Loss Ratio (%)
Expense Ratio (%)
Combined Ratio (%)
Life Insurance & Retirement Services
GAAP Premiums
Net Investment Income
Pretax Operating Income
Financial Services
Revenues
Pretax Operating Income
Asset Management
Revenues
Pretax Operating Income
AIG Consolidated
Total Revenues
Pretax Operating Income
Net Income
Total Assets
Total Debt
Shareholders' Equity
2007
2006
2005
2004
2003
2002
58,798
47,067
6,132
10,526
65.6%
24.7%
89.7%
56,280
44,866
5,696
10,412
64.6%
24.5%
89.1%
52,725
41,872
4,031
2,315
81.1%
23.6%
104.7%
52,046
40,623
3,196
3,177
78.8%
21.5%
100.3%
46,938
35,031
2,566
4,502
73.1%
19.6%
92.7%
36,678
26,718
2,350
923
83.1%
21.8%
104.9%
30,627
22,341
8,186
30,766
20,024
10,121
29,400
18,134
8,965
28,088
15,269
7,968
23,496
12,942
6,970
20,694
11,243
5,258
-1,309
-9,515
7,777
383
10,525
4,424
7,495
2,131
6,242
1,302
6,822
2,125
5,625
1,164
4,543
1,538
5,325
1,963
4,714
1,947
3,651
521
3,467
1,125
110,064
8,943
6,200
1,060,505
176,049
95,801
113,194
21,687
14,048
979,414
148,679
101,677
108,905
15,213
10,477
853,051
109,849
86,317
97,666
14,845
9,839
801,007
96,899
79,673
79,421
11,907
8,108
675,602
80,349
69,230
66,171
7,808
5,729
561,131
71,010
58,303
13
AIG Segment Detail (from Company Profile)
(SMil.)
2007
2006
2005
2004
51,708
53,570
-1,309
5,625
470
110,064
49,206
50,878
7,777
4,543
983
113,387
45,174
48,020
10,677
4,582
328
108,781
41,961
43,402
7,495
4,714
94
97,666
7,305
661
67
-637
7,396
3,137
-7
10,526
5,845
589
432
328
7,194
3,228
-10
10,412
-820
-39
195
363
-301
2,601
15
2,315
777
282
357
399
1,815
1,344
18
3,177
642
1,347
1,989
3,044
3,153
6,197
8,186
917
2,323
3,240
3,821
3,060
6,881
10,121
1,495
2,164
3,659
3,020
2,286
5,306
8,965
1,023
2,054
3,077
2,393
2,455
4,848
7,925
873
-10,557
578
-873
171
-2
-9,515
668
10
383
769
2,661
922
4,424
642
662
786
90
2,180
-89
784
469
1,164
732
438
368
1,538
1,194
387
382
1,963
1,328
515
282
2,125
-1,418
8,943
-767
21,687
-2,454
15,213
-562
14,845
Revenues
General Insurance
Life Insurance & Retirement Services
Financial Services
Asset Management
Other/Eliminations
Consolidated Revenues
Pretax Operatmg Income
General Insurance
Domestic Brokerage Group
Transatlantic Holdings, Inc.
Personal Lines
Mortgage Guaranty
Total Domestic
Total Foreign
Other /Eliminations
Total General Insurance
Life Insurance & Retirement Services
Domestic Life Insurance
Domestic Retirement Services
Total Domestic
Japan and Other
Asia
Total Foreign
Total Life Insurance & Retirement Services
Financial Services
Aircraft Leasing
Capital Markets
Consumer Finance
Other
Total Financial Services
72
Asset Management
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
Other/Eliminations
Consolidated Pretax Operating Income
14
American International Group, Inc. and Subsidiaries
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
CONSOLIDATED BALANCE SHEET
(in miilfons) (unaudited)
June 30,
2008
December 31,
2007
Assets:
Investments and Financial Services assets:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2008 - $400,052; 2007$393,170)
Bonds held to maturity, at amortized cost (fair value: 2008 - $21,809; 2007 - $22,157)
Bond trading securities, at fair value
$ 393,316
21,632
8,801
$ 397,372
21,581
9,982
Equity securities:
Common stocks available for sale, at fair value (cost: 2008 - $13,490; 2007 - $12,588)
17,306
17,900
Common and preferred stocks trading, at fair value
22,514
21,376
2,496
2,370
34,384
33,727
43,887
41,984
1,205
40,305
35,170
4,197
Preferred stocks available for sale, at fair value (cost: 2008 - $2,596; 2007 - $2,600)
Mortgage and other loans receivable, net of allowance (2008 - $99; 2007 - $77) (held for
sale: 2008 - $30; 2007 - $377 (amount measured at fair value: 2008 - $745)
Financial Services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation
(2008 - $11,359; 2007 - $10,499)
Securities available for sale, at fair value (cost: 2008 - $1,246; 2007 - $40,157)
Trading securities, at fair value
Spot commodities, at fair value
Unrealized gain on swaps, options and forward transactions, at fair value
Trade receivables
Securities purchased under agreements to resell, at fair value in 2008
90
238
11,548
12,318
2,294
672
16,597
20,950
Finance receivables, net of allowance (2008 - $1,133; 2007 - $878) (held for sale:
2008 - $36; 2007 - $233)
33,311
31,234
Securities lending invested collateral, at fair value (cost: 2008 - $67,758; 2007 - $80,641)
59,530
75,662
Other invested assets (amount measured at fair value: 2008 - $22,099; 2007 - $20,827)
62,029
58,823
Short·term investments (amount measured at fair value: 2008 - $24,167)
69,492
51,351
835,602
842,042
Total Investments and Financial Services assets
Cash
2,229
2,284
Investment income due and accrued
6,614
6,587
Premiums and insurance balances receivable, net of allowance (2008 - $596; 2007 - $662)
20,050
18,395
Reinsurance assets, net of allowance (2008 - $502; 2007 - $520)
22,940
23,103
8,211
Current and deferred income taxes
Deferred policy acquisition costs
Investments in partially owned companies
46,733
43,914
628
654
Real estate and other fixed assets, net of accumulated depreciation (2008 - $5,710; 2007-
5,692
5,518
Separate and variable accounts, at fair value
73,401
78,684
Goodwill
10,661
9,414
Other assets (amount measured at fair value: 2008 - $2,452; 2007 - $4,152)
17,115
17,766
$1,049,876
$1,048,361
$5,446)
Total assets
See Accompanying Notes to Consolidated Financial Statements.
15
1
American International Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(continued)
(m miiiions, except share data) (unaudited)
June 30,
2008
December 31,
2007
Liabilities:
$
Reserve for losses and loss expenses
Unearned premiums
88,747
$
85,500
28,738
27,703
Future policy benefits for life and accident and health insurance contracts
147,232
136,387
Policyholders' contract deposits (amount measured at fair value: 2008 - $4,179; 2007 - $295)
265,411
258,459
13,773
12,599
Other policyholders' funds
Commissions, expenses and taxes payable
5,597
6,310
Insurance balances payable
5,569
4,878
Funds held by companies under reinsurance treaties
2,498
Current income taxes payable
2,501
3,823
Financial Services liabilities:
Securities sold under agreements to repurchase (amount measured at fair value: 2008$8,338)
9,659
8,331
Trade payables
1,622
6,445
Securities and spot commodities sold but not yet purchased, at fair value
3,189
4,709
Unrealized loss on swaps, options and forward transactions, at fair value
24,232
14,817
Trust deposits and deposits due to banks and other depositors (amount measured at fair
value: 2008 - $240)
Commercial paper and extendible commercial notes
Long·term borrowings (amount measured at fair value: 2008 - $53,839)
6,165
4,903
15,061
13,114
163,577
162,935
Separate and variable accounts
73,401
78,684
Securities lending payable
75,056
81,965
Minority interest
11,149
10,422
Other liabilities (amount measured at fair value: 2008 - $6,861; 2007 - $3,262)
31,012
27,975
971,688
952,460
100
100
7,370
6,878
9,446
2,848
Retained earnings
73,743
89,029
Accumulated other comprehensive income (loss)
(3,903)
4,643
Treasury stock, at cost; 2008 - 259,225,244; 2007 - 221,743,421 shares of common stock
(8,568)
(6,685)
Total liabilities
Preferred shareholders' equity in subsidiary companies
Commitments, Contingencies and Guarantees (See Note 6)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 20082,948,038,001; 2007 - 2,751,327,476
Additional paid·in capital
Payments advanced to purchase shares
(912)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
See Accompanying Notes to Consolidated Financial Statements.
16
2
78,088
95,801
$1,049,876
$1,048,361
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (LOSS)
(in millions, except per share dataj (unaudftedj
Three Months
Ended June 30,
2008
2007
Six Months
Ended June 30,
2008
2007
Revenues:
Premiums and other considerations
$21,735
$19,533
6,728
7,853
Net investment income
(6,081)
Net realized capital losses
$ 42,407
$39,175
11,682
14,977
(12,170)
(28)
(98)
Unrealized market valuation losses on AIGFP super senior credit default swap
(5,565)
portfolio
(14,672)
3,116
3,792
6,717
7,741
19,933
31,150
33,964
61,795
Incurred policy losses and benefits
18,450
16,221
34,332
32,367
Insurance acquisition and other operating expenses
10,239
8,601
19,652
16,928
Total benefits and expenses
28,689
24,822
53,984
49,295
Other income
Total revenues
Benefits and expenses:
Income (loss) before income taxes (benefits) and minority interest
(8,756)
6,328
(20,020)
12,500
Income taxes (benefits)
(3,357)
1,679
(6,894)
3,405
Income (loss) before minority interest
(5,399)
4,649
(13,126)
9,095
42
Minority interest
(36)
(372)
$
$ 4277
$ (2.06)
$ (2.06)
$
1.64
$
$ 0.220
Basic
2,605
Diluted
2,605
Net income loss
(688)
$ 8,407
Earnings (loss) per common share:
Basic
Diluted
Dividends declared per common share
(5.11)
$
3.22
1.64
$
$
(5.11)
$
3.21
$ 0.200
$
0.420
$ 0.365
2,602
2,575
2,607
2,613
2,575
2,621
Average shares outstanding:
See Accompanying Notes to Consolidated Financial Statements.
17
3
American International Group, Inc. and Subsidiaries
Invested Assets
The following tables summarize the composition of AIG's invested assets by segment:
(in miifions)
General
Insurance
Life
Insurance &
Retirement
Services
Financial
Services
Asset
Management
Other
Total
June 30, 2008
Fixed maturity securities:
Bonds available for sale, at fair value
Bonds held to maturity, at amortized cost
$ 72,981
21,346
Bond trading securities, at fair value
$297,095
$
1,370
$21,870
$393,316
$
1
285
21,632
8,764
37
8,801
Equity securities:
Common stocks available for sale, at fair value
4,522
12,018
787
Common and preferred stocks trading, at fair value
285
1,943
22,200
543
29
10
16
26,010
1,038
Preferred stocks available for sale, at fair value
Mortgage and other loans receivable, net of allowance
(21)
17,306
22,514
2,496
7,275
45
34,384
Financial Services assets:
Flight equipment primarily under operating leases, net
43,887
of accumulated depreciation
Securities available for sale, at fair value
Trading securities, at fair value
Spot commodities, at fair value
43,887
1,205
1,205
35,170
90
35,170
90
Unrealized gain on swaps, options and forward
(1,172)
12,720
transactions, at fair value
Trade receivables
11,548
2,294
2,294
16,597
16,597
Securities purchased under agreements to resell, at
fair value
5
33,306
4,951
12,616
48,312
20,810
141
3,670
6,126
17,840
7,093
59,530
62,029
9,967
32,724
3,974
7,125
15,702
69,492
128,627
468,482
155,472
61,374
21,647
835,602
499
979
476
269
6
2,229
1,380
4,952
29
255
(2)
6,614
342
965
28
95
224
1,654
$130,848
$475,378
$156,005
$61,993
$21,875
$846,099
Finance receivables, net of allowance
Securities lending invested collateral, at fair value
Other invested assets
Short·term investments
33,311
Total Investments and Financial Services assets as
shown on the balance sheet
Cash
Investment income due and accrued
Real estate, net of accumulated depreciation
Total invested assets *
* At June 30,2008, approximately 63 percent and 37 percent of invested assets were held in domestic and foreign investments, respectively.
18
105
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lJ.~)_ gl).... I-;rnr.l~rlt
A-i;.:-ntid'~d
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{il ')::-~~,
~1H(!I'tt~e,J
,;,l!x:,s
C:(,'~r CIr
UIlr(?,.,li::<:!<.1
:Unre;;lliIe,:1
~?i'
C")st ,:;.r
Uni-f'z!li;::er:1
t;rns,:-;:,
lln;..:-;~I'.i.~.:.d
t';)~
-G;:{r:I'~
LG'~s.1':-:",",
V~1!f.J1':!
~;c:-:~t
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;:;('~""II)l1kll~ :-,IJr:nS(li ""d
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l)(ltili(:;71 ~ubdj·,.·j::'IIXI-:'
N.;m-tt s. s')\,,,,"rnn j~nt.!;
".>:·q.p:)f~~t.s (iel.:.t
h.kfrtt~;'3:;s-:),~ck~d. :'3.5,:::,et-
;\
4.712
·.)bli:gatl~)n~
4">.!!41
4C)G
e~){3
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3,S93
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22,.,(;02
.______~'QUz;~:~~Ji;z,~___________________ !:J.J.221~ _____________ M~~ _________:!~!~sH·_________ ~~~~?1 _______t4£·~~~?___________t~~A___________ Ij~:ri _______ l?:.~_..?9~~
Ti,\,Il:")lKI"
$4:;8,';11
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'" 2:1.7<17
$44~l,,,OI;
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is, OBi;
$474,<191
4.l3~
illS
19.302
$ 21,{13.2
~22
;~) 0..,.';.,:i;..,,·· ,~-()
:':N)? > ":r3;~d,·~;' :i..; ..~ F;J ,; ~f.;, r., ;;.;(' {')1' ~,),f"
i,/.: A!
I"~ >;-t'1,4 A,
$
I. 2, .l(; ',', s,'; :;!,~~,; ~~ ,:4 ;m.U'i!·~' ;; ~~ ':':(J-"i' ()?,~J,,: .:~;.:\t.
l:)r)~ (,:;.;(~)' ;o;{~Wu'.. :(~'~ ....'.!i.t !~~.
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14~
"
~.:o.1;H,'.·.J,'
:"o,:r, .' {;u;
~I!.(T'";$J"(~:}-: '1',').'. r'~)o, )
:I."~':~ .·n:1"~'" i,~r. i~.· ir;~'~J.f!'J-K~'l(:1 ~,".:;d~.;r .','"t
The credit ratings 01 AIG's liKNI 111irttJIily securities, oilloel
I.ha" those 01 AIGFP. "'''Ie as lolJ.:,ws:
,/A~~('
.:<
~'3~)0
$'"r)l"r;{:j 1:....H:-2!
3 ~'" r:'r';'I1:, {i ',f' ~~,;(::,;I)
t-12,d?
1B,l('i
~)5A::,
Af:;;~
:.~,t'i,·~2';
~!(:o
), !eH' d~·. ~.d ,(.~" {~I; {.'"dJ:!,_' ,~! 'ft- ~.'~
i:;'•.11).:({i t,>~;b 1<,.",;·r~~i~i :,-..::~,·?;_h:_:~_ A1" !:N.- ~,'i, If;\'~e;
,>',;[...,...i ;,·~~)('(:d ~.;: U'; !"Nk,,'; ;;r~d ::27.(,' J:;'';;-,'t;_ e(:~r-~ct.i~'(')'.
~ ~'[._,r~.)~
;;'-,;':;'
c<t'cd: ~/~,
,~;':d [h'((-i.Il,'I('" j
f•
The industry c;Jt€gories of AIG's aViliiable rot sille
d"h! S<j(;jiril.ies, o(ilel than those <!I AIGFP, 1'1'''1<;
as lollows:
C<)lllOI>11..,
AA.A
3.0
22
8GG
1:3
4
1
g, ..~;J~
B.:;.i(,w irl'__ .:-r;.tnl~l",t
N,)tH"<.1t>:'ri
]f·j~i
Fin~w;i.dJ
18
institutk.. ns
UtilitiBS
'~'_:-n,l 11~ln:k:~::t1Gf!~
~~c:'n~~) m~r I"Ic!'t"I':"'r \~·I t. :, a I
:l
__________________________________________________________l~g~~_______________ ;U~~~'~,
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CGrl::-).i rrl~r Z:':''': fK: 81
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.__ J9..1;~_~______________________________________________________ !Q~~'- ______________ Jg5t~,
" _.~; f, . .,:I.'
J{.,;~,~ ,~C.~ ::r:~l8 AfhY ,p~""'~~f;>-;:"';'r .;;.
1(;,>:".
,~,??,.~i;;f(;:,':)· ,~, ~ t~'r~'(':ilr
'.'(;f:;'.;'~~' i1tl·'.'~Tt;~C;:~·~ U'Ci'~' r.!~~"'.:l i.t'fl·'.~~Ttf'.:~);~~ g1'~d,'
A ..
.yf lr:;
p8it
,.fj' .. ,t<:'"}~'~'
r(, ,.l.:"'(,(:;i(,; ~.t:; jjiV(~~JnjF:m:~, AJ(; i.ll;·~·:'~f::, in
1,I·:i.(llHl:':'
tYl)d .yf :~'X·.:.l.flrj ..::;~ jjhh:dln.~~ n}df)~~ t":~,f.E~,\ (J)()::.
c:tnd .:\HS.
The amol'tized c.~$t. gross nme;lliled gains (lOSSM)
w<;re as follows:
~n<l
fair \laln<; of JUG's investments; in RMBS, CMflS. CDOs and AflS
___________ ~~?~~~:~ ___________~~~~:. _____________ f~~~! _____________~:~~0~'!. ___________~s:'~~'::!~_:. ____________ ~~i~:::
j~~~l~~?{~?!.~~~ ______________________________________ S:g~::!:. ____________ ~~:!~~s·
6'-'11rJ'~
a'.'ail~bj€
-
.~::I(i, ~.%·(:Iudirl;'?,
f'-'l' sa!-&~
AIGFr.
PMt~.:~
CMBS
CDO/AE:S
Slltd))tc}l,
«~{
ludit'lg "''.,113FP
'$ 7"~"~81
$1.0,.1.3S
$(:;7 .WJB
8S.i
"S.sOA
2:2.935
1.1..2.1.2
l11.f.7S
1,942
i,4tH}
21..203
2"-3.~~18
1.15(:.
9.$76
.1!),2.4,j
96,977
124.',1.3
7.25.::
11'3.22"
li3.:~E~,~
~I:,IJ
16.L74
~;
:?;~~'.
.~],,;!=p"
Sill. en
!::Mf AJ{.fJ~ :~ti'':;:;!;I~'',~.;is ij: """,.I;C"W·"'",·",'"I, ;7<:d'[',KRCd ':;1:d {,: i.r,:r.~r,~1:"~rJ,~ :;~l,:$.. 1:;1:IJS
f.nr':~'"d,I'}' ~'. }.:)!-':~~'
~~;',-..:;.r-m.:~,~~.~
;:; :'·;dad.:d
The anwr!il€>d
~ost.
.1! I:~,~",,: ~ll, 2(1(1,'-:.
)~: t:·)~,',t::
m;'-((.f::
,:.:a'.'~':· ~:"';'rl.;ti,·:. :, ..~: ..(, ~:l('
~ f'~",I!ko~,:.
-\0','
f,g
1t.'J~:"d'
.1,U(.~;,)r..~d
AiGJ=:: f.~,~5 ;I"f:~a.:d 1.;\., ;""l:"r t-',1i':I.··
S.:;:; iJ.:t!!-:01: yC';',A,,:,l-:(, . ·~:~Hr'~I~':"
--. ~I"1,d!"-1-:g.
gross @rN.liled gains
O,~%esl ilild f~lr "<'1II.l<1
of AIG's
ilWe$tm~I1!"
ill RMBS
s~curiti~$ ••,tller
th<l11
lhosoe of .Il.IGfP. were ilS 101l0w5:
F31r
RM!l6:
tl.~:. ,.1gei'i<":i.,:-s
$
Prirn.:- rKlil-3&~nc;:,~
,~It-A
("~th~r
he·using·r (:: I,=·tt::j'J~'
,Stlbr,l'imb
181 $.Ul.7H4
1,6413
1S,9GG
20,2%
.3.(J96
3,B913
532
t,",*)8
19,988
'S,884
1&.2"-0
215,;~
24
25,34,;
24
14.074
z.lXm
Tcbl
r~;,: !~:.:.ilj~k5 t: . r<'ig!~ ,~-", •.1 ;"n'!".(b~· k,.\1BS-I'~~(.:;t~l,( ~Ct ,: .. f~j,~;:, .
. ;).' n'!"~~'~~~I> u;~~~[.'f~d <.:{:,'J:i}·l••,',ti.
.~
2:3
19
I':)
::::c·
if
$t..l.8:2!:.
21,0';"4
Pen:ent
The ilmottil,,;:1 cos! 01 AI",'$ CMBS
ilw<%~ments.
other Ih<ln
tho.,.., <>f AIGrp, at Jun" 30, 2(;108 was a" ("lIows:
Th~ per~"'lltag", (If AlG's eMS$. inve..,lm@ts, ,:.th"r lh"l1
those "f AIGFP, by y"ar "f ~'il\t"g~ at JUII" 30, 20M! wa" <1$
fOUft\oVS:
Am(l:rtE..~d
Co:::t
cr',;1B::~ (tr::1(Ht.i-:-J!lol)
PeH.jrf!t...;,. eRE C[j(j
,,s,.g';:'f!'::y
p&:C':?'l1t
(Jf T(\L~l
*2;~!,Bl:;-;
1,~_::'E,
:~
21lt:
1
Yl;-~~H;
2()08
2:Jf!i
()!h",
TI>e I)<'<,',,'ellt:,ge <of Am';>
til(><><~ >.~t
c:r.'m~s j!l"e:>~men!:s,
Awn"" hy g+'>(1gHlI-lhk rf.'g,lim at
(,ther
hm,,~ ,;'5{i,
~ll<lll
:.WM W<1~
The ;;lInmtlI",d "n"t, "f .A.l .... '<j COil 811~;jj<jtmjjllt"., ntll·f.'t' thim
th,)"",,* «f ARlFP, !!)' t,()!!,~ter<il hl>t' at hme :;W, 2(l:!)~ wa::; i*!i.
,:i..W f~!3~8.H~'~::
f(;II(>w~;
G:"ij'fgPjl~l<; tl'1!:l<j:~:
N~w''',:,I1,
15
C<lIIl<Jnll.rl
4
IIIIJKIIS;
<I
'~1l1ttl~1J
F",11 nc,,),I',;ml.;J
r;
51%
H1\;~G1m~nt graJ~
::\0
l)tl'I~I'
S!JrJpl1ln",
~.8S
46
$4,12 1)
3
~~~,:!r~la
18
1
100%
mll~>rt~l..;l ",,,,,,·t <ii tl~e; AU;;"$ COO irt"'l,,,.tm~t&., {,tllet'
th,lll till},"", dA!('FP, by !;f"dtt ri.~UBg ,~t .hme ·3(1, 2(1Q8 Wil,
as ffill<lw'$;
lhjj
MaSS.f:(:!1UG?-tts
',II c:m81'
Ar Jl.lk 3(:,. 1/)(;.':" Ale; hdd 'kl3 f,iliv;[) III 1:(";1 b'FI~ (',f
CMP$. ""1'f'U,Xilllcltdy 7';, r'el'<:~nt ,-,,( ~'l,,:b hr;.i:,Jin§.:, '><'C(';'
(';It,'d A.'''.,\, ;)f'!',['<:'Kim:,rE'il' 1:,' f'i~r";(mt W,d'" j';)t,'d AA <)f ' \
,md 'If'f.'I''Xi.I1Htcil' ;: f"~;<':I.1.! w<'re r,rwd lWB " j l'c'JI.:,""', Ar
Juri<: YJ; 2.f'O~;, aU '·U<.Il. ,;;<.llfirk<; wei'r',.~lJr[';;m 111 !:i\<, J);Jym('nr
Til",
Ol'!i:,t,;,1
f.:<HI~t{lr~IFWi!<:
N~w J~r8~)"
plincipal ani
P"l'c:;.nt
CG·s.t
B.ank If:.f:nS [C LO:I
Fle,II::I;;;
vlrglnl,;;
;.ll'
'IIlK,rtt;:",<1
t:Ulllr,{,"<iti~lIl
ui til",
.
B?ilm~·lrr'ie&trnellt
ittv"",,;t,,{! ;;;!II;,,tiJI;:>li
b~i <~fjjf.m
I~(; ((;N:;~:::x($.i
,:S,i:'..i:',
{x:m<o!".at~ ~1!?1)1
~H l1)t~i
7t56
SSE.
''''>.~tliltt.;~ !"il~jfj:g
P>!I'-::;.nt
i~(;st
$ 87:2
,..
;llI<'l'o'.'[,
I\nlNtlI:;'(1
gad9
~.2.,
2/;85
51
'lB
S
84
1
~n~ 8~ult,'
r,jijng 'it JUlFrf:i 31\ .20l)i\
"~,l~ ,1~· f;,I1,,~~">;
BBB,,;Not
.!.\
;::!1%
1:;'
R~rtE.'l1
'SIKcrtTi;,.. rrn
T'j~;.~1
$12.9~:~~
rI,01ot"tg<<g·I8-~8(:I·&d, 8i8~~-b~I-&t18flCl C'~;II:;rtG>r3I1r0cj
'36,,18(;
{~;.;st) ~l"li:1 srIOI1.-r.~iTn Irf;'~Glm~n1t:;
10.4-45
20
The amortil.ed cost ot lUG'!; RMBS iniie!;lments, other than IIlOlle 01 AIGff', at June 30, 2008 by Y"ilf ofvin13ge and credit
1'3iin!,; were ilS follows:
"i~ar ~-l·Vint2.g~
Pi'j(!1
2,:);)4
2~})S
LODi;;
20[[1
2(:06
Total
;~.,!~~\=~~
$6J)5~
~ 2G.5Gi
:J;15A55
:l;"l,(;ll
:$~:17 ,2.:: 1
-HnO
:;:,<:1
G"~B
P
$:28.J:;44
:~l'j~
$,
fhIHr>g:
TOl>11IlMBS
~t~2
:~(:E
'tl,-,,3g-,-
$7.204
H.3,i4')
:l :?'~~'~,;
2f.·5
"lIS
$1",::(,1
$
.A.A.
8EB.;;,:«1 to,,!:,>,
T,,1:lJ RMBS
l~,:j
:L t)~1fl
:l
27:3
~H;O
~X;4
---~.~
0.-:1-07
L1e,4
2". 7 J~~.
.8-92
:~3.'l·Yj~ :~
'n7J~ai
:1;
'1:l~,",H
lSt3
!37(i
II1hl,RMB5
7~.?:
$ BEl)
l 4.::::12
$ J.6D!:.
241
1<'4
"jOl
~~.t~1
280
~7
4i
...::::.)
42
15
27
(',8
is
1,;
$ 1,<).':G
$1!Y?2
~. 4.7('"..)
~
.73:(:·
:1, 5,512
:1;
');
$
:t
A
$
7
~!.29:')
l.O,s,:·
217
12,:
:$2(~,2.:i6
.:l2,.~
f, 4,4D.3
t !, ii;O
,t 3,8:34
129
l('~
'j~-iS
785
1.G90
Ir
~~2
\3$
12~;
276
liB
1
f{~
~;~;
-,-+,-..1
,....... .;-.;
,)S14
fl~t:
$ ;::S ~
! 4.9::;4
$ 9.14[:.
,;"i<.
$
~
/' !=-
$,
~·~.G5c:')
:}i";'';;,c"
4~;f,
:1;
Equity
PICC - strategic shareholding
Taiwan Semiconductor - Taiwan
Chunghwa Telecom - Taiwan
T&D Holdings (merged Taiyo and Daiwa)
Pru Class B (part of demutualization process)
PTT PCL - Thailand
CP All - Thailand (private equity portfolio)
Nippon Building Fund - Japan REIT
Mediatek - Taiwan
Hon Hai Precision Industry - Taiwan
(Mlns)
Exposure
546
257
257
163
157
134
127
115
106
101
Credit
TAIWAN, REPUBLIC OF
JAPAN, GOVERNMENT OF
THAILAND, KINGDOM OF
CITIGROUP INC
GENERAL ELECTRIC CO
HSBC HOLDINGS PLC
JP MORGAN CHASE & CO
BANK OF AMERICA CORP
SINGAPORE, REPUBLIC OF
WACHOVIA CORP
KOREA, REPUBLIC OF
AT&T INC
GOLDMAN SACHS GROUP INC
MORGAN STANLEY
ROYAL BANK OF SCOTLAND GROUP PLC
(Bins)
Exposure
15,973.3
10,231.8
6,132.3
4,172.9
3,860.0
3,796.2
3,711.3
3,709.2
2,976.8
2,903.6
2,767.1
2,614.4
2,608.4
2,500.1
2,418.8
21
----
'I:W~"B8
Valuation date: December 31, 2007
Group Name:
Summary MBS/CDO/FG Holdings
Holdings ($ millions)
CMBS
Market Value
Amortized
Cost
Investme Investme
nt % Total nt % of
Invest.
Equity
25%
3%
Prime - Non Agency 1st lien RMBS
Prime - Non Agency 2nd lien RMBS
Alt A RMBS (1st or 2nd lien)
Subprime 1st lien RMBS
Subprime 2nd lien RMBS
HELOC RMBS
Home equity/Closed end 2nd lien RMBS
3%
0%
4%
3%
0%
0%
0%
22%
1%
28%
25%
0%
2%
0%
COO with subprime/Alt A exposures
COOA2 with subprime/Alt A exposures
0%
0%
0%
0%
Financial Guarantor direct exposure'
Financial Guarantor wrapped investments"
0%
6%
0%
44%
Total cash and investments§@@,QQ4,Q§i:}i:},l?s.Q
Shareholders' equityQ$;ElqtqQ$A~()t()
• Represents amortized cost and fair value relatedtci$58MMiiibciiidsarid$136MM notional of COS exposure .
•• We recognize that this exposure may already be included in the lines above, but request you to identify it separately here
22
JUH(' JO, 2008; tiN.' ll(ltioihd ~Hl10tmt, bir valtli~, ~lnd
""'"-j
." "" v'I-...·/,. :1.. ......... 'j ....... ··.f· .~. .'\, ["'U'f," .".'"' ...., "."" . "':"" ..
1;.I:IH~'i~Hb}~. l'lhh:Rd ';::<bH;iI.1W·l1:o..I.'i;~ {~. fIll;;' i';. tH'~:' "'Hfi~l ""i~;!Jlu.~:1
At
"" ..," '" ... ·1':.
cf~'dit dd~~uh ~~:V<'lppOHfOlio~
ifli..::!udii'lgC<."ftaitl t('gulal:(I:q:
capitlll\.d td t!'al:l~;K~ti>.Uil\l, hy i:Hb:rNCb.':\S'iy·;;:re a.\i
fo!tO\~'\i;:
i)m'~ized t.~hft:i:it
VSlJ8tk·n l((~s
iG'ain:,
F"..:ljir
Thr~~
V~~llj8
h1ontl1s;
End.:;d
JunB ~),
N:·tbn';9.1
2(~(~t:)f:}
A.in"(;tmt
Si;<.
Mimths
Endl:<¥.l
JIJ!18 3C~,;
201)$;'::
,t·
-.J:>
132,612
.1.619
125
125
:ti&bi!J8k<£<;
Mult~~~<:'~m (l)(d'''~
{>:~Tl':~::lt-e d~bt/Cl c~;
2D.301
24.7,85
[;.3.= 787
~;?n6
25, i.~~l
1.71
$ 3'3J) {{":'ic}
Totssl
E~>e~Bg
(i2B~
1.3.(K~S
5,44:3
(3:,
14:376
171
$14,6 r2:
[:.
1~ J::':~iE ~~
77()
J'( 09 n~i!ti(Y1.:\ ~f'it.·s.P~cti~",,~t~~~~ ~1..--;;7: tf~l~ l~~!',(!i~'~ ,;.~..:.J' si~x~n~o·;-;:t.fJ ::.;:-..;o;n~:.:~f:~ ':·~~6'(!~·X.f:
l~):~;~:
30:
1
2(0).~~
-;;.:::"=i~.~();;:']'i:;~'i;~ ~'O
iI..$. j'~:f'b"'l!'~)'~~~}~~"
"'''''i(.~r:W:::~~~~ .~~)~J :"·;l:-:I~)r~')...Yi:J'.~~-:':l;~:.::.~Jy j9~
CI) () r I:~ l Clt:f 135~
Ri;:'~t-i~$~-:'+;.t.~ (.~:~-:J·i;t· ~li?for'l.{lt ~.,:.{;.\~p.;. ;.o:~~~J'"hJ.~:;Y~ b::~ A! (;:FP ~~~??
is b~~·~h·()·i"}
i;~:
~~: ~~r ~.;! (> t ~·o·:-:;. ~1 ~~ :~l?t~ 0';,'O1~' ~~f~ :i.~:;~;~ d:t:~
il~~
.:;,!.::~;;~::~~., ~)W: r:::-:-;;.o..:;~~:':':l::~.~,{ t~~~~i:tf::~;j~~.J· ~"';~~';~:::iJ '1~!f{~~f :ry.~~~f-;;.o..:z.
23
:rti~~~~.-JJ~-:~ ~~'i?l~:?u:.c ~'+l)"i~l
Shareholders' Equity Roll Forward ($ in mil)
June 30, 2008 Shareholders' Equity
$ 78,088
Estimated Net Loss for Third Quarter
- Adjusted Net Loss (ex. AIGFP Unrealized Market Valuation Losses)
- AIGFP Unrealized Market Valuation Losses
- AIGFP Credit Valuation Adjustment on Other Assets and Liabilities
Estimated Adjusted Net Loss
- Net Realized Capital Losses
- FAS 133 Gains (Losses), Net
(3,878)
(4,493)
(705)
(9,076)
(13,491)
(172)
Estimated Net Loss
(22,739)
Estimated Other Comprehensive Loss
Unrealized Appreciation (Depreciation) of Investments, Net
Foreign Currency Translation Adjustment, Net
Change in All Other Comprehensive Income, Net
All Other
Estimated Other Comprehensive Loss
Estimated Change in APIC
Consideration Received for Preferred Stock Not Yet Issued
September 30, 2008 Estimated Shareholders' Equity
24
(3,942)
(1,563)
(72)
139
(5,438)
23,000
$ 72,911
Page 3
Significant Items in the Quarter
302008
Pretax
$
GAAP Income (Loss) - Estimated Reported
Adjustments:
Minority interest (afffects pretax only)
Net realized capital gains (losses)
FAS 133
Adjusted Income (Loss) - Estimated Reported
(27,911)
202008
After Tax
$
(22,739)
Pretax
$
(8,756)
After Tax
$
(5,357)
(284)
(18,161)
(265)
(13,491)
(172)
18
(6,074)
(26)
(4,019)
(17)
(9,201)
(9,076)
(2,674)
(1,321)
Restructuri ng-re lated:
Taxes:
Reversal of permanent reinvestment assertion for foreign businesses
(3,627)
Fed Facility interest expense
(802)
(521)
Goodwill impairment
(432)
(432)
(465)
(302)
(1,699)
(4,882)
AIGFP unrealized market valuation loss
(6,912)
(4,493)
(5,565)
(3,617)
AIGFP credit valuation adjustment
(1,085)
(705)
(518)
(337)
(133)
(86)
212
138
UGC 2nd lien exit
Total restructuring-related
Market disruption:
AIGFP deferred compensation rel.€rsal
563
366
UK inl.€stment-linked products
(501)
(326)
Domestic Retirement Services DAC unlocking
(616)
(400)
569
370
DAC/SIA benefit for realized capital losses
Partnership & mutual fund income (losses)
(1,664)
(1,082)
190
124
Total market disruption
(9,646)
(6,270)
(5,814)
(3,778)
2,144
2,076
3,140
2,4571
IAdjusted Income -estimated excluding restructuring and market disruption
Other:
(1,391)
(904)
AGF operating results
Catastrophes
(446)
(290)
(40)
(26)
UGC operating results (excluding PDR)
(651)
(423)
(518)
(337)
(2,488)
(1,617)
(558)
(363)
Total other
Adjusted Income - estimated excluding all noteworthy items
$
25
4,632
$
3,693
$
3,698
$
2,820
Page 4
Summary of Estimated Pre-tax OTTI ($ in mil)
Three Months Ended
Estimated
September 30,
June 30,
2008
2008
Lack of Intent to Hold to Recovery*
$
8,299
$
241
Severity
7,327
4,843
Issuer Specific Credit Events
3,453
322
747
738
50
633
Adverse Change in Cash Flow
Currency
Total
$
19,876
$
6,777
* Includes $6.9 billion related to securities lending portfolio in 3Q08.
26
Page 5
Commercial Insurance Quarterly Results
$
Estimated Net Premiums Written
Estimated Operating Income (excluding RCGL)
3Q 2008
I 2Q 2008 I
Pretax
Pretax
5,597
$
5,988
943
33
Adjustments for:
Market disruption:
Partnership & mutual fund income {losses)
(230)
(42)
(1,077)
(74)
Other:
Catastrophes
Estimated Adjusted Operating Income (excluding all noteworthy items)
$
1,340
$
1,059
Underwriting Ratios:
Estimated Loss Ratio
86.0
74.1
Estimated Expense Ratio
21.9
19.6
107.9
93.7
89.1
92.5
Commercial Pool
4.2
4.2
Surplus Lines Pool
4.9
5.1
4.3
4.4
Estimated Combined Ratio
Estimated Combined Ratio Excluding Significant Current Year Catastrophe-related Losses
Estimated Risk Based Capital Ratio:
AIG CI (in aggregate)
27
Page 6
Foreign General Quarterly Results
3Q2008
I
2Q2008
Pretax
$
Estimated Net Premiums Written
Estimated Operating Income (excluding RCGL)
3,647
I
Pretax
$
3,726
104
754
(276)
82
(133)
(5)
Adjustments for:
Market disruption:
Partnership & mutual fund income (losses)
Other:
Catastrophes
Estimated Adjusted Operating Income (excluding all noteworthy items)
$
513
$
677
Underwriting Ratios:
Esti mated Loss Ratio
59.3%
53.7%
Esti mated Expense Ratio
37.4%
34.6%
Estimated Combined Ratio
96.7%
88.3%
Estimated Combined Ratio Excluding Significant Current Year Catastrophe-related Losses
93.0%
88.1%
28
Page 7
Current Credit Facility
$85 bn
2 years
850 bps
LI BOR + 850 bps
PIK
27
Proprietary and
~gctiy
Confidential
Enhanced Terms of New Financing
Amount
$30 bn
Term
Perpetual
Rate
100/0
Coupon
Use of Proceeds
PIK / Cumulative
Pay down Existing Facility
Amount
$70 bn
Term
5 years
Fee on Undrawn
Rate on Drawn
Interest
75 bps
UBOR + 300 bps
PIK
28
Proprietary and
~actiy
Confidential
Current Trends in Securities lending
Since the lehman bankruptcy and related credit freeze,
counterparties have been reluctant to roll trades, wishing to
maximize their own liquidity.
Total AIG Outstanding Securities Lending Balance
$ millions
80,000
70,000 -1
$68,776
..................................... j
60.000
50,000
40,000
30.000
20,000
10,000
9/11/08
9/18/08
9/25/08
9/30/08
10/02/08
10/09/08
101 16i08
10/24i08
5
Proprietary and
~1ictiy
Confidential
RMBS Monetization .. Proposed Structure
$ 40 B RMBS Face
Loan $22.5 Billion
Collateral
Coupon L + 100
•
Equity $1 Billion
Coupon L + 300
~
Residual: 5/6
~
Senior debt ..........facility, 1/6
equity
•
•
!
!
4.
1 Transfer price?
<
Proposed
Option
Residual
<I<
AIG marks as
confirmed by 3rd
party, estimated to
be $23.58 currently
•
!
+
2< Size of equity
\IS, debt?
'" Equity: $1 Billion
" Loan: $22.5
Billion
" Residual: 5/6 to
Senior, 1/6 to
equity
'+
30 Terms of debt and
equlty?
8>
8>
<I<
<I<
Equity: L+300
Debt: l +100,
Debt full turbo
paydown
Residua! cash flows:
5/6 to debt, 1/6 to
equity
•
!
!
!
P
4< Origin of
equity?
"'A!G
8
Proprietary and
~2ctiy
Confidential
Proposed Solution
Cash Bond
Reference
Obligations
Spy
___
Economics
_f._~~_~J~g M_~_~_~~~J~_~
$
AIG contributes junior capital
to SPV
$
•
Cash
<I>
Third party earns L + [100]*
bps on its invested capita!
plus a negotiated share of
the upside
Third party senior loan is recourse solely to (i) the SPV assets and (Ii) the AIG junior capita!
Existing collateral posted by A!GFP reduces capita! needed from the third party
Third party receives full repayment of principal and interest prior to any distributions to AIG junior capital
-
x
$
Concurrent with purchase of the cash bonds, AIG and counterparties agree to tear-up existing CDS
contracts
-
$
A third party will provide the
senior capital to the SPV in
form of a senior loan
A third party forms a new SPV to purchase, from AIGFP's CDS counterparties, cash bonds which are
Reference Obligations in the multi-sector COO portfolio
-
$
$
AIG earns L + [ 300]* bps on
its invested capital plus a
negotiated share of the
upside
Portfolio upside shared between AIG and third party on negotiated terms
Subject to Change
14
Proprietary and
~~ctiy
Confidential
Process to Unwind AIGFP in an Orderly Manner
" Transfer/sell energy/infrastructure business
" Established robust governance (e.g., Steering Committee,
ROTC) to take decisions and monitor progress
" Sell commodities business
" In process of finalizing compensation for retained employees
" RIF executed in Wilton, soon in LN, HK, and TK
" Restructure and transfer key tax: personnel
toAIG
.. Unwind derivatives portfolios
- Replace complex, bespoke client trades with
simple, generic dealer trades
--- Prioritize opportunities to exit entire lines of
businesses and client relationships
Pursue and balance transactions that
generate liquidity with transactions that
generate capital
--- Pursue dealer netting once book is
repositioned
- Develop strategies for auctions, sale,
assignments of businesses
- Natural run-off
" Restructure! unwind the credit book
- Restructure trades I counterparty
relationships (minimize downside, retain
upside)
--- Utilize government credit facilities as bridge
- Monetize assets
Natural run-off
., Actively communicating to AIGFP
- Leadership
--- Governance and processes
" Client communications
" Developed frame\}lork for decision-making
- Balancing liquidity, P&L and NPV of transactions
., Daily detailed reporting in place
., Summary reports being developed for Steering Committee
--- P&L
- Liquidity and collateral
Market and credit risks
Runoffplall
deyelopmeMt
" Kicked off book-by-book run-off strategies; detailed plans
expected by year-end
" PMO established to facilitate un\tvind process
18
Proprietary and
~~ctiy
Confidential
Overview of Unwind Plan
September
End of
20010
2008
~
~
Develop book-by-book run-off
strategy
Finalize fun-off leadership,
processes, and reporting
~
~
Roughly 1/3 o'f the book will run off I
naturaliy mature
Proactively unwind substantial part of
book
~
Manage the tail risk
-_. Dealer netting
- Sell
--- Natural run-off
- Keep a smail team to continue unwind
Description
Strategies
1a) Legally enforceabie terminations
(e.g., ATE, credit ratings-triggemd terminations)
1b) Mutual termi nation clauses
1a) Series of strategies to minimize costs and
liquidity dl-ain
1b) Pian to be developed on how to deal with
it (when others start doing it)
~
~
Transactions with AIG affiliates: Segregate transactions with AIG
affiliates to pmpare for disposai ; roll-up
* Take economic decisions based on guidelines established by Steering
Comrnittee
9
Primarily concerned parties are investors, corporates, and to a iesser
extent sovereigns
~
1/3 of the book, or -10,000 trades wil! rnature by Sept 2010
* Establish a reasonable future date by which remaining trades should be
exited by deaier netting
~ Decide key counterparties AIGFP will want to exit definitively
Proprietary and
~5ctiy
Confidential
Potentially establish CSA or assign to
other counterparties
Systematicaliy mine book for :
A) Cash generating transactions
B) P&L generating transactions
C) Risk reduction transactions
D) Client reduction transactions
~
Let them run-off (uniess in one o'f the other
categories)
~
By counterparty or entim book
Summa
of Independent Valuations
The valuations of AIG operating divisions contained in these
reports ranged from $68 bn to $166 bn
($ in miilions)
Source
Date
Domestic General
Foreign Genera!
CS(1)
38,233
18,909
23,973
36,540
JPM I GS
9/14/08
31,000-39,000
13,000-16,000
45,591
57,143
60,513
44,000-55,000
53,000
23,159
39,689
21,763
52,630
25,193
66,581
27,667
69,048
23,000-27,000
36,000-40,000
25,000
53,000
62,848
74,393
91,774
96,715
59,000·67,000
78,000
7,514
157
7,610
1,987
324
1,389
n/a
Ilia
n/a
n/a
2,000
7,000
2,000
523
9,180
1,162
2,905
196
8,194
13,443
11,310
9,155
2,000
9,000
3,231
6,138
14,208
5.717
1,000
2,000
Total Operating Divisions
114,625
139,565
174,434
172,100
105,000·125,000
142,000
Corporate &, Other
Other and Minority Interest
(19,214)
(5,631 )
(15,992)
(10,176)
89,780
123,573
164,258
General Insurance
Dornestic Life & Retirement
Foreign Life & Retirement
Life &, Retirement Services
Aircraft Leasing
Consumer Finance
AIG FP
Other
Financia! Services
Asset Management
Total AIG
MS
9/18/08
21,390
18,956
ML
7/16108
29,015
16,576
40,346
WB
11/27108
9116108
(5,783)
166,317
(37,000)
68,000-88,000
Mgmtf BX
9/14108
39,000
14,000
(34,000)
108,000
11
(1) CS analysis excludes losses associated with FP; published figures include (198,380)
V~j6 for
Financial Services including FP.
Timing and Proceeds
($ billions)
Business
PLD (excludes PCG)
TRH
Private Bank
CFG
AI Credit
HSB
Star
Edison
Domestic Life
Domestic RS
Nan Shan
Asset Management
Global Real Estate
AlA (2)
ILFC
ALiCO
Philam
Total
Target Timing
Closing
Signing
11/10108
4008
TBD
4008
11/20108
4008
Various
1009
12/15/08
1009
12/15/08
1009
12/26/08
1009
12/26/08
1009
1Q09
1/26109
1/26/09
1009
3Q09
1/30/09
1/30/09
1Q09
1/30109
1009
Proceeds
Gross
Net (1)
2.5
0.8
1.3
0.3
0.5
0.5
1.1
1.1
0.1
0.1
1.0
1.0
4.1
4.1
4.4
4.4
12.0
11.6
12.0
12.0
3.5
3.5
0.5
0.5
TBD
TBD
1/30/09
2/2109
1Q09
TBD
22.1
7.5
17.0
0.9
$90.3
1Q09
1009
2Q09
2009
Notes:
(1) Net of tax and trapped proceeds
(2) AlA proceeds reflect 100% sale
37
16.7
3.2
17.0
0.7
$77.3
Pro Forma Financial Leverage & Coverage - Base Case
AIG pro forma leverage & coverage - base case (sell 49% of AlA)
($ bins)
9/302008
12/31/08
Financial leverage
Existing senior debt
15.8
14.9
63.0
0.0
Existing $85 bin Fed facility
New $60 bin Fed facility
0.0
28.0
Junior subordinated debentures (Basket D)
12.9
12.9
Mandtory convertibles (Basket D)
5.9
5.9
Total debt
97.6
61.7
12/31/09
12/31/10
12/31/11
13.3
0.0
0.0
12.9
5.9
32.1
11.4
0.0
0.0
12.9
5.9
30.2
11.4
0.0
0.0
12.9
0.0
24.3
Preferred interest in common
New perpetual preferred (Basket B or C)
Common equity
Total GAAP equity
23.0
0.0
50.1
73.1
8.9
41.0
48.7
98.6
0.0
20.2
44.4
64.6
0.0
22.3
45.7
68.0
0.0
22.3
51.6
73.9
Total adjusted debt (PP = Basket B)
Total capital
Debt % capital (PP = Basket B)
Debt % capital with hybrid equity capped
83.5
170.7
48.9%
48.9%
78.4
160.3
48.9%
53.9%
33.2
96.7
34.3%
38.8%
32.8
98.2
33.4%
37.9%
31.4
98.2
31.9%
31.9%
Total adjusted debt (PP = Basket C)
Total capital
Debt % capital (PP = Basket C)
Debt % capital with hybrid equity capped
83.5
170.7
48.9%
48.9%
68.1
160.3
42.5%
53.9%
28.1
96.7
29.1%
38.8%
27.3
98.2
27.7%
37.9%
25.8
98.2
26.2%
29.9%
12.7
2.2
4.8
5.7x
2.6x
10.1
2.1
4.3
4.8x
2.3x
10.1
1.6
3.8
6.3x
2.6x
Interest coverage
EBIT
Cash interest expense
Total interest expense
Cash interest coverage
Total interest coverage
NB: Estimated leverage ratios exclude pension and lease adjustments
Moody's methodology
Aaa
Aa
Adjusted debt % capital
Earnings coverage
<20%
> 12x
20%-30%
8x-12x
38
A
30%-40%
4x-8x
Baa
40%-50%
2x-4x
Ba
>50%
< 2x
Pro Forma Financial Leverage & Coverage - Stress Case
AIG pro forma leverage & coverage - stress case (sell 49% of AlA)
($ bins)
9/302008
12/31/08
Financial leverage
Existing senior debt
15.8
14.9
63.0
0.0
Existing $85 bin Fed facility
New $60 bin Fed facility
0.0
28.0
Junior subordinated debentures (Basket D)
12.9
12.9
5.9
5.9
Mandtory convertibles (Basket D)
Total debt
97.6
61.7
12/31/09
12/31/10
12/31/11
13.3
0.0
0.0
12.9
5.9
32.1
11.4
0.0
0.0
12.9
5.9
30.2
11.4
0.0
0.0
12.9
0.0
24.3
Preferred interest in common
New perpetual preferred (Basket B or C)
Common equity
Total GAAP equity
23.0
0.0
50.1
73.1
8.9
41.0
48.7
98.6
0.0
34.2
44.4
78.6
0.0
36.3
45.7
82.0
0.0
36.3
51.6
87.9
Total adjusted debt (PP = Basket B)
Total capital
Debt % capital (PP = Basket B)
Debt % capital with hybrid equity capped
83.5
170.7
48.9%
48.9%
78.4
160.3
48.9%
53.9%
43.7
110.7
39.4%
46.5%
43.3
112.2
38.6%
45.7%
41.9
112.2
37.3%
38.7%
Total adjusted debt (PP = Basket C)
Total capital
Debt % capital (PP = Basket C)
Debt % capital with hybrid equity capped
83.5
170.7
48.9%
48.9%
68.1
160.3
42.5%
53.9%
35.1
110.7
31.7%
46.5%
34.3
112.2
30.5%
45.7%
32.8
112.2
29.2%
38.7%
10.1
2.2
6.2
4.5x
1.6x
8.1
2.1
5.7
3.8x
1.4x
8.1
1.6
5.2
5.0x
1.5x
Interest coverage
EBIT
Cash interest expense
Total interest expense
Cash interest coverage
Total interest coverage
NB: Estimated leverage ratios exclude pension and lease adjustments
Moody's methodology
Aaa
Aa
Adjusted debt % capital
Earnings coverage
<20%
> 12x
20%-30%
8x-12x
Stress case versus base case
Asset sale proceeds down by 20%.
EBIT down by 20%.
39
A
30%-40%
4x-8x
Baa
40%-50%
2x-4x
Ba
>50%
< 2x
AIG Commercial Insurance Scorecard - Base Case
Rating Factors
American International Group
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
Sovereign & Regulatory Environment:
Stand-Alone Rating Recommendation:
Support (if applicable, insert notches to be added to the standalone rating above):
Nature and Terms of Explicit Support:
Nature and Terms of Implicit Support:
Final Rating Recommendation:
40
AIG Commercial Insurance Scorecard - Stress Case
Rating Factors
American International Group
AIG
x
x
x
x
X
62.3%
9.8%
4.7x
13.2%
69.9%
5.1%
6.7x
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
Sovereign & Regulatory Environment:
Stand-Alone Rating Recommendation:
Support (if applicable, insert notches to be added to the standalone rating above):
Nature and Terms of Explicit Support:
Nature and Terms of Implicit Support:
Final Rating Recommendation:
41
Summary cash outflows triggered by rating downgrades
USO millions
ITotal
Less
44s1
4,2671
6,40S
1
AIG FP multi-sector COO solution
74s1
(6,40S)
IN et exposu re
The table above shows the additional cash outflows triggered by further rating downgrades.
The CSA number includes
INCLUDES
- estimates of additional collateral postings
- amounts of collateral received that AIG would no
longer be able to rehypothecate
- Estimates of the MTM of transactions that are in
the money for our counterparties that they can
terminate at a rating level (net of collateral
already posted).
DOES NOT INCLUDE
- estimates of MTM amounts of transactions that
are in the money for AIGFP where the
counterparty has the right to terminate.
- The additional cost of finding a replacement
counterparty on transactions where a rating
downgrade would require us to do so.
The Multi-Sector number includes
INCLUDES
- At BBB+ $2.7 billion of collateral postings due to
independent amount and threshold percentages
adjustments.
- At BBB the termination of the funded portion of
project Max ($6.25 billion minus collateral posted
of $2.6 billion)
DOES NOT INCLUDE
- At BBB the termination rights of counterparties
representing $47.8 billion of notional with
collateral already posted of $26.9 billion,
representing a maximum exposure of $20.9
billion.
The Corporate Arbitrage and Regulatory Capital numbers include estimates of additional
collateral and termination costs at different rating levels.
42
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Issuer Name(s): American International Group,
October 13, 2006
Inc. (AIG); AIG Capital Trust I & II; AIG Financial
Products Co
Does this rating committee meeting involve discussion of a Franchise Credit?
or
required attendee(s).)
No
Rating Recommendation: (Include unpublished ratings in brackets, e.g. (8a2}.)
Issuer Name/
Rating Types:
AIG
Short-term issuer rating
Long-term issuer rating
Senior unsecured debt
Senior unsecured shelf
Subordinated shelf
Preferred shelf
Outlook
AIG Call/tal Trusts I & /I
Backed preferred shelf
Outlook
AIGFP
Backed short-term debt rating
Backed long-term issuer rating
Outlook
P-1
Aa2
Aa2
(P)Aa2
P-1
Aa2
Aa2
(P)Aa2
Stable
Stable
P-1
P-1
Stable
Stable
Current Country Ratings: (country name: USA)
Foreign Currency Bond Ceiling:
Aaa
Foreign Currency Deposit Ceiling:
P-1
Aa2
Aa2
(P)Aa2
(P)Aa3
(P)A1
Stable
P-1
Aa2
Aa2
(P)Aa2
(P)Aa3
(P)A1
Stable
(P)Aa3
Stable
(P)Aa3
Stable
P-1
Aa2
Stable
P-1
Aa2
Stable
Local Currency Government Bond Rating:
Local Currency Deposit Ceiling:
AIG has a senior unsecured debt rating of Aa2 with a stable outlook. The proposed ratings for the new
$25.1 billion mUlti-purpose shelf for AIG, AIG Capital Trust I and AIG Capital Trust II reflect standard
notching practices.
• The new shelf replaces an existing AIG shelf for up to $1 billion of senior unsecured debt. We will withdraw
the (P)Aa2 rating from the existing shelf.
• We will also assign a Aa2 rating to a senior unsecured MTN program filed as a prospectus supplement
under the shelf registration in the name of AIG.
• AIGFP is supported by a General Guarantee Agreement from AIG "in favor of each holder of a monetary
obligation or liability of [AIGFP], now in existence or hereafter arising." AIGFP had a Aa2 rating on a
backed senior unsecured debt issue that matured in December 2005. The company has requested a longterm issuer ratin to re
that 10 -term debt
. The uarantee is attached on
es 16-18.
Last Rating Action(s):
Feb. 9, 2006 - Affirmed ratings of AIG and all rated subsidiaries following AIG's announcement of 4Q05
charges associated with regulatory settlements and the completion of an independent actuarial review of
property and casualty reserves.
•
1
v. 1.0 rev 4/21106
Currently Published Rating Drivers : (from current credit opinion or last press release)
Factors that could lead to an upgrade include:
- Continued strong profits, with returns on equity consistently exceeding 15%
- A sustained period with no adverse development of General Insurance reserves
- Full remediation of material weaknesses in internal controls over financial reporting
Factors that could lead to a downgrade include:
- A deterioration in profits, with returns on equity falling below 10%
- Further adverse loss development exceeding 5% of net General Insurance reserves
- Adjusted financial leverage (excluding debt of finance operations and match-funded investment programs)
exceeding 15%
- Significant additional charges stemming from remediation efforts, regulatory investigations or related litigation
a-Tools: (Include OAS, CDS, MKMV, and other rating agencies.)
.............................................................................................
,~:..)::~
.:.-
r
rr
nrr
rr
rr
rrrrrn",--
. ................................................................... .
•
j1,
" . ! ....................................................·.1·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.·.L,.: . •.
.~ ,. ~<: : rt
,~:..)::~ ·l;.;:::~·r :·:·:::.:.z·:·:~;...:;.....:.:..... :.................... ,:, ........................ ,', ...... ::
.~'. ":
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~.:. . .: '.~..:~. . .: . :.:. ,:
.
-
.- .
{:.::::':;:.
. ~.'.:. : :
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. . : : .............
.. :....... .ill.::;:"::-
:':'.•
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<". ••••••,.,',.•.•••••,••••••••,.,.,.,• "• • • • • • • :• :.• • •••
: : ' " ';;.:.f\
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:....:..."
::.. :.:~,~
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..,... ,:"':: ::..;::
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.:.:.:.:.:.:].::(:::::
a-Tools Commentary: (Provide brief discussion of any significant outliers, i.e. gaps of 3 or more notches.)
Gap is within normal range for insurance sector.
2
v. 1.0 rev 4/21106
Proposed Rating Outlook Drivers (Provide rationale for proposed rating outlook.):
No change.
What Factors Could Move the Proposed Rating(s) Higher? (Must reference specific Key Ratios/Metrics.)
No change.
What Factors Could Move the Proposed Rating(s) Lower? (Must reference specific Key Ratios/Metrics.)
No change.
Required Attachments:
- Draft Press Release (or Feedback Letter to Issuer)
- Rating History
- Latest or Updated Company Credit Opinion
- Latest or Updated Company BCR/GCR
- Organization Chart (Organigramme)
- Historical financials (at least 3 yrs, ideally 5 yrs)
- Regional Peer financials (use MFM where available)
- Global Peer financials (use MFM where available)
- Stock Price Charts (if shares are publicly traded)
- Inputs and Outputs from Moody's Rating Predictor Model or
Methodology Model (if methodology model has been published)
Optional Attachments: (Check all that are applicable)
D - Other Moody's Research (LRA, CGA, FRA, RMA, etc.)
D - Additional Financials (projections, business segments, etc.)
D - Risk Concentration Tables (loans, industries, tenants, etc.)
D - Market Share Data
D - Other Ratings
D - Debt Maturity Schedule, Lease Expiration Schedule
D - Prospectus, Indentures, Covenant Compliance, etc.
D - Excerpts from Issuer Presentation(s}
D - AIGFP General Guarantee Agreement
D
D
D
D
D
D
D
D
D
D
Table of Contents: (List page numbers)
4
5
6-8
8
9-10
11
12-15
16-18
Cut and paste all required attachments into the Rating Committee Memo document, or combine into single pdf file.
Post-Rating Committee Meeting Requirements:
Complete Addendum (see Addendum to Fundamental Rating Committee Memo) and email document to the appropriate
Team Leader, TMD and Laura Levenstein. In addition, email your TMD and Laura Levenstein final drafts of all press
releases pertaining to new ratings or rating changes (including outlook changes and rating reviews).
Save Rating Committee Memo and Addendum in EDMS.
3
v. 1.0 rev 4/21106
DRAFT PRESS RELEASE
Moody's rates AIG shelf registration (senior at (P}Aa2)
$25. 1 billion mUlti-purpose shelf
Moody's Investors Service has assigned a provisional (P)Aa2 senior unsecured rating to a new mUlti-purpose shelf
registration of American International Group, Inc. (NYSE: AIG). Moody's has also assigned a Aa2 rating to a senior
unsecured medium-term note (MTN) program established by AIG under the shelf registration. Proceeds from the MTN
program may be used for general corporate purposes, for intercompany loans to AIG Financial Products Corp. (AIGFP) or
certain of its subsidiaries, and for AIG's matched investment program. Finally, Moody's has assigned a Aa2 long-term
issuer rating to AIGFP, based on a general guarantee from AIG. The rating outlook for AIG and its subsidiaries is stable.
AIG's ratings reflect its leading market positions in all major business segments, its broad business and geographic
diversification, its strong earnings and cash flows, and its excellent financial flexibility. These strengths are tempered by
the intrinsic volatility in certain general insurance and financial services business units, and by the significant volume of
spread-based investment business within the asset management segment.
The stable rating outlook reflects Moody's view that AIG will remain a leader in worldwide insurance and financial services.
Moody's expects AIG to maintain prudent financial leverage, with adjusted interest coverage (excluding interest on the
debt of finance operations and matched investment programs) exceeding 15 times. Moody's also expects AIG to maintain
its strategic emphasis on insurance, with financial services contributing less than 20% of consolidated operating income.
The last rating action on the parent company took place on June 19, 2006, when Moody's assigned a Aa2 rating to $750
million of three-year floating rate notes.
Moody's has assigned the following ratings to securities that may be issued under AIG's shelf registration:
American International Group, Inc. - provisional senior unsecured debt at (P)Aa2, provisional subordinated debt at (P)Aa3,
provisional preferred stock at (P)A 1;
AIG Capital Trust I - provisional trust preferred securities at (P)Aa3;
AIG Capital Trust II - provisional trust preferred securities at (P)Aa3.
Moody's has assigned the following definitive ratings:
American International Group, Inc. - senior unsecured medium-term note program at Aa2;
AIG Financial Products Corp. - backed long-term issuer rating at Aa2.
AIG, based in New York City, is a leading international insurance and financial services organization, with operations in
more than 130 countries and jurisdictions. The company is engaged through subsidiaries in general insurance, life
insurance & retirement services, financial services and asset management. AIG reported total revenues of $54 billion and
net income of $6.4 billion for the first six months of 2006. Shareholders' equity was $88 billion as of June 30, 2006.
For more information, please visit www.moodys.com/insurance
4
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American International Group, Inc.
Organizational Structure (simplified)
American International Group, Inc.
(June 30,2006)
Assets: $900.7 bil. (GAAP)
Equity: $87.7 bil. (GAAP)
Foreign General Insurance
US Life Insurance & Retirement Svcs.
Foreign Life Insurance & Retirement Svcs.
Other Financial Sevices & Asset Managment
Common & preferred stock interest
International Lease Finance Corp.
(Aircraft Leasing)
8
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American Int('rnational G:rQUP~ Inc
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10
v. 1.0 rev 4/21106
AIG STOCK PRICE CHART
~'.--~~
.....
~w-······::······································::··· ................. .
=~-
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......................................................•
. .: . . . . . . . . . . . . . . . . . . . . . . . . . . .: . .: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . +. . . . . .:. . . . . . t
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v. 1.0 rev 4/21106
Company Name
Analyst Name
1M&~18~~I~%~RN)l,tl()~~L~~8yP,INS.
Current Stand Alone IFSR
AaJ
Score Card Overall Stand Alone Rating
Aa3
4.01
Brl.lCeBaHel'ltine
Weight (%)
Factor 1: Market Position, Brand and Distribution
Ratio
Aa1
1.50
2%-5%
1%-2%
<1%
1.5x -3x average
0.5x -1 .5x average
0.25x -0.5x average
<0.25x average
20%-24%
24%-28%
28%-34%
>34%
Market Share Ratio
Relative Market Share
Weighted Avg Rating
25
12
v. 1.0 rev 4/21106
Weight (%)
Factor 2: Product Focus and Diversification
o
granular exposures;
tail personal lines; very
risk of estimating
mate claim costs
Product Focus
Aa2
Weighted Avg Rating
3.00
10
,
,
O!@
k>.
0:
•
0
Granular exposures; two
:Aplic:1Ei)~rl"1C1yM\l'E!N!lI1!lfP~~ :Longer·tailed lines are majority :Combination of size of in·
thirds of its business is from hj@i~~t"¢l~W,i¢%)~~itY~@ !of premiums and/or policies
!force portfolio and size of
short and medium·tailed
!1J:Wri~~(ltE:!~~jfl1<9.tj@
!have high gross limits relative to!individual policies limits
application of "law of large
lines; generally low
risk of estimating
numbers"; claim cost
moderate risk of estimating
claim cost may be
ultimate claim costs, but
estimation risk is high;
may have manageable
catastrophe risk is
property catastrophe risk
meaningful'substantial
'7""""7"""~"""""""7""""7"""~"""""'4-dj;tj~~t-lj~~;-~-fb~;j~~;;---Tj-dj;tj~~-t-lj~~;';;Tb~-sj~~;;----r2-~ij;tj~-~t-lj~-~;-~Tb~;j~~;-s-~~~h-!1-~ij;tj~-~t-lj~-~-~f-b~;j~~;;----'
PC Product
Diversification
Geographic
Diversification
each produce at least 10% of leach produce at least 10% of :produce at least 10% of total net:produces more than 90% of
total net PftC premiums
total net PftC premiums
total net PftC premiums
written
written
'7"'"'7"'"~"B~m[t¢8n-~gi;;;B'""'TN~-;j~gl~-~~g~C~t~d-~~gj~~---TN~;j~gl~-~~g~l~t~d-~~gi~~----rN-~-;j~gl~-~~g~l~t-~d-~~-gj~~--------rO~~-~~g~l~-t-~d-~~gj~~---------'
generate more than 20% of
total net PftC premiums
;generate more than 30% of
total net PftC premiums
written
13
erate more than 40% of total igenerate more than 40% of
PftC premiums written
total net PftC premiums
written
v. 1.0 rev 4/21106
Weight (%)
Factor 3: Asset Quality
High Risk Assets % ;
of Invested Assets '
Weighted Avg Rating
5
< 10%
Aaa
1.40
20% to 30%
30% to 40%
>40%
---------------------------
Reinsurance
Recoverables % Equity
35% -70%
70% -100%
100% - 150%
> 150%
Goodwill % Equity
15% - 25%
25% - 35%
35% - 50%
>50%
Weight (%)
Factor 4: Capital Adequacy
Leverage
<2x
2x-3x
3x- 5x
Weight (%)
5x-7x
Weighted Avg Rating
1.25x - 2x
Aa1
2.00
15
Return on Average
Equity (5 yr Avg)
Ba2
12.00
15
Factor 5: Profitability
Sharpe Ratio of Net
Income
Weighted Avg Rating
5% - 10%
0%- 5%
<0%
.75x - 1.25x
Ox - .75x
<Ox
14
v. 1.0 rev 4/21106
Weighted Avg Rating
Weight (%)
Factor 6: Reserve Adequacy
9.60
10
Adverse Reserve
Development % of
Beginning Reserves
<0%
0%-2%
5%-7%
A8:E Net Funding Ratio
>15x
12x - 15x
8x -1 Ox
Factor 7: Financial Flexibility
<8x
Weighted Avg Rating
Weight (%)
Aaa
1.00
20
<15%
Financial Leverage
Baa3
15-25%
25-35%
35-45%
>45%
5-7X
3-5X
1.5-3X
< 1.5X
--------------------
Cash Flow Coverage-Div capacity I interest +
.~~.:.!-~~~----------.". "."". ".,...".,..."..."."". ".,...".,..~-----------------------------------~----------------------------------.--------------------------------------.------------------_.
j
I
I
r"H.e!Io ... ~I"'f.e!lo __ I=RIT~
t
~
I
I
I
I
I
8-12X
!
I
I
I
4-8X
!
I
2-4X
!
<2X
Subtotal Rating
15
Aa3
4.01
v. 1.0 rev 4/21106
GENERAL GUARANT:EE AGREEMENT"
dated D-ece:mber 4~
(the uGUaranteail*), by American International Grc"lPf Inc.
oelaware eorporatj,on
(th(l
1995
$
d
nc.u,4.ra.,ntQr U'j .in favor oteachholder
0:( a monetary obligation or liability 01' Ale Fi.nancial
Produ'cts Corp. t a Delaware corporation (the *>JCompal'lY") ~ now in
existencE!: or herQaft,Qr ariain,g (any such obligation or
ii,abi,l i t,y being berein referred toe,s; lI,n. J'ObligatiQn~i) ~
.1.
Guarantee~
Fol: value received. and to induae
each such holder (eacna RG,\.Utrante:Qd, partyll) t,!',) :enter into
t1"<u'liS:~:ctions giving- rise to Obligations ,I the Gua,rantor
t.tb$olut~$ly,
~u.m.:~:ondltionally and
tr.r.'evocablj' g'ua.rantaes,to aac-ll
Guarantee.d P,rfU:ty ,1 ts successors f endors~as and a~a!::iqn:s;> the
prompt paymentwhQn d.ue, subject to, any a·ppl iG~ble grace
period I of all Obligations af the Ct;:ilt;Lpany to such Cuaranteed
PartY1 whether iru::!tn"red bythB Company as maker~ endorse.r"
dr.awer ,: a.:oceptor, q\u~.:rantor, ~c.comm:Qdat:i¢tl party or otherwisit?l.
,i!!,nd W'h,,~thftr dqe or to. become duel secured or unsecured,
a"bsolut:e or conting:ent~ jOint ox:' sev'eraL
2•
liatul:f:;u~J;.;tJ.l~liriiU)t.ec +
Th is Sua r an.tee 1. sa
quarant.y of p.ayment and not. ot: collection,
The
Guara.ntor i s
obllqati,ohS here.underwi1:h t'espcct to any Obliqat.ion shilll tlot.
DO affected by the existence ~ va lidJt.y t or- :enforceability Q(
anobliga.tlQ.n Qit th~ per.fe.cticm or extent of any coll:ateral
for such Obligation.• The Guar.antor.' B obli.9at,i.o}lshe,;r~;fUnd~r
shall not he affected by any other circu:ms'tanc:(:l r.elating to
any Obligation that .might otherwise constitube a legal 61'
equitable di.so.ht1rgeOf or defen.se to the GUarantor. not
availabl~ to the .company. No Guaranteed P:arty Sht'l.ll be
obliqateato file any claim. relating to the Obligations owin:g
to it, in th~ e.V$nt. t.hat. the: company becomes subject. to ,a
ban,kruptoy. reo:rgani~~ti.on 'Or similar. pr'H;::ee,d.,ing:",and. tht;'~
(ailure Qf any' Guaranteed party to so file shall not affect
the Guarant,Qt" I $. obllgation~ hereunder.
In t.he e\.'ent th,at any
lJ3YlTUl!1);t; to a"ny t,o any ~arty in r:esp&ct .of any Obligations is
rescinded or. must crtherwise :be returned tor any rea,son
whatso:(l;vor " th.e Guarantor shall rama in 1 :iable hereUl"ide'('- in
r~$p$ct: t.o' such Ohli:gationG as it' i$'iJ:ch payment h!l,ej r~ot. been
made. 'rheGu.ara.;nto:r reserves tIle right to assert, defens·es
wtlich the Comp~n.ymaybave to pa}'1l'l-Rnt of any Obligation other
than defe'nses arisil'lg froRl the bankt"uptcyOl' .i.tlf.iolvency of ,the
CQmpoany and
Qth~r
defen,$es $xprof:lsly waived hereby.
16
v. 1.0 rev 4/21106
:3.
consents" WaiVers and Reneuls. 'the Guara.ntot
I.lg:r •• s t.hat. a GlJarant.eed Party lna.yat any ti;t)le and from tim.Q
to time either :before or ·f!;fte:t.'"th:e maturity there.oft woit.b.o:ut
notice to or further c:ons·ant of tbeGuarant.or ~ extend t.he tim.e
of payme.nt of', excnanqa o.r surrender any ooU.at~-:ral fo·r t or
ren~w ~.nyQ·f the obliqatio.n.~ Qwing to it,; aJna :may also make
any ag-reementwi.'th the cc:mpany or ~ili·t.hanyother party· to or
pe:t':$on liable on any of tl'ie Obligation.5., Or int.eres.t@d
tb.~rej:n t forth$ e.xte.nGio·n t reneWa 1 ~ payment ,compromiae ~
f·
discllarge or release thereOf $in wh(.,)l~or in p.art. Qr for a..ny
:modifi·catio.fi of the terms t.het'eofor ·of any agt'cc:mentbetween
!lucbGuaranteed Party and the Company or any of such other
1.:0: anyway impairtng or affecting
party or person, without
this G:Ll;arant.ee. The Guar¢j,nt.or aqreea that a Guaranteed Pli,;rt,y
may r.eso·l::t to t".heG~aaranto:r for payment -of any of the
.
Obligations, woe-th.a.r- or not: the· Guara:nt.ond. Party shall have
resorted to any collat.eral security ot'shall have proceeded.
~.q."lIin~t ·th:e Company or any ot:h~l'·QPligor pr lnc.ipally or
se.condarily ohJi.qatp-d with re,sp6l:ct to any of theOhligatlons:.
The Guara·ntQrwalves notic~ of the acceptance of: this
G.uarant.ee iiiI.nd. of the Obligations t presentment/. demand fot'
payment, notice of dishonor an.d protest.
I
4. •
;f;xgcnaca. ';the Cuararrtor tl.qrees to pay on
d.'iuna.nd allf·ees and ou:t-of-pocket exvenses (including the
re:as·onable.f·e,e& atld expcnsEl'.s of iii: GuaranteE!dP.arty~· is counsel)
in any wny relaeinq to the: enforcement or protection Qf the
rig-htiS or a Cuartt.nt.eed Part.y hereunder; provided~ howe:ve:r· ..
that the Guarantor shall not be 1 iahle for the exp(~ns£$ of a
Guarants@.d Part.y i.f no payment \m(j~ ..t' this. Guarantee is due.
5 +.
suhrogat ion. uponp.ayment ofaJ 1 the
Obligati.ons ow-tng to any Guarantee:d Party I the Guarantor shall
be subrogated to the I'ights of sllah Gu~.rantee(i party s.galnst
tbe CQ·mp'~~lin.y with respectt.o such Obliqations,a.nd such.
Guarant.eed Party ,a:grees t.o take at the a:uaranto:r I B ·expense
such stepsi'!lls the Gua("ant,or ma.yreaso·.n.a.:tl:ty r.'$q'Uost t.o
f.mplement such :&uhrogation.
6.
lhird-party eepefici"ry CQnttgat. The
Guarantor herebyacknowledgea ttVrt ea.ch GU~.:"f.a:nteed. P~t'ty 1$0 an
tnt-ended thi.rd-par·ty bafieficiary Qf 'th.~ c.uat'antee who :may
enforce t.ni.s GUi:trant:ee directly against the: Guarantor.
i
,.
'1'~rmiDatiQD.
Thi.s Guara.ntee may be terrninated
afte.r 30 days. notice given by the Guarantor by publication in
m'LJ.fall S:tt;e:!!ilt JOIJ:t.n~l, ; ttt'QvJ.deg f l:iQW.~~t that in the event:
that. a Guaranteed Party has requested I by wri.t.til$!n nett.oe t:p
the secretary of the Gtla.t.'antorat 10 Pine Street" New· ·~ork~
.Haw ·~ork 1.0270" prior to the dat:eof such pu"blic~tiC!nt ·that
Guch Guat'anteed Party be qi.ven .nott(~e of any t.f,:lrminatiQn Qi
this Guarantee (specifyin,qthe addra:m:; to which such nctt.taeto
17
v. 1.0 rev 4/21106
t.b.Guarantee.d. Pa.rt.yshall be given), this Guarante:e shall
r~mai.:fi in full force .and effect with respect to suoh
$uJu:anteed. Party unti 1 l':ec~ip·t ):,i,y fHICh C'uarantee:d Party of
writtQn .notice of termination in accQrda:f:l:ce w.l.th .suchreque.s.t.
Notwithstand.ing the foreqoinq a:;entchce, this Guarantee shall
re:main in full foree ~nrJ e:ft~ct. with respect. to Obligati.ons .of:
the CO'IDpanyoutst.anding or contracted or commit.t!!i!1;d tor
('\ihetber or not outstanding) prior to the 10t.b, d~.y ~ft·li'!!r
publie-ation of no't.ic~ of such t.zrminatlon in The H(Jll J.treot
J:Q.urn.al~ or t in the event t:hat: a Guaranteed Party has
request~d notice o:fterXllinat:ioI~ a:5 llt't)vided ,aho:ve l priot" Lo
receipt by such. Guarant·eed Party of writ.ten not.ic:e of
ter.lBination in accordan:ce with such request t until such
obliqat.i.o.ns: sha.ll h& f.'i.n.ltlly ,~tld irr(;!vocablypaid in full.
s. Goyerning- Law. This Gua.rante.e shall be
90verned by and construed in accorciancewiththe laws of the.
stat.!!!l! .Q!
of la·ws.
N~w. 'lQrK J
witho.ut regard to:
pri.ncipLi;?~
·Q·f c:Qntli¢t$
Name:
EdWard! .Ka t tll&WS
Title:
Vice Chairman
18
v. 1.0 rev 4/21106
Note: For ease of electronic transmission and filing, all insertions or
attachments should be combined together with this rating memo into one
pdf file or Word document with all pages numbered sequentially.
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Reason for Rating Committee: AIG's flagship operation, Chartis (the global P&C insurer) was cited in the
US P&C portfolio review of 23-Nov-2009 as needing to come to RCM during 1Q 2010, given that (i) Chartis
and AIG have carried a negative outlook since March 2009, and (ii) AIG's government-backed restructuring
has
ressed and evolved since the time of the last RCM.
Last Rating Action: 02-Mar-2009 - We confirmed the Chartis IFSR at Aa3 and AIG's senior unsecured
debt rating at A3, concluding a review for downgrade. This rating action followed AIG's announcement of a
$62 billion loss for 4Q 2009, offset by an expansion of government support to include, among other things, a
five-year commitment by the Treasury to purchase up to $30 bin of incremental TARP preferred from AIG.
We
outlook to reflect the uncertainties
the
Scale
In preparation for the AIG RCM, we have held separate RCMs to consider the stand-alone credit profiles of
AIG's major operating units. For an insurance holding company such as AIG, the parent company's senior
debt rating is typically notched down from the IFSRs of its major subsidiaries to reflect the structural
subordination of the parent.
Recommendation: Keep the parent senior unsecured debt rating a standard three notches below the public
IFSR of Chartis, the largest core operating unit, and two notches below the public IFSR of SunAmerica
Financial Group (SFG). The public IFSRs of Chartis and SFG incorporate one notch of rating uplift from
government support, as noted below. We believe that AIG benefits from the same government support, and
in fact the su
rt for the
ratin units
neral flows
h the
nt.
1
v. 2.0 rev 7/13/07
Recent and pending rating actions among AIG's operating units include:
Chartis U.S.: RCM on 24-Feb-2010. Voted to lower the company's stand-alone credit profile to A 1 from Aa3
and to apply a notch of rating uplift for the public rating to Aa3 based on government support (i.e., no change
to the public rating). This is similar to the approach taken by the life insurance team in rating SFG.
SFG: RCM on 19-Feb-2010. Voted to affirm the company's stand-alone credit profile at A2 and to continue
applying a notch of rating uplift for the public rating based on government support (i.e., no change to the
ratings). The committee voted to change the outlook from developing to negative, consistent with the parent
and Chartis.
AIG Edison: On 17-Feb-2010, we lowered the stand-alone credit profile to A3 from A2 and applied two
notches of uplift for the public rating to A 1 based on a general guarantee from American Home (i.e., no
change to the public rating).
United Guaranty: On 04-Feb-2010, we lowered the stand-alone credit profile to Baa3 from Baa2 and
applied three notches of uplift for the public rating to A3 (i.e., no change to the public rating). The uplift is
based on certain reinsurance arrangements and a net worth maintenance agreement from AIG.
American General Finance: On 22-0ec-2009, we downgraded the senior unsecured debt rating to B2 from
Baa3. Based on our expectations of governmentiAIG support, we apply one notch of uplift from the standalone profile of B3.
ILFC: On 18-0ec-2009, we downgraded the senior unsecured debt rating to B1 from Baa3. Based on our
expectations of governmentiAIG support, we apply one notch of uplift from the stand-alone profile of B2.
ALlCO: To be addressed by RCM if/when a sale of the company is announced.
AlA: To be addressed by RCM in advance of an IPO, which may come as soon as April or May 2010.
The ratings on AIG and its core operations are based on our view that (i) the core operations will have strong
business profiles (i.e., Aa range for Chartis, A range for SFG) when the government sells/exits its stake in
AIG, (ii) the firm will be able to attract a capital structure commensurate with its business profile, and (iii) the
government will provide the necessary support to achieve this result before attempting to sell its stake.
We believe that the government has the ability (through structures already in place), the willingness (through
highly supportive actions/comments to date) and an economic incentive to support AIG and its core
operations until they are performing at or close to their potential. This approach will maximize the proceeds
the government can realize when it sells its ownership stake.
AIG faces ample challenges to its restructuring plan, including a weak global economy, soft commercial P&C
market, volatile equity markets (which can hamper IPO plans), and the need to divest several non-core
businesses in a difficult market. Moreover, AIG has experienced erosion of its brand and market share since
the start of the financial crisis, although the major businesses appear to have stabilized over the past few
quarters.
We believe that AIG has sufficient resources, particularly with patient government ownership, to invest in its
core operations while steadily unwinding/exiting the non-core pieces. We expect that the company will
continue to simplify its legal structure and to upgrade its information systems and risk management skills.
These are priorities for the board of directors and for some new high-level mangers at AIG.
20f44
v. 2.0 rev 7/13/07
Contents
3-4
Subsidiary ratings and recommendations
AIG Q-tools and stock chart
5
AIG 4Q 2009 highlights
6
7-13
AIG restructuring plan
AIG capital structure at YE 2009
14
Valuations for AlA and ALiCO
15-16
ILFC exit plan
17-19
American General Finance exit plan
20-23
AIGFP exit plan
24-27
AIGFP investment portfolio stress test
28
Matched Investment Program portfolio stress test
29
Government support for AIG
30-31
AIG segment results for 2007-2009
32-35
AIG financial statements for 4Q 2009
36-37
AIG earnings comment 3Q 2009
38
39-44
AIG credit opinion
Summary of subsidiary ratings and recommendations
Current Ratings on AIG Entities
February 25,2010
Arrerican International Group, Inc.
Fully supported ratings
AIG Rnancial Products Corp. & subsidiaries
AIG Life Holdings (US), Inc.
AIG Retirerrent Services, Inc.
Arrerican General cap~al securities
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC
Core operations
AIG Edison Life Insurance Company
Chartis U.S. (8 rated companies)
Chartis UK Limited
SunArrerica Financial Group (11 rated companies)
Non-core operations
Arrerican General Rnance Corporation
Arrerican Int'l Assurance Co. (Bermuda) Limited
Arrerican Life Insurance Company
International Lease Finance Corporation
United Guaranty subsidiaries UGRIC & UGMIC
Latestlnext
rating action
Rating Type
LT Issuer
Subord D:!bt
ST Issuer
Bkd LT Issuer
Bkd Sr D:!bt
Bkd Sr D:!bt
Bkd Tr Prfrd Stock
(Bkd) ST
SA 17-Feb-10
SA 24-Feb-1 0
SA 19-Feb-10
IFS
IFS
IFS
IFS
22-Dec-09
-Mar-10
-Mar-10
18-Dec-09
SA 4-Feb-10
Sr Unsec Debt
IFS
IFS
Sr Unsec Debt
IFS
Support
AIG
AIG
AIG
AIG
Curr
SA
G'tee
G'tee
G'tee
G'tee
AIG Agrrt
AIG Agrrt*
AIG Agrrt
Curr
Curr
Public Outlook
A3
Neg
Ba2
P-1
A3
A3
A3
Ba2
P-1
Neg
Neg
Neg
Neg
Neg
A3
Aa3
A1
A2
A1
Aa3
A1
A1
Neg
Neg
Neg
D:!v
B3
Aa3
A1
B2
Baa3
B2
Aa3
A1
B1
A3
Neg
Neg
Dev
Neg
Neg
Rec
SA
A1
A1
A2
Rec
Rec
Public Outlook
A3
Neg
Ba2
P-1
A3
A3
A3
Ba2
P-1
Neg
Neg
Neg
Neg
Neg
Aa3
A1
A1
Neg
Neg
Neg
* Support agreement not a material factor In rating.
30f44
v. 2.0 rev 7/13/07
Current Ratings on AIG Entities - February 25, 2010
Ownership Structure'
American International Group, Inc. ("AIG")
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
ILFC E-Capital Trusts I & II
AIG Financial Products Corp.
AIG Matched Funding Corp.
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Ltd.
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGe Life Insurance Company
AIG Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of NY
The United States Life Insurance Company in the City of NY
Western National Life Insurance Company
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Retirement Services, Inc.
SunAmerica Life Insurance Company ("SLlC")
AIG SunAmerica Global Financing Trusts
SunAmerica Annuity and Life Assurance Company
ASIF I &11
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Domicile
DE
Business Segment
Parent
Rating Type
LT Issuer
Sr Unsec Debt
Subord Debt
3T Issuer
Fin Svcs
Fin Svcs
ST Debt
LT Issuer
Sr Unsec Debt
ST Debt
Bkd T r Prlrd Stock
Support
Curr
SA
Curr
Public
A3
A3
Ba2
P-1
Curr
Outlook
Neg
N-P
B2
B2
N-P
Caa1
Sta
Neg
N-P
B1
N-P
B3
A3
P-1
A3
P-1
A3
A3
A3
A3
P-1
Sta
Neg
Rec
SA
Rec
Public
A3
A3
Ba2
P-1
Rec
Outlook
Neg
A3
P-1
A3
P-1
A3
A3
A3
A3
P-1
Neg
DE
IN
IN
DE
IN
Puerto Rico
CA
DE
DE
Fin
Fin
Fin
Fin
Svcs
Svcs
Svcs
Svcs
Fin Svcs
Fin Svcs
Fin Svcs
DE
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
DE
TN
TX
TX
NY
NY
TX
DE
DE
DE
DE
AZ
Fin Svcs
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
DE
AZ
SFG
SFG
Caymans
Jersey
DE
NY
SFG
SFG
SFG
SFG
SFG
SFG
SFG
SFG
SFG
SFG
SFG
SFG
Funding for AIG LHUS
Funding for AIG LHUS
Fin Svcs
SFG
ALiCO Holdings LLC
DE
Frgn Life Ins & Ret Svcs
American Life Insurance Company
DE
Frgn Life Ins & Ret Svcs
Chartis Inc.
DE
Chartis U.S.
Chartis U.S., Inc.
DE
Chartis U.S.
American Home Assurance Company
NY
Chartis U.S.
Chartis Property Casualty Company
PA
Chartis U.S.
Commerce and Industry Insurance Company
NY
Chartis U.S.
The Insurance Company of the State of Pennsylvania
PA
Chartis U.S.
National Union Fire Ins Company of Pittsburgh, Pa.
PA
Chartis U.S.
Chartis Specialty Insurance Company
AK
Chartis U.S.
New Hampshire Insurance Company
PA
Chartis U.S.
United Guaranty Corporation
NC
Chartis U.S.
United Guaranty Residential Insurance Company ("UGRIC")
NC
Chartis U.S.
United Guaranty Mortgage Indemnity Company
NC
Chartis U.S.
Chartis International, LLC
AIU Insurance Company
NY
Chartis U.S.
Chartis Overseas Limited
Bermuda
Chartis UK Limited
UK
Chartis International
Llstmg order mdlcates mam ownershIp stake (or sponsorshIp m the case of trusts), not necessarily 100% ownershIp.
** Supporl agreement not a material factor in rating.
.
Source: Company reporls & Moody's
4of44
B3
AGFC G'tee
Neg
Bkd ST Debt
Sr Unsec Debt
ST Debt
Bkd Prfrd Stock
Bkd LT Issuer
Bkd ST Debt
Bkd Sr Debt
Bkd ST Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd ST Debt
AGFC G'tee
IFS
IFS
Bkd Sr Debt
AHAC G'tee
AIGAgmt"
AIG G'tee
A3
Aa3
A1
Aa3
A3
Neg
Neg
Neg
IFS
IFS
IFS
IFS
IFS
IFS
IFS
Bkd T r Prlrd Stock
Bkd T r Prlrd Stock
Bkd ST Debt
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
AIG Agmt
A2
A2
A2
A2
A2
A2
A2
A1
A1
A1
A1
A1
A1
A1
Ba2
Ba2
P-1
A3
A1
P-1
A1
A1
P-1
A1
A1
A1
A1
P-1
Dev
Dev
Dev
Dev
Dev
Dev
Dev
Neg
Neg
Neg
Neg
Dev
A2
Dev
Dev
A2
B2
ILFC G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG
AIG
AIG
AIG
AIG
AIG
G'tee
G'tee
G'tee
G'tee
G'tee
G'tee
AIG Agmt
AIG
AIG
AIG
AIG
G'tee
G'tee
G'tee
G'tee
AIG Agmt
AIG Agmt
SLiC GICs
AIG Agmt
AIG Agmt
SLiC GICs
SLiC GICs
SLiC GICs
AIG Agmt
AIG Agmt
A2
A2
A2
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Dev
Dev
Dev
Dev
A2
A2
A2
A2
A2
A2
A2
Neg
Neg
Neg
Neg
Neg
Neg
A1
A1
A1
A1
A1
A1
A1
Ba2
Ba2
P-1
A3
A1
P-1
A1
A1
P-1
A1
A1
A1
A1
P-1
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Neg
A1
A1
A1
A1
A1
A1
A1
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Neg
Neg
Neg
Neg
Neg
Neg
Neg
A2
Neg
Neg
Neg
Neg
Neg
Neg
IFS
A1
A1
Dev
IFS
IFS
IFS
IFS
IFS
IFS
IFS
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Neg
Neg
Neg
Neg
Neg
Neg
Neg
Baa2
A3
A3
Neg
Neg
Aa3
Aa3
Neg
A1
Aa3
Neg
A1
A1
Neg
A1
A1
Neg
IFS
Bkd IFS
AIG Agmt
UGRIC G'tee
IFS
IFS
AIG Agmt
AIG Q-tools 19-Feb-2010
American International Groll p, Inc.
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Market value of float: $3.6 billion
50f44
4Q 2009 Highlights
Total AlG:
Estimated
4Q 2009
$8.9 billion
Net loss attributable to AlG
Estimated
Full Year 2009
$10.9 billion
• Major drivers for quarter:
° Fed interest and amortization of$6.2 billion ($4.0 billion after tax)
• Includes accelerated amortization of$5.2 billion ($3.4 billion after tax)
° Loss reserve strengthening of$2.3 billion at Chartis US ($1.5 billion after tax)
° Loss on sale ofNanShanof$2.8 billion ($1.5 billion after tax)
° Tax benefits not presently recognizable of$2.5 billion
Insurance Operations:
(dollars in millions)
Estimated
4Q 2009
Chartis (excl. reserve strengthening) $
Chartis (4Q reserve strengthening)
SunAmerica Financial Group
AlA
ALiCO
Star/Edison
Total
Excluding reserve adjustment
$
$
Actual
3Q 2009
%
Change
Driver(s)
Loss from equity
N/M method investment
- Reserve adjustment
-140/0 Maiden Lane II variance
20/0
20/0
-90/0
528 $
(2,281)
1,034
404
487
170
1,207
395
479
186
342
2,989
-
2,989
-12%
$
2,623 $
722
-
• Financial Services income of$92 million vs. $1.6 billion in 3Q 2009
• Maiden Lane III income of$196 million vs. $1.2 billion in 3Q 2009
• Institutional Asset Management loss of$535 million vs. loss of$1.3 billion in 3Q 2009 (lower impairments)
6of44
Page 1
Profile of AI
Since September 2008, AIG has been working to protect and enhance the value
of Its key businesses, execute an orderly restructuring and asset disposition plan,
and position Itself for the future, while maintaining flexibility in its liquidity and
capital positions
III
AIG expects to emerge as one of the largest, rnost diversified P&C conlpanies in
the world) with a strong U.S. life and annuity operation and several other
businesses that wi!! enhance the nucleus
III
- World's premier insurance organization
- Strongly capitalized insurance subsidiaries
- Strong) diversified sources of earnings
- Delevered capital structure
- Financial flexibimy with access to the capita! rnarkets
- Strengthened rnanagement teanl
r-------AiG--~-~---p-~~-fii~---~ili--b~---~~~-~i~-t~~i-;iih---~---~i~g-i~-~-A---~~ti~-g---~t---th-~--ii-~-~--------1
I
!
of U.S. Government exit
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
7of44
I
!
4
Strengthened
anagement Team
AIG has been able to attract seasoned executives to join its senior
management team and retain key senior executives.
fL Benmosche
President & CEO
......
,'" ........ 'c ..
Co
...
[ : , : : , :. .
.,
...........
.,
..........
:,:u:,::,:u:'::'::mmmmmmmmmmuurmmmmmmmmmmmmmmmmrmmmmmmmuumr
P.Hancock
EVP, Finance,
Risk & Investments
,
K. Moor
EV?, Chartis
N. Walsh
EVP. Chartfs
.,
...........
.,
..... .
rmmmmmmmmmmmTmmmmmmmmmmmmmTmmmmmmmmmmmmmmm'1
W, Doo!ey
SVP. Financia!
Services
--------- ---------
R. Martin
EVP, ALiCO
,, ., ,. , ., ,. , .. , ., ,. , .,1, .. , ., ,. , ., ,. , .. , ., ,. ':
p, Mullings Bradnock
SVP, Director of
internal Au(ii!
M, Cowan
VP, Cf"lief Acfministrative
Officer
D. Herzog
EVP, Chief Financia!
Officer
R Lewis
SVP. Chief rUsk Officer
~iPJ
M. Machon
SVP, Chief
frwestrnent Ottieer
\/~D.<
B. Schreiber
SVP, Strategic
to!annin{l
J. Cook
.
J. Wintrob
EVP. SunAmeriea
Financial Group
(ind, Star & Edison)
M. Wilson
President / CEO
AlA
: '..'. '.' .'.
J, Hurd
SVP, Hurnan Resources
& Cornrnunications
.
c••
'.'
.'.
'.'
' • • '.
'.'
.'.
J'.' .
To Russo
EVP, Lega!, Compliance.
Regulatory Affairs,
L-':;o't/srnrnent Affairs l~
Genera! Counsel
C. PreHo
SVP,
Comrnunieations
Con/roUer
R Gender
Treasurer
T, Watson
\/P, Investor Relations
and Rating Agency"
Reiations
{~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Recent additions to senior management team,
A!GFP
AIG Proprietary Commercia! and Financiai !nforrnation: FOiA Confidential Treatment F?equested.
8of44
5
Strengthened
anagement Team (continued)
" Robert Benmosche, President and CEO
~
CEO of Met Life from 1998 ~ 2006
~
Led transition of MetLife from a mutuai to a public company in 2000
~
Has served as member of Board of Directors of Credit Suisse Group since 2002
" Peter Hancock, Executive Vice President of Finance, Risk and investments
~
Former CFO of J.P. Morgan as wei! as former head of its fixed income division
~
Established Giobal Derivatives Group at J.P. Morgan
~
Earned Risk Magazine's Lifetime Achievement award in 2006
" Thomas Russo, Executive Vice President of Legal, Compliance, Regulatory Affairs. Government Affairs and General
Counsel
~ tiO-year
~ Senior
~ Vice
~ ~,,1ichael
~
career as a lawyer, regulator, author and academic
Counsel at Patton 80ggs LLP
Chairman of Leilman Brothers Inc. and Ciliet Legal Officer of Lehman 8rothers Holdings until December 2008
Cm'Jan, Senior Vice President and Chief Administrative Officer
Merriil Lynch from 1986 - 2009, with roles including: Senior Vice President, Giobal Corporate Services; CFO and
member of tile Executive ivianagement Committee for the Global Private Client business; Cilief Administrative
Officer EMEA
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
90f44
6
arid's Premier Insurance
:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::llllill:::111111111:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
r~
;.;.;.;.Iffffffffffffffffffff
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ID&Jf;1rW!fmHg.m~:¢:.;.~
I~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
.:{i:i!§:::.
CHARTiS
~
rganizatian
Survhnerica
:::::··:·.·.:.:.:.:.·.·:··.,;iFb~UH."hd
~
Worid's iargest commercia! insurance otganization
- #1 U,S, property and casualty insurer in the U.S, 'Nith
approximately $27 biilion oj statutory surplus
Gnmp
Leading position and scale player in the domestic life
insurance and retirement savings markets
- #4 life insurance organization in the U.S., with more
than $22'1 billion of admitted assets (9/30/09)
- 200,000 commercial customers worldwide
~
Long history, with underwriting experience tracing back 90
years
... Among the largest issuers of annuities and term life
insurance in the U.s.
~
Extensive giobal reach
- Leading provider of defined contribution plans in the
education and f1ealthcare markets
- Operations in over 80 countries
.... 34 principai underwriting companies
- Leader in both deveioped and emerging markets
~
Diversified platform, offering 500 products and services
~
Extensive, mu!ti-channel distribution netvlJork
~
Diversified product piatform, witi: innovative and
coliaborative product development capabilities
~
GAAP Equity: $217 bn {9!30!09PF}
~ GAAP Equity: $47.1 bn (9/30!09PF)
1m] ~1!~S~~c~j!~~
~
Major provider of life, rnedicai and annuit.y products to botr1
individuals and groups in Japan
~
Multi .. channei distribution netvvork in Japan, including
captive agent, independent agent, corporate and
bancassurance channels
~ GAAP Equity: $7.4 bn (9!30!09)
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
10 of 44
7
Strong, Diversified Revenue and Earnings Base
Diversified Revenues
{;tJ9rti.~_§.f.'_W..f_oL~m_fll.Q_lng_::U2()lo_;)__'?_S.'lZ,_\iJl.a
SFG PDoe for 12m emjirlg lZ!31!D9E ~ $19,1 !m
L:CyG:~ P:"ogr;:-l!Tt,_ Av!zti':'11
!;-"::;'liciuol vOI-iable
E:~vi:
Brcker~ge
serv:c>::s &
On;net1101
J_jl}i,
PaVGU t. .4;~ ;~uj ij~s
4.8%
Ma;;2gf:!0.£;;t /
PrG~~ss:fJ::CiI
t iabi:it'y
Diversified Earnings
4.4%
l13%
2010 Pm forma Adius,ed Operating income e1< RCGfL)
(e:<ciw:iing Parent, fP & Other) ::: $8.8 bn <;1 (2)
AIG remains one of the largest and most diversified insurance companies in the world$ with its
core insurance companies expected to generate $8.8 billion in operating earnings this year
Notes: (i) Ba.sed on AIG 2010 Budget, but sMwn pm forma for tile exclusion of AlA, ALlCO, AGF, AI Credit, Consumer Finance, ILFC a.nd AIG Parent. (2) For purposes of
presentation, the following businesses are excluded from tile pie chart due to negative eanlings expectations: FP, UGC, CEfO.
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
11 of 44
10
Restructuring Plan
~
Assumptions and Valuation
i .7 - 2. Ox embedded vBJue {est $21 bn at E\/) !s vv'eii
\J\f:thin range of peer va~uB.tiGns (~o\rver vBJuation than
$35-40 bn
00
2Q1 I]
None
Chinese pure plays)
Ba~tetj
$15 bn
on reGent
NonE!
r.~:gotiH1jons
-
!PC}
507~
for $20
on
2011 - 25% oftering for $10 bn
2012 - 25% oftering for $10 bn
S0iect0d v!~h.w of $15 bn repr0,;()~t" 1.4:< 9!30/09 8\1
$6.9 bn Gast: GOn~;;d0rat:on at transactior. CIO~;0 :n 2H1 ()
$5.2 bn of cornn-l0n equ~tYl SU~~0Ct iO lockup
(~~X_ f\>:)C~)
$3.0 bn of mandatory convertibles, subject to iockup
p€!er Rt)E regres~;h:)r. (tj:$(;ount to
AFU\C mUi!ipi0 of 2.7'x BV 0X AOCi}
P/BV in
$35-45
Hn~~ V1:Ui
Rq;r~;""rrt" 07)( ···1.0x 9/30!09 PF BV
t)r.
of .$47.1
t)~
Purct',lS0 UGC ($1.8
Retain
blwirH~s"
bl)$ineiS:S; b,1$0 C"$0 ,1$SUm0S rH) (jivi(jen(j$
,md rea!!;:"
divi(j(~n(js
br.)
$15·20 bn
0.1 ···0.9>< 9/30/09 8V 01 $22.9 bn {Et< . .c\OC~}
NOr1€~
R0t<li~
.$2.1 bn
S~g ned 8.cqu~s~t:on
None
Sf·:ouid close transaction in 1 H1 0
None
PO$sibiiity of dividends beginning in 201 j frOfTl Star
None under
restructuri ng plan
F-unding sOiutions
$13.0··· $70 br:
rv1ear.:ngfui
agreen:€nt
or.go~r.Q
value to AiG
Expecting $0.~1 bn of operating incofTle in 2010 (ex.
RCG(LJ)
Book Va!U0 of $7,4 bn as of fj!SOl09
Up to $!3.0
on
Business can have significant vaiue once tunding
sOlutions are achieVed
- Secured financing (externa! and intemai)
- Aircraft sales
Deconsoiidating transaction
Minim~,i
Minim~,i
Fund;ng
~;i)!ution$ CHn (t1;nj!n:z~:
Poter.t:al v!3Jue
r~:(3!;~:!3,t:on
Gontributh:)rl by AiG
tt:rough
NO~~; !;n(j(~r
Dei(~v~;raging
re"tnxturing plml
DeCOr;2;()iid~Hing
ttlrougt'
!~S,,()1 $~tles
an(j securiti.w1ion2;
trar;2mction
$0 7 bn for UnC!
C;Hj!n~t
r\.f:gR~:.
rrmnaQ0n10n!
U:t:(t1!3,t~:ly
r 0i~;,lS0(j
.$'1.1) bn debt
issuance
Access to capitai markets wiii pwvide AIG with
additionai tinanciai flexibility
None
Conversion oi Equity Units
issue $ LO bn ot debt to public at the appropriate time
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
12 of 44
15
Execution Timeline
Timeline of Key Restrycturing Eyents
1Q10
2Q10
3Q10
4Q10
1Qll
2Qll
3Qll
4Qll
1Q12
2Q12
3Q12
AlA IPO / Secondaries!!)
ALiCO Sale
AIGFP Unwind / Run-off
Divestitures(2)
Capital Markets Transactions
CPFF Maturity (Including Nightingale)
AGF Asset Sales / Securitizations
ILFC Asset Sales / Securitizati ons
12/09
3/10
r':':':':':':':':':'~
iiiiiiii@
9/10
5/10
••
•
•
Initial PubllcOffenngs
IIIIII: Secondary Offerings
12/10
6/11
3/11
_
9/11
l2!11
3!12
5/12
9/12
12/12
Deconsolidating Transaction
::,:.
Quarterwith greater
than $1 bn of debt maturities
Sale of Business
Signing
r--Jotes· (1) T:rn~ng of AlA offerings are ~/e1 to bE: deterrn;ned. Dates StiO\lI..tr1 above are n:u~;!ra!~ve_ (2) Oiv0st~!Ures include Nan Shan; !nstitu!;ona; !-\~;S0t ~;lanagern0n1; S\l\fiss
Uectitenstein certain UGC bus:ness0s, certain GFG businesses. (3) $1-8 bn tli3.S been funded H'lrough asset Si3.:0~; and intercOPlpany :oan repayrnents: rernainder repaid
Hlmugh FRaN'! borrowing initially, until fwtriel a,;set monetizatiGns can be compiet0d. (4) To be repaid tilrough FRBNY borrowing ini1iaiiy, untii furttler asset
rriOne!;zat:ons can be cornp:eted. (5) Repa:d !hrOUgtl securitiz(31ion~;, as~;et sa;es and cash on balance st:eet $2.9 ha~; been ra:sed to date (6) Repaid trlrougri secured
f:nanc:ng~ aircraft sa;es; seGurit~zat:on~; and debt ~;yndica1ion.
l
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
13 of 44
17
~
American International Group, Inc.
Debt and Capital
(dollars in millions)
Debt and Hybrid Callital
Dec. 31,
Dec. 31,
2009
2008
--"
.j::>.
o
.j::>.
.j::>.
Financh.l debt:
FRBNY Credit Facility
AIG notes and bonds payable
AIG loans and mortgage payablc
AIG LH notes and bonds payable
Liabilities COlUlcctcd to trust prefened stock
AIG loans to financial services subsidiaries
AIG Funding loans to financial sen'ices subsidiaries (g)
Total
Ollerating debt:
AJG Funding commercial paper
MIP matched notes and bonds payable
Series AlGFP matched notes and bonds payable
AIGFP borrowings (c)
ILFC bon'owings
AGF borrowings
AlGCFG bOlTowings
Other Subsidiaries
BUITuwings of consolidated investments
AIG loans to financial services subsidiaries
AIG Funding loans to financial services subsidiaries (g)
Totnl
Hybrid - debt securities:
Junior subordinated debt
Hybrid - mandatorily convertible units:
Junior subordinated debt attributable to equity units
Total
$
ATG callitalization:
Total equity (±)
$
Hybrid - debt securities
Hybrid - mandatorily convertible units
Total consolidated equity and bybrid capital
Financial debt
Total capital
Ratios:
Total equity I Total capital
Hybrid - debt securities I Total capital
Hybrid - mandatorily convertible units / Total capital
Financial debt I Total capital
$
23.435 $
10,419
438
798
1,339
(1,213)
(3,505)
31,711
6,856
14,446
4,660
30,200
32,794
23,626
1.720
670
5,850
1,881
1,380
124,083
1,997
13,371
3.913
15,937
26,173
20,119
216
295
5,141
1,213
3,505
91,880
12,001
$
40,431
11.756
416
798
1.415
(1,881)
(1,380)
51,555
11,685 (e)
5,880
141,472 $
5,880 (d)(e)
193,203
98,076 $
12,001
5,880
115,957
31,711
60,805
11,685 (e)
5.880 (d)(e)
78,370
51.555
147,668
66.4%
8. I %
4.0%
21.5%
$=====-=
1,,)o9~
Interest EXllense ~a)
Three Months Ended
Twelve Months Ended
Dec. 31, 2009
Dec. 31, 2008
Dec. 31. 2009
Dec. 31, 2008
Inc.
~
$
(42.0)%
(lIA)
6,226
129
$
5.3
15
27
(5.4)
(35.5)
NM
(38.5)
. (b)
--.: (b)
6,397
(70.9)
(7.4)
(16.0)
(47.2)
(20.2)
(14.8)
(87.4)
(56.0)
(12.1)
(35.5)
NM
(26.0)
13
103
76
37
138
77
247
254
19
2
30
-(b)
_,(b)
744
2.7
$
7,450
86
12,285
61.3 %
2.7
48.0
(38.5)
13.7 %
46.8%
9.0%
4.5%
39.7%
:a) blcludes $36Inillion, $180 million, $135 million, and $295 million of interest expense in the three-month periodS ended December 31. 2009 and 2008 and twelve,month periods ended
December 31,2009 and 2008, respecti"ely, rep0l1ed in Other Income (loss) and Policy acquisition and other insurance expenses on the Consolidated Statement ofincome (Loss).
:b) Amounts are eliminated in consolidation.
:c) Borrowings are carried at filir value with fair value adjustments reported in Other income (loss) on the Consolidated Statement of blcome (Loss).
Contractual interest payments amOlU1ted to $584.1 million and $2.1 billion for the twelve months ended December 31, 2009 and 2008, respectively.
:d) The equity lmits consist of an ownership interest in AIG junior subordinated debentures and a stock purchase contract obligating the holder of an equity unit to purehase, and obligating
AIG to sell, a variable number of shares of AlG comIllon stock on three dates in 2011,
:e) The equity units and junior subordinated debentures receive hyb:id equity treatment from the major rating agencies under their current policies but are recorded as long-tenn borrowings
on the consolidated balance sheet
~f) Includes umealized appreciation / depreciation ofinvcstments.
:g) Net of AIG Funding Commercial Paper of$I.997 million.
8
1,557
1,238
287
42
177
-(b)
-(b)
4,178
959
$
256
15,504
11,395
632
18
59
113
-(b)
-(b)
12,217
146
590
141
1,122
1,042
105
16
103
-(b)
-(b)
3,218
217
$
10,382
$
517
5
59
108
-(b)
-(b)
11,071
102
425
303
392
323
176
9
51
-(b)
-(b)
1.203
309
(26.8)%
$
10,593
140
1
15
30
-(b)
-(b)
10,779
693
$
214
17,302
AlA Valuation Summary
Public rnarkei cornparab;es
Actuarial valuations
i'vlarkel conditions tor publiC offerings
Deterioration of busineSS performance
Risks to Valuation:
~vl81ric
$.\!JJ}m.~X'LQt'{~jJ!!H!9XE
Vah.la1ion based on P/EV
Va!uaiion based on 9/30/09 P/S
~~o.o
Implied Valuation
$30.0
$40.0
$20.0
(1)
$50.0
$88.0 :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
1
$34.3
~a.9 (2:
$5 ,0
$500
$40".0;3;
1:0.:'
Ch~n~~$e
[U
1 Cornparab:es(4)
{)tt10r !-\~;ian Corr.oHrab!e~;
Cornparab!es
Price / Ernbeaaed VaJue.
Reference Fiange
3.3x
UJx
Price tt7 Book:
Reference Range
.2.5x
1.8x
2, Ox
4,7x
3.6x
uJ
25x
~:m:m:m:m:m:m:m::iimmimH~~i1~11i.m.i~::*i:\i!m.:mf.i.i~il!!m1m:m:m:m:m:m:m:::
9/30;'09 Tora.l Equity
A:}\
PhiiAm
Totill
$13.1
0.8
$n~)
$200
$ao.o
Rationale for increase
" High;)r embedded value
" CornparablE: companies trading h:~;i~er; ,,35% this year
• Higher rnultiples of cornparables; Chinese cornps increased frorn
2.f3x to above ~i.Ox EV
• Additional feedback foom underwriters suggests higher valuation
NOt'3S: (1:: t..V metric is estimate as ot -:2/3-:/09. (2) Boo~ Value metric is as ot 9/30/09 p'3r ,t\lG Comptro::er; see reGonci!!ation table prc-vided on this page. (3) $40.0 bn represents Ct,.;rret~t
a.;:.:sigr.ed \/aiue. per A;G's Re.;:.:tr:"l'.:;!u!!ng Plar.. (4) Cornparc.!'J!& Gornpany inrorrnatiorl pfQvided by busines;:.: ur~iL Com parables ir.C:UC:8 Chir.a Life. CT!H, Pin~1 Arl, CP;C (,"Chinese Campara!.):;:.;:.:")
along wit~1 AX.A. AP cU~(j Cat~lay "Ot~IS( Asian Comparal1iss." Marke~ data i=3 as of :'.~ovembe( 19, ~~009 and was provided :)y AiA n:anagemenL Con:petitor P/8 m01:tipie8 aJe based on :a,~e8t book
VBlue as of -i -Itlg/Oge
AIG Proprietary Commercia! and Financial Information: FO!A Confidential Treatment Requested.
15 of 44
17
Valuation Summary
All
Primary Valuation Met!lodes:
Public
mar~~et
comparabiss -- 201 G BV used as reievant n1etr;c tor early 2011
Iro
Actuarial va!uat:ons
.fi!.~.~lQ __Y.!!h~!!1!QD.'
Market conditions for PUbliC offerings
Deter:oration of business performance
Implied Valua,icn
----3j1-(T(1-----------------------$--T5~(1------------- ----------$-2-0~fj-----------------------$-2-5~fj-------------------
Metnc
§.\!!I1X!!.~.rY..QLY..~.tl:!.~Jj.9.t~.:
Va!U8.t:on based on
;;i/~10/0;;i
Sook Vfdue
VaHJ8.t:on based on
;;i/~10/0;;i
P/S {ex.
AOeo
based on 2(.110 P/B (ex. l\C}C!)
Va::Jat~on based on Appra;sed Va!ue
(ll
10.5
(2\
$' 4.7 IIIIIIIIIIIIII $'
11.8
(J\
$16.6
,
$'1"1.5
:l,i,,
,
Va!uat:on ba:;ed on 201 G Book Value
VaJ:Jat~on
$: 4.4
$10.3
$2(L1
S;I$.sli!iI
12.1
$13.1
$16.S :~:~:~:~: :~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~:~ S2i3.?
r.4j
$;7.0""
AFLAC
Averag~?
Ave[;?lg~?
Average Pricei' Book:
of U.S" Europe, As/at?:
Reference Range
Price / Book excl. ACe!
Average of non-AFLAC U.S.
2.7x
1.4x·
tAx 2.f5x
1.0x
Ufe Comparab!es(f;)
us EUrOaE? !-\~;~,m
1.1.>:
1.3;,:
1.8x
f\iA
NA
1.7x
1. Ox
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .L::::::::::::::::::::::::::::::::::::::::::::::::::~~!.~~~~£~:~~~~:~:::::::::!:·:~~:::-::::::L~~:::l.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
9180/09 Totai Equity
4Q09 ~ 4C)1 0 Earning~;
12/~11/1 0
Jot£?:! Equity
IIIIIIIIIIIIIIIiiim@.,¥.@@it*.~~i~j~ti~~;1ttttttttttttttt~i~1
Low
.t!lsJ.b
,-,
fl.. 0
1.5
$11.8
Gi~;")$$ Va::)~~
$15,0
L>.:SS: !::rCO':·':fjs tram D/E S~V3.p:
AuCO COmmon !t1t i2ttSt Vi.1!Ut:
L'?,:!~}
$~;O
f~UlI
$ttC
$·~tO
0
:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:ii~~@iNfj~:~~~iii~iii:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:i:!
Low
Gross Va:ue:
~d2.S
~
817.5
Rationale for Increase
• Stronger capitalization; AUCO 8V increased from $7.2 on to $'1 (U bn;
SMR higl18r
• Valuation continYlcci by financial advisors: mfin!)mcnt of actuarial anaiysis
Notes: (1) AUCO Book \/a:u8 rr~e.!'!c is toto.: eq~:ty per A!G Comptrolier as Of 9/30/09. (2; ACe! is as (if 9/80/2009 per A!G Cornpt(Q!ier. (8; See recQ!'1;:iiiatio'1 of book Va.!U8 table on n~is page. (4) Mi:liman
appr8. isa: as of 6i30!09. (5) $i 7.0 bn (Sp(888r~ts G01(ren~ va:u8 a.8signeci to .D..UCO per Restructuring Plan. (6) Comparables p,t:n::(;s(j l1Y a.r;visors at'e as Of -: 2/4/09 3J~(j ir.G:u('ie ,D..FLAC, Ar(lsriprise FinanGiai,
Great-Vvest Ufeco, Lincoln Notion;]:. Man~J:ite, ~J:etLite. Prir:c:;)a! Financiai; PrucJent:al Financial, S~jn Ufe Financial, rorchmark Group, Unum Group, AEGO~"J N.V., Aiiianz SE, A:"3sicurazior:i Genemi: SpA, Aviva
pic, AXA, ING Groep N\!, Prudentiai pic, Sony i:inanCia: Hoidings inc., r&D Holdings. inc.
AIG Proprietary Commercia! and Financial Information: FO!A Confidential Treatment Requested.
16 of 44
18
·. .· .·. ·.,ecut.
· ,eu
s···· "m·
"j·v·····,
"m·,ary
., .
E
. ,····x········,·,
............
.
.
•
•
:"
•• "
."
••
:
•••
:
•••"
•
:
• •0 • • • • • • • • • "
• •"
•••"
• ILFC is working aggressively to address near-term liquidity requirements:
- The sale of up to six aircraft portfolios aggregating $9.2 billion book value
- A secured term loan in the amount of$750 million
- Credit facility amendment and extension of up to $2.5 billion of debt in the
normal course.
- Syndication of the existing $3.9 billion of intercompany debt
- A Castle III securitization of approximately $1 billion
- Secured debt to be issued for an amount estimated to be up to $3 billion
• With an incremental funding requirement of $3.3 billion in 2010, the
execution of even a portion of these transactions would be sufficient to meet
ILFC's needs
• Executing a combination of these transactions will raise liquidity beyond the
$3.3 billion needed in 2010 which would position ILFC for eventual sale or
IPO
AIG Proprietary Commercial and Financial Information: FOIA Confidential Treatment Requested.
17 of 44
3
e.
·m·p.t·l··0·)in·s··
.•..•.... .•. S···S·U·
........•.•.....•..••.•.•.•.....•....••..
.••...•.
A
•
Scenario 1 emphasizes asset sales over financing beginning in 2011 while scenario 2 utilizes
more secured funding in the aggregate
•
We believe that these assumptions are conservative given the scale of asset sales and secured
debt issuances currently under way
•
•
•
•
•
•
•
(1)
(2)
Portfolio sale signinjf in late Q 1 with
proceeds of $2.0 bi110n
• Transfers occur 60% in Q2, 30%
in Q3 and 10% in Q4
Castle III expected to generate $1.0
billion of net proceeds
• Transfers occur 40% in Q2, 50%
in Q3 and 10% in Q4
2011 - $1.0 billion of proceeds
2012 - $1.5 billion of proceeds
2013 - $1.5 billion of proceeds
2014 - $250 million of proceeds
•
Opportunistic issuance of secured debt
assumed
• 2010 - $2.25 billion(l)
• 2011- $1.5 billion
• 2012 - $1.5 billion
• 2013 - $3.75 billion(2)
•
•
•
•
•
•
Portfolio sale signinjf in Q 1 with
proceeds of $2.0 bi110n
• Transfers occur 60% in Q2, 30%
in Q3 and 10% in Q4
Castle III expected to generate $1.0
billion of net proceeds
• Transfers occur 40% in Q2, 50%
in Q3 and 10% in Q4
2011 - $500 million of proceeds
2012 - $1.0 billion of proceeds
2013 - $1. 0 billion of proceeds
2014 - $0
Opportunistic issuance of secured debt
assumed
• 2010 - $2.25 billion(l)
• 2011 - $1.5 billion
• 2012 - $3.0 billion
• 2013 - $3.5 billion(2)
For modeling purposes includes a secured notes offering of $1.5 billion which is assumed to occur in Q4 2010 with proceeds coming in Q4 2010 and Ql 2011.
At the end of 20 13 the debt/equity ratio will be 1. Ox and 1.1 x, in Scenario 1and Scenario 2, respectively, and the use of unsecured debt, asset sales and/or Castle IV
will extinguish the remaining funding requirement.
AIG Proprietary Commercial and Financial Information: FOIA Confidential Treatment Requested.
18 of 44
13
Scenario 2 -.. . . Summary Financials
Projected Balance Sheet
($ in millions)
Assets
Cash
,Ajrcraft NBV
Deposits On Flight Equipment Purchmes
Notes Receivable, Finance Leases and Other Assets
other Financial Assets
Tota I Assets
Liabilities
Debt, Net of Unamortized Discount
Security Deposits and Rentals Received in Advance
Deferred Tax Liability
other Liabilities
Total Liabilities
Total Shareholders' Equity
Total Liabilities & Shareholders Equity
$ 2,386
43,220
569
961
180
$ 654
43,993
143
007
382
$ 1,415
38,768
139
833
376
$ 2,203
36,498
203
776
262
$ 2,157
34,185
262
720
362
$ 565
32,552
226
672
470
$1,470
31,859
153
645
431
$ 2,075
30,506
270
617
364
$ 1,728
29,993
389
601
326
$ 886
30,063
430
586
335
$ 47,316
$46,080
$41,531
$ 39,942
$ 37,686
$ 34,486
$ 34,558
$ 33,832
$33,038
$ 32,300
$ 32,477
1,828
4,478
908
$ 29,692
1,823
4,960
967
$ 24,531
1,645
4,831
765
$ 22,094
1,583
5,015
410
$ 19,095
1,516
5,000
356
$15,319
1,476
4,897
307
$14,660
1,482
4,988
303
$13,161
1,460
5,087
303
$11,354
1,477
5,319
304
$ 9,366
1,518
5,504
305
$ 39,690
$ 37,442
$ 31,771
$ 29,103
$ 25,967
$ 21,999
$ 21,433
$ 20,012
$18,453
$ 16,693
$ 7,625
$ 8,638
$ 9,760
$ 10,839
$11,720
$12,487
$13,126
$ 13,820
$ 14,584
$ 15,607
$ 47,316
$ 46,080
$41,531
$ 39,942
$ 37,686
$ 34,486
$ 34,558
$ 33,832
$ 33,038
$ 32,300
$ 4,943
47
98
$ 5,240
(8)
59
$ 5,150
(529)
73
$ 4,787
(125)
71
$ 4,487
(111)
74
$ 4,273
(53)
75
$ 5,089
$ 5,291
$ 4,694
$ 4,734
$ 4,450
$ 4,294
50
$ 4,325
$ (1,617)
(1,865)
(265)
(248)
$ (1 ,306)
(1,977)
(311)
(226)
$ (1,207)
(1,978)
(321)
(228)
$ (1,196)
(1,893)
(303)
(215)
$ (1,238)
(1,841)
(288)
(215)
$ (1,344)
(1,807)
(279)
(199)
$ (3,994)
$ (3,820)
$ (3,734)
$ (3,606)
$ (3,583)
$ (3,629)
$ 960
350)
$ 1,128
(412)
$ 867
(317)
$ 666
(243)
$ 731
(267
$609
$ 716
$ 551
$ 423
$ 464
Projected Income Statement
($ in millions)
Rental of flight eqUipment
Flight equipment marketing
oth er reven ue
Total revenue
Interest expense
Depreciation
Provision for overhau Is
other operating expenses
Total operating expenses
Pre-tax income
Provision for income taxes
Net income
$1,095
(392)
$ 703
$ 946
$ 4,277
(2)
$4,313
(2)
73
$4,391
(5)
72
$ 4,521
(9)
91
$ 4,385
$ 4,459
$ 4,604
$ (1,273)
(1,836)
(283)
(202)
$ (1,230)
(1,863)
(200)
(205)
$ (1,065)
(1,888)
(299)
(208)
$ (960)
(1,910)
(312)
(212)
$ (3,593)
$ (3,589)
$ (3,461)
$ (3,394)
$1,210
442)
$ 506
$633
$ 768
AIG Proprietary Commercial and Financial Information: FOIA Confidential Treatment Requested.
19 of 44
21
F
"
vervlew
AGF~s
~t
business p~an emphasizes positive cash now generaUon and UquidUy whUe
seeks new sources of ~ong~term Hnancing
..
"
AGF is managing lending activities to optimize franchise maintenance and liquidity preservation
Right-sizing Operations
- Significantly reduced lending volume and allowing only branch operations to lend ~~ focusing on non~real estate
loans
- GeneratinfJ $200 mm of originations per month, down from $600 mm prior to the financial crisis
Emphasizing non real-estate loans; significantly reduced Retail Sales Finance relationships in 2Q09
Eliminated 1,200 positions and closedi 70 brand: offices in 2009 --_. current branch count is down almost 400 from
YEO?
"
"
Liquidity from Operations
increased operating cash flow through reduced lending
- SifJnificant operating expense reductions due to companywide efforts and rightsizing of overa!! operations and
their centralized support units
Liquidity from portfolio sales and securitizations
- AGF is proceeding with a program to securitize non-core centralized real estate loans and certain branch real
estate ioans
In 2009, AGF raised $2_9 bn through loan sales and securitizations
- Largest transaction was a securitization that raised $967 mm in July 2009
Securitization to raise $740 mm is expected to close by the end of February 2010
--- Current plans call for 3 additional securitization transactions to take place at intervals throughout the first half of
2010, with the potential to complete additional transactions in the second half of 2010
- AGF is conternplating a single transaction involving ali remaining centraiized assets in place of the 3 planned
follow-on securitizations
AGF continues to work towards a long-term funding solution witi, various counterparties
Wells Fargo: secured term loans, warehouse lines, non-Teal estate funding structures
8anl\ of America: secured term loans, ASS financing, non-real estate funding structure
9
AIG has recently retained Bank of America! Merrill lynch to pursue strategic
alternatives and expects to complete a deconsolidating transaction in 4Q10 11 Q11
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
20 of 44
20
Details of Asset Sales and Securitizations to Date
,.,
Fannie Mae
Feb 12, 2009
$930
G~
..)1.,.)
$905
Centralized Portfolio
MorfJan Keegan
Feb 18, 2009
$32
97.4
$31
Centralized Portfolio
Fannie fv1ae
June 11, 2009
$485
95.9
$465
Centralized Portfolio
Bea! Bank
Sept 18 2009
$346
90.48
$314
Centralized Portfolio
Fannie Mae
Dec 11,2009
$150
101.2
$151
Centralized Portfolio
Wells Fargo
Dec 18, 2009
$63
95.0
$60
Branch Portfolio
$967
Centralized Portfolio
5
wmwmmWM
Pennytviac
July 31 , 2009
$1,968
49.0
$2,893
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
21 of 44
22
Additional Securitizations Currently Being Pursued
~
$900-$1,100
~
~
$1,350 - $1 ,500
!2
~
$2,250
~
$800 - $', ,000
~ 55t}·~ ~ 70t}·~
~
$800 - $1,000
~ 55~/~
Branch Total
~
Grand Total
~
~
~
RBS-1: Rated Transaction
(CentraHzed RE assets)
RBS-2: Rated Transaction
(Centraiized RE assets)
~
Rating agencies reviewing for bond size
and structure
~
Diiigence being finalized
~
(v1arketinrJ to investors
~
MLPA and PSA drafting
~
Pmjected mid 1010 ciose
~
Foilow on rated securitization
~
Portfolio dlaracteristics similar to RBS-1
~
Projected 2Q1 0 dose
Centralized Total
~
~
DB-1: Rated Transaction
(Branch assets)
08-2: Rated or Unrated
Transaction
(Branch assets)
~
Term Sheet being drafted
~
Tape to rating agencies week of 2/8
~
Due Di!igence begins week of 2/8
~
Pmjected iate1 01 0 close
~
Foilow on transaction
~
Portfolio characteristics sirnilar to D8-1
(possibiiity may need to include RE LOC
accounts)
~
PmJected 2010 ciose
~
$740
~
$1,054
~
$1,794
~
$562
~
$562
$1,600 - $2,000
~
$1,124
$3,850 - $4,600
~
$2,918
~
70% -78%
70':/~
-
78':/~
$2,600
-
70~/~
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
22 of 44
23
eeting 2010 Capital Needs
l8!
2fJ1fJ Capital Needs - AGF plans to meet remaining bank and bond payments for 2010 through a
combination of its cash on hand, a series of securitization transactions and continued managed
lending activities to balance franchise maintenance and liquidity preservation
($.. MiiliQOS)
March - JU!V
I AUQust - December
Total
Bank P&!
$4,639
$0
$4,639
Bond P&!
1.627
806
2432
$6,266
$806
$7,071
T ota! Cash Need
.....................................................................................................................
.. ::.k,.. ......... .
......................................................................
Rec. Reduction (Growth)
1,097
905
2,001
Ai! Other Cash Flow
(191 )
15
(176)
°
°
°
°
740
RSS -1
740
08 -1
563
RBS-2
1,055
08-2
563
Total Cash Provided
$6,940
$1,594
563
1,055
563
$7,859
AIG Proprietary Commercia! and Financiai !nforrnation: rOtA Confidential Treatment F?equested.
23 of 44
24
Hiahlv Confidential
2009 FP Unwind Update
• Significant progress made in reducing portfolio size, with 54% of trades removed
in 2009
• Portfolio complexity has been greatly reduced
- Counterparties reduced by -39%
- Long dated trades (>50 years) reduced by 91% from 67 to 6
NonCredit
0.94
• Total derivative notional is now less than $1 Trillion
• 49% of 'Non-credit' derivatives terminated or reduced
• 39% of credit notional terminated or reduced
- 35% reduction in Reg Cap ($234 B to $151 B)
- 55% reduction in Corp Arb ($51 B to $22 B)
- 40% reduction in Other Credit ($20 B to $12 B
• Portfolio has been significantly de-risked, with overall hedging volatility
reduced by 75%
- Interest Rates - down 72%
- Commodities - down 96%
- Foreign Exchange - down 86%
• Headcount reduction of 37% is in line with ongoing unwind of portfolio and
operations
• FP closed two locations, Tokyo and Hong Kong in Q3 2009
• London to be closed by end of 2010
* Due to FAS 161, FP is changing its methodology for computing notional, leading to a slight increase of previously reported values; Sept and Dec FAS 161 notionals are estimates
** Unadjusted for FAS 161
*** The Gross Vega is calculated as the sum of all the individual positions' absolute vegas as if each position is not hedged. Although FP's books are almost completely hedged on a
net Vega basis, the Gross Vega measure will help monitor how well the volatility risk is being eliminated. The interest rate option vega denotes the change in value due to a 0.1 %
increase in normal volatility. For other derivatives (i.e., Equity, Commodity and FX option), vega denotes the change in value due to a 1% increase in lognormal volatility.
24 of 44
3
Hiahlv Confidential
FP results of operations
Operating income (USD millions)
1,349
370
68
-255
-1,118
I
I
-128
I
-945
-6,284
-8,073
-8,927
-10,740
-17,187
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Est.
Q409
5
Source: AIG FP
25 of 44
Hiahlv Confidential
Risk: summary
Dynamic risk measures
Directional risk measures
Fund derivatives - FoMF
Corporate Arbitrage CDS
Regulatory Capital CDS
Credit Book Other
Muni Swaps
Pension BROs
BOll BROs
GICs
Lease Transactions
Repos & Reverse Repos 1
Exposure
151.07
234.40
(83.33)
-36%
Exposure
13.79
20.00
(6.21)
-31%
Notional
1.50
2.00
(0.50)
-25%
Notional
28.04
32.70
(4.66)
-14%
Notional
4.21
4.10
0.11
Notional
2.17
3.30
(1.13)
-34%
Notional
4.52
5.90
(1.38)
-23%
Notional
8.23
4.40
3.83
87%
Notional
30.78
37.82
-19%
Notional
0.05
0.80
-93%
6.70
-100%
3%
Issued Securities
Portfolio
Energy / Infrastructure
PROs
Notional
Prime brokerage
/ Strategic Investments
Does not include overnight repos
Source: Box report, CDS disclosure report, AIG FP Daily Risk Monitoring Report, FP liabilities report, Risk Analyzer
26 of 44
NA
6
Hiahlv Confidential
l. .~.~.~.:.: ~.~: .:.:~:.:. ~. . . . . . . . . . . . . . .'
Overview of credit books
?
•••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Numl )er of
. ~ type
Notional
S Billions
Latest exp
eXD
call date
35
152
10/29/2015
20
22
11/05/2017
111
14
07/14/2102
positions*
Corporate Arbitrage
H i6
:, Other
188
188 ..................................................................
.................................................................................................................................................................................................. .
Expected notional maturity/call schedule as of June 30, 2009**
:~:t f::j; ~ lli ~j (::i (:l 's;,
306
118
L===-,---------I. . . . . . . . . . .-34
. . . . . . . . . . . . . . . . . . . . . .1
Change
in 2009
Reg Cap
I]
I]
Corp Arb
Other Credit
-144
188
Jan 1 2009
D
Balance as
of Dec 31
01 2010***
* Number of distinct Javah IDs
** Does not include trade amortization or future FX movements
*** Includes Danske trades which potentially may not be called as per Danske's notice
27 of 44
After 01
2010
-10
After 2015
7
Moody's Insurance Company Investment
Reporting Entity:
Reporting Date:
Reporting Basis (GAAP, SAP, IFRS):
Portfolio Summary (USD Millions)
Cash and short term
US Government & agencies
Foreign Governments
Municipals
Agency MBS
Non-agency RMBS - Prime
Non-agency RMBS - Alt-A
Non-agency RMBS - Subprime
Non-agency RMBS - Other
Non-agency CMBS - Interest only
Non-agency CMBS - Olher
Other traditional ABS (cards, autos, etc.)
Other structured (COOs, CDOA2, etc.)
Investment-grade corporates
Non-investment-grade corporates
Redeemable preferred stock
Total fixed maturities
Surve~
AIGFP
12/31/2009
GAAP
Book Value
(Amortized
Cost)
Market Value
6,292
247
366
665
1,999
6
136
2,220
609
5,381
1,139
203
19,262
Commercial mortgage loans (CML)
Other mortgage loans
Real estate investments
Total mortgage loans & real estate
Factor
0.00%
0.00%
0.25%
0.25%
0.00%
CUSIP
CUSIP
0.25%
0.25%
0.25%
5.00%
0.50%
Commercial mortgage loans
Other mortgage loans
Real estate investments
Total mortgage/real eslate
2.90%
0.25%
5.00%
Non redeemable preferred
Equities
Limited partnerships
Alternatives
Total equities/alternatives
Non-redeemable preferred stock
Equities
Limited partnerships
Alternatives
Total equities & alternatives
Derivatives
All Other
Total pre-tax loss
Total after-tax loss
% of total invested assets
% of shareholders' equity
Derivatives
All other
Total cash & investments
Capital Base
Common equity (GAAP, IFRS)
Total equity (GAAP, IFRS)
AOCI (GAAP, IFRS)
Policyholders' surplus (SAP)
Base Losses
Cash and short term
US Government & agencies
Foreign Governments
Municipals
Agency MBS
RMBS
CMBS
ABS
Other structured
I-G Corporates
B-I-G corporates
Redeemable preferred stock
Total fixed maturities
19,262
(34,896)
28 of 44
5
0
2
185
3
10
206
1.00%
0.00%
10.00%
0.00%
0.00%
5.00%
206
134
1%
Stress Losses
Cash and short term
US Government & agencies
Foreign Governments
Municipals
Agency MBS
RMBS
CMBS
ABS
Other structured
I-G Corporales
B-I-G corporales
Redeemable preferred stock
Total fixed maturities
Factor
0.00%
0.00%
1.50%
1.50%
0.00%
CUSIP
CUSIP
1.50%
1.50%
1.50%
10.00%
2.50%
Commercial mortgage loans
Other mortgage loans
Real estate investments
Tolal mortgage/real estate
9.70%
1.00%
20.00%
Non redeemable preferred
Equities
Limited partnerships
Alternatives
Total equities/alternatives
5.00%
25.00%
25.00%
25.00%
Derivatives
All Other
10.00%
10.00%
Total pre-tax loss
Total after-tax loss
% of total invested assets
% of shareholders' equity
4
5
16
228
9
185
17
20
485
485
412
2%
Moody's Insurance Company Investment Survey
Reporting Entity:
Reporting Date:
Reporting Basis (GAAP, SAP, IFRS):
Portfolio Summary (USD Millions)
Cash and short term
US Government & agencies
Foreign Governments
Municipals
Agency MBS
Non-agency RMBS - Prime
Non-agency RMBS - Alt-A
Non-agency RMBS - Subprime
Non-agency RMBS - Other
Non-agency CMBS - Interest only
Non-agency CMBS - Other
Other traditional ABS (cards, autos, etc.)
Other structured (CDOs, CDO A 2, etc.)
Investment-grade corporates
Non-investment-grade corporates
Redeemable preferred stock
Total fixed maturities
Commercial mortgage loans (CML)*
Other mortgage loans - Bank Loans
Real estate investments
Total mortgage loans & real estate
AIGMIP
12.31.2009
GAAP
Book Value
(Amortized
Cost)
739
Market
Value
739
36
2,504
914
73
322
38
2,172
710
63
166
341
143
716
846
223
247
106
525
849
236
6,857
5,851
1,115
1,390
1,064
1,320
2,505
2,384
Non-redeemable preferred stock
Equities
Limited partnerships
Alternatives
Total equities & alternatives
Derivatives
All other
Alternatives"
Total cash & investments
Capital Base
Common equity (GAAP, IFRS)
Total equity (GAAP, IFRS)
AOCI (GAAP, IFRS)
Policyholders' surplus (SAP)
Base Losses
Cash and short term
US Government & agencies
Foreign Governments
Municipals
Agency MBS
RMBS
CMBS
ABS
Other structured
I-G Corporates
B-I-G corporates
Redeemable preferred stock
Total fixed maturities
Factor
0.00%
0.00%
0.25%
0.25%
0.00%
CUSIP
CUSIP
0.25%
0.25%
0.25%
5.00%
0.50%
Commercial mortgage loans
Other mortgage loans
Real estate investments
Total mortgage/real estate
Model
0.25%
5.00%
Non redeemable preferred
Equities
Limited partnerships
Alternatives
Total equities/alternatives
765
14
o
1
2
12
794
1
3
4
1.00%
0.00%
10.00%
0.00%
Factor
Stress Losses
Cash and short term
0.00%
US Government & agencies
0.00%
Foreign Governments
1.50%
Municipals
1.50%
Agency MBS
0.00%
RMBS
CUSIP
CMBS
CUSIP
ABS
1.50%
1.50%
Other structured
I-G Corporates
1.50%
B-I-G corporates
10.00%
Redeemable preferred stock
2.50%
Total fixed maturities
Commercial mortgage loans
Other mortgage loans
Real estate investments
Total mortgage/real estate
Model
1.00%
20.00%
Non redeemable preferred
Equities
Limited partnerships
Alternatives
Total equities/alternatives
5.00%
25.00%
25.00%
25.00%
Derivatives
All Other
10.00%
10.00%
2,054
169
2
8
13
24
2,269
148
13
161
2
Derivatives
All Other
0.00%
5.00%
53
2
534
534
943
10,840
937
9,708
Total pre-tax loss
Total after-tax loss
% of total invested assets
% of shareholders' equity
(2,884)
(653)
• Book Value (Amortized Cost) Less the
Valuation Allowance equals Market Value of
Commercial Mortgage Loans .
•• Being transferred in Q1 2010
29 of 44
798
519
5%
#DIV/O!
Total pre-tax loss
Total after-tax loss
% of total invested assets
% of shareholders' equity
2,484
2,111
22%
#DIV/O!
Extensive Government Support for AIG/Chartis
The attached sheet from AIG's Financial Supplement summarizes the financial support provided to AIG
by the US government through September 3D, 2009, as well as additional available amounts under
committed facilities. Other indications of support are noted below.
Supportive statements in SEC filings: AIG's 2009 lO-K will include the following expression of support,
consistent with the language in prior filings:
"As first stated by the U.S. Treasury and the Federal Reserve in connection with the announcement of
the AIG Restructuring Plan on March 2, 2009, the U.S. Government remains committed to continuing to
work with AIG to maintain its ability to meet its obligations as they come due."
Focus on credit ratings: Fed and Treasury representatives have repeatedly assured us that they plan to
keep the government support in place, specifically the TARP funding, until AIG can achieve a senior debt
rating in the A range or better without the need for such support. We believe that the government has
the ability (through structures already in place), the willingness (through highly supportive
actions/comments to date) and the economic incentive to deliver this result. From a credit perspective,
the economic incentive may be the most compelling. We believe, and our Fed/Treasury contacts
confirm, that the best way for the Treasury to recoup a substantial portion of its TARP investment is to
convert it to common stock and sell it in the market. Such a sale will only be effective if/when AIG's core
insurance businesses are performing well and its non-core businesses are divested or well contained.
Responsive to credit concerns: The government intervention at AIG has been designed first to avoid
systemic risk, and thereafter to support AIG's policyholders and creditors, so as to stabilize the markets
and ultimately recover as much as possible of the TARP investment. With each major step of the
restructuring, AIG and Fed/Treasury officials have been keenly interested in rating implications and have
consistently followed a creditor-friendly path.
GAO sees ratings as critical indicator: The Government Accountability Office (GAO) is the audit,
evaluation and investigative arm of Congress, charged with examining the use of public funds under
various federal programs and policies, including TARP. In September 2009, the GAO published a detailed
report on the AIG rescue and the ongoing government efforts to support the company. The report
contains numerous references to credit ratings as a critical business factor for AIG, citing comments to
this effect by senior representatives of the company, Fed and Treasury. One appendix to the report lists
nearly 20 indicators that the GAO will monitor to gauge the success of the rescue effort. The first item
on the list is credit ratings.
30 of 44
American International Group, Inc.
U.S. Government Support
As of December 31,2009
(in milliom)
Original Amouut of
Assistance Authorized
Debt
Equity
Description of SUJlPo_rt__
Fedenll
Reserve
Bank of New
York
$35,000 (a)
FRBNY Revolving Credit Facility:
Balance Outstandin~
Dec. 31,
Sept. 30,
Inc.
2009
2009
(Dec.)
$17,900
$35,800
($17,900)
5,535
5,209
326
Remaining
Available Balance
Dec. 31, 2009
$17,100
FRBNY created this facility to enhance tIle liquidity of AIG and its subsidiaries. In consideration for the
facility, Series C preferred stock was issued at a purchase price of$O.5 million to a trust for the sole benefit of
the Treasury. The Series C preferred stock, when aggregated with any other securities convertible into or
exchangeable for the common stock of ArG owned by the Treasury and any common stock of ArG directly
owned by the Treasury, represents approximately 79.8 percent of each of (i) the voting power of AIG's
shareholders entitled to vote on any particular matter and (ii) the aggregate dividend rights ofthe outstanding
shares of AIG common stock and the Series C preferred stock. (a)
FRBNY Facility Interest and Fees:
Accrued compounding interest and fees owed by AIG paid with additional borrowings (paid in kind)
J'referred IntHests in AlA and ALICa held bv FRBNY
On December I, 2009 AIG and the FRBNY completed two transactions pursuant to which AIG transferred to
the FRBNY preferred equity interests in newly-formed special purpose vehicles (SPYs) in exchange for a $25
billion reduction of the balance outstanding and the maximum credit available under the FRBNY Credit
Facility. The FRBNY holds a preferred intere~t in ALA Aurora LLC for $16 billion and a preferred interest in
ALICO Holdings LLC for $9 billion.
Maiden Lane II Loan:
0)
24,540
24,540
22.500
16.004
16,801
(797)
30,000
18,499
19,855
(1,356)
40,000
41,605
41,605
29,835
5,179
3,041
FRBNY created this SPY to provide AIG liquidity by purchasing residential mortgage-backed securities from
AIG life insurance companies. FRBNY provided a loan to the Spy for the purchases. It also terminated a
previously established securities lending ;:>rogram with AIG. The actual amount funded was $19,494.
....>.
o
.j::>.
.j::>.
Maiden Lane III Loan:
FRBNY created this SPY to provide AIG liquidity by purchasing CD Os from AIG Financial Products'
counterparties in connection with the termination of credit default swaps. FRBNY again provided a loan to the
SPY for the purchases. The actual amOlmt funded was $24,339.
U.S. Dept. of
the Treasury
Series DIE Shares:
Treasury purchased Series D cumulative ;:>referred stock from AIG. AIG used the proceeds to pay down the
FRBNY Revolving Credit Facility. These shares were later exchanged for Series E noncumulative preferred
shares. Unpaid dividends on the series D shares were added to the Liquidiation preference Series E shares.
Series F Shares: (b)
2,138
24,656
$6,951
(2,153)
$9,104
$41,756
Through the purchase of AIG's Series F noncumulative preferred shares, Treasury originally committed to
provide to AIG up to $29.835 billion, subject to certain conditions. The liquidation preference of each share of
the Series F preferred stock increases by the pro rata amount of any drawdown on the commitment.
$87,500
Total authorized and outstanding assistance (e)
Less: Maiden Lane II and Maiden Lane lIT loans
Amounts reflected on AJG's consolidated balance sheet
$69,835
$129,262
(34,503)
$94,759
$122,311
(36,656)
$85,655
* Refer to page 10 for discussion of capital structure and ranking of obligations.
(a) The facility was initially $85 billion, but was reduced to $60 billion in November 2008 and reduced by an additional $25 billion on December 1,2009 to
$35 billion, as a result of the completion of the AlA and ALIca Spy transactions.
(b) Balance outstanding at December 31, 2009, includes Series F drawdown of $5,344 million and Series F commitment fee of(165) million.
(c) Does not include AIG's pmticipation in the Federal Reserve's Commercial Paper Funding Facility.
9
o
~
Some segments were reclassified in 4Q 2009. This worksheet does not restate prior periods.
AIG Segment Results
($ Millions)
General Insurance (Chartis)
AIGCI
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Estimates
4Q 2009
3 mos
302009
3 mos
202009
3 mos
102009
3 mos
402008
3 mos
302008
3 mos
202008
3 mos
102008
4.219
4.796
-1.292
-104
-1.396
5.002
4.807
583
-1
582
4.968
4.948
654
-71
583
4.184
5.227
279
-503
-224
4.410
5.316
-1.644
-1.542
-3.186
5.630
5.762
-1.053
-1.052
6.079
5.924
951
-535
416
5.124
5.410
943
-164
779
2.711
3.234
-461
256
-205
3.074
3.132
139
93
232
2.954
3.076
362
26
388
3.552
3.054
452
-105
347
2.678
3.347
22
-727
-705
3.647
3.532
104
-313
-209
3.726
3.740
754
42
796
4.339
3.468
818
-82
736
6,930
8,030
-1,753
152
-1,601
8,076
7,939
722
92
814
7,922
8,024
1,016
-45
971
7,736
8,281
731
-608
123
7,088
8,663
-1,622
-2,269
-3,891
9,277
9,294
105
-1,366
-1,261
9,805
9,664
1,705
-493
1,212
9,463
8,878
1,761
-246
1,515
1.398
1.012
400
-329
71
1.470
1.059
345
202
547
1.550
1.089
169
-477
-308
1.937
1.343
61
-4.513
-4.452
2.297
1.574
480
-4.391
-3.911
2.064
1.352
371
-1.376
-1.005
2.123
1.587
418
-1.288
-870
2.849
218
677
-621
56
2.437
223
-77
-25
-102
3.365
213
-309
-1.590
-1.899
3.137
273
-666
-7.415
-8.081
4.441
281
-430
-8.495
-8.925
4.909
290
556
-2.725
-2.169
5.425
284
663
-2.359
-1.696
4.257
1.230
1.077
-950
127
3.889
1.282
268
177
445
5.030
1.395
-128
-2.079
-2.207
5.085
1.616
-605
-11.928
-12.533
6.915
1.995
50
-12.886
-12.836
7.274
1.894
927
-4.101
-3.174
7.561
1.871
1.081
-3.647
-2.566
3.319
468
307
775
3.478
399
868
1.267
3.701
486
-230
256
4.648
3.958
718
-3.397
-2.679
5.070
3.695
417
-1.836
-1.419
5.828
3.795
676
-480
196
6.082
3.958
631
-379
252
3.303
668
-289
379
3.359
854
-760
94
3.239
877
-799
78
5.514
3.340
629
-3.302
-2.673
10.304
3.490
545
-1.619
-1.074
12.551
3.754
1.006
-429
577
12.450
3.353
826
-343
483
8.722
6.201
1.054
291
1.345
9.433
6.622
1.136
18
1.154
9.066
6.837
1.253
108
1.361
9.507
6.940
1.363
-1.029
334
10.162
7.422
1.347
-6.699
-5.352
15.375
7.359
962
-3.455
-2.493
17.928
7.691
1.682
-909
773
18.071
7.447
1.457
-722
735
14,088
7,480
2,088
-73
2,015
13,690
7,852
2,213
-932
1,281
12,955
8,119
1,521
285
1,806
14,537
8,335
1,235
-3,108
-1,873
15,247
9,038
742
-18,627
-17,885
22,290
9,354
1,012
-16,341
-15,329
25,202
9,585
2,609
-5,010
-2,401
25,632
9,318
2,538
-4,369
-1,831
Foreign General
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Total General Insurance
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Life Insurance & Retirement Services
Domestic Life
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
°
Domestic Retirement Services
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Total DLRS
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
°
5.366
1.279
1.034
-364
670
Asia Life Ins & Ret Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Japan & Other Life Ins & Ret Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Total Foreign Life Ins & Ret Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Total Life Insurance & Retirement Services
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
°
°
32 of 44
Some segments were reclassified in 4Q 2009, This worksheet does not restate prior periods,
AIG Segment Results
($ Millions)
Financial Services
Op inc before net RCG(L) & NOOH
Aircraft Leasing
Capital Markets
Consumer Finance
Other, incl intercompany adjustments
Total op inc (loss) before net RCG(L) & NOOH
Non-qualifying derivative hedging (NOOH)
Net RCG(L)
Total operating income (loss)
Asset Management
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
Total Segments
Op inc (loss) before net RCG(L) & NOOH
Non-qualifying derivative hedging (NQOH)
Net RCG(l)
Operating income (loss)
Estimates
4Q 2009
3 mos
302009
3 mos
202009
3 mos
102009
3 mos
402008
3 mos
302008
3 mos
202008
3 mos
102008
344
80
-309
-23
92
335
-132
-270
-36
-103
4
10
-89
316
-1,123
-233
-50
-1,090
3
95
365
1,352
-139
-18
1,560
-3
-657
900
-34
-1,122
207
-17,167
-616
-16
-17,592
-20
-329
-17,941
306
-8,250
-434
31
-8,347
177
-33
-8,203
352
-6,244
-22
34
-5,880
-40
15
-5,905
272
-8,851
24
10
-8,545
-76
-151
-8,772
0
-1,066
-1,169
-2,235
-300
78
-222
-481
-152
-633
-705
-5,773
-6,478
-28
-1,116
-1,144
150
-464
-314
154
-1,405
-1,251
427
0
82
509
3,429
-3
-2,666
760
2,134
395
328
2,466
-3,902
-3,505
-19,177
-20
-26,998
-46,195
-7,258
177
-18,856
-25,937
-1,416
-40
-5,952
-7,408
-4,092
-76
-6,171
-10,339
-7,319
50
-842
-931
-394
1,411
-1,233
1,319
-3,365
893
-298
-93
-6,368
-12,236
-1,382
-4,121
3,378
-60,556
-2,559
-153
-233
697
-28,185
-1,060
-40
-159
-89
-8,756
-654
-292
-353
374
-11,264
Other income (loss) before net RCG(l)
other net RCG(l)
Consolidation & eliminations before net ReG(l)
Consolidation & eliminations net ReG(l)
Pretax income (loss)
-7,602
-579
-759
-117
488
-207
Income tax expense (benefit)
Net income (loss)
414
-8,016
-192
-15
-526
1,845
-1,235
-5,133
2,000
-62,556
-3,480
-24,705
-3,357
-5,399
-3,537
-7,727
Net income (loss) attrib to noncontrolling interests
Net income (loss) attrib to AIG
994
-9,010
-470
455
23
1,822
-780
-4,353
-897
-61,659
-237
-24,468
-42
-5,357
78
-7,805
Net ReG(L) before tax (calc from above)
Net RCG(l) after tax
NQOH after tax
Adjusted net income (loss)
132
-1,975
176
-7,211
-2,937
-1,798
344
1,909
-1,299
-859
676
2,005
-3,102
-2,631
-118
-1,604
-25,002
-21,552
-2,176
-37,931
-18,312
-15,056
-172
-9,240
-6,081
-4,019
-17
-1,321
-6,089
-3,963
-281
-3,561
33 of 44
Some segments were reclassified in 4Q 2009. This worksheet does not restate prior periods.
AIG Segment Results
($ Millions)
General Insurance (Chartis)
AIGCI
Net premiums written
3 mos
402007
3 mos
302007
3 mos
202007
3 mos
102007
Estimates
12 mos
2009
2008
12 mos
2007
5.650
5.896
1.525
-11
1.514
5.986
5.916
1.871
-60
1.811
6.449
5.956
1.965
-81
1.884
5.971
5.939
1.820
76
1.896
18.373
19.778
224
-679
-455
21.243
22.412
251
-3.294
-3.043
24.056
23.707
7.181
-76
7.105
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
2.921
3.299
805
-51
754
3.270
3.112
631
-24
607
3.242
3.030
849
18
867
3.618
2.908
874
35
909
12.291
12.496
492
270
762
14.390
14.087
1.698
-1.080
618
13.051
12.349
3.159
-22
3.137
Total General Insurance
Net premiums written
Net premiums earned
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
8,571
9,195
2,330
-62
2,268
9,256
9,028
2,502
-84
2,418
9,691
8,986
2,814
-63
2,751
9,589
8,847
2,694
111
2,805
30,664
32,274
716
-409
307
35,633
36,499
1,949
-4,374
-2,425
37,107
36,056
10,340
-98
10,242
Life Insurance & Retirement Services
Domestic Life
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
1.988
1.444
348
-480
-132
2.162
1.495
356
-295
61
1.967
1.369
384
-16
368
1.988
1.528
357
-12
345
4.418
3.160
914
-604
310
8.421
5.856
1.330
-11.568
-10.238
8.105
5.836
1.445
-803
642
Domestic Retirement Services
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
4.141
308
679
-784
-105
4.221
300
536
-334
202
4.643
298
879
-281
598
4.136
284
661
-9
652
8.651
654
291
-2.236
-1.945
17.912
1.128
123
-20.994
-20.871
17.141
1.190
2.755
-1.408
1.347
Total DLRS
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
6.129
1.752
1.027
-1.264
-237
6.383
1.795
892
-629
263
6.610
1.667
1.263
-297
966
6.124
1.812
1.018
-21
997
18.542
5.186
2.251
-3.216
-965
26.835
7.376
1.453
-32.562
-31.109
25.246
7.026
4.200
-2.211
1.989
Asia Life Ins & Ret Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
5.941
3.829
1.002
230
1.232
5.386
3.428
753
-47
706
5.563
3.370
731
113
844
5.708
3.587
560
-189
371
10.498
1.353
945
2.298
21.628
15.406
2.442
-6.092
-3.650
22.598
14.214
3.046
107
3.153
Japan & Other Life Ins & Ret Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
12.713
3.151
629
-338
291
12.408
3.077
845
185
1.030
9.874
3.133
905
-95
810
9.542
3.026
959
-46
913
9.901
2.399
-1.848
551
40.819
13.937
3.006
-5.693
-2.687
44.537
12.387
3.338
-294
3.044
Total Foreign Life Ins & Ret Svcs
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
18.654
6.980
1.631
-108
1.523
17.794
6.505
1.598
138
1.736
15.437
6.503
1.636
18
1.654
15.250
6.613
1.519
-235
1.284
36.728
20.399
3.752
-903
2.849
62.447
61.536
29.919
5.448
-11.785
-6.337
67.135
26.601
6.384
-187
6.197
Total Life Insurance & Retirement Services
Premiums, deposits & other considerations
Premiums & other considerations
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
24,783
8,732
2,658
-1,372
1,286
24,177
8,300
2,490
-491
1,999
22,047
8,170
2,899
-279
2,620
21,374
8,425
2,537
-256
2,281
55,270
25,585
6,003
-4,119
1,884
88,371
37,295
6,901
-44,347
-37,446
92,381
33,627
10,584
-2,398
8,186
Net premiums earned
Operating income (loss) before net RCG(l)
Net RCG(l)
Operating income (loss)
Foreign General
Net premiums written
Net premiums earned
34 of 44
Some segments were reclassified in 4Q 2009. This worksheet does not restate prior periods.
AIG Segment Results
($ Millions)
Financial Services
Op inc before net RCG(L) & NOOH
Aircraft Leasing
Capital Markets
Consumer Finance
Other, incl intercompany adjustments
Total op inc (loss) before net RCG(L) & NOOH
Non-qualifying derivative hedging (NOOH)
Net RCG(L)
Total operating income (loss)
3 mos
402007
3 mos
302007
3 mos
202007
3 mos
102007
Estimates
12 mos
12 mos
2009
2008
2007
248
-10.493
-7
190
273
58
-9
512
-528
63
47
193
153
74
24
444
-85
-67
292
1.360
177
-951
-127
459
3
-678
-216
1.137
-10,246
396
-673
-10,523
269
-58
80
16
307
428
-66
669
-1.048
59
-40,364
41
-498
-40,821
900
-10.125
205
37
-8,983
211
-743
-9,515
Asset Management
Operating income (loss) before net RCG(L)
Net RCG(L)
Operating income (loss)
458
-1,100
-642
353
-232
121
575
352
927
778
-20
758
-1,847
-1,243
-3,090
-429
-8,758
-9,187
2,164
-1,000
1,164
Total Segments
Op inc (loss) before net RCG(L) & NOOH
Non-qualifying derivative hedging (NQOH)
Net RCG(l)
Operating income (loss)
-4,800
396
-3,207
-7,611
5,652
428
-873
5,207
6,800
-528
73
6,345
6,453
-85
-232
6,136
5,331
3
-6,449
-1,115
-31,943
41
-89,879
14,105
211
-4,239
10,077
Other income (loss) before net RCG(l)
other net RCG(l)
Consolidation & eliminations before net ReG(l)
Consolidation & eliminations net ReG(l)
Pretax income (loss)
-620
-216
-139
150
-8,436
-422
-184
85
193
4,879
-257
22
341
-123
6,328
-140
-39
14
201
6,172
-12,194
-210
154
-838
-14,203
-16,509
-1,867
-4,866
4,360
-108,761
-1,439
-417
301
421
8,943
Income tax expense (benefit)
Net income (loss)
-3,413
-5,023
1,463
3,416
1,679
4,649
1,726
4,446
-1,539
-12,664
-8,374
-100,387
1,455
7,488
Net income (loss) attrib to noncontrolling interests
Net income (loss) attrib to AIG
269
-5,292
331
3,085
372
4,277
316
4,130
-233
-12,431
-1,098
-99,289
1,288
6,200
Net ReG(L) before tax (calc from above)
Net RCG(l) after tax
NQOH after tax
Adjusted net income (loss)
-3,273
-2,131
37
-3,198
-864
-600
196
3,489
-28
-17
-332
4,626
-70
-56
-205
4,391
-7,497
-7,263
1,078
-6,246
-55,484
-44,590
-2,646
-52,053
-4,235
-2,804
-304
9,308
35 of 44
'40/:;12
''i';7/il77
American International Group, Inc.
Consolidated Statement of Segment Operations
(in millions, except per share data)
Dec. 31,
2009
General insurance (I)
Net premiums written
Net premiums eamed
Claims and claims adjustment expenses incurred
Change in deferred acquisition costs
Other undel\vriting expenses
Undcrwriting loss
Net investment income
Operating income (loss) before net realized capital gains (losses)
Net realized capital losses (2)
Pre-tax income (loss)
Domestic life insurance & retirement services (1)
Premiums and other considerations
Deposits and other considerations not included in
revenues under GAAP
Premiums, deposits and other considerations
Net investment income
Operating income (loss) before net realized capital gains (losses)
Net realized capital losses (2)
Pre-tax income (loss)
Foreign life insurance & retirement services (1)
Premiums and other considerations
Deposits and other considerations not included in
revenues under GAAP
Premiums, deposits and odler considerations
Net investment income
Operating income before net realized capital gains (losses)
Net realized capital gains (losses) (2)
Pre-tax income (loss)
Financial services (I)
Operating income (loss), excluding non-qualifYing derivative hedging
activities and net realized capital gains (losses) (3) (4)
Non-qualiJYing derivative hedging activities (2)
Net realized capital gains (losses) (2)
Pre-tax income (loss)
adler before net realized capitHI gains (losses) (I )(5)
adler net realized capital gains (losses) (2)
Consolidation and elimination adjustments (2) (6)
Loss from continuing operations before
income tax expense (benefit)
Income tax expense (benefit) (7)
Income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net loss
Less:
Net loss from continuing operations attributable to noncontrolling interests:
Noncontrolling nonvoting, callable, junior and senior preferred interests
held by Federal Reserve Bank of New York
adler
Total loss from continuing operations attributable to noncontrolling interests
Income (loss) from discontinued operations attributable to noncontrolling interests
Total loss attributable to noncontrolling interests
$
6,930 $
8,030
7,941
(295)
2,403
(2,609)
856
(1,753)
152
(1,601)
Three Months Ended
Dec. 31,
Sept. 30,
% Chg
2009
2008
7,088
8,663
6,736
(194)
3,530
(1,797)
117
(1,680)
(2,269)
(3,949)
Twelve Months Ended
Dec. 31,
Dec. 31,
2009
2008
% Chg
Sequential
%) Chg
(2.2)% $
(7.3)
17,9
NM
(31.9)
NM
NM
NM
NM
NM
8,076
7,939
5,996
74
2,429
(412)
1,134
722
(37)
685
(14.2)%
LI
32.4
NM
(L1)
NM
(24.5)
NM
NM
NM
$
30.664 $
32,274
25,367
(241)
~
(2,596)
~
699
~
__
16_9
35,633
36,499
26,093
(35)
11,054
(683)
2,606
1,923
(4,374)
(2,451)
(13.9)%
(11.6)
(2,8)
NM
(16.2)
NM
26.4
(63,7)
NM
NM
1,279
1,673
(23,6)
1,277
0,2
5,327
7,644
(30.3)
4,087
5,366
2,663
1,034
(364)
670
3,422
5,095
1,490
(835)
(14.393)
(15,228)
19A
3,169
4,446
2,739
1,207
(1,429)
(222)
29,0
20.7
(2.8)
(14.3)
NM
NM
~
5.3
78.7
NM
NM
NM
19,146
26,790
9,134
1,464
(36,412)
(34,948)
(28.3)
(28.8)
4.6
59.5
NM
NM
6,201
6,332
(2.1)
5,527
12.2
22,774
24,710
(7.8)
2,071
8,272
2,659
1,054
291
1,345
2.453
8,785
(3,553)
1,218
(4,637)
(3,419)
(15.6)
(5.8)
NM
(13.5)
NM
NM
2,485
8,012
3,394
1,068
(159)
909
(16.7)
3.2
(21.7)
(1.3)
NM
48.0
~
29,768
54,478
157
4,876
(8,208)
(3,332)
(7L1)
(42.4)
NM
(6.5)
NM
NM
92
95
(7,319)
50
(842)
(17,592)
(20)
(329)
(17.941)
(12,644)
(4,690)
(1,254)
NM
NM
NM
NM
NM
NM
NM
1,560
(3)
(129)
1,428
(2,658)
(869)
371
(94.1)
NM
NM
(93.3)
NM
NM
NM
(40,364)
41
(498)
(40,821)
(16,897)
(6,775)
(1,304)
NM
(92.7)
NM
NM
NM
NM
NM
(7,602)
414
(8,016)
(994)
(9,010)
(59,125)
2,642
(61,767)
(789)
(62,556)
NM
NM
NM
l\'M
NM
(356)
(407)
51
(66)
(15)
NM
NM
NM
NM
NM
(106,528)
(8,894)
(97,634)
(2,753)
(100,387)
NM
NM
NM
NM
NM
140
(294)
(154)
17
(137)
(781)
(781)
(116)
(897)
NM
NM
NM
NM
NM
(471)
(471)
I
(470)
NM
NM
NM
NM
NM
~
~
(944)
(944)
(154)
(1,098)
NM
NM
NM
NM
NM
Net income (loss) attributable to AIG
(8,873)
(61,659)
NM
NM
(10.949)
(99.289)
NM
Loss attributable to AIG from discontinued operations. net of tax
Loss on sale of dives!ed businesses, net of tax
Net realized capital losses, net oflax
Non-qualifYing derivative hedging activities,
excluding net realized gains (losses), net of tax (2)
Adjusted net income (loss) (8)
(1,011)
(326)
(501)
(673)
(67)
(773)
(981)
NM
NM
NM
(566)
(1,263)
(5,215)
(2,599)
(20,312)
NM
NM
l\'M
(42,380)
NM
NM
NM
176
(7,211) $
(2,176)
(38,498)
NM
NM%$
344
1,932
(2,646)
(51.664)
NM
NM%
(58.05) $
(7.46)
(53.23) $
135
(454.01)
(4.98)
(287.69)
135
NM
NM
NM
0.78
(0.50)
2.88
135
(86.30)
(4.18)
(46.40)
135
(737.12)
(19.73)
(395.28)
132
NM
NM
NM
(5.4)%
(6.4)%
2.4%
(4.5)%
(4.8)%
(20.5)%
13.8%
14.3%
13.5%
8.3%
8.4%
(5.4)%
Income (loss) per common share attributable to AIG - diluted:
Income (loss) from continuing operations
Income (loss) from discontinued operations
Adjusted net income (loss) (8)
Weighted average shares outstanding - diluted
Effective tax rates (9):
Income (loss) before income tax and noncontrolling interest
Net income (loss) attributable to AIG
Adjusted net income (loss) (9)
$
$
$
(See Accompanying Notes on Page 4)
3
36 of 44
$
$
114.3%
(113.8)
(25.2)%
19,062
9,553
2,335
~
~
31,388
11,502
4,560
~
~
459
3
___
55_
_ _5_17_
(15.293)
(476)
~
(13,648)
~
(11,770)
~
(12.313)
140
~
(1,387)
(48.8)
~
NM%$ (4.983)$
NM
NM
NM
American International Group, Inc.
Consolidated Balance Sheet
(in millions)
Assets:
Investments
Fixed maturity securities (1)
Equity securities (2)
Mortgage and other loans receivable, net of allowance
Finance receivables, net ofallowance
Flight equipment primarily under operating leases, net of accumulated depreciation
Other invested assets
Securities purchased under agreements to resell, at fair value
Short-term investments
Total investments
Cash
Accrued investment income
Premiums and other receivables, net of allowance
Reinsurance assets, net of allowance
Current and deferred income taxes
Deferred policy acquisition costs
Real estate and otller fixed assets, net of accumulated depreciation
Unrealized gain on swaps, options and forward transactions, at fair value
Goodwill
Other assets, including prepaid commitment asset
Separate account assets, at fair value
Assets of businesses held for sale
Total assets
Liabilities:
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
Commissions, expenses and taxes payable
Insurance balances payable
Funds held by companies under reinsurance treaties
Securities sold under agreements to repurchase, at fair value
Securities and spot commodities sold but not yet purchased, at fair value
Unrealized loss on swaps, options and forward transactions, at fair value
Trust deposits and deposits due to banks and other depositors
Other liabilities
Commercial paper and otller short-tenn debt
Federal Reserve Bank of New York Commercial Paper Funding Facility
Federal Reserve Bank of New York Credit Facility
OilIer long-term debt
Securities lending payable
Separate account liabilities
Liabilities of businesses held for sale
Total liabilities
Commitments, contingencies and guarantees
Redeemable noncontrolJing interests in partially owned consolidated subsidiaries
AIG shareholders' equity:
Preferred Stock, Series E
Preferred Stock, Series F
Preferred Stock, Series C
Preferred Stock, Series D
Common stock
Additional paid-in capital
Payments advanced to purchase shares
Unrealized appreciation (depreciation) offlXed maturity invesbnents on which
olller-tllan-temporary credit impainnents were taken, net of tax
Unrealized appreciation (depreciation) of all oUler invesUllents, net of tax
Net derivative gains (losses) arising from Cash flow hedging activities, net of tax
Foreil,~1 currency translation adjustments, net of tax
Retirement plan liabilities adjustmen~ net of tax
Accumulated deficit
Treasury stock, at cost
Total AIG shareholders' equity
Noncontrolling interests
Noncontrolling nonvoting, callable, junior and senior preferred
interests held by Federal Reserve Bank of New York
Other (including $2.2 billion associated willI businesses held for sale in 2009)
Total noncontrolling interests
Total equity
Total liabilities and equity
$
$
$
December 31,
December 31,
2009
2008
396,982
17,840
27,461
20,327
44,091
45,235
2,154
47,075
601,165
4,400
5,152
16,549
22,425
4,108
40,814
4,142
9,130
6,195
18,976
58,150
56,379
847,585
$
404,134
15,482
34,687
30,949
43,395
57,639
3,960
46,666
636,912
8,642
5,999
21,088
23,495
11,734
45,782
5,566
13,773
6,952
29,333
51,142
$
860,418
85,386
21,363
116,001
220,128
13,252
4,950
4,393
774
3,505
1,030
5,403
1,385
22,503
89,258
25,735
142,334
226,700
13,240
5,436
3,668
2,133
5,262
2,693
6,238
4,498
23,273
613
15,105
40,431
137,054
2,879
51,142
4,739
23,435
113.298
256
58,150
48,599
748,550
797,692
959
1,921
41,605
5,179
23,000
$
354
6,358
40,000
368
39,488
(1,810)
7,145
(128)
1,630
(1,144)
(11,491)
(874)
69,824
(599)
(3,853)
(191)
(187)
( 1,498)
(l2,368)
(8,450)
52,710
24,540
3,712
28,252
98,076
847,585
8,095
8,095
60,805
860,418
$
(I) Includes invesUllents in Maiden Lane II and Maiden Lane III of $759 million and $45 billion, respectively as of December 31,2009.
(2) In 2009, AIG detenllined that certain mutual fund investments tllat were historically reported as part of common stocks - trading should have been reported
as OUler invested assets, Accordingly, the December 31,2008 Consolidated Balance Sheet has been revised to reflect Ille transfer of$5,7 billion of mutual fund
il1vstments from common stocks - trading to Other invested assets.
7
37 of 44
Issuer Comment: Moody's ",(H,S AiG hddltlgl% ground {i:nsugh 3Q09
The 3Q09 results of American International Group, Inc. (NYSE: AIG - long-term issuer rating of A3,
short-term issuer rating of Prime-l, negative outlook) show continued stabilization of the core insurance
operations despite challenging market conditions. The firm has made tangible progress on its
restructuring plan, albeit with a slowdown or hold on certain asset dispositions. The US government
continues to provide extensive capital and liquidity support to the company. In light of these factors, we
are maintaining the current ratings and outlook on AIG. We continue to monitor the performance of
major business units along with the efforts to unwind or dispose of non-core operations.
Since the appointment of Robert Benmosche as C EO in August 2009, AIG has slowed the pace of certain
restructuring activities to focus on rebuilding the values of some businesses that had previously been
slated for sale. In August 2009, the company named a management team for the combined Domestic
Life and Retirement Services group, effectively ending the effort to sell this business. In October 2009,
AIG stopped trying to sell AIG Star Life and AIG Edison Life, its two Japanese life insurance companies,
and announced plans to hold them for the foreseeable future. We believe that the slower approach to
restructuring could help AIG to generate more favorable values from its business portfolio than would be
the case under rushed asset sales.
The restructuring plan still relies heavily on government support. Our current ratings on AIG reflect our
understanding that the government is committed to working with the firm to maintain its ability to meet
obligations as they come due throughout the restructuring process. Assuming further stabilization in
AIG's operations and in the global financial markets, we believe that the firm can generate sufficient
value to fully repay the government's senior secured loan and to repay much or all of its preferred
equity stake, giving the government incentive to continue supporting AIG and its various creditors.
However, a material decline in the realizable values of AIG's assets could reduce the government's
incentive to support other creditors. Accordingly, AIG's ratings could be lowered if we perceive a decline
in realizable values.
Net income attributable to AIG was $455 million in 3Q09, down from $1.8 billion in 2Q09, largely because
of higher realized capital losses in 3Q09. Adjusted net income, which excludes realized capital gains
(losses) and hedging activities that do not qualify for hedge accounting, amounted to $1.9 billion in 3Q09,
down slightly from $2.0 billion in 2Q09. AIG's equity account grew by $14.4 billion during 3Q09 to $76.5
billion at quarter-end, driven by unrealized appreciation of AIG's investment portfolio which was buoyed
by broad improvement in securities markets.
In General Insurance (Chartis), pretax operating income before realized capital gains (losses) declined
to $722 million in 3Q09 from $1.0 billion in 2Q09, as steady new business volume and higher investment
income were offset by adverse loss development and higher catastrophe losses. In Life Insurance &
Retirement Services, pretax operating income before realized capital gains (losses) increased to $2.2
billion in 3Q09 from $1.5 billion in 2Q09, reflecting a moderate decline in premiums and other
considerations offset by higher investment income.
AIG's non-insurance operations posted mixed results in 3Q09, with Financial Services delivering its first
operating profit in many quarters, and Asset Management reporting a significant operating loss that
included impairments of goodwill and of proprietary real estate investments. Within Financial Services,
AIG Financial Products Corp. (AIGFP) has materially reduced the size and risk of its business on
favorable terms over the past few quarters. We expect further steady progress in this regard, assuming
that capital markets remain reasonably liquid, although some of AIGFP's exposures may still take
considerable time to unwind. Other non-core operations, such as International Lease Finance
Corporation, American General Finance and United Guaranty, may also rely on AIG's capital and liquidity
support for a prolonged period.
Contacts
Bruce Ballentine/New York
Laura Bazer/New York
Adim K. Offurum/New York
Robert Riegel/New York
Phone
212-553-7212
212-553-7919
212-553-4649
212-553-4663
CREDIT RATINGS ARE MIS'S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT
COM M ITM ENTS, OR DEBT OR DEBT-LIKE SECURITIES. M IS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY
MAY NOT MEET ITS CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COM E DUE AND ANY ESTIMATED
FINANCIAL LOSS IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING
BUT NOT LIM ITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE NOT
STATEM ENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE I NVESTM ENT OR
38 of 44
Global Credit Research
Credit Opinion
5 MAR 2009
Credit Opinion: American International Group, Inc.
American International Group, Inc.
New York, New York, United States
Ratings
Category
Rating Outlook
Senior Unsecured
Senior Unsecured MTN
Rated Intercompany Pool Members
Rating Outlook
Insurance Financial Strength
AIG Life Insurance Company
Rating Outlook
Insurance Financial Strength
American General Life Insurance Company
Rating Outlook
Insurance Financial Strength
Moody's Rating
NEG
A3
A3
NEG
Aa3
DEV
A1
DEV
A1
Contacts
Analyst
Bruce Ballentine/New York
Alan Murray/New York
Robert Riegel/New York
Phone
1.212.553.1653
Key Indicators
[1]
American International Group, Inc.
Total Assets ($ Mil.)
2008
2007
2006
2005
2004
$ 860,418
$1,048,361
$ 979,410
$ 853,048
$ 801,007
Equity ($ Mil.)
$ 52,710
$ 95,801
$101,677
$ 86,317
$ 79,673
Total Revenue ($ Mil.)
$11,104
$ 110,064
$ 113,387
$ 108,781
$ 97,823
$ 17,007
$ 4,751
$ 3,657
$ 2,572
$ 2,013
Interest Expense ($ Mil.) [2]
Net Income ($ Mil.)
$ (99,289)
$ 6,200
$ 14,048
$ 10,477
$ 9,839
Financial Leverage
NM
18.0%
16.5%
14.9%
15.7%
Earnings Coverage (1 yr.)
NM
6.5x
20.5x
21.0x
23.9x
Cashflow Coverage (1 yr.)
NM
11.2x
9.1x
12.5x
13.7x
[1] Information based on consolidated GAAP financial statements. [2] Interest expense for 2008 includes $11.4
billion related to the NY Fed credit facility, of which $9.3 billion represents amortization of the prepaid commitment
fee asset associated with the facility.
Opinion
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG - senior unsecured debt rated A3/negative, short-term debt rated
Prime 1/negative) is a global insurance and financial services firm, with operations in more than 130 countries and
jurisdictions and approximately 74 million customers worldwide. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management.
Over the past 18 months, AIG has reported severe losses and ~~Qf~s on mortgage-related exposures,
causing liquidity and capital strains that threatened AIG's survival. In September 2008, the Federal Reserve Bank
of New York (the NY Fed) intervened with a large credit facility to ensure that AIG could meet its obligations and to
facilitate an orderly restructuring of the company. The financing arrangements and restructuring plans have
evolved since then in response to extremely difficult market conditions. The current plan calls for AIG to gradually
divest several businesses - some through government-backed structures - and to retain its global property &
casualty (P&C) insurance operations. These core operations rank among the world's largest and most diversified
P&C businesses.
On March 2, 2009, Moody's confirmed AIG's senior long-term and short-term debt ratings, while downgrading the
subordinated debt rating to Ba2 from Baa1. We also confirmed the insurance financial strength (IFS) ratings of
AIG's core P&C operations and took various rating actions on other operating units. The rating actions followed
AIG's announcement of net losses of $62 billion for the fourth quarter and $99 billion for the full year of 2008, along
with a revised restructuring plan supported by the US Treasury and the Federal Reserve.
The rating confirmation for AIG and its core P&C operations reflects the benefits to policyholders and senior
creditors from the latest restructuring plan, as well as our expectation that the US government will provide
additional support as needed to ensure that AIG can meet its obligations through this period of severe economic
recession and market turmoil. Our expectation of systemic support is based on the substantial size and global
scope of AIG's insurance and financial operations, and is consistent with actions taken and statements made by
government officials.
The negative rating outlook on AIG and its core P&C operations signals the potential loss of customers, distributors
and employees during the period of government intervention, along with the uncertainty regarding the ownership
and capital structure following the intervention. Other areas of risk and uncertainty include: (i) potential erosion of
market share among operations to be divested; (ii) potential further declines in investment portfolio values,
particularly in life insurance subsidiaries, which may require further capital infusions; (iii) the timing of divestitures
and resulting proceeds, given the limited funding available to potential buyers; and (iv) the timing and costs
associated with unwinding AIG Financial Products Corp. (AIGFP).
AIG's fourth-quarter loss was driven mainly by realized capital losses on investments (including other-thantemporary impairments), write-downs of intangible assets, unrealized market valuation losses on derivatives, and
other charges related to the ongoing restructuring efforts. The net result included about $50 billion of non-cash
charges.
Major aspects of the government-backed restructuring plan include: (i) conversion of $40 billion of preferred stock
provided by the US Treasury to a non-cumulative issue on which AIG is not expected to pay dividends; (ii) fiveyear commitment from the US Treasury for an additional $30 billion of preferred equity capital; (iii) debt-for-equity
swaps whereby the NY Fed will exchange a portion of the senior secured loan under its $60 billion facility for
preferred interests in two Foreign Life units; (iv) exchanges by the NY Fed of a portion of the senior secured loan
for embedded value securitization notes from certain Domestic Life Insurance & Retirement Services (DLlRS)
companies; and (v) formation of a new holding company, AIU Holdings, Inc., for AIG's global P&C operations,
paving the way for a possible sale of a minority stake. We believe that these restructuring steps will give AIG
greater flexibility to stabilize its various businesses and, over time, to pursue orderly divestitures.
Subordinated Debt
Regarding the downgrade of AIG's subordinated debt, which includes various hybrid instruments, we believe that
the company intends to continue paying interest on these instruments, particularly since the cumulative interest
provision limits the ultimate cash benefit of deferral. Nevertheless, in the event of further liquidity strains and/or a
need for additional government support, there is a risk of deferred payment on these instruments, as well as the
risk of a potential restructuring, which we have signaled through wider notching between AIG's senior and
subordinated ratings.
Credit Profile of Significant Subsidiaries/Activities
AIG Property Casualty Group (Revenues: $31.0 billion in 2008, $38.0 billion in 2007)
The AIG Property Casualty Group encompasses AIG Commercial Insurance (AIGCI), Transatlantic Holdings, Inc.
(TRH), Personal Lines and Mortgage Guaranty. Our confirmation of the Aa3 IFS ratings (negative) on eight
members of AIGCI was based on AIGCI's position as the largest US writer of commercial insurance, its broad
diversification and its expertise in writing large and complex risks. Complementing its US market presence, AIGCI
enjoys access to the Foreign General Insurance network. The combined group does business with a solid majority
of global and major national accounts. AIGCI has suffered some loss of business, especially in the most credit
sensitive lines, as a result of parent company turmoil and the weak economy. The negative rating outlook reflects
the potential for further business erosion during the period of government intervention, whether through loss of
customers, distributors and employees or through aggressive pricing which could hurt underwriting results over
time.
TRH, approximately 59% owned by AIG, is a holding company for Transatlantic Reinsurance Company (TRC), a
leading US-based broker-market reinsurer with expertise in spe~t0f;$CJalty lines. TRC's Aa3 IFS rating
(developing) reflects its lead position on many treaties, relatively steady profitability and sound capitalization.
These strengths are partly offset by competition from larger global reinsurers and by the inherent volatility of
catastrophe exposed business. TRH generates about 12% of its business through AIG affiliates and the remainder
through globally diversified sources. The developing outlook signals uncertainty regarding TRH's future ownership
structure.
United Guaranty Residential Insurance Company (UGRIC - IFS rating of A3/negative) is the lead company of AIG's
Mortgage Guaranty unit and the guarantor of United Guaranty Mortgage Indemnity Company (IFS rating of
A3/negative). UGRIC's rating and outlook are based mainly on a net worth maintenance agreement from AIG plus
a fixed-dollar-limit reinsurance agreement from an AIGCI member. UGRIC's rating is constrained by the substantial
incurred losses in its mortgage portfolio to date as well as the uncertainty surrounding the severity and duration of
the housing market downturn.
Foreign General Insurance (Revenues: $13.7 billion in 2008, $13.7 billion in 2007)
Foreign General Insurance consists of several P&C insurance agencies and underwriting companies offering
commercial and consumer insurance through a range of marketing and distribution channels. The group operates
in Asia, the Pacific Rim, the UK, Europe, Africa, the Middle East and Latin America, adapting to local laws and
customs as needed.
AIG UK Limited (AIG UK) is the group's flagship P&C insurer in the UK. The A1 IFS rating (negative) on AIG UK
reflects its strong market position, healthy profitability and generally conservative investment strategy. Offsetting
these strengths to some extent is the focus on commercial lines, which Moody's views as inherently more volatile
than personal lines, along with the potential reputational harm stemming from challenges at AIG. The rating on AIG
UK incorporates explicit and implicit support, including a net worth maintenance agreement from AIG and
extensive reinsurance from affiliates.
AIG General Insurance (Taiwan) Co., Ltd. (AIGGI Taiwan) ranks among the 10 largest P&C insurers in Taiwan.
The company writes multiple product lines, including personal auto, personal and commercial property, and
accident & health. AIGGI Taiwan's A3 IFS rating (negative) reflects its healthy market presence, strong riskadjusted capitalization and improving product profile, with an emphasis on short-tail business lines. These
strengths are tempered by the company's weak operating results compared to peers, largely because of
investment impairment losses, business integration costs and reserve strengthening.
Domestic Life Insurance & Retirement Services (Revenues: -$17.0 billion in 2008, $15.3 billion in 2007)
Moody's A1 IFS ratings (developing) on ten members of the Domestic Life Insurance & Retirement Services
(DLlRS) segment are based on their leading positions in a number of the life insurance, individual annuity, and
pension markets. The DLiRS group remains the largest provider of 403(b) pensions sold to K-12 teachers, as well
as a major provider of individual life insurance and annuities - businesses with healthy earnings capacity. The
ratings also reflect government support, as evidenced by sizable capital contributions (via AIG) plus other funding
arrangements to offset investment losses (including other-than-temporary impairments) during 2008. We expect
that the government will continue supporting these operations until they are divested or otherwise stabilized. The
developing outlook reflects the possibility of divestitures over time to buyers of higher, equal, or lower credit quality,
and the potential for further business erosion, in the event that divestitures are delayed.
Foreign Life Insurance & Retirement Services (Revenues: $20.1 billion in 2008, $38.3 billion in 2007)
The Foreign Life Insurance & Retirement Services segment encompasses international and local subsidiaries with
operations in Europe, Latin America, the Caribbean, the Middle East, Australia, New Zealand and Asia, including
sizable operations in Japan. The group sells products largely to indigenous persons through multiple distribution
channels, including full-time and part-time agents, independent producers, direct marketing, brokers and financial
institutions. AIG has announced plans to contribute the equity of its largest Foreign Life operations, American
International Assurance, Ltd. (AlA) and American Life Insurance Company (ALI CO) to special purpose vehicles
(SPVs) in exchange for preferred and common equity interests in the SPVs. The preferred interests will then be
transferred to the NY Fed (or a trust for the benefit of the NY Fed) in satisfaction of a portion of AIG's senior
secured loan. These transactions will reduce the loan balance materially, while allowing AlA and ALiCO to operate
more independently in preparation for a possible sale or public offering.
AlA and its affiliates, including American International Assurance Company (Bermuda) Limited (AIAB - IFS rating
of Aa3/negative), make up one of the largest and most diversified life insurance groups spanning Asia and
Australia. The rating on AIAB reflects its leading position in the life insurance market in Hong Kong, consistent
operating performance, well established and efficient agency force, and good capitalization. These strengths are
somewhat offset by the possible threat to AIAB's market position, given the intense competition in Hong Kong and
Korea. The negative outlook reflects uncertainty about the future ownership structure as well as the challenging
market conditions.
Moody's A 1 IFS rating (developing) on ALlCO, is based on its well established operations in more than 50
overseas markets (particularly in Japan, ALI CO's largest market), along with its favorable record of growing
organically in existing markets and expanding into new markets4l'tl~fati4g also recognizes the company's strong
brand name and distribution channels, sound capitalization and consistent operating performance. Mitigating these
strengths are the uncertainty surrounding future ownership as well as the economic recession. Moody's believes
that ALI CO may experience additional asset impairments (housing and non-housing related), although we expect
the US government to continue providing capital support if needed.
ALI CO's Japanese operations have been complemented by those of AIG Edison Life Insurance Company (AIG
Edison -IFS rating of A1/developing) and AIG Star Life Insurance Co., Ltd. (not rated). The AIG Edison rating
reflects the company's healthy profitability, solid capital base and diversified distribution channels, tempered by
agent retention and business persistency rates that are below expectations for the rating level. The developing
outlook reflects the possibility of a sale to a buyer of higher, equal, or lower credit quality.
Financial Services (Revenues: -$31.1 billion in 2008, -$1.3 billion in 2007)
The Financial Services segment engages in aircraft and equipment leasing, capital market transactions, consumer
finance and insurance premium financing. The Aircraft Finance business, conducted by International Lease
Finance Corporation (ILFC - senior unsecured debt rated Baa1/review direction uncertain), is a global leader in
leasing and remarketing advanced technology commercial jet aircraft. ILFC's ratings reflect its high-quality aircraft
portfolio, solid relationships with aircraft manufacturers and airlines, improving profitability and strong cash flow.
Tempering this view is the cyclical nature of the business, the company's reliance on confidence-sensitive funding,
and the key-man risk, given the prominent role of ILFC's founder and CEO. ILFC is among the operations that AIG
has targeted for sale. Moody's rating review is focused on ILFC's future ownership, capital structure and operating
strategy. We believe that AIG will continue to support ILFC as it pursues a divestiture.
The Capital Markets unit comprises the global operations of AIGFP (backed long-term issuer rating of A3/negative)
and subsidiaries. The ratings on AIGFP and several of its subsidiaries are based on general and deal-specific
guarantees from AIG. AIGFP has developed a comprehensive plan to unwind its business, attempting to strike a
balance between reducing exposures rapidly and limiting cash outflows. AIGFP has already eliminated some of its
more challenging exposures, including nearly all of its credit default swaps (CDS) covering multi-sector
collateralized debt obligations. Still, the ultimate costs and duration of this process are difficult to estimate and
could be substantial. For instance, remaining exposures include CDS written for regulatory capital or corporate
arbitrage purposes, where further market deterioration and/or changes in valuation methods could lead to sizable
losses and collateral requirements.
The Consumer Finance unit includes US operations conducted mainly by American General Finance Corporation
(AGFC - senior unsecured debt rated Baa1/review down) and international operations conducted by AIG
Consumer Finance Group, Inc. (AIGCFG). AGFC's intrinsic credit profile has been underpinned by its well
established consumer branch business along with its conservative credit culture and controls, enabling the
company to weather the US housing slump better than some other financial institutions. Nevertheless, AGFC's
core profitability has fallen, and will continue to be pressured by rising loss provisions and the absence of revenues
from its shuttered mortgage banking business. Though AGFC is no longer a core holding of AIG, Moody's expects
that AIG will continue to provide capital and liquidity support as long as it owns AGFC, so as to preserve the unit's
branch network and economic value.
Asset Management (Revenues: -$4.5 billion in 2008, $5.6 billion in 2007)
The Asset Management segment comprises a variety of investment related products and services for institutions
and individuals worldwide. The group's main activities have been spread-based investing, institutional asset
management, brokerage services and mutual funds. The spread-based investment business, initially conducted
through the SunAmerica companies and then through the Matched Investment Program at AIG, is in run-off. The
institutional asset management business, known as AIG Investments, provides a range of equity, fixed income and
alternative investment products and services to AIG subsidiaries and affiliates, other institutional clients and highnet-worth individuals. The brokerage services and mutual funds operations provide broker/dealer services and
mutual funds to retail investors, group trusts and corporate accounts through an independent network of financial
advisors. AIG has targeted some or all of the third-party asset management businesses for sale.
Credit Strengths
Credit strengths/opportunities of the group include:
- Leading market positions in various business lines and geographic areas
- Extensive funding provided through government facilities
- Historically strong earnings and cash flows of insurance operations
Credit Challenges
Credit challenges/risks include:
42 of 44
- Uncertainty surrounding future ownership and direction of major business units, making it difficult to retain clients,
distribution partners, employees and enterprise value
- Weak global economy with limited credit availability, making it hard to sell major operations at attractive levels
- Potentially long and costly process to unwind AIGFP
- Significant fixed charge burden from senior secured, senior unsecured and subordinated debt
Rating Outlook
The negative rating outlook on AIG and its core P&C operations signals the potential loss of customers, distributors
and employees during the period of government intervention, along with the uncertainty regarding the ownership
and capital structure following the intervention. Offsetting these challenges is the steadfast support demonstrated
by the US government. Without such support, the ratings of AIG and many of its subsidiaries would be lower.
What Could Change the Rating - Up
Given the current negative outlook, there is limited upward pressure on AIG's ratings; however, factors that could
lead to a stable outlook include:
- Maintaining favorable market positions and operating performance in major operating units, whether they are
core operations or targeted for sale
- Completing divestitures at attractive levels to help repay government facilities
- Substantially reducing risks at AIGFP at a manageable cost over the next 12-18 months
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
- A material decline in the market position or operating performance of one or more major operating units
- Material delays in the recently announced restructuring steps
- Inability to substantially unwind AIGFP within a few years at a manageable cost
- A reduction in government support
Recent Results
AIG reported a net loss of $61.7 billion for the fourth quarter of 2008. Shareholders' equity was approximately
$52.7 billion as of December 31,2008.
Capital Structure and Liquidity
AIG's liquidity position is supported by various facilities implemented by the US government. Borrowings under the
NY Fed's $60 billion revolving credit facility were fairly stable in the $35-40 billion range through the first two
months of 2009. Transactions with Maiden Lane II LLC and Maiden Lane III LLC in late 2008 helped to resolve two
major sources of liquidity strain for AIG: the securities lending program and the multi-sector CDS portfolio. As of
year-end 2008, AIG held $55.3 billion of cash and short-term investments, mostly within the operating units. In
addition, the parent has access to some $20 billion under the NY Fed's revolving credit facility plus $30 billion
under the pending equity commitment from the US Treasury, amounting to a total of $50 billion of available
liquidity. Potential liquidity needs in the near term include: (i) capital infusions for insurance operations, particularly
life operations that could experience declining investment values; (ii) additional amounts to facilitate the unwinding
of AIGFP, including potential collateral postings; and (iii) possible severe catastrophe losses in the P&C
operations. We believe that AIG, with the support of the US government, has sufficient resources to meet such
contingencies.
As of December 31, 2008, AIG reported total borrowings of $193.2 billion, consisting of $124.1 billion of "operating"
debt (supported by assets of the Financial Services segment and AIG's Matched Investment Program), $40.4
billion of senior secured debt under the NY Fed facility, $11.1 billion of senior unsecured "financial" debt (used
mainly to fund investments in and advances to operating subsidiaries), and $17.6 billion of junior subordinated debt
(hybrid securities). We believe that the operating debt is reasonably well covered by the related assets. We also
note that a large portion of the NY Fed loan (up to $34.5 billion) 4$1
4khanged for preferred interests in AlA
be
and ALiCO (via SPVs) and for embedded value securitization notes of certain DLiRS companies. Giving effect to
these transactions as of year-end 2008, AIG would still have senior unsecured financial debt plus hybrid securities
totaling some $35 billion.
AIG's equity base at year-end 2008 was virtually all preferred interests, including $40 billion of Series D preferred
(10% cumulative perpetual preferred held by the US Treasury) and $23 billion of value of Series C preferred, net of
$6 billion of after-tax amortization of the associated preferred commitment asset (perpetual, convertible,
participating preferred being issued to a trust for the benefit of the US Treasury). These preferred interests were
offset by a modest negative amount of other shareholders' equity items (about $4 billion) to arrive at total
shareholder's equity of $52.7 billion. Under the latest restructuring plan, the Series D preferred will be replaced by
a Series E preferred (non-cumulative dividends, with replacement capital covenant). We do not expect AIG to pay
dividends on the Series C or the Series E preferreds until AIG and its major operating units achieve greater
stability. The preferred interests are an important element of the government support for AIG and have substantial
equity content, in our view.
AIG's intrinsic financial flexibility is well below historic levels, with a capital structure that is virtually all debt and
hybrid instruments. Earnings coverage of fixed charges was nil in 2008, given the company's large reported loss,
while cash coverage has been constrained by regulatory restrictions on dividends from insurance subsidiaries.
Largely because of such restrictions, AIG notes that a significant majority of the aggregate equity of its
consolidated subsidiaries was restricted from immediate transfer to the parent as of year-end 2008. Moody's
ratings on AIG and its major operating units reflect our expectation that the US government will provide additional
support as needed to ensure that AIG can meet its obligations through this period of severe economic recession
and market turmoil. Ultimately we expect AIG to emerge from the government intervention as a major global P&C
insurer with a sound credit profile.
CREDIT RATINGS ARE MOODY'S INVESTORS SERVICE, INC.'S (MIS) CURRENT OPINIONS OF THE
RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE
SECURITIES. MIS DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS
CONTRACTUAL, FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS
IN THE EVENT OF DEFAULT. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT
NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS ARE
NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. CREDIT RATINGS DO NOT CONSTITUTE
INVESTMENT OR FINANCIAL ADVICE, AND CREDIT RATINGS ARE NOT RECOMMENDATIONS TO
PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. CREDIT RATINGS DO NOT COMMENT ON THE
SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MIS ISSUES ITS CREDIT RATINGS
WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL MAKE ITS OWN STUDY
AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING,
OR SALE.
© Copyright 2009, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All
information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the
possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty
of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall
MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or
relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or
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advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings
and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be
construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY
MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any
investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly
make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for,
each security that it may consider purchasing, holding or selling.
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and
commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody's Corporation (MCO)
and its wholly-owned credit rating agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures to
address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to
the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody's website at www.moodys.com under the
heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."
44 of 44
Note: For ease of electronic transmission and filing, all insertions or
attachments should be combined together with this rating memo into one
pdf file or Word document with all pages numbered sequentially.
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Reason for Rating Committee: Address AIG's: 4Q07 results, including the increase in unrealized market
valuation loss on subprime-exposed super-senior CDS from a preliminary estimate of $8 bin given to us on
Feb. 11 to a final
rted amount of 11.12 bin.
Last Rating Action (include date and reason): Feb. 12, 2008 - Changed the outlook on AIG and several
subsidiaries to negative from stable, based mainly on the company's sizable exposure to the US subprime
e market.
Aaa
Aaa
Aaa
Fo
Fo
Fo
1
Aaa
Aaa
Aaa
v. 2.0 rev 7/13/07
Rationale for Recommendation(s)
Recommend affirming the rating with a negative outlook based on:
1. AIG's large capital base and well diversified businesses enable the company to absorb the earnings
volatility associated with US residential mortgage exposures, with little disruption to the core insurance
businesses. AIG's two largest areas of exposure are (i) $65 bin notional exposure to multi-sector CDOs with
subprime mortgage content, mainly through super-senior CDS written by AIGFP; and (ii) $75 bin portfolio of
US non-agency RMBS, held mainly by AIG's insurance subsidiaries. Together these exposures have
generated pretax realized and unrealized losses and depreciation totalling $22 bin, or about one year's worth
of normalized pretax income at AIG (see page 16). However, we believe that a majority of these losses and
write-downs are temporary and subject to recovery. Following are summary results of economic stress tests
applied to these exposures, similar to tests that have been used for the financial guarantors.
Summary results of AIG COO & RMBS stress tests (Chris Mann's model)
Total
exposures
65,421
75,276
($ mlns)
COO notional as of Sept. 30, 2007
RMBS par as of Dec. 31, 2007
Modeled
losses
RMBS losses
grossed up*
Base case (15% losses on 2006 subprime first-lien)
o
COO
RMBS
460
580
Stress case (21% losses on 2006 subprime first-lien)
COO
50
RMBS
1,372
1,731
Extreme stress case (24% losses on 2006 subprime first-lien)
COO
211
RMBS
2,047
2,582
* RMBS losses grossed up by 75.3/ (75.3 - 15.6) to account for the $15.6 bin of securities not found in Moody's system.
2. On Feb. 28, 2008, AIG reported a net loss of $5.29 bin for 4Q07, including an $11.12 bin pretax unrealized
market valuation loss (MTM loss) on its super-senior CDS portfolio. On Feb. 11, the company had given us a
preliminary estimate of an $8 bin MTM loss. The approximately $3 bin increase in the MTM loss reflects
continuing modifications in the valuation process, particularly a greater reliance on dealer quotes, as
discussed in our call notes on pages 19-20. The CDS positions are extremely illiquid, making the valuation
process difficult and prone to revision. AIG notes that if the super-senior CDS portfolio were valued under
accrual accounting (in accordance with FAS 5), the company would have recorded no losses to date,
because such losses are not yet probable or reasonably estimable.
3. We changed AIG;s rating outlook to negative from stable on Feb. 12, 2008, based on the company's
sizable exposure to the US subprime mortgage market. In particular, we cited the challenge of the CDS
valuation process, which could potentially add significant volatility to AIG's earnings and capital position. The
increase in the 4Q07 MTM loss versus the company's preliminary estimate does not materially change the
credit profile.
2
v. 2.0 rev 7/13/07
Contents
Draft Press Release
4-5
Current Credit Opinion
6-10
Q-tools
11
Stock Chart
12
Rating History
12
Orqanizational Structure with Rated Entities
13
Weighted Average Stand-alone Rating
14
Summary of AIG's Subprime Mortgage Exposures, Charges & Writedowns
15
Banking RMBS/CDO Stress Test Applied to AIG
16
Description of AIG's Subprime Mortqaqe Exposures
17-18
Notes from 4Q07 pre-earnings call with AIG
19-20
Draft Liquidity Risk Assessment: AIG Funding, Inc.
21
AIG Financial Leverage and Fixed-Charge Coverage
22-23
AIG Financial Hiqhliqhts
24
AIG Segment Detail
25
AIGFP Five-year Cash Profile as of Dec. 31,2007
26-32
AIG 2007 financial statements
33-35
AIG Revenue & Income Charts
36
3
v. 2.0 rev 7/13/07
Draft Press Release
Moody's affirms AIG's ratings and maintains negative outlook
Moody's Investors Service has affirmed the ratings of American International Group, Inc. (NYSE: AIG - senior
unsecured debt rating of Aa2), following the company's announcement of a $5.3 billion net loss for the fourth
quarter of 2007. The net result includes significant unrealized market valuation losses on super-senior credit
default swaps (CDS) on multi-sector collateralized debt obligations with subprime mortgage content. Moody's
said that AIG's super-senior CDS have more moderate exposure to recent mortgage vintages than those of
many other market participants, such that AIG's ultimate economic losses may be materially smaller than
estimated market values would suggest. Nevertheless, the rating agency said that a material increase in
market valuation losses and/or a realization of significant economic losses on this portfolio could lead to a
downgrade of AIG's ratings. The rating outlook for AIG remains negative.
AIG's fourth-quarter 2007 results included a $7.2 billion after-tax unrealized market valuation loss on supersenior CDS as well as $2.1 billion of after-tax realized capital losses, mainly from other-than-temporary
impairment of investment securities. Also in the fourth quarter, AIG posted to its equity account $2.5 billion in
after-tax unrealized depreciation of investments. All of these charges pertained largely to subprime mortgage
exposures.
Moody's changed AIG's rating outlook to negative from stable on February 12, 2008, based on the company's
sizable exposure to the US subprime mortgage market, where credit quality and liquidity remain under
pressure, along with the company's trend toward higher operating and financial leverage over the past few
years. The rating agency noted that uncertainty surrounding the valuation of subprime mortgage exposures
could add significant volatility to AIG's earnings and capital position over the near-to-medium term, thereby
weakening the firm's financial flexibility to some extent.
In addition to the super-senior CDS portfolio, Moody's is monitoring the residential mortgage-backed securities
(RMBS) held by AIG's insurance subsidiaries, both directly and through securities lending activities. Moody's
noted that AIG generally holds well diversified senior tranches within RMBS pools, such that the ultimate
economic losses on these securities may be significantly smaller than current market values would suggest.
Still, Moody's is concerned that market value fluctuations on RMBS could add volatility to the earnings and
capital levels of specific insurance subsidiaries and to AIG as a whole.
Other areas of potential volatility for AIG are the subprime and second-lien mortgage portfolios insured by the
Mortgage Guaranty unit, as well as the subprime and non-prime mortgage loans held by the Consumer
Finance unit.
According to Moody's, AIG's ratings reflect its leading positions in many insurance markets, its broad business
and geographic scope, its strong earnings and cash flows, and its excellent financial flexibility. These strengths
are tempered by the intrinsic volatility in certain General Insurance and Financial Services businesses, by the
significant volume of spread-based investment business in the Asset Management segment, and by the
company's sizable exposure to the US subprime mortgage market. Moody's expects that AIG will maintain its
strategic focus on insurance, with Financial Services accounting for no more than 20% of consolidated
operating income.
Moody's cited the following factors that could lead to a stable rating outlook for AIG: (i) improvements in standalone credit profiles of major operating units, (ii) continued strong group profitability, with returns on equity
exceeding 15%, (iii) remediation of all material weaknesses in internal controls over financial reporting, and (iv)
adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type
operations and match-funded investment programs) comfortably below 20%.
Moody' cited the following factors that could lead to a rating downgrade for AIG: (i) a decline in the stand-alone
credit profile of one or more substantial operating units, (ii) a decline in group profitability, with returns on equity
remaining below 12% over the next few quarters, (iii) a decline in financial flexibility, with adjusted financial
leverage exceeding 20% or adjusted pretax interest coverage remaining below 15x over the next few quarters,
or (iv) incremental subprime-related realized and/or unrealized after-tax losses exceeding $5 billion.
4
v. 2.0 rev 7/13/07
The last rating action on AIG took place on February 12, 2008, when Moody's changed the rating outlook to
negative from stable.
AIG, based in New York City, is a leading international insurance and financial services organization, with
operations in more than 130 countries and jurisdictions. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
reported total revenues of $110.1 billion and net income of $6.2 billion for the year 2007. Shareholders' equity
was $95.8 billion as of December 31,2007.
For more information, please visit our website at www.moodys.com/insurance.
5
v. 2.0 rev 7/13/07
Current Credit Opinion (published Feb. 20, 2008)
Credit Opinion: American International Group, Inc.
American International Group, Inc.
New York, New York, United States
American International Group, Inc. [1]
Total Assets ($ MiL)
Equity ($ MiL)
Total Revenue ($ MI.)
Net Income ($ MiL)
Financial Leverage
Earnings Coverage (1 yr.)
Cashflow Coverage (1 yr.)
YTD9/07
$1,072,105
$ 104,067
$ 91,631
$ 11,492
2006
$ 979,414
$ 101,6n
$ 113,194
$ 14,048
18.4%
18.0"10
25.Ox
11.3x
$
$
$
$
2005
853,051
86,317
108,905
10,477
15.7%
24.2x
14.5x
2003
2004
$ 801,007 $ 675,602
$ 79,673 $ 69,230
$ 97,666 $ 79,421
$ 9,839 $ 8,108
16.2%
23.9x
13.7x
16.9%
19.6x
11.9x
2002
$ 561,131
$ 58,303
$ 66,171
$ 5,729
12.8x
9.8x
[1] Information based on consolidated GAAP financial statements.
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG - senior unsecured debt rated Aa2, negative outlook) is a leading global
insurance and financial services firm, with operations in more than 130 countries and jurisdictions. The company is
engaged through subsidiaries in General Insurance, Life Insurance & Retirement Services, Financial Services and Asset
Management. About half of the company's revenues are derived from domestic (US) operations and half from other
markets around the world. AIG's extraordinary diversification helps it to withstand challenges in particular business lines
or geographic regions and to generate substantial earnings and capital over time.
Moody's changed the rating outlook for AIG to negative from stable on February 12, 2008, based on the company's
sizable exposure to the US subprime mortgage market, where credit quality and liquidity remain under pressure, along
with the company's trend toward higher financial and operating leverage over the past few years. Moody's also changed
the rating outlooks to negative from stable on several AIG subsidiaries (i) that have substantial exposure to the US
subprime mortgage market, or (ii) whose ratings rely on significant explicit or implicit support from the parent company.
The Capital Markets unit has written large notional amounts of super-senior credit default swaps (CDS) against multisector collateralized debt obligations (COOs) with subprime mortgage content. The CDS contracts are highly customized
and illiquid, particularly in the current market, making it difficult to determine their fair value for financial reporting purposes.
AIG's auditors have concluded that the company had a material weakness related to the valuation process as of
December 31,2007.
Moody's notes that AIG's multi-sector COOs have more moderate exposure to recent vintages than those of many other
participants in this market, such that the ultimate economic losses may be materially smaller than estimated market
valuations would suggest. Moreover, the internal control weakness appears to be narrow in scope and may be relatively
easy for AIG to remediate. Nevertheless, the CDS valuation process may remain difficult for the duration of the mortgage
market slump, potentially adding significant volatility to AIG's earnings and capital position.
AIG also faces volatility in connection with its investments in residential mortgage-backed securities, including subprime
and Alt-A securities, a majority of which are held by AIG's US life insurance subsidiaries, both directly and through
securities lending activities. These securities are exposed to realized capital losses (through securities sales and otherthan-temporary impairment) as well as unrealized losses (included in other comprehensive income). Ultimate losses
incurred in this portfolio could be lower than losses recognized to date, but near-term valuations may add volatility to the
earnings and capital positions of the US life subsidiaries. Other areas of potential volatility are the subprime and secondlien mortgage portfolios insured by the Mortgage Guaranty unit, as well as the subprime and non-prime mortgage loans
held by the Consumer Finance unit.
6
v. 2.0 rev 7/13/07
Moody's has applied various market stress scenarios to AIG's subprime exposures over the past several months, with AIG
demonstrating sufficient capital strength and earnings power to support the existing ratings. We will continue this process
in the months ahead, incorporating our revised expectations for cumulative losses across different loan types.
AIG's ratings reflect its leading market positions in all major business segments, its broad business and geographic scope,
its historically strong earnings and cash flows, and its excellent financial flexibility. These strengths are tempered by the
intrinsic volatility in certain General Insurance and Financial Services business units, by the significant volume of spreadbased investment business in the Asset Management segment, and by the company's sizable exposure to the US
subprime mortgage market.
Credit Profile of Significant Subsidiaries/Activities
Domestic General Insurance (31 % of consolidated revenues for first nine months of 2007)
The Domestic General Insurance segment encompasses the Domestic Brokerage Group (DBG), Transatlantic Holdings,
Inc. (TRH), Personal Lines and Mortgage Guaranty. Moody's maintains Aa2 insurance financial strength (IFS) ratings
(negative outlook) on eight members of DBG, reflecting DBG's position as the largest US writer of commercial insurance,
its broad diversification and its expertise in writing large and complex risks. These strengths are somewhat offset by
DBG's relatively high, albeit improving, gross underwriting leverage and its history of adverse loss development following
the last soft market for property & casualty insurance. The DBG ratings incorporate a notch of uplift from the affiliation with
AIG, which has a history of supporting these and other subsidiaries. Absent such support, the DBG members would have
stand-alone ratings of Aa3.
TRH, approximately 59% owned by AIG, is a holding company for Transatlantic Reinsurance Company (TRC), a leading
US-based broker-market reinsurer with expertise in specialty casualty lines. TRC's Aa3 IFS rating (stable outlook) reflects
its lead position on many treaties, relatively steady profitability and sound capitalization. These strengths are partly offset
by competition from larger global reinsurers and by the inherent volatility of catastrophe exposed business.
Moody's maintains Aa2 IFS ratings (negative outlook) on four members of AIG's Mortgage Guaranty unit, led by United
Guaranty Residential Insurance Company (UGRIC). The ratings are based on the group's historically sound underwriting,
strong lender relationships and explicit support from affiliates. Three of the companies are supported by net worth
maintenance agreements from AIG plus excess-of loss reinsurance covers provided by a DBG member. The fourth
company is supported by an unconditional guaranty from UGRIC. Absent such explicit support, these companies would
have lower stand-alone ratings. The stand-alone credit profiles have been weakened by growing losses in the insured
portfolios of subprime and non-prime first-lien and second-lien mortgage loans.
Foreign General Insurance (11 % of consolidated revenues for first nine months of 2007)
Foreign General Insurance consists of several property & casualty insurance agencies and underwriting companies
offering commercial and consumer insurance through a range of marketing and distribution channels. The group operates
in Asia, the Pacific Rim, the UK, Europe, Africa, the Middle East and Latin America, adapting to local laws and customs as
needed.
AIG UK Limited (AIG UK) is the group's flagship property & casualty insurer in the UK, having absorbed the UK business
of a DBG company in December 2007. The Aa2 IFS rating (negative outlook) on AIG UK reflects its strong market
position, healthy profitability and generally conservative investment strategy. Offsetting these strengths to some extent is
the focus on commercial lines, which Moody's views as inherently more volatile than personal lines. The rating on AIG UK
incorporates explicit and implicit support, including a net worth maintenance agreement from AIG and extensive
reinsurance from affiliates. Absent such support, AIG UK's stand-alone rating would be Aa3.
In 2006, AIG acquired Central Insurance Co. Ltd., a diversified non-life insurer in Taiwan with a solid market presence but
a record of volatile operating results over the past few years. During 2007, AIG changed the company's name to AIG
General Insurance (Taiwan) Co., Ltd. (AIG GI Taiwan), and merged the Taiwan branch of a DBG company into AIG GI
Taiwan. In July 2007, Moody's upgraded the IFS rating of AIG GI Taiwan from Baa1 to A2 (stand-alone rating of A3) with
a positive outlook, based on our expectation that the merger and AIG ownership will lead to a stronger competitive
position and credit profile for this company.
Domestic Life Insurance & Retirement Services (13% of consolidated revenues for first nine months of 2007)
Moody's maintains Aa1 IFS ratings (negative outlook) on seven members of the Domestic Life Insurance & Retirement
Services segment, based on the group's multi-faceted distribution network, broad and varied product portfolio, and leading
market positions in several products, including term life, universal life, structured settlements and certain classes of
annuities. The ratings also reflect the strategic and financial benefits of AIG ownership, such as the AIG brand, cross-
7
v. 2.0 rev 7/13/07
selling arrangements, and common investment management and administrative services. These strengths are tempered
by persistent competition in the mature US market for protection and savings products, and by the group's significant
exposure to US subprime and Alt-A RMBS, held directly and through securities lending activities.
Moody's maintains Aa2 ratings (negative outlook) on three SunAmerica companies that have booked substantial spreadbased investment business through the sale of GIC-backed notes to investors. In 2005, AIG shifted this activity to a new
Matched Investment Program (MIP - now part of the Asset Management segment) and placed the SunAmerica GIC
portfolio into runoff. Our Aa2 ratings on these companies reflect the heightened asset and liquidity risks associated with a
runoff portfolio, although we believe that AIG is managing the runoff effectively. AIG also provides net worth maintenance
agreements in support of the SunAmerica companies.
Foreign Life Insurance & Retirement Services (31 % of consolidated revenues for first nine months of 2007)
Foreign Life Insurance & Retirement Services encompasses international and local subsidiaries with operations in Europe,
Latin America, the Caribbean, the Middle East, Australia, New Zealand and Asia, including extensive operations in Japan.
The group sells products largely to indigenous persons through multiple distribution channels, including full-time and parttime agents, independent producers, direct marketing, brokers and financial institutions.
Moody's maintains a Aa2 IFS rating (stable outlook) on American Life Insurance Company (ALlCO), based on its well
established operations in more than 50 overseas markets (particularly in Japan, which accounts for about two-thirds of
ALlCO's operating income) along with its favorable record of growing organically in existing markets and expanding into
new markets. The rating also recognizes the company's strong brand name and distribution channels, healthy
capitalization and consistent operating performance. These strengths are tempered by competition from local and foreign
players in Japan, political risk in certain emerging markets, and ALlCO's relatively large exposure to affiliated investments,
mainly AIG common stock.
ALlCO's Japanese operations are complemented by those of AIG Edison Life Insurance Company (AIG Edison - IFS
rating of Aa2, stable outlook) and AIG Star Life Insurance Co., Ltd. (not rated), giving AIG a strong and diversified
presence in the Japanese life insurance market. The AIG Edison rating reflects the company's healthy profitability, solid
capital base and diversified distribution channels, tempered by agent retention and business persistency rates that are
below expectations for the rating level. The rating incorporates one notch of uplift from the close affiliation with ALiCO.
Without such support, AIG Edison would have a stand-alone rating of Aa3.
American International Assurance Company, Limited (not rated) and its affiliates, including American International
Assurance Company (Bermuda) Limited (AIAB - IFS rating of Aa2, negative outlook), make up the largest and most
diversified life insurance group in Southeast Asia. The rating on AIAB reflects its leading position in the life insurance
market in Hong Kong, where it has garnered the largest market share and is supported by a strong brand name. The
rating also recognizes the company's consistent operating performance, well established and efficient agency force, and
healthy capitalization. These strengths are somewhat offset by the possible threat to AIAB's market position, given the
intense competition in Hong Kong and Korea, by the challenge AIAB faces in its effort to broaden distribution channels,
and by its exposure to affiliated investments, mainly AIG common stock. The AIAB rating incorporates one notch of uplift
from the AIG ownership and support. Absent such support, the stand-alone rating would be Aa3.
Financial Services (8% of consolidated revenues for first nine months of 2007)
The Financial Services segment engages in aircraft and equipment leasing, capital market transactions, consumer finance
and insurance premium financing. The Aircraft Finance business, conducted by International Lease Finance Corporation
(ILFC - senior unsecured debt rated A1, stable outlook), is a global leader in leasing and remarketing advanced
technology commercial jet aircraft. ILFC's ratings reflect its high-quality aircraft portfolio and solid relationships with aircraft
manufacturers and airlines. Tempering this view is the cyclical nature of the business, as well as ILFC's sizable order
position and residual value risk. The ratings incorporate AIG ownership and support, evidenced by capital contributions to
ILFC totaling more than $1 billion since 2001. Absent such support, ILFC's ratings would be lower.
The Capital Markets unit comprises the global operations of AIG Financial Products Corp. (AIGFP - backed long-term
issuer rating of Aa2, negative outlook) and subsidiaries. AIGFP engages as principal in a variety of standard and
customized financial products with corporations, financial institutions, governments, agencies, institutional investors and
high net-worth individuals worldwide. This unit also raises funds through municipal reinvestment contracts and other
private and public note offerings, investing the proceeds in a diversified portfolio of debt, equities and derivatives. The Aa2
ratings on AIGFP and several of its subsidiaries are based on general and deal-specific guarantees from AIG. AIGFP has
substantial notional exposure to the US subprime mortgage market through super-senior COS and cash COOs, as noted
above.
8
v. 2.0 rev 7/13/07
The Consumer Finance unit includes US operations conducted mainly by American General Finance Corporation (AGFC
- senior unsecured debt rated A 1, stable outlook) and international operations conducted by AIG Consumer Finance
Group, Inc. (AIGCFG). AGFC's ratings are based on its strong US market presence, disciplined approach to the business
and a small amount of lift from the AIG relationship. Over the past decade, AGFC has focused its growth efforts on real
estate secured loans, which accounted for about three-fourths of the loan portfolio as of September 30,2007. The
portfolio, which includes meaningful levels of subprime and non-prime loans, has experienced some deterioration in credit
quality along with the overall US housing sector, but AGFC's delinquency and charge-off rates remain within the
company's target bands. We believe that AGFC's adherence to conservative underwriting standards will help the
company to weather the housing market slump relatively well.
Asset Management (6% of consolidated revenues for first nine months of 2007)
The Asset Management segment comprises a variety of investment related products and services for institutions and
individuals worldwide. The group's main activities are spread-based investing, institutional asset management, brokerage
services and mutual funds. The spread-based investment business, formerly conducted through the SunAmerica
companies, is now conducted through AIG's MIP. The institutional asset management business, known as AIG
Investments, provides a range of equity, fixed income and alternative investment products and services to AIG
subsidiaries and affiliates, other institutional clients and high-net-worth individuals. The brokerage services and mutual
funds operations provide broker/dealer services and mutual funds to retail investors, group trusts and corporate accounts
through an independent network of financial advisors.
Credit Strengths
Credit strengths/opportunities of the group include:
- One of the world's largest and most diversified financial service firms, with leading market positions in various business
lines and countries
- Historically strong earnings and cash flows across all major business segments
- Excellent financial flexibility, although this has been weakened somewhat by earnings and capital volatility related to US
subprime mortgage exposures
Credit Challenges
Credit challenges/risks include:
- Intrinsic volatility in certain General Insurance and Financial Services business units
- Significant volume of spread-based investment business within the Asset Management segment
- Sizable exposure to the US subprime mortgage market through various business units and activities
Rating Outlook
AIG's rating outlook was changed to negative from stable on February 12, 2008, based on the company's sizable
exposure to the US subprime mortgage market, where credit quality and liquidity remain under pressure. The valuation
and reporting of these exposures, particularly super-senior CDS, may remain difficult for the duration of the mortgage
market slump.
What Could Change the Rating - Up
Given the current negative outlook, there is limited upward pressure on the rating; however, factors that could lead to a
stable outlook include:
- Improvements in stand-alone credit profiles of major operating units
- Continued strong group profitability, with returns on equity exceeding 15%
- Remediation of all material weaknesses in internal controls over financial reporting
- Adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type operations and
match-funded investment programs) comfortably below 20%
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
9
v. 2.0 rev 7/13/07
- A decline in the stand-alone credit profile of one or more substantial operating units
- A decline in group profitability, with returns on equity falling below 12%
- A decline in financial flexibility, with adjusted financial leverage exceeding 20% or adjusted pretax interest coverage
below 15x
- Net special charges (e.g., associated with natural or man-made catastrophes or subprime mortgage exposures)
exceeding one-half-year's worth of normalized earnings
- A material shift in the company's strategic emphasis away from insurance (e.g., Financial Services accounting for more
than 20% of consolidated operating income)
Recent Results
AIG reported total revenues of $91.6 billion and net income of $11.5 billion for the first nine months of 2007, as compared
to $83.4 billion and $10.6 billion for the first nine months of 2006. Shareholders' equity was $104.1 billion as of September
30,2007.
Capital Structure and Liquidity
Moody's believes that AIG's financial flexibility has been weakened somewhat by the firm's exposure to the US subprime
mortgage market and by the trend toward higher financial and operating leverage over the past few years, as reflected in
the negative rating outlook. AIG's adjusted financial leverage has increased from 15.7% at year-end 2005 to 18.4% as of
September 30,2007. The company issued approximately $4.5 billion of junior subordinated debentures (hybrids) during
the first nine months of 2007, using substantially all of the net proceeds to repurchase common stock. Moody's expects
the company to keep its adjusted financial leverage below 20%.
Moody's believes that AIG has sufficient liquidity - through dividends from subsidiaries, credit facilities and access to
capital markets - to service parent company obligations and to support subsidiaries as needed. The company generates
strong operating cash flows on a consolidated basis, with yearly amounts averaging about $24 billion over the past four
years. However, a majority of the cash flows pertain to insurance operations that are subject to regulatory limits on the
payment of dividends to a parent company. Largely as a result of such regulations, approximately 90% of AIG's
consolidated shareholders' equity was restricted from immediate transfer to the parent company as of year-end 2006. Still,
barring a major disruption, the parent had access to approximately $10.2 billion (10% of year-end 2006 equity) from its
subsidiaries during 2007. This amounted to 11.3x coverage of adjusted interest expense for 2006 - a level consistent with
the rating category. We expect that AIG will report a similar level of subsidiary dividend capacity as of year-end 2007.
AIG gets a portion of its funding through a $7 billion commercial paper program ($4.2 billion outstanding at year-end 2007).
The commercial paper is issued through subsidiary AIG Funding, Inc. (AIG Funding) and guaranteed by AIG. The
program is backed by external and intercompany credit facilities. External facilities include two syndicated bank revolvers
totaling $3.75 billion, primarily to back commercial paper. One of these facilities ($2.125 billion) expires in July 2008 (with
a one-year term-out option) and the other ($1.625 billion) expires in July 2011. AIG and AIG Funding also share a $3.2
billion bank facility expiring in December 2008 (with a one-year term-out option) which allows for the issuance of letters of
credit with terms of up to eight years. As of September 30,2007, a majority of this facility was used for letters of credit,
with the remaining $210 million available to back commercial paper. Finally, AIG has a $5.335 billion intercompany credit
facility provided by several of its insurance subsidiaries, expiring in September 2008 (with a one-year term-out option).
10
v. 2.0 rev 7/13/07
PASTE Q-TOOL CHART HERE (Right-click, copy, and paste chart from Otools.):
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11
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v. 2.0 rev 7/13/07
Organizational Structure with Rated Entities
Ownership Structure *
American International Group, Inc. ("AIG")
AIG Capital Corporation
International Lease Finance Corporation ("ILFC")
ILFC E-Capital Trusts I & II
AIG Capital Trusts I & II
AIG Domestic General Insurance Group (not a legal entity)
AIG Casualty Company
AIU Insurance Company
American Home Assurance Company
Transatlantic Holdings, Inc.
Domicile
DE
Business Segment
Parent
Rating Type
LT Issuer
Sr Unsec Debt
Sr Unsec Shelf
Subord Shelf
Prtrd Shelf
ST Issuer
DE
CA
Fin Svcs
DE
Fin Svcs
Funding for Parent
Sr Unsec Debt
STDebt
Bkd Prtrd Stock
Bkd Tr Prtrd Shelf
PA
NY
NY
DE
Domes
Domes
Domes
Domes
NY
NY
PA
PA
AK
PA
NC
NC
NC
NC
NC
DE
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
Fin Svcs
DE
Fin Svcs
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
DE
DE
DE
DE
AZ
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
Fin Svcs
Funding for Parent
AIG SunAmerica Global Financing Trusts
AIG SunAmerica Life Assurance Company
DE
AZ
Asset Mgmt
Asset Mgmt
ASIF I & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Caymans
Jersey
DE
NY
Transatlantic Reinsurance Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
American International Specialty Lines Insurance Company
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Commercial Insurance Company of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Insurance Company of NC
AIG Financial Products Corp.
AIG Matched Funding Corp.
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
AIG Life Insurance Company
AIG Liquidity Corp.
AIG Program Funding, Inc.
AIG Retirement Services, Inc.
SunAmerica Life Insurance Company ("SUC")
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
AIG Annuity Insurance Company
The Variable Annuity Life Insurance Company
The United States Life Insurance Company in the City of NY
American General Capital II
American General Institutional Capital A & B
American General Finance, Inc.
American General Finance Corporation ("AGFC")
Gen
Gen
Gen
Gen
Ins
Ins
Ins
Ins
Asset Mgmt
Asset
Asset
Asset
Asset
TX
MO
TN
TX
TX
TX
NY
DE
DE
IN
IN
Mgmt
Mgmt
Mgmt
Mgmt
Support
A3
ILFC G'tee
AIG G'tee
IFS
IFS
IFS
Sr Unsec Debt
Sr Unsec Shelf
Subord Shelf
IFS
IFS
IFS
IFS
IFS
IFS
Aa3
Aa3
Aa3
A3
IFS
IFS
Bkd IFS
IFS
Bkd LT Issuer
Bkd ST Debt
Bkd Sr Debt
Bkd ST Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd ST Debt
AIGAgmt
AIGAgmt
UGRIC G'tee
AIGAgmt
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
AIG G'tee
IFS
IFS
IFS
Bkd ST Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd IFS
Bkd ST IFS
Bkd Sr Debt
AIGAgmt
AIGAgmt
AIG G'tee
AIG G'tee
AIG G'tee
AIGAgmt
AIGAgmt
SUC GICs
AIGAgmt
AIGAgmt
SUC GICs
SUC GICs
SUC GICs
AIGAgmt
AIGAgmt
AIG G'tee
Domes Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
Domes Life Ins & Ret Svcs
IFS
Funding for AIG LHUS
Bkd Tr Prtrd Stock AIG G'tee
Funding for AIG LHUS
Bkd Tr Prtrd Stock AIG G'tee
Fin Svcs
STDebt
Fin Svcs
LT Issuer
Sr Unsec Debt
STDebt
AGFC Capital Trust I
DE
Fin Svcs
Bkd Tr Prtrd Stock AGFCG'tee
Yosemite Insurance Company
IN
Fin Svcs
CommoLoco, Inc.
Puerto Rico
Fin Svcs
Bkd ST Debt
AGFCG'tee
American International Underwriters Overseas, Ltd.
Bermuda
AIG General Insurance (Taiwan) Co., Ltd.
Taiwan
Frgn Gen Ins
IFS
AIG UK Limited
UK
Frgn Gen Ins
IFS
AIGAgmt
American International Life Assurance Company of New York
NY
Domes Life Ins & Ret Svcs
IFS
AIGAgmt
American Life Insurance Company
DE
FrQn Life Ins & Ret Svcs
IFS
• Listing order indicates main ownership stake (or sponsorship In the case of trusts), not necessanly 100% ownership.
13
SA
Public Current
Rec
Rating Rating Outlook Outlook
Aa2
Negative Negative
Aa2
(P)Aa2
(P)Aa3
(P)Al
P-l
AI
Stable
Stable
P-l
A3
Stable
Stable
(P)Aa3 Negative Negative
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa2
Aa2
Aa2
A2
(P)A2
(P)A3
Aa3
Aa2
Aa2
Aa2
Aa2
Aa2
Aa3
Aa2
Aa2
Aa2
Aa2
P-l
Aa2
P-l
Aa2
Aa2
Aa2
P-l
Aa3
Aa2
Aal
Aal
Aal
Aal
Aal
Aal
A2
A2
A3
Aa3
Aal
Aa2
Negative Negative
Negative Negative
Negative Negative
Stable
Stable
Stable
Negative
Negative
Negative
Negative
Negative
Stable
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative Negative
Negative Negative
Negative Negative
Negative Negative
Stable
Stable
Aa2
Aa2
Aal
P-l
Aa2
Aa2
Aa2
P-l
Aa2
Aa2
P-l
Aa2
Aa2
Aa2
Aa2
P-l
Aa2
Stable
Negative
Negative
Stable
Negative
Negative
Negative
Aal
Aal
Aal
Aal
Aal
Aa3
Aa3
P-l
AI
AI
P-l
A3
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Stable
Stable
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Stable
Stable
Stable
Stable
P-l
Stable
Stable
A2
Aa2
Aal
Aa2
Stable
Negative
Negative
Stable
Negative
Negative
Negative
Negative Negative
Negative Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative
Negative Negative
Positive Positive
Negative Negative
Negative Negative
Stable
Stable
v. 2.0 rev 7/13/07
W elgl
. htedA verage Stan d -aIone Rf
amg
(::>Mil.)
Pretax Operating Income by Segment
YTD
YTD
9/3012007
9/3012007
Rated
Not
Rated %
Rated %
SA
SA
Public
Rated
of Total
of Rated
Rating
Rating
Rating
General Insurance
5,662
5,662
5,662
29.9%
39.6%
Aa3
4
Aa2
Transatlantic Holdings, Inc.
Domestic Brokerage Group
508
508
508
2.7%
3.5%
Aa3
4
Aa3
Personal Lines
252
252
·289
301
301
1.6%
2.1%
Aa3
4
Aa2
6,133
6,723
24
24
0.1%
0.2%
A3
7
A2
1,291
1,291
6.8%
9.0%
Aa3
4
Aa2
Mortgage Guaranty*
Total Domestic
AIG General Insurance (Taiwan) Co., Ltd.
AIG UK Limited
Other Foreign General
Total Foreign
Other IEliminations
Total General Insurance
252
1,069
2,383
1,069
2,383
·5
·595
8,511
8,511
-595
Life Insurance 8: Retirement Services
774
774
Domestic Reti rement Services
Domestic Life Insurance
1,452
1,452
Total Domestic
2,226
2,226
2,226
11.7%
15.6%
Aa1
2
Aa1
887
887
4.7%
6.2%
Aa2
3
Aa2
1,140
1,140
6.0%
8.0%
Aa3
4
Aa2
444
444
2.3%
3.1%
Aa2
3
Aa2
1,028
1,028
5.4%
7.2%
Aa2
3
Aa2
3.3%
4.4%
A3
7
A1
0.9%
1.3%
A2
6
A1
75%
100%
Aa3
3.7
American Life Insurance Company
AIG Edison Life Insurance Company
Japan and Other
2,753
American Life Insurance Company
2,027
American Int'l Assurance Co. (Bermuda) Limited
Asia
1,921
1,471
Other Foreign
Total Foreign
4,674
4,674
Total Life Insurance 8: Retirement Services
6,900
6,900
Aircraft Leasing
625
625
Capital Markets
183
183
Consumer Finance
180
180
20
20
1,008
1,008
759
759
759
1,406
1406
1406
376
1,176
1,176
Financial Services
Other
Total Financial Services
625
183
180
20
Asset Management
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
Total Pretax Segment Operating Income
Other IEliminations
Consolidated Pretax Operating Income
376
376
2,541
2,541
18,960
18,960
-1,581
-1,581
17,379
17,379
14,315
Weighted Average Stand-alone Rating
4,645
* Mortgage Guaranty weighted based on earnings in prior-year period
14
v. 2.0 rev 7/13/07
S
f AIG's Sub
-
Mort
E
,
Ch
($ Mil.)
Business unit
Consumer Finance (American General
Finance)
Mortgage Guaranty (United Guaranty)
Insurance investments (mostly Domestic
Life & Retirement Services)
Capital Markets (AIGFP)*
Type of exposure
Subprime & non-prime mortgage loans
receivable
Subprime & non-prime mortgage loans
insured
& Writed
Est
pretax
chgs
thru 1/5 in
402007
Actual
pretax
chgs
thru 1/5 in
402007
Est
Unreal
deprec
to SE at
9/30/2007
unreal
deprec
to SE in
402007
Actual
unreal
deprec
to SE in
402007
Pretax
opinc
2007
Pretax
opinc
9,400
171
668
8,400
-637
328
1,989
3,240
-10,557
-873
2007
2006
8,943
21,687
Amount at
9/30/2007
Subprime & Alt-A RMBS
Subprime exposed cash COOs
Subprime exposed super-senior CDS
Subprime exposed cash COOs
Pretax
chgs
thru 1/5
9M2007
51,900
234
63,000
3,500
Consolidated results
Shareholders; equity
Pretax operating income
* Capital Markets loss in 2006 pertains to hedges that did not qualify for hedge accountmg.
-271
-3,500
-2,630
-352
-8,000
-11,120
-643
-2,200
9/30/2007
104,067
15
-2,600
-2,540
Est
Actual
12131/2007
97-99,000
12131/2007
95,801
2006
v. 2.0 rev 7/13/07
Banking RMBS/CDO Stress Test Applied to AIG ($ mIns)
AIG
RMBS net realized loss thru Sep. 2007
RMBS unreal. deprec. thru Sep. 2007
Incr. RMBS deprec in 4007
Total after-tax RMBS mark
Pretax equivalent of RMBS mark
Pretax OTTI loss in 4007
Est. as of 11-Feb-08
After tax
Pretax
-176
-2,200
-2,600
-4,976
-7,655
-3,500
Reported as of YE 2007
After tax
Pretax
-176
-2,200
-2,540
-4,916
-3,
< Moody's calc
of tax effect
Pretax CDS mark reported thru Sep. 2007
Incr. pretax CDS mark in 4007
Actual & est. pretax mark thru YE 2007
AIG Financial Highlights
Pretax income
Shareholders' equity
2007
8,943
101,677
2006
21,687
95,801
16
Mark thru YE 2007 % of
2007
2006
-249%
-103%
-22%
-23%
Potential Add'i Mark % of
2007
2006
-81%
-33%
-7%
-8%
v. 2.0 rev 7/13/07
Description of AIG's Subprime Mortgage Exposures
Information as of September 30, 2007
(1) American General Finance (AGF)
•
•
•
•
•
•
Provides first- and second-lien mortgage loans to borrowers through a network of over 1,500 branches in the US; in
business more than 50 years
Tracks more than 350 local real estate markets; deliberately slowed business growth in several markets over the past
couple of years
Consumer Finance adjusted pretax operating income fell to $80 mIn in 3Q07 from $220 mIn in 3Q06 based on lower
origination volumes and increased allowance for loan losses
Delinquencies and charge-offs remain acceptable - below target bands
87% of loans are fixed rate; adjustable-rate loans are qualified on a fully-indexed and amortizing basis; no option
ARMs
Total real estate portfolio $19.5 bIn (avg LTV 80%), consisting of $9.8 bIn prime (FICO> 660, avg LTV 84%), $3.3
bIn non-prime (FICO 620-660, avg LTV 80%), $6.1 bIn subprime (FICO < 620, avg LTV 75%), and $0.3 bIn other
(2) United Guaranty (UGC)
•
•
•
•
•
•
•
Insures primarily high-quality, high-LTV first- and second-lien mortgage loans; established 1963
Mortgage Guaranty pretax operating loss of $216 mIn in 3Q07 versus a positive $85 mIn in 3Q06
Company projects further pretax operating losses of about $291 mIn in 4Q07 and $459 mIn in 2008, returning to a
positive $294 mIn in 2009 and $635 mIn in 2010
Delinquency rates are rising but are consistently below industry averages
Second-lien mortgages accounted for just 13% of net risk in force at the end of 3Q07 but they produced 59% of losses
in 3Q07
Starting in 2006, UGC has re-engineered its second-lien product and tightened underwriting standards on its first-lien
product; company is raising rates as well
Total real estate portfolio $28.2 bIn, consisting of $19.8 bIn prime (FICO> 660), $6.0 bIn non-prime (FICO 620-660),
and $2.4 bIn subprime (FICO < 620)
(3) RMBS portfolio held by insurance companies (mostly Domestic Life operations)
•
•
•
•
•
•
Total RMBS portfolio $93.1 bIn or about 11 % of AIG's total invested assets
Subprime portion is $25.9 bIn, of which about 85% is rated Aaa, 13% Aa, 2% A and 0.1 % below A
AIG focuses on relatively short-term RMBS with early prepay characteristics; weighted average expected life of
portfolio is 3.9 years
LTV of underlying mortgages averages about 80%
Company focuses on pools with strong originators and has avoided higher-risk collateral, such as 80/20 (piggy-back)
loans and option ARMs
AIG's RMBS portfolio accounted for realized losses of $176 mIn and unrealized investment depreciation of $1.6 bIn
during 3Q07
(4) Cash CDOs at insurance companies
•
•
Moderate exposure of $234 mIn
Company has focused on strong originators
(5) Super-senior CDS written by AIG Financial Products Corp. (AIGFP)
•
•
AIGFP has written super-senior CDS since 1998
AIGFP's total notional book of super-senior CDS amounts to $513 bIn, with underlying collateral consisting of
corporate loans ($294 bIn), non-US residential mortgages ($141 bIn), multi-sector CD Os with no subprime content
($15 bIn) and multi-sector CD Os with subprime content ($63 bIn)
17
v. 2.0 rev 7/13/07
•
•
•
•
•
The $63 bIn portfolio (104 deals) with subprime content includes (a) $44 bIn (45 deals) with mainly Aaa and Aa
collateral (high-grade), average attachment point 15% with 41 % of the 15% subordination rated Aaa; and (b) $19 bIn
(59 deals) with mainly Baa collateral (mezzanine), average attachment point 36% with 38% of the 36% subordination
rated Aaa
AIGFP stopped committing to super-senior CDS with subprime collateral in December 2005
Company models each deal to produce zero expected loss even when underlying obligors are subjected to
recessionary conditions for the life of the deal
AIGFP used the Binomial Expansion Technique (BET) to value this portfolio in 3Q07, resulting in a $352 mln
valuation loss recognized during the quarter and an estimated incremental $550 mIn incurred during October 2007
Company still expects to make no payments on this portfolio
(6) Cash CDOs at AIGFP
•
•
•
AIGFP holds $3.5 bIn (68 deals) of multi-sector cash CD Os with subprime content; nearly all rated Aaa; 4 deals
totaling $37 mln are rated Aa
This portfolio includes $1.1 bIn with high-grade collateral and $2.4 bIn with mezzanine collateral
As with the CDS portfolio, AIGFP has modest exposure to 2006 and 2007 vintage subprime mortgages
18
v. 2.0 rev 7/13/07
Notes from 4Q07 pre-earnings call with AIG
February 27, 2008
AIG participants
Steve Bensinger, CFO
Bill Dooley, SVP - Financial Services
Elias Habayeb, CFO - Financial Services
Kevin McGinn, Chief Credit Officer
Teri Watson, Rating Agency Relations
Moody's participants
Bruce Ballentine
Laura Bazer
Wally Enman
Shachar Gonen
Sarah Hibler
Robert Riegel
MaxZormelo
4Q07 results
AIG phoned us on Feb. 27 with 4Q07 results (announced after the market closed on Feb. 28), which included an $11.12
bIn pretax unrealized market valuation loss on super-senior CDS, versus a preliminary estimate of $8 bIn pretax given to
us by the company on Feb. 11. Adding the $11.12 bIn to the $0.35 bIn booked in 3Q07 brings the total for the year to
$11.47 bIn pretax ($7.46 bIn after tax). AIG walked us through its CDS valuation process as of YE 2007 (see below),
which incorporates dealer quotes on about $60 bIn of its $78 bIn notional CDS exposure to multi-sector CDOs.
Other aspects of the 4Q07 results did not change materially from the Feb. 11 estimates, including (i) a $3.27 bIn pretax
($2.13 bIn after tax) OTT! charge related to investments at the insurance subsidiaries and AIGFP, mainly subprime related;
and (ii) a $2.54 bIn (after tax) decline in AOCI for unrealized depreciation on investments, mainly subprime related.
2007 results
Adjusted net income for the year 2007, which includes the unrealized market valuation loss on CDS but excludes net
realized capital losses, was $9.31 bIn. Net income for the year was $6.20 bIn. Shareholders' equity at YE 2007 was $95.80
bIn, versus $101.68 bIn at YE 2006 and $104.07 bIn at Sept. 30,2007. The decline in equity during 2007 mainly reflects
the $6.20 bIn of net income offset by a $5.71 bIn decline in unrealized appreciation on investments along with about $5
bIn worth of shares repurchased. AIG has suspended its share repurchase program.
AIGFP's valuation of super-senior CDS on multi-sector CDOs
The increase in the pretax unrealized market valuation loss (MTM loss) on super-senior CDS - from a preliminary
estimate of $8 bIn on Feb. 11 to a final amount of about $11.12 bIn - was driven by continuing modifications to the
valuation process. When reporting its 3Q07 results, AIG announced an MTM loss of $352 mIn incurred during 3Q07, plus
an incremental MTM loss of $550 mIn incurred during Oct. 2007. These market values were based mainly on the
Binomial Expansion Technique (BET).
In early Dec. 2007, the company announced an incremental MTM loss of $500-700 mIn incurred during Nov. 2007. The
Nov. 2007 estimate was based on a revised approach that considered both the BET as well as dealer quotes on cash
instruments in the underlying collateral pools. The valuation based on dealer quotes involved the estimation of a gross
MTM loss which was then offset by the benefits of (i) structural mitigants (cash flow diversion features), and (ii) the
spread differential (negative basis) typically observed between cash instruments and derivatives on similar risks.
On Feb. 11,2008, AIG filed an 8-K revealing the components of its cumulative MTM loss as of the end of Nov. 2007, as
follows: gross amount of $5.96 bIn, less structural mitigants of $0.73 bIn, less negative basis adjustment of $3.63 bIn, for
19
v. 2.0 rev 7/13/07
a net amount of $1.60 bIn. AIG announced that it could no longer recognize the negative basis adjustment because this
benefit could no longer be observed in the market (because of the lack of trading activity). AIG also announced that its
auditors had determined that the company had a material weakness with regard to its CDS valuation process.
At that time, AIG gave us a preliminary estimate of an $8 bIn MTM loss on its super-senior CDS portfolio during 4Q07.
By the time of its earnings announcement at the end of Feb., this MTM loss had increased to $11.12 bIn, reflecting further
modifications to the valuation process, including giving greater weight to dealer quotes. The main modifications were as
follows:
1. In applying the BET, AIG capped the values of securities in the underlying collateral pools at 95% of par. (This
change accounted for about $1 bIn of incremental MTM loss.)
2. AIG then compared the revised BET modeled values to dealer quotes for each CDS transaction, and selected market
values according to the following rules: (These changes accounted for about $2 bIn of incremental MTM loss.)
• If the BET value was lower than the dealer quote, then AIG used the BET value;
• If the BET value was higher than the dealer quote but within a reasonable bid/offer range (defined as 10 points),
then AIG used the average of the BET value and the dealer quote;
• If the BET value was higher than the dealer quote by more than 10 points and the valuation of the various
tranches was internally consistent, then AIG used the dealer quote;
• If the BET value was higher than the dealer quote by more than 10 points and the valuation of the various
tranches was internally inconsistent (e.g., the super-senior tranche valued below the actual or implied value of a
more junior tranche), then AIG used an "equilibrium" value that was no higher than that of the tranche
immediately below super-senior.
AIG typically received quotes from just one or two dealers - the deal sponsor and the CDS counterparty. In many cases
these were the same entity, so that AIG received just one quote.
AIG indicated that a "worst-case" valuation policy, that took the lower of the BET value or dealer quote in all instances,
would have resulted in a MTM loss of about $13 bIn rather than the $11.12 bIn recorded for 4Q07.
AIG also noted that if the super-senior CDS portfolio were valued under accrual accounting (in accordance with FAS 5),
the company would have recorded no losses to date, because such losses are not yet probable or reasonably estimable.
AIGFP management change
AIG told us about a pending management change at AIGFP. Joe Cassano, a founding member of AIGFP and CEO for
many years, will relinquish his management role in March 2008 and serve on a consulting basis through the year 2008.
Bill Dooley, AIG's SVP of Financial Services, will serve as interim CEO of AIGFP.
(Notes by BB, WE)
20
v. 2.0 rev 7/13/07
Draft Liquidity Risk Assessment: AIG Funding, Inc.
AIG Funding, Inc. has a Prime-1 rating on its $7 billion (authorized) commercial paper program, based on the
unconditional and irrevocable guarantee from the parent company, American International Group, Inc. (NYSE: AIG senior unsecured debt rating Aa2, short -term issuer rating Prime-1, stable outlook). AIG is a global multi -line insurance
and financial services organization with a strong position in domestic and international markets. AIG Funding, a whollyowned finance subsidiary, uses commercial paper to meet the short-term cash needs of AIG and certain subsidiaries.
AIG's liquidity is supported by dividends from diverse operating subsidiaries and by external and intercompany credit
facilities.
As a holding company, AIG's main source of cash is dividends from a range of insurance and non-insurance operating
subsidiaries. The insurance subsidiaries generate cash from operations and also carry substantial balances of cash, shortterm investments and other liquid securities, a portion of which could be used to fund dividend payments (subject to
regulatory limits) or other advances to the parent. Although Moody's gives some credit for dividends and loans available
from insurance subsidiaries to the holding company, we recognize that the actions of insurance regulators during a time of
stress could create a delay or uncertainty in accessing such sources. Largely as a result of insurance regulations,
approximately 90% of AIG's consolidated shareholders' equity was restricted from immediate transfer to the parent
company as of year-end 2006. This suggests that, barring a major disruption, the parent had access to approximately $10.2
billion (10% of year-end 2006 equity) from its subsidiaries during 2007. We expect that the subsidiary dividend capacity
would remain at a similar level as of year-end 2007.
AIG and AIG Funding are parties to two syndicated bank facilities totaling $3.75 billion, primarily to back commercial
paper. These facilities include a $2.125 billion 364-day revolver expiring in July 2008 (with a one-year term-out option)
and a $1.625 billion five-year revolver expiring in July 2011. AIG and AIG Funding also share a $3.2 billion 364-day
bank facility expiring in December 2008 (with a one-year term-out option) which allows for the issuance of letters of
credit with terms of up to eight years. As of December 31, 2007, a majority of this facility was used for letters of credit,
with the remaining $210 million available to back commercial paper. Borrowings by AIG Funding under these facilities
are guaranteed by AIG. None of these facilities has a material adverse change clause as a condition to borrowing. Finally,
AIG has a $5.335 billion intercompany 364-day credit facility provided by certain of its insurance subsidiaries, expiring in
September 2008 (with a one-year term-out option).
In addition to its guarantee of AIG Funding debt, AIG guarantees the debt and counterparty obligations of certain
subsidiaries, most notably AIG Financial Products Corp. and related entities, and American General Corporation. AIG
also provides support agreements to several insurance subsidiaries. These arrangements represent contingent liquidity risk
to the holding company. Moody's views the risk as manageable in light of the sound internal liquidity management at
these operations.
In evaluating AIG's liquidity profile, Moody's also considers the company's ownership of non-guaranteed subsidiaries,
including International Lease Finance Corporation (lLFC) and American General Finance Corporation (AGF). Each of
these firms maintains its own sources of primary and secondary liquidity. For additional information, please see Moody's
separate liquidity opinions on ILFC and AGF.
For the quarter ended December 31, 2007, AIG Funding had average commercial paper outstandings of approximately
$5.6 billion, maximum outstandings of $6.6 billion, and quarter-end outstandings of $4.2 billion. A portion of this
borrowing represents a fairly stable component of the parent company's funding. The remainder is used to fund relatively
liquid assets within AIG's Financial Services segment.
21
v. 2.0 rev 7/13/07
AIG Financial Leverage and Fixed-Charge Coverage
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Financial Leverale
Unadjusted debt ( mil)
Adjusted debt ($ mil)
Unadjusted equity ($ mil)
Adjusted equity & minority interest ($ mil)
Unadjusted debt % capital
Adjusted debt % capital
Earnings Coverage of Interest & Prfrd Divs
Unadjusted EBIT ($ mil)
Adjusted EBIT ($ mil)
Unadjusted interest & preferred dividends ($ mil)
Adjusted interest & preferred dividends ($ mil)
Unadjusted earnings coverage (x)
Adjusted earnings coverage (x)
Adjusted earnings coverage (x) - 5-yr avg
Dividend Ca~acity Coverage of Int & Prfrd Divs
Portion of equity not immediately available (%)
Unrestricted subsidiary dividend capacity ($ mil)
Unadjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x) - 5-yr avg
Goodwill Ex~osure
Goodwill ($ mil)
Goodwill % equity
Balance Sheet In~uts ($ mil)
Total assets
Unadjusted debt
Operating debt
Financial debt
Minority interest
Unadjusted equity
"Yes" if life investments> 50% total investments
Net unrealized investment appreciation
Income Statement In~uts ($ mil)
Total revenue
Unadjusted interest expense
Operating interest expense
Financial interest expense
Income tax expense
Minority interest expense
Net income
Preferred dividends
Revised
2007
2007
2006
2005
2004
2003
176,049
23,805
95,801
106,205
64.8%
176,049
28,489
95,801
106,205
64.8%
148,679
21,755
101,677
99,372
59.4%
109,849
15,352
86,317
82,367
56.0%
96,899
14,191
79,673
73,600
54.9%
80,349
12,832
69,230
63,147
53.7%
18,631
10,527
9,688
1,625
1.9x
18,631
10,527
9,688
1,625
1.9x
28,672
22,781
6,951
1,112
4.1x
20,886
15,910
5,673
758
3.7x
19,128
15,276
4,427
638
4.3x
16,135
12,493
4,219
638
3.8x
81%
18,202
1.9x
81%
18,202
1.9x
90%
10,168
1.5x
89%
9,495
1.7x
89%
8,764
2.0x
89%
7,615
1.8x
9,414
9,414
8,628
8,093
m:~r~
~;~o/~
)~i9%
m:4r~
8,556
)Qmr~
11@%
1,072,105
176,049
153,433
22,616
10,422
95,801
Yes
4,375
1,072,105
176,049
148,749
27,300
10,422
95,801
Yes
4,375
979,410
148,679
132,104
16,575
7,778
101,677
Yes
10,083
853,051
109,849
99,486
10,363
5,124
86,317
Yes
8,348
801,007
96,899
87,570
9,329
4,831
79,673
Yes
10,326
675,602
80,349
72,088
8,261
3,547
69,230
Yes
9,071
110,064
9,688
8,361
1,327
1,455
1,288
6,200
0
110,064
9,688
8,361
1,327
1,455
1,288
6,200
0
113,387
6,951
6,110
841
6,537
1,136
14,048
0
108,905
5,673
5,175
498
4,258
478
10,477
0
97,666
4,427
4,041
386
4,407
455
9,839
0
79,421
4,219
3,817
402
3,556
252
8,108
0
22
7,619
v. 2.0 rev 7/13/07
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Revised
2007
Pension Adjustments {$ mil}
Assumed borrowing rate (%)
Assumed tax rate (%)
Projected benefit obligation (end of year)
Fair value of plan assets (end of year)
Pension asset recorded
Pension liability recorded
Debt adjustment
Shareholders' equity adjustment
Interest expense adjustment
Lease Adjustments {$ mil}
Assumed debt multiplier (x)
Rent expense
Debt adjustment
Interest expense adjustment
EBIT adjustment
Other Adjustments ($ mil)
Hybrid securities #1
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Hybrid securities #2
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Lloyd's LOCS
2007
2006
2005
2004
2003
4,901
4,901
5%
35%
4,657
4,481
3,260
703
807
1,221
-726
61
4,126
2,871
523
888
1,255
-579
63
3,950
2,715
566
941
1,235
-559
62
771
4,626
257
257
771
4,626
257
257
6x
657
3,942
219
219
597
3,582
199
199
568
3,408
189
189
524
3,144
175
175
100
Mezzanine
A
100
0
5,809
Debt
D
1,452
4,357
100
Mezzanine
A
100
0
5,809
Debt
D
1,452
4,357
191
Mezzanine
A
191
0
186
Mezzanine
A
186
0
199
Mezzanine
A
199
0
192
Mezzanine
A
192
0
14,267
874
65,447
67,881
-545
5,409
100
153,433
14,267
874
65,447
67,881
-545
725
100
148,749
5,468
72
67,048
59,277
-459
598
100
132,104
0
0
47,274
52,272
-474
314
100
99,486
0
0
41,614
45,736
-180
300
100
87,570
0
0
32,941
38,990
-181
238
100
72,088
O~erating
Debt Detail ($ mil)
MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
AIG-guaranteed borrowings of AIGFP
Non-guaranteed borrowings of fin svcs, invest & other
Less borrowings of insurance operations
CP issued by AIG Funding on behalf of AI Credit et al.
Hybrid securities issued by ILFC
Total operating debt
23
v. 2.0 rev 7/13/07
AIG Financial Highlights (from Company Profile)
YTD 9/30107
2006
2005
2004
2003
2002
General Insurance
Gross Premiums Written
Net Premiums Written
Net Investment Income
Pretax Operating Income
Loss Ratio (%)
Expense Ratio (%)
Combined Ratio (%)
45,754
36,068
4,585
8,511
64.3%
24.0%
88.3%
56,280
44,866
5,696
10,412
64.6%
24.5%
89.1%
52,725
41,872
4,031
2,315
81.1%
23.6%
104.7%
52,046
40,623
3,196
3,177
78.8%
21.5%
100.3%
46,938
35,031
2,566
4,502
73.1%
19.6%
92.7%
36,678
26,718
2,350
923
83.1%
21.8%
104.9%
Life Insurance & Retirement Services
GAAP Premiums
Net Investment Income
Pretax Operating Income
24,895
16,468
6,900
30,636
19,439
10,032
29,400
18,134
8,904
28,088
15,269
7,925
23,496
12,942
6,929
20,694
11,243
5,258
7,109
1,008
8,010
524
10,525
4,276
7,495
2,180
6,242
1,182
6,822
2,125
5,721
2,541
5,814
2,346
5,325
2,253
4,714
2,125
3,651
1,316
3,467
1,125
91,631
17,379
11,492
1,072,105
176,185
104,067
113,194
21,687
14,048
979,414
148,679
101,677
108,905
15,213
10,477
853,051
109,849
86,317
97,666
14,845
9,839
801,007
96,899
79,673
79,421
11,907
8,108
675,602
80,349
69,230
66,171
7,808
5,729
561,131
71,010
58,303
($ Mil.)
Financial Services
Revenues
Pretax Operating Income
Asset Management
Revenues
Pretax Operating Income
AIG Consolidated
Total Revenues
Pretax Operating Income
Net Income
Total Assets
Total Debt
Shareholders' Equity
24
v. 2.0 rev 7/13/07
AIG Segment Detail (from Company Profile)
(SMil.)
YTD 9/30107
YTD 9/30106
2006
2005
2004
38,589
40,337
7,109
5,721
-125
91,631
36,438
37,303
5,923
3,647
68
83,379
49,206
50,163
8,010
5,814
113,194
45,174
47,376
10,525
5,325
505
108,905
41,961
43,402
7,495
4,714
94
97,666
5,662
508
252
-289
4,322
427
352
5,985
589
432
-646
-39
195
777
282
357
301
328
363
399
Revenues
General Insurance
Life Insurance 8: Retirement Services
Financial Services
Asset Management
Other IEliminations
Consolidated Revenues
Pretax Operatmg Income
General Insurance
Domestic Brokerage Group
Transatlantic Holdings, Inc_
Personal Lines
Mortgage Guaranty
6,133
5,402
7,334
-127
1,815
2,415
3,088
2,427
1,344
Other I Eliminations
2,383
-5
2
-10
15
18
Total General Insurance
8,511
7,819
10,412
2,315
3,177
Total Domestic
Total Foreign
Life Insurance 8: Retirement Services
Domestic Life Insurance
774
862
917
1,495
1,023
Domestic Retirement Services
1,452
1,588
2,323
2,164
2,054
Total Domestic
2,226
2,450
3,240
3,659
3,077
2,393
Japan and Other
2,753
2,946
3,732
2,959
Asia
Total Foreign
1,921
2,087
3,060
2,286
2,455
4,674
5,033
6,792
5,245
4,848
Total Life Insurance 8: Retirement Services
6,900
7,483
10,032
8,904
7,925
625
421
639
679
642
Capital Markets
183
-457
-873
2,661
662
Consumer Finance
180
529
876
786
20
48
761
-3
60
90
1,008
541
524
4,276
2,180
759
467
947
1,185
1,328
1,406
721
1,031
686
515
Financial Services
Aircraft Leasing
Other
Total Financial Services
Asset Management
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
Other IEliminations
Consolidated Pretax Operating Income
376
257
368
382
282
2,541
1,445
2,346
2,253
2,125
-1,581
-953
-1,627
-2,535
-562
17,379
16,335
21,687
15,213
14,845
25
v. 2.0 rev 7/13/07
AIGFP Five-year Cash Profile as of Dec. 31, 2007
FIVE-YEAR CASH PROFILE
Assumptions for Base Case Cash Profile
•
All derivatives. liability and asset flows as of December 31.
2007.
•
All contingent liability payouts assutlling earliest possible
payout dates (see Sumlllary Table 011 page 2).
•
No ability to access the capital markets for funding,
•
Additional liquidity from selling liquid portfolio securities
(with mark-to-Illarket and 3 % (non-COO) and 50% (COO)
haircut) and from refinancing (with 500/~) haircut) CBO
securities put to AIG-FP in connection WiUl assumed
contingent liability payouts (see Summary Table on page
l
2).
26
v. 2.0 rev 7/13/07
SUMMARY TABLE
CONTINGENT LIABILITIES AND ADDITIONAL LIQUIDITY
(USD OOO~s)
Comh:lg+.!nt
DATE
I
Aircraft
Fa(:mt!~H);
12!31!(j7 ·1'12.iC,,9
102008
2C!200B
3C!200B
40200S
102009
20.2009
302009
402009
1C!201 I)
20201 [)
~~0201 0
402010
102011
202011
:302011
402011
102012
2C!2012
302012
402012
TOTAL
<."
ee ;:,:otes
'l.'
(1)
(I
(.27~O75)
(I
C27~(175)
CB02il-]
PWs(2:1
G
(35,<A13)
':2!~l3,755)
(I
,:242,928)
(38,205)
28,240
;58,O@)
33/3713
(13,52S)
2Gl,531
0
{2.34~:173)
77A42
(227,01%)
;70,4"S4:1
88,403
58,303
0
1~.2~~~292)
(\
(I
(I
°
(I
(I
0
0
°°
(\
(I
(0)
011
U~ibjHtkl:s
(4~~180)
(941 )
76~758
6,708
11,292
(38,421 )
(925,194)
Uabmty
Total
MUitary
Portfolio
HQusing(3)
.ASSf'IS (·ll
0
(12,260)
138,128)
112,21;~0)
eM,S7B)
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
(97,526)
page ""!.
UK PmfeH'&d
Shares (5)
n
19,170,757
3,87608.(1
r15~329)
3~B47!774
(I
1)31,138.3)
(282264)
3~256~H9:5
I)
117,582
464,800
70,992
404,7133
18,730
1,025,957
e,G.OJl
I}
(:rlOK~)
4,949
(5\1069)
38'c(f16
(13525)
29;531
I}
23)048)1938
3 H4f fT4
3)2Se)!9!}5
117,582
464,800
70);19.2
404,7rB3
18,730
1,025,957
.8e,071
10Y1B
0
906)27.2
(I
f'"
(I
10,305
0
I}
I}
(I
I)
I}
{284~.373)
10,1q~,
()
(149J318)
(70A54)
88AG:3
0
906!272
0
lC],:}.!)S
0
fJ06 562
67!268
10,549
I}
56c3G~3
(43800)
(941)
78]58
8]08
11292
(36A21)
(1 ,1)2Z' ,720)
Cl..mmliHhi+.!
Net
Asset
Total
Lhlllldity
j
j
2:1048,,8.:38
268W,2S3
29,744,~95
2~J,.57~~ J314
29.971,331
~~O.:O47.!.272
80 . 89S.!965
30 444,:m
3104%,8.03
31,572,405
:31.:14B,22~1
~~ 1. 1@gml
~nt\M,42"~
32122,8.32
3212&,440
:32,1 &S,060
:33,090,6:81
~~3.:2:?~4.}' 07
()
I)
()
I}
g06,S6.2
'B7 2'oH
10,549
0
I)
(;
321 . 263.!.257
10,457
'30,:383.933
(I
10,457
34.260.1)14
3:1.2:I1.!.~94
1,876,080
1
I}
J
~~3.:2S1.!965
2
27
v. 2.0 rev 7/13/07
r--
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COLLATERAL OR CASH PAYMENT REQUIREMENTS
RESULTING FROM AIG DOWNGRADE
usn millions
A 1(; l)o;Yngraded
Obligations Unth:r
InY('stuwnt
Contracts
'[0
Aa3fAA- (by' ont: or both Agencit~~)
A IIA+ (hy
011(:
or both Agencies)
() hti gal ions
Under ()ther
(~u mula1i\t,
()bJigatinns
1.63
592
j'="", .....
6JB9
2275
(]-t-:'l' !o ")'14'
....). ":
6 . 202
2,867
9J)69
I,))
The Cash Profile graphs on the folll)"l,ving t\VO pages h~tve been adjusted to rdl:~d the (:<)n;~ter;.d and ~:a;-;h
re.qnirt'nwms quantifb.l ;'tbo'.,.e (b<Jth Ih(~ "immei..hat(~ Inss of liquidity du(:' lO HK~tn(~~;f of assnmedd!)\vngr;.Klt~,
,md i~llpn)v(~d hrp. udity oY;::~r tinwas n;dlaterilljsn:~lurtled in ((Hull:~(h()n with s(:l1(~dukd n,:~pi'.tynK~nb ulhkr
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4
29
v. 2.0 rev 7/13/07
CASH PROFILE
BASE CASE WITH OBLIGATIONS RESULTING FROM
AIG DOWNGRADE TO Aa3/AA-
34:CC(J,O:::-O,OJO
:32,('CO,oJ'.!,('oo
JO,!))':),OCO,OOO
28,(.co,OX'J'(oO
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18,CCO,o:Or.JJO
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14:CC(J,O:::-O,OJO
12mJ,CCO,c'()O
10,('(O,oJ),(00
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6:o)J.cOJ.c~JO
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o
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5
30
v. 2.0 rev 7/13/07
CASH PROFILE
BASE CASE WITH OBLIGATIONS RESULTING FROM
AIG DOWNGRADE TO A+IA 1
34.000,000,000
~Q, 000 ,000 ,000
3D. 000,000 ,ODD
28, NJO ,000 ,000
26.000,000,000
24: 000,000 ,000
22.000,000,000
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1So 000,000 ,000
16:000,000,000
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31
v. 2.0 rev 7/13/07
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American IntJ£lHlatilicmal Group. Inc,
COllsoJ:iciated Balance! Sh€'et
(i!lmlm~~E)
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33
v. 2.0 rev 7/13/07
American International Group, Inc
Consolidated St.lhtrnent of Income
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FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Rationale for parent recommendation
• During the past three quarters (4007 thru 2008), AIG's CDS and investment portfolios have produced
realized and unrealized losses and unrealized investment depreciation totalling $59 bin pretax and $38
bin after taxes (table on pg 2).
• AIG has not provided specific estimates of 3008 results but says that it is reasonable to expect that
losses/writedowns on CDS and RMBS will be similar to those seen in 2008.
• AIG's stock price has fallen about 80% YTD, including a steep decline in the past week, reflecting investor
worries about incremental losses, liquidity demands and ownership dilution from an expected equity
issuance. AIG's market-implied ratings, based on bonds and CDS, have fallen to the B range.
• Per BlackRock's model, estimated economic losses on the CDS and RMBS portfolios are $15 bin pretax
in the
ected case and
0 bin
in the stress case
methodo
outlined on
•
•
•
•
•
•
57-58,66). The stress case estimate is just over half of the pretax CDS and investment losses/writedowns
recorded through 2008.
Per Chris Mann's model, estimated economic losses on the CDS and RMBS portfolios are $3 bin pretax in
the expected case and $12 bin pretax in the stress case (table on pg 3).
AIG raised approximately $20 bin of capital ($7.5 bin common equity, $12.8 bin Basket D hybrids) during
May 2008. The company has increased its consolidated cash and ST investments from $29 bin at YE
2006 to $82 bin as of June 30, 2008. Cash from operations has averaged $22 bin over the past three
years.
AIG is conducting a strategic and financial review that will likely include capital raising, asset sales,
dividend reduction, securing additional sources of liquidity and reducing volatility and collateral needs in
the CDS portfolio (plan outlined on pgs 51-66).
AIG remains one of the world's largest and most diversified insurance firms, with leading market positions
in many business lines and geographic regions. The composite scorecard (pg 9) suggests an overall IFSR
of Aa2 (current) or Aa3 (stress cases), assuming that the CDS and RMBS exposures can be contained
through the strategic/financial initiatives.
A one-notch downgrade of the parent seems likely, regardless of the specific strategic/financial steps
taken. This could expand the notching between most operating company IFSRs and the parent debt
rating, reflecting (i) the AIGFP exposures guaranteed by the parent, and (ii) US mortgage market
exposures that cut across various business units.
The most pressing challenge for AIG is managing liquidity, as summarized in the table on pg 3. We
believe that there is sufficient value in AIG's core insurance operations to attract the capital and other
financing/solutions to meet short-term needs. Subsidiary sales will take longer but could further boost
liquidity over the next several months.
AIG CDS & Investment Related Losses/Writedowns
($ Bins)
AIGFP super-senior CDS
Unrealized market valuation losses
AIG investments
Realized capital losses
Unrealized depreciation during quarter
Total investment losses/writedowns
Total CDS & investment losses/writedowns
Pretax loss 1 Net loss
AIG Consolidated Equity ($ Bins)
Shareholders' equity
Change in equity vs 9/30/2007 ($)
Change in equity vs 9/30/2007 (%)
402007
Pretax
After tax
102008
Pretax
After tax
202008
Pretax
After tax
-11.1
-7.2
-9.1
-5.9
-5.6
-3.6
-25.8
-16.8
-2.6
-3.8
-6.4
-1.7
-2.5
-4.3
-6.1
-10.6
-16.7
-3.4
-6.8
-10.2
-6.1
-3.7
-9.8
-4.0
-2.6
-6.6
-14.8
-18.1
-32.9
-9.1
-12.0
-21.1
-17.6
-11.5
-25.8
-16.1
-15.3
-10.2
-58.6
-37.8
-8.4
-5.3
-11.3
-7.8
-8.8
-5.4
-28.5
-18.5
9/30/2007
104.1
12/31/2007
95.8
313112008
79.7
6/30/2008
78.1
-26.0
-25.0%
AIG CDS & RMBS Portfolios
Expected & stress case pretax losses modeled by BlackRock as of Sept. 9, 2008
Number of
Base Case Losses
($ Bins)
Transacs
Notional
Undisc
Disc
CDS
109
77.0
-5.6
-7.3
-7.3%
-9.5%
Loss % of notional
RMBS (preliminary results)
Loss % of par
Totals
Pretax
After tax
Par
66.0
Total CDS & RMBS estimated losses
Stress Case Losses
Undisc
Disc
-12.9
-15.6
-16.8%
-20.3%
-9.0
-13.6%
-17.0
-25.8%
-14.6
-29.9
NB: For CDS portfolio, discounted losses are greater than undiscounted because discount has greatest impact on positive
cash flows in years 6-25.
2 of 66
AIG CDS-COO & RMBS Portfolios
Expected & stress case pretax losses modeled by Chris Mann as of Sept. 13, 2009
Number of
($ Bins)
Transacs
CDS-COO with subprime content (data as of March 31, 2008)
178
Modeled portion
31
Loss % of notional
Not modeled
Notional
64.6
56.0
Expected
Losses
Stress Case
Losses
-0.7
-1.3%
-8.6%
-4.8
8.6
Par
75.3
RMBS (data as of Dec. 31, 2007)
Modeled portion
Loss % of par
Not modeled
59.6
-1.8
-6.7
-3.0%
-11.2%
-2.5
-11.5
15.6
Total CDS-COO and RMBS estimated losses
AIG Liquidity Analysis as of Sept. 15, 2008
($ Bins)
Liquidity needs
Combined liquidity stress scenario two 1
AIGFP CDS with OC triggers"
AIGFP contracts with early termination provisions"
Sec lending full paydown 4
Total liquidity needs
Liquidity sources
Capital raise
Dividend reduction
Investment sales
Financing of unencumbered assets
Subsidiary sales (does not include ILFC)
Subtotal from capital raise & asset sales
AIGFP solutions to reduce/finance collateral
Project Metropolis - insurance in lieu of muni collateral
CDS hedging of positions, portfolio tranche
Swapping of CDS reference obligations
CDS financing arrangements
Cost of AIGFP solutions
Subtotal from AIGFP solutions
Total liquidity sources
Net liquidity availability
4
14.0
8.2
4.6
13.3
40.1
Sec lending analysis
Liability as of 9/8/08
Cash in sec lending pool
Other cash held by pool members
TX FHLB loans ($6-8 bin by 9/30/08)
Repos of gov'ts, agency pass-thrus, corporates
Additional amount needed for full paydown
Low
10.0
0.0
1.0
5.0
10.0
26.0
High
25.0
2.0
2.0
15.0
13.0
57.0
5.5
5.0
4.0
8.0
-5.0
17.5
43.5
5.5
10.0
8.0
16.0
-10.0
29.5
3.4
46.4
69.0
9.4
15.3
6.0
25.0
13.3
86.5
Key assumptions include no CP rollover; no access to capital markets; AIGFP incremental collateral postings of $13 bin related to rating
downgrades plus $13 bin related to MV deterioration vs 6/30/08.
" Assumes that all such transactions trigger immediately and are put to AIGFP, although some would likely take time to trigger.
" Assumes that all such contracts terminate immediately, although some provide significant value to c'parties and would likely remain in place.
1
Rationale for OURS recommendation
• The RMBS portfolio is mainly held by the DLiRS companies through their participation in the securities
lending collateral pool. Realized capital losses (OTTI) of $5.2bn on this portfolio caused the combined
RBC of the group to fall from 292% on 3/31/08 to 240% on 6/30/08 (including a $1 bn capital infusion).
• RMBS OTTI losses are likely to rise in 3008, given widening of the marks to market since June, and $8bn
of unrealized losses remaining on the portfolio.
• AIG has committed to raising the combined RBC to 350% by YE 2008, and currently estimates that it will
need $3bn-$8bn in capital infusions to reach that level in view of the company's "bright line" test for OTTI.
• Securities lending collateral liabilities - a source of potential liquidity stress - amounted to $58bn in 2008
for the DLRS companies, versus a market value of $50.5bn, or almost $8bn below amortized cost. (NB:
Total collateral liabilities for all AIG participants, incl. foreign & P&C subs were $75bn vs. roughly $60bn of
fair value collateral assets at 6/30/08, per the 10-0.) Against that, there was just over $9bn of cash in the
3 of 66
•
•
•
•
pool plus $15bn held by the lifecos outside of the pool, leaving a gap of $31 bn in the event the pool had to
be completely unwound.
Recent AIG liquidity initiatives to cover the gap include: 1) the establishment of $6bn-$8bn in FHLB
borrowing capacity for the Texas companies; and 2) identification, within the lifecos, of an estimated
$25bn in repo capacity (i.e., on governments, agency pass-throughs and investment-grade corporates).
This could possibly get the DLRS companies through a liquidity crisis temporarily, at the expense of
group's core life insurance operations.
Although AIG plans to raise additional equity and debt in the market, and is in the process of selling
certain businesses (including its American General Life and Accident Ins. Co. subsidiary (AGLA) and a
small employee benefits business), there is a high degree of uncertainty around the timing, execution, and
proceeds that may be raised in the current environment.
Given the more formidable potential collateral needs at AIGFP in the event of a downgrade of AIG's
senior debt, there is uncertainty as to how much of the new capital raised may be contributed to the
lifecos by YE 2008.
Given continuing asset deterioration, liquidity concerns (albeit somewhat improved), and capital
uncertainties for the lifecos, we recommend placing their ratings on review for possible downgrade.
Rationale for other subsidiary recommendations
• Explicitly supported ratings (R-Dn) should move with parent.
• AIG Capital is notched off of AGF and ILFC (R-Dn), both of which receive rating uplift from AIG.
• AIG Commercial Insurance, AIAB and parent-supported CP programs (Negative outlook) would likely
move only if the parent dropped to A3, which seems less likely than A 1 or A2.
• AIG Edison and ALI CO (R-Dn) could move if the parent dropped to A2.
• AIGGI Taiwan (R-Dn) depends on AIG for rating uplift.
• AIG UK's stand-alone IFSR (R-Dn) is a weak Aa3. A reduction in the financial flexibility score (last
published as Aa 1) would push the stand-alone IFSR to A 1.
• TRH (R-Dn) depends on AIG for rating uplift.
• UGC (R-Dn) benefits from parental support and faces its own challenges in the mortgage market.
September 15, 2008
Current & Recommended Ratings on AIG Subsidiaries
Explicitly supported ratings
AIG Capital Trusts I & II
AIG Financial Products Corp. & subsidiaries
AIG Life Holdings (US), Inc.
AIG Program Funding, Inc.
AIG Retirement Services, Inc.
American General capital securities
Additional recommendations
AIG Capital Corporation
AIG Commercial Insurance Group (8)
AIG Domestic Life Insurance & Retirement Services (10)
AIG Edison Life Insurance Company
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC
AIG General Insurance (Taiwan) Co., Ltd.
AIG UK Limited
American General Finance Corporation
American International Assurance Company (Bermuda) Limited
American Life Insurance Company
International Lease Finance Corporation
Transatlantic Holdings, Inc.
United Guaranty subsidiaries UGRIC & UGMIC
United Guaranty subsidiaries UGRIC of NC & UGCIC
Affirm
Transatlantic Reinsurance Company
SunAmerica (3)
Rating Type
Bkd Tr Prfrd Shelf
Bkd LT Issuer
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Tr Prfrd Stock
LT Issuer
IFS
IFS
IFS
(Bkd) ST
IFS
IFS
Sr Unsec Debt
IFS
IFS
Sr Unsec Debt
Sr Unsec Debt
IFS
IFS
IFS
Bkd ST
4of66
Support
AIG
AIG
AIG
AIG
AIG
AIG
SA
Public Current
Rec
Rec
Rating Rating Outlook Rating Outlook
G'tee
G'tee
G'tee
G'tee
G'tee
G'tee
(P)A1
Aa3
Aa3
(P)Aa3
Aa3
A1
Aa3
Aa2
Aa3
AIG Agmt
AIG Agmt
AIG Agmt
AIG Agmt
A3
Aa3
A2
Aa3
Aa2
A3
A3
Aa3
C/Caa2
Aa3
Negative (P)A1
Negative
Aa3
Negative
Aa3
Negative (P)Aa3
Negative
Aa3
Negative
A1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
A2
Aa3
Aa2
Aa2
P-1
A1
Aa3
A1
Aa3
Aa2
A1
A2
Aa3
A1
Negative
Stable
Negative
Stable
Stable
Negative
Stable
Negative
Stable
Stable
Negative
Stable
Negative
Negative
A2
Aa3
Aa2
Aa2
P-1
A1
Aa3
A1
Aa3
Aa2
A1
A2
Aa3
A1
R-Dn
Negative
R-Dn
R-Dn
Negative
R-Dn
R-Dn
R-Dn
Negative
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Aa3
P-1
Stable
Stable
Aa3
P-1
Stable
Stable
Contents
AIG Business Mix
6
AIG Financial Hiqhliqhts
7
AIG Segment Detail
8
AIG Composite Scorecard
9
Peer Comparisons
10-13
Press Release of Auqust 7,2008
14-15
Credit Opinion (published August 14, 2008)
16-21
Q-tools
22
Stock Chart
23
Ratinq History
23
Organizational Structure with Rated Entities
24
AIG Financial Leverage and Fixed-Charge Coverage
25-26
AIG Domestic Life & Retirement Services Scorecard
27
AIG Financial Statements
28-39
AIG Invested Assets
40-44
AIG Super Senior CDS Portfolio
45
AIG Liquidity Review
46-48
AIG Stress Scenarios
49-50
AIG Strategic Review Presentation Slides
51-66
50f66
American International Group, Inc.
Revenues and Income Graphs
Twelve Months Ended December 31,2007
Revenues
Asset Management
5.8%
Foreign Life
Insurance &
Retirement Services
33.8%
Domestic General
Insurance
33.5%
Financial Services
revenues were (0.6%)
Domestic Life
Insurance &
Retirement Services
15.4%
Foreign General
Insurance
12.1%
Income Before Income Taxes and Minority Interest
Foreign Life
Insurance &
Retirement
Services
44.3%
Asset Management
15.0%
Domestic General
Insurance
51.9%
Domestic Life
Insurance &
Retirement
Services
29.2%
Foreign General
Insurance
21.9%
Financial Services
operating loss was
(62.3)%
Note: The effects of net realized capital gains (losses) and Capital Markets other-than-temporary impairments,
F AS 133, other and consolidation and elimination adjustments are excluded.
6of66
4
AIG Financial Highlights (from Company Profile)
($ Mil.)
General Insurance
Gross Premiums Written
Net Premiums Written
Net Investment Income
Pretax Operating Income
Loss Ratio (%)
Expense Ratio (%)
Combined Ratio (%)
Life Insurance & Retirement Services
GAAP Premiums
Net Investment Income
Pretax Operating Income
Financial Services
Revenues
Pretax Operating Income
Asset Management
Revenues
Pretax Operating Income
AIG Consolidated
Total Revenues
Pretax Operating Income
Net Income
Total Assets
Total Debt
Shareholders' Equity
2007
2006
2005
2004
2003
2002
58,798
47,067
6,132
10,526
65.6%
24.7%
89.7%
56,280
44,866
5,696
10,412
64.6%
24.5%
89.1%
52,725
41,872
4,031
2,315
81.1%
23.6%
104.7%
52,046
40,623
3,196
3,177
78.8%
21.5%
100.3%
46,938
35,031
2,566
4,502
73.1%
19.6%
92.7%
36,678
26,718
2,350
923
83.1%
21.8%
104.9%
30,627
22,341
8,186
30,766
20,024
10,121
29,400
18,134
8,965
28,088
15,269
7,968
23,496
12,942
6,970
20,694
11,243
5,258
-1,309
-9,515
7,777
383
10,525
4,424
7,495
2,131
6,242
1,302
6,822
2,125
5,625
1,164
4,543
1,538
5,325
1,963
4,714
1,947
3,651
521
3,467
1,125
110,064
8,943
6,200
1,060,505
176,049
95,801
113,194
21,687
14,048
979,414
148,679
101,677
108,905
15,213
10,477
853,051
109,849
86,317
97,666
14,845
9,839
801,007
96,899
79,673
79,421
11,907
8,108
675,602
80,349
69,230
66,171
7,808
5,729
561,131
71,010
58,303
7 of 66
AIG Segment Detail (from Company Profile)
2007
2006
2005
2004
51,708
53,570
-1,309
5,625
470
110,064
49,206
50,878
7,777
4,543
983
113,387
45,174
48,020
10,677
4,582
328
108,781
41,961
43,402
7,495
4,714
94
97,666
7,305
661
67
-637
7,396
3,137
-7
10,526
5,845
589
432
328
7,194
3,228
-10
10,412
-820
-39
195
363
-301
2,601
15
2,315
777
282
357
399
1,815
1,344
18
3,177
642
1,347
1,989
3,044
3,153
6,197
8,186
917
2,323
3,240
3,821
3,060
6,881
10,121
1,495
2,164
3,659
3,020
2,286
5,306
8,965
1,023
2,054
3,077
2,393
2,455
4,848
7,925
Total Financial Services
-9,515
578
-873
668
10
383
769
2,661
922
Other
873
-10,557
171
-2
4,424
642
662
786
90
2,180
784
469
1,164
732
438
368
1,538
1,194
387
382
1,963
1,328
515
282
2,125
Other IEliminations
-1,418
-767
-2,454
-562
Consolidated Pretax Operating Income
8,943
21,687
15,213
14,845
($Mil.)
Revenues
General Insurance
Life Insurance & Retirement Services
Financial Services
Asset Management
Other IEliminations
Consolidated Revenues
Pretax Operabng Income
General Insurance
Domestic Brokerage Group
Transatlantic Holdings, Inc.
Personal Lines
Mortgage Guaranty
Total Domestic
Total Foreign
Other IEliminations
Total General Insurance
Life Insurance & Retirement Services
Domestic Life Insurance
Domestic Retirement Services
Total Domestic
Japan and Other
Asia
Total Foreign
Total Life Insurance & Retirement Services
Financial Services
Aircraft Leasing
Capital Markets
Consumer Finance
72
Asset Management
-89
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
8of66
Composite Scorecard
i
Instructions:
1) Modify adjusted scorecard ratings in column H (white cells) for each factor as needed.
2) Add notches for Other Considerations and Support if applicable. Please enter whole numbers only. Positive numbers
result in a worse rating and negitive numbers result in a better rating.
Rating Factors
American International Group, Inc.
Product Risk - P&C
Product Risk - Life
Product Diversification
r.:~nm~nhic Diversification
X
x
X
X
40.8%
24.1%
9.8%
9.0%
12.7%
24.5%
95.4%
Baa2
5.5%
19.4%
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
90f66
A1
A1
A1
Assicurazioni
Generali S.p.A
Italy
IFRS
EURO
YE2006
Aviva pic
UK
IFRS
EURO
YE2007
Allstate
USA
US GAAP
USD
YE2007
Travelers
USA
US GAAP
USD
YE2007
Hartford
USA
US GAAP
USD
YE2007
Aa3
STA
Aa3
Aa3
NEG
STA
Aa2
RURJ debt only
A1
A1
A1
Aa2
STA
A2
Aa3
STA
A2
AA
A+
AA
AA
A+
AA/STA
AA+/STA
A+/STA
AA-/STA
AAiSTA
A+/STA
AA-/STA
AAiSTA
A+/STA
32,640
63,547
44,511
27,242
29,395
33,776
27,364
93,383
34,585
58,798
6,200
1,010,505
95,801
65,811
61,821
43,027
18,794
2,915
382,543
24,198
17,630
18,350
41,880
26,384
15,496
2,034
432,054
22,423
27,180
21,522
44,289
7,966
1,061,149
47,753
4,636
156,408
21,851
4,601
115,224
26,616
2,949
360,361
13,064
I
Composite
Aa2/Aa2
Composite
Aa3/Aa3
Composite
Ai / Aa3
Composite
Aa3/Aa3
P&C
Aa2/Aa2
P&C
Aa3 / Aa2
P&C
A2/Aa3
I
Public
Global
Public
Germany
Worldwide
Public
Italy
International
Public
UK
Global
Public
USA
US
Public
USA
US
Public
USA
US
Aa1/Aaa
Aa2/Aa1
Aa2/Aa2
Aa1/Aaa
Aa1/Aa1
Aa2/Aa2
Aaa/ Aa2
Aa3 / Aa3
Aa2 / Aa3
Aa2/Aa2
Aa2/Aa2
Aa2/Aa2
Aa2 / Aa2
Aa3 / Aa2
Aa3 / Aa2
Ai / Aa3
Aa2 / Aa2
Ai / Aa3
Ai/Ai
Aa2/Aa2
A2/A2
AaaJAaa
Baa2/A1
Aa1/Aa2
Aa3/Aa3
B£a2/Aa3
8aa1/A2
AaaJAaa
Aaa/Aa2
A2/A2
Aa2 / Aa3
Baa2 / Aa3
Baa1 / Ai
Aaa / Aa3
Aa2 / Aa2
A2 / A2
Aa3/Aa3
A2/A2
Baa1/Baa1
Aaa/Aaa
Aaa/Aaa
Ai/Ai
Aa2 / Aa2
Aa2 / Aa2
Aa3 / Aa3
Aa1 / Aa3
A2 / Aa2
Ai / Aa3
Aa2 / Aa2
A2/ Ai
Baa2/A1
Aa3 / Aa3
Aa1 / Aa1
A3/ Ai
Aa1 / Aa2
Baa3 / Ai
Aa2 / Aa3
10.0%
3.5 x
10%
4.8 x
14.0%
4.1 x
8.0%
2.0 x
5.9%
9.2 x
24.9%
4.5%
6.9 x
30.8%
2.4%
3.6 x
28.4%
Aa
Aa
Aaa
Aa
A
Aaa
Aa
Aa
A
Aa
Aa
Aaa
Aa
Aaa
Aa
A
Aaa
na
Baa
Aa
A
Aa
Aaa
Aaa
na
Aaa
Aa
A
na
A
Aa
40.8%
24.1%
9.8%
22.9%
27.2%
24.2%
22.4%
27.0%
11.9%
24.7%
45.8%
18.6%
30.9%
5B%
3.8%
8.5%
58B%
12.6%
36.4%
17.1%
9.0%
4.5%
7,3%
na
3.0 x
na
3.1 x
na
3.7 x
20.7%
52.1%
13.6%
46.4%
9.5%
-1.0%
COMPANY NAME
Domicile
Accountinq Convention
AIG Inc.
USA
US GAAP
USD
YE2007
Allianz SE
Germany
IFRS
EURO
YE2007
RATING & ReM INFO
IFSR
Outlook
Senior Debt
Aa2
NEG
Aa2
COMPETITOR RATINGS
S&P (IFSR)
Fhch (IFSR)
AM Best (IFSR)
AAAAA++
AA-
MARKET DATA
Market Capitalisation (AIG as of Sept 12, 2008)
FUNDAMENTALS (MM)
Gross Premiums Written - Total
Gross Premiums Written - Life
Gross Premiums Written - Non-life
Net Income
Total Assets
Shareholders' Equity
QUANTITATIVE MEASURES
Scorecard Completed (Life/Non-Life/Composite)
Raw vs. Adjusted Scorecard Rating
DESCRIPTIVE STATISTICS
Ownership - Public, Private, Subsidiary
Domicile
Geographic Spread
RAW FACTOR RATING I ADJUSTED FACTOR RATING
Business Profile
Market Position and Brand
Distribution
Product Focus and Diversification
Financial Profile
Asset Quality
Capital Adequacy
Profitability
Liquidity and AsseVLiability Management
Reserve Adequacy
Financial Flexibility
SCORECARD METRICS
Business Profile
Market Position and Brand
Market Share Ratio
Relative Market Share Ratio
Expense Ratio % NPW
Distribution
Distribution Control
Diversity of Distribution
Product Focus and Diversification
Product Risk - P&C
Product Risk - Life
Product Diversification
Geographic Diversification
Financial Profile
Asset Quality
High Risk Assets % Invested Assets
Reinsurance Recoverables % Equity
Goodwill % Equity
Capital Adequacy
Capital % Total Assets
Gross Underwriting Leverage
Profitability
Return on Average Equity (5 yr. avg.)
Sharpe Ratio of Growth in Net Income (5 yr.)
Liquidity and Asset/Liability Management
Liquid Assets % Policyholder Reserves
Reserve Adequacy
Adv. f (Fav.) Loss Reserve Dev. % Beg. Reserves (5yr.)
Financial Flexibility
Financial Leverage
Earnings Coverage (5 yr. avg.)
9,0%
Aa
A
Aa
Aa
Aaa
12.70%
24.5%
15.0%
10.1%
0,0%
14.9%
Negative
95.4%
90.6%
83.3%
92.4%
5.5%
-3.4%
1B%
-1.1%
-1.6%
1,2%
5.4%
19.4%
9.4 x
31.1%
6.9 x
35.6%
7.4 x
25.3%
6.0 x
23.6%
11.2 x
21.7%
10B x
21.5%
8.4 x
10 of 66
-->.
-->.
-
(USDBlns)
AIG, Inc.
Secured Rating (IFSR)
HoldCo Senior Rating (Bank Unspptd)
Outlook
Accounting Basis
Market Capitalization
2008
1008
Aa2/Aa3
Aa3
Negative
US GAAP
71
108
Market Cap I Equity
2008
1008
2007
Total Assets
Allstate
Merrill Lynch
Aa2
Al
Lehman
Sun Life
Aa2
Aa2
A2
A2
Stable
Stable
US GAAP CDN GAAP
37
23
43
27
Met Life
A2
A2 (A3)
Stable
US GAAP
31
40
A2
A2
RUR ~
USGAAP
20
28
49
47
34
54
RUR ~
US GAAP
25
27
0.9x
l.4x
1.5x
l.4x
l.4x
1.8x
O.4x
0.7x
1.0x
1.3x
1.3x
1.3x
0.9x
1.lx
1.6x
0.8x
1.lx
1.5x
1.2x
1.3x
1.3x
1.3x
1.5x
1.8x
2008
1008
1,050
1,051
1,031
1,091
812
809
151
152
966
1,042
639
786
556
557
Total Equity
2008
1008
2007
78
80
96
34
33
31
75
78
77
20
20
22
35
37
32
26
25
22
Equity % Assets
2008
1008
2007
7.4%
7.6%
9.1%
3.3%
3.1%
3.0%
9.2%
9.6%
9.8%
13.1%
13.3%
14.0%
3.6%
3.5%
3.1%
Debt % Capital
2008
1008
2007
70.7%
69.5%
65.8%
92.1%
92.8%
93.0%
76.1%
75.0%
73.3%
22.3%
21.7%
20.5%
Revenues
2007
110
28
32
2008
1008
2007
5 yr avg.
-5
-8
6
10
-9
2
3
5
-1
6
6
Return on Average Assets (%)
2008
1008
2007
5 yr avg.
-0.5%
-0.7%
0.6%
1.4%
0.1%
0.1%
0.3%
0.7%
Cash Flow from Operations
2008
1008
2007
5 yr avg.
8
35
6
26
(19)
-22
-61
-26
2008
1008
2007
5 yr avg.
(2)
-106%
567%
309%
8
-1231%
-688%
-494%
1104%
-150%
-65%
44
45.9%
12
38.1%
20
6
o
( J)
(J)
Morgan Stanley Wachovia
Al
Aa2
Al (A2)
Al (AI)
Stable
Negative
US GAAP
USGAAP
Net Income
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
Hartford
Aa3
A2
Stable
USGAAP
20
24
Aal/Aa2
Aa3
Al/A2
83
106
72
87
27
35
1.2x
1.3x
l.4x
1.lx
1.8x
1.7x
1.2x
1.6x
1.7x
1.0x
1.2x
l.4x
187
187
334
344
1,700
1,705
1,344
1,383
521
554
33
33
35
18
18
17
17
18
19
94
84
87
74
69
70
32
33
32
4.1%
3.2%
3.3%
5.9%
5.9%
6.3%
9.4%
9.3%
9.2%
5.0%
5.2%
5.3%
5.5%
5.1%
5.3%
5.5%
5.2%
5.4%
7.2%
7.2%
7.3%
93.4%
93.4%
94.3%
92.3%
93.9%
94.1%
39.8%
38.6%
37.0%
24.0%
23.0%
32.1%
29.6%
25.0%
21.7%
84.2%
83.8%
86.9%
80.3%
80.4%
81.7%
54.0%
52.9%
53.3%
37
11
19
53
21
26
52
61
28
o
o
-3
1
-2
4
4
2
2
3
2
-2
7
8
o
4
3
2
-3
8
10
o
5
3
-5
-2
-8
3
2
3
-1.1%
-0.1%
0.8%
1.3%
0.0%
0.2%
3.0%
2.7%
-0.5%
-0.2%
-0.8%
0.7%
-0.4%
0.1%
0.7%
0.8%
0.2%
0.1%
0.8%
1.1%
0.3%
0.3%
1.2%
1.2%
0.2%
0.0%
0.9%
0.7%
0.1%
-0.1%
0.6%
0.9%
0.0%
-0.1%
0.7%
1.0%
-0.2%
0.1%
0.9%
1.2%
(7)
1
5
5
5
15
-72
-24
-26
(11)
4
10
7
8
o
6
-52
-22
-25
o
4
3
1
6
6
4
(0)
-46
-36
-21
-32
-17
-13
-15
-5
-4
47
322%
117%
184%
9
-744%
930%
-15%
3
-2175%
-1088%
-566%
2
554%
231%
212%
1
35%
46%
161%
3
391%
203%
-717%
-290%
-100%
-312%
-346%
-275%
-180%
-73%
41%
-115%
8
10.1%
34
107.4%
4
17.8%
18
16
6
-9
2
-3
(1)
o
o
(USDBlns)
2008
1008
AIG, Inc.
Aa2/Aa3
Aa3
Negative
USGAAP
71
108
Market Cap / Equity
2008
1008
2007
0.9x
l.4x
1.5x
1.6x
1.6x
2.1x
0.7x
0.9x
1.3x
1.3x
1.3x
l.4x
Total Assets
2008
1008
1,050
1,051
1,088
1,189
2,100
2,200
Total Equity
2008
1008
2007
78
80
96
45
43
43
Equity % Assets
2008
1008
2007
7.4%
7.6%
9.1%
Debt % Capital
2008
1008
2007
Revenues
Secured Rating (IFSR)
HoldCo Senior Rating (Bank Unspptd)
Outlook
Accountin Basis
Market Capitalization
-->.
( J)
(J)
Allianz
ManuLife
Aa3
Aal
Aa3
Aa3
Stable
Stable
US GAAP CDN GAAP
51
53
57
59
Aal/Aa2
83
106
Aa3
72
87
Al/A2
27
35
2.1x
2.3x
2.5x
1.lx
1.8x
1.7x
1.2x
1.6x
1.7x
1.0x
1.2x
l.4x
1,016
1,127
356
357
1,700
1,705
1,344
1,383
521
554
136
128
113
40
45
48
25
25
24
94
84
87
74
69
70
32
33
32
4.1%
3.6%
3.8%
6.5%
5.8%
5.2%
4.0%
4.0%
4.5%
7.0%
7.0%
6.9%
5.5%
5.1%
5.3%
5.5%
5.2%
5.4%
7.2%
7.2%
7.3%
70.7%
69.5%
65.8%
90.4%
91.9%
91.5%
85.1%
86.8%
88.6%
89.3%
90.7%
89.2%
42.3%
41.0%
41.0%
84.2%
83.8%
86.9%
80.3%
80.4%
81.7%
54.0%
52.9%
53.3%
2007
110
46
81
100
351
52
61
28
Net Income
2008
1008
2007
5 yr avg.
-5
-8
6
10
2
2
12
7
-2
-5
4
17
2
1
8
5
~I
2
-3
8
10
0
-2
7
8
-2
0
2
3
Return on Average Assets (%)
2008
1008
2007
5 yr avg.
-0.5%
-0.7%
0.6%
1.4%
0.2%
0.1%
1.2%
1.2%
-0.1%
-0.2%
0.2%
1.4%
0.1%
0.1%
0.7%
0.5%
0.3%
0.2%
1.2%
1.3%
0.1%
-0.1%
0.6%
0.9%
0.0%
-0.1%
0.7%
1.0%
-0.2%
0.1%
0.9%
1.2%
Cash Flow from Operations
2008
1008
2007
5 yr avg.
8
35
6
26
(23)
-68
-58
-38
2
-71
0
-11
6
13
21
17
7
7
6
6
-52
-22
-25
(0)
-32
-17
-13
0
-15
-5
-4
2008
1008
2007
5 yr avg.
(2)
-106%
567%
309%
5
-1499%
-588%
-542%
(21)
-31%
-1975%
-389%
14
489%
160%
373%
-290%
-100%
-312%
-346%
-275%
-180%
-73%
41%
-115%
44
45.9%
2
4.7%
41
35.9%
2
3.8%
20
0
46
0
1'0
0
-
Goldman
Citigroup
Aa3
Aal
Aa3 (AI)
Aa3 (AI)
Stable
Negative
USGAAP
USGAAP
70
91
67
112
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
2
77%1
177%
191%
(USDBlns)
2008
1008
AIG, Inc.
Aa2/Aa3
Aa3
Negative
USGAAP
71
108
UBS
Aa2
Aa2 (A2)
RUR"
IFRS
61
57
Market Cap / Equity
2008
1008
2007
0.9x
l.4x
1.5x
l.4x
3.5x
2.8x
0.7x
1.lx
1.2x
1.3x
l.4x
1.6x
Total Assets
2008
1008
1,050
1,051
2,078
2,231
1,717
1,737
Total Equity
2008
1008
2007
78
80
96
44
16
35
Equity % Assets
2008
1008
2007
7.4%
7.6%
9.1%
Debt % Capital
2008
1008
2007
Revenues
Secured Rating (IFSR)
HoldCo Senior Rating (Bank Unspptd)
Outlook
Accountin Basis
Market Capitalization
-->.
Aal/Aa2
83
106
Aa3
72
87
Al/A2
27
35
0.9x
1.2x
1.2x
1.lx
1.8x
1.7x
1.2x
1.6x
1.7x
1.0x
1.2x
l.4x
1,230
1,208
1,776
1,643
1,700
1,705
1,344
1,383
521
554
163
156
147
37
38
43
133
126
123
94
84
87
74
69
70
32
33
32
2.1%
0.7%
1.5%
9.5%
9.0%
8.6%
3.0%
3.1%
3.2%
7.5%
7.6%
7.9%
5.5%
5.1%
5.3%
5.5%
5.2%
5.4%
7.2%
7.2%
7.3%
70.7%
69.5%
65.8%
NA
NA
96.6%
79.3%
79.7%
80.6%
92.4%
92.0%
92.2%
80.9%
79.6%
78.3%
84.2%
83.8%
86.9%
80.3%
80.4%
81.7%
54.0%
52.9%
53.3%
2007
110
32
67
40
711
52
61
28
2008
1008
2007
5 yr avg.
-5
-8
6
10
0
-12
-5
7
15
15
-2
8
6
10
1~1
2
-3
8
10
0
-2
7
8
-2
0
2
3
Return on Average Assets (%)
2008
1008
2007
5 yr avg.
-0.5%
-0.7%
0.6%
1.4%
0.0%
-0.5%
-0.2%
0.5%
0.2%
0.1%
0.9%
1.7%
0.1%
-0.2%
0.6%
0.5%
0.1%
0.1%
1.1%
1.0%
0.1%
-0.1%
0.6%
0.9%
0.0%
-0.1%
0.7%
1.0%
-0.2%
0.1%
0.9%
1.2%
Cash Flow from Operations
2008
1008
2007
5 yr avg.
8
35
6
26
19
-52
-5
-28
(4)
11
15
7
12
-58
-49
-39
(2)
-111
-50
-38
6
-52
-22
-25
(0)
-32
-17
-13
0
-15
-5
-4
Cash Flow % Net Income
2008
1008
2007
5 yr avg.
(2)
-106%
567%
309%
71
-164%
993%
46%
4
-317%
74%
51%
23
-578%
-746%
-1037%
-102%1
-720%
-309%
-290%
-100%
-312%
-346%
-275%
-180%
-73%
41%
-115%
44
45.9%
37
106.2%
18
12.2%
11
25.9%
8
6.1%
20
34
19
0
8
W
0
( J)
(J)
BofA
Credit Suisse JPMorgan
Aa2
Aal
Aa2
Aa2 (Aa2)
Aa2 (AI)
Aa2 (Aa3)
Negative
Stable
Stable
USGAAP
USGAAP
USGAAP
106
48
118
169
51
146
Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
3
13
Global Credit Research
Rating Action
7 AUG 2008
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Rating Action: American International Group, Inc.
Moody's reiterates negative outlook on AIG; US life ops negative
New York, August 07, 2008 -- Moody's Investors Service has affirmed the ratings of American International
Group, Inc. (NYSE: AIG -- senior unsecured debt rated Aa3) while reiterating the company's negative rating
outlook. The rating agency also affirmed the Aa2 insurance financial strength ratings of AIG's Oomestic Life
Insurance and Retirement Services subsidiaries (OURS), while changing the OURS rating outlook to
negative from stable. The ratings and outlooks on all other AIG subsidiaries have been affirmed. These rating
actions follow AIG's announcement of a $5.4 billion net loss for the second quarter of 2008. The affirmations
are based on Moody's understanding that AIG will actively address potential liquidity and capital needs at
various operating units, including OURS and AIG Financial Products Corp. (AIGFP). Failure to address these
concerns in the near term could lead to rating downgrades at the parent company, OURS and/or other
operating units.
The second-quarter net loss includes after-tax unrealized market valuation losses of $3.6 billion on
mortgage-exposed credit default swaps (COS) at AIGFP, and after-tax realized capital losses of $4.0 billion,
largely from other-than-temporary impairment (OTTI) of residential mortgage-backed securities (RMBS) held
by the OURS companies. AIG's shareholders' equity account declined by $1.6 billion during the quarter to
$78.1 billion as of June 30,2008, as the net loss and unrealized depreciation of investments offset a $7.5
billion common stock issuance in May 2008. AIG's broader capital base, including common equity and hybrid
securities with significant equity content, increased during the quarter as a result of hybrid issuance totaling
$12.8 billion.
Over the past nine months, AIG has absorbed after-tax unrealized market valuation losses on COS totaling
$16.8 billion, and after-tax realized capital losses (principally OTTI) totaling $9.1 billion. Also during this
period, the company has posted to its equity account net after-tax unrealized investment depreciation totaling
$12.1 billion.
The negative outlook on the OURS companies reflects their weakened capital position as a result of
persistent OTTI losses, which also generally flow through the regulatory financial statements and reduce
regulatory capital. The OURS companies' Aa2 insurance financial strength ratings incorporate Moody's
expectation of a combined NAIC risk-based capital (RBC) ratio of 350% or higher. To the extent that the RBC
ratio has fallen below this level, Moody's expects that the company will take steps to strengthen the
capitalization during the remainder of the year.
Moody's noted that the OURS companies hold a majority of AIG's RMBS, both directly and through their
securities lending collateral. Securities lending typically involves relatively short-term funding (secured by the
lent securities), with the cash collateral invested in longer-term assets, including RMBS. With RMBS
generally trading well below par, Moody's expects that AIG will maintain ample alternative sources of liquidity
to repay securities borrowers who may want to reduce or exit their positions.
"AIG's OURS group is a leading US life insurer, with well diversified products and distribution channels," said
Moody's Laura Bazer, lead analyst for these operations. "The negative outlook reflects continued weakness
in the RMBS market and the resulting strains on the group's asset quality and capitalization."
The rating agency noted that the negative outlook on AIG (parent company) incorporates the challenges
within OURS, as well as the growing COS liabilities and collateral requirements at AIGFP, whose obligations
are unconditionally guaranteed by AIG. Moody's expects that AIG and AIGFP will maintain robust coverage
of liquidity needs, even in severely adverse scenarios.
Moody's has estimated that AIG's ultimate economic losses on COS and RMBS will likely be materially
smaller than the current market values would suggest. Nevertheless, current market values have a
meaningful impact on collateral requirements at AIGFP and regulatory capital levels at several insurance
subsidiaries.
"AIG faces near-term challenges through its exposures to the troubled US mortgage market," said Bruce
Ballentine, lead analyst for AIG. "We believe that the company's diversified operations and its financial
flexibility will help it to weather the storm."
14 of 66
Moody's last rating action on these entities took place on May 22, 2008, when AIG's senior unsecured debt
rating was downgraded to Aa3 (negative outlook) from Aa2, and the OURS companies' insurance financial
strength ratings were downgraded to Aa2 (stable outlook) from Aa1.
Moody's has affirmed the following ratings while maintaining a negative outlook:
American International Group, Inc. -- long-term issuer rating at Aa3, senior unsecured debt at Aa3,
subordinated debt at A 1, senior unsecured debt shelf at (P)Aa3, subordinated debt shelf at (P)A 1, preferred
stock shelf at (P)A2.
Moody's has affirmed the following ratings while changing the outlook to negative from stable:
Domestic Life Insurance & Retirement Services subsidiaries -- AIG Annuity Insurance Company, AIG Life
Insurance Company, AIG SunAmerica Life Assurance Company, American General Life and Accident
Insurance Company, American General Life Insurance Company, American International Life Assurance
Company of New York, First SunAmerica Life Insurance Company, SunAmerica Life Insurance Company,
The United States Life Insurance Company in the City of New York, The Variable Annuity Life Insurance
Company -- insurance financial strength at Aa2;
AIG SunAmerica funding agreement-backed note programs -- AIG SunAmerica Global Financing Trusts,
ASIF I & II, ASIF III (Jersey) Limited, ASIF Global Financing Trusts -- senior secured debt at Aa2.
AIG, based in New York City, is a leading international insurance and financial services organization, with
operations in more than 130 countries and jurisdictions. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
reported total revenues of $19.9 billion and a net loss of $5.4 billion for the second quarter of 2008.
Shareholders' equity was $78.1 billion as of June 30, 2008.
Moody's insurance financial strength ratings are opinions of the ability of insurance companies to punctually
pay senior policyholder claims and obligations. For more information, please visit our website at
www.moodys.com/insurance.
New York
Bruce Ballentine
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All
information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the
possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty
of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall
MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or
relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or
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interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential,
compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in
advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings
and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be
construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY
MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any
investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly
make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for,
each security that it may consider purchasing, holding or selling.
15 of 66
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and
commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
Global Credit Research
Credit Opinion
14 AUG 2008
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Credit Opinion: American International Group, Inc.
American International Group, Inc.
New York, New York, United States
Ratings
Category
Rating Outlook
Senior Unsecured
Rated Intercompany Pool Members
Rating Outlook
Insurance Financial Strength
AIG SunAmerica Life Assurance Company
Rating Outlook
American Life Insurance Company
Rating Outlook
Insurance Financial Strength
AIG Life Insurance Company
Rating Outlook
Insurance Financial Strength
American General Life Insurance Company
Rating Outlook
Insurance Financial Strength
Moody's Rating
NEG
Aa3
STA
Aa3
NEG
STA
Aa2
NEG
Aa2
NEG
Aa2
Contacts
Analyst
Bruce Ballentine/New York
Alan Murray/New York
Robert Riegel/New York
Max Zormelo/New York
Phone
1.212.553.1653
Key Indicators
American International Group, Inc.[1]
Total Assets ($ MiL)
Equity ($ MiL)
Total Revenue ($ MiL)
TTM 6/08
2007
2006
2005
2004
2003
$1,049,876
$1,060,505
$979,410
$ 853,048
$ 801,007
$ 675,602
$ 78,088
$ 95,801
$101,677
$ 86,317
$ 79,673
$ 69,230
$ 82,233
$110,064
$ 113,387
$ 108,781
$ 97,823
$ 79,601
Net Income ($ MiL)
$ (15,369)
$ 6,200
$ 14,048
$ 10,477
$ 9,839
$ 8,108
Financial Leverage
19.4%
18.3%
16.5%
14.9%
15.7%
16.6%
6.5x
20.5x
21.0x
23.9x
19.6x
11.2x
9.1x
12.5x
13.7x
11.9x
Earnings Coverage (1 yr.)
Cashflow Coverage (1 yr.) [2]
[1] Information based on consolidated GAAP financial statements. [2] AIG changed its reporting basis for
unrestricted subsidiary dividend capacity in 2007, so cashflow coverage at YE 2007 is not directly comparable to
prior·year levels.
Opinion
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG . senior unsecured debt rated Aa3, negative outlook) is a leading
global insurance and financial services firm, with operations in rr1~td~OO 30 countries and jurisdictions. The
company is engaged through subsidiaries in General Insurance, Life Insurance & Retirement Services, Financial
Services and Asset Management. Just over 40% of the company's 2007 revenues were derived from domestic
(US) operations, with nearly 60% coming from other markets around the world. AIG's extraordinary diversification
helps it to withstand challenges in particular business lines or geographic regions and to generate substantial
earnings and capital over time.
On August 7, 2008, Moody's affirmed AIG's ratings and reiterated the negative outlook. At the same time, Moody's
affirmed the insurance financial strength (IFS) ratings of AIG's Domestic Life Insurance & Retirement Services
(DLlRS) subsidiaries, while changing the DLiRS rating outlook to negative from stable. These rating actions
followed AIG's announcement of a $5.4 billion net loss for the second quarter of 2008. The loss included significant
unrealized market valuation losses on mortgage-exposed credit default swaps (CDS) at AIG Financial Products
Corp. (AIGFP), as well as realized capital losses on investments, largely other-than-temporary impairment (OTTI)
on residential mortgage-backed securities (RMBS) held by the DLiRS companies. Over the past nine months, AIG
has absorbed after-tax unrealized market valuation losses on CDS totaling $16.8 billion and after-tax realized
capital losses (principally OTTI on RMBS) totaling $9.1 billion. Also during this period, the company has posted to
its equity account net after-tax unrealized depreciation of investments (largely RMBS) totaling $12.1 billion.
The negative outlook on the DLiRS companies reflects their weakened capital position as a result of OTTI losses,
which generally flow through the regulatory financial statements and reduce regulatory capital. The DLiRS
companies also face heightened liquidity risk, given that their RMBS are held predominantly within the securities
lending collateral pool. Securities lending typically involves relatively short-term funding (secured by the lent
securities), with the cash collateral invested in longer-term assets (including RMBS). The negative outlook on AIG
(parent company) incorporates the challenges within DLlRS, as well as the growing CDS liabilities and collateral
requirements at AIGFP, whose obligations are unconditionally guaranteed by AIG.
The recent rating affirmations were based on Moody's understanding that AIG will actively address potential
liquidity and capital needs at various operating units, including DLiRS and AIGFP. We expect that AIG will maintain
robust coverage of such needs, even in severely adverse scenarios. Failure to address these concerns in the near
term could lead to rating downgrades at the parent company, DLiRS and/or other operating units. Moody's has
estimated that AIG's ultimate economic losses on CDS and RMBS will likely be materially smaller than the current
market values would suggest. Nevertheless, current market values have a meaningful impact on collateral
requirements at AIGFP and regulatory capital levels at several insurance subsidiaries.
AIG's current ratings reflect its leading market positions in all major business segments, its broad business and
geographic scope, its historically strong earnings and cash flows, and its demonstrated access to capital markets.
These strengths are tempered by the intrinsic volatility in certain General Insurance and Financial Services
business units, by the significant volume of spread-based investment business in the Asset Management segment,
and by the company's sizable exposure to the US residential mortgage market.
Credit Profile of Significant Subsidiaries/Activities
AIG Property Casualty Group (2007 revenues: $38.0 billion, 35% of consolidated total)
The AIG Property Casualty Group (formerly Domestic General Insurance) encompasses the AIG Commercial
Insurance Group (CIG - formerly Domestic Brokerage Group), Transatlantic Holdings, Inc. (TRH), Personal Lines
and Mortgage Guaranty. Moody's maintains Aa3 IFS ratings (stable outlook) on eight members of CIG, reflecting
CIG's position as the largest US writer of commercial insurance, its broad diversification and its expertise in writing
large and complex risks. These strengths are somewhat offset by CIG's relatively high, albeit improving, gross
underwriting leverage and its history of adverse loss development following the last soft market for property &
casualty insurance.
TRH, approximately 59% owned by AIG, is a holding company for Transatlantic Reinsurance Company (TRC), a
leading US-based broker-market reinsurer with expertise in specialty casualty lines. TRC's Aa3 IFS rating (stable
outlook) reflects its lead position on many treaties, relatively steady profitability and sound capitalization. These
strengths are partly offset by competition from larger global reinsurers and by the inherent volatility of catastrophe
exposed business.
Moody's maintains a Aa3 IFS rating (negative outlook) on United Guaranty Residential Insurance Company
(UGRIC), the lead company of AIG's Mortgage Guaranty unit. The rating is based on UGRIC's conservative
underwriting practices, as evidenced by its limited exposure to the highest-risk mortgage products, coupled with its
robust capital adequacy and solid competitive position. UGRIC's rating benefits from a net worth maintenance
agreement from AIG plus a fixed-dollar-limit reinsurance agreement provided by a CIG member. Moody's expects
UGRIC to sustain operating losses over the next several quarters as a result of continued weakness in the US
housing market. However, the company is well positioned to take advantage of new business opportunities and
improved terms of trade given its strong credit profile relative to peers. Moody's also maintains a Aa3 IFS rating
(negative outlook) on United Guaranty Mortgage Indemnity Company based on an unconditional guarantee from
UGRIC. Two other members of the Mortgage Guaranty unit carry IFS ratings of A 1 (negative outlook), based on
their respective exposures to second-lien mortgage loans and student loans - market segments where conditions
are unlikely to improve over the medium term, in Moody's view. These ratings also benefit from a net worth
maintenance agreement from AIG plus affiliated reinsurance.
17 of 66
Foreign General Insurance (2007 revenues: $13.7 billion, 12% of consolidated total)
Foreign General Insurance consists of several property & casualty insurance agencies and underwriting
companies offering commercial and consumer insurance through a range of marketing and distribution channels.
The group operates in Asia, the Pacific Rim, the UK, Europe, Africa, the Middle East and Latin America, adapting
to local laws and customs as needed.
AIG UK Limited (AIG UK) is the group's flagship property & casualty insurer in the UK, having absorbed the UK
business of a CIG company in December 2007. The Aa3 IFS rating (stable outlook) on AIG UK reflects its strong
market position, healthy profitability and generally conservative investment strategy. Offsetting these strengths to
some extent is the focus on commercial lines, which Moody's views as inherently more volatile than personal lines.
The rating on AIG UK incorporates explicit and implicit support, including a net worth maintenance agreement from
AIG and extensive reinsurance from affiliates.
In 2006, AIG acquired Central Insurance Co. Ltd., a diversified non-life insurer in Taiwan with a solid market
presence but a record of volatile operating results. During 2007, AIG changed the company's name to AIG General
Insurance (Taiwan) Co., Ltd. (AIGGI Taiwan), and merged the Taiwan branch of a CIG company into AIGGI
Taiwan. Moody's upgraded the IFS rating of AIGGI Taiwan from Baa1 to A2 in July 2007 and to A1 in March 2008.
With a stand-alone rating of A3, AIGGI Taiwan receives two notches of rating uplift from parental support in the
form of financial flexibility, transfer of technical knowledge, management expertise and risk sharing. Because its
rating relies on significant parental support, AIGGI Taiwan's rating outlook is negative, following that of AIG.
Domestic Life Insurance & Retirement Services (2007 revenues: $15.3 billion, 14% of consolidated total)
Moody's maintains Aa2 IFS ratings (negative outlook) on ten members of the DLiRS segment, based on the
group's multi-faceted distribution network, broad and varied product portfolio, and leading market positions in
several products, including term life, universal life, structured settlements and certain classes of annuities. The
ratings also reflect the strategic and financial benefits of AIG ownership, such as the AIG brand, cross-selling
arrangements, and common investment management and administrative services. These strengths are tempered
by the group's significant exposure to US RMBS, held predominantly within the securities lending collateral pool,
as discussed above.
Foreign Life Insurance & Retirement Services (2007 revenues: $38.3 billion, 35% of consolidated total)
The Foreign Life Insurance & Retirement Services segment encompasses international and local subsidiaries with
operations in Europe, Latin America, the Caribbean, the Middle East, Australia, New Zealand and Asia, including
extensive operations in Japan. The group sells products largely to indigenous persons through multiple distribution
channels, including full-time and part-time agents, independent producers, direct marketing, brokers and financial
institutions.
Moody's maintains a Aa2 IFS rating (stable outlook) on American Life Insurance Company (ALI CO), based on its
well established operations in more than 50 overseas markets (particularly in Japan, which accounts for about twothirds of ALI CO's operating income), along with its favorable record of growing organically in existing markets and
expanding into new markets. The rating also recognizes the company's strong brand name and distribution
channels, sound capitalization and consistent operating performance. These strengths are tempered by
competition from local and foreign players in Japan, political risk in certain emerging markets, and ALI CO's
relatively large exposure to affiliated investments, mainly AIG common stock.
ALI CO's Japanese operations are complemented by those of AIG Edison Life Insurance Company (AIG Edison IFS rating of Aa2, stable outlook) and AIG Star Life Insurance Co., Ltd. (not rated), giving AIG a strong and
diversified presence in the Japanese life insurance market. The AIG Edison rating reflects the company's healthy
profitability, solid capital base and diversified distribution channels, tempered by agent retention and business
persistency rates that are below expectations for the rating level. The rating incorporates one notch of uplift from
the close affiliation with ALiCO. Without such support, AIG Edison would have a stand-alone rating of Aa3.
American International Assurance Company, Limited (not rated) and its affiliates, including American International
Assurance Company (Bermuda) Limited (AIAB - IFS rating of Aa3, stable outlook), make up the largest and most
diversified life insurance group in Southeast Asia. The rating on AIAB reflects its leading position in the life
insurance market in Hong Kong, where it has garnered the largest market share and is supported by a strong
brand name. The rating also recognizes the company's consistent operating performance, well established and
efficient agency force, and healthy capitalization. These strengths are somewhat offset by the possible threat to
AIAB's market position, given the intense competition in Hong Kong and Korea, by the challenge AIAB faces in its
effort to broaden distribution channels, and by its exposure to affiliated investments, mainly AIG common stock.
Financial Services (2007 revenues: -$1.3 billion, -1 % of consolidated total)
The Financial Services segment engages in aircraft and equipment leasing, capital market transactions, consumer
finance and insurance premium financing. The Aircraft Finance business, conducted by International Lease
Finance Corporation (ILFC - senior unsecured debt rated A 1, negative outlook), is a global leader in leasing and
remarketing advanced technology commercial jet aircraft. ILFC'~ 8l:t6f-l~&flect its high-quality aircraft portfolio and
solid relationships with aircraft manufacturers and airlines. Tempering tliis view is the cyclical nature of the
business, as well as ILFC's sizable order position and residual value risk. The ratings incorporate AIG ownership
and support, evidenced by capital contributions to ILFC totaling more than $1 billion since 2001. Absent such
support, ILFC's ratings would be lower. ILFC's negative rating outlook follows that of AIG.
The Capital Markets unit comprises the global operations of AIGFP (backed long-term issuer rating of Aa3,
negative outlook) and subsidiaries. AIGFP engages as principal in a variety of standard and customized financial
products with corporations, financial institutions, governments, agencies, institutional investors and high net-worth
individuals worldwide. This unit also raises funds through municipal reinvestment contracts and other private and
public note offerings, investing the proceeds in a diversified portfolio of debt, equities and derivatives. The Aa3
ratings on AIGFP and several of its subsidiaries are based on general and deal-specific guarantees from AIG.
AIGFP has substantial notional exposure to the US residential mortgage market through super-senior COS and
cash COOs, a portfolio that is now in runoff. In February 2008, AIG appointed an interim CEO to oversee this
operation and launched a search for a new permanent CEO. In connection with this management shift, Moody's
expects that AIG will take a fresh look at the strategic direction and risk appetite at AIGFP.
The Consumer Finance unit includes US operations conducted mainly by American General Finance Corporation
(AGFC - senior unsecured debt rated A 1, negative outlook) and international operations conducted by AIG
Consumer Finance Group, Inc. (AIGCFG). AGFC's ratings are based on its strong US market presence, disciplined
approach to the business and implicit support from AIG. Over the past decade, AGFC has focused its growth
efforts on real estate secured loans, which accounted for about three-fourths of the loan portfolio as of year-end
2007. The portfolio, which includes meaningful levels of subprime and non-prime loans, has experienced some
deterioration in credit quality along with the overall US housing sector, but AGFC's delinquency and charge-off
rates remain within the company's target bands. We believe that AGFC's adherence to conservative underwriting
standards have enabled the company to weather the housing market slump reasonably well compared to many
other financial institutions. Nevertheless, AGFC's core profitability has fallen, and will continue to be pressured by
rising loss provisions and the sharp fall-off in mortgage banking activity. Absent the implicit parental support,
AGFC's ratings would be lower. AGFC's negative rating outlook follows that of AIG.
Asset Management (2007 revenues: $5.6 billion, 5% of consolidated total)
The Asset Management segment comprises a variety of investment related products and services for institutions
and individuals worldwide. The group's main activities are spread-based investing, institutional asset management,
brokerage services and mutual funds. The spread-based investment business, formerly conducted through the
SunAmerica companies, is now conducted through AIG's Matched Investment Program. The institutional asset
management business, known as AIG Investments, provides a range of equity, fixed income and alternative
investment products and services to AIG subsidiaries and affiliates, other institutional clients and high-net-worth
individuals. The brokerage services and mutual funds operations provide broker/dealer services and mutual funds
to retail investors, group trusts and corporate accounts through an independent network of financial advisors.
Credit Strengths
Credit strengths/opportunities of the group include:
- One of the world's largest and most diversified financial service firms, with leading market positions in various
business lines and countries
- Historically strong earnings and cash flows across all major business segments
- Excellent financial flexibility, although this has been weakened somewhat by earnings and capital volatility related
to US residential mortgage exposures
Credit Challenges
Credit challenges/risks include:
- Sizable exposure to US residential mortgage market through various business units and activities, particularly
CDS written by AIGFP and RMBS held by US life insurance subsidiaries
- Intrinsic volatility in certain General Insurance and Financial Services business units
- Significant volume of spread-based investment business within the Asset Management segment
Rating Outlook
The negative outlook on AIG (and on subsidiaries whose ratings rely on meaningful explicit or implicit parental
support) reflects the company's exposure to further volatility in the US residential mortgage market as well as
uncertainty surrounding the strategic direction of AIGFP.
19 of 66
What Could Change the Rating - Up
Given the current negative outlook, there is limited upward pressure on the rating; however, factors that could lead
to a stable outlook include:
- Improving or stable stand-alone credit profiles of major operating units
- Strong group profitability, with returns on equity exceeding 15%
- Remediation of all material weaknesses in internal controls over financial reporting
- Adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type
operations and match-funded investment programs) comfortably below 20%
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
- A decline in the stand-alone credit profile of one or more substantial operating units
- Weak group profitability, with returns on equity remaining below 10% over the next few quarters
- A decline in financial flexibility, with adjusted financial leverage exceeding the low 20s (percent), or adjusted
pretax interest coverage remaining below 8x over the next few quarters
- Incremental losses on investments or derivatives causing a further decline in shareholders' equity
- A material shift in the company's strategic emphasis away from insurance (e.g., Financial Services accounting for
more than 20% of consolidated operating income)
Recent Results
AIG reported total revenues of $19.9 billion and a net loss of $5.4 billion for the second quarter of 2008.
Shareholders' equity was $78.1 billion as of June 30, 2008.
Capital Structure and Liquidity
Moody's believes that AIG's financial flexibility has been weakened by the firm's exposure to the US mortgage
market and the related losses, write-downs and decline in shareholders' equity. On the other hand, the company
demonstrated broad access to the capital markets through its issuance of more than $20 billion of capital during
May 2008 - a positive for creditors in Moody's view. The new issuance included approximately $7.5 billion of
common stock, $5.9 billion of equity units (hybrids) and $6.9 billion of junior subordinated debentures (hybrids).
The hybrid securities were designed to receive significant equity treatment for financial leverage calculations.
As of June 30,2008, AIG reported total borrowings of $178.6 billion, a majority of which was "operating" debt (i.e.,
supporting assets of the Financial Services segment and AIG's Matched Investment Program). AIG's adjusted
"financial" debt (reflecting Moody's standard pension and lease adjustments, our basket treatment of hybrids, and
the exclusion of operating debt) amounted to $26.0 billion. AIG's adjusted financial leverage has increased from
18.3% at year-end 2007 to 19.4% as of June 30, 2008, as a result of mortgage-related losses and write-downs
recorded during the first half of the year, largely offset by the capital issuance in May. Moody's notes that the newly
issued hybrid securities carry significant fixed charges that will reduce AIG's earnings coverage and dividend
capacity coverage of fixed charges going forward. We expect that earnings coverage will decline from a historic
range of 20-24 times to a normalized range of about 8-12 times, while dividend capacity coverage will decline from
a historic range of 9-14 times to a normalized range of about 6-8 times. Moody's believes that AIG will continue to
benefit from its broad business diversification and access to capital market funding.
Moody's believes that AIG has sufficient liquidity - through cash on hand, dividends from diversified subsidiaries,
external credit facilities and an intercompany credit facility - to service parent company obligations and to support
subsidiaries under current market conditions. The company generates strong operating cash flows on a
consolidated basis, with yearly amounts averaging about $22 billion over the past three years. A majority of the
cash flows pertain to insurance operations that are subject to regulatory limits on the payment of dividends to a
parent company. Still, the pro forma dividend capacity coverage of fixed charges (6-8 times) is reasonable for
AIG's current rating category. AIG has taken steps to enhance its liquidity in response to credit market turmoil over
the past year. The company has increased its holdings of cash and short-term investments across major business
units, and has established an interdisciplinary Liquidity Risk Committee to monitor and manage liquidity risks
throughout the firm. AIG's consolidated cash and short-term investment position has grown from $29.4 billion at
year-end 2006 to $82.2 billion as of June 30, 2008. The large p~ig..rl-iE-EFsh and short-term investments is
constraining AIG's investment income and overall profitability to4;'drM de~ree. Moody's regards this as a prudent
trade-off in the current unsettled credit markets.
AIG gets a portion of its funding through a $7 billion commercial paper program ($5.8 billion outstanding at June
30,2008). The commercial paper is issued through subsidiary AIG Funding, Inc. (AIG Funding) and guaranteed by
AIG. The program is backed by external and intercompany credit facilities. External facilities include two
syndicated bank revolvers totaling $3.75 billion, primarily to back commercial paper. One of these facilities ($2.125
billion) expires in July 2009 (with a one-year term-out option) and the other ($1.625 billion) expires in July 2011.
AIG and AIG Funding also share a $3.2 billion bank facility expiring in December 2008 (with a one-year term-out
option) which allows for the issuance of letters of credit with terms of up to eight years. As of June 30, 2008, nearly
all of this facility was being used for letters of credit. Finally, AIG has a $5.335 billion intercompany credit facility
provided by several of its insurance subsidiaries, expiring in September 2008 (with a one-year term-out option).
Moody's expects that these facilities will be renewed in similar form before they expire.
In addition to its guarantee of AIG Funding debt, AIG guarantees the debt and counterparty obligations of certain
subsidiaries, most importantly AIGFP. AIGFP manages its liquidity position to withstand severe market disruptions.
AIGFP conducts regular liquidity stress tests that assume no access to capital markets, contingent liability payouts
at the earliest possible dates, and haircuts on relatively liquid investment securities. The stress tests also consider
the impact of potential rating downgrades on AIGFP's collateral posting requirements. As of July 31,2008, AIGFP
had posted collateral in respect of super-senior CDS in an aggregate net amount of $16.5 billion. At that time,
AIG's senior unsecured debt ratings (and AIGFP's backed long-term issuer ratings) were Aa3 by Moody's and AAby Standard & Poor's. The company estimated as of that date that a downgrade to A 1 by Moody's and to A+ by
Standard & Poor's would permit AIGFP's counterparties to call for approximately $13.3 billion of incremental
collateral. As noted above, Moody's current ratings on AIG (and on AIGFP) incorporate our expectation that the
company will maintain robust coverage of potential liquidity needs, even in severely adverse scenarios.
© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All
information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the
possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty
of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall
MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or
relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or
any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis,
interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential,
compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY'S is advised in
advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings
and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be
construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY
MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any
investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly
make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for,
each security that it may consider purchasing, holding or selling.
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and
commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody's Corporation (MCO)
and its wholly-owned credit rating agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures to
address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to
the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody's website at www.moodys.com under the
heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."
21 of 66
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mortgage exposures.
22 of 66
Stock Chart
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Rating History
23 of 66
Current & Recommended Ratings on AIG Entities - September 15, 2008
Ownership Structure'
American International Group, Inc. ("AIG")
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
Domicile
DE
Business Segment
Parent
DE
IN
IN
DE
IN
Puerto Rico
CA
Fin Svcs
Fin Svcs
Fin
Fin
Fin
Fin
Svcs
Svcs
Svcs
Svcs
ILFC E-Capital Trusts I & II
AIG Capital Trusts I & II
AIG Financial Products Corp.
DE
DE
Fin Svcs
Funding for Parent
Fin Svcs
AIG Matched Funding Corp.
DE
Fin Svcs
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
AIG Annuity Insurance Company
AIG Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of New York
The United States Life Insurance Company in the City of NY
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Program Funding, Inc.
AIG Property Casualty Group, Inc.
AIG Commercial Insurance Group, Inc.
AIG Casualty Company
AI U Insurance Company
AIG General Insurance (Taiwan) Co., Ltd.
American Home Assurance Company
Transatlantic Holdings, Inc.
DE
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
TX
DE
TN
TX
TX
NY
NY
DE
DE
DE
DE
DE
DE
PA
NY
Taiwan
NY
DE
Fin Svcs
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Transatlantic Reinsurance Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
American International Specialty Lines Insurance Company
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Commercial Insurance Company of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Insurance Company of NC
AIG Retirement Services, Inc.
NY
NY
PA
PA
AK
PA
NC
NC
NC
NC
NC
DE
SunAmerica Life Insurance Company ("SUC")
AZ
AIG SunAmerica Global Financing Trusts
AIG SunAmerica Life Assurance Company
DE
AZ
ASIF I & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Caymans
Jersey
DE
NY
American International Underwriters Overseas, Ltd.
AIG UK Limited
American Life Insurance Company
Bermuda
UK
DE
SA
Public Current
Rec
Rec
Rating Type
Support
Rating Rating Outlook Rating Outlook
R-Dn
LT Issuer
Aa3
Negative
Aa3
R-Dn
Sr Unsec Debt
Aa3
Aa3
R-Dn
Sr Unsec Shelf
(P)Aa3
(P)Aa3
R-Dn
Subord Shelf
(P)A1
(P)A1
R-Dn
(P)A2
(P)A2
Prfrd Shelf
P-1
P-1
ST Issuer
Stable
Negative
R-Dn
LT Issuer
A2
Negative
A2
P-1
ST Issuer
P-1
P-1
R-Dn
ST Debt
Negative
R-Dn
LT Issuer
A2
A1
Negative
A1
R-Dn
Sr Unsec Debt
A2
A1
A1
P-1
P-1
R-Dn
ST Debt
R-Dn
Bkd Tr Prlrd Stock AGFC G'tee
A3
Negative
A3
Bkd ST Debt
AGFC G'tee
Sr Unsec Debt
ST Debt
Bkd Prlrd Stock
ILFC G'tee
Bkd Tr Prlrd Shelf AIG G'tee
Bkd LT Issuer
AIG G'tee
AIG G'tee
Bkd ST Debt
Bkd Sr Debt
AIG G'tee
AIG G'tee
Bkd ST Debt
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd ST Debt
AIG G'tee
IFS
IFS
Bkd Sr Debt
AIG Agmt
AIG G'tee
A3
Aa3
Aa3
Domes Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Funding for AIG LHUS
Bkd Tr Prlrd Stock AIG G'tee
Funding for AIG LHUS
Bkd Tr Prlrd Stock AIG G'tee
Fin Svcs
Bkd ST Debt
AIG G'tee
Funding for Parent
Bkd Sr Shelf
AIG G'tee
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Frgn Gen Ins
IFS
A3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
Sr Unsec Debt
A3
Sr Unsec Shelf
Subord Shelf
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
Domes Gen Ins
IFS
AIG Agmt
Aa3
Domes Gen Ins
IFS
AIG Agmt
Caa2
Domes Gen Ins
Bkd IFS
UGRIC G'tee Aa3
Domes Gen Ins
IFS
AIG Agmt
C
Bkd Sr Debt
AIG G'tee
Bkd Prlrd Stock
AIG G'tee
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
AIG Agmt
Bkd ST IFS
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
Bkd ST IFS
AIG Agmt
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd Sr Debt
SUC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
Bkd ST IFS
AIG Agmt
Frgn Gen Ins
Frqn Life Ins & Ret Svcs
24 of 66
IFS
IFS
AIG Agmt
Aa3
Aa2
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
Aa3
P-1
Aa2
Aa3
Aa3
Negative
Negative
Negative
Stable
Negative
Stable
Negative
Negative
Negative
Negative
Stable
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
Aa3
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Negative
R-Dn
Negative
R-Dn
R-Dn
R-Dn
R-Dn
Negative
Stable
Stable
Negative
Aa2
Aa3
Aa3
R-Dn
Negative
R-Dn
Negative
Negative
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
A1
Negative
A1
R-Dn
A1
Negative
A1
P-1
P-1
Stable
Negative
R-Dn
(P)Aa3 Negative (P)Aa3
Aa3
Aa3
A1
Aa3
A2
(P)A2
(P)A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Stable
Stable
Negative
Stable
Stable
Aa3
Aa3
A1
Aa3
A2
(P)A2
(P)A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Negative
Negative
R-Dn
Negative
R-Dn
R-Dn
R-Dn
Stable
Negative
Negative
Negative
Negative
Negative
Aa3
A1
Aa3
A1
Aa3
A2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
Negative
Negative
Negative
Negative
Negative
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Aa3
A1
Aa3
A1
Aa3
A2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Stable
R-Dn
R-Dn
Stable
R-Dn
R-Dn
R-Dn
R-Dn
Stable
Aa3
Aa2
Stable
Stable
Aa3
Aa2
R-Dn
R-Dn
Stable
Stable
Stable
Stable
Stable
Stable
AIG Financial Leverage and Fixed-Charge Coverage
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Financial Leverage
Unadjusted debt ($ mil)
Adjusted debt ($ mil)
Unadjusted equity ($ mil)
Adjusted equity & minority interest ($ mil)
Unadjusted debt % capital
Adjusted debt % capital
Earnings Coverage of Interest & Prfrd Divs
Unadjusted EBIT ($ mil)
Adjusted EBIT ($ mil)
Unadjusted interest & preferred dividends ($ mil)
Adjusted interest & preferred dividends ($ mil)
Unadjusted earnings coverage (x)
Adjusted earnings coverage (x)
Adjusted earnings coverage (x) - 5-yr avg
Dividend Ca~acit:l Coverage of Int & Prfrd Divs
Portion of equity not immediately available (%)
Unrestricted subsidiary dividend capacity ($ mil)
Unadjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x) - 5-yr avg
Goodwill Ex~osure
Goodwill ($ mil)
Goodwill % equity
Balance Sheet In~uts ($ mil)
Total assets
Unadjusted debt
Operating debt
Financial debt
Minority interest
Unadjusted equity
"Yes" if life investments> 50% total investments
Net unrealized investment appreciation
Income Statement In~uts ($ mil)
Total revenue
Unadjusted interest expense
Operating interest expense
Financial interest expense
Income tax expense
Minority interest expense
Net income
Preferred dividends
I:tt()f()tm~
TTM 6/08
2007
2006
2005
2004
2003
178,638
178,638
78,088
94,408
69.6%
65.4%
176,049
176,049
95,801
101,848
64.8%
148,679
148,679
101,677
99,372
59.4%
109,849
109,849
86,317
83,093
56.0%
96,899
96,899
79,673
74,178
54.9%
80,349
80,349
69,230
63,706
53.7%
18,631
10,270
9,688
1,327
1.9x
28,672
22,562
6,951
841
4.1x
20,886
15,711
5,673
498
3.7x
19,128
15,087
4,427
386
4.3x
16,135
12,318
4,219
402
3.8x
89%
9,495
1.7x
89%
8,764
2.0x
89%
7,615
1.8x
23,690
2,238
32.0x
81%
18,202
81%
18,202
81%
18,202
1.9x
90%
10,168
1.5x
18.2x
10,661
13.7%
10,661
#DIV/OI
9,414
8,628
8,093
8,556
7,619
N;~F;4
j1l)$'f~
$;#%
10)7%
n:Q%
1,049,876
178,638
0
178,638
11,149
78,088
Yes
-5,171
1,049,876
178,638
0
178,638
11,149
78,088
Yes
-5,171
1,060,505
176,049
0
176,049
10,422
95,801
Yes
4,375
979,410
148,679
0
148,679
7,778
101,677
Yes
10,083
853,048
109,849
0
109,849
5,124
86,317
Yes
8,348
801,007
96,899
0
96,899
4,831
79,673
Yes
10,326
675,602
80,349
0
80,349
3,547
69,230
Yes
9,071
110,064
110,064
9,688
8,361
1,327
1,455
1,288
6,200
0
113,387
6,951
6,110
841
6,537
1,136
14,048
0
108,781
5,673
5,175
498
4,258
478
10,477
0
97,823
4,427
4,041
386
4,407
455
9,839
0
79,601
4,219
3,817
402
3,556
252
8,108
0
1,455
1,288
6,200
0
Pro forma TTM 6/08 assumptions:
• Adjusted EBIT based on 2006 amount plus 5%
• Adjusted interest and preferred dividends based on 2006 amount plus full-year fixed charges associated with hybrids
25 of 66
Leverage and Coverage Adjustments
Company: American International Group, In(Rr&f9rm~
TTM 6/08 TTM 6/08
Pension Adjustments {$ mil}
Assumed borrowing rate (%)
Assumed tax rate (%)
Projected benefit obligation (end of year)
Fair value of plan assets (end of year)
Pension asset recorded
Pension liability recorded
Debt adjustment
Shareholders' equity adjustment
Interest expense adjustment
Lease Adjustments ($ mil)
Assumed debt multiplier (x)
Rent expense
Debt adjustment
Interest expense adjustment
EBIT adjustment
Other Adjustments ($ mil)
Hybrid securities #1
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Hybrid securities #2
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Lloyd's LOCS
2007
2006
2005
2004
2003
4,657
3,610
4,126
2,871
523
888
1,255
-579
63
3,950
2,715
566
941
1,235
-559
62
568
3,408
189
189
524
3,144
175
175
4,901
4,081
4,901
4,081
5%
35%
4,901
4,081
41
41
41
52
4,481
3,260
703
807
1,221
-726
61
771
4,626
257
257
771
4,626
257
257
6x
771
4,626
257
257
657
3,942
219
219
597
3,582
199
199
100
100
100
191
186
199
192
Mezzanine Mezzanine Mezzanine Mezzanine Mezzanine Mezzanine Mezzanine
A
A
A
A
A
A
A
100
100
100
191
186
199
192
0
0
0
0
0
0
0
18,746
18,746
5,809
Debt
Debt
Debt
D
D
D
4,687
4,687
1,452
14,060
14,060
4,357
26 of 66
Rating Factors
AIG Domestic Life & Retirement Svcs
YE 2007
Scorecard
x
x
x
X
X
9.8%
1'0
-...J
-
7.7%
o
10.3%
( J)
(J)
40.3%
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
Sovereign & Regulatory Environment:
Stand-Alone Rating Recommendation:
Support (if applicable, insert notches to be added to the standalone rating above):
Nature and Terms of Explicit Support:
Nature and Terms of Implicit Support:
Final Rating Recommendation:
8/07/08 ReM
Scorecard
Stress
PROFORMA 2
American International Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
2007
2006
397,372
21,581
$386,869
21,437
9,982
10,836
17,900
21,376
2,370
13,256
14,855
2,539
33,727
28,418
41,984
40,305
4,197
238
16,442
6,467
20,950
39,875
47,205
5,031
220
19,252
4,317
30,291
31,234
75,662
58,823
51,351
29,573
69,306
42,111
27,483
851,961
2,284
792,874
1,590
6,587
18,395
23,103
43,150
654
5,518
78,684
9,414
20,755
6,091
17,789
23,355
37,235
1,101
4,381
70,277
8,628
16,089
$1,060,505
$979,410
(in millions)
Assets:
Investments and financial services assets:
Fixed maturities:
Bonds available for sale, at fair value (amortized cost: 2007 - $393,170; 2006 - $377,163)
Bonds held to maturity, at amortized cost (fair value: 2007 - $22,157; 2006 - $22,154)
Bond trading securities, at fair value (includes hybrid financial instruments: 2007 - $555;
2006-$522)
Equity securities:
Common stocks available for sale, at fair value (cost: 2007 - $12,588; 2006 - $10,662)
Common and preferred stocks trading, at fair value
Preferred stocks available for sale, at fair value (cost: 2007 - $2,600; 2006 - $2,485)
Mortgage and other loans receivable, net of allowance (2007 - $77; 2006 - $64) (includes loans
held for sale: 2007 - $399)
$
Financial services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation (2007 -
$10,499; 2006 -
$8,835)
Securities available for sale, at fair value (cost: 2007 - $40,157; 2006 - $45,912)
Trading securities, at fair value
Spot commodities
Unrealized gain on swaps, options and forward transactions
Trade receivables
Securities purchased under agreements to resell, at contract value
Finance receivables, net of allowance (2007 - $878; 2006 - $737) (includes finance receivables
held for sale: 2007 - $233; 2006 - $1,124)
Securities lending invested collateral, at fair value (cost: 2007 - $80,641; 2006 - $69,306)
Other invested assets
Short-term investments, at cost (approximates fair value)
Total investments and financial services assets
Cash
Investment income due and accrued
Premiums and insurance balances receivable, net of allowance (2007 - $662; 2006 - $756)
Reinsurance assets, net of allowance (2007 - $520; 2006 - $536)
Deferred policy acquisition costs
Investments in partially owned companies
Real estate and other fixed assets, net of accumulated depreciation (2007 - $5,446; 2006 - $4,940)
Separate and variable accounts
Goodwill
Other assets
Total assets
See Accompanying Notes to Consolidated Financial Statements.
28 of 66
130
AIG 2007 Form lO-K
American International Group, Inc. and Subsidiaries
Consolidated Balance Sheet
Continued
December 31,
(in millions. except share data)
Liabilities:
Reserve for losses and loss expenses
Unearned premiums
Future policy benefits for life and accident and health insurance contracts
Policyholders' contract deposits
Other policyholders' funds
Commissions, expenses and taxes payable
Insurance balances payable
Funds held by companies under reinsurance treaties
Income taxes payable
Financial services liabilities:
Securities sold under agreements to repurchase, at contract value
Trade payables
Securities and spot commodities sold but not yet purchased, at fair value
Unrealized loss on swaps, options and forward transactions
Trust deposits and deposits due to banks and other depositors
Commercial paper and extendible commercial notes
Long-term borrowings
Separate and variable accounts
Securities lending payable
Minority interest
Other liabilities (includes hybrid financial instruments at fair value: 2007 - $47; 2006 -
$
$111)
Total liabilities
Preferred shareholders' equity in subsidiary companies
2007
2006
85,500
28,022
136,068
258,459
12,599
6,310
4,878
2,501
3,823
$ 79,999
26,271
121,004
248,264
10,986
5,305
3,789
2,602
9,546
8,331
10,568
4,709
20,613
4,903
13,114
162,935
78,684
81,965
10,422
30,200
19,677
6,174
4,076
11,401
5,249
13,363
135,316
70,277
70,198
7,778
26,267
964,604
877,542
100
191
Commitments, Contingencies and Guarantees (See Note 12)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2007 and 2006-
2,751,327,476
Additional paid-in capital
Payments advanced to purchase shares
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost; 2007 - 221,743,421; 2006 -150,131,273 shares of common stock
(including 119,293,487 and 119,278,644 shares, respectively, held by subsidiaries)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
6,878
2,590
6,878
2,848
(912)
89,029
4,643
84,996
9,110
(6,685)
(1,897)
95,801
101,677
$1,060,505
$979,410
See Accompanying Notes to Consolidated Financial Statements.
29 of 66
AIG 2007 Form lO-K
131
American International Group, Inc. and Subsidiaries
Consolidated Statement of Income
Years Ended December 31,
2006
2005
$ 79,302
28,619
(3,592)
$ 74,213
26,070
106
$ 70,310
22,584
341
(11,472)
17,207
12,998
15,546
110,064
113,387
108,781
66,115
35,006
60,287
31,413
64,100
29,468
101,121
91,700
93,568
8,943
21,687
15,213
5,489
1,048
2,587
1,671
2007
(in millions, except per share data)
Revenues:
Premiums and other considerations
Net investment income
Net realized capital gains (losses)
Unrealized market valuation losses on
AIGFP super senior credit default swap portfolio
Other income
Total revenues
Benefits and expenses:
Incurred policy losses and benefits
Insurance acquisition and other operating expenses
Total benefits and expenses
Income before income taxes, minority interest and cumulative effect of
accounting changes
Income taxes (benefits):
Current
Deferred
3,219
(1,764)
Total income taxes
1,455
6,537
4,258
7,488
15,150
10,955
(1,288)
(1,136)
(478)
6,200
14,014
10,477
Income before minority interest and cumulative effect of accounting changes
Minority interest
Income before cumulative effect of accounting changes
34
Cumulative effect of accounting changes, net of tax
Net income
$
Earnings per common share:
Basic
Income before cumulative effect of accounting changes
Cumulative effect of accounting changes, net of tax
Net income
Diluted
Income before cumulative effect of accounting changes
Cumulative effect of accounting changes, net of tax
Net income
Average shares outstanding:
Basic
Diluted
See AccompanYing Notes to Consolidatea Financial Statements.
30 of 66
132
AIG 2007 Form lO-K
6,200
$ 14,048
$ 10,477
$2.40
$5.38
0.01
$4.03
$2.40
$5.39
$4.03
$2.39
$5.35
0.01
$3.99
$2.39
$5.36
$3.99
2,585
2,598
2,608
2,623
2,597
2,627
American International Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31,
Summary:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
$ 35,171
694
1,590
Cash at end of year
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
Net gains on sales of securities available for sale and other assets
Foreign exchange transaction (gains) losses
Net unrealized (gains) losses on non-AIGFP derivative assets and liabilities
Equity in income of partially owned companies and other invested assets
Amortization of deferred policy acquisition costs
Amortization of premium and discount on securities and long-term borrowings
Depreciation expenses, principally flight equipment
Provision for finance receivable losses
Other-than-temporary impairments
Changes in operating assets and liabilities:
General and life insurance reserves
Premiums and insurance balances receivable and payable - net
Reinsurance assets
Capitalization of deferred policy acquisition costs
Investment income due and accrued
Funds held under reinsurance treaties
Other policyholders' funds
Income taxes payable
Commissions, expenses and taxes payable
Other assets and liabilities - net
Bonds, common and preferred stocks trading
Trade receivables and payables - net
Trading securities
Spot commodities
Net unrealized (gain) loss on swaps, options and forward transactions
Securities purchased under agreements to resell
Securities sold under agreements to repurchase
Securities and spot commodities sold but not yet purchased
Finance receivables and other loans held for sale - originations and purchases
Sales of finance receivables and other loans - held for sale
Other, net
Total adjustments
See Accompanying Notes to ConsoJidateej Rnancia! Staternents,
31 of 66
6,287
(67,952)
61,244
114
2005
$ 23,413
(61,459)
38,097
(163)
(307)
1,897
$
2,284
$
$
6,200
$ 14,048
1,590
(112)
2,009
$
1,897
$ 10,477
11,472
(1,349)
(104)
116
(4,760)
11,602
580
2,790
646
4,715
(763)
1,795
(713)
(3,990)
11,578
699
2,374
495
944
(1,218)
(3,330)
878
(1,421)
10,693
207
2,200
435
598
16,242
(207)
923
(15,846)
(401)
(151)
1,374
(3,709)
989
3,657
(3,667)
2,243
835
(18)
1,413
9,341
(11,391)
633
(5,145)
5,671
477
12,930
(1,214)
1,665
(15,363)
(249)
(1,612)
(498)
2,003
408
(77)
(9,147)
(197)
1,339
(128)
(1,482)
(16,568)
9,552
(1,899)
(10,786)
10,602
541
27,045
192
(5,365)
(14,454)
(171)
770
811
1,543
140
2,863
(5,581)
2,272
(3,753)
442
934
9,953
(12,534)
571
(13,070)
12,821
(1,535)
28,971
(7,761)
$ 35,171
Net cash provided by operating activities
AIG 2007 Form lO-K
$
(68,007)
33,480
50
Change in cash
Cash at beginning of year
134
2006
2007
(in millions)
$
6,287
12,936
$ 23,413
American International Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Continued
Years Ended December 31,
(in millions;
2007
2006
2005
$ 132,320
$112,894
$ 140,076
12,475
11,661
Cash flows from investing activities:
Proceeds from (payments for)
Sales and maturities of fixed maturity securities available for sale and hybrid investments
Sales of equity securities available for sale
9,616
295
303
14,109
9,062
12,553
(139,184)
(10,933)
(266)
(4,772)
(25,327)
(1,361)
(12,439)
(15,271)
(12,303)
(870)
(23,484)
(55)
Proceeds from fixed maturity securities held to maturity
Sales of flight equipment
Sales or distributions of other invested assets
Payments received on mortgage and other loans receivable
Principal payments received on finance receivables held for investment
Purchases of fixed maturity securities available for sale and hybrid investments
Purchases of equity securities available for sale
Purchases of fixed maturity securities held to maturity
Purchases of flight equipment
Purchases of other invested assets
Acquisitions, net of cash acquired
Mortgage and other loans receivable issued
Finance receivables held for investment - originations and purchases
Change in securities lending invested collateral
Net additions to real estate, fixed assets, and other assets
Net change in short-term investments
Net change in non-AIGFP derivative assets and liabilities
$ (68,007)
Net cash used in investing activities
205
46
697
14,084
573
14,899
5,165
3,679
12,586
12,461
(146,465)
(14,482)
(175,657)
(13,273)
(197)
(3,333)
(6,009)
(6,193)
(16,040)
(15,059)
(7,438)
(5,310)
(13,830)
(17,276)
(9,835)
(1,097)
(10,301)
(941)
(10,620)
1,801
(45)
688
$ (67,952)
$ (61,459)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholders' contract deposits
$
Policyholders' contract withdrawals
Change in other deposits
Change in commercial paper and extendible commercial notes
Long-term borrowings issued
Repayments on long-term borrowings
Change in securities lending payable
64,829
(58,675)
(182)
(338)
103,210
(79,738)
11,757
57,197
51,699
(43,413)
(36,339)
1,269
2,960
(957)
(702)
71,028
67,061
(36,489)
(51,402)
9,789
10,437
163
(100)
82
(1,638)
(1,421)
(20)
398
(176)
(85)
Redemption of subsidiary company preferred stock
206
(6,000)
(1,881)
(16)
308
Issuance of treasury stock
Payments advanced to purchase treasury stock
Cash dividends paid to shareholders
Acquisition of treasury stock
Other, net
Net cash provided by financing activities
$
33,480
$
61,244
$
38,097
$
$
8,818
5,163
$
$
6,539
4,693
$
$
4,883
2,593
$
$
11,628
5,088
$
10,746
$
9,782
$
$
$
791
$
$
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest
Taxes
Non-cash financing activities:
Interest credited to policyholder accounts included in financing activities
Treasury stock acquired using payments advanced to purchase shares
Non-cash investing activities:
Debt assumed on acquisitions and warehoused investments
See accompanying Notes to Consolidated Financial Statements.
32 of 66
AIG 2007 Form lO-K
135
American International Group, Inc. and Subsidiaries
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
CONSOLIDATED BALANCE SHEET
{e]__'!.!jH{~0.?L(0.0.9..0E!H~E!L __________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _
June 30,
2008
December 31,
2007
Assets:
Investments and Financial Services assets:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2008 - $400,052; 2007$393,170)
Bonds held to maturity, at amortized cost (fair value: 2008 - $21,809; 2007 - $22,157)
Bond trading securities, at fair value
$ 393,316
21,632
$ 397,372
8,801
9,982
21,581
Equity securities:
Common stocks available for sale, at fair value (cost: 2008 - $13,490; 2007 - $12,588)
17,306
17,900
Common and preferred stocks trading, at fair value
22,514
21,376
2,496
2,370
34,384
33,727
43,887
41,984
1,205
40,305
35,170
4,197
Preferred stocks available for sale, at fair value (cost: 2008 - $2,596; 2007 - $2,600)
Mortgage and other loans receivable, net of allowance (2008 - $99; 2007 - $77) (held for
sale: 2008 - $30; 2007 - $377 (amount measured at fair value: 2008 - $745)
Financial Services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation
(2008 - $11,359; 2007 - $10,499)
Securities available for sale, at fair value (cost: 2008 - $1,246; 2007 - $40,157)
Trading securities, at fair value
Spot commodities, at fair value
Unrealized gain on swaps, options and forward transactions, at fair value
Trade receivables
Securities purchased under agreements to resell, at fair value in 2008
90
238
11,548
12,318
2,294
672
16,597
20,950
Finance receivables, net of allowance (2008 - $1,133; 2007 - $878) (held for sale:
2008 - $36; 2007 - $233)
33,311
31,234
Securities lending invested collateral, at fair value (cost: 2008 - $67,758; 2007 - $80,641)
59,530
75,662
Other invested assets (amount measured at fair value: 2008 - $22,099; 2007 - $20,827)
62,029
58,823
..................~~!?~!~!~.~~..!!:~.~~~~~.~.!~j~.~!?~!:!.~.~~~.~!.~~..~!..!~!L~~!.~.~:..~QQ~.=.E~:~.~.?J..........................................................~.~!.~~~....................~.~:~~.~
835,602
Total Investments and Financial Services assets
842,042
Cash
2,229
2,284
Investment income due and accrued
6,614
6,587
Premiums and insurance balances receivable, net of allowance (2008 - $596; 2007 - $662)
20,050
18,395
Reinsurance assets, net of allowance (2008 - $502; 2007 - $520)
22,940
23,103
8,211
Current and deferred income taxes
Deferred policy acquisition costs
Investments in partially owned companies
46,733
43,914
628
654
Real estate and other fixed assets, net of accumulated depreciation (2008 - $5,710; 2007-
5,692
5,518
Separate and variable accounts, at fair value
73,401
78,684
Goodwill
10,661
9,414
Other assets (amount measured at fair value: 2008 - $2,452; 2007 - $4,152)
17,115
17,766
$1,049,876
$1,048,361
$5,446)
Total assets
See Accompanying Notes to Consolidated Financial Statements.
33 of 66
1
American International Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(continued)
(~.~!?}!!!!9.Q?:"?:~!:!!!'~!!'~!::.!!.~!!?L(,!!.~~.,!.q!!.'C.qL. ....................................................................................................................................................................................................
June 30,
2008
December 31,
2007
Liabilities:
$
Reserve for losses and loss expenses
88,747
$
85,500
28,738
27,703
Future policy benefits for life and accident and health insurance contracts
147,232
136,387
Policyholders' contract deposits (amount measured at fair value: 2008 - $4,179; 2007 - $295)
265,411
258,459
13,773
12,599
5,597
6,310
Insurance balances payable
5,569
4,878
Funds held by companies under reinsurance treaties
2,498
Unearned premiums
Other policyholders' funds
Commissions, expenses and taxes payable
Current income taxes payable
2,501
3,823
Financial Services liabilities:
Securities sold under agreements to repurchase (amount measured at fair value: 2008$8,338)
9,659
8,331
Trade payables
1,622
6,445
Securities and spot commodities sold but not yet purchased, at fair value
3,189
4,709
Unrealized loss on swaps, options and forward transactions, at fair value
24,232
14,817
Trust deposits and deposits due to banks and other depositors (amount measured at fair
value: 2008 - $240)
Commercial paper and extendible commercial notes
Long·term borrowings (amount measured at fair value: 2008 - $53,839)
6,165
4,903
15,061
13,114
163,577
162,935
Separate and variable accounts
73,401
78,684
Securities lending payable
75,056
81,965
Minority interest
11,149
10,422
Other liabilities (amount measured at fair value: 2008 - $6,861; 2007 - $3,262)
31,012
27,975
971,688
952,460
100
100
7,370
6,878
9,446
2,848
Retained earnings
73,743
89,029
Accumulated other comprehensive income (loss)
(3,903)
4,643
Treasury stock, at cost; 2008 - 259,225,244; 2007 - 221,743,421 shares of common stock
(8,568)
(6,685)
Total liabilities
Preferred shareholders' equity in subsidiary companies
Commitments, Contingencies and Guarantees (See Note 6)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 20082,948,038,001; 2007 - 2,751,327,476
Additional paid·in capital
Payments advanced to purchase shares
(912)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
See Accompanying Notes to Consolidated Financial Statements.
34 of 66
2
78,088
95,801
$1,049,876
$1,048,361
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (LOSS)
{!!!'JI!Hijg_r.L!?!__~!:'~~j?L£'~L?:.t2?"~~_~9..!~LJ~!!!~~~!~{!~~L _______________________________________________________________________________________________________________________________________________________________________________________________ _
Three Months
Six Months
Ended June 30,
Ended June 30,
2008
2007
2008
2007
Revenues:
Premiums and other considerations
Net investment income
Net realized capital losses
$21,735
$19,533
6,728
7,853
(6,081)
$ 42,407
$39,175
11,682
14,977
(28)
(12,170)
(98)
Unrealized market valuation losses on AIGFP super senior credit default swap
portfolio
(5,565)
Other income
Total revenues
(14,672)
3,116
3,792
6,717
7,741
19,933
31,150
33,964
61,795
18,450
16,221
34,332
32,367
._------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Benefits and expenses:
Incurred policy losses and benefits
.........!.~.~~.~~.~.~~..~~9.~.~~!!~~!:..~!:.q.~!~~.~.!? p-~~~!~~~..~~!?~.~~~.~.._....................................................................~~,~~~............~!.~Q~...........!~!.~.~~..........~~!~~.~
.........!~!.~~.!?~~~!!!~.~~~..~~.P-~.~.~~~..............................................._....................................................................~!!,~~~.........~.~!.~~~•••••••••••~~!.~!!~..........~~!~~.~
Income (loss) before income taxes (benefits) and minority interest
(8,756)
6,328
(20,020)
12,500
Income taxes (benefits)
(3,357)
1,679
(6,894)
3,405
Income (loss) before minority interest
(5,399)
4,649
(13,126)
9,095
Minority interest
42
Net income (loss
(372)
(36)
(688)
$ (5,357)
$ 4277
$(13,162)
$ 8,407
$ (2.06)
$ (2.06)
$
1.64
(5.11)
$
3.22
$
1.64
$
$
(5.11)
$
3.21
Earnings (loss) per common share:
Basic
Diluted
Q!~!!I.~~.~~.!I.~~J.~~.~~..~~!.~.I!~.~~.'!.~.~.~!~......................................................................................................~...Q,.~~Q.......~...Q:;>g.Q......~....Q:~~.Q.......~..g.c~.~!?
Average shares outstanding:
Basic
2,605
2,602
2,575
2,607
Diluted
2,605
2,613
2,575
2,621
See Accompanying Notes to Consolidated Financial Statements.
35 of 66
3
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
[[!!.I!2!ijjg.(}.~}.J.I!.(}.CJ.I!E!!~EL....................................................................................................................................................................................................................................
Six Months
Ended June 30,
2008
2007
Summary:
$ 16,589
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
$ 17,431
(21,963)
Net cash provided by (used in) financing activities
(40,314)
5,274
Effect of exchange rate changes on cash
22,947
45
Change in cash
(19)
(55)
Cash at beginning of year period
45
2,284
1,590
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
$ 2,229
Cash at end of year period
$
1,635
Cash flows from operating activities:
..........~~.~.!.~.~~~.~..(!~~.~L................................................................._...............................................................................................................~t!.~!.~~~LJ....~!~Q.!
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income (loss):
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
Net gains on sales of securities available for sale and other assets
Foreign exchange transaction (gains) losses
14,672
(494)
857
Net unrealized (gains) losses on non·AIGFP derivatives and other assets and liabilities
Equity in income of partially owned companies and other invested assets
2,086
(151)
(732)
639
(123)
(2,747)
Amortization of deferred policy acquisition costs
7,343
5,911
Depreciation and other amortization
1,799
1,608
Provision for mortgage, other loans and finance receivables
Other·than·temporary impairments
578
229
12,416
884
9,748
8,238
Changes in operating assets and liabilities:
General and life insurance reserves
Premiums and insurance balances receivable and payable - net
Reinsurance assets
(1,104)
196
Capitalization of deferred policy acquisition costs
(9,160)
Investment income due and accrued
118
Funds held under reinsurance treaties
(25)
Other policyholders' funds
851
Income taxes receivable and payable - net
(6,960)
Commissions, expenses and taxes payable
52
Other assets and liabilities - net
Trade receivables and payables - net
434
(7,567)
(44)
(210)
879
(225)
724
1,809
553
(6,446)
(925)
Trading securities
930
Spot commodities
148
Net unrealized (gain) loss on swaps, options and forward transactions
(941)
(2,258)
127
(3,993)
1,317
Securities purchased under agreements to resell
4,353
2,116
Securities sold under agreements to repurchase
1,237
Securities and spot commodities sold but not yet purchased
Finance receivables and other loans held for sale - originations and purchases
(1,531)
(226)
221
(279)
(3,957)
Sales of finance receivables and other loans - held for sale
492
4,177
Other, net
209
922
29,751
9,024
$ 16,589
$ 17,431
Total adjustments
Net cash provided by operating activities
See Accompanying Notes to Consolidated Financial Statements.
36 of 66
5
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
.cU_~!?}jjl{QQ?:L{~{Q~~~{~~f~~ql ___________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _
Six Months
Ended June 30,
2008
2007
Cash flows from investing activities:
Proceeds from (payments for)
Sales and matu rities of fixed maturity securities available for sale and hybrid investments
Sales of equity securities available for sale
Proceeds from fixed maturity securities held to maturity
Sales of trading securities
Sales of flight equipment
Sales or distributions of other invested assets
Payments received on mortgage and other loans receivable
Principal payments received on finance receivables held for investment
Purchases of fixed maturity securities available for sale and hybrid investments
Purchases of equity securities available for sale
Purchases of fixed maturity securities held to maturity
Purchases of trading securities
Purchases of flight equipment (including progress payments)
Purchases of other invested assets
Mortgage and other loans receivable issued
Finance receivables held for investment - originations and purchases
Change in securities lending invested collateral
Net additions to real estate, fixed assets, and other assets
Net change in short·term investments
Net change in non·AIGFP derivative assets and liabilities
Net cash provided by (used in) investing activities
$ 42,026
4,861
33
14,120
372
8,715
3,457
6,757
(47,114)
(5,808)
(88)
(9,244)
(2,950)
(11,988)
(3,340)
(8,778)
6,315
(663)
(18,832)
186
$ 64,563
$(21,963)
$(40,314)
$ 33,322
(27,926)
682
1,930
55,685
(56,645)
(6,919)
7,343
11
(1,000)
(1,036)
$ 28,769
(173)
132
4,275
133
28
6,208
2,270
6,430
(72,348)
(5,852)
(129)
(3,883)
(12,171)
(5,029)
(7,387)
(11,772)
(466)
(4,636)
(548)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholders' contract deposits
Policyholders' contract withdrawals
Change in other deposits
Change in commercial paper and extendible commercial notes
Long·term borrowings issued
Repayments on long·term borrowings
Change in securities lending payable
Proceeds from common stock issued
Issuance of treasury stock
Payments advanced to purchase treasury stock
Cash dividends paid to shareholders
(29,379)
(823)
1,768
50,091
(34,937)
12,021
180
(4,000)
(859)
Acquisition of treasury stock
(16)
Other, net
Net cash provided by (used in) financing activities
$
5,274
$ 22,947
$
$
3,493
66
$
3,744
$
3,524
$
$
$
3,815
1,912
431
$
5,932
$
1,664
$
153
$
Supplementary disclosure of cash flow information:
Cash paid (received) during the period for:
Interest
Taxes
Non-cash financing activities:
Interest credited to policyholder accounts included in financing activities
Treasury stock acquired using payments advanced to purchase shares
Present value of future contract adjustment payments related to issuance of equity units
$
Non-cash investing activities:
Debt assumed on acquisitions and warehoused investments
See Accompanying Notes to Consolidated Financial Statements.
37 of 66
6
354
Table of Contents
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information of Registrant
Balance Sheet - Parent Company Only
Schedule II
December 31,
(in millions)
2006
2007
Assets:
Cash
Invested assets
Carrying value of subsidiaries and partially owned companies, at equity
Premiums and insurance balances receivable - net
Other assets
Total assets
$
84
14,648
111,714
311
9,103
135,860
$
76
7,346
109,125
222
3,767
120,536
Liabilities:
43
3,916
20,397
500
14,274
874
55
40,059
Insurance balances payable
Due to affiliates - net
Notes and bonds payable
Loans payable
AIG MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
Other liabilities
Total liabilities
Shareholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total shareholders' eguity
Total liabilities and shareholders' eguity
21
1,841
8,917
700
5,468
72
1,840
18,859
6,878
1,936
89,029
4,643
(6,685)
95,801
$135,860
6,878
2,590
84,996
9,110
(1,897)
101,677
$120,536
See Accompanying Notes to Financial Statements - Parent Company Only.
Statement of Income - Parent Company Only
Years Ended December 31,
(in millions)
Agency income (loss)
Financial services income
Asset management income (loss)
Cash dividend income from consolidated subsidiaries
Dividend income from partially-owned companies
Equity in undistributed net income of consolidated subsidiaries and partially owned companies
Other expenses, net
Cumulative effect of an accounting change
Income before income taxes
Income taxes (benefits)
Net income
2006
2007
$
10
69
99
4,685
9
3,121
(2,566)
5,427
(773)
$ 6,200
$
9
531
34
1,689
11
13,308
(1,371)
34
14,245
197
$14,048
2005
$
3
507
(3)
1,958
127
10,156
(2,203)
10,545
68
$10,477
See Accompanying Notes to Financial Statements - Parent Company Only.
AIG 2007 Form lO-K
38 of 66
227
Table of Contents
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information of Registrant Continued
Statement of Cash Flows - Parent Company Only
Schedule II
Years Ended December 31,
2007
2006
2005
$ 6,200
$ 14,048
$ 10,477
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Equity in undistributed net income of consolidated subsidiaries and partially owned companies
Foreign exchange transaction (gains) losses
Changes in operating assets and liabilities:
Change in premiums and insurance balances receivable and payable
Loan receivables held for sale - purchases
Sales of loan receivables - held for sale
Other, net
Total adjustments
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Purchase of investments
Sale of investments
Change in short-term investments
Contributions to subsidiaries and investments in partially owned companies
Mortgage and other loan receivables - originations and purchases
Payments received on mortgages and other loan receivables
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Notes, bonds and loans issued
Repayments of notes, bonds and loans
Issuance of treasury stock
Cash dividends paid to shareholders
Payments advanced to purchase shares
Acquisition of treasury stock
Other, net
Net cash (used in) provided by financing activities
Change in cash
Cash at beginning of year
Cash at end of year
(9,941)
333
(13,308)
232
(44)
(404)
40
3,046
(6,970)
(770)
(423)
(1,139)
(14,638)
(590)
(7,640)
3,057
(3,631)
(755)
(2,026)
498
(240)
(10,737)
(7,875)
3,402
414
(3,017)
(423)
15
(159)
(7,643)
(117)
(1,681)
20,582
(1,253)
217
(1,881)
(6,000)
(16)
(134)
11,515
8
76
84
$
12,038
(2,417)
163
(1,638)
2,101
(607)
82
(1,421)
(20)
(7)
8,119
(114)
190
76
$
(176)
21
(10,156)
15
1,518
(8,623)
1,854
(598)
(966)
$
173
17
190
NOTES TO FINANCIAL STATEMENTS - PARENT COMPANY ONLY
(J) Agency operations conducted in Nnt' York through the North American Division
(~fAIU
are included in the financial statements
(~f the
parent company.
(2) Certain prior period amounts have been reclass{fied to conform to the current period presentation.
(3) "Equity in undistributed net income (~fc()ns()lidated subsidiaries and partially (J1rned companies" in the accompanying Statement (~flncome - Parent Company Only - includes equity in
income (~f the minority-01t'ned insurance operations.
228
AIG 2007 Fonn lO-K
39 of 66
American International Group, Inc. and Subsidiaries
Invested Assets
The following tables summarize the composition of AIG's invested assets by segment:
._------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
(in roil/ions)
General
Insurance
Life
Insurance &
Retirement
Services
Financial
Services
Asset
Management
Other
Total
June 30, 2008
Fixed maturity securities:
Bonds available for sale, at fair value
Bonds held to maturity, at amortized cost
$ 72,981
21,346
$297,095
$
1,370
$21,870
$393,316
$
1
285
21,632
8,764
37
8,801
4,522
12,018
787
285
22,200
29
Bond trading securities, at fair value
Equity securities:
Common stocks available for sale, at fair value
Common and preferred stocks trading, at fair value
Preferred stocks available for sale, at fair value
Mortgage and other loans receivable, net of allowance
1,943
543
10
16
26,010
1,038
(21)
17,306
22,514
2,496
7,275
45
34,384
Financial Services assets:
Flight equipment primarily under operating leases, net
43,887
of accumulated depreciation
43,887
1,205
1,205
Trading securities, at fair value
35,170
35,170
Spot commodities, at fair value
90
90
Securities available for sale, at fair value
Unrealized gain on swaps, options and forward
(1,172)
12,720
transactions, at fair value
Trade receivables
11,548
2,294
2,294
16,597
16,597
Securities purchased under agreements to resell, at
fair value
5
33,306
4,951
48,312
141
6,126
12,616
20,810
3,670
17,840
7,093
62,029
9,967
32,724
3,974
7,125
15,702
69,492
128,627
468,482
155,472
61,374
21,647
835,602
499
979
476
269
6
2,229
1,380
4,952
29
255
(2)
342
965
28
95
224
1,654
$130,848
$475,378
$156,005
$61,993
$21,875
$846,099
Finance receivables, net of allowance
Securities lending invested collateral, at fair value
Other invested assets
Short·term investments
33,311
59,530
Total Investments and Financial Services assets as
shown on the balance sheet
Cash
Investment income due and accrued
Real estate, net of accumulated del2reciation
Total invested assets ok
* At June 30,2008, approximately 63 percent and 37 percent of invested assets were held in domestic and foreign investments, respectively.
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.0
Equity
PICC - strategic shareholding
Taiwan Semiconductor - Taiwan
Chunghwa Telecom - Taiwan
T&D Holdings (merged Taiyo and Daiwa)
Pru Class B (part of demutualization process)
PTT PCL - Thailand
CP All - Thailand (private equity portfolio)
Nippon Building Fund - Japan REIT
Mediatek - Taiwan
Hon Hai Precision Industry - Taiwan
(Mlns)
Exposure
546
257
257
163
157
134
127
115
106
101
Credit
TAIWAN, REPUBLIC OF
JAPAN, GOVERNMENT OF
THAILAND, KINGDOM OF
CITIGROUP INC
GENERAL ELECTRIC CO
HSBC HOLDINGS PLC
JP MORGAN CHASE & CO
BANK OF AMERICA CORP
SINGAPORE, REPUBLIC OF
WACHOVIA CORP
KOREA, REPUBLIC OF
AT&T INC
GOLDMAN SACHS GROUP INC
MORGAN STANLEY
ROYAL BANK OF SCOTLAND GROUP PLC
(Bins)
Exposure
15,973.3
10,231.8
6,132.3
4,172.9
3,860.0
3,796.2
3,711.3
3,709.2
2,976.8
2,903.6
2,767.1
2,614.4
2,608.4
2,500.1
2,418.8
43 of 66
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Valuation date: December 31, 2007
Group Name:
AIG Inc. (Insurance Investment Portfolios)
Summary MBS/CDO/FG Holdings
Holdings ($ millions)
CMBS
Prime - Non Agency 1st lien RMBS
Prime - Non Agency 2nd lien RMBS
Alt A RMBS (1 st or 2nd lien)
Subprime 1st lien RMBS
Subprime 2nd lien RMBS
HELOC RMBS
Home equity/Closed end 2nd lien RMBS
COO with subprime/Alt A exposures
COOA2 with subprime/Alt A exposures
Financial Guarantor direct exposure'
Financial Guarantor wrapped investments"
Market Value
22,998.8
Amortized
Cost
23,918.0
21,072.9
850.1
24,892.2
21,189.1
21,551.7
955.1
26,616.4
24,073.6
1,861.5
1,989.0
58.0
38.5
41,870.0
Investme Investme
nt % Total nt % of
Invest.
Equity
25%
3%
3%
0%
4%
3%
0%
0%
0%
22%
1%
28%
25%
0%
2%
0%
58.0
0%
0%
0%
0%
56.6
42,150.0
0%
6%
0%
44%
Total cash and investments
693,004.0
688,123.0
Shareholders' equity
95,801.0
95,801.0
• Represents amortized cost and fair value related to $58MM in bonds and $136MM notional of CDS exposure .
•• We recognize that this exposure may already be included in the lines above, but request you to identify it separately here
44 of 66
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45 of 66
iM='~::o:'iM ~
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Commercial Paper - Funding Liquidity for AIG, ILFC & AGF
• Summary of commercial paper programs versus the backstop facilities for each entity
Commercial Paper Outstanding vs. Backstop Coverage
As of 7/25/08
$25,000
•
If AIG were unable to issue commercial paper
due to a severe disruption in the CP market, or
to AIG-specific issues, the commercial paper
issuing entities could draw down $20.2 billion
under existing, committed backstop facilities.
This compares against a total of $15.0 billion in
CP currently outstanding for these issuers with
$5.2 billion still available .
•
This cash could then be used to meet all
liquidity needs, including repayment of maturing
CP, payment of all principal and interest on
debt when due, payment of quarterly
shareholder dividends ($1.95 billion through 1st
quarter of 2009).
$20,233
$20,000
~
$15,000
I
j--------------
" - - - - - - - 1 1 AIG Bilateral
'f
$73
""
$10,000
.j::>..
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-
$5,0001_,
o
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$0
I
;';';';';';';';';';';';';';';';';';1
';';';';';';';';';';';';';';';';';-1
CP Outstanding
Backstop Facilities
Projected Combined Liquidity Position - AlG, ILFC & AGF
As of 7/28/08
$18,000
$15,000
o
$12,000
"
:E
$9,000
,6
This projection does not include any
unusual events, such as extraordinary
dividends or other cash calls
$6,000
$3,000
$0
~"'Os"" ,*0
#'
~~#~~~~~$$~~$~~$$o/
o
AIG Financial Products
• Liquidity Position for FP under Stress Scenarios 1 & 2
AIGFP Liquidity Projection Scenarios
$10,000
FP 1
.j::>..
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($8,719)
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:$
:!:
:!:
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;'::.:;::,:
($28,729)
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1
AIG Combined Views
AIG developed two stress scenarios in order to test the Company's ability to
meet its near term obligations and maintain solvency and confidence.
Combined Liquidity Projection· Scenario 1
$40,000
Scenario 1
.j::>..
ex>
o
Key Assumptions
• Utilization of liquidity through CP or backstop facilities, MIP
assets and the remaining proceeds from capital raise
• A significant deterioration in FP's liquidity position from
inability to roll its maturing liabilities or repos
• Offset by monetization of unencumbered assets, portfolio
trades, and various other transactions providing liquidity at FP
$30,000
"~
+1------------------
$20,000
1
$10,000
1
$0
=-- """""""
$6,002
~""-==-""-----~
~I--------------------------------
~~~~,~~~~~~~~~~~~~
( J)
(J)
Scenario 1 results through 1Q'09 projects a cash
position of $6.0 bill.
Scenario 2
Combined Liquidity Projection· Scenario 2
Key Assumptions
•
All assumptions from Scenario 1 are incorporated
•
FP experiences additional margin calls resulting from severe
adverse market developments
•
•
Additional collateral calls due to a one notch downgrade by
Moody's and S&P
Additional liquidity withdrawals from FP clients due to credit
concerns
::::::: +--rm_"_ _ _ __
$20,000 +c-::-----------------~
::
~
$10,000
$0
1--l
1
""""""c-"""""----------------
....
"""""~------------
($14,008)
:':;.):";
..,-,
~~~~#~~~~~~~~~~~~#
Scenario 2 results through 1 Q'09 projects a cash
deficit of ($14.0) bill.
2
Explanation of Differences in Key Assumptions between Mayand July Analyses
Stress Scenario 1
May
Categor~
Opening Cash balance
Maturing debt
Other scheduled cashflows
Nightingale
Collateral/margin calls
Gold leases
Curzon CP
Monetization of assets
MTN and EMTN
Repo Rollover issues
2a7 liquidity puts
Portfolio trades
Private Equity
Difference
7,660,000
1,681,000
(5,979,000)
(10,902,708)
(940,573)
(4,183,281 )
(7,993,920)
4,038,642
(2,274,278)
2,908,788
4,979,215
1,909,003
(523,850)
(2,500,000)
(394,500)
(1,514,649)
17,000,000
(392,660)
(699,583)
(857,966)
156,000
(10,000,000)
(100,686)
6,500,000
(265,960)
(1,647,018)
(680,756)
(250,000)
Closing balance
A
July
6,089,511
(8,718,698)
523,850
(7,500,000) A
394,500
1,413,963 B
(10,500,000) C
126,700
(947,435)
177,210
(156,000)
(250,000)
(14,808,209)
In the July analysis, AIG employed a significantly more severe assumption for the potential future collateral calls
related to AIGFP's super senior credit derivatives as compared to the assumptions used in the May analysis. For
the May analysis, AIG has assumed an additional $2.5 billion in collateral calls, based on the premise of markets
remaining stable. Since then, AIG FP had posted an additional $6 billion, bringing the total posting to $16 billion. In
the July analysis, AIG is assuming an additional $10 billion on top of the $16 billion already posted. In order for AIG
to post an additional $10 billion, the valuations of the super senior COO securities would have to further deteriorate
by an amount in excess of the $10 billion.
As the majority of the mark to market losses recognized and collateral postings to date relate to the portion of the
portfolio that includes some exposure to sub-prime, a further $13 billion deterioration of the value of these positions
would equate to a drop in price by 17 points (ignoring amortization). If reduced by 17 points, then the average price
for AIGFP's hi-grade COOs will be 51 and the average price for the mezzanine COOs would be 42.
AIGFP's Super Senior COO Portfolio Containing Sub-prime RMBS
Notional
($ billion)
Hi-grade
Mezzanine
$
$
$
41.956
15.842
57.798
AIG June Avg
Price
67.81%
58.82%
AIG June Avg
Prices
Adjusted by
17
50.81%
41.82%
B
The May analysis assumed that $1.5 billion in short-term debt issued by Curzon will not roll. AIG revised this
assumption in the July analysis as only $100 million is currently rolling overnight.
C
The July analysis only considers unencumbered assets at AIGFP. It does not consider unencumberred assets at
Banque AIG or assets held by AIG Inc on behalf of AIGFP. Total amount of additional unencumbered assets
available to AIGFP to monetize that are not reflected above are approximatey $7.5 billion. While not considered in
this analysis, these are assets available to AIG to monetize.
49 of 66
Explanation of Differences in Key Assumptions between May and July Analyses
Stress Scenario 2
Category
May
Opening Cash balance
July
Difference
7,660,000
1,681,000
(5,979,000)
Maturing debt
Other scheduled cashflows
(10,902,708)
(940,573)
(4,183,281)
(7,993,920)
4,038,642
(2,274,278)
2,908,788
4,979,215
1,909,003
Nightingale
Collateral! margin calls
Gold leases
Curzon CP
Monetization of assets
Commodity call
Ratings downgrade
Liquidity withdrawals
MTN and EMTN
Repo Rollover issues
2a7 liquidity puts
Portfolio trades
Private Equity
(523,850)
(11,500,000)
(394,500)
(6,392,216)
21,500,000
(817,197)
(8,698,898)
(1,400,000)
(392,660)
(699,583)
(857,966)
156,000
Closing balance
(14,204,151 )
(250,000)
523,850
(1,500,000)
394,500
819,807
(10,000,000)
67,197
(4,717,609)
(971,958)
126,700
(947,435)
177,210
(156,000)
(250,000)
(28,728,886)
(14,524,735)
(13,000,000)
(5,572,409)
11,500,000
(750,000)
(13,416,507)
(2,371,958)
(265,960)
(1,647,018)
(680,756)
A
B
C
D
D
A
In the July analysis, AIG employed a significantly more severe assumption for the potential future collateral calls
related to AIGFP's super senior credit derivatives as compared to the assumptions used in the May analysis. For the
May analysis, AIG has assumed an additional $11.5 billion in collateral calls. Since then, AIG FP had posted an
additional $6 billion, bringing the total posting to $16 billion. In the July analysis, AIG is assuming an additional $13
billion on top of the $16 billion already posted. In order for AIG to post an additional $13 billion, the valuations of the
super senior COO securities would have to further deteriorate by an amount in excess of the $13 billion.
As the majority of the mark to market losses recognized and collateral postings to date relate to the portion of the
portfolio that includes some exposure to sub-prime, a further $13 billion deterioration of the value of these positions
would equate to a drop in price by 22 points (ignoring amortization). If reduced by 22 points, then the average price
for AIGFP's hi-grade COOs will be 46 and the average price for the mezzanine COOs would be 37.
AIGFP's Super Senior CDO Portfolio Containing Sub-prime RMBS
Notional
($ billion)
Hi-grade
Mezzanine
$
$
$
41.956
15.842
57.798
AIG June Avg
Price
67.81%
58.82%
AIG June Avg
Prices Adjusted
by 22
45.81%
36.82%
B
The July analysis only considers unencumbered assets at AIGFP. It does not consider unencumberred assets at
8anque AIG or assets held by AIG Inc on behalf of AIGFP. Total amount of additional unencumbered assets
available to AIGFP to monetize that are not reflected above are approximatey $7.5 billion. While not considered in
this analysis, these are assets available to AIG to monetize.
C
A two-notch downgrade from Aa2 by Moody's only was assumed in the May analysis, while a one-notch downgrade
from Aa3 by both Moody's and S&P is assumed in the July analysis. A split rating between Moody's and S&P
reduces the liquidity demands by approximately $3 billion.
D
More severe assumptions were assumed for the contagion effect of a rating downgrade on AIGFP's outstanding
business from counterparties electing to terminate trades with AIGFP.
50 of 66
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trategic
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General Insurance - Core Operations
Commercia! Insurance
. u.s.
P&C market leader
.. Maintain historical under\lVr!ting discipline & creativity
.. Maintain focus on underwriting profit
.. Strong, experienced and stable management team
Hartford Steam Boiler
01
1'0
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( J)
(J)
United Guaranty
.. Leading worldwide provider of equipment breakdown & engineered nnes
.. Resu!ts generally not correlated with broader
losses
pac cycle or property GAT
.. Excel lent retu rns
.. Maintain commitment to domestic 1st nen and select international markets
.. Current domestic 1st nen risk in-force value of $282 bn; new business
highlY profitable
.. Put 2 nd nen business behind us
.. May consider sidecar and other potential reinsurance solutions to cede
risk and leverage third-party capita!
,
Foreign General
.............................................................................................................................................................................................
.. Unparalleled global franchise - leading global A&H provider
.. Geographically diverse operations in more than 80 countries
.. Excel lent retl! rns
trategic
~
eVI
life & Retirement Services - Core Operations
-
Foreign Life & Retirement
Services
01
W
o
( J)
(J)
DO!llestic Life! ex AGLA
.. Leading market position - #1 market share in Hong Kong,
Singapore, Thailand, China (foreign insurers)
.. ALiCO ranks in the top five for new premiums in over 20 markets
.. Competitive advantage through local market expertise and
diversified distribution - agents, bancassurance, direct marketing,
brokers, IFA, worksite
.. Significant growth potentiai in attractive markets
.. Leading market position and strong brand - #1 in !ife insurance
issued (face amount), term nfe saies and structured settiements
.. Diversified product portfono
.. Relatively stable earnings profiie
.. Expansive multi-channel distribution
......................................................................................
Domestic Retirement
Services
.. Leading market positions - #1 in fixed annuities and primary
education; #3 in hea!thcare and higher education market
.. Competitive advantage through strong brand positioning
.. Opportunities for product and distribution expansion to meet
growing demand
trategic
~
eVI
Financial Services and Asset Management - Core Operations
-
International Lease Finance
Corporation
.. #1 aircraft operating lessor in the world
.. \Nodd class management team
.. Strong expected cash flow generation
.. Largest singie customer of both Boeing and Airbus
..........................................................................................................................,
~merican
-
General Finance
o
( J)
(J)
2 nd
..
largest branch network in U,S, targeting middle America
.. Seasoned management
.. Superior credit peliormance
.. Near term focus on expense management and slower growth
...........................................................................................................................................................................................,
Commercial Equipment
Finance
.. Strong franchise established with diversified equipment finance
portfolio worth $1.9 bn
.. Near term focus on expense management and slower growth
.. May consider portfolio sales at attractive prices
...............................................................................................................
Asset Management (3 fd
Party)
.. Compiementary to insurance business
.. Global footprint
.. Continue to improve scale and servicing platform
trategic
~
eVI
The following areas are under consideration for potential actions:
~
Stream!!nes portfolio
., Enhances returns
~nsurance
®
8i
<8
Reduces earnings volatility
®
01
~~ Deploys capital more effectively
-
<8
( J)
(J)
., Sharpens management focus
Transatlantic Holdings
Domestic Personal Lines
AGLA
Domestic Employee Benefits Solutions and
Association Benefits Solutions
Non~~nsurance
., A!G Commodities Index
<8
<8
9,9% of equity2 - $9.5 bn
., Foreign Consumer Finance Business
®
~
1.8%J of net earnings - $301 mm
A! Imperia! Credit
Other
UGC 2 nd Uen Portfolio
Financial Products
Securities Lending
®
8i
Notes: 1. Based upon 2001 results 2. PLD equity does not exclude peG, UGC 2"° lien equity
approxirnated by usinn slaiuiory surplus of $17'5 rnrn as reported by UGC rnana~l'~rnent.
Dornesiic Employee Benefiis Soluiiof1s and f\ssociation Benefits Solutions' equiiy
approxirnated as pefcenta~~e of pren-:iurns
FX Prime Brokerage
®
Financial
roducts
Select operating units will be realigned within AIG or maintained. Others
will be sold or run~off
AIGFP
01
(J)
o
Transfer f Change
Reporting
Maintain
Se!!~off
R.un~off
businesses
businesses
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..... , .......................... , ............. , ............ ., ..... , ....... ., ..... , ............ , ........ .
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i...............................
Brokeraoei
w. .............
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r·············~·~~~··············
t........................................... J
Independent
ash
I
nalysis
The BlackRock analysis enables AIG to better estimate the cash flow
profile associated with running off AIGFP's multisector CDO portfolio
is
109 CDS written on super senior CDO of ASS securities with notional
exposure of $77 bn
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
is
Estimate projected cash flow needs to run-off the portfolio (excluding
collateral posting requirements)
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
01
-...J
o
( J)
(J)
.. Bottom up loan level cash flow analysis incorporating unique features of
the collateral and COO waterfall structures building up to the CDS cash
flows and subsequent recoveries
:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;
.. BlackRock's assumptions were used in this analysis
is
HPA Base Case: 36 % decline in house prices nationwide;
60~/o
in CA
.. Moody's Base Case: 22-28%) decline
::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
is
Fair value as of June 30 ti1 : ($24.8 bn)
~
AlG's estimate of expected losses: ($5-8.5 bn)
.. BlackRock's estimate of net cash requirements: $5,6 bn (undiscounted,
ignoring collateral posted to date)
.. Collateral posted to date $19.2 bn
Financial
roducts:
isk
itigation Strategies
AIG, aided by the BlackRock analysis, is actively pursuing opportunities
to reduce exposure to the portfolio, to minimize earnings volatilitv and to
meet liquidity requirements
~
0lI
01
<D
-
~
Sale or hedges of certain positions that present significant
downside risk or are unlikely to recover in value
Obtain a hedge against a tranche of the portfolio
~
Conversion of certain CDS positions into repo or structured
lending transactions to provide increased f!exibinty for risk
disposal
Swapping of reference obligations
~
Renegotiation of CSA provisions
~
Entering into financing arrangements
o
( J)
(J)
ecurities lending
AIG, aided by BlackRock, is developing a plan for the orderly reduction
and run . .off of the Securities lending portfolio
" Shrinking the net outstanding balances of $69.0 bn; $2.7 bn reduction between 3/31/08 and 6/30/08;
$6.5 bn since 6/30/08
" BlackRock analysis projects a $5.7 bn principal loss over the remaining duration of the aggregate
portfolio (there are $26 bn of RMBS securities in other AIG portfolios with projected losses of $3.4 bn)
" BlackRock projected losses are approximately 81 % of OTTI-to-date and 39% of OTTI and unrealized
to date 1
., Opportunity to seiective!y sell bonds without further deterioration to AIG's earnings and lor equity
" BlackRock anaiysis provides potentia! to mitigate additional OTTI resulting from market dislocation
affecting pt'icing
" FHLB loans: Texas $6-8 bn, expected availability 9/30/08
., Current cash in Secur'ities Lending pool of $9.4 bn; cash in General Account pool participants of
$15.3 bn; totaling $27.7 bn or 36% of total Securities Lending iiabilities 2
" Government, agency pass throughs and high grade corporates avaiiable for repo totaling
approximately $25 bn
" Potential capital contribution fmm Parent to maintain 350 iYo RBG: $3-$8 bn thmugh the end of 2008
., Already contributed $3,9 bn of capital in cash and securities to domestic iife insurance and retirement
services companies
Notes: '1, As of June 30, 20082, As of SeptelT!ber 8, 2008
apital and Liquidity
Ian:
sset
ales
AIG is considering asset sales for which it believes it could raise from
$10 ~ $13 bn
($ rnrn)
Transatlantic
(J)
-->.
-
$1 )800 - $2,200
Domestic Personal Unes(1)
3,500 - 5,000
AGLA
2 250 - 2,600
1
Domestic Employee Benefits and Association Benefits
250 - 350
o
( J)
(J)
Commodities Index(1)
TBD
FX Prime Brokerage(1)
TBD
Foreign Consumer Finance Businesses(1)
AI Imperia! Credit (1 )
Tota~
Note: 1 Taxes will be deferred until the NOLs are fully utilized
1 400 - 2,200
1
180 - 250
$9~380 ~ $12~600
apital
arkets
~
cenarlos
AIG and JPMorgan believe AIG has the ability to raise $10 - $25 bn in the
public and private markets
$5 - $7 bn
Up to $10 bn
~
Issuance concurrent with or after release of
Q3 earnings
~
Privately-negotiated availab!e at any time
$I
$8 - $10 bn
-
Up to $5 bn
For cash paYl maximizes proceeds from
convertible market For preferred I hybrid
structured to achieve similar equity credit
to prior AIG hybrids
." Issuance concurrent with or after release
of Q3 earnings
~
$1-$3bn
l
Exploring possibilities to monetize
differences between marks and economic
value
l
apital and Liquidity
Ian:
urces
Uses
AIG has identified adequate sources of liquidity to meet expected uses
and contingencies
Total Asset Sales
$10-13
Capital Raise
$10-25
Total Asset Sales
Capital Raise
(J)
w
0
( J)
(J)
Annua! Dividend Reduction
$0-2
Investment Sales
$1-2
Financing of Unencumbered Assets
$5-15
Subtotal
$26-57
AIGFP Solution
($5-10)
Ufe Corllpanies Stat Capital Injection
($3-8)
Subtotal
($8-18)
Net Liquidity
$18-39
Dividend Reduction
$0-1
$10-25
$0-2
A!GFP Solution
($2-7)
Total
$8-21
~
I
IX
f
evenue
~
arnlngs:
onsolidated
The proposed actions will not fundamentally alter the mix of revenues or
earnings among AIG's four principa~ segments
1 H2008 Revenues: $51.9 bn 1
1 H2008PF Revenues: $55.6 bn
2
Genet"a!
:nsUr8.:1(;8
42 1)i)
Ute !nS~r2!-~ce &
Retirement
Ufe Insurance &
Serv:ces
Retirem8r~t
49~'D
Se,v:ces
(J)
.j::>.
o
,16%
M8n8gv
8%)
00.'
1_, Iv
( J)
(J)
1
1 H2008 Pre-tax Operating Income: $9.3 bn
1 H2008PF Pre-tax Operating Income: $8.9 bn
2
Genera:
:1?%
Ufe Insu,ance &
Ret:ren1t-nt
S€wvices
56%
~\(l::J:1::J(Jf:·n,pl-,t~
Ufe ~nsu!anC8 .&
Ret:rement
Se(vic8s
56%
~\(l::Jn::Jnf:·n,pl-,t~
F:nand3! Serv:ces
9%-,
Notes: 1. Operating income excludes RCG(L), FAS 133 and unrealized market v<,luation losses. 2. Adjusted to exclude potential dispositions
djusted
t Income:
As a result of these changes,
been $4.9 bn in 1H08
r Forma ($ mm)
AIG~s
pro forma core earnings would have
<
($4~882)
Adjusted Net Income 1H 2008'
Adjustments
Unrealized market valuation losses, net
Credit valuation adjustments (eVA)
Total Adjustments
($9,537)
($361 )
($9,898)
(J)
01
8. Fully Adjusted Net Income 1 H 2008
$5,016
(J)
(J)
Aggregate Adjusted Net Income from Dispositions 1 H 2008
Pro Forma 1 H 2008 Net Income Adjusted for Unrealized Market Valuation
Losses s eVA and Dispositions
Note: 1 f-\dJusted net income (loss) excludes net realized capital 9aim; (losses) and FAS 133, net of lax
$160
$4,856
9/9/08 DRAFT
Proprietary and Confidential
=
for AJG
~nternal
Use Only
Cumulative Loss Estimates by Vintage
Base Case
r······································S~;~~~~d··C·~~~·······································1
t........................................................................................................................ ~
HPA Projection:
HPA Projection:
36% peak to trough national home price decline
(18% actual through March 2008)*
48% peak to trough national home price decline
(18% actual through March 2008)*
60% peak to trough California home price decline
68% peak to trough California home price decline
Cumulative loss estimates
Cumulative loss estimates
Subprime 2004-1: 5%
Subprime 2004-1: 6%
Subprime 2004-2: 6%
Subprime 2004-2: 8%
o
Subprime 2005-1: 9%
Subprime 2005-1: 11%
( J)
(J)
Subprime 2005-2: 13%
Subprime 2005-2: 16%
ABX.06.1: 18%
ABX.06.1: 23%
ABX.06.2: 25%
ABX.06.2: 32%
ABX.07.1: 31%
ABX.07.1: 41%
ABX.07.2: 35%
ABX.07.2: 49%
(J)
(J)
-
Four of the above subprime indices (2004-1, 2004-2, 2005-1, and 2005-2) were custom
synthesized according to the following constraints:
• Deal issued within 6 months prior to the launch date (e.g., the 2004-1 index uses deals issued in the second half of
2003)
• No more than four deals with the same originator
• Rated by Moody's and
sap
(the AM tranche is referenced in the index)
*Source: SEtP / Case-Schiller
I
20 I
I"....
BLACKROCK
SOLUTIONS';)
FINANCIAL INSTITUTIONS GROUP RATING COMMITTEE MEMO
CONFIDENTIAL
Rationale for parent recommendation
• The Federal Reserve has provided AIG with an $85 billion two-year revolving credit line, effective Sept.
16, 2008. Please see separate memo for notes of discussions with Dan Jester, Fed representative, and
Bob Gender, AIG's Treasurer.
• We also spoke with Ed Liddy, AIG's new CEO, and with heads of AIG's major insurance segments, who
say that customer activity has largely stabilized after significant disruptions over the past few days.
AIG's recent financial performance
• During the past three quarters (4Q07 thru 2Q08), AIG's CDS and investment portfolios have produced
realized and unrealized losses and unrealized investment depreciation totalling $59 bin pretax and $38
bin after taxes (table on pg 2).
• AIG has not rovided
fic estimates of
results but
that it is reasonable to
that
•
•
•
•
losses/writedowns on CDS and RMBS will be similar to those seen in 2008.
AIG's stock price has fallen about 80% YTD, including a steep decline in the past week, reflecting investor
worries about incremental losses, liquidity demands and ownership dilution from an expected equity
issuance. AIG's market-implied ratings, based on bonds and CDS, have fallen to the B range.
Per BlackRock's model, estimated economic losses on the CDS and RMBS portfolios are $15 bin pretax
in the expected case and $30 bin pretax in the stress case (table on pg 2, methodology outlined on pgs
57-58,66). The stress case estimate is just over half of the pretax CDS and investment losses/writedowns
recorded through 2008.
Per Chris Mann's model, estimated economic losses on the CDS and RMBS portfolios are $3 bin pretax in
the expected case and $12 bin pretax in the stress case (table on pg 3).
AIG raised approximately $20 bin of capital ($7.5 bin common equity, $12.8 bin Basket D hybrids) during
May 2008. The company has increased its consolidated cash and ST investments from $29 bin at YE
2006 to $82 bin as of June 30, 2008. Cash from operations has averaged $22 bin over the past three
years.
AIG CDS & Investment Related Losses/Writedowns
($ Bins)
AIGFP super-senior CDS
Unrealized market valuation losses
402007
Pretax
After tax
102008
Pretax
After tax
202008
Pretax
After tax
Totals
Pretax
After tax
-11.1
-7.2
-9.1
-5.9
-5.6
-3.6
-25.8
-16.8
-2.6
-3.8
-6.4
-1.7
-2.5
-4.3
-6.1
-10.6
-16.7
-3.4
-6.8
-10.2
-6.1
-3.7
-9.8
-4.0
-2.6
-6.6
-14.8
-18.1
-32.9
-9.1
-12.0
-21.1
-17.6
-11.5
-25.8
-16.1
-15.3
-10.2
-58.6
-37.8
-8.4
-5.3
-11.3
-7.8
-8.8
-5.4
-28.5
-18.5
AIG investments
Realized capital losses
Unrealized depreciation during quarter
Total investment losses/writedowns
Total CDS & investment losses/writedowns
Pretax loss 1 Net loss
AIG Consolidated Equity ($ Bins)
Shareholders' equity
Change in equity vs 9/30/2007 ($)
Change in equity vs 9/30/2007 (%)
9/30/2007
104.1
12/31/2007
95.8
313112008
79.7
6/30/2008
78.1
-26.0
-25.0%
AIG CDS & RMBS Portfolios
Expected & stress case pretax losses modeled by BlackRock as of Sept. 9, 2008
($ Bins)
CDS
Loss % of notional
Number of
Transacs
Notional
109
77.0
Base Case Losses
Undisc
Disc
-5.6
-7.3%
-7.3
-9.5%
Stress Case Losses
Undisc
Disc
-12.9
-16.8%
Par
RMBS (preliminary results)
Loss % of par
66.0
Total CDS & RMBS estimated losses
-9.0
-13.6%
-17.0
-25.8%
-14.6
-29.9
NB: For CDS portfolio, discounted losses are greater than undiscounted because discount has greatest impact on positive
cash flows in years 6-25.
2 of 66
-15.6
-20.3%
AIG CDS-COO & RMBS Portfolios
Expected & stress case pretax losses modeled by Chris Mann as of Sept. 13, 2009
Number of
($ Bins)
Transacs
CDS-COO with subprime content (data as of March 31, 2008)
178
Modeled portion
31
Loss % of notional
Not modeled
Notional
64.6
56.0
Stress Case
Losses
-0.7
-1.3%
-4.8
-8.6%
-1.8
-3.0%
-6.7
-11.2%
-2.5
-11.5
8.6
Par
75.3
59.6
RMBS (data as of Dec. 31, 2007)
Modeled portion
Loss % of par
Not modeled
Expected
Losses
15.6
Total CDS-COO and RMBS estimated losses
AIG Liquidity Analysis as of Sept. 15, 2008
($ Bins)
Liquidity needs
Combined liquidity stress scenario two 1
AIGFP CDS with OC triggers"
AIGFP contracts with early termination provisions"
4
Sec lending full paydown
Total liquidity needs
Liquidity sources
Capital raise
Dividend reduction
Investment sales
Financing of unencumbered assets
Subsidiary sales (does not include ILFC)
Subtotal from capital raise & asset sales
AIGFP solutions to reduce/finance collateral
Project Metropolis - insurance in lieu of muni collateral
CDS hedging of positions, portfolio tranche
Swapping of CDS reference obligations
CDS financing arrangements
Cost of AIGFP solutions
Subtotal from AIGFP solutions
Total liquidity sources
Sec lending analysis
Liability as of 9/8/08
Cash in sec lending pool
Other cash held by pool members
TX FHLB loans ($6-8 bin by 9/30/08)
Repos of gov'ts, agency pass-thrus, corporates
Additional amount needed for full paydown
4
14.0
8.2
4.6
13.3
40.1
Low
10.0
0.0
1.0
5.0
10.0
26.0
High
25.0
2.0
2.0
15.0
13.0
57.0
5.5
5.0
4.0
8.0
-5.0
17.5
43.5
5.5
10.0
8.0
16.0
-10.0
29.5
86.5
Net liquidity availability
3.4
46.4
Key assumptions include no CP rollover; no access to capital markets; AIGFP incremental collateral postings of $13 bin related to rating
downgrades plus $13 bin related to MV deterioration vs 6/30/08.
" Assumes that all such transactions trigger immediately and are put to AIGFP, although some would likely take time to trigger.
" Assumes that all such contracts terminate immediately, although some provide significant value to c'parties and would likely remain in place.
1
3 of 66
69.0
9.4
15.3
6.0
25.0
13.3
September 17, 2008
Current & Recommended Ratings on AIG Subsidiaries
Explicitly supported ratings
AIG Capital Trusts I & II
AIG Financial Products Corp. & subsidiaries
AIG Life Holdings (US), Inc.
AIG Program Funding, Inc.
AIG Retirement Services, Inc.
American General capital securities
Additional recommendations
AIG Capital Corporation
AIG Commercial Insurance Group (8)
AIG Domestic Life Insurance & Retirement Services (10)
AIG Edison Life Insurance Company
AIG, AIGFP, AIG Funding, AIG Liquidity, AIGMFC
AIG General Insurance (Taiwan) Co., Ltd.
AIG UK Limited
American General Finance Corporation
American International Assurance Company (Bermuda) Limited
American Life Insurance Company
International Lease Finance Corporation
United Guaranty subsidiaries UGRIC & UGMIC
United Guaranty subsidiaries UGRIC of NC & UGCIC
Affirm
Transatlantic Holdings, Inc.
Transatlantic Reinsurance Company
Rating Type
Bkd Tr Prfrd Shelf
Bkd LT Issuer
Bkd Sr Debt
Bkd Sr Debt
Bkd Sr Debt
Bkd Tr Prfrd Stock
LT Issuer
IFS
IFS
IFS
(Bkd) ST
IFS
IFS
Sr Unsec Debt
IFS
IFS
Sr Unsec Debt
IFS
IFS
Sr Unsec Debt
IFS
Support
AIG
AIG
AIG
AIG
AIG
AIG
SA
Public Current
Rec
Rec
Rating Rating Outlook Rating Outlook
(P)A3
A2
A2
(P)A2
A2
A3
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
(P)Baa1
A3
A3
(P)A3
A3
Baa1
A3
A1
A2
Aa3
Aa2
A3
Aa3
C/Caa2
Baa1
Aa3
Aa3
Aa3
P-1
A1
A1
A3
Aa3
Aa3
A3
Aa3
A3
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Baa2
Aa3
A1
Aa3
P-1
A1
A1
Baa1
Aa3
Aa2
Baa1
Aa3
Baa1
A3
Aa3
A3
Aa3
Stable
Stable
A3
Aa3
G'tee
G'tee
G'tee
G'tee
G'tee
G'tee
Aa3
Aa3
Aa3
AIG Agmt
AIG Agmt
AIG Agmt
AIG Agmt
Negative
Negative
Negative
Negative
Negative
Negative
Dev
Negative
Dev
Negative
Stable
R-Dn
Negative
Dev
Negative
Negative
Dev
R-Dn
Negative
Stable
Stable
Rationale for OURS recommendation (from Aug. 15 ReM)
• The RMBS portfolio is mainly held by the OLiRS companies through their participation in the securities
lending collateral pool. Realized capital losses (OTTI) of $5.2bn on this portfolio caused the combined
RBC of the group to fall from 292% on 3/31/08 to 240% on 6/30/08 (including a $1 bn capital infusion).
• RMBS OTTI losses are likely to rise in 3008, given widening of the marks to market since June, and $8bn
of unrealized losses remaining on the portfolio.
• AIG has committed to raising the combined RBC to 350% by YE 2008, and currently estimates that it will
need $3bn-$8bn in capital infusions to reach that level in view of the company's "bright line" test for OTTI.
• Securities lending collateral liabilities - a source of potential liquidity stress - amounted to $58bn in 2008
for the OLRS companies, versus a market value of $50.5bn, or almost $8bn below amortized cost. (NB:
Total collateral liabilities for all AIG participants, incl. foreign & P&C subs were $75bn vs. roughly $60bn of
fair value collateral assets at 6/30/08, per the 10-0.) Against that, there was just over $9bn of cash in the
pool plus $15bn held by the lifecos outside of the pool, leaving a gap of $31 bn in the event the pool had to
be completely unwound.
• Recent AIG liquidity initiatives to cover the gap include: 1) the establishment of $6bn-$8bn in FHLB
borrowing capacity for the Texas companies; and 2) identification, within the lifecos, of an estimated
$25bn in repo capacity (i.e., on governments, agency pass-throughs and investment-grade corporates).
This could possibly get the OLRS companies through a liquidity crisis temporarily, at the expense of
group's core life insurance operations.
• Although AIG plans to raise additional equity and debt in the market, and is in the process of selling
certain businesses (including its American General Life and Accident Ins. Co. subsidiary (AGLA) and a
small employee benefits business), there is a high degree of uncertainty around the timing, execution, and
proceeds that may be raised in the current environment.
• Given the more formidable potential collateral needs at AIGFP in the event of a downgrade of AIG's
senior debt, there is uncertainty as to how much of the new capital raised may be contributed to the
lifecos by YE 2008.
• Given continuing asset deterioration, liquidity concerns (albeit somewhat improved), and capital
uncertainties for the lifecos, we recommend placing their ratings on review for possible downgrade.
4of66
Contents
AIG Business Mix
6
AIG Financial Highlights
7
AIG Seqment Detail
8
AIG Composite Scorecard
9
Peer Comparisons
10-13
Press Release of August 7,2008
14-15
Credit Opinion (published August 14, 2008)
16-21
Q-tools
22
Stock Chart
23
Ratinq History
23
Organizational Structure with Rated Entities
24
AIG Financial Leverage and Fixed-Charge Coverage
25-26
AIG Domestic Life & Retirement Services Scorecard
27
AIG Financial Statements
28-39
AIG Invested Assets
40-44
AIG Super Senior CDS Portfolio
45
AIG Liquidity Review
46-48
AIG Stress Scenarios
49-50
AIG Strategic Review Presentation Slides
51-66
50f66
American International Group, Inc.
Revenues and Income Graphs
Twelve Months Ended December 31, 2007
Revenues
Asset Management
5.8%
Foreign Life
Insurance &
Retirement Services
33.8%
Domestic General
Insurance
33.5%
Financial Services
revenues were (0.6%)
Domestic Life
Insurance &
Retirement Services
15.4%
Foreign General
Insurance
12.1%
Income Before Income Taxes and Minority Interest
Foreign Life
Insurance &
Retirement
Services
44.3%
Asset Management
15.0%
Domestic General
Insurance
51.9%
Domestic Life
Insurance &
Retirement
Services
29.2%
Foreign General
Insurance
21.9%
Financial Services
operating loss was
(62.3)%
Note: The effects of net realized capital gains (losses) and Capital Markets other-than-temporary impairments,
FAS 133, other and consolidation and elimination adjustments are excluded.
6of66
4
AIG Financial Highlights (from Company Profile)
($ Mil.)
General Insurance
Gross Premiums Written
Net Premiums Written
Net Investment Income
Pretax Operating Income
Loss Ratio (%)
Expense Ratio (%)
Combined Ratio (%)
Life Insurance & Retirement Services
GAAP Premiums
Net Investment Income
Pretax Operating Income
Financial Services
Revenues
Pretax Operating Income
Asset Management
Revenues
Pretax Operating Income
AIG Consolidated
Total Revenues
Pretax Operating Income
Net Income
Total Assets
Total Debt
Shareholders' Equity
2007
2006
2005
2004
2003
2002
58,798
47,067
6,132
10,526
65.6%
24.7%
89.7%
56,280
44,866
5,696
10,412
64.6%
24.5%
89.1%
52,725
41,872
4,031
2,315
81.1%
23.6%
104.7%
52,046
40,623
3,196
3,177
78.8%
21.5%
100.3%
46,938
35,031
2,566
4,502
73.1%
19.6%
92.7%
36,678
26,718
2,350
923
83.1%
21.8%
104.9%
30,627
22,341
8,186
30,766
20,024
10,121
29,400
18,134
8,965
28,088
15,269
7,968
23,496
12,942
6,970
20,694
11,243
5,258
-1,309
-9,515
7,777
383
10,525
4,424
7,495
2,131
6,242
1,302
6,822
2,125
5,625
1,164
4,543
1,538
5,325
1,963
4,714
1,947
3,651
521
3,467
1,125
110,064
8,943
6,200
1,060,505
176,049
95,801
113,194
21,687
14,048
979,414
148,679
101,677
108,905
15,213
10,477
853,051
109,849
86,317
97,666
14,845
9,839
801,007
96,899
79,673
79,421
11,907
8,108
675,602
80,349
69,230
66,171
7,808
5,729
561,131
71,010
58,303
7of66
AIG Segment Detail (from Company Profile)
2007
2006
2005
2004
51,708
53,570
-1,309
5,625
470
110,064
49,206
50,878
7,777
4,543
983
113,387
45,174
48,020
10,677
4,582
328
108,781
41,961
43,402
7,495
4,714
94
97,666
7,305
661
67
-637
7,396
3,137
-7
10,526
5,845
589
432
328
7,194
3,228
-10
10,412
-820
-39
195
363
-301
2,601
15
2,315
777
282
357
399
1,815
1,344
18
3,177
642
1,347
1,989
3,044
3,153
6,197
8,186
917
2,323
3,240
3,821
3,060
6,881
10,121
1,495
2,164
3,659
3,020
2,286
5,306
8,965
1,023
2,054
3,077
2,393
2,455
4,848
7,925
873
-10,557
578
-873
171
-2
-9,515
668
10
383
769
2,661
922
4,424
642
662
786
90
2,180
-89
784
469
1,164
732
438
368
1,538
1,194
387
382
1,963
1,328
515
282
2,125
-1,418
8,943
-767
21,687
-2,454
15,213
-562
14,845
(SMil.)
Revenues
General Insurance
Life Insurance & Retirement Services
Financial Services
Asset Management
Other/Eliminations
Consolidated Revenues
Pretax Operatmg Income
General Insurance
Domestic Brokerage Group
Transatlantic Holdings, Inc.
Personal Lines
Mortgage Guaranty
Total Domestic
Total Foreign
Other /Eliminations
Total General Insurance
Life Insurance & Retirement Services
Domestic Life Insurance
Domestic Retirement Services
Total Domestic
Japan and Other
Asia
Total Foreign
Total Life Insurance & Retirement Services
Financial Services
Aircraft Leasing
Capital Markets
Consumer Finance
Other
Total Financial Services
72
Asset Management
Spread-based Investment Business
Institutional Asset Management
Brokerage Services, Mutual Funds and Other
Total Asset Management
Other/Eliminations
Consolidated Pretax Operating Income
8of66
Composite Scorecard
Rating Factors
American International Group, Inc.
Product Risk - P&C
Product Risk - Life
Product Diversification
Diversification
X
x
X
X
40.8%
24.1%
9.8%
9.0%
12.7%
24.5%
95.4%
5.5%
19.4%
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Managernent:
Accounting Policy & Disclosure:
90f66
A1G Inc.
USA
US GAAP
USD
COMPANY NAME
Domicile
Accountinq Convention
Assicurazioni
Generali S.p.A
Italy
IFRS
EURO
YE2006
Aviva pic
UK
IFRS
EURO
YE2007
Allstate
USA
US GAAP
USD
YE2007
Travelers
USA
US GAAP
USD
YE2007
Hartford
USA
US GAAP
USD
YE2007
YE2007
Allianz SE
Germany
IFRS
EURO
YE2007
RATING & ReM INFO
IFSR
Outlook
Senior Debt
Aa2
NEG
Aa2
Aa3
STA
Aa3
Aa3
NEG
STA
Aa2
RURJ debt only
A1
A1
A1
Aa2
STA
A2
Aa3
STA
A2
COMPETITOR RATINGS
S&P (IFSR)
Fitch (IFSR)
AM Best (IFSR)
AAAAA++
AA
AAA+
AA
AA
A+
AAiSTA
AA+!STA
A+/STA
AA-/STA
AA/STA
A+/STA
AA-/STA
AA/STA
A+/STA
32,640
63,547
44,511
27,242
29,395
33,776
27,364
93,383
34,585
58,798
6,200
1,010,505
95,801
65,811
61,821
43,027
18,794
2,915
382,543
18,350
41,880
26,384
15,496
2,034
432,054
22,423
27,180
24,198
17,630
21,522
44,289
7,966
1,061,149
47,753
4,636
156,408
21,851
4,601
115,224
26,616
2,949
360,361
13,064
Composite
Aa2/Aa2
Composite
Aa3/Aa3
Composite
A1 / Aa3
Composite
Aa3/Aa3
P&C
Aa2/Aa2
P&C
Aa3 / Aa2
P&C
A2/Aa3
Public
Global
Public
Germany
Worldwide
Public
Italy
International
Public
UK
Global
Public
USA
US
Public
USA
US
Public
USA
US
Aa1fAaa
Aa2/Aa1
Aa2/Aa2
Aa1fAaa
Aa1/Aa1
Aa2/Aa2
Aaaf Aa2
Aa3 / Aa3
Aa2 / Aa3
Aa2fAa2
Aa2/Aa2
Aa2/Aa2
Aa2 / Aa2
Aa3 / Aa2
Aa3 / Aa2
A1! Aa3
Aa2 / Aa2
A1 / Aa3
A1/A1
Aa2/Aa2
A2/A2
AaaJAaa
Baa2/A1
Aa1/Aa2
Aa3/Aa3
B£a2/Aa3
Baa1/A2
AaaJAaa
AaaJAa2
A2/A2
Aa2 f Aa3
Baa2 / Aa3
Baa1 / A1
Aaa / Aa3
Aa2 / Aa2
A2 / A2
Aa3fAa3
A2/A2
Baa1/Baa1
Aaa/Aaa
Aaa/Aaa
A1/A1
Aa2 f Aa2
Aa2 / Aa2
Aa3 / Aa3
Aa1 / Aa3
A2 / Aa2
A1 / Aa3
Aa2 / Aa2
A2/A1
Baa2 / A1
Aa3 / Aa3
Aa1 / Aa1
A3/ A1
Aa1 / Aa2
Baa3 / A1
Aa2 / Aa3
10.0%
3.5 x
10%
4.8 x
14.0%
4.1 x
8.0%
2.0 x
5.9%
9.2 x
24.9%
4.5%
6.9 x
30.8%
2.4%
3.6 x
28.4%
Aa
Aa
Aaa
Aa
A
Aaa
Aa
Aa
A
Aa
Aa
Aaa
Aa
Aaa
Aa
A
Aaa
na
Baa
Aa
A
Aa
Aaa
Aaa
na
Aaa
Aa
A
na
A
Aa
40.8%
24.1%
9.8%
22.9%
27.2%
24.2%
22.4%
27.0%
11.9%
24.7%
45.8%
18.6%
30.9%
5.8%
3.8%
8.5%
58.8%
12.6%
36.4%
17.1%
9.0%
9.0%
4.8%
4.5%
7.3%
na
3.0 x
na
3.1 x
na
3.7 x
12.70%
24.5%
15.0%
10.1%
0.0%
14.9%
Negative
20.7%
52.1%
13.6%
46.4%
9.5%
-1.0%
95.4%
90.6%
83.3%
92.4%
5.5%
-3.4%
1.8%
-1.1%
-1.6%
1.2%
5.4%
19.4%
9.4 x
31.1%
6.9 x
35.6%
7.4 x
25.3%
6.0 x
23.6%
11.2 x
21.7%
10.8 x
21.5%
8.4 x
MARKET DATA
Market Capitalisation (AIG as of Sept 12, 2008)
FUNDAMENTALS (MM)
Gross Premiums Written - Total
Gross Premiums Written - Life
Gross Premiums Written - Non-life
Net Income
Total Assets
Shareholders' Equity
QUANTITATIVE MEASURES
Scorecard Completed (Life/Non-Life/Composite)
Raw vs. Adjusted Scorecard Rating
DESCRIPTIVE STATISTICS
Ownership - Public, Private, Subsidiary
Domicile
Geographic Spread
RAW FACTOR RATING I ADJUSTED FACTOR RATING
Business Profile
Market Position and Brand
Distribution
Product Focus and Diversification
Financial Profile
Asset Quality
Capital Adequacy
Profitability
Liquidity and Asset/Liability Management
Reserve Adequacy
Financial Flexibility
SCORECARD METRICS
Business Profile
Market Position and Brand
Market Share Ratio
Relative Market Share Ratio
Expense Ratio % NPW
Distribution
Distribution Control
Diversity of Distribution
Product Focus and Diversification
Product Risk - P&C
Product Risk - Life
Product Diversification
Geographic Diversification
Financial Profile
Asset Quality
High Risk Assets % Invested Assets
Reinsurance Recoverables % Equity
Goodwill % Equity
Capital Adequacy
Capital % Total Assets
Gross Underwriting Leverage
Profitability
Return on Average Equity (5 yr. avg.)
Sharpe Ratio of Growth in Net Income (5 yr.)
Liquidity and Asset/Liability Management
Liquid Assets % Policyholder Reserves
Reserve Adequacy
Adv.! (Fav.) Loss Reserve Dev. % Beg. Reserves (5yr.)
Financial Flexibility
Financial Leverage
Earnings Coverage (5 yr. avg.)
I
I
Aa
A
10 of 66
Aa
Aa
Aaa
(USDBlns)
Secured Rating (IFSR)
AIG, Inc.
Morgan Stanley
Aa2! Aa3
AI
Wachovia
Aa2
Allstate
Merrill Lynch
Aa2
A2
Lehman
A2
Aa2
Sun Life
Aa2
Hartford
Aa3
Met Life
.H~li:I¢~:S~hW.I't~~M'.(~~@9~~p@l • • • •
p@@I(·····································
Accounting Basis
Market Capitalization
2008
1008
71
108
49
47
34
54
25
27
31
40
20
28
37
43
23
27
20
24
Aal!Aa2
83
106
Aa3
72
87
Al!A2
27
35
Market Cap! Equity
2008
1008
2007
0.9x
l.4x
1.5x
l.4x
l.4x
1.8x
O.4x
0.7x
1.0x
1.3x
1.3x
1.3x
0.9x
1.lx
1.6x
0.8x
1.lx
1.5x
1.2x
1.3x
1.3x
1.3x
1.5x
1.8x
1.2x
1.3x
l.4x
1.lx
1.8x
1.7x
1.2x
1.6x
1.7x
1.0x
1.2x
l.4x
Total Assets
2008
1008
1,050
1,051
1,031
1,091
812
809
151
152
966
1,042
639
786
556
557
187
187
334
344
1,700
1,705
1,344
1,383
521
554
Total Equity
2008
1008
2007
78
80
96
34
33
31
75
78
77
20
20
22
35
37
32
26
25
22
33
33
35
18
18
17
17
18
19
94
84
87
74
69
70
32
33
32
Equity % Assets
2008
1008
2007
7.4%
7.6%
9.1%
3.3%
3.1%
3.0%
9.2%
9.6%
9.8%
13.1%
13.3%
14.0%
3.6%
3.5%
3.1%
4.1%
3.2%
3.3%
5.9%
5.9%
6.3%
9.4%
9.3%
9.2%
5.0%
5.2%
5.3%
5.5%
5.1%
5.3%
5.5%
5.2%
5.4%
7.2%
7.2%
7.3%
......
......
o
Debt % Capital
2008
1008
2007
70.7%
69.5%
65.8%
92.1%
92.8%
93.0%
76.1%
75.0%
73.3%
22.3%
21.7%
20.5%
93.4%
93.4%
94.3%
92.3%
93.9%
94.1%
39.8%
38.6%
37.0%
24.0%
23.0%
32.1%
29.6%
25.0%
21.7%
84.2%
83.8%
86.9%
80.3%
80.4%
81.7%
54.0%
52.9%
53.3%
( J)
(J)
Revenues
2007
110
28
32
37
11
19
53
21
26
52
61
28
2008
1008
2007
5yr avg.
-5
-8
6
10
-9
-2
4
4
2
2
3
2
-2
7
8
o
5
3
4
3
2
-3
8
10
o
6
6
-5
-2
-8
3
1
-1
o
o
-3
2
3
5
2
3
Return on Average Assets (%)
2008
1008
2007
5yr avg.
-0.5%
-0.7%
0.6%
1.4%
0.1%
0.1%
0.3%
0.7%
-1.1%
-0.1%
0.8%
1.3%
0.0%
0.2%
3.0%
2.7%
-0.5%
-0.2%
-0.8%
0.7%
-0.4%
0.1%
0.7%
0.8%
0.2%
0.1%
0.8%
1.1%
0.3%
0.3%
1.2%
1.2%
0.2%
0.0%
0.9%
0.7%
0.1%
-0.1%
0.6%
0.9%
0.0%
-0.1%
0.7%
1.0%
-0.2%
0.1%
0.9%
1.2%
Cash Flow from Operations
2008
1008
2007
5yr avg.
8
35
6
26
(19)
-22
-61
-26
(7)
1
5
5
5
15
-72
-24
-26
(11)
4
10
7
8
o
6
-52
-22
-25
o
4
3
1
6
6
4
(0)
-46
-36
-21
-32
-17
-13
-15
-5
-4
2008
1008
2007
5yr avg.
(2)
-106%
567%
309%
8
-1231%
-688%
-494%
1104%
-150%
-65%
47
322%
117%
184%
9
-744%
930%
-15%
3
-2175%
-1088%
-566%
2
554%
231%
212%
1
35%
46%
161%
3
391%
203%
-717%
-290%
-100%
-312%
-346%
-275%
-180%
-73%
41%
-115%
44
45.9%
12
38.1%
8
10.1%
34
107.4%
4
17.8%
20
6
18
16
6
-
Net Income
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
-9
2
-3
(1)
o
o
Aa3
72
87
Al/A2
83
106
1.lx
1.8x
1.7x
1.2x
1.6x
1.7x
1.0x
1.2x
l.4x
1.700
1.705
1.344
1.383
521
554
Aal/Aa2
Market Cap I Equity
......
-
0.9x
1.6x
0.7x
1.3x
2.1xl
Total Equity
2008
1008
2007
78
80
96
45
43
43
136
128
113
40
45
48
25
25
24
94
84
87
74
69
70
32
33
32
Equity % Assets
2008
1008
2007
7.4%
7.6%
9.1%
4.1%
3.6%
3.8%
6.5%
5.8%
5.2%
4.0%
4.0%
4.5%
7.0%
7.0%
6.9%
5.5%
5.1%
5.3%
5.5%
5.2%
5.4%
7.2%
7.2%
7.3%
Debt % Capital
2008
1008
2007
70.7%
69.5%
65.8%
90.4%
91.9%
91.5%
85.1%
86.8%
88.6%
89.3%
90.7%
89.2%
42.3%
41.0%
41.0%
84.2%
83.8%
86.9%
80.3%
80.4%
81.7%
54.0%
52.9%
53.3%
Revenues
2007
110
46
81
100
351
52
61
28
Net Income
2008
1008
2007
5 yr avg.
-5
-8
6
10
2
2
12
7
-2
-5
4
17
2
1
8
5
~I
2
-3
8
10
0
-2
7
8
-2
0
2
3
Return on Average Assets (%)
2008
1008
2007
5 yr avg.
-0.5%
-0.7%
0.6%
1.4%
0.2%
0.1%
1.2%
1.2%
-0.1%
-0.2%
0.2%
1.4%
0.1%
0.1%
0.7%
0.5%
0.3%
0.2%
1.2%
1.3%
0.1%
-0.1%
0.6%
0.9%
0.0%
-0.1%
0.7%
1.0%
-0.2%
0.1%
0.9%
1.2%
2008
1008
2007
5 yr avg.
8
35
6
26
(23)
-68
-58
-38
2
-71
0
-11
6
13
21
17
7
7
6
6
-52
-22
-25
(0)
-32
-17
-13
0
-15
-5
-4
2008
1008
2007
5 yr avg.
(2)
-106%
567%
309%
5
-1499%
-588%
-542%
(21)
-31%
-1975%
-389%
14
489%
160%
373%
77%1
177%
191%
-290%
-100%
-312%
-346%
-275%
-180%
-73%
41%
-115%
45.9%
4.7%
35.9%
3.8%
0
46
0
I\J
0
( J)
(J)
2008
27
35
Cash Flow % Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
20
(USDBlns)
Secured Rating (IFSR)
AIG, Inc.
Aa2/Aa3
.lii:ililc;i).l>i)iili)f.f!~lng(Ei~"k.\i~.jli>@ •••• ••••
......
-
2008
1008
USGAAP
71
108
IFRS
61
57
USGAAP
106
169
USGAAP
48
51
USGAAP
118
146
Aal/Aa2
83
106
Aa3
72
87
Al/A2
27
35
Market Cap I Equity
2008
1008
2007
0.9x
l.4x
1.5x
l.4x
3.5x
2.8x
0.7x
1.lx
1.2x
1.3x
l.4x
1.6x
0.9x
1.2x
1.2x
1.lx
1.8x
1.7x
1.2x
1.6x
1.7x
1.0x
1.2x
l.4x
Total Assets
2008
1008
1,050
1,051
2,078
2,231
1,717
1,737
1,230
1,208
1,776
1,643
1,700
1,705
1,344
1,383
521
554
Total Equity
2008
1008
2007
78
80
96
44
16
35
163
156
147
37
38
43
133
126
123
94
84
87
74
69
70
32
33
32
Equity % Assets
2008
1008
2007
7.4%
7.6%
9.1%
2.1%
0.7%
1.5%
9.5%
9.0%
8.6%
3.0%
3.1%
3.2%
7.5%
7.6%
7.9%
5.5%
5.1%
5.3%
5.5%
5.2%
5.4%
7.2%
7.2%
7.3%
Debt % Capital
2008
1008
2007
70.7%
69.5%
65.8%
NA
NA
96.6%
79.3%
79.7%
80.6%
92.4%
92.0%
92.2%
80.9%
79.6%
78.3%
84.2%
83.8%
86.9%
80.3%
80.4%
81.7%
54.0%
52.9%
53.3%
2007
110
32
67
40
711
52
61
28
2008
1008
2007
5 yr avg.
-5
-8
6
10
0
-12
-5
7
15
15
-2
8
6
10
1~1
2
-3
8
10
0
-2
7
8
-2
0
2
3
Return on Average Assets (%)
2008
1008
2007
5 yr avg.
-0.5%
-0.7%
0.6%
1.4%
0.0%
-0.5%
-0.2%
0.5%
0.2%
0.1%
0.9%
1.7%
0.1%
-0.2%
0.6%
0.5%
0.1%
0.1%
1.1%
1.0%
0.1%
-0.1%
0.6%
0.9%
0.0%
-0.1%
0.7%
1.0%
-0.2%
0.1%
0.9%
1.2%
Cash Flow from Operations
2008
1008
2007
5 yr avg.
8
35
6
26
19
-52
-5
-28
(4)
11
15
7
12
-58
-49
-39
(2)
-111
-50
-38
6
-52
-22
-25
(0)
-32
-17
-13
0
-15
-5
-4
Cash Flow % Net Income
2008
1008
2007
5 yr avg.
(2)
-106%
567%
309%
71
-164%
993%
46%
4
-317%
74%
51%
23
-578%
-746%
-1037%
-102%1
-720%
-309%
-290%
-100%
-312%
-346%
-275%
-180%
-73%
41%
-115%
44
45.9%
37
106.2%
18
12.2%
11
25.9%
8
6.1%
20
34
19
0
8
W
0
( J)
(J)
BofA Credit Suisse JPMor!i!an
Aa2
Aal
Aa2
)\ii$M~(M)M~(l\ii2))\ii~(A1}M~iAii$)
Ni)iiiiiivi)BlIFI]Ni)iiii\liii)$ii:i~I~$iiil'ili)
9~ili)i)I("
Accountin Basis
Market Capitalization
UBS
Aa2
Revenues
Net Income
Gross Mortgage-related Charges
Charges % YE 2007 Equity
Total Capital Raised
3
13
Global Credit Research
Rating Action
7 AUG 2008
Rating Action: American International Group, Inc.
Moody's reiterates negative outlook on AIG; US life ops negative
New York, August 07,2008·· Moody's Investors Service has affirmed the ratings of American International
Group, Inc. (NYSE: AIG .. senior unsecured debt rated Aa3) while reiterating the company's negative rating
outlook. The rating agency also affirmed the Aa2 insurance financial strength ratings of AIG's Oomestic Life
Insurance and Retirement Services subsidiaries (OLlRS), while changing the OLiRS rating outlook to
negative from stable. The ratings and outlooks on all other AIG subsidiaries have been affirmed. These rating
actions follow AIG's announcement of a $5.4 billion net loss for the second quarter of 2008. The affirmations
are based on Moody's understanding that AIG will actively address potential liquidity and capital needs at
various operating units, including OLiRS and AIG Financial Products Corp. (AIGFP). Failure to address these
concerns in the near term could lead to rating downgrades at the parent company, OLiRS and/or other
operating units.
The second·quarter net loss includes after· tax unrealized market valuation losses of $3.6 billion on
mortgage·exposed credit default swaps (COS) at AIGFP, and after·tax realized capital losses of $4.0 billion,
largely from other·than·temporary impairment (OTTI) of residential mortgage·backed securities (RMBS) held
by the OLiRS companies. AIG's shareholders' equity account declined by $1.6 billion during the quarter to
$78.1 billion as of June 30, 2008, as the net loss and unrealized depreciation of investments offset a $7.5
billion common stock issuance in May 2008. AIG's broader capital base, including common equity and hybrid
securities with significant equity content, increased during the quarter as a result of hybrid issuance totaling
$12.8 billion.
Over the past nine months, AIG has absorbed after·tax unrealized market valuation losses on COS totaling
$16.8 billion, and after·tax realized capital losses (principally OTTI) totaling $9.1 billion. Also during this
period, the company has posted to its equity account net after· tax unrealized investment depreciation totaling
$12.1 billion.
The negative outlook on the OLiRS companies reflects their weakened capital position as a result of
persistent OTTI losses, which also generally flow through the regulatory financial statements and reduce
regulatory capital. The OLiRS companies' Aa2 insurance financial strength ratings incorporate Moody's
expectation of a combined NAIC risk· based capital (RBC) ratio of 350% or higher. To the extent that the RBC
ratio has fallen below this level, Moody's expects that the company will take steps to strengthen the
capitalization during the remainder of the year.
Moody's noted that the OLiRS companies hold a majority of AIG's RMBS, both directly and through their
securities lending collateral. Securities lending typically involves relatively short·term funding (secured by the
lent securities), with the cash collateral invested in longer·term assets, including RMBS. With RMBS
generally trading well below par, Moody's expects that AIG will maintain ample alternative sources of liquidity
to repay securities borrowers who may want to reduce or exit their positions.
"AIG's OLiRS group is a leading US life insurer, with well diversified products and distribution channels," said
Moody's Laura Bazer, lead analyst for these operations. "The negative outlook reflects continued weakness
in the RMBS market and the resulting strains on the group's asset quality and capitalization."
The rating agency noted that the negative outlook on AIG (parent company) incorporates the challenges
within OLlRS, as well as the growing COS liabilities and collateral requirements at AIGFP, whose obligations
are unconditionally guaranteed by AIG. Moody's expects that AIG and AIGFP will maintain robust coverage
of liquidity needs, even in severely adverse scenarios.
Moody's has estimated that AIG's ultimate economic losses on COS and RMBS will likely be materially
smaller than the current market values would suggest. Nevertheless, current market values have a
meaningful impact on collateral requirements at AIGFP and regulatory capital levels at several insurance
subsidiaries.
"AIG faces near·term challenges through its exposures to the troubled US mortgage market," said Bruce
Ballentine, lead analyst for AIG. "We believe that the company's diversified operations and its financial
flexibility will help it to weather the storm."
14 of 66
Moody's last rating action on these entities took place on May 22, 2008, when AIG's senior unsecured debt
rating was downgraded to Aa3 (negative outlook) from Aa2, and the OLiRS companies' insurance financial
strength ratings were downgraded to Aa2 (stable outlook) from Aa1.
Moody's has affirmed the following ratings while maintaining a negative outlook:
American International Group, Inc. -- long-term issuer rating at Aa3, senior unsecured debt at Aa3,
subordinated debt at A 1, senior unsecured debt shelf at (P)Aa3, subordinated debt shelf at (P)A 1, preferred
stock shelf at (P)A2.
Moody's has affirmed the following ratings while changing the outlook to negative from stable:
Domestic Life Insurance & Retirement Services subsidiaries -- AIG Annuity Insurance Company, AIG Life
Insurance Company, AIG SunAmerica Life Assurance Company, American General Life and Accident
Insurance Company, American General Life Insurance Company, American International Life Assurance
Company of New York, First SunAmerica Life Insurance Company, SunAmerica Life Insurance Company,
The United States Life Insurance Company in the City of New York, The Variable Annuity Life Insurance
Company -- insurance financial strength at Aa2;
AIG SunAmerica funding agreement-backed note programs -- AIG SunAmerica Global Financing Trusts,
ASIF I & II, ASIF III (Jersey) Limited, ASIF Global Financing Trusts -- senior secured debt at Aa2.
AIG, based in New York City, is a leading international insurance and financial services organization, with
operations in more than 130 countries and jurisdictions. The company is engaged through subsidiaries in
General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management. AIG
reported total revenues of $19.9 billion and a net loss of $5.4 billion for the second quarter of 2008.
Shareholders' equity was $78.1 billion as of June 30, 2008.
Moody's insurance financial strength ratings are opinions of the ability of insurance companies to punctually
pay senior policyholder claims and obligations. For more information, please visit our website at
www.moodys.com/insu rance.
New York
Bruce Ballentine
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
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COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
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15 of 66
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commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
Global Credit Research
Credit Opinion
14 AUG 2008
Credit Opinion: American International Group, Inc.
American International Group, Inc.
New York, New York, United States
Ratings
Category
Rating Outlook
Senior Unsecured
Rated Intercompany Pool Members
Rating Outlook
Insurance Financial Strength
AIG SunAmerica Life Assurance Company
Rating Outlook
American Life Insurance Company
Rating Outlook
Insurance Financial Strength
AIG Life Insurance Company
Rating Outlook
Insurance Financial Strength
American General Life Insurance Company
Rating Outlook
Insurance Financial Strength
Moody's Rating
NEG
Aa3
STA
Aa3
NEG
STA
Aa2
NEG
Aa2
NEG
Aa2
Contacts
Analyst
Bruce Ballentine/New York
Alan Murray/New York
Robert Riegel/New York
Max Zormelo/New York
Phone
1.212.553.1653
Key Indicators
American International Group, Inc.[1]
Total Assets ($ MiL)
TTM 6/08
2007
2006
2005
2004
2003
$1,049,876
$1,060,505
$979,410
$ 853,048
$ 801,007
$ 675,602
Equity ($ MiL)
$ 78,088
$ 95,801
$101,677
$ 86,317
$ 79,673
$ 69,230
Total Revenue ($ MiL)
$ 82,233
$ 110,064
$ 113,387
$ 108,781
$ 97,823
$ 79,601
Net Income ($ MiL)
$ (15,369)
$ 6,200
$ 14,048
$ 10,477
$ 9,839
$ 8,108
Financial Leverage
19.4%
18.3%
16.5%
14.9%
15.7%
16.6%
6.5x
20.5x
21.0x
23.9x
19.6x
11.2x
9.1x
12.5x
13.7x
11.9x
Earnings Coverage (1 yr.)
Cashflow Coverage (1 yr.) [2]
[1] Information based on consolidated GAAP financial statements. [2] AIG changed its reporting basis for
unrestricted subsidiary dividend capacity in 2007, so cashflow coverage at YE 2007 is not directly comparable to
prior·year levels.
Opinion
SUMMARY RATING RATIONALE
American International Group, Inc. (NYSE: AIG . senior unsecured debt rated Aa3, negative outlook) is a leading
global insurance and financial services firm, with operations in rr1<6Ed~OO 30 countries and jurisdictions. The
company is engaged through subsidiaries in General Insurance, Life Insurance & Retirement Services, Financial
Services and Asset Management. Just over 40% of the company's 2007 revenues were derived from domestic
(US) operations, with nearly 60% coming from other markets around the world. AIG's extraordinary diversification
helps it to withstand challenges in particular business lines or geographic regions and to generate substantial
earnings and capital over time.
On August 7, 2008, Moody's affirmed AIG's ratings and reiterated the negative outlook. At the same time, Moody's
affirmed the insurance financial strength (IFS) ratings of AIG's Domestic Life Insurance & Retirement Services
(DLlRS) subsidiaries, while changing the DLiRS rating outlook to negative from stable. These rating actions
followed AIG's announcement of a $5.4 billion net loss for the second quarter of 2008. The loss included significant
unrealized market valuation losses on mortgage-exposed credit default swaps (CDS) at AIG Financial Products
Corp. (AIGFP), as well as realized capital losses on investments, largely other-than-temporary impairment (OTTI)
on residential mortgage-backed securities (RMBS) held by the DLiRS companies. Over the past nine months, AIG
has absorbed after-tax unrealized market valuation losses on CDS totaling $16.8 billion and after-tax realized
capital losses (principally OTTI on RMBS) totaling $9.1 billion. Also during this period, the company has posted to
its equity account net after-tax unrealized depreciation of investments (largely RMBS) totaling $12.1 billion.
The negative outlook on the DLiRS companies reflects their weakened capital position as a result of OTTI losses,
which generally flow through the regulatory financial statements and reduce regulatory capital. The DLiRS
companies also face heightened liquidity risk, given that their RMBS are held predominantly within the securities
lending collateral pool. Securities lending typically involves relatively short-term funding (secured by the lent
securities), with the cash collateral invested in longer-term assets (including RMBS). The negative outlook on AIG
(parent company) incorporates the challenges within DLlRS, as well as the growing CDS liabilities and collateral
requirements at AIGFP, whose obligations are unconditionally guaranteed by AIG.
The recent rating affirmations were based on Moody's understanding that AIG will actively address potential
liquidity and capital needs at various operating units, including DLiRS and AIGFP. We expect that AIG will maintain
robust coverage of such needs, even in severely adverse scenarios. Failure to address these concerns in the near
term could lead to rating downgrades at the parent company, DLiRS and/or other operating units. Moody's has
estimated that AIG's ultimate economic losses on CDS and RMBS will likely be materially smaller than the current
market values would suggest. Nevertheless, current market values have a meaningful impact on collateral
requirements at AIGFP and regulatory capital levels at several insurance subsidiaries.
AIG's current ratings reflect its leading market positions in all major business segments, its broad business and
geographic scope, its historically strong earnings and cash flows, and its demonstrated access to capital markets.
These strengths are tempered by the intrinsic volatility in certain General Insurance and Financial Services
business units, by the significant volume of spread-based investment business in the Asset Management segment,
and by the company's sizable exposure to the US residential mortgage market.
Credit Profile of Significant Subsidiaries/Activities
AIG Property Casualty Group (2007 revenues: $38.0 billion, 35% of consolidated total)
The AIG Property Casualty Group (formerly Domestic General Insurance) encompasses the AIG Commercial
Insurance Group (CIG - formerly Domestic Brokerage Group), Transatlantic Holdings, Inc. (TRH), Personal Lines
and Mortgage Guaranty. Moody's maintains Aa3 IFS ratings (stable outlook) on eight members of CIG, reflecting
CIG's position as the largest US writer of commercial insurance, its broad diversification and its expertise in writing
large and complex risks. These strengths are somewhat offset by CIG's relatively high, albeit improving, gross
underwriting leverage and its history of adverse loss development following the last soft market for property &
casualty insurance.
TRH, approximately 59% owned by AIG, is a holding company for Transatlantic Reinsurance Company (TRC), a
leading US-based broker-market reinsurer with expertise in specialty casualty lines. TRC's Aa3 IFS rating (stable
outlook) reflects its lead position on many treaties, relatively steady profitability and sound capitalization. These
strengths are partly offset by competition from larger global reinsurers and by the inherent volatility of catastrophe
exposed business.
Moody's maintains a Aa3 IFS rating (negative outlook) on United Guaranty Residential Insurance Company
(UGRIC), the lead company of AIG's Mortgage Guaranty unit. The rating is based on UGRIC's conservative
underwriting practices, as evidenced by its limited exposure to the highest-risk mortgage products, coupled with its
robust capital adequacy and solid competitive position. UGRIC's rating benefits from a net worth maintenance
agreement from AIG plus a fixed-dollar-limit reinsurance agreement provided by a CIG member. Moody's expects
UGRIC to sustain operating losses over the next several quarters as a result of continued weakness in the US
housing market. However, the company is well positioned to take advantage of new business opportunities and
improved terms of trade given its strong credit profile relative to peers. Moody's also maintains a Aa3 IFS rating
(negative outlook) on United Guaranty Mortgage Indemnity Company based on an unconditional guarantee from
UGRIC. Two other members of the Mortgage Guaranty unit carry IFS ratings of A 1 (negative outlook), based on
their respective exposures to second-lien mortgage loans and student loans - market segments where conditions
are unlikely to improve over the medium term, in Moody's view. These ratings also benefit from a net worth
maintenance agreement from AIG plus affiliated reinsurance.
17 of 66
Foreign General Insurance (2007 revenues: $13.7 billion, 12% of consolidated total)
Foreign General Insurance consists of several property & casualty insurance agencies and underwriting
companies offering commercial and consumer insurance through a range of marketing and distribution channels.
The group operates in Asia, the Pacific Rim, the UK, Europe, Africa, the Middle East and Latin America, adapting
to local laws and customs as needed.
AIG UK Limited (AIG UK) is the group's flagship property & casualty insurer in the UK, having absorbed the UK
business of a CIG company in December 2007. The Aa3 IFS rating (stable outlook) on AIG UK reflects its strong
market position, healthy profitability and generally conservative investment strategy. Offsetting these strengths to
some extent is the focus on commercial lines, which Moody's views as inherently more volatile than personal lines.
The rating on AIG UK incorporates explicit and implicit support, including a net worth maintenance agreement from
AIG and extensive reinsurance from affiliates.
In 2006, AIG acquired Central Insurance Co. Ltd., a diversified non-life insurer in Taiwan with a solid market
presence but a record of volatile operating results. During 2007, AIG changed the company's name to AIG General
Insurance (Taiwan) Co., Ltd. (AIGGI Taiwan), and merged the Taiwan branch of a CIG company into AIGGI
Taiwan. Moody's upgraded the IFS rating of AIGGI Taiwan from Baa1 to A2 in July 2007 and to A1 in March 2008.
With a stand-alone rating of A3, AIGGI Taiwan receives two notches of rating uplift from parental support in the
form of financial flexibility, transfer of technical knowledge, management expertise and risk sharing. Because its
rating relies on significant parental support, AIGGI Taiwan's rating outlook is negative, following that of AIG.
Domestic Life Insurance & Retirement Services (2007 revenues: $15.3 billion, 14% of consolidated total)
Moody's maintains Aa2 IFS ratings (negative outlook) on ten members of the DLiRS segment, based on the
group's multi-faceted distribution network, broad and varied product portfolio, and leading market positions in
several products, including term life, universal life, structured settlements and certain classes of annuities. The
ratings also reflect the strategic and financial benefits of AIG ownership, such as the AIG brand, cross-selling
arrangements, and common investment management and administrative services. These strengths are tempered
by the group's significant exposure to US RMBS, held predominantly within the securities lending collateral pool,
as discussed above.
Foreign Life Insurance & Retirement Services (2007 revenues: $38.3 billion, 35% of consolidated total)
The Foreign Life Insurance & Retirement Services segment encompasses international and local subsidiaries with
operations in Europe, Latin America, the Caribbean, the Middle East, Australia, New Zealand and Asia, including
extensive operations in Japan. The group sells products largely to indigenous persons through multiple distribution
channels, including full-time and part-time agents, independent producers, direct marketing, brokers and financial
institutions.
Moody's maintains a Aa2 IFS rating (stable outlook) on American Life Insurance Company (ALI CO), based on its
well established operations in more than 50 overseas markets (particularly in Japan, which accounts for about twothirds of ALlCO's operating income), along with its favorable record of growing organically in existing markets and
expanding into new markets. The rating also recognizes the company's strong brand name and distribution
channels, sound capitalization and consistent operating performance. These strengths are tempered by
competition from local and foreign players in Japan, political risk in certain emerging markets, and ALI CO's
relatively large exposure to affiliated investments, mainly AIG common stock.
ALI CO's Japanese operations are complemented by those of AIG Edison Life Insurance Company (AIG Edison IFS rating of Aa2, stable outlook) and AIG Star Life Insurance Co., Ltd. (not rated), giving AIG a strong and
diversified presence in the Japanese life insurance market. The AIG Edison rating reflects the company's healthy
profitability, solid capital base and diversified distribution channels, tempered by agent retention and business
persistency rates that are below expectations for the rating level. The rating incorporates one notch of uplift from
the close affiliation with ALiCO. Without such support, AIG Edison would have a stand-alone rating of Aa3.
American International Assurance Company, Limited (not rated) and its affiliates, including American International
Assurance Company (Bermuda) Limited (AIAB - IFS rating of Aa3, stable outlook), make up the largest and most
diversified life insurance group in Southeast Asia. The rating on AIAB reflects its leading position in the life
insurance market in Hong Kong, where it has garnered the largest market share and is supported by a strong
brand name. The rating also recognizes the company's consistent operating performance, well established and
efficient agency force, and healthy capitalization. These strengths are somewhat offset by the possible threat to
AIAB's market position, given the intense competition in Hong Kong and Korea, by the challenge AIAB faces in its
effort to broaden distribution channels, and by its exposure to affiliated investments, mainly AIG common stock.
Financial Services (2007 revenues: -$1.3 billion, -1% of consolidated total)
The Financial Services segment engages in aircraft and equipment leasing, capital market transactions, consumer
finance and insurance premium financing. The Aircraft Finance business, conducted by International Lease
Finance Corporation (ILFC - senior unsecured debt rated A 1, negative outlook), is a global leader in leasing and
remarketing advanced technology commercial jet aircraft. ILFC'~ ir.~fiiErflect its high-quality aircraft portfolio and
solid relationships with aircraft manufacturers and airlines. Tempering tli'is view is the cyclical nature of the
business, as well as ILFC's sizable order position and residual value risk. The ratings incorporate AIG ownership
and support, evidenced by capital contributions to ILFC totaling more than $1 billion since 2001. Absent such
support, ILFC's ratings would be lower. ILFC's negative rating outlook follows that of AIG.
The Capital Markets unit comprises the global operations of AIGFP (backed long-term issuer rating of Aa3,
negative outlook) and subsidiaries. AIGFP engages as principal in a variety of standard and customized financial
products with corporations, financial institutions, governments, agencies, institutional investors and high net-worth
individuals worldwide. This unit also raises funds through municipal reinvestment contracts and other private and
public note offerings, investing the proceeds in a diversified portfolio of debt, equities and derivatives. The Aa3
ratings on AIGFP and several of its subsidiaries are based on general and deal-specific guarantees from AIG.
AIGFP has substantial notional exposure to the US residential mortgage market through super-senior COS and
cash COOs, a portfolio that is now in runoff. In February 2008, AIG appointed an interim CEO to oversee this
operation and launched a search for a new permanent CEO. In connection with this management shift, Moody's
expects that AIG will take a fresh look at the strategic direction and risk appetite at AIGFP.
The Consumer Finance unit includes US operations conducted mainly by American General Finance Corporation
(AGFC - senior unsecured debt rated A 1, negative outlook) and international operations conducted by AIG
Consumer Finance Group, Inc. (AIGCFG). AGFC's ratings are based on its strong US market presence, disciplined
approach to the business and implicit support from AIG. Over the past decade, AGFC has focused its growth
efforts on real estate secured loans, which accounted for about three-fourths of the loan portfolio as of year-end
2007. The portfolio, which includes meaningful levels of subprime and non-prime loans, has experienced some
deterioration in credit quality along with the overall US housing sector, but AGFC's delinquency and charge-off
rates remain within the company's target bands. We believe that AGFC's adherence to conservative underwriting
standards have enabled the company to weather the housing market slump reasonably well compared to many
other financial institutions. Nevertheless, AGFC's core profitability has fallen, and will continue to be pressured by
rising loss provisions and the sharp fall-off in mortgage banking activity. Absent the implicit parental support,
AGFC's ratings would be lower. AGFC's negative rating outlook follows that of AIG.
Asset Management (2007 revenues: $5.6 billion, 5% of consolidated total)
The Asset Management segment comprises a variety of investment related products and services for institutions
and individuals worldwide. The group's main activities are spread-based investing, institutional asset management,
brokerage services and mutual funds. The spread-based investment business, formerly conducted through the
SunAmerica companies, is now conducted through AIG's Matched Investment Program. The institutional asset
management business, known as AIG Investments, provides a range of equity, fixed income and alternative
investment products and services to AIG subsidiaries and affiliates, other institutional clients and high-net-worth
individuals. The brokerage services and mutual funds operations provide broker/dealer services and mutual funds
to retail investors, group trusts and corporate accounts through an independent network of financial advisors.
Credit Strengths
Credit strengths/opportunities of the group include:
- One of the world's largest and most diversified financial service firms, with leading market positions in various
business lines and countries
- Historically strong earnings and cash flows across all major business segments
- Excellent financial flexibility, although this has been weakened somewhat by earnings and capital volatility related
to US residential mortgage exposures
Credit Challenges
Credit challenges/risks include:
- Sizable exposure to US residential mortgage market through various business units and activities, particularly
CDS written by AIGFP and RMBS held by US life insurance subsidiaries
- Intrinsic volatility in certain General Insurance and Financial Services business units
- Significant volume of spread-based investment business within the Asset Management segment
Rating Outlook
The negative outlook on AIG (and on subsidiaries whose ratings rely on meaningful explicit or implicit parental
support) reflects the company's exposure to further volatility in the US residential mortgage market as well as
uncertainty surrounding the strategic direction of AIGFP.
19 of 66
What Could Change the Rating - Up
Given the current negative outlook, there is limited upward pressure on the rating; however, factors that could lead
to a stable outlook include:
- Improving or stable stand-alone credit profiles of major operating units
- Strong group profitability, with returns on equity exceeding 15%
- Remediation of all material weaknesses in internal controls over financial reporting
- Adjusted financial leverage (including pension and lease adjustments and excluding debt of finance-type
operations and match-funded investment programs) comfortably below 20%
What Could Change the Rating - Down
Factors that could lead to a downgrade include:
- A decline in the stand-alone credit profile of one or more substantial operating units
- Weak group profitability, with returns on equity remaining below 10% over the next few quarters
- A decline in financial flexibility, with adjusted financial leverage exceeding the low 20s (percent), or adjusted
pretax interest coverage remaining below 8x over the next few quarters
- Incremental losses on investments or derivatives causing a further decline in shareholders' equity
- A material shift in the company's strategic emphasis away from insurance (e.g., Financial Services accounting for
more than 20% of consolidated operating income)
Recent Results
AIG reported total revenues of $19.9 billion and a net loss of $5.4 billion for the second quarter of 2008.
Shareholders' equity was $78.1 billion as of June 30, 2008.
Capital Structure and Liquidity
Moody's believes that AIG's financial flexibility has been weakened by the firm's exposure to the US mortgage
market and the related losses, write-downs and decline in shareholders' equity. On the other hand, the company
demonstrated broad access to the capital markets through its issuance of more than $20 billion of capital during
May 2008 - a positive for creditors in Moody's view. The new issuance included approximately $7.5 billion of
common stock, $5.9 billion of equity units (hybrids) and $6.9 billion of junior subordinated debentures (hybrids).
The hybrid securities were designed to receive significant equity treatment for financial leverage calculations.
As of June 30,2008, AIG reported total borrowings of $178.6 billion, a majority of which was "operating" debt (i.e.,
supporting assets of the Financial Services segment and AIG's Matched Investment Program). AIG's adjusted
"financial" debt (reflecting Moody's standard pension and lease adjustments, our basket treatment of hybrids, and
the exclusion of operating debt) amounted to $26.0 billion. AIG's adjusted financial leverage has increased from
18.3% at year-end 2007 to 19.4% as of June 30, 2008, as a result of mortgage-related losses and write-downs
recorded during the first half of the year, largely offset by the capital issuance in May. Moody's notes that the newly
issued hybrid securities carry significant fixed charges that will reduce AIG's earnings coverage and dividend
capacity coverage of fixed charges going forward. We expect that earnings coverage will decline from a historic
range of 20-24 times to a normalized range of about 8-12 times, while dividend capacity coverage will decline from
a historic range of 9-14 times to a normalized range of about 6-8 times. Moody's believes that AIG will continue to
benefit from its broad business diversification and access to capital market funding.
Moody's believes that AIG has sufficient liquidity - through cash on hand, dividends from diversified subsidiaries,
external credit facilities and an intercompany credit facility - to service parent company obligations and to support
subsidiaries under current market conditions. The company generates strong operating cash flows on a
consolidated basis, with yearly amounts averaging about $22 billion over the past three years. A majority of the
cash flows pertain to insurance operations that are subject to regulatory limits on the payment of dividends to a
parent company. Still, the pro forma dividend capacity coverage of fixed charges (6-8 times) is reasonable for
AIG's current rating category. AIG has taken steps to enhance its liquidity in response to credit market turmoil over
the past year. The company has increased its holdings of cash and short-term investments across major business
units, and has established an interdisciplinary Liquidity Risk Committee to monitor and manage liquidity risks
throughout the firm. AIG's consolidated cash and short-term investment position has grown from $29.4 billion at
year-end 2006 to $82.2 billion as of June 30, 2008. The large p~i9..l"l:ip--aash and short-term investments is
constraining AIG's investment income and overall profitability tcfS'elrMI de~ree. Moody's regards this as a prudent
trade-off in the current unsettled credit markets.
AIG gets a portion of its funding through a $7 billion commercial paper program ($5.8 billion outstanding at June
30,2008). The commercial paper is issued through subsidiary AIG Funding, Inc. (AIG Funding) and guaranteed by
AIG. The program is backed by external and intercompany credit facilities. External facilities include two
syndicated bank revolvers totaling $3.75 billion, primarily to back commercial paper. One of these facilities ($2.125
billion) expires in July 2009 (with a one-year term-out option) and the other ($1.625 billion) expires in July 2011.
AIG and AIG Funding also share a $3.2 billion bank facility expiring in December 2008 (with a one-year term-out
option) which allows for the issuance of letters of credit with terms of up to eight years. As of June 30, 2008, nearly
all of this facility was being used for letters of credit. Finally, AIG has a $5.335 billion intercompany credit facility
provided by several of its insurance subsidiaries, expiring in September 2008 (with a one-year term-out option).
Moody's expects that these facilities will be renewed in similar form before they expire.
In addition to its guarantee of AIG Funding debt, AIG guarantees the debt and counterparty obligations of certain
subsidiaries, most importantly AIGFP. AIGFP manages its liquidity position to withstand severe market disruptions.
AIGFP conducts regular liquidity stress tests that assume no access to capital markets, contingent liability payouts
at the earliest possible dates, and haircuts on relatively liquid investment securities. The stress tests also consider
the impact of potential rating downgrades on AIGFP's collateral posting requirements. As of July 31,2008, AIGFP
had posted collateral in respect of super-senior CDS in an aggregate net amount of $16.5 billion. At that time,
AIG's senior unsecured debt ratings (and AIGFP's backed long-term issuer ratings) were Aa3 by Moody's and AAby Standard & Poor's. The company estimated as of that date that a downgrade to A 1 by Moody's and to A+ by
Standard & Poor's would permit AIGFP's counterparties to call for approximately $13.3 billion of incremental
collateral. As noted above, Moody's current ratings on AIG (and on AIGFP) incorporate our expectation that the
company will maintain robust coverage of potential liquidity needs, even in severely adverse scenarios.
© Copyright 2008, Moody's Investors Service, Inc. and/or its licensors including Moody's Assurance Company, Inc.
(together, "MOODY'S"). All rights reserved.
ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE
COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED,
REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY
FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY'S PRIOR WRITTEN CONSENT. All
information contained herein is obtained by MOODY'S from sources believed by it to be accurate and reliable. Because of the
possibility of human or mechanical error as well as other factors, however, such information is provided "as is" without warranty
of any kind and MOODY'S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness,
completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall
MOODY'S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or
relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY'S or
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advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings
and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be
construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any
securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR
FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY
MOODY'S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any
investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly
make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for,
each security that it may consider purchasing, holding or selling.
MOODY'S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and
commercial paper) and preferred stock rated by MOODY'S have, prior to assignment of any rating, agreed to pay to MOODY'S for
appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody's Corporation (MCO)
and its wholly-owned credit rating agency subsidiary, Moody's Investors Service (MIS), also maintain policies and procedures to
address the independence of MIS's ratings and rating processes. Information regarding certain affiliations that may exist
between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to
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heading "Shareholder Relations - Corporate Governance - Director and Shareholder Affiliation Policy."
21 of 66
American International GroupJ Inc..
Discussion of Q-Tools Outliers: (Provide brief discussion of any ratings gaps of 3 or more notches.)
AIG's bond spreads and CDS levels have been hurt over the past year by market concerns over subprime
mortgage exposures.
22 of 66
Stock Chart
AMER INTL GROUP
as of 11-Sep-2008
Splits:~
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2008 Yahoo! Inc.
http://finance.~ahoo.com/
Market capitalization: $32.6 billion
Rating History
::~ '---.-..-..-.-..-..-..-..-.-.-.-..-..-..-..-..-..-..-..-..-.. -.-.-..-..-..-..-.-..-..-..-..-.. -.-.-.. -.. -..-..-.-.. -,jL.______..,
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04195 02196 1 2196 1 om 08198 06!99 04100 02101 12101 10m 08!D3 06104 04105 02106 12106 10iD?
23 of 66
Current & Recommended Ratings on AIG Entities - September 15, 2008
Ownership Structure'
American International Group, Inc. ("AIG")
AIG Capital Corporation
American General Finance, Inc.
American General Finance Corporation ("AGFC")
AGFC Capital Trust I
Yosemite Insurance Company
CommoLoco, Inc.
International Lease Finance Corporation ("ILFC")
Domicile
DE
Business Se!lment
Parent
DE
IN
IN
DE
IN
Puerto Rico
CA
Fin Svcs
Fin Svcs
Fin
Fin
Fin
Fin
Svcs
Svcs
Svcs
Svcs
ILFC E-Capital Trusts I & II
AIG Capital Trusts I & II
AIG Financial Products Corp.
DE
DE
Fin Svcs
Funding for Parent
Fin Svcs
AIG Matched Funding Corp.
DE
Fin Svcs
AIG-FP Capital Funding Corp.
AIG-FP Matched Funding Corp.
AIG-FP Matched Funding (Ireland) P.L.C.
Banque AIG
AIG Funding, Inc.
AIG Life Holdings (International) LLC
American International Reinsurance Company, Limited
AIG Edison Life Insurance Company
American International Assurance Company (Bermuda) Limited
AIG Life Holdings (US), Inc. ("AIG LHUS")
AGC Life Insurance Company
AIG Annuity Insurance Company
AIG Life Insurance Company
American General Life and Accident Insurance Company
American General Life Insurance Company
The Variable Annuity Life Insurance Company
American International Life Assurance Company of New York
The United States Life Insurance Company in the City of NY
American General Capital II
American General Institutional Capital A & B
AIG Liquidity Corp.
AIG Program Funding, Inc.
AIG Property Casualty Group, Inc.
AIG Commercial Insurance Group, Inc.
AIG Casualty Company
AIU Insurance Company
AIG General Insurance (Taiwan) Co., Ltd.
American Home Assurance Company
Transatlantic Holdings, Inc.
DE
DE
DE
France
DE
DE
Bermuda
Japan
Bermuda
TX
MO
TX
DE
TN
TX
TX
NY
NY
DE
DE
DE
DE
DE
DE
PA
NY
Taiwan
NY
DE
Fin Svcs
Fin Svcs
Fin Svcs
Fin Svcs
Funding for Parent
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Frgn Life Ins & Ret Svcs
Transatlantic Reinsurance Company
Commerce and Industry Insurance Company
The Insurance Company of the State of Pennsylvania
National Union Fire Ins Company of Pittsburgh, Pa.
American International Specialty Lines Insurance Company
New Hampshire Insurance Company
United Guaranty Corporation
United Guaranty Residential Insurance Company ("UGRIC")
United Guaranty Commercial Insurance Company of NC
United Guaranty Mortgage Indemnity Company
United Guaranty Residential Insurance Company of NC
AIG Retirement Services, Inc.
NY
NY
PA
PA
AK
PA
NC
NC
NC
NC
NC
DE
SunAmerica Life Insurance Company ("SLlC")
AZ
AIG SunAmerica Global Financing Trusts
AIG SunAmerica Life Assurance Company
DE
AZ
ASIF I & II
ASIF III (Jersey) Limited
ASIF Global Financing Trusts
First SunAmerica Life Insurance Company
Caymans
Jersey
DE
NY
American International Underwriters Overseas, Ltd.
AIG UK Limited
American Life Insurance Company
Bermuda
UK
DE
SA
Public Current
Rec
Rec
Ratin!l Tvpe
Support
Ratin!l Ratin!l Outlook Ratin!l Outlook
R-Dn
LT Issuer
Aa3
Negative
Aa3
R-Dn
Sr Unsec Debt
Aa3
Aa3
R-Dn
Sr Unsec Shelf
(P)Aa3
(P)Aa3
R-Dn
Subord Shelf
(P)A1
(P)A1
R-Dn
(P)A2
(P)A2
Prlrd Shelf
P-1
P-1
ST Issuer
Stable
Negative
R-Dn
LT Issuer
A2
Negative
A2
P-1
ST Issuer
P-1
P-1
R-Dn
ST Debt
Negative
R-Dn
LT Issuer
A2
A1
Negative
A1
R-Dn
Sr Unsec Debt
A2
A1
A1
P-1
P-1
R-Dn
ST Debt
R-Dn
Bkd Tr Prlrd Stock AGFC G'tee
A3
Negative
A3
Bkd ST Debt
AGFC G'tee
Sr Unsec Debt
ST Debt
Bkd Prfrd Stock
ILFC G'tee
Bkd Tr Prlrd Shelf
AIG G'tee
Bkd LT Issuer
AIG G'tee
Bkd ST Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd ST Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd Sr Debt
AIG G'tee
Bkd ST Debt
AIG G'tee
IFS
IFS
Bkd Sr Debt
AIG Agmt
AIG G'tee
A3
Aa3
Aa3
Domes Life Ins & Ret Svcs
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Domes Life Ins & Ret Svcs
IFS
AIG Agmt
Aa2
Domes Life Ins & Ret Svcs
IFS
Aa2
Funding for AIG LHUS
Bkd Tr Prlrd Stock AIG G'tee
Funding for AIG LHUS
Bkd Tr Prlrd Stock AIG G'tee
Fin Svcs
Bkd ST Debt
AIG G'tee
Funding for Parent
Bkd Sr Shelf
AIG G'tee
Domes Gen Ins
Domes Gen Ins
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Frgn Gen Ins
IFS
A3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
Sr Unsec Debt
A3
Sr Unsec Shelf
Subord Shelf
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
IFS
Aa3
Domes Gen Ins
Domes Gen Ins
IFS
AIG Agmt
Aa3
Domes Gen Ins
IFS
AIG Agmt
Caa2
Domes Gen Ins
Bkd IFS
UGRICG'tee Aa3
Domes Gen Ins
IFS
AIG Agmt
C
Bkd Sr Debt
AIG G'tee
Bkd Prfrd Stock
AIG G'tee
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
Bkd ST IFS
AIG Agmt
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
AIG Agmt
Bkd ST IFS
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Asset Mgmt
Bkd Sr Debt
SLiC GICs
Asset Mgmt
Bkd IFS
AIG Agmt
Aa2
Bkd ST IFS
AIG Agmt
Frgn Gen Ins
Frgn Life Ins & Ret Svcs
24 of 66
IFS
IFS
AIG Agmt
Aa3
Aa2
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
Aa3
P-1
Aa2
Aa3
Aa3
Negative
Negative
Negative
Stable
Negative
Stable
Negative
Negative
Negative
Negative
Stable
P-1
A1
P-1
A3
(P)A1
Aa3
P-1
Aa3
P-1
Aa3
Aa3
Aa3
Aa3
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Negative
R-Dn
Negative
R-Dn
R-Dn
R-Dn
R-Dn
Negative
Stable
Stable
Negative
Aa2
Aa3
Aa3
R-Dn
Negative
R-Dn
Negative
Negative
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
Aa2
Stable
Aa2
R-Dn
A1
Negative
A1
R-Dn
A1
Negative
A1
P-1
P-1
Stable
Negative
R-Dn
(P)Aa3 Negative (P)Aa3
Aa3
Aa3
A1
Aa3
A2
(P)A2
(P)A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Stable
Stable
Negative
Stable
Stable
Aa3
Aa3
A1
Aa3
A2
(P)A2
(P)A3
Aa3
Aa3
Aa3
Aa3
Aa3
Aa3
Negative
Negative
R-Dn
Negative
R-Dn
R-Dn
R-Dn
Stable
Negative
Negative
Negative
Negative
Negative
Aa3
A1
Aa3
A1
Aa3
A2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
Negative
Negative
Negative
Negative
Negative
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Stable
Aa3
A1
Aa3
A1
Aa3
A2
Aa2
P-1
Aa2
Aa2
P-1
Aa2
Aa2
Aa2
Aa2
P-1
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
R-Dn
Stable
R-Dn
R-Dn
Stable
R-Dn
R-Dn
R-Dn
R-Dn
Stable
Aa3
Aa2
Stable
Stable
Aa3
Aa2
R-Dn
R-Dn
Stable
Stable
Stable
Stable
Stable
Stable
AIG Financial Leverage and Fixed-Charge Coverage
Leverage and Coverage Adjustments
Company: American International Group, Inc.
Financial Leverage
Unadjusted debt ($ mil)
Adjusted debt ($ mil)
Unadjusted equity ($ mil)
Adjusted equity & minority interest ($ mil)
Unadjusted debt % capital
Adjusted debt % capital
Earnings Coverage of Interest & Prfrd Divs
Unadjusted EBIT ($ mil)
Adjusted EBIT ($ mil)
Unadjusted interest & preferred dividends ($ mil)
Adjusted interest & preferred dividends ($ mil)
Unadjusted earnings coverage (x)
Adjusted earnings coverage (x)
Adjusted earnings coverage (x) - 5-yr avg
Dividend Ca~acit:l Coverage of Int & Prfrd Divs
Portion of equity not im mediately available (%)
Unrestricted subsidiary dividend capacity ($ mil)
Unadjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x)
Adjusted dividend capacity coverage (x) - 5-yr avg
Goodwill Ex~osure
Goodwill ($ mil)
Goodwill % equity
Balance Sheet In~uts ($ mil)
Total assets
Unadjusted debt
Operating debt
Financial debt
Minority interest
Unadjusted equity
"Yes" if life investments> 50% total investments
Net unrealized investment appreciation
Income Statement In~uts ($ mil)
Total revenue
Unadjusted interest expense
Operating interest expense
Financial interest expense
Income tax expense
Minority interest expense
Net income
Preferred dividends
Prdh#ffltl
TTM 6/08
2007
2006
2005
2004
2003
178,638
178,638
78,088
94,408
69.6%
65.4%
176,049
176,049
95,801
101,848
64.8%
148,679
148,679
101,677
99,372
59.4%
109,849
109,849
86,317
83,093
56.0%
96,899
96,899
79,673
74,178
54.9%
80,349
80,349
69,230
63,706
53.7%
18,631
10,270
9,688
1,327
1.9x
28,672
22,562
6,951
841
4.1x
20,886
15,711
5,673
498
3.7x
19,128
15,087
4,427
386
4.3x
16,135
12,318
4,219
402
3.8x
89%
9,495
1.7x
89%
8,764
2.0x
89%
7,615
1.8x
23,690
2,238
32.0x
81%
18,202
81%
18,202
81%
18,202
1.9x
90%
10,168
1.5x
18.2x
10,661
13.7%
10,661
#DIV/OI
9,414
8,628
8,093
8,556
7,619
$.&o/~
$!Wt~
$)#%
lQ·7O/~
jnqft~
1,049,876
178,638
0
178,638
11,149
78,088
Yes
-5,171
1,049,876
178,638
0
178,638
11,149
78,088
Yes
-5,171
1,060,505
176,049
0
176,049
10,422
95,801
Yes
4,375
979,410
148,679
0
148,679
7,778
101,677
Yes
10,083
853,048
109,849
0
109,849
5,124
86,317
Yes
8,348
801,007
96,899
0
96,899
4,831
79,673
Yes
10,326
675,602
80,349
0
80,349
3,547
69,230
Yes
9,071
110,064
110,064
9,688
8,361
1,327
1,455
1,288
6,200
0
113,387
6,951
6,110
841
6,537
1,136
14,048
0
108,781
5,673
5,175
498
4,258
478
10,477
0
97,823
4,427
4,041
386
4,407
455
9,839
0
79,601
4,219
3,817
402
3,556
252
8,108
0
1,455
1,288
6,200
0
Pro forma TTM 6/08 assumptions:
• Adjusted EBIT based on 2006 amount plus 5%
• Adjusted interest and preferred dividends based on 2006 amount plus full-year fixed charges associated with hybrids
25 of 66
Leverage and Coverage Adjustments
.........................
Company: American International Group, Im~MpfPdn#
TTM 6/08 TTM 6/08
Pension Adjustments {$ mil}
Assumed borrowing rate (%)
Assumed tax rate (%)
Projected benefit obligation (end of year)
Fair value of plan assets (end of year)
Pension asset recorded
Pension liability recorded
Debt adjustment
Shareholders' equity adjustment
Interest expense adjustment
Lease Adjustments ($ mil)
Assumed debt multiplier (x)
Rent expense
Debt adjustment
Interest expense adjustment
EBIT adjustment
Other Adjustments ($ mil)
Hybrid securities #1
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Hybrid securities #2
Reporting category
Basket designation
Debt portion of hybrid
Equity portion of hybrid
Lloyd's LOCS
2007
2006
2005
2004
2003
4,126
2,871
523
888
1,255
-579
63
3,950
2,715
566
941
1,235
-559
62
568
3,408
189
189
524
3,144
175
175
4,901
41
41
41
52
4,481
3,260
703
807
1,221
-726
61
771
4,626
257
257
771
4,626
257
257
6x
771
4,626
257
257
657
3,942
219
219
597
3,582
199
199
100
100
100
191
186
199
192
Mezzanine Mezzanine Mezzanine Mezzanine Mezzanine Mezzanine Mezzanine
A
A
A
A
A
A
A
100
100
100
191
186
199
192
0
0
0
0
0
0
0
18,746
18,746
5,809
Debt
Debt
Debt
D
D
D
4,687
4,687
1,452
14,060
14,060
4,357
26 of 66
Rating Factors
AIG Domestic Life & Retirement Svcs
YE 2007
Scorecard
I\J
-...J
o
( J)
(J)
Other Considerations (if applicable, insert notches to be added to the adjusted total scorecard rating above):
Management, Governance, and Risk Management:
Accounting Policy & Disclosure:
Sovereign & Regulatory Environment:
Stand-Alone Rating Recommendation:
Support (if applicable, insert notches to be added to the standalone rating above):
Nature and Terms of Explicit Support:
Nature and Terms of Implicit Support:
Final Rating Recommendation:
8/07/08 ReM
Scorecard
Stress
PROFORMA 2
American International Group, Inc. and Subsidiaries
Consolidated Balance Sheet
December 31,
2007
2006
397,372
21,581
$386,869
21,437
9,982
10,836
17,900
21,376
2,370
13,256
14,855
2,539
33,727
28,418
41,984
40,305
4,197
238
16,442
6,467
20,950
39,875
47,205
5,031
220
19,252
4,317
30,291
31,234
75,662
58,823
51,351
29,573
69,306
42,111
27,483
851,961
2,284
792,874
1,590
6,587
18,395
23,103
43,150
654
5,518
78,684
9,414
20,755
6,091
17,789
23,355
37,235
1,101
4,381
70,277
8,628
16,089
$1,060,505
$979,410
(in miflions)
Assets:
Investments and financial services assets:
Fixed maturities:
Bonds available for sale, at fair value (amortized cost: 2007 - $393,170; 2006 - $377,163)
Bonds held to maturity, at amortized cost (fair value: 2007 - $22,157; 2006 - $22,154)
Bond trading securities, at fair value (includes hybrid financial instruments: 2007 - $555;
2006-$522)
Equity securities:
Common stocks available for sale, at fair value (cost: 2007 - $12,588; 2006 - $10,662)
Common and preferred stocks trading, at fair value
Preferred stocks available for sale, at fair value (cost: 2007 - $2,600; 2006 - $2,485)
Mortgage and other loans receivable, net of allowance (2007 - $77; 2006 - $64) (includes loans
held for sale: 2007 - $399)
$
Financial services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation (2007 -
$10,499; 2006 -
$8,835)
Securities available for sale, at fair value (cost: 2007 - $40,157; 2006 - $45,912)
Trading securities, at fair value
Spot commodities
Unrealized gain on swaps, options and forward transactions
Trade receivables
Securities purchased under agreements to resell, at contract value
Finance receivables, net of allowance (2007 - $878; 2006 - $737) (includes finance receivables
held for sale: 2007 - $233; 2006 - $1,124)
Securities lending invested collateral, at fair value (cost: 2007 - $80,641; 2006 - $69,306)
Other invested assets
Short-term investments, at cost (approximates fair value)
Total investments and financial services assets
Cash
Investment income due and accrued
Premiums and insurance balances receivable, net of allowance (2007 - $662; 2006 - $756)
Reinsurance assets, net of allowance (2007 - $520; 2006 - $536)
Deferred policy acquisition costs
Investments in partially owned companies
Real estate and other fixed assets, net of accumulated depreciation (2007 - $5,446; 2006 - $4,940)
Separate and variable accounts
Goodwill
Other assets
Total assets
See Accompanying iVotes to Consolidated Financial Statements.
28 of 66
130
AIG 2007 Form lO-K
American International Group, Inc. and Subsidiaries
Consolidated Balance Sheet
Continued
December 31,
(in mWions, except share data)
Liabilities:
Reserve for losses and loss expenses
Unearned premiums
Future policy benefits for life and accident and health insurance contracts
Policyholders' contract deposits
Other policyholders' funds
Commissions, expenses and taxes payable
Insurance balances payable
Funds held by companies under reinsurance treaties
Income taxes payable
Financial services liabilities:
Securities sold under agreements to repurchase, at contract value
Trade payables
Securities and spot commodities sold but not yet purchased, at fair value
Unrealized loss on swaps, options and forward transactions
Trust deposits and deposits due to banks and other depositors
Commercial paper and extendible commercial notes
Long-term borrowings
Separate and variable accounts
Securities lending payable
Minority interest
Other liabilities (includes hybrid financial instruments at fair value: 2007 - $47; 2006 -
$
$111)
Total liabilities
Preferred shareholders' equity in subsidiary companies
2007
2006
85,500
28,022
136,068
258,459
12,599
6,310
4,878
2,501
3,823
$ 79,999
26,271
121,004
248,264
10,986
5,305
3,789
2,602
9,546
8,331
10,568
4,709
20,613
4,903
13,114
162,935
78,684
81,965
10,422
30,200
19,677
6,174
4,076
11,401
5,249
13,363
135,316
70,277
70,198
7,778
26,267
964,604
877,542
100
191
Commitments, Contingencies and Guarantees (See Note 12)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2007 and 2006-
2,751,327,476
Additional paid-in capital
Payments advanced to purchase shares
Retained earnings
Accumulated other comprehensive income (loss)
Treasury stock, at cost; 2007 - 221,743,421; 2006 -150,131,273 shares of common stock
(including 119,293,487 and 119,278,644 shares, respectively, held by subsidiaries)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
6,878
2,848
(912)
89,029
4,643
(6,685)
6,878
2,590
84,996
9,110
(1,897)
95,801
101,677
$1,060,505
$979,410
See Accompanying Notes to Consolidated Financial Statements.
29 of 66
AIG 2007 Form lO-K
131
American International Group, Inc. and Subsidiaries
Consolidated Statement of Income
Years Ended December 31,
2006
2005
$ 79,302
28,619
(3,592)
$ 74,213
26,070
106
$ 70,310
22,584
341
(11,472)
17,207
12,998
15,546
110,064
113,387
108,781
66,115
35,006
60,287
31,413
64,100
29,468
101,121
91,700
93,568
8,943
21,687
15,213
5,489
1,048
2,587
1,671
2007
(in miflions, except per share data)
Revenues:
Premiums and other considerations
Net investment income
Net realized capital gains (losses)
Unrealized market valuation losses on
AIGFP super senior credit default swap portfolio
Other income
Total revenues
Benefits and expenses:
Incurred policy losses and benefits
Insurance acquisition and other operating expenses
Total benefits and expenses
Income before income taxes, minority interest and cumulative effect of
accounting changes
Income taxes (benefits):
Current
Deferred
3,219
(1,764)
Total income taxes
1,455
6,537
4,258
7,488
15,150
10,955
Income before minority interest and cumulative effect of accounting changes
(1,288)
Minority interest
6,200
Income before cumulative effect of accounting changes
$
Net income
Earnings per common share:
Basic
Income before cumulative effect of accounting changes
Cumulative effect of accounting changes, net of tax
Net income
Diluted
Income before cumulative effect of accounting changes
Cumulative effect of accounting changes, net of tax
Net income
Average shares outstanding:
Basic
Diluted
See Accompanying Notes to Consolidated Financial Statements.
30 of 66
AIG 2007 Form lO-K
(478)
10,477
34
Cumulative effect of accounting changes, net of tax
132
(1,136)
14,014
6,200
$ 14,048
$ 10,477
$2.40
$5.38
0.01
$4.03
$2.40
$5.39
$4.03
$2.39
$5.35
0.01
$3.99
$2.39
$5.36
$3.99
2,585
2,598
2,608
2,623
2,597
2,627
American International Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Years Ended December 31,
Summary:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by financing activities
Effect of exchange rate changes on cash
$ 35,171
694
1,590
Cash at end of year
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
Net gains on sales of securities available for sale and other assets
Foreign exchange transaction (gains) losses
Net unrealized (gains) losses on non-AIGFP derivative assets and liabilities
Equity in income of partially owned companies and other invested assets
Amortization of deferred policy acquisition costs
Amortization of premium and discount on securities and long-term borrowings
Depreciation expenses, principally flight equipment
Provision for finance receivable losses
Other-than-temporary impairments
Changes in operating assets and liabilities:
General and life insurance reserves
Premiums and insurance balances receivable and payable - net
Reinsurance assets
Capitalization of deferred policy acquisition costs
Investment income due and accrued
Funds held under reinsurance treaties
Other policyholders' funds
Income taxes payable
Commissions, expenses and taxes payable
Other assets and liabilities - net
Bonds, common and preferred stocks trading
Trade receivables and payables - net
Trading securities
Spot commodities
Net unrealized (gain) loss on swaps, options and forward transactions
Securities purchased under agreements to resell
Securities sold under agreements to repurchase
Securities and spot commodities sold but not yet purchased
Finance receivables and other loans held for sale - originations and purchases
Sales of finance receivables and other loans - held for sale
Other, net
$
2,284
$
$
6,200
$ 14,048
See Accompanying iVotes to Consolidated Financial Statements.
31 of 66
$ 23,413
(61,459)
38,097
(163)
1,590
(112)
2,009
$
1,897
$ 10,477
11,472
(1,349)
(104)
116
(4,760)
11,602
580
2,790
646
4,715
(763)
1,795
(713)
(3,990)
11,578
699
2,374
495
944
(1,218)
(3,330)
878
(1,421)
10,693
207
2,200
435
598
16,242
(207)
923
(15,846)
(401)
(151)
1,374
(3,709)
989
3,657
(3,667)
2,243
835
(18)
1,413
9,341
(11,391)
633
(5,145)
5,671
477
12,930
(1,214)
1,665
(15,363)
(249)
(1,612)
(498)
2,003
408
(77)
(9,147)
(197)
1,339
(128)
(1,482)
(16,568)
9,552
(1,899)
(10,786)
10,602
541
27,045
192
(5,365)
(14,454)
(171)
770
811
1,543
140
2,863
(5,581)
2,272
(3,753)
442
934
9,953
(12,534)
571
(13,070)
12,821
(1,535)
(7,761)
12,936
$ 35,171
Net cash provided by operating activities
6,287
(67,952)
61,244
114
2005
(307)
1,897
28,971
Total adjustments
AIG 2007 Form lO-K
$
(68,007)
33,480
50
Change in cash
Cash at beginning of year
134
2006
2007
(in miflions)
$
6,287
$ 23,413
American International Group, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
Continued
Years Ended December 31,
lin mi!lions)
2007
2006
2005
$ 132,320
$112,894
$ 140,076
12,475
11,661
205
697
46
573
14,084
14,899
5,165
12,586
3,679
12,461
(146,465)
(175,657)
(14,482)
(197)
(13,273)
(3,333)
Cash flows from investing activities:
Proceeds from (payments for)
Sales and maturities of fixed maturity securities available for sale and hybrid investments
Sales of equity securities available for sale
9,616
295
303
14,109
9,062
12,553
(139,184)
(10,933)
(266)
(4,772)
(25,327)
(1,361)
(12,439)
(15,271)
(12,303)
(870)
(23,484)
(55)
Proceeds from fixed maturity securities held to maturity
Sales of flight equipment
Sales or distributions of other invested assets
Payments received on mortgage and other loans receivable
Principal payments received on finance receivables held for investment
Purchases of fixed maturity securities available for sale and hybrid investments
Purchases of equity securities available for sale
Purchases of fixed maturity securities held to maturity
Purchases of flight equipment
Purchases of other invested assets
Acquisitions, net of cash acquired
Mortgage and other loans receivable issued
Finance receivables held for investment - originations and purchases
Change in securities lending invested collateral
Net additions to real estate, fixed assets, and other assets
Net change in short-term investments
Net change in non-AIGFP derivative assets and liabilities
(6,193)
(15,059)
(7,438)
(5,310)
(13,830)
(17,276)
(9,835)
(1,097)
(10,301)
(941)
(10,620)
1,801
(45)
688
$ (67,952)
$ (61,459)
64,829
(58,675)
(182)
(338)
103,210
(79,738)
11,757
57,197
(43,413)
51,699
(36,339)
1,269
(957)
2,960
71,028
(702)
67,061
(36,489)
(51,402)
9,789
10,437
(100)
206
(6,000)
(1,881)
(16)
308
163
82
$ (68,007)
Net cash used in investing activities
(6,009)
(16,040)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholders' contract deposits
Policyholders' contract withdrawals
$
Change in other deposits
Change in commercial paper and extendible commercial notes
Long-term borrowings issued
Repayments on long-term borrowings
Change in securities lending payable
Redemption of subsidiary company preferred stock
Issuance of treasury stock
Payments advanced to purchase treasury stock
Cash dividends paid to shareholders
Acquisition of treasury stock
Other, net
Net cash provided by financing activities
(1,638)
(1,421)
(20)
(176)
398
(85)
$
33,480
$
61,244
$
38,097
$
$
8,818
5,163
$
$
6,539
4,693
$
$
4,883
2,593
$
$
11,628
5,088
$
$
10,746
$
$
9,782
$
791
$
Supplementary disclosure of cash flow information:
Cash paid during the period for:
Interest
Taxes
Non-cash financing activities:
Interest credited to policyholder accounts included in financing activities
Treasury stock acquired using payments advanced to purchase shares
Non-cash investing activities:
Debt assumed on acquisitions and warehoused investments
$
See accompanying Notes to Consolidated Financial Statements.
32 of 66
AIG 2007 Form lO-K
135
American International Group, Inc. and Subsidiaries
Part I - FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
CONSOLIDATED BALANCE SHEET
.(~~~_~~~ij!!!!!!~LQ-!!!:~~~H~~0!L
___________________________________________________________________________________________________________________________________________________________________________________________________________________________________ _
June 30,
December 31,
2008
2007
Assets:
Investments and Financial Services assets:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2008 - $400,052; 2007 $393,170)
Bonds held to maturity, at amortized cost (fair value: 2008 - $21,809; 2007 - $22,157)
Bond trading securities, at fair value
$ 393,316
21,632
$ 397,372
8,801
9,982
21,581
Equity securities:
Common stocks available for sale, at fair value (cost: 2008 - $13,490; 2007 - $12,588)
17,306
17,900
Common and preferred stocks trading, at fair value
22,514
21,376
2,496
2,370
34,384
33,727
43,887
41,984
1,205
40,305
35,170
4,197
Preferred stocks available for sale, at fair value (cost: 2008 - $2,596; 2007 - $2,600)
Mortgage and other loans receivable, net of allowance (2008 - $99; 2007 - $77) (held for
sale: 2008 - $30; 2007 - $377 (amount measured at fair value: 2008 - $745)
Financial Services assets:
Flight equipment primarily under operating leases, net of accumulated depreciation
(2008 - $11,359; 2007 - $10,499)
Securities available for sale, at fair value (cost: 2008 - $1,246; 2007 - $40,157)
Trading securities, at fair value
Spot commodities, at fair value
Unrealized gain on swaps, options and forward transactions, at fair value
Trade receivables
Securities purchased under agreements to resell, at fair value in 2008
90
238
11,548
12,318
2,294
672
16,597
20,950
Finance receivables, net of allowance (2008 - $1,133; 2007 - $878) (held for sale:
2008 - $36; 2007 - $233)
33,311
31,234
Securities lending invested collateral, at fair value (cost: 2008 - $67,758; 2007 - $80,641)
59,530
75,662
Other invested assets (amount measured at fair value: 2008 - $22,099; 2007 - $20,827)
62,029
58,823
Short·term investments (amount measured at fair value: 2008 - $24,167)
69,492
51,351
835,602
842,042
Total Investments and Financial Services assets
Cash
2,229
2,284
Investment income due and accrued
6,614
6,587
Premiums and insurance balances receivable, net of allowance (2008 - $596; 2007 - $662)
20,050
18,395
Reinsurance assets, net of allowance (2008 - $502; 2007 - $520)
22,940
23,103
8,211
Current and deferred income taxes
Deferred policy acquisition costs
Investments in partially owned companies
46,733
43,914
628
654
Real estate and other fixed assets, net of accumulated depreciation (2008 - $5,710; 2007-
5,692
5,518
Separate and variable accounts, at fair value
73,401
78,684
Goodwill
10,661
9,414
Other assets (amount measured at fair value: 2008 - $2,452; 2007 - $4,152)
17,115
17,766
$1,049,876
$1,048,361
$5,446)
Total assets
See Accompanying Notes to Consolidated Financial Statements.
33 of 66
1
American International Group, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(continued)
(in millions, except share data) (unaudited)
June 30,
2008
December 31,
2007
Liabilities:
$
Reserve for losses and loss expenses
88,747
$
85,500
28,738
27,703
Future policy benefits for life and accident and health insurance contracts
147,232
136,387
Policyholders' contract deposits (amount measured at fair value: 2008 - $4,179; 2007 - $295)
265,411
258,459
13,773
12,599
5,597
6,310
Insurance balances payable
5,569
4,878
Funds held by companies under reinsurance treaties
2,498
Unearned premiums
Other policyholders' funds
Commissions, expenses and taxes payable
Current income taxes payable
2,501
3,823
Financial Services liabilities:
Securities sold under agreements to repurchase (amount measured at fair value: 2008$8,338)
9,659
8,331
Trade payables
1,622
6,445
Securities and spot commodities sold but not yet purchased, at fair value
3,189
4,709
Unrealized loss on swaps, options and forward transactions, at fair value
24,232
14,817
Trust deposits and deposits due to banks and other depositors (amount measured at fair
value: 2008 - $240)
Commercial paper and extendible commercial notes
Long·term borrowings (amount measured at fair value: 2008 - $53,839)
6,165
4,903
15,061
13,114
163,577
162,935
Separate and variable accounts
73,401
78,684
Securities lending payable
75,056
81,965
Minority interest
11,149
10,422
Other liabilities (amount measured at fair value: 2008 - $6,861; 2007 - $3,262)
31,012
27,975
971,688
952,460
100
100
Total liabilities
Preferred shareholders' equity in subsidiary companies
Commitments, Contingencies and Guarantees (See Note 6)
Shareholders' equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 20082,948,038,001; 2007 - 2,751,327,476
7,370
6,878
9,446
2,848
Retained earnings
73,743
89,029
Accumulated other comprehensive income (loss)
(3,903)
4,643
Treasury stock, at cost; 2008 - 259,225,244; 2007 - 221,743,421 shares of common stock
(8,568)
(6,685)
Additional paid·in capital
Payments advanced to purchase shares
(912)
Total shareholders' equity
Total liabilities, preferred shareholders' equity in subsidiary companies and shareholders' equity
See Accompanying Notes to Consolidated Financial Statements.
34 of 66
2
78,088
95,801
$1,049,876
$1,048,361
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME (LOSS)
f!!!.!!!!!!~~'.'2'?L.?!!!:~[~!.P.~'L~t!?E!.~!,~!§J.f!!!!.~!!!!!!!?!!!"' .............................................................................................................................................................................................
Three Months
Ended June 30,
2008
2007
Six Months
Ended June 30,
2008
2007
Revenues:
Premiums and other considerations
$21,735
$19,533
$ 42,407
$39,175
6,728
7,853
11,682
14,977
Net investment income
Net realized capital losses
(6,081)
(12,170)
(28)
(98)
Unrealized market valuation losses on AIGFP super senior credit default swap
(5,565)
portfolio
(14,672)
3,116
3,792
6,717
7,741
19,933
31,150
33,964
61,795
Incurred policy losses and benefits
18,450
16,221
34,332
32,367
Insurance acquisition and other operating expenses
10,239
8,601
19,652
16,928
Total benefits and expenses
28,689
24,822
53,984
49,295
Other income
Total revenues
Benefits and expenses:
Income (loss) before income taxes (benefits) and minority interest
(8,756)
6,328
(20,020)
12,500
Income taxes (benefits)
(3,357)
1,679
(6,894)
3,405
Income (loss) before minority interest
(5,399)
4,649
(13,126)
9,095
42
Minority interest
$
$ 4277
$ (2.06)
$ (2.06)
$
1.64
$
$ 0.220
Basic
2,605
Diluted
2,605
Net income loss
(36)
(372)
(688)
$ 8407
Earnings (loss) per common share:
Basic
Diluted
Dividends declared per common share
(5.11)
$
3.22
1.64
$
$
(5.11)
$
3.21
$ 0.200
$
0.420
$ 0.365
2,602
2,575
2,607
2,613
2,575
2,621
Average shares outstanding:
See Accompanying Notes to Consolidated Financial Statements.
35 of 66
3
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
f!!!.!!!!!!~~'.'2'?LCI!.'2?,!.g!!.?.'!L. ..................................................................................................................................................................................................................................
Six Months
Ended June 30,
2008
2007
Summary:
$ 16,589
Net cash provided by (used in) operating activities
$ 17,431
(21,963)
Net cash provided by (used in) investing activities
(40,314)
5,274
Net cash provided by (used in) financing activities
22,947
45
Effect of exchange rate changes on cash
(19)
(55)
Change in cash
45
2,284
Cash at beginning of year period
$
Cash at end of year period
2,229
1,590
$
1,635
Cash flows from operating activities:
$(13,162)
Net income (loss)
$ 8,407
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income (loss):
Unrealized market valuation losses on AIGFP super senior credit default swap portfolio
Net gains on sales of securities available for sale and other assets
14,672
(494)
857
Foreign exchange transaction (gains) losses
Net unrealized (gains) losses on non·AIGFP derivatives and other assets and liabilities
Equity in income of partially owned companies and other invested assets
2,086
(151)
(732)
639
(123)
(2,747)
Amortization of deferred policy acquisition costs
7,343
5,911
Depreciation and other amortization
1,799
1,608
Provision for mortgage, other loans and finance receivables
Other·than·temporary impairments
578
229
12,416
884
9,748
8,238
Changes in operating assets and liabilities:
General and life insurance reserves
Premiums and insurance balances receivable and payable - net
(1,104)
196
Reinsurance assets
(9,160)
Capitalization of deferred policy acquisition costs
Investment income due and accrued
118
Funds held under reinsurance treaties
(25)
Other policyholders' funds
851
Income taxes receivable and payable - net
(6,960)
52
Commissions, expenses and taxes payable
Other assets and liabilities - net
Trade receivables and payables - net
(941)
434
(7,567)
(44)
(210)
879
(225)
724
1,809
553
(6,446)
(925)
Trading securities
930
Spot commodities
148
(2,258)
127
(3,993)
1,317
Securities purchased under agreements to resell
4,353
2,116
Securities sold under agreements to repurchase
1,237
Net unrealized (gain) loss on swaps, options and forward transactions
Securities and spot commodities sold but not yet purchased
Finance receivables and other loans held for sale - originations and purchases
(1,531)
(226)
221
(279)
(3,957)
Sales of finance receivables and other loans - held for sale
492
4,177
Other, net
209
922
29,751
9,024
$ 16,589
$ 17,431
Total adjustments
Net cash provided by operating activities
See Accompanying Notes to Consolidated Financial Statements.
36 of 66
5
American International Group, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(continued)
(in millions) (unau(HteeJ)
Six Months
Ended June 30,
2008
2007
Cash flows from investing activities:
Proceeds from (payments for)
Sales and maturities of fixed maturity securities available for sale and hybrid investments
Sales of equity securities available for sale
Proceeds from fixed maturity securities held to maturity
Sales of trading securities
Sales of flight equipment
Sales or distributions of other invested assets
Payments received on mortgage and other loans receivable
Principal payments received on finance receivables held for investment
Purchases of fixed maturity securities available for sale and hybrid investments
Purchases of equity securities available for sale
Purchases of fixed maturity securities held to maturity
Purchases of trading securities
Purchases of flight equipment (including progress payments)
Purchases of other invested assets
Mortgage and other loans receivable issued
Finance receivables held for investment - originations and purchases
Change in securities lending invested collateral
Net additions to real estate, fixed assets, and other assets
Net change in short·term investments
Net change in non·AIGFP derivative assets and liabilities
Net cash provided by (used in) investing activities
$ 42,026
4,861
33
14,120
372
8,715
3,457
6,757
(47,114)
(5,808)
(88)
(9,244)
(2,950)
(11,988)
(3,340)
(8,778)
6,315
(663)
(18,832)
186
$ 64,563
$(21,963)
$(40,314)
$ 33,322
(27,926)
682
1,930
55,685
(56,645)
(6,919)
7,343
11
(1,000)
(1,036)
$ 28,769
(173)
132
4,275
133
28
6,208
2,270
6,430
(72,348)
(5,852)
(129)
(3,883)
(12,171)
(5,029)
(7,387)
(11,772)
(466)
(4,636)
(548)
Cash flows from financing activities:
Proceeds from (payments for)
Policyholders' contract deposits
Policyholders' contract withdrawals
Change in other deposits
Change in commercial paper and extendible commercial notes
Long·term borrowings issued
Repayments on long·term borrowings
Change in securities lending payable
Proceeds from common stock issued
Issuance of treasury stock
Payments advanced to purchase treasury stock
Cash dividends paid to shareholders
(29,379)
(823)
1,768
50,091
(34,937)
12,021
180
(4,000)
(859)
Acquisition of treasury stock
(16)
Other, net
Net cash provided by (used in) financing activities
$
5,274
$ 22,947
$
$
3,493
66
$
3,744
$
3,524
$
$
$
3,815
1,912
431
$
5,932
$
1,664
$
153
$
Supplementary disclosure of cash flow information:
Cash paid (received) during the period for:
Interest
Taxes
Non-cash financing activities:
Interest credited to policyholder accounts included in financing activities
Treasury stock acquired using payments advanced to purchase shares
Present value of future contract adjustment payments related to issuance of equity units
$
Non-cash investing activities:
Debt assumed on acquisitions and warehoused investments
See Accompanying Notes to Consolidated Financial Statements.
37 of 66
6
354
Table of Contents
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information of Registrant
Balance Sheet - Parent Company Only
Schedule II
December 31,
(in millions)
2006
2007
Assets:
Cash
Invested assets
Carrying value of subsidiaries and partially owned companies, at equity
Premiums and insurance balances receivable - net
Other assets
Total assets
$
84
14,648
111,714
311
9,103
135,860
$
76
7,346
109,125
222
3,767
120,536
Liabilities:
Insurance balances payable
Due to affiliates - net
Notes and bonds payable
Loans payable
AIG MIP matched notes and bonds payable
Series AIGFP matched notes and bonds payable
Other liabilities
Total liabilities
21
1,841
8,917
700
5,468
72
1,840
18,859
43
3,916
20,397
500
14,274
874
55
40,059
Shareholders' equity:
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Treasury stock
Total shareholders' eguity
Total liabilities and shareholders' eguity
6,878
1,936
89,029
4,643
(6,685)
95,801
$135,860
6,878
2,590
84,996
9,110
(1,897)
101,677
$120,536
See Accompanying Notes to Financial Statements - Parent Company Only.
Statement of Income - Parent Company Only
Years Ended December 31,
(in millions)
Agency income (loss)
Financial services income
Asset management income (loss)
Cash dividend income from consolidated subsidiaries
Dividend income from partially-owned companies
Equity in undistributed net income of consolidated subsidiaries and partially owned companies
Other expenses, net
Cumulative effect of an accounting change
Income before income taxes
Income taxes (benefits)
Net income
2006
2007
$
10
69
99
4,685
9
3,121
(2,566)
5,427
(773)
$ 6,200
$
9
531
34
1,689
11
13,308
(1,371)
34
14,245
197
$14,048
2005
$
3
507
(3)
1,958
127
10,156
(2,203)
10,545
68
$10,477
See Accompanying Notes to Financial Statements - Parent Company Only.
AIG 2007 Form lO-K
38 of 66
227
Table of Contents
AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
Condensed Financial Information of Registrant Continued
Statement of Cash Flows - Parent Company Only
Schedule II
Years Ended December 31,
2007
2006
2005
$ 6,200
$ 14,048
$ 10,477
(in millions)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Equity in undistributed net income of consolidated subsidiaries and partially owned companies
Foreign exchange transaction (gains) losses
Changes in operating assets and liabilities:
Change in premiums and insurance balances receivable and payable
Loan receivables held for sale - purchases
Sales of loan receivables - held for sale
Other, net
Total adjustments
Net cash provided by (w;ed in) operating activities
Cash flows from investing activities:
Purchase of investments
Sale of investments
Change in short-term investments
Contributions to subsidiaries and investments in partially owned companies
Mortgage and other loan receivables - originations and purchases
Payments received on mortgages and other loan receivables
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Notes, bonds and loans issued
Repayments of notes, bonds and loans
Issuance of treasury stock
Cash dividends paid to shareholders
Payments advanced to purchase shares
Acquisition of treasury stock
Other, net
Net cash (used in) provided by financing activities
Change in cash
Cash at beginning of year
Cash at end of year
(9,941)
333
(13,308)
232
(10,156)
(44)
(404)
40
3,046
(6,970)
(770)
(423)
(1,139)
(14,638)
(590)
(7,640)
3,057
(3,631)
(755)
(2,026)
498
(240)
(10,737)
(7,875)
3,402
414
(3,017)
(423)
15
(159)
(7,643)
(117)
(1,681)
20,582
(1,253)
217
(1,881)
(6,000)
(16)
(134)
11,515
8
76
84
$
12,038
(2,417)
163
(1,638)
2,101
(607)
82
(1,421)
(20)
(7)
8,119
(114)
190
76
$
(176)
21
15
1,518
(8,623)
1,854
(598)
(966)
$
173
17
190
NOTES TO FINANCIAL STATEMENTS - PARENT COMPANY ONLY
(J) Agency operations conducted in Nnt' York through the North American Division
(~fAIU
are included in the financial statements
(~fthe
parent company.
(2) Certain prior period amounts have been reclass{fied to conform to the current period presentation.
(~f consolidated subsidiaries and partially (Ht'ned companies" in the accompanying Statement (~flncome - Parent Company Only - includes equity in
minority-01t'ned insurance operations.
(3) "Equity in undistributed net income
income
228
(~f the
AIG 2007 Fonn lO-K
39 of 66
American International Group, Inc. and Subsidiaries
Invested Assets
The following tables summarize the composition of AIG's invested assets by segment:
(in mif!fons)
General
Insurance
Life
Insurance &
Retirement
Services
Financial
Services
Asset
Management
Other
Total
June 30, 2008
Fixed maturity securities:
Bonds available for sale, at fair value
Bonds held to maturity, at amortized cost
$ 72,981
21,346
$297,095
$
1,370
$21,870
$393,316
$
1
285
21,632
8,764
37
8,801
4,522
12,018
787
285
22,200
29
Bond trading securities, at fair value
Equity securities:
Common stocks available for sale, at fair value
Common and preferred stocks trading, at fair value
Preferred stocks available for sale, at fair value
Mortgage and other loans receivable, net of allowance
1,943
543
10
16
26,010
1,038
(21)
17,306
22,514
2,496
7,275
45
34,384
Financial Services assets:
Flight equipment primarily under operating leases, net
Securities available for sale, at fair value
43,887
1,205
43,887
1,205
Trading securities, at fair value
35,170
35,170
Spot commodities, at fair value
90
90
of accumulated depreciation
Unrealized gain on swaps, options and forward
(1,172)
12,720
transactions, at fair value
Trade receivables
11,548
2,294
2,294
16,597
16,597
Securities purchased under agreements to resell, at
fair value
5
33,306
4,951
48,312
141
6,126
12,616
9,967
20,810
32,724
3,670
3,974
17,840
7,125
7,093
15,702
62,029
69,492
128,627
468,482
155,472
61,374
21,647
835,602
499
1,380
979
4,952
476
29
269
255
342
965
28
95
224
1,654
$130,848
$475,378
$156,005
$61,993
$21,875
$846,099
Finance receivables, net of allowance
Securities lending invested collateral, at fair value
Other invested assets
Short·term investments
33,311
59,530
Total Investments and Financial Services assets as
shown on the balance sheet
Cash
Investment income due and accrued
Real estate, net of accumulated depreciation
Total invested assets *
6
(2)
* At June 30, 2008, approximately 63 percent and 37 percent of invested assets were held in domestic and foreign investments, respectively.
40 of 66
105
2,229
6,614
.~J r I'Jl ti ..,·,·d
-lj,..c.;::,"';.
C(:-::1 OJ'
lJf~IB81iz-::-d
GFJ~:::
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';''f8i kihl<:?
'ff:ot
(:j'
·3f':"'$~::
Ur:tB~1li,;;~!
~,r'"~:;';~
Un:~:,Ii~·cJ:
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Lo.:,s<:?:::,
Am ,)rltLed
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((1st
\'..'(b8
~~,~f"," .;-.;:
LJ.::; ..~/:. '...~! nment 2nd
g(l"'..·.cfnn·li:lnt :;.r~o; '''-:..)t':!,:l
e.-I'"It.itie::o
0htlg~ti::-'n~j. of ~:>t::1t.':'~.
4,588
$
"
mU(II"-:!lX:~1ttl'::S ~~i-~t.l
t:-,.:!i1.t.:..'.JI
4~,847
4<t~
6<;0
45,~S2
12,G:;'~
3.~;t.);(:.
1.2l'lS
223,g('2
3Ji9:3
1\.2<11
74,917
21!U41l
..____111,6/\t____ MQ
~.llS8~{>11
$ ~.7tl
$ 2;a,.7S?
c:;.utxli"..:i':::I'_:n~5
N')ll-I~:, '3, g.:'\"'2'~
\~1:.r1)·:II'"~I2
IHno;.nts.
ds-bt
1 i" ,
743
4518
6.21G
\"l(l:r1t~1g~b_~~~·,.r;::.rj. ~1~~-:.&t·
ba~.ki:!.j ::'1fJcl
__,:"I"n<'l'ol[:<,,;:
H.E~ __
9l'l,9n'.-.Hg.:,,22 .
16.0~;
4.332
~i1e
:$443,GQ{;
19,801
T"t,,:
$474,&97
,,13,Qij4
:g,3Ki
$ciI63A-U8
$:::,l).LhJ"(·
:lS.1..2;;?,
$5F{:·!'.B
Hel,it(, ,,',,"mit}"'"
$ 21,&32
"
.14:;
$: 2.1.M19
1 lL"."'.l
T(Ji.J.ill:,"~nd~:o
E:':ruit·..
s.o:?,:t~mi~s;
322
5,
1.2:;;.1____
:f;.12J:J.?
,':-j,,;
,.7::>3__
fj.54S
J~6,~
1(),.27':i
~,l!'l.1;;L
$l:i';24
:l!'.2H:9',
$
:1:i
1., l.'.I(i;r cr·~;~J$(.i:>;~: i':"':""l:(,ni:('" r·t ,;:!""<r·r~F)''''' ,i~"'?;lt, ;~"':!""(;?.Iy~""'I',i·:~(:d_ :l:z~'r-,r'[~~J;.;~J ,)tl.( c"I"';'::n<'rd~i;;<~d ;a:r;)a!..::~$_ ..\, I;N<:' ~.'j, '::.1';\">8
/iz..:r:llf.(.~(I:,;tf..:::: rx-k{ hy ;\i(; t}.'.~(. "'',r:,..~ h..!J(';~· .il";~-,:,'~··h;,·t:(I:· t.,·.r.d.! (I." ";('/ ~"JI~)l ;(·Uf~'(~' ~2 ~.(., }~(fr;(,:·: ';'I.d $2-,-.(·' J~~f.I;,'~;) n:~p.<'(;(.;~·,,,;),.
}4i';~-t,~t:.·
"::':,{l·')
The cH:dlt ratings til AIG's iix.-,d m{flmitv securUi.-,s, otb,,!
Ihatl those "f AIGFP, w"r6 as 1"11"",,,:
n'L5'~':)
:H:-(,'"l, 32~~
:t-1~~.J.f:;1
Til .., industry ciltegolles 01 AIG's
'$
D.J.~;?
[~;?:d D,'('-"~r,'h'.,~.'" ~i,
aV'jil,.t11,~
1(11 Sill"
lxupol1l1" d"hl ~eclJ!iti"s, other I.hall Uwse uf ,AIGF:P, wme
asloll"ws:
.,0.
t)'~'G',:'lrlb-21' .~l.
2tlQ8
2"),;.-,'
hm~'
30%
June <1(1,
Derernhr 31.
.:;8:\~
:.;h:.;"..:.;il;,;C·;:.;tI...
':~l~\:.;";,;':~;,;·(;:.·.f.i..·t·_ _ _ _ _ _ _ _ _..:;2::;{I::;{1::;8 _ _ _-'~:;;;)~·:.;y:..)-;..'
l~
firkif i!~!~1 in.;;.tittltk,rl~;
18
Utjlit1f:o~
JJ
4
613,:1$
4
__ J~2]2:::;~Q ____________________________________________________.!____________________ .A
':):x::'-fJtn'..~, I !IX:';' y.~ !i','t;{1
C:,pft,,1 U"xls
to
~-:J.:~L .........................................................:J..9.9.~5!. ...............1~~.t<~
(:,:'1 ,SUI I ,~r
EI"l-)r6.~·
4
8e-ic(l.v
WI·;..:-~unE·nt
':»n"tljj1!nk:.:~ti.)I'I:'=:'
5
c,'(1 i(:;;I1
n
·;t.hP.t
..'~..\ f.l;c:n 'Jf ll-:;
,:re,d .AgS.
~;;tJ'H..:'~~~.' r(1 d.i;·:~rsd~,; ~ts iJ';·'-:sr.;.n~:fJr:;"
Th" amol'tiz~d {'''~t. gmss
were as f(lllows:
lHuealiz~d
:'\3.(: in·...f:;;'rs
lfl \'~ltYJHS
tl-'P;:':;, .:d: S\:·Cl:.H·jtj~:s,\
iH(.:bd!n~~ R\1r.~,\ 'l'.~{H:;., {J)ol,)s
gains {losS€$) and lair vallie (If Al<rs in""stm~!1t'3 in HMBS.
CMaS.
CDOs and
,,"as
Gle-:,:.;
tlnr(-.t.!liL~:-d
Aml)r1irc-d
b-:'l1:d·~ - :::i','aiIJble f-:'I' sa!.t"~
,A::I:'.'i. ~.%(:-Iu.jirlg A1GF:P:
RMf'S
CM8S
s.l:t,t:~·t-:}I.
«<{ Iu-d!ng /. . lt~FP
Fa-if
$ 77.1;::,1
~1{1,1.39
$6,,1l1)!l
$ 8",""0'1
:~!:,.S·,)4
225~36
1,~42
1.4,,\1
23fH2.
:10.;,44
1.156
11.-:21.2
111.f./'"
2U!03
9.a76
~,9.::
'[<).447
9!l,977
124,E.1~'
7.253
li{'.,.22~.
1 ~).3i3~·~
··1.1:11)
1".2'i4
~111,"7i!t
$13.541
':',I';,FP'
!1~Mf
.r.nr~,:.jl)·
Ar(..f P
i,
:~ti'~;:;1~!~.:~.;r.~ i..~
J/I{;~S'
~~;·,-/sf")~t':~Jl...: .':; :~,',:ii!d~-.:-;
iN
",,;,,'1;"'''''','''''''",.,.1
.it 1:,N·.f:: 3l\ ':?{.'(:.\
t:'J~,',f:: .__ .
t',~;.(I£
.E5(1·!\~~:k~;·:~
,,·;:d
{(,'';UkY.;i;:'~:?r': Sr·';~!"i'.'fi,,~~
-:< t!·._~~,i :·.·:,:;(I·.4i,i~- !•.~~,(' fl((. 3 hr!i(",.•:. ;\t;
22."''''''
.~l(') f
S~.8
r',~:; r'i.·,{tcd ,(,i;·.~ ,W~·.'· ~',~fl(.~ t'i~!:·u,,:·
!"i!i("'.·; !"i.'.{t,:d tIl (.;~:-(..r,~\~",:/ .:')~''}V..~)·
t!',:d;·gg.
The amortiled cost, @<Y.lstmreaij;r"d gOlil1s (k.s$<"s) i111d f~il ~'alwe (If AI,,'$ im'~stments in RMIlS "e!)Ulitie., oth·er than
lhoc,<e!)f .l<IGFP, W~f<: ilS 101101';';:
RMB:);
t I ,~:. dgen(; i-es
Prim..;. n(';-'-3g~nc~/';:
,~It-A
('~th~f· hC·lI'3itlg-t(:..I,=.t,",,:3J~'
Sub r_'I·lli 1·1"j
$1.I,.H42
11.51&
20.23$
3,{J96
:l9.9l'l8
$
181
1;>646
3,$9-6
$1I>.7B4.
1~ . ge&
1(;,40$
l>:i2
2,566
4:2.01
2.J.G74
The attlortized co"t
tho~e
l~f
AlG's eMS!; in>'estllRH1(S, "ther tt.:'11
01 AIGFP, 31 Jtll1<' :30, 200S was
;;1~
.~flKII ti2.E!,~1
C·x:~t
~~ ~.~ 8·~1
1
",);3
4';)5
OtJ:"lef
CMBS lll,estm"nts. other thml
::wns W<iS as
y~,,~~~
i, >-l~)!)
,~"'i.:..-nG~'
AlG'~
Perc.;.f1t
<",f T("t",l
("ti'..:!,:lit j.:, 11::11:,
P:~Rc;-:nlj(:/GP'£ (;[~(:
The l)efceI1tag" 01
those (If ,ildGFP. b" Y"<il of vintilg<' at June 30.
f(·IIi>ws:
fullows:
.I.
Tnlal
Th~ f)(:ff;€ntage of
AIG's ~;MBS iUIf!:stmf:nts. {)tner thftll
those .)f AIGfP, <it .lime SO, 200S by credit mting W<ili <is
11)1)8
2r)C!f;
1'"
24
14
LPnS
.1S
2':";4
.15
2(H)"i
___ ~~~~~_?J2~LG~j~2r __________________________________________________________________~~
T"I»IW';)'1,
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f"'rt".g:
A.I\!,,,
.A.u.
12
.A
Ttle
1)<,<1·1;;ellta.jf}~
ti!,y,;<:'! {lj AIGFP,
(Of ,I\l ~'s eM BS i!l¥eHlllenls, {"thef 1!J<If~
regk'i! i:lt Jml" :3(1, 2(100 \'i;;l~
t)~, g.e,~gwphf<,;
;}$ i'til~ml<'s;;
The ;;qmnrtl""d (;<,,,,t ;of AIG',s. Ctl!)
HH~"tf
~m'il's.tm~!t", tlth~~ th;~~!
<If .::\.lGFP, !lY ,;<)Uate1lii! tJ''Pt' .~t .Jt.m",M\ 20tHl
wa~ .tl;
f<Ai\m~;;
C<{<ij=&I:l~~~l()
:i'¥gl:t>n:
P,l1wrtlZ:M
tj~W\t<ll',
17%
15
<;,.111<:<1'111,;]
T.:;""s
C(~st
!)(;t3m:{1~,~!rrjl":
Bank 1()C"n~, (CL<);
Sinttl'itl c IIw;;;,trn"n t gra:!<;.
FI')11;:,,:'
'(1(,,11'11":'
$2,106
1,2'~'3
lS
Cfnl~(
1I1:rlols
PNG(HIt
1)( l(A,;,1
1
Bu l'Pl111l0 ;"'3'3
Nt2·~~· J8r~~~£.!')"
P'2!l11~:4.;ml';'
6"':<;'€.1.
n!<J
t:.-'.iSSaCI'lU5&tte:.
AI! C:t11@r
th[~!l
alll{)fi:i.d oC<}:1>t Of in;: A,iG',> COO t~w·(:"tll'l;:f!t$, t)th"f
th<>:% ;>f iU{~!'P< bJ t:t"dtt mtillg. ,11 J!me 3H., 2f)()S was
~'l~ f~~U~w:~.;
Atjtm,,; :>1:', 20{i8, Ale hdd $23 bHlk'il in ,:,'(;( b~sb ,:,f
C\-!.g::", A.ppro..Kil11.1k.ly ,~) per::".Il.t <,I' jl,Kh l1'AJ.inf~~ Wt'f(.
l';:"u{'d f!..1~H~~ arpn):-;:im..}[.;;;ly "! ~~, p~K~IH ~-I,··S·E' rat1d PtA ')1" ,.,1;,..
;met
:lPt"'{'SIIT>;lkl',' 2
{,n<enr
W"l'~
.I11f}e 3(i,ll108, all ';Uc:il \,(':Ul'jfi('~
>:,f Pl'lnc.ip'11 em,j :,IlU.I"'''t,
T'h':T'~
nt"d !'Wf. ('I' j'·d<rW . At
cw:r'!;I1, in till:' papMnt
We'f',
SSEl
B;;;lt'w 111'''G~ tm@t
~r,a·:I;;;
,1Ild
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hel">:' b':<ci:1 dl"rIJIXlo.lli> in tlw ,:r.>miTWld:J.l. m,mWlg('
n,e ,;;>miY,~iti<>I! ,jf th~
"2',.l;Il~t~~",
!1;Il<lillg !f>If(:st1;ll
pr:: (f:;(fi{;:(dj
,;(~i,)t",;;1
A!H.)rtlZel1
Psrr;srrt
(:lx)"l
fJrll)t,<1
2,08:::'31'3
Sol
S
1
$4.12(~
hy t:f,,<ltt I"'~!tg {It JtID(: an, 1(WB ·"",,~,,~f<lII(Ows~
.~~.4
GOtlKlrate ·j~t·t
~.;:..
.t.
ElSB if'Jc)t
StllJl't,
R.:Jt;o;J1
T{!lnn
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$12.fl(a5
36,16('
M0rtg:ag8-Ll-.'iC 1'2<j, ';'Bs.8Hla; :<'2'j and Gtllla!Hilll:80d
.;;nci st'I':I!iAGrm Irr;~3trnf:mS
(:;s8i~
10,.:145
THai
$~,9,~,3()
42 of 66
The tllnortil.ed f;O<;;( 01 tUG', RMSS illve,tlTl€'llts, other thml those 01 AIGFP, ,It June .30. :WOS by yem f)f vint.lgp. ,'lIld u€'dit
mling werfl as fnllows:
Yeai'
Gf ~!~(!t'~~B'
Prif~:
;!<;O4
~~'(j\)5
2()(j6
21,)f) i
2D02-
TGt.~<1
B.9~36
$0,(;'>7
$1:<-149
:~.3/:'11
~~4~;:
1,S:~~~
$2':1. C;<"1
1.041)
1'l~,A~~:
LC'·~.()
221
193
265
273
1",~,
.3'''''·~,
~~7.8
9?'f..)
HI3
::J,:34
S,"
$Gi,LU
f.4D7
LF,4
2,7 .j:~)
$10.337
$7:204
'!;1 f,,·:;:;l
:V':~,644
ti ( ,8~j2
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$77,S~i
,t
$
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$ 7 .(/jG
$
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';. 9
:1,8-
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T"j"lHMSS
'$
1.250
'~;
AfI,ArlMBS
-r"f.;a
241
AA.
f..A(:..
;,r:~rjU
~
164
T?
~1t
g{j
1",
2:-
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,t 1.03G
$1(;1';2
$ 4.1'1'0
$
,;:: ~ ;,::?:
$
129
42'i
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.~;';~8
{;!j
77
8mL,nd to""!>",,
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SlJbj)lhrl~
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1
,t
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$
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~
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:j;
2:30
4;,
123
13
$ ?
~.
T~~{}
'7.7f,O
78F>
L'i"
65---475
j; '\14b
4(n4
f~.r-J12
:j;
$ 3.;)84
$;
$
fIG
liB
'jt1"1
$ 4.l-;!::O
:ktE~.f..~;3
.l.B',,(i
43:3
______ 9~)4
$
Equity
PICC - strategic shareholding
Taiwan Semiconductor - Taiwan
Chunghwa Telecom - Taiwan
T&D Holdings (merged Taiyo and Daiwa)
Pru Class B (part of demutualization process)
PTT PCL - Thailand
CP All - Thailand (private equity portfolio)
Nippon Building Fund - Japan REIT
Mediatek - Taiwan
Hon Hai Precision Industry - Taiwan
(Mlns)
Exposure
546
257
257
163
157
134
127
115
106
101
Credit
TAIWAN, REPUBLIC OF
JAPAN, GOVERNMENT OF
THAILAND, KINGDOM OF
CITIGROUP INC
GENERAL ELECTRIC CO
HSBC HOLDINGS PLC
JP MORGAN CHASE & CO
BANK OF AMERICA CORP
SINGAPORE, REPUBLIC OF
WACHOVIA CORP
KOREA, REPUBLIC OF
AT&T INC
GOLDMAN SACHS GROUP INC
MORGAN STANLEY
ROYAL BANK OF SCOTLAND GROUP PLC
(Bins)
Exposure
15,973.3
10,231.8
6,132.3
4,172.9
3,860.0
3,796.2
3,711.3
3,709.2
2,976.8
2,903.6
2,767.1
2,614.4
2,608.4
2,500.1
2,418.8
43 of 66
'H9.P8!'
Valuation date: December 31, 2007
Group Name:
Summary MBS/CDO/FG Holdings
Holdings ($ millions)
CMBS
Market Value
Amortized
Cost
Investme Investme
nt % Total nt % of
Invest.
Equity
25%
3%
Prime - Non Agency 1st lien RMBS
Prime - Non Agency 2nd lien RMBS
Alt A RMBS (1 st or 2nd lien)
Subprime 1st lien RMBS
Subprime 2nd lien RMBS
HELOC RMBS
Home equity/Closed end 2nd lien RMBS
3%
0%
4%
3%
0%
0%
0%
22%
1%
28%
25%
0%
2%
0%
COO with subprime/Alt A exposures
COOA2 with subprime/Alt A exposures
0%
0%
0%
0%
Financial Guarantor direct exposure'
Financial Guarantor wrapped investments"
0%
6%
0%
44%
Total cash and investments§@@,@4.Q§i:}i:},j?S.q
Shareholders' equity~$A~()t()~$A~()t()
• Represents amortized cost and fair value relatedtci$58MMiiibciiidsarid$136MM notional of COS exposure .
•• We recognize that this exposure may already be included in the lines above. but request you to identify it separately here
44 of 66
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45 of 66
o{ -;''5'::'~:i:;o;::f~-:-~ort:·~~:t·f.y
t::x~{.J/.~~f!
Commercial Paper - Funding Liquidity for AIG, ILFC & AGF
• Summary of commercial paper programs versus the backstop facilities for each entity
Commercial Paper Outstanding vs. Backstop Coverage
As of 7/25/08
$25,000
•
If AIG were unable to issue commercial paper
due to a severe disruption in the CP market, or
to AIG-specific issues, the commercial paper
issuing entities could draw down $20.2 billion
under existing, committed backstop facilities.
This compares against a total of $15.0 billion in
CP currently outstanding for these issuers with
$5.2 billion still available.
•
This cash could then be used to meet all
liquidity needs, including repayment of maturing
CP, payment of all principal and interest on
debt when due, payment of quarterly
shareholder dividends ($1.95 billion through 15t
quarter of 2009).
$20,233
$20,000
~
t---i
$15,000
I
or
""
$10,000
~
(J)
-
$5,000
o
( J)
(J)
$0
I
';';';';';';';';';';';';';';';';':1
:.;.;.;.;.;.;.;.;.;.;.;.;.;.;.;.;.j
CP Outstanding
Backstop Facilities
Projected Combined Liquidity Position - AIG, ILFC & AGF
As of 7/28'08
$18,000
$15,000
lo--'\
$12,0001
...... "
o
r,
~ l--------------------====::~'~~~~~--~~~~====::~--==~~~::
:E
$9,000
I
'£,000
tl-------------------------'==
$3,000
1- - - - - - - - - - - - - - - - - - - - - - - - - - - - -
,6
This projection does not include any
unusual events, such as extraordinary
dividends or other cash calls
'o~I~~~~~~~~~~~~~~~~~~~~~~~~
~~##~*
~#~$$~#~~~$$~
~
a
AIG Financial Products
• Liquidity Position for FP under Stress Scenarios 1 & 2
AlGFP Liquidity Projection Scenarios
$10,000
FP 1
$0
~
-
¥'
~
"
""""\
-...J
o
($8,719)
( J)
(J)
($10,000) ~ \~
:!:
:!:
I:
~u"""
'+:')('1.,)(1(1\
( "l,l!
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~
($28,729)
($:~(),OGG) ~
(MO,OOO)
.. ~
11---,----,,-----r--,----,---,---,-----r--,----,---,-~,--~-_=,--:_r-_:~-:T
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1
AIG Combined Views
AIG developed two stress scenarios in order to test the Company's ability to
meet its near term obligations and maintain solvency and confidence.
Combined Liquidity Projection· Scenario 1
$40,000
Scenario 1
~
00
o
Key Assumptions
• Utilization of liquidity through CP or backstop facilities, MIP
assets and the remaining proceeds from capital raise
• A significant deterioration in FP's liquidity position from
inability to roll its maturing liabilities or repos
• Offset by monetization of unencumbered assets, portfolio
trades, and various other transactions providing liquidity at FP
$30,000
$20,000
"~
$6,002
$10,000
$0
{$~O,OOQ)
{$20,OOQ)
~~~~#~~~~~~~~~~~~#
( J)
(J)
Scenario 1 results through 1Q'09 projects a cash
position of $6.0 bill.
Scenario 2
Key Assumptions
•
•
•
•
All assumptions from Scenario 1 are incorporated
FP experiences additional margin calls resulting from severe
adverse market developments
Additional collateral calls due to a one notch downgrade by
Moody's and S&P
Additional liquidity withdrawals from FP clients due to credit
concerns
Combined Liquidity Projection· Scenario 2
$40,000 T-$30,000
+I----------------------c
I
:
! "0,_ I '~"
:
-- \
~
(S,10,(:'O(:')
I
-1
!
~~\~~~,-
($14,008).
($20,QC;Q) +-1~~~~~~~~~~~-,---T
~~~~#~~~~~,~~~~~~#
Scenario 2 results through 1Q'09 projects a cash
deficit of ($14.0) bill.
2
Explanation of Differences in Key Assumptions between Mayand July Analyses
Stress Scenario 1
May
Categor~
Opening Cash balance
Maturing debt
Other scheduled cashflows
Nightingale
Collateral/margin calls
Gold leases
Curzon CP
Monetization of assets
MTN and EMTN
Repo Rollover issues
2a7 liquidity puts
Portfolio trades
Private Equity
Difference
7,660,000
1,681,000
(5,979,000)
(10,902,708)
(940,573)
(4,183,281 )
(7,993,920)
4,038,642
(2,274,278)
2,908,788
4,979,215
1,909,003
(523,850)
(2,500,000)
(394,500)
(1,514,649)
17,000,000
(392,660)
(699,583)
(857,966)
156,000
(10,000,000)
(100,686)
6,500,000
(265,960)
(1,647,018)
(680,756)
(250,000)
Closing balance
A
July
6,089,511
(8,718,698)
523,850
(7,500,000) A
394,500
1,413,963 B
(10,500,000) C
126,700
(947,435)
177,210
(156,000)
(250,000)
(14,808,209)
In the July analysis, AIG employed a significantly more severe assumption for the potential future collateral calls
related to AIGFP's super senior credit derivatives as compared to the assumptions used in the May analysis. For
the May analysis, AIG has assumed an additional $2.5 billion in collateral calls, based on the premise of markets
remaining stable. Since then, AIG FP had posted an additional $6 billion, bringing the total posting to $16 billion. In
the July analysis, AIG is assuming an additional $10 billion on top of the $16 billion already posted. In order for AIG
to post an additional $10 billion, the valuations of the super senior COO securities would have to further deteriorate
by an amount in excess of the $10 billion.
As the majority of the mark to market losses recognized and collateral postings to date relate to the portion of the
portfolio that includes some exposure to sub-prime, a further $13 billion deterioration of the value of these positions
would equate to a drop in price by 17 points (ignoring amortization). If reduced by 17 points, then the average price
for AIGFP's hi-grade COOs will be 51 and the average price for the mezzanine COOs would be 42.
AIGFP's Super Senior COO Portfolio Containing Sub-prime RMBS
Notional
($ billion)
Hi-grade
Mezzanine
$
$
$
41.956
15.842
57.798
AIG June Avg
Price
67.81%
58.82%
AIG June Avg
Prices
Adjusted by
17
50.81%
41.82%
B
The May analysis assumed that $1.5 billion in short-term debt issued by Curzon will not roll. AIG revised this
assumption in the July analysis as only $100 million is currently rolling overnight.
C
The July analysis only considers unencumbered assets at AIGFP. It does not consider unencumberred assets at
Banque AIG or assets held by AIG Inc on behalf of AIGFP. Total amount of additional unencumbered assets
available to AIGFP to monetize that are not reflected above are approximatey $7.5 billion. While not considered in
this analysis, these are assets available to AIG to monetize.
49 of 66
Explanation of Differences in Key Assumptions between May and July Analyses
Stress Scenario 2
Category
May
July
Difference
7,660,000
1,681,000
(5,979,000)
Maturing debt
Other scheduled cashflows
(10,902,708)
(940,573)
(4,183,281)
(7,993,920)
4,038,642
(2,274,278)
2,908,788
4,979,215
1,909,003
Nightingale
Collateral! margin calls
Gold leases
Curzon CP
Monetization of assets
Commodity call
Ratings downgrade
Liquidity withdrawals
MTN and EMTN
Repo Rollover issues
2a7 liquidity puts
Portfolio trades
Private Equity
(523,850)
(11,500,000)
(394,500)
(6,392,216)
21,500,000
(817,197)
(8,698,898)
(1,400,000)
(392,660)
(699,583)
(857,966)
156,000
Closing balance
{14,204,151)
Opening Cash balance
(250,000)
523,850
(1,500,000)
394,500
819,807
(10,000,000)
67,197
(4,717,609)
(971,958)
126,700
(947,435)
177,210
(156,000)
(250,000)
{28,728,886)
{14,524,735)
(13,000,000)
(5,572,409)
11,500,000
(750,000)
(13,416,507)
(2,371,958)
(265,960)
(1,647,018)
(680,756)
A
B
C
D
D
A
In the July analysis, AIG employed a significantly more severe assumption for the potential future collateral calls
related to AIGFP's super senior credit derivatives as compared to the assumptions used in the May analysis. For the
May analysis, AIG has assumed an additional $11.5 billion in collateral calls. Since then, AIG FP had posted an
additional $6 billion, bringing the total posting to $16 billion. In the July analysis, AIG is assuming an additional $13
billion on top of the $16 billion already posted. In order for AIG to post an additional $13 billion, the valuations of the
super senior COO securities would have to further deteriorate by an amount in excess of the $13 billion.
As the majority of the mark to market losses recognized and collateral postings to date relate to the portion of the
portfolio that includes some exposure to sub-prime, a further $13 billion deterioration of the value of these positions
would equate to a drop in price by 22 points (ignoring amortization). If reduced by 22 points, then the average price
for AIGFP's hi-grade COOs will be 46 and the average price for the mezzanine COOs would be 37.
AIGFP's Super Senior CDO Portfolio Containing Sub-prime RMBS
Notional
($ billion)
Hi-grade
Mezzanine
$
$
$
41.956
15.842
57.798
AIG June Avg
Price
67.81%
58.82%
AIG June Avg
Prices Adjusted
by 22
45.81%
36.82%
B
The July analysis only considers unencumbered assets at AIGFP. It does not consider unencumberred assets at
8anque AIG or assets held by AIG Inc on behalf of AIGFP. Total amount of additional unencumbered assets
available to AIGFP to monetize that are not reflected above are approximatey $7.5 billion. While not considered in
this analysis, these are assets available to AIG to monetize.
C
A two-notch downgrade from Aa2 by Moody's only was assumed in the May analysis, while a one-notch downgrade
from Aa3 by both Moody's and S&P is assumed in the July analysis. A split rating between Moody's and S&P
reduces the liquidity demands by approximately $3 billion.
D
More severe assumptions were assumed for the contagion effect of a rating downgrade on AIGFP's outstanding
business from counterparties electing to terminate trades with AIGFP.
50 of 66
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51 of 66
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en
trategic
~
eVle
General Insurance - Core Operations
II liS imess II mil
Commercial Insurance
" u.s.
P&C market leader
.. Maintain historical underwriting discipline & creativity
.. Maintain focus on underwriting profit
.. Strong, experienced and stable management team
Hartford Steam Boiler
01
I\J
o
( J)
(J)
United Guaranty
.. Leading worldwide provider of equipment breakdown & engineered lines
" Results generally not correlated with broader P&C cycle or property CAT
losses
.. Excellent retu rns
.. Maintain commitment to domestic 1st lien and select international markets
.. Current domestic 1st lien risk in-force value of $28.2 bn; new business
highly profitable
" Put 2 nd lien business behind us
.. May consider sidecar and other potential reinsurance solutions to cede
risk and leverage third-party capital
Foreign Genera!
.. Unparalleled global franchise - leading global A&H provider
.. Geographically diverse operations in more than 80 countries
.. Excellent returns
trategic
~
eVle
Life & Retirement Services - Core Operations
Business Bmil
Foreign Life & Retirement
Services
01
W
o
( J)
(J)
Domestic Life, ex AGLA
" Leading market position - #1 market share in Hong Kong,
Singapore, Thailand, China (foreign insurers)
.. AUCO ranks in the top five for new premiums in over 20 markets
.. Competitive advantage through local market expertise and
diversified distribution - agents, bancassurance, direct marketing,
brokers, iFA, worksite
" Significant growth potential in attractive markets
,
................................................................................................................................................................................,
" Leading market position and strong brand - #1 in life insurance
issued (face amount), term life sales and structured settlements
.. Diversified product portfolio
.. Relatively stable earnings profile
.. Expansive multi-channel distribution
Domestic Retirement
Services
.. Leading market positions - #1 in fixed annuities and primary
education; #3 in healthcare and higher education market
" Competitive advantage through strong brand positioning
.. Opportunities for product and distribution expansion to meet
growing demand
trategic
~
eVle
Financial Services and Asset Management - Core Operations
Business IImil
International Lease Finance
Corporation
" #1 aircraft operating lessor in the world
.. World class management team
.. Strong expected cash flow generation
" Largest single customer of both Boeing and Airbus
..........................................................................................................................,
~merican
-
General Finance
o
( J)
(J)
..
2 nd
largest branch network in U.S. targeting middle America
" Seasoned management
.. Superior credit performance
.. Near term focus on expense management and slower growth
Commercial Equipment
Finance
.. Strong franchise established with diversified equipment finance
portfolio worth $1.9 bn
.. Near term focus on expense management and slower growth
.. May consider portfolio sales at attractive prices
Asset Management (3 rd
Party)
.. Complementary to insurance business
.. Global footprint
.. Continue to improve scale and servicing platform
trategic
~
eVle
The following areas are under consideration for potential actions:
waIIels IDllDlealial 1Ils.liDa
IISI Eleaelills
88
Streamlines portfolio
88
Enhances returns
Insurance
~ Transatlantic Holdings
Domestic Personal Lines
~ AGLA
88
~
Reduces earnings volatility
01
-
~88 Deploys capital more effectively
( J)
(J)
88
Sharpens management focus
Rmlealial
88
88
Non~lnsurance
1118.1111
~
AIG Commodities Index
88
FX Prime Brokerage
~
9.90/0 of equity2 - $9.5 bn
88
~
Domestic Employee Benefits Solutions and
Association Benefits Solutions
1.8% of net earnings - $301 mm
Other
UGC 2 nd Lien Portfolio
Financial Products
Securities Lending
88
88
Notes: 1. Based upon 2007 results 2. PLD equity does not exclude PCG, UGC 2 lien equity
approximated by using statutory surplus of $175 mm as reported by UGC management.
Domestic Employee Benefits Solutions and Association Benefits Solutions' equity
approximated as oercentaae of
11 (1
Foreign Consumer Finance Business
AI Imperial Credit
88
inancial
roducts
Select operating units will be realigned within AIG or maintained. Others
will be sold or runmooff
A~G
01
(J)
o
··ii.
Transfer f Change
Reporting
FP
Runmoff
businesses
Sell~off
Maintain
businesses
( J)
(J)
t ........................................................................................................
jj
~
FX Prime
.~
:.........i3..r.t:I.~~.r.~9.~........:
11115. is DBIBIB illella lalai Di DIlle. siall 1810 ileilDI aD
aliI eEllllIII -aB
Independent
ash Flo
nalysis
The BlackRock analysis enables AIG to better estimate the cash flow
profile associated with running off AIGFP's multisector CDO portfolio
~
109 COS written on super senior COO of ABS securities with notional
exposure of $77 bn
:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;:;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
~
Estimate projected cash flow needs to run-off the portfolio (excluding
collateral posting requirements)
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
~
01
-...J
o
( J)
(J)
Bottom up loan level cash flow analysis incorporating unique features of
the collateral and COO waterfall structures building up to the CDS cash
flows and subsequent recoveries
;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;;
~
~
BlackRock's assumptions were used in this analysis
HPA Base Case: 36% decline in house prices nationwide; 60 % in CA
~
Moody's Base Case: 22-280/0 decline
;::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::
~
Fair value as of June 30 th : ($24.8 bn)
AIG's estimate of expected losses: ($5-8.5 bn)
~ BlackRock's estimate of net cash requirements: $5.6 bn (undiscounted
ignoring collateral posted to date)
~ Collateral posted to date $19.2 bn
QR
j
9/9/08 DRAFT
Proprietary and Confidential
~
for
A~G ~nternal
Use Only
Total = ($7.3) Bn
Discounted cash
flows for period:
{$ 11.0) Sn
$4/} Bn
~
Pedod 1 ~ Next
Hve years
Quarterly
Cash Flows
$ Billions
2.50
2.25
::~:
nr:
Pedod 1: FoHowfrlg
twenty years
Cumulative
~ ~ ';!. ';!. " " '" '" :': :': " " N N ;j ~ ::l ::l ~ ~ ~ ~ ~ ~ ::, ::, :'l :'l g; g; g g ;;; ;;; ~ ~ ::i ::i ;; ;; :<: :<: '" '" ::; ::; :0; :0; Cash Flows
~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ S Billions
_
_
_
_
_
_
_
_
_
_
_
;!
;!
lIIIIIIIIIIIIII Projected quarterly cash flows, discounted at LlBOR (left axis)
2.00
01
00
0
1.75
Projected quarterly cash flows, non-discounted (left axis)
1.50
Cumulative cash flows, discounted at LlBOR (right axis)
1.25
1.00
( J)
(J)
'.
t :.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:.:':':':':':':':':':':':':':':':':':':':':':':':':':::::'.
Cumulative cash flows, non-discounted (right axis)
0.75
+
22
20
18
16
14
12
10
8
6
0.50
4
0.25
2
(2)
(4)
(0.25)
(0.50)
(6)
(8)
(0.75)
(1.00)
(10)
(12)
(1.25)
(14)
(16)
(1.50)
(1.75)
(18)
(2.00)
(2.25)
(20)
(22)
(2.50)
(24)
(2.75)
(26)
(3.00)
(28)
'Projected cash flows do not reflect any market value-based adjustments or collateral posting provisions that are part of many of AIG's credit default swaps on the super seniors
"Analysis assumes that all 2a7 liquidity puts that may be exercised prior to July 31, 2008 are exercised in Period 1, and that all liquidity puts that may be exercised after July 31, 2008 are exercised in the first
period in which such puts become active.
'''Non-discounted cash flow totals equal ($13.7) Bn for Period 1, $9.1 Bn for Period 2, and ($1.0) Bn for Period 3, totaling ($5.6) Bn for all periods.
31
1
l~
BLACKRoCK
SOL UTI 0 N
S~::
inancial
roducts:
isk
itigation Strategies
AIG, aided by the BlackRock analysis, is actively pursuing opportunities
to reduce exposure to the portfolio, to minimize earnings volatilitv and to
meet liquidity requirements
is>
Sale or hedges of certain positions that present significant
downside risk or are unlikely to recover in value
• Obtain a hedge against a tranche of the portfolio
01
<.0
o
( J)
(J)
• Conversion of certain CDS positions into repo or structured
lending transactions to provide increased flexibility for risk
disposal
Swapping of reference obligations
is>
is>
Renegotiation of CSA provisions
• Entering into financing arrangements
ecurities Lending
AIG, aided by BlackRock, is developing a plan for the orderly reduction
and run ..off of the Securities lending portfolio
.. Shrinking the net outstanding balances of $69.0 bn; $2.7 bn reduction between 3/31/08 and 6/30/08;
$6.5 bn since 6/30/08
.. BlackRock analysis projects a $5.7 bn principal loss over the remaining duration of the aggregate
portfolio (there are $26 bn of RMBS securities in other AIG portfolios with projected losses of $3.4 bn)
.. BlackRock projected losses are approximately 81 % of OTTI-to-date and 39% of OTTI and unrealized
to date 1
" Opportunity to selectively sell bonds without further deterioration to AIG's earnings and 1 or equity
Sialulorlj
Entities
.. BlackRock analysis provides potential to mitigate additional OTTI resulting from market dislocation
affecting pricing
.. FHLB loans: Texas $6-8 bn, expected availability 9/30/08
" Current cash in Securities Lending pool of $9.4 bn; cash in General Account pool participants of
$15.3 bn; totaling $27.7 bn or 36% of total Securities Lending liabilities 2
.. Government, agency pass throughs and high grade corporates available for repo totaling
approximately $25 bn
.. Potential capital contribution from Parent to maintain 350% RBC: $3-$8 bn through the end of 2008
" Already contributed $3.9 bn of capi
@FedFRASER