e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
(Mark One)
|
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
June 30,
2009
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission File Number 1-8787
American International Group,
Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
13-2592361
|
(State or other jurisdiction
of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
70 Pine Street, New York, New York
(Address of principal
executive offices)
|
|
10270
(Zip Code)
|
Registrants telephone number, including area code:
(212) 770-7000
Former name, former address and former fiscal year, if
changed since last report: None
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of July 31, 2009, there were 134,575,809 shares
outstanding of the registrants common stock.
American International Group, Inc.
and Subsidiaries
Part I
FINANCIAL INFORMATION
|
|
ITEM 1.
|
Financial
Statements (unaudited)
|
Consolidated
Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
(Unaudited)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Investments:
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
Bonds available for sale, at fair value (amortized cost:
2009 $372,480; 2008 $373,600)
|
|
$
|
353,708
|
|
|
$
|
363,042
|
|
Bond trading securities, at fair value
|
|
|
31,359
|
|
|
|
37,248
|
|
Securities lending invested collateral, at fair value (cost:
2009 $1,334; 2008 $3,905)
|
|
|
1,108
|
|
|
|
3,844
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
Common and preferred stock available for sale, at fair value
(cost: 2009 $7,030; 2008 $8,381)
|
|
|
9,289
|
|
|
|
8,808
|
|
Common and preferred stock trading, at fair value
|
|
|
13,214
|
|
|
|
12,335
|
|
Mortgage and other loans receivable, net of allowance (portion
measured at fair value: 2009 $99; 2008
$131)
|
|
|
32,380
|
|
|
|
34,687
|
|
Finance receivables, net of allowance
|
|
|
25,342
|
|
|
|
30,949
|
|
Flight equipment primarily under operating leases, net of
accumulated depreciation
|
|
|
44,692
|
|
|
|
43,395
|
|
Other invested assets (portion measured at fair value:
2009 $15,739; 2008 $19,196)
|
|
|
43,596
|
|
|
|
51,978
|
|
Securities purchased under agreements to resell, at fair value
|
|
|
4,481
|
|
|
|
3,960
|
|
Short-term investments (portion measured at fair value:
2009 $24,726; 2008 $19,316)
|
|
|
59,336
|
|
|
|
46,666
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
618,505
|
|
|
|
636,912
|
|
Cash
|
|
|
5,802
|
|
|
|
8,642
|
|
Investment income due and accrued
|
|
|
5,530
|
|
|
|
5,999
|
|
Premiums and insurance balances receivable, net of allowance
|
|
|
17,382
|
|
|
|
17,330
|
|
Reinsurance assets, net of allowance
|
|
|
22,364
|
|
|
|
23,495
|
|
Trade receivables
|
|
|
817
|
|
|
|
1,901
|
|
Current and deferred income taxes
|
|
|
11,136
|
|
|
|
11,734
|
|
Deferred policy acquisition costs
|
|
|
44,176
|
|
|
|
45,782
|
|
Real estate and other fixed assets, net of accumulated
depreciation
|
|
|
4,984
|
|
|
|
5,566
|
|
Unrealized gain on swaps, options and forward transactions, at
fair value
|
|
|
11,239
|
|
|
|
13,773
|
|
Goodwill
|
|
|
6,439
|
|
|
|
6,952
|
|
Other assets, including prepaid commitment asset of $13,814 in
2009 and $15,458 in 2008 (portion measured at fair value:
2009 $306; 2008 $369)
|
|
|
28,570
|
|
|
|
31,190
|
|
Separate account assets, at fair value
|
|
|
53,468
|
|
|
|
51,142
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
830,412
|
|
|
$
|
860,418
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
3
American International Group, Inc.
and Subsidiaries
Consolidated
Balance Sheet (Continued)
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except
|
|
|
|
share data)
|
|
|
|
(Unaudited)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense
|
|
$
|
82,088
|
|
|
$
|
89,258
|
|
Unearned premiums
|
|
|
23,371
|
|
|
|
25,735
|
|
Future policy benefits for life and accident and health
insurance contracts
|
|
|
145,715
|
|
|
|
142,334
|
|
Policyholder contract deposits (portion measured at fair value:
2009 $7,273; 2008 $5,458)
|
|
|
218,433
|
|
|
|
226,700
|
|
Other policyholder funds
|
|
|
13,623
|
|
|
|
13,240
|
|
Commissions, expenses and taxes payable
|
|
|
5,203
|
|
|
|
5,436
|
|
Insurance balances payable
|
|
|
4,722
|
|
|
|
3,668
|
|
Funds held by companies under reinsurance treaties
|
|
|
2,106
|
|
|
|
2,133
|
|
Securities sold under agreements to repurchase (portion measured
at fair value: 2009 $2,716; 2008 $4,508)
|
|
|
3,191
|
|
|
|
5,262
|
|
Trade payables
|
|
|
780
|
|
|
|
977
|
|
Securities and spot commodities sold but not yet purchased, at
fair value
|
|
|
1,242
|
|
|
|
2,693
|
|
Unrealized loss on swaps, options and forward transactions, at
fair value
|
|
|
4,876
|
|
|
|
6,238
|
|
Trust deposits and deposits due to banks and other depositors
(portion measured at fair value: 2009 $26;
2008 $30)
|
|
|
2,687
|
|
|
|
4,498
|
|
Commercial paper and other short-term debt
|
|
|
197
|
|
|
|
613
|
|
Federal Reserve Bank of New York Commercial Paper Funding
Facility (portion measured at fair value: 2009
$6,233; 2008 $6,802)
|
|
|
11,152
|
|
|
|
15,105
|
|
Federal Reserve Bank of New York credit facility
|
|
|
44,816
|
|
|
|
40,431
|
|
Other long-term debt (portion measured at fair value:
2009 $16,153; 2008 $16,595)
|
|
|
123,528
|
|
|
|
137,054
|
|
Securities lending payable
|
|
|
1,533
|
|
|
|
2,879
|
|
Other liabilities (portion measured at fair value:
2009 $3,277; 2008 $1,355)
|
|
|
24,476
|
|
|
|
22,296
|
|
Separate account liabilities
|
|
|
53,468
|
|
|
|
51,142
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
767,207
|
|
|
|
797,692
|
|
|
|
|
|
|
|
|
|
|
Commitments, contingencies and guarantees (see Note 10)
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest in partially owned
consolidated subsidiaries
|
|
|
1,072
|
|
|
|
1,921
|
|
AIG shareholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock, Series E; $5.00 par value and
aggregate liquidation preference of $41,604,576,000; shares
issued: 2009 400,000
|
|
|
2
|
|
|
|
|
|
Preferred stock, Series F; $5.00 par value and
aggregate liquidation preference of $1,149,999,000; shares
issued: 2009 300,000
|
|
|
1
|
|
|
|
|
|
Preferred stock, Series C; $5.00 par value and
aggregate liquidation preference of $500,000; shares issued:
2009 100,000
|
|
|
1
|
|
|
|
|
|
Preferred stock, Series D; $5.00 par value and
aggregate liquidation preference of $40,000,000,000; shares
issued: 2009 0 and 2008 4,000,000
|
|
|
|
|
|
|
20
|
|
Common stock, $2.50 par value; 5,000,000,000 shares
authorized; shares issued: 2009 147,377,020;
2008 147,401,900
|
|
|
368
|
|
|
|
368
|
|
Treasury stock, at cost; 2009 12,807,642;
2008 12,918,446 shares of common stock
|
|
|
(8,314
|
)
|
|
|
(8,450
|
)
|
Additional paid-in capital
|
|
|
80,259
|
|
|
|
79,468
|
|
Accumulated deficit
|
|
|
(3,073
|
)
|
|
|
(12,368
|
)
|
Accumulated other comprehensive loss
|
|
|
(11,286
|
)
|
|
|
(6,328
|
)
|
|
|
|
|
|
|
|
|
|
Total AIG shareholders equity
|
|
|
57,958
|
|
|
|
52,710
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest
|
|
|
4,175
|
|
|
|
8,095
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
62,133
|
|
|
|
60,805
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
830,412
|
|
|
$
|
860,418
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
4
American International Group, Inc.
and Subsidiaries
Consolidated
Statement of Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
|
(Unaudited)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other considerations
|
|
$
|
17,769
|
|
|
$
|
21,735
|
|
|
$
|
36,589
|
|
|
$
|
42,407
|
|
Net investment income
|
|
|
8,785
|
|
|
|
6,728
|
|
|
|
11,068
|
|
|
|
11,682
|
|
Net realized capital losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairments on available for sale securities
|
|
|
(1,190
|
)
|
|
|
(6,720
|
)
|
|
|
(5,051
|
)
|
|
|
(12,260
|
)
|
Portion of
other-than-temporary
impairments on available for sale fixed maturity securities
recognized in Accumulated other comprehensive loss
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
other-than-temporary
impairments on available for sale securities recognized in net
income (loss)
|
|
|
(821
|
)
|
|
|
(6,720
|
)
|
|
|
(4,682
|
)
|
|
|
(12,260
|
)
|
Other realized capital gains (losses)
|
|
|
(478
|
)
|
|
|
639
|
|
|
|
281
|
|
|
|
90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized capital losses
|
|
|
(1,299
|
)
|
|
|
(6,081
|
)
|
|
|
(4,401
|
)
|
|
|
(12,170
|
)
|
Unrealized market valuation gains (losses) on AIGFP super senior
credit default swap portfolio
|
|
|
636
|
|
|
|
(5,565
|
)
|
|
|
184
|
|
|
|
(14,672
|
)
|
Other income (loss)
|
|
|
3,634
|
|
|
|
3,116
|
|
|
|
6,543
|
|
|
|
6,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
29,525
|
|
|
|
19,933
|
|
|
|
49,983
|
|
|
|
33,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, claims and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims incurred
|
|
|
17,273
|
|
|
|
18,450
|
|
|
|
33,316
|
|
|
|
34,332
|
|
Policy acquisition and other insurance expenses
|
|
|
5,694
|
|
|
|
6,029
|
|
|
|
10,988
|
|
|
|
11,641
|
|
Interest expense
|
|
|
2,600
|
|
|
|
1,333
|
|
|
|
5,445
|
|
|
|
2,605
|
|
Restructuring expenses and related asset impairment and other
expenses
|
|
|
343
|
|
|
|
|
|
|
|
705
|
|
|
|
|
|
Other expenses
|
|
|
2,296
|
|
|
|
2,877
|
|
|
|
4,578
|
|
|
|
5,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits, claims and expenses
|
|
|
28,206
|
|
|
|
28,689
|
|
|
|
55,032
|
|
|
|
53,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense (benefit)
|
|
|
1,319
|
|
|
|
(8,756
|
)
|
|
|
(5,049
|
)
|
|
|
(20,020
|
)
|
Income tax expense (benefit)
|
|
|
(526
|
)
|
|
|
(3,357
|
)
|
|
|
(1,761
|
)
|
|
|
(6,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,845
|
|
|
|
(5,399
|
)
|
|
|
(3,288
|
)
|
|
|
(13,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: net income (loss) attributable to noncontrolling
interest
|
|
|
23
|
|
|
|
(42
|
)
|
|
|
(757
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG
|
|
$
|
1,822
|
|
|
$
|
(5,357
|
)
|
|
$
|
(2,531
|
)
|
|
$
|
(13,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG common shareholders
|
|
$
|
311
|
|
|
$
|
(5,357
|
)
|
|
$
|
(3,826
|
)
|
|
$
|
(13,162
|
)
|
Income (loss) per common share attributable to AIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.30
|
|
|
$
|
(41.13
|
)
|
|
$
|
(28.29
|
)
|
|
$
|
(102.24
|
)
|
Diluted
|
|
$
|
2.30
|
|
|
$
|
(41.13
|
)
|
|
$
|
(28.29
|
)
|
|
$
|
(102.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share
|
|
$
|
|
|
|
$
|
4.42
|
|
|
$
|
|
|
|
$
|
8.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
135,281,740
|
|
|
|
130,248,736
|
|
|
|
135,267,735
|
|
|
|
128,732,239
|
|
Diluted
|
|
|
135,336,440
|
|
|
|
130,248,736
|
|
|
|
135,267,735
|
|
|
|
128,732,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
5
American International Group, Inc.
and Subsidiaries
Consolidated
Statement of Equity
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
Amounts
|
|
|
|
(In millions, except share and
|
|
|
|
per share data)
|
|
|
|
(Unaudited)
|
|
|
Preferred Stock, Series E:
|
|
|
|
|
Balance, beginning of period
|
|
$
|
|
|
Issuances
|
|
|
2
|
|
|
|
|
|
|
Balance, end of period
|
|
|
2
|
|
|
|
|
|
|
Preferred Stock, Series F:
|
|
|
|
|
Balance, beginning of period
|
|
|
|
|
Issuances
|
|
|
1
|
|
|
|
|
|
|
Balance, end of period
|
|
|
1
|
|
|
|
|
|
|
Preferred Stock, Series C:
|
|
|
|
|
Balance, beginning of period
|
|
|
|
|
Issuances
|
|
|
1
|
|
|
|
|
|
|
Balance, end of period
|
|
|
1
|
|
|
|
|
|
|
Preferred Stock, Series D:
|
|
|
|
|
Balance, beginning of period
|
|
|
20
|
|
Shares exchanged for Series E preferred stock
|
|
|
(20
|
)
|
|
|
|
|
|
Balance, end of period
|
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
Balance, beginning and end of period
|
|
|
368
|
|
|
|
|
|
|
Treasury stock, at cost:
|
|
|
|
|
Balance, beginning of period
|
|
|
(8,450
|
)
|
Shares issued under stock plans
|
|
|
136
|
|
Other
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
|
(8,314
|
)
|
|
|
|
|
|
Additional paid-in capital:
|
|
|
|
|
Balance, beginning of period
|
|
|
79,468
|
|
Excess of proceeds over par value of preferred stock issued
|
|
|
1,000
|
|
Reclassification of warrants upon change in accounting principle
|
|
|
(91
|
)
|
Excess of cost over proceeds of common stock issued under stock
plans
|
|
|
(136
|
)
|
Other
|
|
|
18
|
|
|
|
|
|
|
Balance, end of period
|
|
|
80,259
|
|
|
|
|
|
|
Accumulated deficit:
|
|
|
|
|
Balance, beginning of period
|
|
|
(12,368
|
)
|
Cumulative effect of change in accounting principle
|
|
|
15
|
|
|
|
|
|
|
Adjusted balance, beginning of period
|
|
|
(12,353
|
)
|
Net loss attributable to AIG for the three months ended
March 31, 2009
|
|
|
(4,353
|
)
|
|
|
|
|
|
Balance, March 31, 2009
|
|
|
(16,706
|
)
|
Cumulative effect of change in accounting principle as of
April 1, 2009, net of tax
|
|
|
11,811
|
|
|
|
|
|
|
Adjusted balance, April 1, 2009
|
|
|
(4,895
|
)
|
Net income attributable to AIG for the three months ended
June 30, 2009
|
|
|
1,822
|
|
|
|
|
|
|
Balance, end of period
|
|
|
(3,073
|
)
|
|
|
|
|
|
Accumulated other comprehensive loss:
|
|
|
|
|
Unrealized appreciation (depreciation) of fixed maturity
investments on which
other-than-temporary
credit impairments were taken:
|
|
|
|
|
Balance, beginning of period, net of tax
|
|
|
(599
|
)
|
Cumulative effect of change in accounting principle as of
April 1, 2009, net of tax
|
|
|
(2,537
|
)
|
Unrealized appreciation (depreciation) of investments, net of
reclassification adjustments
|
|
|
1,111
|
|
Income tax benefit (expense)
|
|
|
(450
|
)
|
|
|
|
|
|
Balance, end of period, net of tax
|
|
|
(2,475
|
)
|
|
|
|
|
|
Unrealized appreciation (depreciation) of all other investments:
|
|
|
|
|
Balance, beginning of period, net of tax
|
|
|
(3,853
|
)
|
Cumulative effect of change in accounting principle as of
April 1, 2009, net of tax
|
|
|
(6,811
|
)
|
Unrealized appreciation (depreciation) of investments, net of
reclassification adjustments
|
|
|
5,496
|
|
Income tax benefit (expense)
|
|
|
(2,471
|
)
|
|
|
|
|
|
Balance, end of period, net of tax
|
|
|
(7,639
|
)
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
Balance, beginning of period, net of tax
|
|
|
(187
|
)
|
Translation adjustment
|
|
|
1,002
|
|
Income tax benefit (expense)
|
|
|
(409
|
)
|
|
|
|
|
|
Balance, end of period, net of tax
|
|
|
406
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
6
American International Group, Inc.
and Subsidiaries
Consolidated
Statement of Equity (Continued)
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
Amounts
|
|
|
|
(In millions, except share and
|
|
|
|
per share data)
|
|
|
|
(Unaudited)
|
|
|
Net derivative gains (losses) arising from cash flow hedging
activities:
|
|
|
|
|
Balance, beginning of period, net of tax
|
|
|
(191
|
)
|
Net gains (losses) on cash flow hedges, net of reclassification
adjustments
|
|
|
71
|
|
Income tax benefit (expense)
|
|
|
(21
|
)
|
|
|
|
|
|
Balance, end of period, net of tax
|
|
|
(141
|
)
|
|
|
|
|
|
Retirement plan liabilities adjustment:
|
|
|
|
|
Balance, beginning of period, net of tax
|
|
|
(1,498
|
)
|
Net actuarial loss
|
|
|
97
|
|
Prior service credit
|
|
|
(6
|
)
|
Income tax benefit (expense)
|
|
|
(30
|
)
|
|
|
|
|
|
Balance, end of period, net of tax
|
|
|
(1,437
|
)
|
|
|
|
|
|
Accumulated other comprehensive loss, end of period, net of tax
|
|
|
(11,286
|
)
|
|
|
|
|
|
Total AIG shareholders equity, end of period
|
|
|
57,958
|
|
|
|
|
|
|
Noncontrolling interest:
|
|
|
|
|
Balance, beginning of period
|
|
|
8,095
|
|
Contributions from noncontrolling interest
|
|
|
475
|
|
Distributions to noncontrolling interest
|
|
|
(264
|
)
|
Net decrease due to deconsolidation
|
|
|
(3,306
|
)
|
Net income (loss) attributable to noncontrolling interest*
|
|
|
(935
|
)
|
Accumulated other comprehensive income
|
|
|
110
|
|
|
|
|
|
|
Balance, end of period
|
|
|
4,175
|
|
|
|
|
|
|
Total equity, end of period
|
|
$
|
62,133
|
|
|
|
|
|
|
|
|
|
* |
|
A net gain of $178 million was recognized in the
six-month period ended June 30, 2009 associated with
redeemable noncontrolling interests (not reflected above) |
See Accompanying Notes to Consolidated Financial Statements.
7
American International Group, Inc.
and Subsidiaries
Consolidated
Statement of Cash Flows
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
(Unaudited)
|
|
|
Summary:
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
8,036
|
|
|
$
|
16,128
|
|
Net cash provided by (used in) investing activities
|
|
|
7,534
|
|
|
|
(22,140
|
)
|
Net cash provided by (used in) financing activities
|
|
|
(18,441
|
)
|
|
|
5,912
|
|
Effect of exchange rate changes on cash
|
|
|
31
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
(2,840
|
)
|
|
|
(55
|
)
|
Cash at beginning of period
|
|
|
8,642
|
|
|
|
2,284
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
5,802
|
|
|
$
|
2,229
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,288
|
)
|
|
$
|
(13,126
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Noncash revenues, expenses, gains and losses included in
income (loss):
|
|
|
|
|
|
|
|
|
Unrealized market valuation (gains) losses on AIGFP super senior
credit default swap portfolio
|
|
|
(184
|
)
|
|
|
14,672
|
|
Net gains on sales of securities available for sale and other
assets
|
|
|
(868
|
)
|
|
|
(494
|
)
|
Net (gains) losses on sales of divested businesses
|
|
|
316
|
|
|
|
|
|
Foreign exchange transaction (gains) losses
|
|
|
413
|
|
|
|
857
|
|
Net unrealized (gains) losses on non-AIGFP derivatives and other
assets and liabilities
|
|
|
(4,452
|
)
|
|
|
2,086
|
|
Equity in (income) loss from equity method investments, net of
dividends or distributions
|
|
|
1,912
|
|
|
|
(151
|
)
|
Amortization of deferred policy acquisition costs
|
|
|
6,347
|
|
|
|
7,343
|
|
Depreciation and other amortization
|
|
|
1,454
|
|
|
|
1,799
|
|
Provision for mortgage, other loans and finance receivables
|
|
|
1,526
|
|
|
|
578
|
|
Other-than-temporary
impairments
|
|
|
4,970
|
|
|
|
12,370
|
|
Impairments of goodwill and other assets
|
|
|
867
|
|
|
|
97
|
|
Amortization of costs and accrued interest and fees related to
FRBNY credit facility
|
|
|
2,829
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
General and life insurance reserves
|
|
|
2,027
|
|
|
|
9,748
|
|
Premiums and insurance balances receivable and
payable net
|
|
|
320
|
|
|
|
(1,104
|
)
|
Reinsurance assets
|
|
|
1,127
|
|
|
|
196
|
|
Capitalization of deferred policy acquisition costs
|
|
|
(6,406
|
)
|
|
|
(9,160
|
)
|
Investment income due and accrued
|
|
|
362
|
|
|
|
118
|
|
Funds held under reinsurance treaties
|
|
|
(1
|
)
|
|
|
(25
|
)
|
Other policyholder funds
|
|
|
320
|
|
|
|
851
|
|
Income taxes receivable and payable net
|
|
|
(1,016
|
)
|
|
|
(6,960
|
)
|
Commissions, expenses and taxes payable
|
|
|
(165
|
)
|
|
|
52
|
|
Other assets and liabilities net
|
|
|
813
|
|
|
|
1,426
|
|
Trade receivables and payables net
|
|
|
888
|
|
|
|
(6,446
|
)
|
Trading securities
|
|
|
(31
|
)
|
|
|
930
|
|
Net unrealized (gains) losses on swaps, options and forward
transactions (net of cash collateral)
|
|
|
1,473
|
|
|
|
(3,993
|
)
|
Securities purchased under agreements to resell
|
|
|
(521
|
)
|
|
|
4,353
|
|
Securities sold under agreements to repurchase
|
|
|
(2,106
|
)
|
|
|
1,237
|
|
Securities and spot commodities sold but not yet purchased
|
|
|
(1,451
|
)
|
|
|
(1,531
|
)
|
Finance receivables and other loans held for sale
originations and purchases
|
|
|
(52
|
)
|
|
|
(279
|
)
|
Sales of finance receivables and other loans held
for sale
|
|
|
49
|
|
|
|
477
|
|
Other, net
|
|
|
564
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
Total adjustments
|
|
|
11,324
|
|
|
|
29,254
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
8,036
|
|
|
$
|
16,128
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
8
American International Group, Inc.
and Subsidiaries
Consolidated
Statement of Cash Flows (Continued)
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
(Unaudited)
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Proceeds from (payments for)
|
|
|
|
|
|
|
|
|
Sales of fixed maturity securities available for sale and hybrid
investments
|
|
$
|
29,408
|
|
|
$
|
31,608
|
|
Maturities of fixed maturity securities available for sale and
hybrid investments
|
|
|
10,110
|
|
|
|
10,418
|
|
Sales of equity securities available for sale
|
|
|
2,767
|
|
|
|
4,861
|
|
Maturities of fixed maturity securities held to maturity
|
|
|
|
|
|
|
33
|
|
Sales of trading securities
|
|
|
9,739
|
|
|
|
14,120
|
|
Sales of flight equipment
|
|
|
97
|
|
|
|
372
|
|
Sales or distributions of other invested assets
|
|
|
5,767
|
|
|
|
8,715
|
|
Sales of divested businesses, net
|
|
|
2,855
|
|
|
|
|
|
Principal payments received on mortgage and other loans
receivable
|
|
|
3,861
|
|
|
|
3,457
|
|
Principal payments received on and sales of finance receivables
held for investment
|
|
|
6,908
|
|
|
|
6,757
|
|
Purchases of fixed maturity securities available for sale and
hybrid investments
|
|
|
(32,225
|
)
|
|
|
(47,114
|
)
|
Purchases of equity securities available for sale
|
|
|
(1,780
|
)
|
|
|
(5,808
|
)
|
Purchases of fixed maturity securities held to maturity
|
|
|
|
|
|
|
(88
|
)
|
Purchases of trading securities
|
|
|
(5,256
|
)
|
|
|
(9,244
|
)
|
Purchases of flight equipment (including progress payments)
|
|
|
(2,121
|
)
|
|
|
(2,950
|
)
|
Purchases of other invested assets
|
|
|
(3,741
|
)
|
|
|
(11,988
|
)
|
Mortgage and other loans receivable issued
|
|
|
(2,614
|
)
|
|
|
(3,340
|
)
|
Finance receivables held for investment originations
and purchases
|
|
|
(3,344
|
)
|
|
|
(8,778
|
)
|
Change in securities lending invested collateral
|
|
|
2,057
|
|
|
|
6,315
|
|
Net additions to real estate, fixed assets, and other assets
|
|
|
(252
|
)
|
|
|
(663
|
)
|
Net change in short-term investments
|
|
|
(14,369
|
)
|
|
|
(18,832
|
)
|
Net change in non-AIGFP derivative assets and liabilities
|
|
|
(304
|
)
|
|
|
186
|
|
Other, net
|
|
|
(29
|
)
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
$
|
7,534
|
|
|
$
|
(22,140
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from (payments for)
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
17,534
|
|
|
$
|
33,322
|
|
Policyholder contract withdrawals
|
|
|
(26,369
|
)
|
|
|
(27,926
|
)
|
Change in other deposits
|
|
|
182
|
|
|
|
682
|
|
Change in commercial paper and other short-term debt
|
|
|
(414
|
)
|
|
|
1,930
|
|
Change in Federal Reserve Bank of New York Commercial Paper
Funding Facility borrowings
|
|
|
(4,118
|
)
|
|
|
|
|
Federal Reserve Bank of New York credit facility borrowings
|
|
|
15,700
|
|
|
|
|
|
Federal Reserve Bank of New York credit facility repayments
|
|
|
(12,500
|
)
|
|
|
|
|
Issuance of other long-term debt
|
|
|
2,558
|
|
|
|
55,685
|
|
Repayments on other long-term debt
|
|
|
(10,970
|
)
|
|
|
(56,645
|
)
|
Change in securities lending payable
|
|
|
(1,377
|
)
|
|
|
(6,919
|
)
|
Distributions to noncontrolling interest
|
|
|
(264
|
)
|
|
|
(193
|
)
|
Contributions from noncontrolling interest
|
|
|
463
|
|
|
|
543
|
|
Drawdown on the Department of the Treasury Commitment
|
|
|
1,150
|
|
|
|
|
|
Issuance of common stock
|
|
|
|
|
|
|
7,343
|
|
Issuance from treasury stock
|
|
|
|
|
|
|
11
|
|
Payments advanced to purchase shares
|
|
|
|
|
|
|
(1,000
|
)
|
Cash dividends paid to shareholders
|
|
|
|
|
|
|
(1,036
|
)
|
Other, net
|
|
|
(16
|
)
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
$
|
(18,441
|
)
|
|
$
|
5,912
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid (received) during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
3,265
|
|
|
$
|
3,493
|
|
Taxes
|
|
$
|
(746
|
)
|
|
$
|
66
|
|
Non-cash financing/investing activities:
|
|
|
|
|
|
|
|
|
Interest credited to policyholder accounts included in financing
activities
|
|
$
|
7,244
|
|
|
$
|
3,815
|
|
Treasury stock acquired using payments advanced to purchase
shares
|
|
$
|
|
|
|
$
|
1,912
|
|
Present value of future contract adjustment payments related to
issuance of equity units
|
|
$
|
|
|
|
$
|
431
|
|
Long-term debt reduction due to deconsolidations
|
|
$
|
1,102
|
|
|
$
|
|
|
Debt assumed on acquisitions and warehoused investments
|
|
$
|
|
|
|
$
|
153
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
9
American International Group, Inc.
and Subsidiaries
Consolidated
Statement of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months
|
|
|
|
June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
|
(Unaudited)
|
|
|
Net income (loss)
|
|
$
|
1,845
|
|
|
$
|
(5,399
|
)
|
|
$
|
(3,288
|
)
|
|
$
|
(13,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(162
|
)
|
Income tax benefit on above change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
|
|
Unrealized appreciation (depreciation) of fixed maturity
investments on which
other-than-temporary
credit impairments were taken
|
|
|
1,112
|
|
|
|
|
|
|
|
1,112
|
|
|
|
|
|
Income tax benefit (expense) on above changes
|
|
|
(450
|
)
|
|
|
|
|
|
|
(450
|
)
|
|
|
|
|
Unrealized appreciation (depreciation) of all other
investments net of reclassification adjustments
|
|
|
8,957
|
|
|
|
(3,737
|
)
|
|
|
5,585
|
|
|
|
(14,414
|
)
|
Income tax benefit (expense) on above changes
|
|
|
(3,863
|
)
|
|
|
1,065
|
|
|
|
(2,471
|
)
|
|
|
4,813
|
|
Foreign currency translation adjustments
|
|
|
1,936
|
|
|
|
(221
|
)
|
|
|
995
|
|
|
|
1,196
|
|
Income tax benefit (expense) on above changes
|
|
|
(618
|
)
|
|
|
127
|
|
|
|
(409
|
)
|
|
|
(124
|
)
|
Net derivative gains (losses) arising from cash flow hedging
activities net of reclassification adjustments
|
|
|
45
|
|
|
|
144
|
|
|
|
71
|
|
|
|
11
|
|
Income tax benefit (expense) on above changes
|
|
|
(48
|
)
|
|
|
(50
|
)
|
|
|
(21
|
)
|
|
|
(5
|
)
|
Change in retirement plan liabilities adjustment
|
|
|
33
|
|
|
|
7
|
|
|
|
91
|
|
|
|
13
|
|
Income tax benefit (expense) on above changes
|
|
|
(12
|
)
|
|
|
(5
|
)
|
|
|
(30
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss):
|
|
|
7,092
|
|
|
|
(2,670
|
)
|
|
|
4,473
|
|
|
|
(8,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
8,937
|
|
|
|
(8,069
|
)
|
|
|
1,185
|
|
|
|
(21,744
|
)
|
Comprehensive income (loss) attributable to noncontrolling
interests
|
|
|
193
|
|
|
|
(80
|
)
|
|
|
(674
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to AIG
|
|
$
|
8,744
|
|
|
$
|
(7,989
|
)
|
|
$
|
1,859
|
|
|
$
|
(21,708
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Accompanying Notes to Consolidated Financial Statements.
10
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Basis
of Presentation
These unaudited condensed consolidated financial statements do
not include all disclosures required by accounting principles
generally accepted in the United States (GAAP) for complete
consolidated financial statements and should be read in
conjunction with the audited consolidated financial statements
and the related notes included in the
Form 8-K
filed on June 29, 2009 (the 2008 Financial Statements).
In the opinion of management, these consolidated financial
statements contain the normal recurring adjustments necessary
for a fair statement of the results presented herein. AIG
evaluated the need to disclose events that occurred subsequent
to the balance sheet date through August 7, 2009, the date
the financial statements were issued. All material intercompany
accounts and transactions have been eliminated.
Going
Concern Considerations
In the 2008 Financial Statements, management disclosed the
conditions and events that led management to conclude that AIG
would have adequate liquidity to finance and operate AIGs
businesses, execute its asset disposition plan and repay its
obligations for at least the next twelve months. On
March 2, 2009, the United States government issued the
following statement referring to the March 2009 agreements in
principle and other transactions they expected to be undertaken
with AIG (many of which were subsequently taken) to strengthen
AIGs capital position, enhance its liquidity, reduce its
borrowing costs and facilitate its asset disposition program.
The steps announced today provide tangible evidence of the
U.S. governments commitment to the orderly restructuring
of AIG over time in the face of continuing market dislocations
and economic deterioration. Orderly restructuring is essential
to AIGs repayment of the support it has received from U.S.
taxpayers and to preserving financial stability. The U.S.
government is committed to continuing to work with AIG to
maintain its ability to meet its obligations as they come
due.
Liquidity
of Parent and Subsidiaries
AIG manages liquidity at both the parent and subsidiary levels.
Since the fourth quarter of 2008, AIG has not had access to its
traditional sources of long-term or short-term financing through
the public debt markets. Further, in light of the performance of
AIGs common stock, AIG does not expect to be able to issue
equity securities for cash in the public markets in the
foreseeable future.
Historically, AIG depended on dividends, distributions, and
other payments from subsidiaries to fund payments on its
obligations. In light of AIGs current financial situation,
many of its regulated subsidiaries are restricted from making
dividend payments, or advancing funds, to AIG. As a result, AIG
has been dependent on the facility (the FRBNY Facility) provided
by the Federal Reserve Bank of New York (FRBNY) under the Credit
Agreement, dated as of September 22, 2008 (as amended, the
FRBNY Credit Agreement), between AIG and the FRBNY, the
FRBNYs Commercial Paper Funding Facility (CPFF) and other
transactions with the FRBNY and the United States Department of
the Treasury (the Department of the Treasury) as its primary
sources of liquidity. Primary uses of cash flow are for debt
service and subsidiary funding.
Certain subsidiaries also have been dependent on the FRBNY and
the Department of the Treasury to meet collateral posting
requirements, to make debt repayments as amounts come due, and
to meet capital or liquidity requirements at the insurance
companies (primarily in the Life Insurance &
Retirement Services segment) and financial services operations.
11
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Progress
on Managements Plans for Stabilization of AIG and
Repayment of AIGs Obligations as They Come Due
In the first six months of 2009, AIG took a number of steps to
execute its plans to provide stability to its businesses and
provide for the timely repayment of the FRBNY Facility.
Transactions
with the FRBNY
FRBNY
Credit Agreement Amendment
On April 17, 2009, AIG and the FRBNY entered into an
Amendment No. 3 to the FRBNY Credit Agreement. The FRBNY
Credit Agreement was amended, among other things, to remove the
minimum 3.5 percent LIBOR borrowing rate floor.
AIA
Purchase Agreement
On June 25, 2009, AIG and American International
Reinsurance Company, Limited (AIRCO) entered into a Purchase
Agreement (the AIA Purchase Agreement) with the FRBNY pursuant
to which, among other things, (1) AIRCO will transfer (or
cause to be transferred) 100 percent of the common stock of
American International Assurance Company, Limited (AIA) to a
newly-formed Delaware limited liability company (AIA LLC),
(2) AIRCO and AIG will retain 100 percent of the
common interests of AIA LLC and (3) the FRBNY will receive
100 percent of the preferred interests of AIA LLC. As
consideration for the preferred interests in AIA LLC to be
received by the FRBNY, there will be a reduction of
$16 billion in the outstanding balance of the FRBNY
Facility and the maximum amount available to be borrowed
thereunder (provided the maximum amount available under the
FRBNY Facility will not be less than $25 billion as a
result of such reduction).
The common interests will entitle AIG and AIRCO to
100 percent of the voting power of AIA LLC, including the
right to appoint the entire board of directors of AIA LLC. The
preferred interests will entitle the FRBNY to veto rights over
certain significant actions by AIA LLC and its subsidiaries and
the right, subject to certain restrictions, to compel AIA LLC to
take certain actions, including an initial public offering of
the company or a sale of the company. The preferred interests
received by the FRBNY will have a liquidation preference of
$16 billion and will accrue a return of 5 percent per
annum until September 22, 2013 and thereafter
9 percent per annum. Upon a liquidation or sale of AIA LLC,
after payment is made for the liquidation preference and accrued
dividends on the preferred interests and the initial value
relating to the common interests, AIG is entitled to
99 percent of the remaining proceeds and the FRBNY is
entitled to 1 percent.
The transactions contemplated by the AIA Purchase Agreement are
subject to certain conditions, including regulatory approvals,
the closing of the transactions contemplated by the ALICO
Purchase Agreement (described below) and certain other
conditions.
ALICO
Purchase Agreement
On June 25, 2009, AIG entered into a Purchase Agreement
(the ALICO Purchase Agreement) with the FRBNY pursuant to which,
among other things, (1) AIG will transfer (or cause to be
transferred) 100 percent of the common stock of American
Life Insurance Company (ALICO) to a newly-formed Delaware
limited liability company, ALICO Holdings LLC (ALICO LLC),
(2) AIG will retain 100 percent of the common
interests of ALICO LLC and (3) the FRBNY will receive
100 percent of the preferred interests of ALICO LLC. As
consideration for the preferred interests in ALICO LLC to be
received by the FRBNY, there will be a reduction of
$9 billion in the outstanding balance of the FRBNY Facility
and the maximum amount available to be borrowed thereunder
(provided the maximum amount available under the FRBNY Facility
will not be less than $25 billion as a result of such
reduction).
The common interests will entitle AIG to 100 percent of the
voting power of ALICO LLC, including the right to appoint the
entire board of directors of ALICO LLC. The preferred interests
will entitle the FRBNY to veto rights over certain significant
actions by ALICO LLC and its subsidiaries and the right, subject
to certain restrictions, to
12
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
compel ALICO LLC to take certain actions, including an initial
public offering of the company or a sale of the company. The
preferred interests received by the FRBNY will have a
liquidation preference of $9 billion and will accrue a
return of 5 percent per annum until September 22, 2013
and thereafter 9 percent per annum. Upon a liquidation or
sale of ALICO LLC, after payment is made for the liquidation
preference and accrued dividends on the preferred interests and
the initial value of the common interests, AIG is entitled to
95 percent of the remaining proceeds and the FRBNY is
entitled to 5 percent.
The transactions contemplated by the ALICO Purchase Agreement
are subject to certain conditions, including regulatory
approvals, the closing of the transactions contemplated by the
AIA Purchase Agreement (described above) and certain other
conditions.
Amortization
of Prepaid Commitment Asset
Any permanent reduction in the FRBNY Facility will result in
accelerated amortization of a portion of the prepaid commitment
asset. Therefore, AIG anticipates that the consummation of each
of the AIA Purchase Agreement and the ALICO Purchase Agreement
will result in accelerated amortization of a portion of the
prepaid commitment asset at the time that the senior interests
are transferred to the FRBNY, currently expected to occur no
earlier than the fourth quarter of 2009. Acceleration of the
amortization will result in a pre-tax charge to earnings which
could aggregate to approximately $5.0 billion.
Life
Insurance Securitizations
On March 2, 2009, AIG and the Board of Governors of the
Federal Reserve System announced their intent to enter into a
transaction pursuant to which the FRBNY will purchase embedded
value securitization notes issued by newly-formed special
purpose vehicles to be repaid with the net cash flows from
designated blocks of existing life insurance policies. The
proceeds of the notes would be applied in settlement of a
portion of the outstanding balance of the FRBNY Facility and
would reduce the maximum amount to be borrowed thereunder
(provided the maximum amount available under the FRBNY Facility
will not be less than $25 billion as a result of such
reduction). The amount of the FRBNY Facility reduction will be
based on the proceeds received and will also result in
accelerated amortization of a portion of the prepaid commitment
asset. The special purpose vehicles are expected to be
consolidated by AIG.
Sales of
Businesses and Asset Dispositions
AIG has revised its asset disposition plans over the last nine
months to take into account the deterioration of global market
conditions. AIGs current asset disposition plan is to
maximize the value of its businesses over a longer time frame.
AIG continually reassesses its disposition plans and may revise
its disposition plans at any time and from time to time.
Dispositions of certain businesses will be subject to regulatory
approval. Proceeds from these dispositions, to the extent they
do not represent capital of AIGs insurance subsidiaries
required for regulatory or ratings purposes, are contractually
required to be applied toward the repayment of the FRBNY
Facility as mandatory prepayments.
During the first six months of 2009 and through July 31,
2009, AIG entered into agreements to sell or completed the sale
of operations and assets, excluding AIGFP assets, that had
aggregate assets and liabilities with carrying values of
$31.2 billion and $23.8 billion, respectively, at
June 30, 2009 or the date of sale or in the case of
Transatlantic Holdings, Inc. (Transatlantic), deconsolidation.
Aggregate net proceeds from these sale transactions, including
proceeds applied to repay intercompany loan facilities, are
expected to be approximately $8.0 billion. These
transactions are expected to generate approximately
$4.6 billion of aggregate net cash proceeds to repay
outstanding borrowings and reduce the amount of FRBNY Facility,
after taking into account taxes, transaction expenses and
capital required to be retained for regulatory or ratings
purposes. Gains and losses recorded in connection with the
disposals of businesses include estimates that are subject to
subsequent adjustment. Based on the transactions thus far, AIG
does not believe that such adjustments will be material to
future results of operations or cash flows.
13
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Securitization
Transaction
During the first six months of 2009, American General Finance,
Inc. (AGF) received proceeds of $1.4 billion from real
estate loan portfolio sales. In addition, on July 30, 2009,
AGF issued mortgage-backed certificates in a private
securitization transaction of certain AGF real estate loans and
received initial cash proceeds of $967 million.
FAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets,
(FAS 144) requires that certain criteria be met in
order for AIG to classify a business as held for sale. At
June 30, 2009, the held for sale criteria in FAS 144
were not met for AIGs significant businesses included in
the asset disposition plan. AIG continues to evaluate the status
of its asset sales with respect to these criteria.
Managements
Assessment and Conclusion
In assessing AIGs current financial position and
developing operating plans for the future, management has made
significant judgments and estimates with respect to the
potential financial and liquidity effects of AIGs risks
and uncertainties, including but not limited to:
|
|
|
|
|
the commitment of the FRBNY and the Department of the Treasury
to the orderly restructuring of AIG and their commitment to
continuing to work with AIG to maintain its ability to meet its
obligations as they come due;
|
|
|
|
the potential adverse effects on AIGs businesses that
could result if there are further downgrades by rating agencies,
including in particular, the uncertainty of estimates relating
to the derivative transactions of AIG Financial Products Corp.
and AIG Trading Group Inc. and their respective subsidiaries
(collectively, AIGFP), such as estimates of both the number of
counterparties who may elect to terminate under contractual
termination provisions and the amount that would be required to
be paid in the event of a downgrade;
|
|
|
|
the ability of AIG to complete the transactions contemplated by
the AIA Purchase Agreement and the ALICO Purchase Agreement;
|
|
|
|
the potential delays in asset dispositions and reduction in the
anticipated proceeds therefrom;
|
|
|
|
the potential for continued declines in bond and equity markets;
|
|
|
|
the planned sales of significant subsidiaries;
|
|
|
|
the potential effect on AIG if the capital levels of its
regulated and unregulated subsidiaries prove inadequate to
support current business plans;
|
|
|
|
the effect on AIGs businesses of continued compliance with
the covenants of the FRBNY Credit Agreement and other agreements
with the FRBNY and the Department of the Treasury;
|
|
|
|
the effect of the provisions of the TARP Standards for
Compensation and Corporate Governance on AIGs ability to
retain and motivate key employees;
|
|
|
|
the potential loss of key personnel that could then reduce the
value of AIGs business and impair its ability to effect a
successful asset disposition plan;
|
|
|
|
the potential that AIG will be unable to complete the proposed
life insurance securitizations and, even if completed, that this
proposed transaction with the FRBNY does not achieve its desired
objectives; and
|
|
|
|
the potential regulatory actions in one or more countries,
including possible actions resulting from the legal change in
control as a result of the issuance of AIGs Series C
Perpetual, Convertible, Participating Preferred Stock (the AIG
Series C Preferred Stock).
|
Based on the U.S. governments continuing commitment,
the recently completed transactions and the other expected
transactions with the FRBNY, managements plans to
stabilize AIGs businesses and dispose of certain noncore
assets, and after consideration of the risks and uncertainties
of such plans, management believes that it will
14
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
have adequate liquidity to finance and operate AIGs
businesses, execute its asset disposition plan and repay its
obligations for at least the next twelve months.
It is possible that the actual outcome of one or more of
managements plans could be materially different, or that
one or more of managements significant judgments or
estimates about the potential effects of these risks and
uncertainties could prove to be materially incorrect or that the
proposed transactions with the FRBNY discussed above are not
consummated or fail to achieve their desired objectives. If one
or more of these possible outcomes is realized, AIG may need
additional U.S. government support to meet its obligations
as they come due.
AIGs consolidated financial statements have been prepared
on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course
of business. These consolidated financial statements do not
include any adjustments relating to the recoverability and
classification of recorded assets nor relating to the amounts
and classification of liabilities that may be necessary should
AIG be unable to continue as a going concern.
Out of
Period Adjustments
In the three months ended June 30, 2009, AIG recorded out
of period adjustments which reduced pre-tax income by
approximately $250 million and decreased net income by
approximately $60 million. The more significant decreases
to pre-tax income related to life insurance deferred acquisition
costs and general insurance balance sheet reconciliation
adjustments. Net adjustments to income taxes increased the
income tax benefit by approximately $99 million.
Recent
Accounting Standards
Accounting
Changes
AIG adopted the following accounting standards during the first
six months of 2009:
FAS 141(R)
In December 2007, the Financial Accounting Standards Board
(FASB) issued FAS No. 141 (revised 2007),
Business Combinations (FAS 141(R)).
FAS 141(R) changes the accounting for business combinations
in a number of ways, including broadening the transactions or
events that are considered business combinations; requiring an
acquirer to recognize 100 percent of the fair value of
certain assets acquired, liabilities assumed, and noncontrolling
(i.e., minority) interests; and recognizing contingent
consideration arrangements at their acquisition-date fair values
with subsequent changes in fair value generally reflected in
income, among other changes.
AIG adopted FAS 141(R) for business combinations for which
the acquisition date is on or after January 1, 2009. The
adoption of FAS 141(R) did not have a material effect on
AIGs consolidated financial position, results of
operations or cash flows at and for the three and six months
ended June 30, 2009, but will affect the future accounting
for business combinations, if any, as well as goodwill
impairment assessments.
FAS 160
In December 2007, the FASB issued FAS No. 160, which
requires noncontrolling (i.e., minority) interests in partially
owned consolidated subsidiaries to be classified in the
consolidated balance sheet as a separate component of equity, or
in the mezzanine section of the balance sheet (between
liabilities and equity), to the extent such interests do not
qualify for permanent equity classification in
accordance with Emerging Issues Task Force (EITF) Topic D-98,
Classification and Measurement of Redeemable
Securities (revised September 2008). FAS 160 also
specifies the accounting for subsequent acquisitions and sales
of noncontrolling interests and how noncontrolling interests
should be presented in the consolidated statement of income
(loss). The noncontrolling interests share of subsidiary
income (loss) should be reported as a part of consolidated net
income (loss) with disclosure of the attribution of consolidated
net income (loss) to the controlling and noncontrolling
interests on the face of the consolidated statement of income
(loss).
15
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
AIG adopted FAS 160 on January 1, 2009. FAS 160
was adopted prospectively, except that the consolidated
statement of income (loss) for the three and six months ended
June 30, 2008 have been retrospectively recast to include
net income (loss) attributable to both the controlling and
noncontrolling interests. Of the $10.0 billion minority
interest on the consolidated balance sheet at December 31,
2008, $1.9 billion was reclassified from minority interest
liability to Redeemable noncontrolling interest in partially
owned consolidated subsidiaries and $8.1 billion was
reclassified to a separate component of total equity titled
Noncontrolling interest. For the six months ended June 30,
2009, the noncontrolling interest balance declined by
$1.4 billion related to the deconsolidation of
Transatlantic in the second quarter of 2009 following the public
offering of 29.9 million shares of Transatlantic common
stock, after which AIG retained 13.9 percent of
Transatlantic common stock outstanding. AIG also restructured
certain relationships within the Institutional Asset Management
business in the second quarter of 2009, resulting in a decline
in goodwill of $476 million and noncontrolling interest of
$1.9 billion due to deconsolidation of certain entities.
The following table provides a reconciliation of the
beginning and ending balances of the components of total equity
(excluding the effects of redeemable noncontrolling
interests):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AIG
|
|
|
|
|
|
|
|
|
|
shareholders
|
|
|
Noncontrolling
|
|
|
|
|
|
|
equity
|
|
|
interest
|
|
|
Total equity
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
52,710
|
|
|
$
|
8,095
|
|
|
$
|
60,805
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
2,478
|
|
|
|
|
|
|
|
2,478
|
|
Net income (loss)
|
|
|
(2,531
|
)
|
|
|
(935
|
)
|
|
|
(3,466
|
)
|
Contributions from noncontrolling interest
|
|
|
|
|
|
|
475
|
|
|
|
475
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
(264
|
)
|
|
|
(264
|
)
|
Net decrease due to deconsolidation
|
|
|
|
|
|
|
(3,306
|
)
|
|
|
(3,306
|
)
|
Accumulated other comprehensive income
|
|
|
4,390
|
|
|
|
110
|
|
|
|
4,500
|
|
Other
|
|
|
911
|
|
|
|
|
|
|
|
911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
57,958
|
|
|
$
|
4,175
|
|
|
$
|
62,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
$
|
95,801
|
|
|
$
|
8,472
|
|
|
$
|
104,273
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
(1,108
|
)
|
|
|
|
|
|
|
(1,108
|
)
|
Net income (loss)
|
|
|
(13,162
|
)
|
|
|
133
|
|
|
|
(13,029
|
)
|
Contributions from noncontrolling interest
|
|
|
|
|
|
|
543
|
|
|
|
543
|
|
Distributions to noncontrolling interest
|
|
|
|
|
|
|
(193
|
)
|
|
|
(193
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(8,441
|
)
|
|
|
60
|
|
|
|
(8,381
|
)
|
Other
|
|
|
4,998
|
|
|
|
|
|
|
|
4,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
78,088
|
|
|
$
|
9,015
|
|
|
$
|
87,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FAS 161
In March 2008, the FASB issued FAS No. 161,
Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement
No. 133 (FAS 161). FAS 161 requires
enhanced disclosures about (a) how and why AIG uses
derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under
FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133) and
its related interpretations, and (c) how derivative
instruments and related hedged items affect AIGs
consolidated financial condition, results of operations, and
cash flows. AIG adopted FAS 161 on January 1, 2009.
See Note 7 herein for related disclosures.
16
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
FAS 165
In May 2009, the FASB issued FAS No. 165,
Subsequent Events (FAS 165). FAS 165
requires disclosure of the date through which a company
evaluated the need to disclose events that occurred subsequent
to the balance sheet date and whether that date represents the
date the financial statements were issued or were available to
be issued. AIG adopted FAS 165 for the period ended
June 30, 2009. The adoption of FAS 165 did not affect
AIGs consolidated financial condition, results of
operations or cash flows.
FSP
FAS 140-3
In February 2008, the FASB issued FASB Staff Position (FSP)
No. FAS 140-3,
Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions (FSP
FAS 140-3).
FSP
FAS 140-3
requires an initial transfer of a financial asset and a
repurchase financing that was entered into contemporaneously
with or in contemplation of the initial transfer to be evaluated
as a linked transaction unless certain criteria are met. AIG
adopted FSP
FAS 140-3
on January 1, 2009 for new transactions entered into from
that date forward. The adoption of FSP
FAS 140-3
did not have a material effect on AIGs consolidated
financial condition, results of operations or cash flows.
EITF
07-5
In June 2008, the FASB ratified the consensus reached by the
EITF on Issue
No. 07-5,
Determining Whether an Instrument (or Embedded Feature) is
Indexed to an Entitys Own Stock
(EITF 07-5).
Following the January 1, 2009 effective date, instruments
that are not indexed to the issuers stock would not
qualify for an exception from derivative accounting provided in
FAS 133 (which requires that an instrument is both indexed
to the issuers own stock, and that it is classified in
equity). AIG adopted
EITF 07-5
on January 1, 2009. The adoption of
EITF 07-5
resulted in a $15 million cumulative effect adjustment to
opening Accumulated deficit and a $91 million reduction in
Additional paid-in capital.
FSP
FAS 107-1
and APB
28-1
In April 2009, the FASB issued FSP
FAS 107-1
and APB
28-1,
Interim Disclosures about Fair Value of Financial
Instruments (FSP
FAS 107-1).
FSP
FAS 107-1
amends FASB Statement No. 107, Disclosures about Fair
Value of Financial Instruments, (FAS 107) to
require disclosures about fair value of financial instruments
(including methods and significant assumptions used) for interim
reporting periods of publicly traded companies as well as in
annual financial statements. The FSP also amends APB Opinion
No. 28, Interim Financial Reporting, to require
those disclosures in summarized financial information for
interim reporting periods. AIG adopted FSP
FAS 107-1
on April 1, 2009. See Note 4, Fair Value Measurements
for these disclosures.
FSP
FAS 115-2
and
FAS 124-2
In April 2009, the FASB issued FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (FSP
FAS 115-2).
FSP
FAS 115-2
requires a company to recognize the credit component of an
other-than-temporary
impairment of a fixed maturity security in income and the
non-credit component in accumulated other comprehensive income
when the company does not intend to sell the security or it is
more likely than not that the company will not be required to
sell the security prior to recovery. FSP
FAS 115-2
also changes the threshold for determining when an
other-than-temporary
impairment has occurred on a fixed maturity security with
respect to intent and ability to hold until recovery and
requires additional disclosures in interim and annual reporting
periods for fixed maturity and equity securities. FSP
FAS 115-2
does not change the recognition of
other-than-temporary
impairment for equity securities. See Note 5, Investments
for the expanded disclosures related to FSP
FAS 115-2.
AIG adopted FSP
FAS 115-2
on April 1, 2009 and recorded an after-tax cumulative
effect adjustment to increase AIG shareholders equity by
$2.5 billion as of April 1, 2009, consisting of a
decrease in Accumulated deficit of $11.8 billion and an
increase to Accumulated other comprehensive loss of
$9.3 billion, net of tax. The net
17
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
increase in AIGs shareholders equity was due to a
reversal of a portion of the deferred tax asset valuation
allowance for certain previous non-credit impairment charges
directly attributable to the change in accounting principle (see
Note 12 herein). The cumulative effect adjustment resulted
in an increase of approximately $16 billion in the
amortized cost of fixed maturity securities, which has the
effect of significantly reducing the accretion of investment
income over the remaining life of the underlying securities,
beginning in the second quarter of 2009. The effect of the
reduced investment income will be offset, in part, by a decrease
in the amortization of deferred policy acquisition costs (DAC)
and sales inducements assets (SIA).
Beginning in the second quarter of 2009, the adoption of FSP
FAS 115-2
is expected to reduce the level of
other-than-temporary
impairment charges recorded in earnings for fixed maturity
securities due to the following required changes in AIGs
accounting policy for
other-than-temporary
impairments (see Note 5 for a more detailed discussion of
the changes in policy):
|
|
|
|
|
Impairment charges for non-credit (i.e., severity) losses are no
longer recognized;
|
|
|
|
The amortized cost basis of credit impaired securities will be
written down through a charge to earnings to the present value
of expected cash flows, rather than to fair value; and
|
|
|
|
For fixed maturity securities that are not deemed to be
credit-impaired. AIG is no longer required to assert that it has
the intent and ability to hold such securities to recovery to
avoid an
other-than-temporary
impairment charge. Instead, an impairment charge through
earnings is required only in situations where AIG has the intent
to sell the fixed maturity security or it is more likely than
not that AIG will be required to sell the security prior to
recovery.
|
The components of the change in AIG shareholders equity
at April 1, 2009 due to the adoption of FSP FAS
115-2 were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Increase)
|
|
|
|
|
|
Net Increase
|
|
|
|
Decrease to
|
|
|
(Increase) Decrease
|
|
|
in AIG
|
|
|
|
Accumulated
|
|
|
to Accumulated Other
|
|
|
Shareholders
|
|
|
|
Deficit
|
|
|
Comprehensive Loss
|
|
|
Equity
|
|
|
|
(In billions)
|
|
|
Net effect of the increase in amortized cost of available for
sale fixed maturity securities
|
|
$
|
16.1
|
|
|
$
|
(16.1
|
)
|
|
$
|
|
|
Net effect of related DAC, SIA and other insurance balances
|
|
|
(1.8
|
)
|
|
|
1.8
|
|
|
|
|
|
Net effect on deferred income tax assets
|
|
|
(2.5
|
)
|
|
|
5.0
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in AIG shareholders equity
|
|
$
|
11.8
|
|
|
$
|
(9.3
|
)
|
|
$
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FSP
FAS 157-4
In April 2009, the FASB issued FSP
FAS 157-4,
Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly (FSP
FAS 157-4).
FSP
FAS 157-4
provides guidance for estimating fair value in accordance with
FAS No. 157, Fair Value Measurements
(FAS 157), when the volume and level of activity for an
asset or liability have significantly decreased and for
identifying circumstances that indicate a transaction is not
orderly. FSP
FAS 157-4
also requires extensive additional fair value disclosures. The
adoption of FSP
FAS 157-4
on April 1, 2009, did not have a material effect on
AIGs consolidated financial condition, results of
operations or cash flows. See Note 4, Fair Value
Measurements for the disclosures related to FSP
FAS 157-4.
Future
Application of Accounting Standards
FSP
FAS 132(R)-1
In December 2008, the FASB issued FSP FAS 132(R)-1,
Employers Disclosures about Postretirement Benefit
Plan Assets (FSP FAS 132(R)-1). FSP FAS 132(R)-1
amends FAS 132(R) to require more detailed
18
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
disclosures about an employers plan assets, including the
employers investment strategies, major categories of plan
assets, concentrations of risk within plan assets, and valuation
techniques used to measure the fair values of plan assets. FSP
FAS 132(R)-1 is effective for fiscal years ending after
December 15, 2009. The adoption of FSP FAS 132(R)-1
will have no effect on AIGs consolidated financial
condition, results of operations or cash flows.
FAS 166
In June 2009, the FASB issued FAS 166, Accounting for
Transfers of Financial Assets an amendment of FASB
Statement No. 140 (FAS 166). FAS 166
removes the concept of a qualifying special-purpose entity
(QSPE) from FAS 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities and removes the exception from applying FASB
Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities,
(FIN 46(R)) to QSPEs. FAS 166 is effective for interim
and annual periods beginning on January 1, 2010 for AIG.
Earlier application is prohibited. AIG is assessing the effect
adopting FAS 166 will have on its consolidated financial
condition, results of operations and cash flows.
FAS 167
In June 2009, FASB issued FAS 167, Amendments to FASB
Interpretation No. 46(R) (FAS 167). FAS 167
amends the consolidation analysis with an approach focused on
identifying which enterprise has the power to direct the
activities of a variable interest entity that most significantly
affect the entitys economic performance and (1) the
obligation to absorb losses of the entity or (2) the right
to receive benefits from the entity, and enhances financial
reporting by enterprises involved with variable interest
entities. FAS 167 is effective for interim and annual
periods beginning on January 1, 2010 for AIG. Earlier
application is prohibited. AIG is assessing the effect adopting
FAS 167 will have on its consolidated financial condition,
results of operations, and cash flows.
AIG is executing an organization-wide restructuring plan under
which some of its operations are being divested, some will be
held for later divestiture, some are being prepared for
potential offerings to the public, and some will be retained.
Successful execution of the restructuring plan involves
significant separation activities. Accordingly, AIG established
retention programs for its key employees to maintain ongoing
business operations and to facilitate the successful execution
of the restructuring plan, although some payments have been
delayed. Additionally, given the market disruption in the first
quarter of 2008, AIGFP established a retention plan for its
employees to manage and unwind its complex businesses. Other
major activities include the separation of shared services,
corporate functions, infrastructure and assets among business
units.
In connection with its restructuring and separation activities,
AIG expects to incur significant expenses, including legal,
banking, accounting, consulting and other professional fees. In
addition, AIG is contractually obligated to reimburse or advance
certain professional fees and other expenses incurred by the
FRBNY and the trustees of the AIG Credit Facility Trust, a trust
established for the sole benefit of the United States Treasury
(Trust).
Based on AIGs announced plans, AIG has made estimates of
these expenses, although for some restructuring and separation
activities estimates cannot be reasonably made due to the
evolving nature of the plans and the uncertain timing of the
transactions involved. Future reimbursement or advancement
payments to the FRBNY and the trustees cannot reasonably be
estimated by AIG. Even for those expenses that have been
estimated, actual expenses will vary depending on the identity
of the ultimate purchasers of the divested entities or
counterparties to transactions, the transactions and activities
that ultimately are consummated or undertaken, and the ultimate
time period over which these activities occur.
For those restructuring and separation expenses that have been
incurred or can be reasonably estimated, the total expenses
incurred and expected to be incurred are approximately
$2.7 billion at June 30, 2009, as set forth in the
table below. This amount excludes expenses that could not be
reasonably estimated at June 30, 2009, as well as
19
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
any expenses (principally professional fees) that are expected
to be capitalized. With respect to the FRBNY and the trustees of
the Trust, this amount includes only actual reimbursement and
advancement payments made through June 30, 2009.
Restructuring expenses and related asset impairment and other
expenses by operating segment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
|
& Retirement
|
|
|
Financial
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Services
|
|
|
Services
|
|
|
Management
|
|
|
Other(a)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
$
|
1
|
|
|
$
|
24
|
|
|
$
|
43
|
|
|
$
|
5
|
|
|
$
|
144
|
|
|
$
|
217
|
|
Separation expenses
|
|
|
42
|
|
|
|
36
|
|
|
|
31
|
|
|
|
5
|
|
|
|
12
|
|
|
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43
|
|
|
$
|
60
|
|
|
$
|
74
|
|
|
$
|
10
|
|
|
$
|
156
|
|
|
$
|
343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring expenses
|
|
$
|
1
|
|
|
$
|
33
|
|
|
$
|
101
|
|
|
$
|
9
|
|
|
$
|
276
|
|
|
$
|
420
|
|
Separation expenses
|
|
|
73
|
|
|
|
82
|
|
|
|
82
|
|
|
|
16
|
|
|
|
32
|
|
|
|
285
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74
|
|
|
$
|
115
|
|
|
$
|
183
|
|
|
$
|
25
|
|
|
$
|
308
|
|
|
$
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative amounts incurred since inception of restructuring plan
|
|
$
|
158
|
|
|
$
|
183
|
|
|
$
|
521
|
|
|
$
|
94
|
|
|
$
|
558
|
|
|
$
|
1,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts expected to be incurred(b)
|
|
$
|
294
|
|
|
$
|
322
|
|
|
$
|
741
|
|
|
$
|
110
|
|
|
$
|
1,240
|
|
|
$
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily includes professional fees related to
(i) disposition activities and (ii) AIGs capital
restructuring program with the FRBNY and the Department of the
Treasury. |
|
(b) |
|
Includes cumulative amounts incurred and future amounts to be
incurred that can be reasonably estimated at June 30,
2009. |
A rollforward of the restructuring liability, reported in
Other liabilities on AIGs consolidated balance sheet, for
the six months ended June 30, 2009, the cumulative amounts
incurred since inception of restructuring plan, and the total
amounts expected to be incurred are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Contract
|
|
|
Asset
|
|
|
Other
|
|
|
Subtotal
|
|
|
|
|
|
Restructuring
|
|
Six Months Ended
|
|
Severance
|
|
|
Termination
|
|
|
Write-
|
|
|
Exit
|
|
|
Restructuring
|
|
|
Separation
|
|
|
and Separation
|
|
June 30, 2009
|
|
Expenses
|
|
|
Expenses
|
|
|
Downs
|
|
|
Expenses(a)
|
|
|
Expenses
|
|
|
Expenses
|
|
|
Expenses
|
|
|
|
(In millions)
|
|
|
Liability balance, at beginning of year
|
|
$
|
77
|
|
|
$
|
27
|
|
|
$
|
|
|
|
$
|
87
|
|
|
$
|
191
|
|
|
$
|
284
|
|
|
$
|
475
|
|
Additional charges
|
|
|
47
|
|
|
|
29
|
|
|
|
21
|
|
|
|
258
|
|
|
|
355
|
|
|
|
330
|
|
|
|
685
|
|
Cash payments
|
|
|
(54
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
(254
|
)
|
|
|
(329
|
)
|
|
|
(309
|
)
|
|
|
(638
|
)
|
Non-cash items(b)
|
|
|
(11
|
)
|
|
|
(3
|
)
|
|
|
(21
|
)
|
|
|
1
|
|
|
|
(34
|
)
|
|
|
3
|
|
|
|
(31
|
)
|
Changes in estimates
|
|
|
33
|
|
|
|
9
|
|
|
|
|
|
|
|
23
|
|
|
|
65
|
|
|
|
(45
|
)
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability balance, end of period
|
|
$
|
92
|
|
|
$
|
41
|
|
|
$
|
|
|
|
$
|
115
|
|
|
$
|
248
|
|
|
$
|
263
|
|
|
$
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative amounts incurred since inception of restructuring plan
|
|
$
|
169
|
|
|
$
|
65
|
|
|
$
|
72
|
|
|
$
|
421
|
|
|
$
|
727
|
|
|
$
|
787
|
|
|
$
|
1,514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Contract
|
|
|
Asset
|
|
|
Other
|
|
|
Subtotal
|
|
|
|
|
|
Restructuring
|
|
Six Months Ended
|
|
Severance
|
|
|
Termination
|
|
|
Write-
|
|
|
Exit
|
|
|
Restructuring
|
|
|
Separation
|
|
|
and Separation
|
|
June 30, 2009
|
|
Expenses
|
|
|
Expenses
|
|
|
Downs
|
|
|
Expenses(a)
|
|
|
Expenses
|
|
|
Expenses
|
|
|
Expenses
|
|
|
|
(In millions)
|
|
|
Total amounts expected to be incurred(c)
|
|
$
|
207
|
|
|
$
|
120
|
|
|
$
|
72
|
|
|
$
|
1,127
|
|
|
$
|
1,526
|
|
|
$
|
1,181
|
|
|
$
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily includes professional fees related to
(i) disposition activities, (ii) AIGs capital
restructuring program with the FRBNY and the Department of the
Treasury and (iii) unwinding most of AIGFPs
businesses and portfolios. |
|
(b) |
|
Primarily represents asset impairment charges, foreign
currency translation and reclassification adjustments. |
|
(c) |
|
Includes cumulative amounts incurred and future amounts to be
incurred that can be reasonably estimated at June 30,
2009. |
AIG identifies its operating segments by product line consistent
with its management structure and evaluates their performance
based on operating income (loss) before taxes. During the second
quarter of 2009, AIG realigned its financial reporting structure
to reflect the effects of its restructuring activities on how
management views and manages its businesses. Consequently,
beginning in the second quarter of 2009, the results for
Transatlantic, Personal Lines (excluding the results of the
Private Client Group), and Mortgage Guaranty, previously
reported as part of the General Insurance operating segment, are
now included in AIGs Other operations. In addition, the
historical results for HSB Group, Inc. (HSB) (which was sold on
March 31, 2009), previously included within Commercial
Insurance, are now included in AIGs Other category. Prior
period amounts have been revised to conform to the current
presentation. As a result of dispositions, only Mortgage
Guaranty is expected to report ongoing results of operations
commencing in the third quarter of 2009.
AIGs operating segments are General Insurance, Life
Insurance & Retirement Services, Financial Services,
and Asset Management.
21
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
AIGs results by operating segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance
|
|
$
|
8,847
|
|
|
$
|
10,120
|
|
|
$
|
16,974
|
|
|
$
|
19,738
|
|
Life Insurance & Retirement Services
|
|
|
14,997
|
|
|
|
10,161
|
|
|
|
23,854
|
|
|
|
18,913
|
|
Financial Services
|
|
|
2,155
|
|
|
|
(3,605
|
)
|
|
|
3,428
|
|
|
|
(10,165
|
)
|
Asset Management
|
|
|
452
|
|
|
|
797
|
|
|
|
751
|
|
|
|
648
|
|
Other
|
|
|
3,276
|
|
|
|
2,845
|
|
|
|
5,801
|
|
|
|
5,388
|
|
Consolidation and eliminations
|
|
|
(202
|
)
|
|
|
(385
|
)
|
|
|
(825
|
)
|
|
|
(558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
29,525
|
|
|
$
|
19,933
|
|
|
$
|
49,983
|
|
|
$
|
33,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance
|
|
$
|
(45
|
)
|
|
$
|
(493
|
)
|
|
$
|
(653
|
)
|
|
$
|
(739
|
)
|
Life Insurance & Retirement Services
|
|
|
297
|
|
|
|
(5,010
|
)
|
|
|
(2,811
|
)
|
|
|
(9,379
|
)
|
Financial Services
|
|
|
10
|
|
|
|
15
|
|
|
|
(24
|
)
|
|
|
(136
|
)
|
Asset Management
|
|
|
78
|
|
|
|
(464
|
)
|
|
|
(74
|
)
|
|
|
(1,869
|
)
|
Other
|
|
|
(1,639
|
)
|
|
|
(129
|
)
|
|
|
(839
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net realized capital gains (losses)
|
|
$
|
(1,299
|
)
|
|
$
|
(6,081
|
)
|
|
$
|
(4,401
|
)
|
|
$
|
(12,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance
|
|
$
|
971
|
|
|
$
|
1,212
|
|
|
$
|
1,094
|
|
|
$
|
2,727
|
|
Life Insurance & Retirement Services
|
|
|
1,818
|
|
|
|
(2,401
|
)
|
|
|
(55
|
)
|
|
|
(4,232
|
)
|
Financial Services
|
|
|
(89
|
)
|
|
|
(5,905
|
)
|
|
|
(1,211
|
)
|
|
|
(14,677
|
)
|
Asset Management
|
|
|
(222
|
)
|
|
|
(314
|
)
|
|
|
(855
|
)
|
|
|
(1,565
|
)
|
Other
|
|
|
(1,337
|
)
|
|
|
(1,100
|
)
|
|
|
(3,809
|
)
|
|
|
(2,046
|
)
|
Consolidation and eliminations
|
|
|
178
|
|
|
|
(248
|
)
|
|
|
(213
|
)
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
$
|
1,319
|
|
|
$
|
(8,756
|
)
|
|
$
|
(5,049
|
)
|
|
$
|
(20,020
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
AIGs General Insurance results by major internal
reporting unit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
General Insurance
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
5,522
|
|
|
$
|
5,981
|
|
|
$
|
10,546
|
|
|
$
|
11,971
|
|
Foreign General Insurance
|
|
|
3,325
|
|
|
|
4,139
|
|
|
|
6,428
|
|
|
|
7,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,847
|
|
|
$
|
10,120
|
|
|
$
|
16,974
|
|
|
$
|
19,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
583
|
|
|
$
|
416
|
|
|
$
|
359
|
|
|
$
|
1,195
|
|
Foreign General Insurance
|
|
|
388
|
|
|
|
796
|
|
|
|
735
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
971
|
|
|
$
|
1,212
|
|
|
$
|
1,094
|
|
|
$
|
2,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGs Life Insurance & Retirement Services
results by major internal reporting unit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Life Insurance & Retirement Services
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
$
|
4,634
|
|
|
$
|
5,369
|
|
|
$
|
7,877
|
|
|
$
|
9,265
|
|
Asia
|
|
|
6,771
|
|
|
|
4,575
|
|
|
|
11,220
|
|
|
|
8,852
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Life Insurance
|
|
|
2,204
|
|
|
|
1,234
|
|
|
|
3,719
|
|
|
|
2,517
|
|
Domestic Retirement Services
|
|
|
1,388
|
|
|
|
(1,017
|
)
|
|
|
1,038
|
|
|
|
(1,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,997
|
|
|
$
|
10,161
|
|
|
$
|
23,854
|
|
|
$
|
18,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
$
|
94
|
|
|
$
|
577
|
|
|
$
|
172
|
|
|
$
|
1,060
|
|
Asia
|
|
|
1,267
|
|
|
|
196
|
|
|
|
1,523
|
|
|
|
448
|
|
Domestic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Life Insurance
|
|
|
559
|
|
|
|
(1,005
|
)
|
|
|
251
|
|
|
|
(1,875
|
)
|
Domestic Retirement Services
|
|
|
(102
|
)
|
|
|
(2,169
|
)
|
|
|
(2,001
|
)
|
|
|
(3,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,818
|
|
|
$
|
(2,401
|
)
|
|
$
|
(55
|
)
|
|
$
|
(4,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
AIGs Financial Services results by major internal
reporting unit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
Financial Services
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Leasing
|
|
$
|
1,384
|
|
|
$
|
1,298
|
|
|
$
|
2,665
|
|
|
$
|
2,463
|
|
Capital Markets
|
|
|
(8
|
)
|
|
|
(6,088
|
)
|
|
|
(977
|
)
|
|
|
(14,831
|
)
|
Consumer Finance
|
|
|
565
|
|
|
|
1,028
|
|
|
|
1,386
|
|
|
|
1,959
|
|
Other, including intercompany adjustments
|
|
|
214
|
|
|
|
157
|
|
|
|
354
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,155
|
|
|
$
|
(3,605
|
)
|
|
$
|
3,428
|
|
|
$
|
(10,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Leasing
|
|
$
|
410
|
|
|
$
|
334
|
|
|
$
|
726
|
|
|
$
|
555
|
|
Capital Markets
|
|
|
(128
|
)
|
|
|
(6,284
|
)
|
|
|
(1,249
|
)
|
|
|
(15,211
|
)
|
Consumer Finance
|
|
|
(404
|
)
|
|
|
(33
|
)
|
|
|
(702
|
)
|
|
|
(85
|
)
|
Other, including intercompany adjustments
|
|
|
33
|
|
|
|
78
|
|
|
|
14
|
|
|
|
64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(89
|
)
|
|
$
|
(5,905
|
)
|
|
$
|
(1,211
|
)
|
|
$
|
(14,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGs Asset Management operations consist of a single
internal reporting unit.
|
|
4.
|
Fair
Value Measurements
|
Effective January 1, 2008, AIG adopted FAS 157 and
FAS 159, The Fair Value Option for Financial Assets
and Financial Liabilities (FAS 159), which specify
measurement and disclosure standards related to assets and
liabilities measured at fair value.
Fair
Value Measurements on a Recurring Basis
AIG measures at fair value on a recurring basis financial
instruments in its trading and available for sale securities
portfolios, certain mortgage and other loans receivable, certain
spot commodities, derivative assets and liabilities, securities
purchased/sold under agreements to resell/repurchase, securities
lending invested collateral, non-traded equity investments and
certain private limited partnerships and certain hedge funds
included in other invested assets, certain short-term
investments, separate and variable account assets, certain
policyholder contract deposits, securities and spot commodities
sold but not yet purchased, certain trust deposits and deposits
due to banks and other depositors, certain CPFF and other
commercial paper, certain long-term debt, and certain hybrid
financial instruments included in other liabilities. The fair
value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the
measurement date.
The degree of judgment used in measuring the fair value of
financial instruments generally correlates with the level of
pricing observability. Financial instruments with quoted prices
in active markets generally have more pricing observability and
less judgment is used in measuring fair value. Conversely,
financial instruments traded in
other-than-active
markets or that do not have quoted prices have less
observability and are measured at fair value using valuation
models or other pricing techniques that require more judgment.
An active market is one in which transactions for the asset or
liability being valued occur with sufficient frequency and
volume to provide pricing information on an ongoing basis. An
other-than-active
market is one in which there are few transactions, the prices
are not current, price quotations vary substantially either over
time or among market makers, or in which little information is
released publicly for the asset or liability being valued.
Pricing observability is affected by a number of factors,
including the type of financial instrument, whether the
financial instrument is new to the market and not yet
established, the characteristics specific to the transaction and
general market conditions.
24
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Fair
Value Hierarchy
Beginning January 1, 2008, assets and liabilities recorded
at fair value in the consolidated balance sheet are measured and
classified in a hierarchy for disclosure purposes consisting of
three levels based on the observability of inputs
available in the marketplace used to measure the fair values as
discussed below:
|
|
|
|
|
Level 1: Fair value measurements that are
quoted prices (unadjusted) in active markets that AIG has the
ability to access for identical assets or liabilities. Market
price data generally is obtained from exchange or dealer
markets. AIG does not adjust the quoted price for such
instruments. Assets and liabilities measured at fair value on a
recurring basis and classified as Level 1 include certain
government and agency securities, actively traded listed common
stocks and derivative contracts, most separate account assets
and most mutual funds.
|
|
|
|
Level 2: Fair value measurements based on
inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly or
indirectly. Level 2 inputs include quoted prices for
similar assets and liabilities in active markets, and inputs
other than quoted prices that are observable for the asset or
liability, such as interest rates and yield curves that are
observable at commonly quoted intervals. Assets and liabilities
measured at fair value on a recurring basis and classified as
Level 2 generally include certain government securities,
most investment-grade and high-yield corporate bonds, certain
asset-backed securities (ABS), certain listed equities, state,
municipal and provincial obligations, hybrid securities, mutual
fund and hedge fund investments, derivative contracts,
guaranteed investment agreements (GIAs) and commercial paper at
AIGFP, other long-term debt and physical commodities.
|
|
|
|
Level 3: Fair value measurements based on
valuation techniques that use significant inputs that are
unobservable. These measurements include circumstances in which
there is little, if any, market activity for the asset or
liability. In certain cases, the inputs used to measure fair
value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy
within which the fair value measurement in its entirety falls is
determined based on the lowest level input that is significant
to the fair value measurement in its entirety. AIGs
assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment. In making
the assessment, AIG considers factors specific to the asset or
liability. Assets and liabilities measured at fair value on a
recurring basis and classified as Level 3 include certain
distressed ABS, structured credit products, certain derivative
contracts (including AIGFPs super senior credit default
swap portfolio), policyholder contract deposits carried at fair
value, private equity and real estate fund investments, and
direct private equity investments. AIGs
non-financial-instrument assets that are measured at fair value
on a non-recurring basis generally are classified as
Level 3.
|
The following is a description of the valuation methodologies
used for instruments carried at fair value:
Incorporation
of Credit Risk in Fair Value Measurements
|
|
|
|
|
AIGs Own Credit Risk. Fair value
measurements for AIGFPs debt, GIAs, structured note
liabilities and freestanding derivatives incorporate AIGs
own credit risk by determining the explicit cost for each
counterparty to protect against its net credit exposure to AIG
at the balance sheet date by reference to observable AIG credit
default swap spreads. A counterpartys net credit exposure
to AIG is determined based on master netting agreements, when
applicable, which take into consideration all positions with
AIG, as well as collateral posted by AIG with the counterparty
at the balance sheet date.
|
Fair value measurements for embedded policy derivatives and
policyholder contract deposits take into consideration that
policyholder liabilities are senior in priority to general
creditors of AIG and therefore are much less sensitive to
changes in AIG credit default swap or cash issuance spreads.
|
|
|
|
|
Counterparty Credit Risk. Fair value
measurements for freestanding derivatives incorporate
counterparty credit by determining the explicit cost for AIG to
protect against its net credit exposure to each counterparty at
the balance sheet date by reference to observable counterparty
credit default swap spreads. AIGs net credit exposure to a
counterparty is determined based on master netting agreements,
which take into
|
25
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
consideration all derivative positions with the counterparty, as
well as collateral posted by the counterparty at the balance
sheet date.
|
The cost of credit protection is determined under a discounted
present value approach considering the market levels for credit
default swap (CDS) spreads, the mid market value of the net
exposure (reflecting the amount of protection required) and the
weighted average life of the net exposure. CDS spreads are
provided to AIG by an independent third-party. AIG utilizes a
LIBOR-based interest rate curve to derive its discount rates.
A CDS is a derivative contract that allows the transfer of
third-party credit risk from one party to the other. The buyer
of the CDS pays an upfront
and/or
annual premium to the seller. The sellers payment
obligation is triggered by the occurrence of a credit event
under a specified reference security and is determined by the
loss on that specified reference security. The present value of
the amount of the annual
and/or
upfront premium therefore represents a market based expectation
of the likelihood that the specified reference party will fail
to perform on the reference obligation, a key market observable
indicator of non-performance risk (the CDS spread).
While this approach does not explicitly consider all potential
future behavior of the derivative transactions or potential
future changes in valuation inputs, AIG believes this approach
provides a reasonable estimate of the fair value of the derivate
assets and liabilities, including consideration of the impact of
non-performance risk.
Fair values for fixed maturity securities based on observable
market prices for identical or similar instruments implicitly
incorporate counterparty credit risk. Fair values for fixed
maturity securities based on internal models incorporate
counterparty credit risk by using discount rates that take into
consideration cash issuance spreads for similar instruments or
other observable information.
Fixed
Maturity Securities Trading and Available for
Sale
AIG maximizes the use of observable inputs and minimizes the use
of unobservable inputs when measuring fair value. Whenever
available, AIG obtains quoted prices in active markets for
identical assets at the balance sheet date to measure at fair
value fixed maturity securities in its trading and available for
sale portfolios. Market price data generally is obtained from
exchange or dealer markets.
AIG estimates the fair value of fixed maturity securities not
traded in active markets, including securities purchased (sold)
under agreements to resell (repurchase), and mortgage and other
loans receivable for which AIG elected the fair value option, by
referring to traded securities with similar attributes, using
dealer quotations, a matrix pricing methodology, discounted cash
flow analyses or internal valuation models. This methodology
considers such factors as the issuers industry, the
securitys rating and tenor, its coupon rate, its position
in the capital structure of the issuer, yield curves, credit
curves, prepayment rates and other relevant factors. For fixed
maturity instruments that are not traded in active markets or
that are subject to transfer restrictions, valuations are
adjusted to reflect illiquidity
and/or
non-transferability, and such adjustments generally are based on
available market evidence. In the absence of such evidence,
managements best estimate is used.
ML II and
ML III
At their inception, AIGs economic interest in Maiden
Lane II LLC (ML II) and equity interest in Maiden
Lane III LLC (ML III) (together, Maiden Lane Interests),
which are included in Bond trading securities, at fair value, on
the consolidated balance sheet, were valued and recorded at the
transaction prices of $1 billion and $5 billion,
respectively. Subsequently, Maiden Lane Interests are valued
using a discounted cash flow methodology that uses the estimated
future cash flows of the assets to which the Maiden Lane
Interests are entitled and the discount rates applicable to such
interests as derived from the fair value of the entire asset
pool. The implicit discount rates are calibrated to the changes
in the estimated asset values for the underlying assets
commensurate with AIGs interests in the capital structure
of the respective entities. Estimated cash flows and discount
rates used in the valuations are validated, to the extent
possible, using market observable information for securities
with similar asset pools, structure and terms.
26
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The fair value methodology used assumes that the underlying
collateral in ML II and ML III will continue to be held and
generate cash flows into the foreseeable future and does not
assume a current liquidation of the assets of ML II and ML III.
Other methodologies employed or assumptions made in determining
fair value for these investments could result in amounts that
differ significantly from the amounts reported.
Valuation Sensitivity: The fair values of the Maiden Lane
Interests are most affected by changes in the discount rates and
changes in the underlying estimated future collateral cash flow
assumptions used in the valuation model.
The benchmark London Interbank Offered Rate (LIBOR) interest
rate curve changes are determined by macroeconomic
considerations and financial sector credit spreads. The spreads
over LIBOR for the Maiden Lane Interests (including
collateral-specific credit and liquidity spreads) can change as
a result of changes in market expectations about the future
performance of these investments as well as changes in the risk
premium that market participants would demand at the time of the
transactions.
Changes in estimated future cash flows would primarily be the
result of changes in expectations for defaults, recoveries, and
prepayments on underlying loans.
Increases in the discount rate or decreases in estimated
future cash flows used in the valuation would decrease
AIGs estimate of the fair value of the Maiden Lane
Interests as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
Fair Value Change
|
|
Six Months Ended June 30, 2009
|
|
Maiden Lane II
|
|
|
Maiden Lane III
|
|
|
|
(In millions)
|
|
|
Discount Rates
|
|
|
|
|
|
|
|
|
200 basis point increase
|
|
$
|
(52
|
)
|
|
$
|
(453
|
)
|
400 basis point increase
|
|
|
(97
|
)
|
|
|
(837
|
)
|
|
|
|
|
|
|
|
|
|
Estimated Future Cash Flows
|
|
|
|
|
|
|
|
|
10% decrease
|
|
|
(218
|
)
|
|
|
(660
|
)
|
20% decrease
|
|
|
(370
|
)
|
|
|
(1,323
|
)
|
|
|
|
|
|
|
|
|
|
AIG believes that the ranges of discount rates used in these
analyses are reasonable based on implied spread volatilities of
similar collateral securities and implied volatilities of LIBOR
interest rates. The ranges of estimated future cash flows were
determined based on variability in estimated future cash flows
implied by cumulative loss estimates for similar instruments.
The fair values of the Maiden Lane Interests are likely to vary,
perhaps materially, from the amount estimated.
Equity
Securities Traded in Active Markets Trading and
Available for Sale
AIG maximizes the use of observable inputs and minimizes the use
of unobservable inputs when measuring fair value. Whenever
available, AIG obtains quoted prices in active markets for
identical assets at the balance sheet date to measure at fair
value marketable equity securities in its trading and available
for sale portfolios. Market price data generally is obtained
from exchange or dealer markets.
Non-Traded
Equity Investments Other Invested Assets
AIG initially estimates the fair value of equity instruments not
traded in active markets by reference to the transaction price.
This valuation is adjusted for changes in inputs and assumptions
which are corroborated by evidence such as transactions in
similar instruments, completed or pending third-party
transactions in the underlying investment or comparable
entities, subsequent rounds of financing, recapitalizations and
other transactions across the capital structure, offerings in
the equity capital markets, and changes in financial ratios or
cash flows. For equity securities that are not traded in active
markets or that are subject to transfer restrictions, valuations
are adjusted to reflect illiquidity
and/or
non-transferability and such adjustments generally are based on
available market evidence. In the absence of such evidence,
managements best estimate is used.
27
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Private
Limited Partnership and Hedge Fund Investments
Other Invested Assets
AIG initially estimates the fair value of investments in certain
private limited partnerships and certain hedge funds by
reference to the transaction price. Subsequently, AIG obtains
the fair value of these investments generally from net asset
value information provided by the general partner or manager of
the investments, the financial statements of which are generally
audited annually. AIG considers observable market data and
performs diligence procedures in validating the appropriateness
of using the net asset value as a fair value measurement.
Separate
Account Assets
Separate account assets are composed primarily of registered and
unregistered open-end mutual funds that generally trade daily
and are measured at fair value in the manner discussed above for
equity securities traded in active markets.
Freestanding
Derivatives
Derivative assets and liabilities can be exchange-traded or
traded
over-the-counter
(OTC). AIG generally values exchange-traded derivatives using
quoted prices in active markets for identical derivatives at the
balance sheet date.
OTC derivatives are valued using market transactions and other
market evidence whenever possible, including market-based inputs
to models, model calibration to market clearing transactions,
broker or dealer quotations or alternative pricing sources with
reasonable levels of price transparency. When models are used,
the selection of a particular model to value an OTC derivative
depends on the contractual terms of, and specific risks inherent
in, the instrument as well as the availability of pricing
information in the market. AIG generally uses similar models to
value similar instruments. Valuation models require a variety of
inputs, including contractual terms, market prices and rates,
yield curves, credit curves, measures of volatility, prepayment
rates and correlations of such inputs. For OTC derivatives that
trade in liquid markets, such as generic forwards, swaps and
options, model inputs can generally be corroborated by
observable market data by correlation or other means, and model
selection does not involve significant management judgment.
Certain OTC derivatives trade in less liquid markets with
limited pricing information, and the determination of fair value
for these derivatives is inherently more difficult. When AIG
does not have corroborating market evidence to support
significant model inputs and cannot verify the model to market
transactions, the transaction price is initially used as the
best estimate of fair value. Accordingly, when a pricing model
is used to value such an instrument, the model is adjusted so
the model value at inception equals the transaction price.
Subsequent to initial recognition, AIG updates valuation inputs
when corroborated by evidence such as similar market
transactions, third-party pricing services
and/or
broker or dealer quotations, or other empirical market data.
When appropriate, valuations are adjusted for various factors
such as liquidity, bid/offer spreads and credit considerations.
Such adjustments are generally based on available market
evidence. In the absence of such evidence, managements
best estimate is used.
Embedded
Policy Derivatives
The fair value of embedded policy derivatives contained in
certain variable annuity and equity-indexed annuity and life
contracts is measured based on actuarial and capital market
assumptions related to projected cash flows over the expected
lives of the contracts. These cash flow estimates primarily
include benefits and related fees assessed, when applicable, and
incorporate expectations about policyholder behavior. Estimates
of future policyholder behavior are subjective and based
primarily on AIGs historical experience. With respect to
embedded policy derivatives in AIGs variable annuity
contracts, because of the dynamic and complex nature of the
expected cash flows, risk neutral valuations are used.
Estimating the underlying cash flows for these products involves
many estimates and judgments, including those regarding expected
market rates of return, market volatility, correlations of
market index returns to funds, fund performance, discount rates
and policyholder behavior. With respect to embedded policy
derivatives in AIGs equity-indexed annuity and life
contracts, option pricing models are used to
28
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
estimate fair value, taking into account assumptions for future
equity index growth rates, volatility of the equity index,
future interest rates, and determinations on adjusting the
participation rate and the cap on equity indexed credited rates
in light of market conditions and policyholder behavior
assumptions. With the adoption of FAS 157, these
methodologies were not changed, with the exception of
incorporating an explicit risk margin to take into consideration
market participant estimates of projected cash flows and
policyholder behavior. The valuation technique used to measure
the fair value of certain variable annuity guarantees was
modified during 2008, primarily with respect to the development
of long-dated equity volatility assumptions and the discount
rates applied to certain projected benefit payments.
AIGFPs
Super Senior Credit Default Swap Portfolio
AIGFP values its CDS transactions written on the super senior
risk layers of designated pools of debt securities or loans
using internal valuation models, third-party price estimates and
market indices. The principal market was determined to be the
market in which super senior credit default swaps of this type
and size would be transacted, or have been transacted, with the
greatest volume or level of activity. AIG has determined that
the principal market participants, therefore, would consist of
other large financial institutions who participate in
sophisticated
over-the-counter
derivatives markets. The specific valuation methodologies vary
based on the nature of the referenced obligations and
availability of market prices.
The valuation of the super senior credit derivatives continues
to be challenging given the limitation on the availability of
market observable information due to the lack of trading and
price transparency in the structured finance market,
particularly during and since the second half of 2007. These
market conditions have increased the reliance on management
estimates and judgments in arriving at an estimate of fair value
for financial reporting purposes. Further, disparities in the
valuation methodologies employed by market participants and the
varying judgments reached by such participants when assessing
volatile markets have increased the likelihood that the various
parties to these instruments may arrive at significantly
different estimates as to their fair values.
AIGFPs valuation methodologies for the super senior credit
default swap portfolio have evolved in response to the
deteriorating market conditions and the lack of sufficient
market observable information. AIG has sought to calibrate the
methodologies to available market information and to review the
assumptions of the methodologies on a regular basis.
Regulatory capital portfolio: In the case of
credit default swaps written to facilitate regulatory capital
relief, AIGFP estimates the fair value of these derivatives by
considering observable market transactions. The transactions
with the most observability are the early terminations of these
transactions by counterparties. AIG expects that the
counterparties in the remaining CDS transactions will terminate
the vast majority of transactions with AIGFP within the next
9 months. AIGFP also considers other market data, to the
extent relevant and available. See also Note 7 herein.
Multi-sector CDO portfolios: AIGFP uses a
modified version of the Binomial Expansion Technique (BET) model
to value its credit default swap portfolio written on super
senior tranches of multi-sector collateralized debt obligations
(CDOs) of ABS, including maturity-shortening puts that allow the
holders of the securities issued by certain CDOs to treat the
securities as short-term eligible
2a-7
investments under the Investment Company Act of 1940
(2a-7 Puts).
The BET model was developed in 1996 by a major rating agency to
generate expected loss estimates for CDO tranches and derive a
credit rating for those tranches, and has been widely used ever
since.
AIGFP has adapted the BET model to estimate the price of the
super senior risk layer or tranche of the CDO. AIG modified the
BET model to imply default probabilities from market prices for
the underlying securities and not from rating agency
assumptions. To generate the estimate, the model uses the price
estimates for the securities comprising the portfolio of a CDO
as an input and converts those estimates to credit spreads over
current LIBOR-based interest rates. These credit spreads are
used to determine implied probabilities of default and expected
losses on the underlying securities. This data is then
aggregated and used to estimate the expected cash flows of the
super senior tranche of the CDO.
29
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Prices for the individual securities held by a CDO are obtained
in most cases from the CDO collateral managers, to the extent
available. CDO collateral managers provided market prices for
59.0 percent of the underlying securities used in the
valuation at June 30, 2009. When a price for an individual
security is not provided by a CDO collateral manager, AIGFP
derives the price through a pricing matrix using prices from CDO
collateral managers for similar securities. Matrix pricing is a
mathematical technique used principally to value debt securities
without relying exclusively on quoted prices for the specific
securities, but rather by relying on the relationship of the
security to other benchmark quoted securities. Substantially all
of the CDO collateral managers who provided prices used dealer
prices for all or part of the underlying securities, in some
cases supplemented by third-party pricing services.
The BET model also uses diversity scores, weighted average
lives, recovery rates and discount rates.
AIGFP employs a Monte Carlo simulation to assist in quantifying
the effect on the valuation of the CDO of the unique aspects of
the CDOs structure such as triggers that divert cash flows
to the most senior part of the capital structure. The Monte
Carlo simulation is used to determine whether an underlying
security defaults in a given simulation scenario and, if it
does, the securitys implied random default time and
expected loss. This information is used to project cash flow
streams and to determine the expected losses of the portfolio.
In addition to calculating an estimate of the fair value of the
super senior CDO security referenced in the credit default swaps
using its internal model, AIGFP also considers the price
estimates for the super senior CDO securities provided by third
parties, including counterparties to these transactions, to
validate the results of the model and to determine the best
available estimate of fair value. In determining the fair value
of the super senior CDO security referenced in the credit
default swaps, AIGFP uses a consistent process which considers
all available pricing data points and eliminates the use of
outlying data points. When pricing data points are within a
reasonable range an averaging technique is applied.
Corporate debt/CLO portfolios: In the case of
credit default swaps written on portfolios of investment-grade
corporate debt, AIGFP estimates the fair value of its
obligations by comparing the contractual premium of each
contract to the current market levels of the senior tranches of
comparable credit indices, the iTraxx index for European
corporate issuances and the CDX index for U.S. corporate
issuances. These indices are considered reasonable proxies for
the referenced portfolios. In addition, AIGFP compares these
valuations to third-party prices and makes adjustments as
necessary to determine the best available estimate of fair value.
AIGFP estimates the fair value of its obligations resulting from
credit default swaps written on collateralized loan obligations
(CLOs) to be equivalent to the par value less the current market
value of the referenced obligation. Accordingly, the value is
determined by obtaining third-party quotes on the underlying
super senior tranches referenced under the credit default swap
contract.
Policyholder
Contract Deposits
Policyholder contract deposits accounted for at fair value are
measured using an income approach by taking into consideration
the following factors:
|
|
|
|
|
Current policyholder account values and related surrender
charges;
|
|
|
|
The present value of estimated future cash inflows (policy fees)
and outflows (benefits and maintenance expenses) associated with
the product using risk neutral valuations, incorporating
expectations about policyholder behavior, market returns and
other factors; and
|
|
|
|
A risk margin that market participants would require for a
market return and the uncertainty inherent in the model inputs.
|
The change in fair value of these policyholder contract deposits
is recorded as Policyholder benefits and claims incurred in the
Consolidated Statement of Income (loss).
30
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Spot
commodities and Securities and spot commodities sold but not yet
purchased
Fair values of spot commodities and spot commodities sold but
not yet purchased are based on current market prices of
reference spot futures contracts traded on exchanges. Fair
values for securities sold but not yet purchased are based on
current market prices.
Other
long-term debt
When fair value accounting has been elected, the fair value of
non-structured liabilities is generally determined by using
market prices from exchange or dealer markets, when available,
or discounting expected cash flows using the appropriate
discount rate for the applicable maturity. The discount rate is
based on an implicit rate determined with the use of observable
CDS market spreads to determine the risk of non-performance for
AIG. Such instruments are generally classified in Level 2
of the fair value hierarchy as all inputs are readily
observable. AIG determines the fair value of structured
liabilities (where performance is linked to structured interest
rates, inflation or currency risks) and hybrid financial
instruments (performance linked to risks other than interest
rates, inflation or currency risks) using the appropriate
derivative valuation methodology (described above) given the
nature of the embedded risk profile. Such instruments are
classified in Level 2 or Level 3 depending on the
observability of significant inputs to the model. In addition,
adjustments are made to the valuations of both non-structured
and structured liabilities to reflect AIGs own credit
worthiness based on observable credit spreads of AIG.
Assets
and Liabilities Measured at Fair Value on a Recurring
Basis
The following table presents information about assets and
liabilities measured at fair value on a recurring basis and
indicates the level of the fair value measurement based on the
levels of the inputs used:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
|
Cash
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting(a)
|
|
|
Collateral(b)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
At June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
388
|
|
|
$
|
4,044
|
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
4,434
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
39
|
|
|
|
54,519
|
|
|
|
802
|
|
|
|
|
|
|
|
|
|
|
|
55,360
|
|
Non-U.S.
governments
|
|
|
439
|
|
|
|
72,214
|
|
|
|
628
|
|
|
|
|
|
|
|
|
|
|
|
73,281
|
|
Corporate debt
|
|
|
74
|
|
|
|
170,074
|
|
|
|
6,022
|
|
|
|
|
|
|
|
|
|
|
|
176,170
|
|
Residential mortgage-backed securities (RMBS)
|
|
|
|
|
|
|
22,412
|
|
|
|
5,637
|
|
|
|
|
|
|
|
|
|
|
|
28,049
|
|
Commercial mortgage-backed securities (CMBS)
|
|
|
|
|
|
|
9,072
|
|
|
|
2,187
|
|
|
|
|
|
|
|
|
|
|
|
11,259
|
|
Collateralized Debt Obligations/Asset Backed Securities (CDO/ABS)
|
|
|
|
|
|
|
1,859
|
|
|
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
5,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale
|
|
$
|
940
|
|
|
$
|
334,194
|
|
|
$
|
18,574
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
353,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
|
Cash
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting(a)
|
|
|
Collateral(b)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Bond trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
770
|
|
|
$
|
7,545
|
|
|
$
|
11
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,326
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111
|
|
Non-U.S.
governments
|
|
|
7
|
|
|
|
1,246
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
1,258
|
|
Corporate debt
|
|
|
|
|
|
|
6,713
|
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
6,927
|
|
RMBS
|
|
|
|
|
|
|
3,721
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
3,724
|
|
CMBS
|
|
|
|
|
|
|
1,825
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
1,862
|
|
CDO/ABS
|
|
|
|
|
|
|
4,160
|
|
|
|
4,991
|
|
|
|
|
|
|
|
|
|
|
|
9,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bond trading securities
|
|
$
|
777
|
|
|
$
|
25,321
|
|
|
$
|
5,261
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
31,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending invested collateral:(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
$
|
|
|
|
$
|
239
|
|
|
$
|
134
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
373
|
|
RMBS
|
|
|
|
|
|
|
292
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
314
|
|
CMBS
|
|
|
|
|
|
|
92
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
CDO/ABS
|
|
|
|
|
|
|
148
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities lending invested collateral
|
|
$
|
|
|
|
$
|
771
|
|
|
$
|
238
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
6,750
|
|
|
$
|
455
|
|
|
$
|
33
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,238
|
|
Preferred stocks
|
|
|
|
|
|
|
774
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
822
|
|
Mutual funds
|
|
|
1,171
|
|
|
|
57
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
$
|
7,921
|
|
|
$
|
1,286
|
|
|
$
|
82
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
$
|
1,083
|
|
|
$
|
105
|
|
|
$
|
1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,189
|
|
Mutual funds
|
|
|
11,310
|
|
|
|
699
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
12,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities trading
|
|
$
|
12,393
|
|
|
$
|
804
|
|
|
$
|
17
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other loans receivable
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99
|
|
Other invested assets(d)
|
|
|
2,222
|
|
|
|
5,099
|
|
|
|
8,418
|
|
|
|
|
|
|
|
|
|
|
|
15,739
|
|
Unrealized gain on swaps, options and forward transactions
|
|
|
100
|
|
|
|
44,994
|
|
|
|
2,193
|
|
|
|
(30,381
|
)
|
|
|
(5,667
|
)
|
|
|
11,239
|
|
Securities purchased under agreements to resell
|
|
|
|
|
|
|
4,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,481
|
|
Short-term investments
|
|
|
4,075
|
|
|
|
20,648
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
24,726
|
|
Separate account assets
|
|
|
50,550
|
|
|
|
2,002
|
|
|
|
916
|
|
|
|
|
|
|
|
|
|
|
|
53,468
|
|
Other assets
|
|
|
|
|
|
|
18
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
|
306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
78,978
|
|
|
$
|
439,717
|
|
|
$
|
35,990
|
|
|
$
|
(30,381
|
)
|
|
$
|
(5,667
|
)
|
|
$
|
518,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
|
Cash
|
|
|
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting(a)
|
|
|
Collateral(b)
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,273
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,273
|
|
Securities sold under agreements to repurchase
|
|
|
|
|
|
|
2,716
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,716
|
|
Securities and spot commodities sold but not yet purchased
|
|
|
321
|
|
|
|
921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,242
|
|
Unrealized loss on swaps, options and forward
transactions(e)
|
|
|
8
|
|
|
|
37,308
|
|
|
|
11,137
|
|
|
|
(30,381
|
)
|
|
|
(13,196
|
)
|
|
|
4,876
|
|
Trust deposits and deposits due to banks and other depositors
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
Federal Reserve Bank of New York Commercial Paper Funding
Facility
|
|
|
|
|
|
|
6,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,233
|
|
Other long-term debt
|
|
|
|
|
|
|
15,486
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
16,153
|
|
Other liabilities
|
|
|
|
|
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
329
|
|
|
$
|
65,967
|
|
|
$
|
19,077
|
|
|
$
|
(30,381
|
)
|
|
$
|
(13,196
|
)
|
|
$
|
41,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale
|
|
$
|
414
|
|
|
$
|
344,237
|
|
|
$
|
18,391
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
363,042
|
|
Bond trading securities
|
|
|
781
|
|
|
|
29,480
|
|
|
|
6,987
|
|
|
|
|
|
|
|
|
|
|
|
37,248
|
|
Securities lending invested collateral(c)
|
|
|
|
|
|
|
2,966
|
|
|
|
435
|
|
|
|
|
|
|
|
|
|
|
|
3,401
|
|
Common and preferred stock available for sale
|
|
|
7,282
|
|
|
|
1,415
|
|
|
|
111
|
|
|
|
|
|
|
|
|
|
|
|
8,808
|
|
Common and preferred stock trading
|
|
|
11,199
|
|
|
|
1,133
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
12,335
|
|
Mortgage and other loans receivable
|
|
|
|
|
|
|
131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
131
|
|
Other invested assets(d)
|
|
|
1,853
|
|
|
|
6,175
|
|
|
|
11,168
|
|
|
|
|
|
|
|
|
|
|
|
19,196
|
|
Unrealized gain on swaps, options and forward transactions
|
|
|
223
|
|
|
|
90,998
|
|
|
|
3,865
|
|
|
|
(74,217
|
)
|
|
|
(7,096
|
)
|
|
|
13,773
|
|
Securities purchased under agreements to resell
|
|
|
|
|
|
|
3,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,960
|
|
Short-term investments
|
|
|
3,247
|
|
|
|
16,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,316
|
|
Separate account assets
|
|
|
47,902
|
|
|
|
2,410
|
|
|
|
830
|
|
|
|
|
|
|
|
|
|
|
|
51,142
|
|
Other assets
|
|
|
|
|
|
|
44
|
|
|
|
325
|
|
|
|
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
72,901
|
|
|
$
|
499,018
|
|
|
$
|
42,115
|
|
|
$
|
(74,217
|
)
|
|
$
|
(7,096
|
)
|
|
$
|
532,721
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,458
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,458
|
|
Securities sold under agreements to repurchase
|
|
|
|
|
|
|
4,423
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
4,508
|
|
Securities and spot commodities sold but not yet purchased
|
|
|
1,124
|
|
|
|
1,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,693
|
|
Unrealized loss on swaps, options and forward
transactions(e)
|
|
|
1
|
|
|
|
85,255
|
|
|
|
14,435
|
|
|
|
(74,217
|
)
|
|
|
(19,236
|
)
|
|
|
6,238
|
|
Trust deposits and deposits due to banks and other depositors
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Federal Reserve Bank of New York Commercial Paper Funding
Facility
|
|
|
|
|
|
|
6,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,802
|
|
Other long-term debt
|
|
|
|
|
|
|
15,448
|
|
|
|
1,147
|
|
|
|
|
|
|
|
|
|
|
|
16,595
|
|
Other liabilities
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,125
|
|
|
$
|
114,882
|
|
|
$
|
21,125
|
|
|
$
|
(74,217
|
)
|
|
$
|
(19,236
|
)
|
|
$
|
43,679
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
(a) |
|
Represents netting of derivative exposures covered by a
qualifying master netting agreement in accordance with FASB
Interpretation (FIN) 39, Offsetting of Amounts Related to
Certain Contracts. |
|
(b) |
|
Represents cash collateral posted and received. Securities
collateral posted that is reflected in Fixed maturity securities
in the Consolidated Balance Sheet, and collateral received, not
reflected in the Consolidated Balance Sheet, amounted to
$6.4 billion and $609 million, respectively, at
June 30, 2009 and $4.2 billion and $1.6 billion,
respectively, at December 31, 2008. |
|
(c) |
|
Amounts exclude short-term investments that are carried at
cost, which approximates fair value of $99 million and
$442 million at June 30, 2009 and December 31,
2008, respectively. |
|
(d) |
|
Approximately 12 percent and 15 percent of the fair
value of the assets recorded as Level 3 relates to various
private equity, real estate, hedge fund and
fund-of-funds
investments that are consolidated by AIG at June 30, 2009
and December 31, 2008, respectively. AIGs ownership
in these funds represented 37.7 percent, or
$1.6 billion, of the Level 3 amount at June 30,
2009 and 27.6 percent, or $1.7 billion, of the
Level 3 amount at December 31, 2008. |
|
(e) |
|
Included in Level 3 is the fair value derivative
liability of $6.5 billion and $9.0 billion at
June 30, 2009 and December 31, 2008, respectively, on
the AIGFP super senior credit default swap portfolio. |
At June 30, 2009, Level 3 assets were 4.3 percent
of total assets, and Level 3 liabilities were
2.5 percent of total liabilities. At December 31,
2008, Level 3 assets were 4.9 percent of total assets,
and Level 3 liabilities were 2.6 percent of total
liabilities.
The following tables present changes during the three- and
six-month periods ended June 30, 2009 and 2008 in
Level 3 assets and liabilities measured at fair value on a
recurring basis, and the realized and unrealized gains (losses)
recorded in the Consolidated Statement of Income (Loss), during
the three- and six-month periods ended June 30, 2009 and
2008 related to the Level 3 assets and liabilities that
remained on the Consolidated Balance Sheet at June 30, 2009
and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Realized and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
|
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
(Losses) on
|
|
|
|
Balance
|
|
|
Gains (Losses)
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
Balance
|
|
|
Instruments
|
|
|
|
Beginning
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer
|
|
|
End
|
|
|
Held at
|
|
|
|
of Period(a)
|
|
|
in Income(b)
|
|
|
Loss
|
|
|
Settlements-Net
|
|
|
In (Out)
|
|
|
of Period
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(7
|
)
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
630
|
|
|
|
2
|
|
|
|
(46
|
)
|
|
|
206
|
|
|
|
10
|
|
|
|
802
|
|
|
|
|
|
Non-U.S.
governments
|
|
|
562
|
|
|
|
(2
|
)
|
|
|
37
|
|
|
|
32
|
|
|
|
(1
|
)
|
|
|
628
|
|
|
|
|
|
Corporate debt
|
|
|
5,619
|
|
|
|
(20
|
)
|
|
|
493
|
|
|
|
(281
|
)
|
|
|
211
|
|
|
|
6,022
|
|
|
|
|
|
RMBS
|
|
|
5,834
|
|
|
|
29
|
|
|
|
(19
|
)
|
|
|
(209
|
)
|
|
|
2
|
|
|
|
5,637
|
|
|
|
|
|
CMBS
|
|
|
1,562
|
|
|
|
28
|
|
|
|
(23
|
)
|
|
|
(60
|
)
|
|
|
680
|
|
|
|
2,187
|
|
|
|
|
|
CDO/ABS
|
|
|
3,246
|
|
|
|
25
|
|
|
|
153
|
|
|
|
(143
|
)
|
|
|
15
|
|
|
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale
|
|
|
17,455
|
|
|
|
62
|
|
|
|
595
|
|
|
|
(462
|
)
|
|
|
924
|
|
|
|
18,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
Non-U.S.
governments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
Corporate debt
|
|
|
214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
214
|
|
|
|
|
|
RMBS
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
1
|
|
CMBS
|
|
|
36
|
|
|
|
2
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
37
|
|
|
|
1
|
|
CDO/ABS
|
|
|
4,017
|
|
|
|
1,394
|
|
|
|
|
|
|
|
(420
|
)
|
|
|
|
|
|
|
4,991
|
|
|
|
453
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bond trading securities
|
|
|
4,280
|
|
|
|
1,397
|
|
|
|
|
|
|
|
(421
|
)
|
|
|
5
|
|
|
|
5,261
|
|
|
|
455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Realized and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
|
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
(Losses) on
|
|
|
|
Balance
|
|
|
Gains (Losses)
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
Balance
|
|
|
Instruments
|
|
|
|
Beginning
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer
|
|
|
End
|
|
|
Held at
|
|
|
|
of Period(a)
|
|
|
in Income(b)
|
|
|
Loss
|
|
|
Settlements-Net
|
|
|
In (Out)
|
|
|
of Period
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
Securities lending invested collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
307
|
|
|
|
|
|
|
|
14
|
|
|
|
(107
|
)
|
|
|
(80
|
)
|
|
|
134
|
|
|
|
|
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
22
|
|
|
|
|
|
CDO/ABS
|
|
|
91
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities lending invested collateral
|
|
|
398
|
|
|
|
|
|
|
|
28
|
|
|
|
(108
|
)
|
|
|
(80
|
)
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
45
|
|
|
|
(21
|
)
|
|
|
11
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
33
|
|
|
|
|
|
Preferred stocks
|
|
|
54
|
|
|
|
(4
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
48
|
|
|
|
|
|
Mutual funds
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
|
100
|
|
|
|
(25
|
)
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Mutual funds
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities trading
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
|
9,688
|
|
|
|
(393
|
)
|
|
|
(1,586
|
)
|
|
|
576
|
|
|
|
133
|
|
|
|
8,418
|
|
|
|
(860
|
)
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
Other assets
|
|
|
311
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
288
|
|
|
|
(8
|
)
|
Separate account assets
|
|
|
797
|
|
|
|
134
|
|
|
|
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
916
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
33,035
|
|
|
$
|
1,160
|
|
|
$
|
(954
|
)
|
|
$
|
(439
|
)
|
|
$
|
995
|
|
|
$
|
33,797
|
|
|
$
|
(279
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
(5,557
|
)
|
|
$
|
(1,656
|
)
|
|
$
|
(45
|
)
|
|
$
|
(155
|
)
|
|
$
|
140
|
|
|
$
|
(7,273
|
)
|
|
$
|
1,335
|
|
Securities sold under agreements to repurchase
|
|
|
(47
|
)
|
|
|
1
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on swaps, options and forward transactions, net
|
|
|
(11,856
|
)
|
|
|
1,016
|
|
|
|
(4
|
)
|
|
|
2,341
|
|
|
|
(441
|
)
|
|
|
(8,944
|
)
|
|
|
3,678
|
|
Other long-term debt
|
|
|
(531
|
)
|
|
|
(189
|
)
|
|
|
|
|
|
|
12
|
|
|
|
41
|
|
|
|
(667
|
)
|
|
|
242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(17,991
|
)
|
|
$
|
(828
|
)
|
|
$
|
(49
|
)
|
|
$
|
2,244
|
|
|
$
|
(260
|
)
|
|
$
|
(16,884
|
)
|
|
$
|
5,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
2
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
2
|
|
|
$
|
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
861
|
|
|
|
(13
|
)
|
|
|
(43
|
)
|
|
|
(12
|
)
|
|
|
9
|
|
|
|
802
|
|
|
|
|
|
Non-U.S.
governments
|
|
|
601
|
|
|
|
(1
|
)
|
|
|
17
|
|
|
|
23
|
|
|
|
(12
|
)
|
|
|
628
|
|
|
|
|
|
Corporate debt
|
|
|
5,872
|
|
|
|
(45
|
)
|
|
|
712
|
|
|
|
(593
|
)
|
|
|
76
|
|
|
|
6,022
|
|
|
|
|
|
RMBS
|
|
|
6,108
|
|
|
|
(538
|
)
|
|
|
472
|
|
|
|
(266
|
)
|
|
|
(139
|
)
|
|
|
5,637
|
|
|
|
|
|
CMBS
|
|
|
1,663
|
|
|
|
172
|
|
|
|
(198
|
)
|
|
|
(212
|
)
|
|
|
762
|
|
|
|
2,187
|
|
|
|
|
|
CDO/ABS
|
|
|
3,284
|
|
|
|
(412
|
)
|
|
|
66
|
|
|
|
(299
|
)
|
|
|
657
|
|
|
|
3,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale
|
|
|
18,391
|
|
|
|
(837
|
)
|
|
|
1,026
|
|
|
|
(1,359
|
)
|
|
|
1,353
|
|
|
|
18,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bond trading securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
|
17
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
4
|
|
Non-U.S.
governments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
Corporate debt
|
|
|
261
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
(65
|
)
|
|
|
49
|
|
|
|
214
|
|
|
|
(3
|
)
|
RMBS
|
|
|
8
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
(4
|
)
|
CMBS
|
|
|
45
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
37
|
|
|
|
(6
|
)
|
CDO/ABS
|
|
|
6,656
|
|
|
|
(1,114
|
)
|
|
|
|
|
|
|
(551
|
)
|
|
|
|
|
|
|
4,991
|
|
|
|
634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bond trading securities
|
|
|
6,987
|
|
|
|
(1,162
|
)
|
|
|
|
|
|
|
(618
|
)
|
|
|
54
|
|
|
|
5,261
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Realized and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
|
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
(Losses) on
|
|
|
|
Balance
|
|
|
Gains (Losses)
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
Balance
|
|
|
Instruments
|
|
|
|
Beginning
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer
|
|
|
End
|
|
|
Held at
|
|
|
|
of Period(a)
|
|
|
in Income(b)
|
|
|
Loss
|
|
|
Settlements-Net
|
|
|
In (Out)
|
|
|
of Period
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
Securities lending invested collateral:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt
|
|
|
231
|
|
|
|
|
|
|
|
6
|
|
|
|
67
|
|
|
|
(170
|
)
|
|
|
134
|
|
|
|
|
|
RMBS
|
|
|
48
|
|
|
|
|
|
|
|
5
|
|
|
|
(31
|
)
|
|
|
|
|
|
|
22
|
|
|
|
|
|
CDO/ABS
|
|
|
156
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(10
|
)
|
|
|
(39
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities lending invested collateral
|
|
|
435
|
|
|
|
|
|
|
|
(14
|
)
|
|
|
26
|
|
|
|
(209
|
)
|
|
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
55
|
|
|
|
(21
|
)
|
|
|
7
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
33
|
|
|
|
|
|
Preferred stocks
|
|
|
54
|
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
(1
|
)
|
|
|
5
|
|
|
|
48
|
|
|
|
|
|
Mutual funds
|
|
|
2
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
|
111
|
|
|
|
(27
|
)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities trading:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
Mutual funds
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities trading
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other invested assets
|
|
|
11,168
|
|
|
|
(1,327
|
)
|
|
|
(2,339
|
)
|
|
|
892
|
|
|
|
24
|
|
|
|
8,418
|
|
|
|
(1,164
|
)
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
Other assets
|
|
|
325
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
288
|
|
|
|
(8
|
)
|
Separate account assets
|
|
|
830
|
|
|
|
113
|
|
|
|
|
|
|
|
(27
|
)
|
|
|
|
|
|
|
916
|
|
|
|
114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,250
|
|
|
$
|
(3,249
|
)
|
|
$
|
(1,325
|
)
|
|
$
|
(1,115
|
)
|
|
$
|
1,236
|
|
|
$
|
33,797
|
|
|
$
|
(433
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
(5,458
|
)
|
|
$
|
(1,501
|
)
|
|
$
|
(183
|
)
|
|
$
|
(271
|
)
|
|
$
|
140
|
|
|
$
|
(7,273
|
)
|
|
$
|
1,563
|
|
Securities sold under agreements to repurchase
|
|
|
(85
|
)
|
|
|
4
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss on swaps, options and forward transactions, net
|
|
|
(10,570
|
)
|
|
|
(307
|
)
|
|
|
4
|
|
|
|
2,622
|
|
|
|
(693
|
)
|
|
|
(8,944
|
)
|
|
|
3,185
|
|
Other long-term debt
|
|
|
(1,147
|
)
|
|
|
253
|
|
|
|
|
|
|
|
134
|
|
|
|
93
|
|
|
|
(667
|
)
|
|
|
(176
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(17,260
|
)
|
|
$
|
(1,551
|
)
|
|
$
|
(179
|
)
|
|
$
|
2,566
|
|
|
$
|
(460
|
)
|
|
$
|
(16,884
|
)
|
|
$
|
4,572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale
|
|
$
|
17,492
|
|
|
$
|
(682
|
)
|
|
$
|
(56
|
)
|
|
$
|
43
|
|
|
$
|
2,055
|
|
|
$
|
18,852
|
|
|
$
|
|
|
Bond trading securities
|
|
|
3,535
|
|
|
|
(467
|
)
|
|
|
2
|
|
|
|
728
|
|
|
|
77
|
|
|
|
3,875
|
|
|
|
(354
|
)
|
Securities lending invested collateral
|
|
|
9,622
|
|
|
|
(1,346
|
)
|
|
|
908
|
|
|
|
(590
|
)
|
|
|
(105
|
)
|
|
|
8,489
|
|
|
|
|
|
Common and preferred stock available for sale
|
|
|
384
|
|
|
|
(6
|
)
|
|
|
5
|
|
|
|
(74
|
)
|
|
|
176
|
|
|
|
485
|
|
|
|
|
|
Common and preferred stock trading
|
|
|
25
|
|
|
|
(1
|
)
|
|
|
1
|
|
|
|
(13
|
)
|
|
|
(7
|
)
|
|
|
5
|
|
|
|
|
|
Mortgage and other loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
Other invested assets
|
|
|
11,348
|
|
|
|
(153
|
)
|
|
|
70
|
|
|
|
533
|
|
|
|
70
|
|
|
|
11,868
|
|
|
|
166
|
|
Other assets
|
|
|
337
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
334
|
|
|
|
(6
|
)
|
Separate account assets
|
|
|
1,065
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
116
|
|
|
|
|
|
|
|
1,178
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
43,808
|
|
|
$
|
(2,664
|
)
|
|
$
|
930
|
|
|
$
|
746
|
|
|
$
|
2,270
|
|
|
$
|
45,090
|
|
|
$
|
(198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
(4,118
|
)
|
|
$
|
129
|
|
|
$
|
13
|
|
|
$
|
(203
|
)
|
|
$
|
|
|
|
$
|
(4,179
|
)
|
|
$
|
62
|
|
Securities sold under agreements to repurchase
|
|
|
(220
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(39
|
)
|
|
|
222
|
|
|
|
(40
|
)
|
|
|
1
|
|
Unrealized loss on swaps, options and forward transactions, net
|
|
|
(20,860
|
)
|
|
|
(5,679
|
)
|
|
|
|
|
|
|
(240
|
)
|
|
|
105
|
|
|
|
(26,674
|
)
|
|
|
(5,496
|
)
|
Other long-term debt
|
|
|
(2,838
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
182
|
|
|
|
(8
|
)
|
|
|
(2,689
|
)
|
|
|
(12
|
)
|
Other liabilities
|
|
|
(74
|
)
|
|
|
32
|
|
|
|
(1
|
)
|
|
|
17
|
|
|
|
1
|
|
|
|
(25
|
)
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(28,110
|
)
|
|
$
|
(5,546
|
)
|
|
$
|
12
|
|
|
$
|
(283
|
)
|
|
$
|
320
|
|
|
$
|
(33,607
|
)
|
|
$
|
(5,393
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
Realized and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains
|
|
|
|
|
|
|
Unrealized
|
|
|
Accumulated
|
|
|
Purchases,
|
|
|
|
|
|
|
|
|
(Losses) on
|
|
|
|
Balance
|
|
|
Gains (Losses)
|
|
|
Other
|
|
|
Sales,
|
|
|
|
|
|
Balance
|
|
|
Instruments
|
|
|
|
Beginning
|
|
|
Included
|
|
|
Comprehensive
|
|
|
Issuances and
|
|
|
Transfer
|
|
|
End
|
|
|
Held at
|
|
|
|
of Period(a)
|
|
|
in Income(b)
|
|
|
Loss
|
|
|
Settlements-Net
|
|
|
In (Out)
|
|
|
of Period
|
|
|
End of Period
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale
|
|
$
|
19,071
|
|
|
$
|
(1,447
|
)
|
|
$
|
(542
|
)
|
|
$
|
(142
|
)
|
|
$
|
1,912
|
|
|
$
|
18,852
|
|
|
$
|
|
|
Bond trading securities
|
|
|
4,563
|
|
|
|
(1,453
|
)
|
|
|
2
|
|
|
|
717
|
|
|
|
46
|
|
|
|
3,875
|
|
|
|
(1,243
|
)
|
Securities lending invested collateral
|
|
|
11,353
|
|
|
|
(3,138
|
)
|
|
|
1,087
|
|
|
|
(818
|
)
|
|
|
5
|
|
|
|
8,489
|
|
|
|
|
|
Common and preferred stock available for sale
|
|
|
359
|
|
|
|
(7
|
)
|
|
|
6
|
|
|
|
(56
|
)
|
|
|
183
|
|
|
|
485
|
|
|
|
|
|
Common and preferred stock trading
|
|
|
30
|
|
|
|
(1
|
)
|
|
|
2
|
|
|
|
(19
|
)
|
|
|
(7
|
)
|
|
|
5
|
|
|
|
|
|
Mortgage and other loans receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
Other invested assets
|
|
|
10,373
|
|
|
|
192
|
|
|
|
137
|
|
|
|
1,148
|
|
|
|
18
|
|
|
|
11,868
|
|
|
|
818
|
|
Other assets
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
193
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
Separate account assets
|
|
|
1,003
|
|
|
|
27
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
1,178
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
46,893
|
|
|
$
|
(5,827
|
)
|
|
$
|
692
|
|
|
$
|
1,171
|
|
|
$
|
2,161
|
|
|
$
|
45,090
|
|
|
$
|
(398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits
|
|
$
|
(3,674
|
)
|
|
$
|
(57
|
)
|
|
$
|
(51
|
)
|
|
$
|
(397
|
)
|
|
$
|
|
|
|
$
|
(4,179
|
)
|
|
$
|
(221
|
)
|
Securities sold under agreements to repurchase
|
|
|
(208
|
)
|
|
|
(20
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
222
|
|
|
|
(40
|
)
|
|
|
1
|
|
Unrealized loss on swaps, options and forward transactions, net
|
|
|
(11,718
|
)
|
|
|
(14,562
|
)
|
|
|
|
|
|
|
(429
|
)
|
|
|
35
|
|
|
|
(26,674
|
)
|
|
|
(14,693
|
)
|
Other long-term debt
|
|
|
(3,578
|
)
|
|
|
90
|
|
|
|
|
|
|
|
638
|
|
|
|
161
|
|
|
|
(2,689
|
)
|
|
|
|
|
Other liabilities
|
|
|
(503
|
)
|
|
|
(55
|
)
|
|
|
|
|
|
|
532
|
|
|
|
1
|
|
|
|
(25
|
)
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(19,681
|
)
|
|
$
|
(14,604
|
)
|
|
$
|
(51
|
)
|
|
$
|
310
|
|
|
$
|
419
|
|
|
$
|
(33,607
|
)
|
|
$
|
(14,885
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total Level 3 derivative exposures have been netted on
these tables for presentation purposes only. |
|
(b) |
|
Net realized and unrealized gains and losses shown above are
reported in the Consolidated Statement of Income (Loss)
primarily as follows: |
|
|
|
Major Category of Assets/Liabilities
|
|
Consolidated Statement of Income (Loss) Line Items
|
|
Bonds available for sale
|
|
Net realized capital gains (losses)
|
Bond trading securities
|
|
Net investment income
|
|
|
Other income
|
Other invested assets
|
|
Net realized capital gains (losses)
|
|
|
Other income
|
Policyholder contract deposits
|
|
Policyholder benefits and claims incurred
|
|
|
Net realized capital gains (losses)
|
Unrealized loss on swaps, options and forward transactions, net
|
|
Unrealized market valuation gains (losses) on AIGFP super
senior credit default swap portfolio
|
|
|
Net realized capital gains (losses)
|
|
|
Other income
|
Both observable and unobservable inputs may be used to determine
the fair values of positions classified in Level 3 in the
tables above. As a result, the unrealized gains (losses) on
instruments held at June 30, 2009 and 2008 may include
changes in fair value that were attributable to both observable
(e.g., changes in market interest rates) and unobservable inputs
(e.g., changes in unobservable long-dated volatilities).
AIG uses various hedging techniques to manage risks associated
with certain positions, including those classified within
Level 3. Such techniques may include the purchase or sale
of financial instruments that are classified within Level 1
and/or
Level 2. As a result, the realized and unrealized gains
(losses) for assets and
37
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
liabilities classified within Level 3 presented in the
table above do not reflect the related realized or unrealized
gains (losses) on hedging instruments that are classified within
Level 1
and/or
Level 2.
Changes in the fair value of separate and variable account
assets are completely offset in the Consolidated Statement of
Income (Loss) by changes in separate and variable account
liabilities, which are not carried at fair value and therefore
not included in the tables above.
Fair
Value Measurements on a Non-Recurring Basis
AIG also measures the fair value of certain assets on a
non-recurring basis, generally quarterly, annually, or when
events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. These assets
include cost and equity-method investments, life settlement
contracts, flight equipment primarily under operating leases,
collateral securing foreclosed loans and real estate and other
fixed assets, goodwill, and other intangible assets. AIG uses a
variety of techniques to measure the fair value of these assets
when appropriate, as described below:
|
|
|
|
|
Cost and Equity-Method Investments: When AIG
determines that the carrying value of these assets may not be
recoverable, AIG records the assets at fair value with the loss
recognized in income. In such cases, AIG measures the fair value
of these assets using the techniques discussed in Fair Value
Measurements on a Recurring Basis Fair Value
Hierarchy, above, for fixed maturities and equity securities.
|
|
|
|
Life Settlement Contracts: AIG measures the
fair value of individual life settlement contracts (which are
included in other invested assets) whenever the carrying value
plus the undiscounted future costs that are expected to be
incurred to keep the life settlement contract in force exceed
the expected proceeds from the contract. In those situations,
the fair value is determined on a discounted cash flow basis,
incorporating current life expectancy assumptions. The discount
rate incorporates current information about market interest
rates, the credit exposure to the insurance company that issued
the life settlement contract and AIGs estimate of the risk
margin an investor in the contracts would require.
|
|
|
|
Flight Equipment Primarily Under Operating
Leases: When AIG determines the carrying value of
its commercial aircraft may not be recoverable, AIG records the
aircraft at fair value with the loss recognized in income. AIG
measures the fair value of its commercial aircraft using an
income approach based on the present value of all cash flows
from existing and projected lease payments (based on historical
experience and current expectations regarding market
participants) including net contingent rentals for the period
extending to the end of the aircrafts economic life in its
highest and best use configuration, plus its disposition value.
|
|
|
|
Collateral Securing Foreclosed Loans and Real Estate and
Other Fixed Assets: When AIG takes collateral in connection
with foreclosed loans, AIG generally bases its estimate of fair
value on the price that would be received in a current
transaction to sell the asset by itself, by reference to
observable transactions for similar assets.
|
|
|
|
Goodwill: AIG tests goodwill annually for
impairment or more frequently whenever events or changes in
circumstances indicate the carrying amount of goodwill may not
be recoverable. When AIG determines goodwill may be impaired,
AIG uses techniques including market-based earning multiples of
peer companies, discounted expected future cash flows,
appraisals, or, in the case of reporting units being considered
for sale, third-party indications of fair value of the reporting
unit, if available, to determine the amount of any impairment.
|
|
|
|
Long-Lived Assets: AIG tests its long-lived
assets for impairment whenever events or changes in
circumstances indicate the carrying amount of a long-lived asset
may not be recoverable. AIG measures the fair value of
long-lived assets based on an in-use premise that considers the
same factors used to estimate the fair value of its real estate
and other fixed assets under an in-use premise discussed above.
|
|
|
|
Finance Receivables Held for Sale:
|
38
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
Originated as held for sale AIG determines
the fair value of finance receivables originated as held for
sale by reference to available market indicators such as current
investor yield requirements, outstanding forward sale
commitments, or negotiations with prospective purchasers, if any.
|
|
|
|
Originated as held for investment AIG determines the
fair value of finance receivables originated as held for
investment based on negotiations with prospective purchasers, if
any, or by using projected cash flows discounted at the weighted
average interest rates offered in the marketplace for similar
finance receivables. Cash flows are projected based on
contractual payment terms, adjusted for delinquencies and
estimates of prepayments and credit-related losses.
|
Assets measured at fair value on a non-recurring basis on
which impairment charges were recorded, and the related
impairment charges, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Assets at Fair Value
|
|
|
Ended
|
|
|
Ended
|
|
|
|
Non-Recurring Basis
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
At June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
45
|
|
Real estate owned
|
|
|
|
|
|
|
|
|
|
|
3,278
|
|
|
|
3,278
|
|
|
|
341
|
|
|
|
22
|
|
|
|
499
|
|
|
|
22
|
|
Finance receivables
|
|
|
|
|
|
|
|
|
|
|
754
|
|
|
|
754
|
|
|
|
79
|
|
|
|
15
|
|
|
|
79
|
|
|
|
15
|
|
Other investments
|
|
|
|
|
|
|
|
|
|
|
716
|
|
|
|
716
|
|
|
|
77
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
Aircraft
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
|
|
16
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
108
|
|
|
|
187
|
|
|
|
295
|
|
|
|
39
|
|
|
|
13
|
|
|
|
111
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
108
|
|
|
$
|
4,959
|
|
|
$
|
5,067
|
|
|
$
|
552
|
|
|
$
|
50
|
|
|
$
|
1,074
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,379
|
|
|
$
|
1,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other investments
|
|
|
15
|
|
|
|
|
|
|
|
3,122
|
|
|
|
3,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
29
|
|
|
|
1,160
|
|
|
|
1,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15
|
|
|
$
|
29
|
|
|
$
|
5,661
|
|
|
$
|
5,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During 2009, AIG recognized impairment charges primarily
attributable to certain investment real estate and other
long-lived assets, which were included in Other income.
Fair
Value Option
FAS 159 permits a company to choose to measure at fair
value many financial instruments and certain other assets and
liabilities that are not required to be measured at fair value.
Subsequent changes in fair value for designated items are
required to be reported in income. Unrealized gains and losses
on financial instruments in AIGs insurance businesses and
in AIGFP for which the fair value option was elected under
FAS 159 are classified in Policyholder benefit and claims
incurred and in Other income, respectively, in the Consolidated
Statement of Income (Loss).
39
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The following table presents the gains or losses recorded
during the three- and six-month periods ended June 30, 2009
and 2008 related to the eligible instruments for which AIG
elected the fair value option:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Mortgage and other loans receivable
|
|
$
|
18
|
|
|
$
|
11
|
|
|
$
|
(29
|
)
|
|
$
|
79
|
|
Trading securities
|
|
|
1,402
|
|
|
|
(718
|
)
|
|
|
(269
|
)
|
|
|
(1,151
|
)
|
Trading ML II and ML III
|
|
|
885
|
|
|
|
|
|
|
|
(1,316
|
)
|
|
|
|
|
Securities purchased under agreements to resell
|
|
|
7
|
|
|
|
307
|
|
|
|
(9
|
)
|
|
|
575
|
|
Other invested assets
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
(24
|
)
|
|
|
12
|
|
Short-term investments
|
|
|
2
|
|
|
|
43
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits(a)
|
|
|
(543
|
)
|
|
|
3
|
|
|
|
(591
|
)
|
|
|
118
|
|
Securities sold under agreements to repurchase
|
|
|
(100
|
)
|
|
|
(120
|
)
|
|
|
21
|
|
|
|
(416
|
)
|
Securities and spot commodities sold but not yet purchased
|
|
|
(48
|
)
|
|
|
(34
|
)
|
|
|
(82
|
)
|
|
|
(13
|
)
|
Trust deposits and deposits due to banks and other depositors
|
|
|
(54
|
)
|
|
|
4
|
|
|
|
(43
|
)
|
|
|
(11
|
)
|
Debt
|
|
|
468
|
|
|
|
582
|
|
|
|
3,055
|
|
|
|
(391
|
)
|
Other liabilities
|
|
|
(251
|
)
|
|
|
(286
|
)
|
|
|
(113
|
)
|
|
|
(319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gain (loss)(b)
|
|
$
|
1,784
|
|
|
$
|
(206
|
)
|
|
$
|
600
|
|
|
$
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
AIG elected to apply the fair value option to certain single
premium variable life products in Japan and an investment-linked
life insurance product sold principally in Asia, both classified
within policyholder contract deposits in the Consolidated
Balance Sheet. AIG elected the fair value option for these
liabilities to more closely align its accounting with the
economics of its transactions. For the investment-linked product
sold principally in Asia, the election more effectively aligns
changes in the fair value of assets with a commensurate change
in the fair value of policyholders liabilities. For the
single premium life products in Japan, the fair value option
election allows AIG to economically hedge the inherent market
risks associated with this business in an efficient and
effective manner through the use of derivative instruments. The
hedging program, which was completely implemented in the third
quarter of 2008, results in an accounting presentation for this
business that more closely reflects the underlying economics and
the way the business is managed, with the change in the fair
value of derivatives and underlying assets largely offsetting
the change in fair value of the policy liabilities. AIG did not
elect the fair value option for other liabilities classified in
policyholder contract deposits because other contracts do not
share the same contract features that created the disparity
between the accounting presentation and the economic
performance. |
|
(b) |
|
Not included in the table above were gains of
$2.5 billion and losses of $6.3 billion for the
three-month periods ended June 30, 2009 and 2008,
respectively, and gains of $3.2 billion and losses of
$14.5 billion for the six-month periods ended June 30,
2009 and 2008, respectively, that were primarily due to changes
in the fair value of derivatives, trading securities and certain
other invested assets for which the fair value option under
FAS 159 was not elected. Included in these amounts were
unrealized market valuation gains of $636 million and
losses of $5.6 billion for the three-month periods ended
June 30, 2009 and 2008, respectively, and gains of
$184 million and losses of $14.7 billion for the
six-month periods ended June 30, 2009 and 2008,
respectively, related to AIGFPs super senior credit
default swap portfolio. |
Interest income and expense and dividend income on assets and
liabilities elected under the fair value option are recognized
and classified in the Consolidated Statement of Income (Loss)
depending on the nature of the instrument and related market
conventions. For AIGFP related activity, interest, dividend
income, and interest
40
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
expense are included in other income. Otherwise, interest and
dividend income are included in net investment income in the
Consolidated Statement of Income (Loss). See Note 1(a) to
the Consolidated Financial Statements in the 2008 Financial
Statements for additional information about AIGs policies
for recognition, measurement, and disclosure of interest and
dividend income and interest expense.
During the three- and six-month periods ended June 30,
2009, AIG recognized a loss of $576 million and a gain of
$624 million, respectively, and during the three- and
six-month periods ended June 30, 2008, AIG recognized a
loss of $169 million and a gain of $1.3 billion,
respectively, attributable to the observable effect of changes
in credit spreads on AIGs own liabilities for which the
fair value option was elected. AIG calculates the effect of
these credit spread changes using discounted cash flow
techniques that incorporate current market interest rates,
AIGs observable credit spreads on these liabilities and
other factors that mitigate the risk of nonperformance such as
collateral posted.
The following table presents the difference between fair
values and the aggregate contractual principal amounts of
mortgage and other loans receivable and long-term borrowings,
for which the fair value option was elected:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
|
At December 31, 2008
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
|
|
|
|
Fair
|
|
|
Principal
|
|
|
|
|
|
Fair
|
|
|
Principal
|
|
|
|
|
|
|
Value
|
|
|
Amount
|
|
|
Difference
|
|
|
Value
|
|
|
Amount
|
|
|
Difference
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other loans receivable
|
|
$
|
99
|
|
|
$
|
248
|
|
|
$
|
(149
|
)
|
|
$
|
131
|
|
|
$
|
244
|
|
|
$
|
(113
|
)
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
14,623
|
|
|
$
|
13,584
|
|
|
$
|
1,039
|
|
|
$
|
21,285
|
|
|
$
|
16,827
|
|
|
$
|
4,458
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009 and December 31, 2008, there were no
significant mortgage or other loans receivable for which the
fair value option was elected that were 90 days or more
past due and in non-accrual status.
Fair
Value Information about Financial Instruments Not Measured at
Fair Value
Commencing in the second quarter of 2009, FAS 107, as
amended by FSP
FAS 107-1,
requires quarterly disclosure of fair value information about
financial instruments for which it is practicable to estimate
such fair value. FAS 107 excludes certain financial
instruments, including those related to insurance contracts and
lease contracts.
Information regarding the estimation of fair value for financial
instruments not carried at fair value is discussed below:
|
|
|
|
|
Mortgage and other loans receivable: Fair
values of loans on real estate and collateral loans were
estimated for disclosure purposes using discounted cash flow
calculations based upon discount rates that AIG believes market
participants would use in determining the price they would pay
for such assets. For certain loans, AIGs current
incremental lending rates for similar type loans is used as the
discount rate, as it is believed that this rate approximates the
rates market participants would use. The fair values of policy
loans were not estimated as AIG believes it would have to expend
excessive costs for the benefits derived.
|
|
|
|
Finance receivables: Fair values of net
finance receivables, less allowance for finance receivable
losses, were estimated for disclosure purposes using projected
cash flows, computed by category of finance receivable,
discounted at the weighted average interest rates offered in the
marketplace for similar finance receivables. Cash flows were
projected based on contractual payment terms adjusted for
delinquencies and estimates of prepayments and credit-related
losses. The fair value estimates do not reflect the underlying
customer relationships or the related distribution systems.
|
41
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
Securities lending payable: The contract
values of securities lending payable approximate fair value as
these obligations are short-term in nature.
|
|
|
|
Cash, short-term investments, trade receivables, trade
payables, securities purchased (sold) under agreements to resell
(repurchase), and commercial paper and other short-term
debt: The carrying values of these assets and
liabilities approximate fair values because of the relatively
short period of time between origination and expected
realization.
|
|
|
|
Policyholder contract deposits associated with
investment-type contracts: Fair values for
policyholder contract deposits associated with investment-type
contracts not accounted for at fair value were estimated for
disclosure purposes using discounted cash flow calculations
based upon interest rates currently being offered for similar
contracts with maturities consistent with those remaining for
the contracts being valued. Where no similar contracts are being
offered, the discount rate is the appropriate tenor swap rates
(if available) or current risk-free interest rates consistent
with the currency in which the cash flows are denominated.
|
|
|
|
Trust deposits and deposits due to banks and other
depositors: The fair values of certificates of
deposit which mature in more than one year are estimated for
disclosure purposes using discounted cash flow calculations
based upon interest rates currently offered for deposits with
similar maturities. For demand deposits and certificates of
deposit which mature in less than one year, carrying values
approximate fair value.
|
|
|
|
Long-term debt: Fair values of these
obligations were determined for disclosure purposes by reference
to quoted market prices, where available and appropriate, or
discounted cash flow calculations based upon AIGs current
market-observable implicit-credit-spread rates for similar types
of borrowings with maturities consistent with those remaining
for the debt being valued.
|
42
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The following table presents the carrying value and estimated
fair value of AIGs financial instruments as required by
FAS 107:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
$
|
386,175
|
|
|
$
|
386,175
|
|
|
$
|
404,134
|
|
|
$
|
404,134
|
|
Equity securities
|
|
|
22,503
|
|
|
|
22,503
|
|
|
|
21,143
|
|
|
|
21,143
|
|
Mortgage and other loans receivable
|
|
|
32,380
|
|
|
|
30,300
|
|
|
|
34,687
|
|
|
|
35,056
|
|
Finance receivables, net of allowance
|
|
|
25,342
|
|
|
|
22,217
|
|
|
|
30,949
|
|
|
|
28,731
|
|
Other invested
assets*
|
|
|
42,048
|
|
|
|
42,681
|
|
|
|
50,381
|
|
|
|
52,094
|
|
Securities purchased under agreements to resell
|
|
|
4,481
|
|
|
|
4,481
|
|
|
|
3,960
|
|
|
|
3,960
|
|
Short-term investments
|
|
|
59,336
|
|
|
|
59,336
|
|
|
|
46,666
|
|
|
|
46,666
|
|
Cash
|
|
|
5,802
|
|
|
|
5,802
|
|
|
|
8,642
|
|
|
|
8,642
|
|
Trade receivables
|
|
|
817
|
|
|
|
817
|
|
|
|
1,901
|
|
|
|
1,901
|
|
Unrealized gain on swaps, options and forward transactions
|
|
|
11,239
|
|
|
|
11,239
|
|
|
|
13,773
|
|
|
|
13,773
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder contract deposits associated with investment-type
contracts
|
|
|
172,688
|
|
|
|
174,238
|
|
|
|
179,478
|
|
|
|
176,783
|
|
Securities sold under agreements to repurchase
|
|
|
3,191
|
|
|
|
3,191
|
|
|
|
5,262
|
|
|
|
5,262
|
|
Trade payables
|
|
|
780
|
|
|
|
780
|
|
|
|
977
|
|
|
|
977
|
|
Securities and spot commodities sold but not yet purchased
|
|
|
1,242
|
|
|
|
1,242
|
|
|
|
2,693
|
|
|
|
2,693
|
|
Unrealized loss on swaps, options and forward transactions
|
|
|
4,876
|
|
|
|
4,876
|
|
|
|
6,238
|
|
|
|
6,238
|
|
Trust deposits and deposits due to banks and other depositors
|
|
|
2,687
|
|
|
|
2,687
|
|
|
|
4,498
|
|
|
|
4,469
|
|
Commercial paper and other short-term debt
|
|
|
197
|
|
|
|
197
|
|
|
|
613
|
|
|
|
613
|
|
Federal Reserve Bank of New York Commercial Paper Funding
Facility
|
|
|
11,152
|
|
|
|
11,152
|
|
|
|
15,105
|
|
|
|
15,105
|
|
Federal Reserve Bank of New York credit facility
|
|
|
44,816
|
|
|
|
41,097
|
|
|
|
40,431
|
|
|
|
40,708
|
|
Other long-term debt
|
|
|
123,528
|
|
|
|
92,316
|
|
|
|
137,054
|
|
|
|
101,467
|
|
Securities lending payable
|
|
|
1,533
|
|
|
|
1,533
|
|
|
|
2,879
|
|
|
|
2,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Excludes aircraft asset investments held by non-Financial
Services subsidiaries. |
43
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The amortized cost or cost and fair value of AIGs
available for sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-
|
|
|
|
Amortized
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
Temporary
|
|
|
|
Cost or
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Impairments
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
in AOCI(a)
|
|
|
|
(In millions)
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
4,074
|
|
|
$
|
154
|
|
|
$
|
(199
|
)
|
|
$
|
4,029
|
|
|
$
|
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
54,808
|
|
|
|
1,412
|
|
|
|
(968
|
)
|
|
|
55,252
|
|
|
|
|
|
Non-U.S.
governments
|
|
|
69,735
|
|
|
|
4,766
|
|
|
|
(889
|
)
|
|
|
73,612
|
|
|
|
(6
|
)
|
Corporate debt
|
|
|
183,042
|
|
|
|
5,409
|
|
|
|
(11,721
|
)(b)
|
|
|
176,730
|
|
|
|
99
|
|
Mortgage-backed, asset-backed and collateralized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
34,872
|
|
|
|
940
|
|
|
|
(7,054
|
)
|
|
|
28,758
|
|
|
|
(2,801
|
)
|
CMBS
|
|
|
19,002
|
|
|
|
66
|
|
|
|
(8,048
|
)
|
|
|
11,020
|
|
|
|
(827
|
)
|
CDO/ABS
|
|
|
8,182
|
|
|
|
141
|
|
|
|
(3,007
|
)
|
|
|
5,316
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale(c)
|
|
|
373,715
|
|
|
|
12,888
|
|
|
|
(31,886
|
)
|
|
|
354,717
|
|
|
|
(3,874
|
)
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
5,067
|
|
|
|
2,268
|
|
|
|
(98
|
)
|
|
|
7,237
|
|
|
|
|
|
Preferred stocks
|
|
|
853
|
|
|
|
50
|
|
|
|
(81
|
)
|
|
|
822
|
|
|
|
|
|
Mutual funds
|
|
|
1,110
|
|
|
|
148
|
|
|
|
(28
|
)
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
|
7,030
|
|
|
|
2,466
|
|
|
|
(207
|
)
|
|
|
9,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
380,745
|
|
|
$
|
15,354
|
|
|
$
|
(32,093
|
)
|
|
$
|
364,006
|
|
|
$
|
(3,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
4,433
|
|
|
$
|
331
|
|
|
$
|
(59
|
)
|
|
$
|
4,705
|
|
|
|
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
62,718
|
|
|
|
1,150
|
|
|
|
(2,611
|
)
|
|
|
61,257
|
|
|
|
|
|
Non-U.S.
governments
|
|
|
62,176
|
|
|
|
6,560
|
|
|
|
(1,199
|
)
|
|
|
67,537
|
|
|
|
|
|
Corporate debt
|
|
|
194,481
|
|
|
|
4,661
|
|
|
|
(13,523
|
)(b)
|
|
|
185,619
|
|
|
|
|
|
Mortgage-backed, asset-backed and collateralized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
|
32,092
|
|
|
|
645
|
|
|
|
(2,985
|
)
|
|
|
29,752
|
|
|
|
|
|
CMBS
|
|
|
14,205
|
|
|
|
126
|
|
|
|
(3,105
|
)
|
|
|
11,226
|
|
|
|
|
|
CDO/ABS
|
|
|
6,741
|
|
|
|
233
|
|
|
|
(843
|
)
|
|
|
6,131
|
|
|
|
|
|
AIGFP(d)
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale(c)
|
|
|
377,063
|
|
|
|
13,706
|
|
|
|
(24,325
|
)
|
|
|
366,444
|
|
|
|
|
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
5,545
|
|
|
|
1,035
|
|
|
|
(512
|
)
|
|
|
6,068
|
|
|
|
|
|
Preferred stocks
|
|
|
1,349
|
|
|
|
33
|
|
|
|
(138
|
)
|
|
|
1,244
|
|
|
|
|
|
Mutual funds
|
|
|
1,487
|
|
|
|
78
|
|
|
|
(69
|
)
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
|
8,381
|
|
|
|
1,146
|
|
|
|
(719
|
)
|
|
|
8,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
385,444
|
|
|
$
|
14,852
|
|
|
$
|
(25,044
|
)
|
|
$
|
375,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the amount of
other-than-temporary
impairment losses in Accumulated other comprehensive loss
(AOCI), which, starting April 1, 2009, were not included in
earnings under FSP
FAS 115-2.
Amount includes |
44
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
unrealized gains and losses on impaired securities relating
to changes in the value of such securities subsequent to the
impairment measurement date. |
|
(b) |
|
Financial institutions represent approximately
53 percent and 57 percent of the total gross
unrealized losses at June 30, 2009 and December 31,
2008, respectively. |
|
(c) |
|
At June 30, 2009 and December 31, 2008, bonds
available for sale held by AIG that were below investment grade
or not rated totaled $23.4 billion and $19.4 billion,
respectively. At June 30, 2009 and December 31, 2008,
fixed maturity securities reported on the Consolidated Balance
Sheet include $99 million and $442 million,
respectively, of short-term investments included in Securities
lending invested collateral. |
|
(d) |
|
The amounts represent securities for which AIGFP has not
elected the fair value option. At June 30, 2009, a total of
$151 million in securities for AIGFP were included in the
respective asset class categories. Historical amounts were not
revised. |
Unrealized
losses
The following table summarizes the fair value and gross
unrealized losses on AIGs available for sale securities,
aggregated by major investment category and length of time that
individual securities have been in a continuous unrealized loss
position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Less
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In millions)
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
997
|
|
|
$
|
193
|
|
|
$
|
40
|
|
|
$
|
6
|
|
|
$
|
1,037
|
|
|
$
|
199
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
9,218
|
|
|
|
243
|
|
|
|
10,248
|
|
|
|
725
|
|
|
|
19,466
|
|
|
|
968
|
|
Non-U.S.
governments
|
|
|
13,223
|
|
|
|
598
|
|
|
|
2,657
|
|
|
|
291
|
|
|
|
15,880
|
|
|
|
889
|
|
Corporate debt
|
|
|
44,771
|
|
|
|
4,755
|
|
|
|
43,836
|
|
|
|
6,966
|
|
|
|
88,607
|
|
|
|
11,721
|
|
RMBS
|
|
|
7,284
|
|
|
|
5,350
|
|
|
|
6,158
|
|
|
|
1,704
|
|
|
|
13,442
|
|
|
|
7,054
|
|
CMBS
|
|
|
4,481
|
|
|
|
5,643
|
|
|
|
5,559
|
|
|
|
2,405
|
|
|
|
10,040
|
|
|
|
8,048
|
|
CDO/ABS
|
|
|
3,256
|
|
|
|
2,670
|
|
|
|
1,229
|
|
|
|
337
|
|
|
|
4,485
|
|
|
|
3,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale
|
|
|
83,230
|
|
|
|
19,452
|
|
|
|
69,727
|
|
|
|
12,434
|
|
|
|
152,957
|
|
|
|
31,886
|
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
1,111
|
|
|
|
98
|
|
|
|
|
|
|
|
|
|
|
|
1,111
|
|
|
|
98
|
|
Preferred stocks
|
|
|
359
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
|
|
81
|
|
Mutual funds
|
|
|
282
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
|
1,752
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
1,752
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
84,982
|
|
|
$
|
19,659
|
|
|
$
|
69,727
|
|
|
$
|
12,434
|
|
|
$
|
154,709
|
|
|
$
|
32,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
45
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 Months or Less
|
|
|
More than 12 Months
|
|
|
Total
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
Value
|
|
|
Losses
|
|
|
|
(In millions)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and government sponsored entities
|
|
$
|
629
|
|
|
$
|
35
|
|
|
$
|
616
|
|
|
$
|
24
|
|
|
$
|
1,245
|
|
|
$
|
59
|
|
Obligations of states, municipalities and political subdivisions
|
|
|
5,416
|
|
|
|
2,310
|
|
|
|
2,111
|
|
|
|
301
|
|
|
|
7,527
|
|
|
|
2,611
|
|
Non-U.S.
governments
|
|
|
26,914
|
|
|
|
309
|
|
|
|
4,812
|
|
|
|
890
|
|
|
|
31,726
|
|
|
|
1,199
|
|
Corporate debt
|
|
|
79,942
|
|
|
|
7,979
|
|
|
|
29,570
|
|
|
|
5,544
|
|
|
|
109,512
|
|
|
|
13,523
|
|
RMBS
|
|
|
7,928
|
|
|
|
1,790
|
|
|
|
4,745
|
|
|
|
1,195
|
|
|
|
12,673
|
|
|
|
2,985
|
|
CMBS
|
|
|
3,947
|
|
|
|
1,362
|
|
|
|
3,537
|
|
|
|
1,743
|
|
|
|
7,484
|
|
|
|
3,105
|
|
CDO/ABS
|
|
|
3,389
|
|
|
|
546
|
|
|
|
927
|
|
|
|
297
|
|
|
|
4,316
|
|
|
|
843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds available for sale
|
|
|
128,165
|
|
|
|
14,331
|
|
|
|
46,318
|
|
|
|
9,994
|
|
|
|
174,483
|
|
|
|
24,325
|
|
Equity securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
1,951
|
|
|
|
512
|
|
|
|
|
|
|
|
|
|
|
|
1,951
|
|
|
|
512
|
|
Preferred stocks
|
|
|
747
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
747
|
|
|
|
138
|
|
Mutual funds
|
|
|
332
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities available for sale
|
|
|
3,030
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
3,030
|
|
|
|
719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
131,195
|
|
|
$
|
15,050
|
|
|
$
|
46,318
|
|
|
$
|
9,994
|
|
|
$
|
177,513
|
|
|
$
|
25,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009, AIG held 19,432 and 81,558 of individual
fixed maturity and equity securities, respectively, that were in
an unrealized loss position, of which 8,326 individual
securities were in a continuous unrealized loss position for
longer than 12 months.
AIG did not recognize in earnings the unrealized losses on these
fixed maturity securities at June 30, 2009, because
management neither intends to sell the securities nor does it
believe that it is more likely than not that it will be required
to sell these securities before recovery of their amortized cost
basis. Furthermore, management expects to recover the entire
amortized cost basis of these securities (that is, they are not
credit impaired). In performing this evaluation, management
considered the recovery periods for securities in previous
periods of broad market declines. For fixed maturity securities
with significant declines, management performed extended
fundamental credit analysis on a
security-by-security
basis, which included consideration of credit enhancements,
expected defaults on underlying collateral, review of relevant
industry analyst reports and forecasts and other market
available data.
At June 30, 2009 unrealized losses related to fixed
maturity securities increased $7.6 billion
($4.9 billion after tax) reflecting the reversal of prior
other-than-temporary
impairments in connection with the adoption of FSP
FAS 115-2,
partially offset by an increase in fair value due to the
narrowing of credit spreads and declines in risk-free interest
rates.
46
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The amortized cost and fair value of fixed maturity
securities available for sale by contractual maturity were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturity
|
|
|
Fixed Maturity
|
|
|
|
Available for Sale Securities
|
|
|
Securities in a Loss Position
|
|
June 30, 2009
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In millions)
|
|
|
Due in one year or less
|
|
$
|
13,374
|
|
|
$
|
13,311
|
|
|
$
|
3,532
|
|
|
$
|
3,224
|
|
Due after one year through five years
|
|
|
79,536
|
|
|
|
79,601
|
|
|
|
29,054
|
|
|
|
26,373
|
|
Due after five years through ten years
|
|
|
97,089
|
|
|
|
96,508
|
|
|
|
46,230
|
|
|
|
41,791
|
|
Due after ten years
|
|
|
121,660
|
|
|
|
120,203
|
|
|
|
59,962
|
|
|
|
53,609
|
|
Mortgage-backed, asset-backed and collateralized
|
|
|
62,056
|
|
|
|
45,094
|
|
|
|
46,065
|
|
|
|
27,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
373,715
|
|
|
$
|
354,717
|
|
|
$
|
184,843
|
|
|
$
|
152,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay certain
obligations with or without call or prepayment penalties.
Net
Investment Income
The components of net investment income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Fixed maturities, including short-term investments
|
|
$
|
5,769
|
|
|
$
|
5,445
|
|
|
$
|
8,781
|
|
|
$
|
10,918
|
|
Equity securities
|
|
|
123
|
|
|
|
149
|
|
|
|
207
|
|
|
|
219
|
|
Interest on mortgage and other loans
|
|
|
381
|
|
|
|
397
|
|
|
|
784
|
|
|
|
775
|
|
Partnerships
|
|
|
(93
|
)
|
|
|
66
|
|
|
|
(779
|
)
|
|
|
172
|
|
Mutual funds
|
|
|
285
|
|
|
|
121
|
|
|
|
185
|
|
|
|
(24
|
)
|
Trading account gains (losses)
|
|
|
4
|
|
|
|
(133
|
)
|
|
|
(34
|
)
|
|
|
(221
|
)
|
Other investments
|
|
|
344
|
|
|
|
341
|
|
|
|
493
|
|
|
|
540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income before policyholder investment income
and trading gains (losses)
|
|
|
6,813
|
|
|
|
6,386
|
|
|
|
9,637
|
|
|
|
12,379
|
|
Policyholder investment income and trading gains (losses)
|
|
|
2,135
|
|
|
|
617
|
|
|
|
1,828
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
8,948
|
|
|
|
7,003
|
|
|
|
11,465
|
|
|
|
12,211
|
|
Investment expenses
|
|
|
163
|
|
|
|
275
|
|
|
|
397
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
8,785
|
|
|
$
|
6,728
|
|
|
$
|
11,068
|
|
|
$
|
11,682
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Net
Realized Capital Gains (Losses)
The components of net realized capital gains (losses) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Sales of fixed maturity securities
|
|
$
|
873
|
|
|
$
|
(29
|
)
|
|
$
|
793
|
|
|
$
|
(10
|
)
|
Sales of equity securities
|
|
|
170
|
|
|
|
240
|
|
|
|
136
|
|
|
|
320
|
|
Sales of real estate and other assets
|
|
|
(870
|
)
|
|
|
172
|
|
|
|
(910
|
)
|
|
|
325
|
|
Other-than-temporary
impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary
impairments on available for sale securities
|
|
|
(1,190
|
)
|
|
|
(6,720
|
)
|
|
|
(5,051
|
)
|
|
|
(12,260
|
)
|
Portion of
other-than-temporary
impairments on available for sale fixed maturity securities
recognized in Accumulated other comprehensive income (loss)
|
|
|
369
|
|
|
|
|
|
|
|
369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
other-than-temporary
impairments on available for sale securities recognized in net
income (loss)
|
|
|
(821
|
)
|
|
|
(6,720
|
)
|
|
|
(4,682
|
)
|
|
|
(12,260
|
)
|
Other-than-temporary
impairments on all other investments
|
|
|
(162
|
)
|
|
|
(57
|
)
|
|
|
(288
|
)
|
|
|
(110
|
)
|
Foreign exchange transactions
|
|
|
(1,302
|
)
|
|
|
(74
|
)
|
|
|
(1,017
|
)
|
|
|
(738
|
)
|
Derivative instruments
|
|
|
813
|
|
|
|
387
|
|
|
|
1,567
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,299
|
)
|
|
$
|
(6,081
|
)
|
|
$
|
(4,401
|
)
|
|
$
|
(12,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross realized gains and gross realized losses from sales
of AIGs available for sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
Gross
|
|
|
|
Realized
|
|
|
Realized
|
|
|
Realized
|
|
|
Realized
|
|
|
Realized
|
|
|
Realized
|
|
|
Realized
|
|
|
Realized
|
|
|
|
Gains
|
|
|
Losses
|
|
|
Gains
|
|
|
Losses
|
|
|
Gains
|
|
|
Losses
|
|
|
Gains
|
|
|
Losses
|
|
|
|
(In millions)
|
|
|
Fixed maturities
|
|
$
|
1,059
|
|
|
$
|
186
|
|
|
$
|
391
|
|
|
$
|
420
|
|
|
$
|
1,466
|
|
|
$
|
673
|
|
|
$
|
638
|
|
|
$
|
648
|
|
Equity securities
|
|
|
195
|
|
|
|
25
|
|
|
|
342
|
|
|
|
102
|
|
|
|
306
|
|
|
|
170
|
|
|
|
637
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,254
|
|
|
$
|
211
|
|
|
$
|
733
|
|
|
$
|
522
|
|
|
$
|
1,772
|
|
|
$
|
843
|
|
|
$
|
1,275
|
|
|
$
|
965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three- and six-month periods ended June 30, 2009,
the aggregate fair value of available for sale securities sold
was 2.9 billion, (approximately 92 percent of cost or
amortized cost) and $7.7 billion, (approximately 91 percent
of cost or amortized cost), respectively. The average periods of
time that securities sold at a loss during the six-month period
ended June 30, 2009 were trading continuously at a price
below cost or amortized cost was approximately 6 months.
Evaluating
Investments for
Other-Than-Temporary
Impairments
AIG adopted the requirements of FSP
FAS 115-2
on a prospective basis, as required, on April 1, 2009.
These requirements have significantly altered AIGs
policies and procedures for determining impairment charges
recognized through earnings. FSP
FAS 115-2
requires a company to recognize the credit component (a credit
impairment) of an
other-than-temporary
impairment of a fixed maturity security in income and the
non-credit component in accumulated other comprehensive income
when the company does not intend to sell the security or it is
more likely than not that the company will not be required to
sell the security prior to recovery. FSP
FAS 115-2
also changes the threshold for determining when an
other-than-temporary
impairment has occurred on a fixed
48
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
maturity security with respect to intent and ability to hold the
security until recovery and requires additional disclosures. A
credit impairment, which is recognized in earnings when it
occurs, is the difference between the amortized cost of the
fixed maturity security and the estimated present value of cash
flows expected to be collected (recovery value), as determined
by management. The difference between fair value and amortized
cost that is not related to a credit impairment is recognized as
a separate component of Accumulated other comprehensive income
(loss). AIG refers to both credit impairments and impairments
recognized as a result of intent to sell as impairment
charges. The impairment model for equity securities was
not affected by FSP
FAS 115-2.
Impairment
Policy Effective April 1, 2009 and
Thereafter
Fixed
Maturity Securities
If AIG intends to sell a fixed maturity security or it is more
likely than not that AIG will be required to sell a fixed
maturity security before recovery of its amortized cost basis
and the fair value of the security is below amortized cost, an
other-than-temporary
impairment has occurred and the amortized cost is written down
to current fair value, with a corresponding charge to earnings.
For all other fixed maturity securities for which a credit
impairment has occurred, the amortized cost is written down to
the estimated recovery value with a corresponding charge to
earnings. Additional fair value decline below recovery value, if
any, is charged to unrealized appreciation (depreciation) of
fixed maturity investments on which
other-than-temporary
credit impairments were taken (a component of accumulated other
comprehensive income (loss)), because this is considered a
non-credit impairment.
When assessing AIGs intent to sell a fixed maturity
security, or if it is more likely than not that AIG will be
required to sell a fixed maturity security before recovery of
its amortized cost basis, management evaluates relevant facts
and circumstances including, but not limited to, decisions to
reposition AIGs investment portfolio, sale of securities
to meet cash flow needs and sales of securities to capitalize on
favorable pricing.
AIG considers severe price declines and the duration of such
price declines in its assessment of potential credit
impairments. AIG also modifies its modeled outputs for certain
securities when it determines that price declines are indicative
of factors not comprehended by the cash flow models.
In periods subsequent to the recognition of an
other-than-temporary
impairment charge for available for sale fixed maturity
securities that is not foreign exchange related, AIG generally
prospectively accretes into income the difference between the
new amortized cost and the expected undiscounted recovery value
over the remaining expected holding period of the security.
49
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
A rollforward of the credit impairments recognized in
earnings for available for sale fixed maturity securities held
by AIG is as follows:
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Balance, March 31, 2009
|
|
$
|
|
|
Increases due to:
|
|
|
|
|
Credit losses remaining in accumulated deficit related to the
adoption of FSP
FAS 115-2
|
|
|
7,182
|
|
Credit impairments on new securities subject to impairment losses
|
|
|
157
|
|
Additional credit impairments on previously impaired securities
|
|
|
268
|
|
Reductions due to:
|
|
|
|
|
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell
|
|
|
(134
|
)
|
Foreign exchange effect
|
|
|
23
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
7,496
|
|
|
|
|
|
|
In assessing whether a credit impairment has occurred for a
structured fixed maturity security, AIG performs evaluations of
expected future cash flows, as required by FSP
FAS 115-2.
Certain critical assumptions are made with respect to the
performance of the securities.
When estimating future cash flows for a structured fixed
maturity security (e.g. RMBS, CMBS, CDO, ABS) management
considers historical performance of underlying assets and
available market information as well as bond-specific structural
considerations, such as credit enhancement and priority of
payment structure of the security. In addition, the process of
estimating future cash flows includes, but is not limited to,
the following critical inputs, which vary by asset class:
|
|
|
|
|
Current delinquency rates;
|
|
|
|
Expected default rates and timing of such defaults;
|
|
|
|
Loss severity and timing of any such recovery;
|
|
|
|
Expected prepayment speeds; and
|
|
|
|
Ratings of securities underlying structured products.
|
For corporate, municipal and sovereign fixed maturity securities
determined to be credit impaired, management considers the fair
value as the recovery value when available information does not
indicate that another value is more relevant or reliable. When
management identifies information that supports a recovery value
other than the fair value, the determination of a recovery value
considers scenarios specific to the issuer and the security, and
may be based upon estimates of outcomes of corporate
restructurings, political and macro economic factors, stability
and financial strength of the issuer, the value of any secondary
sources of repayment and the disposition of assets.
Equity
Securities
The impairment model for equity securities was not affected by
the adoption of FSP
FAS 115-2
in the second quarter of 2009. AIG continues to evaluate its
available for sale equity securities, equity method and cost
method investments for impairment by considering such securities
candidates for
other-than-temporary
impairment if they meet any of the following criteria:
|
|
|
|
|
The security has traded at a significant (25 percent or
more) discount to cost for an extended period of time (nine
consecutive months or longer);
|
50
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
A discrete credit event has occurred resulting in (i) the
issuer defaulting on a material outstanding obligation;
(ii) the issuer seeking protection from creditors under the
bankruptcy laws or any similar laws intended for court
supervised reorganization of insolvent enterprises; or
(iii) the issuer proposing a voluntary reorganization
pursuant to which creditors are asked to exchange their claims
for cash or securities having a fair value substantially lower
than par value of their claims; or
|
|
|
|
AIG has concluded that it may not realize a full recovery on its
investment, regardless of the occurrence of one of the foregoing
events.
|
The determination that an equity security is
other-than-temporarily
impaired requires the judgment of management and consideration
of the fundamental condition of the issuer, its near-term
prospects and all the relevant facts and circumstances. For
securities other than those subject to FSP
FAS 115-2,
the above criteria also consider circumstances of a rapid and
severe market valuation declines in which AIG could not
reasonably assert that the impairment period would be temporary
(severity losses).
Fixed
Maturity Securities Impairment Policy Prior to
April 1, 2009
In all periods prior to the adoption of FSP
FAS 115-2,
AIG assessed its ability to hold any fixed maturity available
for sale security in an unrealized loss position to its recovery
at each balance sheet date. The decision to sell any such fixed
maturity security classified as available for sale reflected the
judgment of AIGs management that the security sold was
unlikely to provide, on a relative value basis, as attractive a
return in the future as alternative securities entailing
comparable risks. With respect to distressed securities, the
sale decision reflected managements judgment that the
risk-adjusted ultimate recovery was less than the value
achievable on sale.
In those periods, AIG evaluated its fixed maturity securities
for
other-than-temporary
impairments with respect to valuation as well as credit.
After a fixed maturity security had been identified as
other-than-temporarily
impaired, the amount of such impairment was determined as the
difference between fair value and amortized cost and the entire
amount was recorded as a charge to earnings.
As a result of AIGs periodic evaluation of its equity and
fixed maturity securities for
other-than-temporary
impairments in value, AIG recorded impairment charges of
$983 million and $6.8 billion in the three-month
periods ended June 30, 2009 and 2008, respectively, and
$5.0 billion and $12.4 billion in the six-month
periods ended June 30, 2009 and 2008, respectively.
|
|
6.
|
Variable
Interest Entities
|
FIN 46(R) provides guidance for determining when to
consolidate certain entities in which equity investors do not
have the characteristics of a controlling financial interest or
do not have sufficient equity that is at risk to allow the
entity to finance its activities without additional subordinated
financial support. FIN 46(R) recognizes that consolidation
based on majority voting interest should not apply to these
variable interest entities (VIEs). A VIE is consolidated by its
primary beneficiary, which is the party or group of related
parties that absorbs a majority of the expected losses of the
VIE, receives the majority of the expected residual returns of
the VIE, or both.
AIG generally determines whether it is the primary beneficiary
or a significant interest holder based on a qualitative
assessment of the VIE. This includes a review of the VIEs
capital structure, contractual relationships and terms, nature
of the VIEs operations and purpose, nature of the
VIEs interests issued, and AIGs interests in the
entity that either create or absorb variability. AIG evaluates
the design of the VIE and the related risks the entity was
designed to expose the variable interest holders to in
evaluating consolidation. In limited cases, when it may be
unclear from a qualitative standpoint if AIG is the primary
beneficiary, AIG uses a quantitative analysis to calculate the
probability weighted expected losses and probability weighted
expected residual returns using cash flow modeling.
51
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
AIGs total off-balance sheet exposure associated with VIEs
was $2.5 billion and $3.3 billion at June 30,
2009 and December 31, 2008, respectively.
The following table presents AIGs total assets, total
liabilities and off-balance sheet exposure associated with its
significant variable interests in consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Off-Balance
|
|
|
|
VIE Assets*
|
|
|
VIE Liabilities
|
|
|
Sheet Exposure
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In billions)
|
|
|
Real estate and investment funds
|
|
$
|
5.0
|
|
|
$
|
5.6
|
|
|
$
|
3.0
|
|
|
$
|
3.1
|
|
|
$
|
0.9
|
|
|
$
|
0.9
|
|
Commercial paper conduit
|
|
|
8.3
|
|
|
|
8.8
|
|
|
|
7.6
|
|
|
|
8.5
|
|
|
|
|
|
|
|
|
|
CLOs/CDOs
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affordable housing partnerships
|
|
|
2.6
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
0.6
|
|
|
|
0.2
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16.6
|
|
|
$
|
17.6
|
|
|
$
|
11.1
|
|
|
$
|
11.6
|
|
|
$
|
0.9
|
|
|
$
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Each of the VIEs assets can be used only to settle
specific obligations of that VIE. |
AIG defines a variable interest as significant relative to the
materiality of its interest in the VIE. AIG calculates its
maximum exposure to loss to be (i) the amount invested in
the debt or equity of the VIE, (ii) the notional amount of
VIE assets or liabilities where AIG has also provided credit
protection to the VIE with the VIE as the referenced obligation,
or (iii) other commitments and guarantees to the VIE.
Interest holders in VIEs sponsored by AIG generally have
recourse only to the assets and cash flows of the VIEs and do
not have recourse to AIG, except in limited circumstances when
AIG has provided a guarantee to the VIEs interest holders.
The following table presents total assets of unconsolidated
VIEs in which AIG holds a significant variable interest or is a
sponsor that holds a variable interest in a VIE, and AIGs
maximum exposure to loss associated with these VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Exposure to Loss
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
|
|
|
|
Total
|
|
|
Purchased
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
VIE
|
|
|
and Retained
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Interests
|
|
|
Other
|
|
|
Guarantees
|
|
|
Derivatives
|
|
|
Total
|
|
|
|
(In billions)
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and investment funds
|
|
$
|
21.7
|
|
|
$
|
2.6
|
|
|
$
|
0.6
|
|
|
$
|
1.4
|
|
|
$
|
|
|
|
$
|
4.6
|
|
CLOs/CDOs
|
|
|
75.7
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
0.2
|
|
|
|
5.3
|
|
Affordable housing partnerships
|
|
|
1.1
|
|
|
|
|
|
|
|
1.1
|
|
|
|
|
|
|
|
|
|
|
|
1.1
|
|
Maiden Lane Interests
|
|
|
37.8
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.6
|
|
Other*
|
|
|
7.6
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
143.9
|
|
|
$
|
12.2
|
|
|
$
|
2.2
|
|
|
$
|
1.4
|
|
|
$
|
0.2
|
|
|
$
|
16.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum Exposure to Loss
|
|
|
|
|
|
|
On-Balance Sheet
|
|
|
Off-Balance Sheet
|
|
|
|
|
|
|
Total
|
|
|
Purchased
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
|
|
VIE
|
|
|
and Retained
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
Interests
|
|
|
Other
|
|
|
Guarantees
|
|
|
Derivatives
|
|
|
Total
|
|
|
|
(In billions)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate and investment funds
|
|
$
|
23.5
|
|
|
$
|
2.5
|
|
|
$
|
0.5
|
|
|
$
|
1.6
|
|
|
$
|
|
|
|
$
|
4.6
|
|
CLOs/CDOs
|
|
|
95.9
|
|
|
|
6.4
|
|
|
|
|
|
|
|
|
|
|
|
0.5
|
|
|
|
6.9
|
|
Affordable housing partnerships
|
|
|
1.0
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
Maiden Lane Interests
|
|
|
46.4
|
|
|
|
4.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.9
|
|
Other*
|
|
|
8.7
|
|
|
|
2.1
|
|
|
|
0.5
|
|
|
|
0.3
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
175.5
|
|
|
$
|
15.9
|
|
|
$
|
2.0
|
|
|
$
|
1.9
|
|
|
$
|
0.5
|
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes $1.2 billion and $1.4 billion of assets
held in an unconsolidated structured investment vehicle (SIV)
sponsored by AIGFP at June 30, 2009 and December 31,
2008, respectively. At June 30, 2009 and December 31,
2008, AIGFPs invested assets included $0.5 billion
and $0.6 billion, respectively, of securities purchased
under agreements to resell, commercial paper and medium-term and
capital notes issued by this entity. |
Balance
Sheet Classification
AIGs interest in the assets and liabilities of
consolidated and unconsolidated VIEs were classified on the
Consolidated Balance Sheet as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIEs
|
|
|
Unconsolidated VIEs
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In billions)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage and other loans receivable
|
|
$
|
|
|
|
$
|
|
|
|
$
|
0.5
|
|
|
$
|
0.5
|
|
Available for sale securities*
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
0.5
|
|
|
|
0.8
|
|
Trading securities*
|
|
|
8.6
|
|
|
|
8.8
|
|
|
|
9.3
|
|
|
|
11.1
|
|
Other invested assets
|
|
|
3.5
|
|
|
|
4.3
|
|
|
|
3.1
|
|
|
|
3.5
|
|
Other asset accounts
|
|
|
4.4
|
|
|
|
4.2
|
|
|
|
1.3
|
|
|
|
2.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16.6
|
|
|
$
|
17.6
|
|
|
$
|
14.7
|
|
|
$
|
17.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRBNY commercial paper funding facility
|
|
$
|
6.2
|
|
|
$
|
6.8
|
|
|
$
|
|
|
|
$
|
|
|
Other long-term debt
|
|
|
4.9
|
|
|
|
4.8
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
11.1
|
|
|
$
|
11.6
|
|
|
$
|
0.3
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
During the second quarter of 2009, AIGFPs interests in
certain VIEs for which it has elected the fair value option,
previously reported in the table above as Available for sale
securities, were reclassified to Trading securities to conform
with the Consolidated Balance Sheet presentation. Prior period
amounts were revised to conform to the current period
presentation. |
AIG enters into various arrangements with VIEs in the normal
course of business. AIGs insurance companies are involved
with VIEs primarily as passive investors in debt securities
(rated and unrated) and equity interests issued by VIEs. Through
its Financial Services and Asset Management operations, AIG has
participated in arrangements with VIEs that included designing
and structuring entities, warehousing and managing the
collateral
53
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
of the entities, and entering into insurance, credit and
derivative transactions with the VIEs. AIG has also established
trusts for the sole purpose of issuing mandatorily redeemable
preferred stock totaling $1.3 billion to investors. AIG has
determined that the trusts are variable interest entities, but
has not consolidated the VIEs as AIG is not the primary
beneficiary and does not hold a variable interest in the VIEs.
See Notes 9 and 13 to the Consolidated Financial Statements
in the 2008 Financial Statements for additional information on
VIEs and liabilities connected to trust preferred stock,
respectively.
|
|
7.
|
Derivatives
and Hedge Accounting
|
AIG uses derivatives and other financial instruments as part of
its financial risk management programs and as part of its
investment operations. AIGFP has also transacted in derivatives
as a dealer.
Derivatives, as defined in FAS 133, are financial
arrangements among two or more parties with returns linked to or
derived from some underlying equity, debt, commodity
or other asset, liability, or foreign exchange rate or other
index or the occurrence of a specified payment event. Derivative
payments may be based on interest rates, exchange rates, prices
of certain securities, commodities, or financial or commodity
indices or other variables. Derivatives, with the exception of
bifurcated embedded derivatives, are reflected at fair value on
the Consolidated Balance Sheet in Unrealized gain on
swaps, options and forward transactions, at fair value and
Unrealized loss on swaps, options and forward contracts,
at fair value. Bifurcated embedded derivatives are
recorded with the host contract on the Consolidated Balance
Sheet.
The following table presents the notional amounts and fair
values of AIGs derivative instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Assets
|
|
|
Derivative Liabilities
|
|
|
|
Notional
|
|
|
Fair
|
|
|
Notional
|
|
|
Fair
|
|
At June 30, 2009
|
|
Amount(a)
|
|
|
Value(b)
|
|
|
Amount(a)
|
|
|
Value(b)
|
|
|
|
(In millions)
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(c)
|
|
$
|
10,612
|
|
|
$
|
1,832
|
|
|
$
|
3,956
|
|
|
$
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
10,612
|
|
|
|
1,832
|
|
|
|
3,956
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts(c)
|
|
|
474,399
|
|
|
|
38,884
|
|
|
|
461,437
|
|
|
|
35,007
|
|
Foreign exchange contracts(c)
|
|
|
17,579
|
|
|
|
896
|
|
|
|
20,103
|
|
|
|
1,628
|
|
Equity contracts
|
|
|
9,435
|
|
|
|
2,217
|
|
|
|
11,226
|
|
|
|
2,014
|
|
Commodity contracts
|
|
|
17,313
|
|
|
|
2,142
|
|
|
|
16,264
|
|
|
|
1,011
|
|
Credit contracts
|
|
|
3,847
|
|
|
|
733
|
|
|
|
241,302
|
|
|
|
7,972
|
|
Other contracts
|
|
|
39,942
|
|
|
|
723
|
|
|
|
21,453
|
|
|
|
1,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designated as hedging instruments
|
|
|
562,515
|
|
|
|
45,595
|
|
|
|
771,785
|
|
|
|
49,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
573,127
|
|
|
$
|
47,427
|
|
|
$
|
775,741
|
|
|
$
|
49,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Notional amount represents a standard of measurement of the
volume of swaps business of AIG. Notional amount is not a
quantification of market risk or credit risk and is not recorded
on the consolidated balance sheet. Notional amounts generally
represent those amounts used to calculate contractual cash flows
to be exchanged and are not paid or received, except for certain
contracts such as currency swaps and certain credit
contracts. |
|
(b) |
|
Fair value amounts are shown before the effects of
counterparty netting adjustments and offsetting cash collateral
in accordance with FIN 39. |
|
(c) |
|
During the second quarter of 2009, certain cross-currency
interest rate swaps previously reported in Foreign exchange
contracts were reclassified to Interest rate contracts. |
54
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The fair values of derivative assets and liabilities on the
Consolidated Balance Sheet were as follows:
|
|
|
|
|
|
|
|
|
|
|
Derivative
|
|
|
Derivative
|
|
At June 30, 2009
|
|
Assets(a)
|
|
|
Liabilities(b)
|
|
|
|
(In millions)
|
|
|
AIGFP derivatives
|
|
$
|
44,716
|
|
|
$
|
47,122
|
|
Non-AIGFP derivatives
|
|
|
2,711
|
|
|
|
2,465
|
|
|
|
|
|
|
|
|
|
|
Total derivatives, gross
|
|
|
47,427
|
|
|
|
49,587
|
|
|
|
|
|
|
|
|
|
|
Counterparty netting(c)
|
|
|
(30,381
|
)
|
|
|
(30,381
|
)
|
Cash collateral(d)
|
|
|
(5,667
|
)
|
|
|
(13,196
|
)
|
|
|
|
|
|
|
|
|
|
Total derivatives, net
|
|
$
|
11,379
|
|
|
$
|
6,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included in non-AIGFP derivatives are $141 million of
bifurcated embedded derivatives of which $138 million and
$3 million, respectively, are recorded in Policyholder
contract deposits and Bonds available for sale, at fair
value. |
|
(b) |
|
Included in non-AIGFP derivatives are $1.1 billion of
bifurcated embedded derivatives of which $1.1 billion,
$1 million and $1 million are recorded in Policyholder
contract deposits, Common and preferred stocks available for
sale, at fair value, and Bonds available for sale, at fair
value, respectively. |
|
(c) |
|
Represents netting of derivative exposures covered by a
qualifying master netting agreement in accordance with
FIN 39. |
|
(d) |
|
Represents cash collateral posted and received. |
Hedge
Accounting
AIG designated certain derivatives entered into by AIGFP with
third parties as either fair value or cash flow hedges of
certain debt issued by AIG Parent (including the Matched
Investment Program (MIP)), International Lease Finance
Corporation (ILFC) and AGF. The fair value hedges included
(i) interest rate swaps that were designated as hedges of
the change in the fair value of fixed rate debt attributable to
changes in the benchmark interest rate and (ii) foreign
currency swaps designated as hedges of the change in fair value
of foreign currency denominated debt attributable to changes in
foreign exchange rates
and/or the
benchmark interest rate. With respect to the cash flow hedges,
(i) interest rate swaps were designated as hedges of the
changes in cash flows on floating rate debt attributable to
changes in the benchmark interest rate, and (ii) foreign
currency swaps were designated as hedges of changes in cash
flows on foreign currency denominated debt attributable to
changes in the benchmark interest rate and foreign exchange
rates.
Beginning in the first quarter of 2009, AIG began using debt
instruments in net investment hedge relationships to mitigate
the foreign exchange risk associated with AIGs
non-U.S. dollar
functional currency foreign subsidiaries. AIG assesses the hedge
effectiveness and measures the amount of ineffectiveness for
these hedge relationships based on changes in spot exchange
rates. AIG records the change in the carrying amount of these
investments in the foreign currency translation adjustment
within Accumulated other comprehensive loss. Simultaneously, the
effective portion of the hedge of this exposure is also recorded
in foreign currency translation adjustment and the ineffective
portion, if any, is recorded in earnings. If (1) the
notional amount of the hedging debt instrument matches the
designated portion of the net investment and (2) the
hedging debt instrument is denominated in the same currency as
the functional currency of the hedged net investment, no
ineffectiveness is recorded in earnings. In the three- and
six-month periods ended June 30, 2009, AIG recognized
losses of $106 million and $97 million, respectively,
included in Foreign currency translation adjustment in
Accumulated other comprehensive loss related to the net
investment hedge relationships.
55
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The following table presents the effect of AIGs
derivative instruments in fair value hedging relationships on
the Consolidated Statement of Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) Recognized
|
|
|
Gain (Loss)
|
|
Gain (Loss)
|
|
in Earnings for
|
|
|
Recognized
|
|
Recognized
|
|
Ineffective Portion and
|
|
|
in Earnings on
|
|
in Earnings on
|
|
Amount Excluded from
|
|
|
Derivative
|
|
Hedged Item
|
|
Effectiveness Testing
|
|
|
Three
|
|
Six Months
|
|
Three
|
|
Six Months
|
|
Three
|
|
Six Months
|
|
|
Months Ended
|
|
Ended
|
|
Months Ended
|
|
Ended
|
|
Months Ended
|
|
Ended
|
|
|
June 30, 2009
|
|
June 30, 2009
|
|
June 30, 2009
|
|
June 30, 2009
|
|
June 30, 2009
|
|
June 30, 2009
|
|
Interest rate contracts(a)(b)(c)
|
|
$
|
66
|
|
|
$
|
(470
|
)
|
|
$
|
(93
|
)
|
|
$
|
568
|
|
|
$
|
(38
|
)
|
|
$
|
87
|
|
|
|
|
(a) |
|
Gains and losses recognized in earnings on derivatives and
hedged items are recorded in Interest expense. Gains and losses
recognized in earnings on derivatives for the ineffective
portion and amounts excluded from effectiveness testing are
recorded in Net realized capital losses and Other income,
respectively. |
|
(b) |
|
Includes $(28) million and $92 million,
respectively, for the three- and six-month periods ended
June 30, 2009 related to the ineffective portion and
$(10) million and $(5) million, respectively, for the
three- and six-month periods ended June 30, 2009 for
amounts excluded from effectiveness testing. |
|
(c) |
|
During the second quarter of 2009, certain cross-currency
interest rate swaps previously reported in Foreign exchange
contracts were reclassified to Interest rate contracts. |
The following table presents the effect of AIGs
derivative instruments in cash flow hedging relationships on the
Consolidated Statement of Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses)
|
|
Gains (Losses)
|
|
Gains (Losses)
|
|
|
Recognized in OCI
|
|
Reclassified
|
|
Recognized in Earnings
|
|
|
on Derivatives
|
|
from Accumulated
|
|
on Derivatives for
|
|
|
and Hedged Items
|
|
OCI into Earnings(a)
|
|
Ineffective Portion
|
|
|
Three
|
|
Six
|
|
Three
|
|
Six
|
|
Three
|
|
Six
|
|
|
Months
|
|
Months
|
|
Months
|
|
Months
|
|
Months
|
|
Months
|
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
Ended
|
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
June 30,
|
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
2009
|
|
|
(In millions)
|
|
Interest rate contracts(b)(c)
|
|
$
|
19
|
|
|
$
|
72
|
|
|
$
|
(28
|
)
|
|
$
|
(1
|
)
|
|
$
|
|
|
|
$
|
(1
|
)
|
|
|
|
(a) |
|
The effective portion of the change in fair value of a
derivative qualifying as a cash flow hedge is recorded in
Accumulated other comprehensive loss until earnings are affected
by the variability of cash flows in the hedged item. At
June 30, 2009, $88 million of the deferred net loss in
Accumulated other comprehensive loss is expected to be
recognized in earnings during the next 12 months. |
|
(b) |
|
Gains and losses reclassified from Accumulated other
comprehensive loss are recorded in Other income. Gains or losses
recognized in earnings on derivatives for the ineffective
portion are recorded in Net realized capital losses. |
|
(c) |
|
During the second quarter of 2009, certain cross-currency
interest rate swaps previously reported in Foreign exchange
contracts were reclassified to Interest rate contracts. |
56
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Derivatives
Not Designated as Hedging Instruments
The following table presents the effect of AIGs
derivative instruments not designated as hedging instruments on
the Consolidated Statement of Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
Gains (Losses) Recognized in Earnings(a)
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Interest rate contracts(b)
|
|
$
|
(87
|
)
|
|
$
|
1,339
|
|
Foreign exchange contracts(b)
|
|
|
(1,189
|
)
|
|
|
(1,136
|
)
|
Equity contracts
|
|
|
67
|
|
|
|
206
|
|
Commodity contracts
|
|
|
(73
|
)
|
|
|
72
|
|
Credit contracts
|
|
|
530
|
|
|
|
267
|
|
Other contracts
|
|
|
559
|
|
|
|
571
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(193
|
)
|
|
$
|
1,319
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents gains of $638 million and
$1,295 million, respectively, for the three- and six-month
periods ended June 30, 2009 recorded in Net realized
capital gains, and losses of $831 million and gains of
$24 million, respectively, for the three- and six-month
periods ended June 30, 2009, recorded in Other income. |
|
(b) |
|
During the second quarter of 2009, certain cross-currency
interest rate swaps previously reported in Foreign exchange
contracts were reclassified to Interest rate contracts. |
AIGFP
Derivatives
AIGFP enters into derivative transactions to mitigate risk in
its exposures (interest rates, currencies, commodities, credit
and equities) arising from its transactions. In most cases,
AIGFP did not hedge its exposures related to the credit default
swaps it had written. As a dealer, AIGFP structured and entered
into derivative transactions to meet the needs of counterparties
who may be seeking to hedge certain aspects of such
counterparties operations or obtain a desired financial
exposure.
AIGFPs derivative transactions involving interest rate
swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange
of the underlying notional amounts. AIGFP typically became a
principal in the exchange of interest payments between the
parties and, therefore, is exposed to counterparty credit risk
and may be exposed to loss, if counterparties default. Currency,
commodity, and equity swaps are similar to interest rate swaps,
but involve the exchange of specific currencies or cashflows
based on the underlying commodity, equity securities or indices.
Also, they may involve the exchange of notional amounts at the
beginning and end of the transaction. Swaptions are options
where the holder has the right but not the obligation to enter
into a swap transaction or cancel an existing swap transaction.
AIGFP follows a policy of minimizing interest rate, currency,
commodity, and equity risks associated with investment
securities by entering into internal offsetting positions, on a
security by security basis within its derivatives portfolio,
thereby offsetting a significant portion of the unrealized
appreciation and depreciation. In addition, to reduce its credit
risk, AIGFP has entered into credit derivative transactions with
respect to $579 million of securities to economically hedge
its credit risk.
Futures and forward contracts are contracts that obligate the
holder to sell or purchase foreign currencies, commodities or
financial indices in which the seller/purchaser agrees to
make/take delivery at a specified future date of a specified
instrument, at a specified price or yield. Options are contracts
that allow the holder of the option to purchase or sell the
underlying commodity, currency or index at a specified price and
within, or at, a specified period of time. As a writer of
options, AIGFP generally receives an option premium and then
manages the risk of any unfavorable change in the value of the
underlying commodity, currency or index by entering into
offsetting
57
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
transactions with third-party market participants. Risks arise
as a result of movements in current market prices from
contracted prices, and the potential inability of the
counterparties to meet their obligations under the contracts.
AIGFP
Super Senior Credit Default Swaps
AIGFP entered into credit default swap transactions with the
intention of earning revenue on credit exposure. In the majority
of AIGFPs credit default swap transactions, AIGFP sold
credit protection on a designated portfolio of loans or debt
securities. Generally, AIGFP provides such credit protection on
a second loss basis, meaning that AIGFP would incur
credit losses only after a shortfall of principal
and/or
interest, or other credit events, in respect of the protected
loans and debt securities, exceeds a specified threshold amount
or level of first losses.
Typically, the credit risk associated with a designated
portfolio of loans or debt securities has been tranched into
different layers of risk, which are then analyzed and rated by
the credit rating agencies. At origination, there is usually an
equity layer covering the first credit losses in respect of the
portfolio up to a specified percentage of the total portfolio,
and then successive layers ranging generally from a BBB-rated
layer to one or more AAA-rated layers. A significant majority of
AIGFP transactions that were rated by rating agencies had risk
layers or tranches rated AAA at origination and are immediately
junior to the threshold level above which AIGFPs payment
obligation would generally arise. In transactions that were not
rated, AIGFP applied equivalent risk criteria for setting the
threshold level for its payment obligations. Therefore, the risk
layer assumed by AIGFP with respect to the designated portfolio
of loans or debt securities in these transactions is often
called the super senior risk layer, defined as a
layer of credit risk senior to one or more risk layers rated AAA
by the credit rating agencies, or if the transaction is not
rated, structured to the equivalent thereto.
The net notional amount, fair value of derivative liability
and unrealized market valuation gain (loss) of the AIGFP super
senior credit default swap portfolio, including credit default
swaps written on mezzanine tranches of certain regulatory
capital relief transactions, by asset class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Market Valuation
|
|
|
|
|
|
|
Fair Value
|
|
|
Gain (Loss)
|
|
|
|
|
|
|
of Derivative
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Net Notional Amount
|
|
|
Liability at
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009(a)(b)
|
|
|
2008(a)
|
|
|
2009(b)(c)
|
|
|
2008(c)
|
|
|
2009(d)
|
|
|
2008(d)
|
|
|
2009(d)
|
|
|
2008(d)
|
|
|
|
(In millions)
|
|
|
Regulatory Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate loans
|
|
$
|
83,301
|
|
|
$
|
125,628
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Prime residential mortgages
|
|
|
92,130
|
|
|
|
107,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(e)
|
|
|
2,042
|
|
|
|
1,575
|
|
|
|
47
|
|
|
|
379
|
|
|
|
23
|
|
|
|
(125
|
)
|
|
|
9
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
177,473
|
|
|
|
234,449
|
|
|
|
47
|
|
|
|
379
|
|
|
|
23
|
|
|
|
(125
|
)
|
|
|
9
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-sector CDOs(f)(g)
|
|
|
9,151
|
|
|
|
12,556
|
|
|
|
5,271
|
|
|
|
5,906
|
|
|
|
(284
|
)
|
|
|
(5,569
|
)
|
|
|
(1,093
|
)
|
|
|
(13,606
|
)
|
Corporate debt/CLOs(h)
|
|
|
40,941
|
|
|
|
50,495
|
|
|
|
1,104
|
|
|
|
2,554
|
|
|
|
792
|
|
|
|
126
|
|
|
|
1,150
|
|
|
|
(770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
50,092
|
|
|
|
63,051
|
|
|
|
6,375
|
|
|
|
8,460
|
|
|
|
508
|
|
|
|
(5,443
|
)
|
|
|
57
|
|
|
|
(14,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine tranches(i)
|
|
|
3,501
|
|
|
|
4,701
|
|
|
|
77
|
|
|
|
195
|
|
|
|
105
|
|
|
|
3
|
|
|
|
118
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,066
|
|
|
$
|
302,201
|
|
|
$
|
6,499
|
|
|
$
|
9,034
|
|
|
$
|
636
|
|
|
$
|
(5,565
|
)
|
|
$
|
184
|
|
|
$
|
(14,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net notional amounts presented are net of all structural
subordination below the covered tranches. |
|
(b) |
|
During the second quarter of 2009, AIGFP terminated certain
CDS transactions with its counterparties with a net notional
amount of $11.4 billion, comprised of $1.5 billion in
Regulatory Capital Other, $2.8 billion in
Multi-sector CDOs and $7.1 billion in Corporate debt/CLOs.
These transactions were terminated at |
58
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
approximately their fair value at the time of the
termination. As a result, a $2.4 billion loss, which was
previously included in the fair value derivative liability as an
unrealized market valuation loss, was realized. |
|
(c) |
|
Fair value amounts are shown before the effects of
counterparty netting adjustments and offsetting cash collateral
in accordance with FIN 39. |
|
(d) |
|
Includes credit valuation adjustment loss of $17 million
and gain of $44 million in the three-month periods ended
June 30, 2009 and 2008, respectively, and credit valuation
adjustment gains of $89 million and $109 million in
the six-month periods ended June 30, 2009 and 2008,
respectively, representing the effect of changes in AIGs
credit spreads on the valuation of the derivatives
liabilities. |
|
(e) |
|
During the first six months of 2009, AIGFP reclassified one
regulatory capital CDS transaction from Regulatory
Capital Corporate loans to Regulatory
Capital Other, given the higher likelihood that it
will not be terminated when the regulatory capital benefit
expires for the counterparty. |
|
(f) |
|
Includes $6.5 billion and $9.7 billion in net
notional amount of credit default swaps written with cash
settlement provisions at June 30, 2009 and
December 31, 2008, respectively. |
|
(g) |
|
During the fourth quarter of 2008, AIGFP terminated the
majority of the CDS transactions written on multi-sector CDOs in
connection with the ML III transaction. |
|
(h) |
|
Includes $1.5 billion in net notional amount of credit
default swaps written on the super senior tranches of CLOs as of
both June 30, 2009 and December 31, 2008. |
|
(i) |
|
Net of offsetting purchased CDS of $1.7 billion and
$2.0 billion in net notional amount at June 30, 2009
and December 31, 2008, respectively. |
All outstanding CDS transactions for regulatory capital purposes
and the majority of the arbitrage portfolio have cash-settled
structures in respect of a basket of reference obligations,
where AIGFPs payment obligations, other than for posting
collateral, may be triggered by payment shortfalls, bankruptcy
and certain other events such as write-downs of the value of
underlying assets. For the remainder of the CDS transactions in
respect of the arbitrage portfolio, AIGFPs payment
obligations are triggered by the occurrence of a credit event
under a single reference security, and performance is limited to
a single payment by AIGFP in return for physical delivery by the
counterparty of the reference security.
The expected weighted average maturity of AIGFPs super
senior credit derivative portfolios as of June 30, 2009 was
0.8 years for the regulatory capital corporate loan
portfolio, 0.7 years for the regulatory capital prime
residential mortgage portfolio, 6.3 years for the
regulatory capital other portfolio, 5.6 years for the
multi-sector CDO arbitrage portfolio and 3.2 years for the
corporate debt/CLO portfolio.
Regulatory
Capital Portfolio
A total of $177.5 billion in net notional amount of
AIGFPs super senior credit default swap portfolio as of
June 30, 2009 represented derivatives written for financial
institutions, principally in Europe, for the purpose of
providing regulatory capital relief rather than for arbitrage
purposes. In exchange for a periodic fee, the counterparties
receive credit protection with respect to a portfolio of
diversified loans they own, thus reducing their minimum capital
requirements. These CDS transactions were structured with early
termination rights for counterparties allowing them to terminate
these transactions at no cost to AIGFP at a certain period of
time or upon a regulatory event such as the implementation of
the Revised Framework for the International Convergence of
Capital Measurement and Capital Standards issued by the Basel
Committee on Banking Supervision, or Basel II. During the
six-month period ended June 30, 2009, $47.3 billion in
net notional amount was terminated or matured. Through
July 31, 2009, AIGFP has also received a formal termination
notice for an additional $2.8 billion in net notional
amount with an effective termination date in 2009.
The regulatory capital relief CDS transactions require cash
settlement and, other than for collateral posting, AIGFP is
required to make a payment in connection with a regulatory
capital relief transaction only if realized credit losses in
respect of the underlying portfolio exceed AIGFPs
attachment point.
59
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
All of the regulatory capital transactions directly or
indirectly reference tranched pools of large numbers of whole
loans that were originated by the financial institution (or its
affiliates) receiving the credit protection, rather than
structured securities containing loans originated by other third
parties. In the vast majority of transactions, the loans are
intended to be retained by the originating financial institution
and in all cases the originating financial institution is the
purchaser of the CDS, either directly or through an intermediary.
The super senior tranches of these CDS transactions continue to
be supported by high levels of subordination, which, in most
instances, have increased since origination. The weighted
average subordination supporting the European residential
mortgage and corporate loan referenced portfolios at
June 30, 2009 was 13.57 percent and
18.63 percent, respectively. The highest level of realized
losses to date in any single residential mortgage and corporate
loan pool was 2.19 percent and 0.52 percent,
respectively. The corporate loan transactions are each comprised
of several hundred secured and unsecured loans diversified by
industry and, in some instances, by country, and have per-issuer
concentration limits. Both types of transactions generally allow
some substitution and replenishment of loans, subject to defined
constraints, as older loans mature or are prepaid. These
replenishment rights generally mature within the first few years
of the trade, after which the proceeds of any prepaid or
maturing loans are applied first to the super senior tranche
(sequentially), thereby increasing the relative level of
subordination supporting the balance of AIGFPs super
senior CDS exposure.
Given the current performance of the underlying portfolios, the
level of subordination and AIGFPs own assessment of the
credit quality of the underlying portfolio, as well as the risk
mitigants inherent in the transaction structures, AIGFP does not
expect that it will be required to make payments pursuant to the
contractual terms of those transactions providing regulatory
relief. Further, AIGFP expects that counterparties will
terminate these transactions prior to their maturity.
Arbitrage
Portfolio
A total of $50.1 billion and $63.1 billion in net
notional amount on AIGFPs super senior credit default
swaps as of June 30, 2009 and December 31, 2008,
respectively, are arbitrage-motivated transactions written on
multi-sector CDOs or designated pools of investment grade senior
unsecured corporate debt or CLOs.
The outstanding multi-sector CDO CDS portfolio at June 30,
2009 was written on CDO transactions that generally held a
concentration of RMBS, CMBS and inner CDO securities. At
June 30, 2009, approximately $4.2 billion net notional
amount (fair value liability of $2.8 billion) of this
portfolio was written on super senior multi-sector CDOs that
contain some level of
sub-prime
RMBS collateral, with a concentration in the 2005 and earlier
vintages of
sub-prime
RMBS. AIGFPs portfolio also included both high grade and
mezzanine CDOs.
The majority of multi-sector CDO CDS transactions require cash
settlement and, other than for collateral posting, AIGFP is
required to make a payment in connection with such transactions
only if realized credit losses in respect of the underlying
portfolio exceed AIGFPs attachment point. In the remainder
of the portfolio, AIGFPs payment obligations are triggered
by the occurrence of a credit event under a single reference
security, and performance is limited to a single payment by
AIGFP in return for physical delivery by the counterparty of the
reference security.
Included in the multi-sector CDO portfolio are
2a-7 Puts.
Holders of securities are required, in certain circumstances, to
tender their securities to the issuer at par. If an
issuers remarketing agent is unable to resell the
securities so tendered, AIGFP must purchase the securities at
par so long as the security has not experienced a payment
default or certain bankruptcy events with respect to the issuer
of such security have not occurred. At both June 30, 2009
and December 31, 2008,
2a-7 Puts
with a net notional amount of $1.7 billion were outstanding.
Included in these amounts are $242 million in net notional
amount subject to
2a-7 Puts
that may be exercised in 2009. ML III has agreed for the
remainder of 2009 to not sell any multi-sector CDOs in 2009 that
are subject to a
2a-7 Put and
to either not exercise its put option on such multi-sector CDOs
or to simultaneously exercise its par put option with a par
purchase of the multi-sector CDO securities. In exchange, AIG
Financial Products Corp. agreed to
60
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
pay to ML III the consideration that it received for
providing the put protection. AIG Financial Products Corp. and
ML III are working to find a long-term solution for the
2a-7 Put
obligations.
The corporate arbitrage portfolio consists principally of CDS
transactions written on portfolios of senior unsecured corporate
obligations that were generally rated investment grade at
inception of the CDS. These CDS transactions require cash
settlement. Also, included in this portfolio are CDS
transactions with a net notional of $1.5 billion written on
the senior part of the capital structure of CLOs, which require
physical settlement.
Certain of the super senior credit default swaps provide the
counterparties with an additional termination right if
AIGs rating level falls to BBB or Baa2. At that level,
counterparties to the CDS transactions with a net notional
amount of $23.9 billion at June 30, 2009 have the
right to terminate the transactions early. If counterparties
exercise this right, the contracts provide for the
counterparties to be compensated for the cost to replace the
transactions, or an amount reasonably determined in good faith
to estimate the losses the counterparties would incur as a
result of the termination of the transactions.
Due to long-term maturities of the CDS in the arbitrage
portfolio, AIG is unable to make reasonable estimates of the
periods during which any payments would be made. However, the
net notional amount represents the maximum exposure to loss on
the super senior credit default swap portfolio.
Collateral
Most of AIGFPs super senior credit default swaps are
subject to collateral posting provisions, which typically are
governed by International Swaps and Derivatives Association,
Inc. (ISDA) Master Agreements (Master Agreements) and related
Credit Support Annexes (CSA). These provisions differ among
counterparties and asset classes. AIGFP has received collateral
calls from counterparties in respect of certain super senior
credit default swaps, of which a large majority relate to
multi-sector CDOs. To a lesser extent, AIGFP has also received
collateral calls in respect of certain super senior credit
default swaps entered into by counterparties for regulatory
capital relief purposes and in respect of corporate arbitrage.
The amount of future collateral posting requirements is a
function of AIGs credit ratings, the rating of the
reference obligations and any further decline in the market
value of the relevant reference obligations, with the latter
being the most significant factor. While a high level of
correlation exists between the amount of collateral posted and
the valuation of these contracts in respect of the arbitrage
portfolio, a similar relationship does not exist with respect to
the regulatory capital portfolio given the nature of how the
amount of collateral for these transactions is determined. Given
the severe market disruption, lack of observable data and the
uncertainty regarding the potential effects on market prices of
measures recently undertaken by the federal government to
address the credit market disruption, AIGFP is unable to
reasonably estimate the amounts of collateral that it may be
required to post in the future.
At June 30, 2009 and December 31, 2008, the amount of
collateral postings with respect to AIGFPs super senior
credit default swap portfolio (prior to offsets for other
transactions) was $6.3 billion and $8.8 billion,
respectively.
AIGFP
Written Single Name Credit Default Swaps
AIGFP has also entered into credit default swap contracts
referencing single-name exposures written on corporate, index,
and asset-backed credits, with the intention of earning spread
income on credit exposure. Some of these transactions were
entered into as part of a long short strategy allowing AIGFP to
earn the net spread between CDS they wrote and ones they
purchased. At June 30, 2009, the net notional amount of
these written CDS contracts was $4.4 billion, with an
average credit rating of BBB. AIGFP has hedged these exposures
by purchasing offsetting CDS contracts of $1.4 billion in
net notional amount with identical reference obligations. The
net unhedged position of approximately $3.0 billion
represents the maximum exposure to loss on these CDS contracts.
The average maturity of the written CDS contracts is
4.8 years. At June 30, 2009, the fair value of
derivative liability (which represents the carrying value) of
the portfolio of CDS was $1.1 billion.
61
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Upon a triggering event (e.g., a default) with respect to the
underlying credit, AIGFP would normally have the option to
settle the position through an auction process (cash settle) or
pay the notional amount of the contract to the counterparty in
exchange for a bond issued by the underlying credit obligor
(physical settle).
AIGFP wrote these written CDS contracts under Master Agreements.
The majority of these Master Agreements include Credit Support
Annexes, which provide for collateral postings at various
ratings and threshold levels. At June 30, 2009, AIGFP had
posted $1.0 billion of collateral under these contracts.
Non-AIGFP
Derivatives
AIG and its subsidiaries (other than AIGFP) also use derivatives
and other instruments as part of their financial risk management
programs. Interest rate derivatives (such as interest rate
swaps) are used to manage interest rate risk associated with
investments in fixed income securities, commercial paper
issuances, medium- and long-term note offerings, and other
interest rate sensitive assets and liabilities. In addition,
foreign exchange derivatives (principally cross currency swaps,
forwards and options) are used to economically mitigate risk
associated with
non-U.S.
dollar denominated debt, net capital exposures and foreign
exchange transactions. The derivatives are effective economic
hedges of the exposures they are meant to offset.
In addition to hedging activities, AIG also uses derivative
instruments with respect to investment operations, which
include, among other things, credit default swaps, and
purchasing investments with embedded derivatives, such as equity
linked notes and convertible bonds.
Matched
Investment Program Written Credit Default Swaps
The MIP has entered into CDS contracts as a writer of
protection, with the intention of earning spread income on
credit exposure in an unfunded form. The portfolio of CDS
contracts were single-name exposures and, at inception, were
predominantly high grade corporate credits.
The MIP invested in written CDS contracts through an affiliate
which then transacts directly with unaffiliated third parties
under ISDA agreements. As of June 30, 2009, the notional
amount of written CDS contracts was $4.1 billion with an
average credit rating of BBB+. The average maturity of the
written CDS contracts is 2.9 years as of June 30,
2009. As of June 30, 2009, the fair value of the derivative
liability (which represents the carrying value) of the
MIPs written CDS was $(127.8) million.
The majority of the ISDA agreements include credit support annex
provisions, which provide for collateral postings at various
ratings and threshold levels. At June 30, 2009,
$55.3 million of collateral was posted for CDS contracts
related to the MIP. The notional amount represents the maximum
exposure to loss on the written CDS contracts. However, due to
the average investment grade rating and expected default
recovery rates, actual losses are expected to be less.
Upon a triggering event (e.g., a default) with respect to the
underlying credit, the MIP would normally have the option to
settle the position through an auction process (cash settlement)
or pay the notional amount of the contract to the counterparty
in exchange for a bond issued by the underlying credit (physical
settlement).
Credit
Risk-Related Contingent Features
AIG holds certain credit risk-related contingent features with
various counterparties in relation to its derivative
transactions that are in a net liability position at
June 30, 2009. These features are predominantly limited to
additional collateral posting requirements contingent upon
downgrade of AIGs credit rating. In addition, AIG attempts
to reduce credit risk with certain counterparties by entering
into agreements that enable collateral to be obtained from a
counterparty on an upfront or contingent basis.
The aggregate fair value of AIGs derivative instruments,
including those of AIGFP, that contain credit risk-related
contingent features that are in a net liability position at
June 30, 2009 was approximately $16.7 billion. The
62
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
aggregate fair value of assets posted as collateral at
June 30, 2009, was $17.1 billion. See Note 4 to
the Consolidated Financial Statements herein.
It is estimated that as of the close of business on
June 30, 2009, based on AIGs outstanding financial
derivative transactions, including those of AIGFP at that date,
a one-notch downgrade of AIGs long-term senior debt
ratings to Baa1 by Moodys Investors Service (Moodys)
and BBB+ by Standard & Poors, a division of The
McGraw-Hill Companies, Inc. (S&P), would permit
counterparties to make additional collateral calls and permit
the counterparties to elect early termination of contracts,
resulting in up to approximately $2.9 billion of
corresponding collateral postings and termination payments, a
two-notch downgrade to Baa2 by Moodys and BBB by S&P
would result in approximately $2.2 billion in additional
collateral postings and termination payments, and a three-notch
downgrade to Baa3 by Moodys and BBB- by S&P would
result in approximately $1.3 billion in additional
collateral and termination payments. The actual termination
payments could significantly differ from managements
estimates given the level of uncertainty in estimating both the
number of counterparties who may elect to exercise their right
to terminate and the payment that may be triggered in connection
with any such exercise.
See Note 10 to the Consolidated Financial Statements in the
2008 Financial Statements for additional information on
derivatives.
|
|
8.
|
Total
Equity and Earnings (Loss) Per Share
|
Stock activity was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
|
Common
|
|
|
Treasury
|
|
Six Months Ended June 30, 2009
|
|
Series E
|
|
|
Series F
|
|
|
Series C
|
|
|
Series D
|
|
|
Stock
|
|
|
Stock
|
|
|
Shares issued, beginning of period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000,000
|
|
|
|
147,401,900
|
|
|
|
12,918,446
|
|
Issuances
|
|
|
|
|
|
|
300,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
(110,804
|
)
|
Shares exchanged
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
(4,000,000
|
)
|
|
|
|
|
|
|
|
|
Fractional shares, paid in cash
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued, end of period
|
|
|
400,000
|
|
|
|
300,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
147,377,020
|
|
|
|
12,807,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
Exchange
of AIG Series D Preferred Stock for AIG Series E
Preferred Stock
On April 17, 2009, AIG entered into a Securities Exchange
Agreement (the Series E Exchange Agreement) with the
Department of the Treasury pursuant to which, among other
things, the Department of the Treasury exchanged
4,000,000 shares of AIGs Series D Fixed Rate
Cumulative Perpetual Preferred Stock, par value $5.00 per share
(AIG Series D Preferred Stock), for 400,000 shares of
AIGs Series E Fixed Rate Non-Cumulative Perpetual
Preferred Stock, par value $5.00 per share (AIG Series E
Preferred Stock), with an aggregate liquidation preference of
$41,604,576,000, which represents the issuance-date aggregate
liquidation preference of the AIG Series D Preferred Stock
surrendered plus accumulated but unpaid dividends thereon of
$1,604,576,000. The terms of the AIG Series E Preferred
Stock are substantially the same as those of the AIG
Series D Preferred Stock, except that the dividends are not
cumulative and the AIG Series E Preferred Stock is subject
to a replacement capital covenant. Concurrently with the
exchange of the shares of AIG Series D Preferred Stock for
shares of the AIG Series E Preferred Stock, AIG entered
into a replacement capital covenant in favor of the holders of a
series of AIG debt, pursuant to which AIG agreed that prior to
the third anniversary of the issuance of the AIG Series E
Preferred Stock, AIG will not redeem or purchase, and no
subsidiary of AIG will purchase, all or any part of the AIG
Series E Preferred Stock except with the proceeds obtained
from the issuance by AIG or any subsidiary of AIG of certain
capital securities.
63
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The Series E Exchange Agreement also permits the Department
of the Treasury, under certain circumstances, to exchange the
warrant (AIG Series D Warrant) received in connection with
the issuance of AIG Series D Preferred Stock for
2,689,938.3 shares of the AIG Series C Preferred Stock.
Issuance
of AIG Series F Preferred Stock and Entry into $29.835
Billion Department of the Treasury Commitment
On April 17, 2009, AIG entered into a Securities Purchase
Agreement (the Series F Purchase Agreement) with the
Department of the Treasury pursuant to which, among other
things, AIG issued to the Department of the Treasury
(i) 300,000 shares of AIGs Series F Fixed
Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00
per share (AIG Series F Preferred Stock), and (ii) the
warrant (AIG Series F Warrant) to purchase 150 shares
of AIG common stock, par value $2.50 per share (AIG Common
Stock).
Pursuant to the Series F Purchase Agreement, the Department
of the Treasury has committed for five years to provide
immediately available funds (the Department of the Treasury
Commitment) in an amount up to $29.835 billion (the
Available Amount) so long as:
|
|
|
|
|
AIG is not a debtor in a pending case under Title 11 of the
United States Code; and
|
|
|
|
the Trust (or any successor entity established for the sole
benefit of the United States Treasury) and the Department of the
Treasury, in the aggregate, beneficially own more
than 50 percent of the aggregate voting power of AIGs
voting securities.
|
The Available Amount will be decreased by the aggregate amount
of financial assistance that the Department of the Treasury
provides to AIG, its subsidiaries or any special purpose vehicle
established by or for the benefit of AIG or any of its
subsidiaries after the issuance of the AIG Series F
Preferred Stock and the AIG Series F Warrant, unless
otherwise specified by the Department of the Treasury, in its
sole discretion, under the terms of such financial assistance.
The Series E Exchange Agreement and the Series F
Purchase Agreement restrict AIGs ability to repurchase
capital stock and require AIG to continue to maintain policies
limiting corporate expenses, lobbying activities and executive
compensation.
The terms of the AIG Series F Preferred Stock are
substantially the same as the AIG Series E Preferred Stock,
except that the AIG Series F Preferred Stock is not subject
to a replacement capital covenant. The liquidation preference of
the AIG Series F Preferred Stock was initially $0 per share
and will be increased pro rata by the amount of each drawdown of
the Department of the Treasury Commitment. On May 13, 2009,
AIG drew down on the Department of the Treasury Commitment in
the amount of approximately $1.15 billion. As a result, the
liquidation preference of the AIG Series F Preferred Stock
increased to $3,833.33 per share.
The AIG Series F Warrant is exercisable, at any time, at an
initial exercise price of $0.000001 per share. The AIG
Series F Warrant will not be subject to any contractual
restrictions on transfer other than such as are necessary to
ensure compliance with U.S. federal and state securities
laws. The Department of the Treasury has agreed that it will not
exercise any voting rights with respect to the AIG Common Stock
issued upon exercise of the Series F Warrant.
Series C
Perpetual, Convertible, Participating Preferred Stock
On March 4, 2009, AIG issued 100,000 shares of AIG
Series C Preferred Stock to the Trust.
The Trust currently holds the AIG Series C Preferred Stock
for the sole benefit of the United States Treasury. The holders
of the AIG Series C Preferred Stock have preferential
liquidation rights over the holders of AIG Common Stock and, to
the extent permitted by law, vote with the AIG Common Stock on
all matters submitted to AIGs shareholders. The AIG
Series C Preferred Stock is entitled to (i) a
percentage of the voting power of AIGs shareholders
entitled to vote on any particular matter and (ii) a
percentage of the aggregate dividend rights of the outstanding
shares of AIG Common Stock and the AIG Series C Preferred
Stock, in each case, on an as converted
64
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
basis, which percentage, when aggregated with the percentage
representing the 2,690,088.3 shares of AIG Common Stock
underlying the warrants issued to the Department of the
Treasury, any other securities convertible into or exchangeable
for AIG Common Stock beneficially owned by the Department of the
Treasury and any AIG Common Stock directly owned by the
Department of the Treasury, represents approximately
79.9 percent of each of such voting power and total
dividends payable. A total of 2,690,088.3 shares of AIG
Common Stock underlie the AIG Series D Warrant and the AIG
Series F Warrant.
Common
Stock
On June 30, 2009 AIGs shareholders approved a
one-for-twenty
reverse common stock split, which became effective on that date.
All references to common shares and per-share data for all
periods presented in this report have been adjusted to give
effect to this reverse split. As no change was made to the par
value of the common shares, a total of $7.0 billion was
reclassified from common stock to additional paid-in capital.
Earnings
(Loss) Per Share (EPS)
Basic and diluted earnings (loss) per share are based on the
weighted average number of common shares outstanding, adjusted
to reflect all stock dividends and stock splits. Diluted
earnings per share is based on those shares used in basic EPS
plus shares that would have been outstanding assuming issuance
of common shares for all dilutive potential common shares
outstanding, adjusted to reflect all stock dividends and stock
splits. Basic earnings (loss) per share is not affected by
outstanding stock purchase contracts. Diluted earnings per share
is determined considering the potential dilution from
outstanding stock purchase contracts using the treasury stock
method and will not be affected by outstanding stock purchase
contracts until the applicable market value per share exceeds
$912.
In connection with the issuance of the Series C Preferred
Stock, AIG began applying the two-class method for calculating
EPS. The two-class method is an earnings allocation method for
computing EPS when a companys capital structure includes
either two or more classes of common stock or common stock and
participating securities. This method determines EPS based on
dividends declared on common stock and participating securities
(i.e., distributed earnings) as well as participation rights of
participating securities in any undistributed earnings.
65
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
The computation of basic and diluted EPS was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
Numerator for EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG
|
|
$
|
1,822
|
|
|
$
|
(5,357
|
)
|
|
$
|
(2,531
|
)
|
|
$
|
(13,162
|
)
|
Cumulative dividends on AIG Series D Preferred Stock
|
|
|
(192
|
)
|
|
|
|
|
|
|
(1,204
|
)
|
|
|
|
|
Deemed dividend to Series D Preferred Stock exchanged for
Series E Preferred Stock
|
|
|
(91
|
)
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
Undistributed earnings allocated to Series C Preferred Stock
|
|
|
(1,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG common shareholders
|
|
$
|
311
|
|
|
$
|
(5,357
|
)
|
|
$
|
(3,826
|
)
|
|
$
|
(13,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding used in the computation of
EPS attributable to AIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued
|
|
|
147,395,680
|
|
|
|
142,484,137
|
|
|
|
147,398,346
|
|
|
|
140,376,524
|
|
Common stock in treasury
|
|
|
(12,834,767
|
)
|
|
|
(12,915,573
|
)
|
|
|
(12,855,213
|
)
|
|
|
(12,324,457
|
)
|
Deferred shares
|
|
|
720,827
|
|
|
|
680,172
|
|
|
|
724,602
|
|
|
|
680,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
135,281,740
|
|
|
|
130,248,736
|
|
|
|
135,267,735
|
|
|
|
128,732,239
|
|
Incremental shares arising from awards outstanding under
share-based employee compensation plans
|
|
|
54,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted*
|
|
|
135,336,440
|
|
|
|
130,248,736
|
|
|
|
135,267,735
|
|
|
|
128,732,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPS attributable to AIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
2.30
|
|
|
$
|
(41.13
|
)
|
|
$
|
(28.29
|
)
|
|
$
|
(102.24
|
)
|
Diluted
|
|
$
|
2.30
|
|
|
$
|
(41.13
|
)
|
|
$
|
(28.29
|
)
|
|
$
|
(102.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Calculated using the treasury stock method. Certain shares
arising from share-based employee compensation plans and the AIG
Series D Warrant were not included in the computation of
diluted EPS because the effect would have been anti-dilutive.
The number of shares excluded were 12 million and
10 million for the three-month periods ended June 30,
2009 and 2008, respectively, and 12 million and
6 million for the six-month periods ended June 30,
2009 and 2008, respectively. |
|
|
9.
|
Ownership
and Transactions With Related Parties
|
(a) Ownership: According to the
Schedule 13D filed on June 5, 2009 by Maurice R.
Greenberg, Edward E. Matthews, Starr International Company,
Inc. (Starr International), C.V. Starr & Co. (CV
Starr), Inc., Universal Foundation, Inc. (Universal Foundation),
The Maurice R. and Corinne P. Greenberg Family
Foundation, Inc., Maurice R. and Corinne P. Greenberg
Joint Tenancy Company, LLC and C.V. Starr & Co., Inc.
Trust. Mr. Greenberg, Mr. Matthews, Starr
International, CV Starr and Universal Foundation could be deemed
to beneficially own 14,146,455 shares of AIGs common
stock at that date. Based on the shares of AIGs common
stock outstanding at July 31, 2009, this ownership would
represent approximately 10.5 percent of the common stock of
AIG. Although these reporting persons may have made filings
under Section 16 of the Securities Exchange Act of 1934
(the
66
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Exchange Act), reporting sales of shares of common stock, no
amendment to the Schedule 13D has been filed to report a
change in ownership subsequent to June 5, 2009.
(b) Reinsurance: Following its
deconsolidation, Transatlantic is considered a related party due
to AIGs ownership of 13.9 percent of
Transatlantics common stock outstanding. At June 30,
2009 AIGs credit exposure to Transatlantic in the form of
uncollateralized reinsurance assets totaled approximately
$1.5 billion. At June 30, 2009, Transatlantic
represented AIGs largest third-party reinsurer.
Transatlantics core operating subsidiaries have financial
strength ratings of A+ by S&P and A by A.M. Best;
the issuer credit rating is a by A.M. Best.
(c) For discussion of the AIG Series C
Preferred Stock and the ownership by the Trust, see Note 8
herein.
|
|
10.
|
Commitments,
Contingencies and Guarantees
|
|
|
(a)
|
Litigation
and Investigations
|
Litigation Arising from Operations. AIG and
its subsidiaries, in common with the insurance and financial
services industries in general, are subject to litigation,
including claims for punitive damages, in the normal course of
their business. In AIGs insurance operations, litigation
arising from claims settlement activities is generally
considered in the establishment of AIGs liability for
unpaid claims and claims adjustment expense. However, the
potential for increasing jury awards and settlements makes it
difficult to assess the ultimate outcome of such litigation.
Various federal, state and foreign regulatory and governmental
agencies are reviewing certain public disclosures, transactions
and practices of AIG and its subsidiaries in connection with
AIGs liquidity problems and industry-wide and other
inquiries including matters relating to compensation paid to
AIGFP employees and payments made to AIGFP counterparties. These
reviews include ongoing investigations by the
U.S. Securities and Exchange Commission (SEC) and
U.S. Department of Justice (DOJ) with respect to the
valuation of AIGFPs multi-sector CDO super senior credit
default swap portfolio under fair value accounting rules and
disclosures relating thereto, and by the U.K. Serious Fraud
Office with respect to the U.K. operations of AIGFP. AIG has
cooperated, and will continue to cooperate, in producing
documents and other information in response to subpoenas and
other requests.
In connection with certain SEC investigations, AIG understands
that some of its employees have received Wells notices and it is
possible that additional current and former employees could
receive similar notices in the future. Under SEC procedures, a
Wells notice is an indication that the SEC staff has made a
preliminary decision to recommend enforcement action that
provides recipients with an opportunity to respond to the SEC
staff before a formal recommendation is finalized.
Although AIG cannot currently quantify its ultimate liability
for the unresolved litigation and investigation matters referred
to below, it is possible that such liability could have a
material adverse effect on AIGs consolidated financial
condition, or its consolidated results of operations or
consolidated cash flow for an individual reporting period.
Litigation
Relating to AIGs Subprime Exposure and AIGFPs
Employee Retention Plan
Securities Actions Southern District of New
York. Between May 21, 2008 and
January 15, 2009, eight purported securities class action
complaints were filed against AIG and certain of its current and
former officers and directors, AIGs outside auditors, and
the underwriters of various securities offerings in the United
States District Court for the Southern District of New York (the
Southern District of New York), alleging claims under the
Exchange Act or claims under the Securities Act of 1933 (the
Securities Act). On March 20, 2009, the Court consolidated
all eight of the purported securities class actions as In re
American International Group, Inc. 2008 Securities Litigation
(the Consolidated 2008 Securities Litigation) and appointed the
State of Michigan Retirement Systems as lead plaintiff.
67
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
On May 19, 2009, lead plaintiff in the Consolidated 2008
Securities Litigation filed a consolidated complaint on behalf
of purchasers of AIG stock during the alleged class period of
March 16, 2006 through September 16, 2008, and on
behalf of purchasers of various AIG securities offered pursuant
to three shelf registration statements filed on June 12,
2003, June 12, 2007, and May 12, 2008. The
consolidated complaint alleges that defendants made statements
during the class period in press releases, AIGs quarterly
and year-end filings, during conference calls and in various
registration statements and prospectuses in connection with the
various offerings that were materially false and misleading and
that artificially inflated the price of AIGs stock. The
alleged false and misleading statements relate to, among other
things, unrealized market valuation losses on AIGFPs super
senior credit default swap portfolio as a result of severe
credit market disruption and AIGs securities lending
program. The consolidated complaint alleges violations of
Sections 10(b) and 20(a) of the Exchange Act and
Sections 11, 12(a)(2), and 15 of the Securities Act. On
August 5, 2009, defendants filed motions to dismiss the
consolidated complaint.
On February 27, 2009, AIGs former Chairman and Chief
Executive Officer, Maurice R. Greenberg, filed a securities
action in the Southern District of New York against AIG and
certain of its current and former officers and directors,
asserting violations of Sections 10(b) and 20(a) of the
Exchange Act and a state common law fraud claim with respect to
his alleged election in December 2007 to receive certain AIG
shares from a deferred compensation program, and based generally
on the same allegations as in the securities class actions
described above. On May 19, 2009, plaintiff Greenberg filed
an amended complaint. The amended complaint in the Greenberg
litigation asserts the same claims and is based generally on the
same factual allegations as the original complaint. On
August 5, 2009, defendants filed motions to dismiss the
amended complaint.
ERISA Actions Southern District of New
York. Between June 25, 2008, and
November 25, 2008, AIG, certain of its executive officers
and directors, and members of AIGs Retirement Board and
Investment Committee were named as defendants in eight purported
class action complaints asserting claims on behalf of
participants in certain pension plans sponsored by AIG or its
subsidiaries. On March 19, 2009, the Court consolidated
these eight actions as In re American International Group, Inc.
ERISA Litigation II, and appointed interim lead plaintiffs
counsel. On June 26, 2009, lead plaintiffs counsel
filed a consolidated amended complaint. The action purports to
be brought as a class action under the Employee Retirement
Income Security Act of 1974, as amended (ERISA), on behalf of
all participants in or beneficiaries of the AIG Incentive
Savings Plan, American General Agents and Managers
Plan, and the CommoLoCo Plan (the Plans) during the period
June 15, 2007 through the present and whose participant
accounts included shares of AIGs common stock. In the
consolidated amended complaint, plaintiffs allege, among other
things, that the defendants breached their fiduciary
responsibilities to Plan participants and their beneficiaries
under ERISA, by continuing to offer the AIG Stock Fund as an
investment option in the Plans after it allegedly became
imprudent to do so. The alleged ERISA violations relate to,
among other things, the defendants purported failure to
monitor
and/or
disclose unrealized market valuation losses on AIGFPs
super senior credit default swap portfolio as a result of severe
credit market disruption.
Derivative Action Southern District of New
York. On November 20, 2007, two purported
shareholder derivative actions were filed in the Southern
District of New York naming as defendants the then current
directors of AIG and certain senior officers of AIG and its
subsidiaries. The actions were consolidated as In re American
International Group, Inc. 2007 Derivative Litigation (the
Consolidated 2007 Derivative Litigation).
On August 6, 2008, a purported shareholder derivative
action was filed in the Southern District of New York asserting
claims on behalf of AIG based generally on the same allegations
as in the consolidated amended complaint in the Consolidated
2007 Derivative Litigation.
On February 11, 2009, the Court approved a stipulation
consolidating the derivative litigation filed on August 6,
2008 with the Consolidated 2007 Derivative Litigation, and
appointing the Louisiana Municipal Police Employees
Retirement System as lead plaintiff. On June 3, 2009, lead
plaintiffs filed a consolidated amended complaint asserting
claims on behalf of nominal defendant AIG for breach of
fiduciary duty, waste of corporate assets, unjust enrichment,
contribution and violations of Sections 10(b) and 20(a) of
the Exchange Act. The factual allegations are generally the same
as those alleged in the Consolidated 2008 Securities Litigation.
On August 5, 2009, defendants filed motions to dismiss the
consolidated complaint.
68
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Derivative and Class Action Central District
of California. On March 26, 2009, a
purported derivative and class action complaint was filed in the
United States District Court for the Central District of
California purporting to assert claims on behalf of nominal
defendant AIG and its shareholders against certain current and
former officers and directors of AIG. The claims relate to
losses suffered by AIG and its shareholders as a result of
AIGs alleged exposure to risks related to the subprime
mortgage market in its credit default swap portfolio, and to
AIGFP employee retention arrangements. Plaintiffs also allege
that defendants misrepresented and omitted material facts during
the alleged class period, December 8, 2000 to the present,
relating to AIGs consolidated financial condition
regarding the true size and scope and the nature of AIGs
exposure to risk. The complaint alleges claims for breach of
fiduciary duty, gross mismanagement, waste of corporate assets,
unjust enrichment and violations of Section 14(e) of the
Exchange Act of 1934. On May 15, 2009, defendants moved to
stay, dismiss or transfer the action. On June 5, 2009, the
Court granted the motion and ordered the action transferred to
the Southern District of New York for consolidation with the
consolidated federal actions.
Derivative Action Supreme Court of New York,
Nassau County. On February 29, 2008, a
purported shareholder derivative complaint was filed in the
Supreme Court of Nassau County naming as defendants the
then-current directors of AIG and certain former and present
senior officers of AIG and its subsidiaries. Plaintiff asserts
claims for breach of fiduciary duty, waste of corporate assets,
and unjust enrichment in connection with AIGs public
disclosures regarding its exposure to what the complaint
describes as the subprime mortgage market. On May 19, 2008,
defendants filed a motion to dismiss or to stay the proceedings
in light of the pending Consolidated 2007 Derivative Litigation.
On March 9, 2009, the Court granted defendants motion
to stay the action.
Derivative Action Supreme Court of New York, New
York County. On March 20, 2009, a purported
shareholder derivative complaint was filed in the Supreme Court
of New York County naming as defendants certain of the current
directors of AIG and the recipients of payments under the AIGFP
Employee Retention Plan. Plaintiffs assert claims on behalf of
nominal defendant AIG for breach of fiduciary duty and waste of
corporate assets against the directors, and for rescission and
constructive trust against the recipients of payments under the
AIGFP Employee Retention Plan.
Derivative Actions Delaware Court of
Chancery. On September 17, 2008, a purported
shareholder derivative complaint was filed in the Court of
Chancery of Delaware naming as defendants certain former and
present directors and senior officers of AIG and its
subsidiaries. Plaintiff asserts claims on behalf of nominal
defendant AIG for breach of fiduciary duty, waste of corporate
assets, and mismanagement in connection with AIGs public
disclosures regarding its exposure to the subprime lending
market. On December 19, 2008, a motion to stay or dismiss
the action was filed on behalf of defendants. On July 17,
2009, the Court granted defendants motion to stay the
action.
On January 15, 2009, a purported shareholder derivative
complaint was filed in the Court of Chancery of Delaware naming
as defendants certain former and present directors of AIG and
Joseph Cassano, the former Chief Executive Officer of AIGFP, and
asserting claims on behalf of nominal defendant AIGFP. As sole
shareholder of AIGFP, AIG was also named as a nominal defendant.
Plaintiff asserts claims against Joseph Cassano for breach of
fiduciary duty and unjust enrichment. The complaint alleges that
Cassano was responsible for losses suffered by AIGFP related to
its exposure to subprime-backed credit default swaps and
collateralized debt obligations and that he concealed these
losses for his own benefit. On July 17, 2009, plaintiff
filed an amended complaint that asserts the same claims and is
based generally on the same factual allegations as the original
complaint.
Derivative Action Superior Court for the State of
California, Los Angeles County. On April 1,
2009, a purported shareholder derivative complaint was filed in
the Superior Court for the State of California, Los Angeles
County, asserting claims on behalf of nominal defendant AIG
against certain officers and directors of AIG. The complaint
asserts claims for waste of corporate assets, breach of
fiduciary duty, abuse of control, and unjust enrichment and
constructive trust in connection with defendants approval
of bonuses and retention payments. On May 29, 2009,
Defendants moved to stay or dismiss the case in favor of the
Consolidated 2007 Derivative Litigation and to quash service of
summons due to lack of personal jurisdiction over certain
individual defendants.
69
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Action by the Starr Foundation Supreme Court of
New York. On May 7, 2008, the Starr
Foundation filed a complaint in New York State Supreme Court
against AIG, AIGs former Chief Executive Officer, Martin
Sullivan, and AIGs then Chief Financial Officer, Steven
Bensinger, asserting a claim for common law fraud. The complaint
alleges that the defendants made materially misleading
statements and omissions concerning alleged multi-billion dollar
losses in AIGs portfolio of credit default swaps. The
complaint asserts that if the Starr Foundation had known the
truth about the alleged losses, it would have sold its remaining
shares of AIG Common Stock and alleges that the Starr Foundation
has suffered damages of at least $300 million. On
May 30, 2008, a motion to dismiss the complaint was filed
on behalf of defendants. After a hearing, the complaint was
dismissed. On December 23, 2008, plaintiff filed a notice
of appeal and a decision on the appeal is pending.
Canadian Securities Class Action Ontario
Superior Court of Justice. On November 13,
2008, an application was filed in the Ontario Superior Court of
Justice for leave to bring a purported securities fraud class
action against AIG, AIGFP, certain of AIGs current and
former officers and directors, and the former Chief Executive
Officer of AIGFP. If the Court grants the application, a class
plaintiff will be permitted to file a statement of claim against
AIG. The proposed statement of claim would assert a class period
of November 10, 2006 through September 16, 2008, and
would allege that during this period defendants made false and
misleading statements and omissions in quarterly and annual
reports and during oral presentations in violation of the
Ontario Securities Act. On April 17, 2009, defendants filed
a motion record in support of their motion to stay or dismiss
for lack of jurisdiction and forum non conveniens. Plaintiffs
are opposing that motion.
Panama Action Tribunal del Circuito Civil, Panama
City, Panama. On February 26, 2009, Starr
International Company, Inc. (SICO) sought permission to file a
complaint in Panamanian court against AIG. In the complaint,
SICO alleges that AIG intentionally concealed from its
shareholders, including SICO, its unstable financial situation
and risk of losses, which ultimately resulted in losses to the
value of SICOs shares of AIG Common Stock. AIG has not yet
appeared in the action.
2006
Regulatory Settlements and Related Matters
2006 Regulatory Settlements. In February 2006,
AIG reached a resolution of claims and matters under
investigation with the DOJ, the SEC, the Office of the New York
Attorney General (NYAG) and the New York State Department of
Insurance (DOI). AIG recorded an after-tax charge of
$1.15 billion relating to these settlements in the fourth
quarter of 2005. The settlements resolved investigations
conducted by the SEC, NYAG and DOI in connection with the
accounting, financial reporting and insurance brokerage
practices of AIG and its subsidiaries, as well as claims
relating to the underpayment of certain workers
compensation premium taxes and other assessments. These
settlements did not, however, resolve investigations by
regulators from other states into insurance brokerage practices
related to contingent commissions and other broker-related
conduct, such as alleged bid rigging. Nor did the settlements
resolve any obligations that AIG may have to state guarantee
funds in connection with any of these matters.
As a result of these settlements, AIG made payments or placed
amounts in escrow in 2006 totaling approximately
$1.64 billion, $225 million of which represented fines
and penalties. Amounts held in escrow totaling approximately
$339 million, including interest thereon, are included in
other assets at June 30, 2009. At that date, all of the
funds were escrowed for settlement of claims resulting from the
underpayment by AIG of its residual market assessments for
workers compensation.
In addition to the escrowed funds, $800 million was
deposited into a fund under the supervision of the SEC as part
of the settlements to be available to resolve claims asserted
against AIG by investors, including the securities class action
shareholder lawsuits described below. On April 14, 2008,
the court overseeing the Fair Fund approved a plan for
distribution of monies in the fund, and on May 18, 2009
ordered that the Distribution Agent was authorized to commence
distribution of Fair Fund monies to approved eligible claimants.
Also, as part of the settlements, AIG agreed to retain, for a
period of three years, an independent consultant to conduct a
review that included, among other things, the adequacy of
AIGs internal control over financial reporting,
70
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
the policies, procedures and effectiveness of AIGs
regulatory, compliance and legal functions and the remediation
plan that AIG has implemented as a result of its own internal
review.
Other Regulatory Settlements. AIGs 2006
regulatory settlements with the SEC, DOJ, NYAG and DOI did not
resolve investigations by regulators from other states into
insurance brokerage practices. AIG entered into agreements
effective January 29, 2008 with the Attorneys General of
the States of Florida, Hawaii, Maryland, Michigan, Oregon, Texas
and West Virginia; the Commonwealths of Massachusetts and
Pennsylvania; and the District of Columbia; as well as the
Florida Department of Financial Services and the Florida Office
of Insurance Regulation, relating to their respective
industry-wide investigations into producer compensation and
insurance placement practices. The settlements call for total
payments of $12.5 million to be allocated among the ten
jurisdictions representing restitution to state agencies and
reimbursement of the costs of the investigation. During the term
of the settlement agreements, AIG will continue to maintain
certain producer compensation disclosure and ongoing compliance
initiatives. AIG will also continue to cooperate with the
industry-wide investigations. The agreement with the Texas
Attorney General also settles allegations of anticompetitive
conduct relating to AIGs relationship with Allied World
Assurance Company and includes an additional settlement payment
of $500,000 related thereto.
AIG entered into an agreement effective March 13, 2008 with
the Pennsylvania Insurance Department relating to the
Departments investigation into the affairs of AIG and
certain of its Pennsylvania-domiciled insurance company
subsidiaries. The settlement calls for total payments of
approximately $13.5 million, of which approximately
$4.4 million was paid under previous settlement agreements.
During the term of the settlement agreement, AIG will provide
annual reinsurance reports, as well as maintain certain producer
compensation disclosure and ongoing compliance initiatives.
NAIC Examination of Workers Compensation Premium
Reporting. During 2006, the Settlement Review
Working Group of the National Association of Insurance
Commissioners (NAIC), under the direction of the states of
Indiana, Minnesota and Rhode Island, began an investigation into
AIGs reporting of workers compensation premiums. In
late 2007, the Settlement Review Working Group recommended that
a multi-state targeted market conduct examination focusing on
workers compensation insurance be commenced under the
direction of the NAICs Market Analysis Working Group. AIG
was informed of the multi-state targeted market conduct
examination in January 2008. The lead states in the multi-state
examination are Delaware, Florida, Indiana, Massachusetts,
Minnesota, New York, Pennsylvania, and Rhode Island. All other
states (and the District of Columbia) have agreed to participate
in the multi-state examination. To date, the examination has
focused on legacy issues related to AIGs writing and
reporting of workers compensation insurance prior to 1996.
AIG has also been advised that the examination will focus on
current compliance with legal requirements applicable to such
business. AIG has been advised by the lead states that to date
no determinations have been made with respect to these issues,
and AIG cannot predict either the outcome of the investigation
or provide any assurance regarding regulatory action that may
result from the investigation.
Securities Action Southern District of New
York. Beginning in October 2004, a number of
putative securities fraud class action suits were filed in the
Southern District of New York against AIG and consolidated as In
re American International Group, Inc. Securities Litigation.
Subsequently, a separate, though similar, securities fraud
action was also brought against AIG by certain Florida pension
funds. The lead plaintiff in the class action is a group of
public retirement systems and pension funds benefiting Ohio
state employees, suing on behalf of themselves and all
purchasers of AIGs publicly traded securities between
October 28, 1999 and April 1, 2005. The named
defendants are AIG and a number of present and former AIG
officers and directors, as well as Starr, SICO, General
Reinsurance Corporation (General Re), and PricewaterhouseCoopers
LLP (PwC), among others. The lead plaintiff alleges, among other
things, that AIG: (1) concealed that it engaged in
anti-competitive conduct through alleged payment of contingent
commissions to brokers and participation in illegal bid-rigging;
(2) concealed that it used income smoothing
products and other techniques to inflate its earnings;
(3) concealed that it marketed and sold income
smoothing insurance products to other companies; and
(4) misled investors about the scope of government
investigations. In addition, the lead plaintiff alleges that
AIGs former Chief Executive Officer, Maurice R. Greenberg,
manipulated AIGs stock price. The lead plaintiff asserts
claims for violations of Sections 11
71
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
and 15 of the Securities Act of 1933, Section 10(b) of the
Exchange Act and
Rule 10b-5
promulgated thereunder, Section 20(a) of the Exchange Act,
and Section 20A of the Exchange Act. In April 2006, the
court denied the defendants motions to dismiss the second
amended class action complaint and the Florida complaint. In
December 2006, a third amended class action complaint was filed,
which does not differ substantially from the prior complaint.
Fact discovery is currently ongoing. On February 20, 2008,
the lead plaintiff filed a motion for class certification. The
motion remains pending.
Derivative Action Southern District of New
York. Between October 25, 2004 and
July 14, 2005, seven separate derivative actions were filed
in the Southern District of New York, five of which were
consolidated into a single action (the New York 2004/2005
Derivative Litigation). The complaint in this action contains
nearly the same types of allegations made in the securities
fraud action described above. The named defendants include
current and former officers and directors of AIG, as well as
Marsh & McLennan Companies, Inc. (Marsh), SICO, Starr,
ACE Limited and subsidiaries (Ace), General Re, PwC, and certain
employees or officers of these entity defendants. Plaintiffs
assert claims for breach of fiduciary duty, gross mismanagement,
waste of corporate assets, unjust enrichment, insider selling,
auditor breach of contract, auditor professional negligence and
disgorgement from AIGs former Chief Executive Officer,
Maurice R. Greenberg, and former Chief Financial Officer, Howard
I. Smith, of incentive-based compensation and AIG share proceeds
under Section 304 of the Sarbanes-Oxley Act, among others.
Plaintiffs seek, among other things, compensatory damages,
corporate governance reforms, and a voiding of the election of
certain AIG directors. AIGs Board of Directors has
appointed a special committee of independent directors (Special
Committee) to review the matters asserted in the operative
consolidated derivative complaint. The court has entered an
order staying this action pending resolution of the Delaware
2004/2005 Derivative Litigation discussed below. The court also
has entered an order that termination of certain named
defendants from the Delaware action applies to this action
without further order of the court. On February 26, 2009,
the Court dismissed those AIG officer and director defendants
against whom the shareholder plaintiffs in the Delaware action
had not pursued claims.
Derivative Actions Delaware Chancery
Court. From October 2004 to April 2005, AIG
shareholders filed five derivative complaints in the Delaware
Chancery Court. All of these derivative lawsuits were
consolidated into a single action as In re American
International Group, Inc. Consolidated Derivative Litigation
(the Delaware
2004/2005
Derivative Litigation). The amended consolidated complaint named
43 defendants (not including nominal defendant AIG) who, as in
the New York 2004/2005 Derivative Litigation, were current and
former officers and directors of AIG, as well as other entities
and certain of their current and former employees and directors.
The factual allegations, legal claims and relief sought in this
action are similar to those alleged in the New York
2004/2005
Derivative Litigation, except that the claims are only under
state law. In early 2007, the court approved an agreement that
AIG be realigned as plaintiff, and, on June 13, 2007,
acting on the direction of the Special Committee, AIG filed an
amended complaint against former directors and officers Maurice
R. Greenberg and Howard I. Smith, alleging breach of fiduciary
duty and indemnification. Also on June 13, 2007, the
Special Committee filed a motion to terminate the litigation as
to certain defendants, while taking no action as to others.
Defendants Greenberg and Smith filed answers to AIGs
complaint and brought third-party complaints against certain
current and former AIG directors and officers, PwC and
Regulatory Insurance Services, Inc. On September 28, 2007,
AIG and the shareholder plaintiffs filed a combined amended
complaint in which AIG continued to assert claims against
defendants Greenberg and Smith and took no position as to the
claims asserted by the shareholder plaintiffs in the remainder
of the combined amended complaint. In that pleading, the
shareholder plaintiffs are no longer pursuing claims against
certain AIG officers and directors. On February 12, 2008,
the court granted AIGs motion to stay discovery pending
the resolution of claims against AIG in the New York
consolidated securities action. On April 11, 2008, the
shareholder plaintiffs filed the First Amended Combined
Complaint, which added claims against former AIG directors and
officers Maurice Greenberg, Edward Matthews, and Thomas Tizzio
for breach of fiduciary duty based on alleged bid-rigging in the
municipal derivatives market. On June 13, 2008, certain
defendants filed motions to dismiss the shareholder
plaintiffs portions of the complaint. On February 11,
2009, the court denied the motions to dismiss filed by Maurice
Greenberg, Edward Matthews, and Thomas Tizzio; granted the
motion to dismiss filed by PwC without prejudice; and granted
the motion to dismiss filed by certain former employees of AIG
without prejudice for lack of personal jurisdiction. The motions
to dismiss filed by the
72
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
remaining parties are pending. On March 6, 2009, the Court
granted an Order of Dismissal, Notice and Order of Voluntary
Dismissal and Stipulation and Order of Dismissal to dismiss
those individual defendants who were similarly situated to the
individuals dismissed by the Court for lack of personal
jurisdiction. On March 12, 2009, Defendant Greenberg filed
his verified answer to AIGs complaint; cross-claims
against Marsh, Ace, General Re, and Thomas Tizzio; and a
third-party complaint against certain current and former AIG
directors and officers, as well as INS Regulatory Insurance
Services, Inc. Defendant Smith has also filed his answer to
AIGs complaint, which was amended on July 9, 2009 to
add cross-claims against Thomas Tizzio and third-party claims
against certain current and former AIG directors and officers,
as well as INS Regulatory Insurance Services, Inc. On
June 17, 2009, the Court issued an opinion granting the
motions to dismiss filed by General Re, Marsh, ACE, and Susan
Rivera. On July 13, 2009 and July 17, 2009, the Court
entered final judgments in favor of PwC, General Re, Marsh, ACE,
and Rivera.
AIG was also named as a defendant in a derivative action in the
Delaware Chancery Court brought by shareholders of Marsh. On
July 10, 2008, shareholder plaintiffs filed a second
consolidated amended complaint, which contains claims against
AIG for aiding and abetting a breach of fiduciary duty and
contribution and indemnification in connection with alleged
bid-rigging and steering practices in the commercial insurance
market that are the subject of the Policyholder Antitrust and
Racketeering Influenced and Corrupt Organizations Act (RICO)
Actions described below. On November 10, 2008, AIG and
certain defendants filed motions to dismiss the shareholder
plaintiffs portions of the complaint. On June 17,
2009, the Court dismissed the claims against AIG, Maurice R.
Greenberg, and Zachary Carter with prejudice and denied the
motions to dismiss filed by the remaining defendants. Final
judgment was entered on June 19, 2009.
Derivative Action Supreme Court of New
York. On February 11, 2009, shareholder
plaintiffs in the Delaware
2004/2005
Derivative Litigation filed a derivative complaint in the
Supreme Court of New York against the individual defendants who
moved to dismiss the complaint in the Delaware
2004/2005
Derivative Litigation on personal jurisdiction grounds. The
defendants include current and former officers and employees of
AIG, Marsh, and General Re; AIG is named as a nominal defendant.
The complaint in this action contains similar allegations to
those made in the Delaware
2004/2005
Derivative Litigation described above. Discovery in this action
is stayed pending the resolution of the claims against AIG in
the securities actions described above under Securities
Actions Southern District of New York. Defendants
filed motions to dismiss the complaint on May 1, and the
shareholder plaintiffs have reached an agreement staying
discovery as well as any motions to dismiss with the General Re
and Marsh defendants pending final adjudication of any claims
against those parties in the Delaware
2004/2005
Derivative Litigation.
Policyholder Antitrust and RICO
Actions. Commencing in 2004, policyholders
brought multiple federal antitrust and RICO class actions in
jurisdictions across the nation against insurers and brokers,
including AIG and a number of its subsidiaries, alleging that
the insurers and brokers engaged in a broad conspiracy to
allocate customers, steer business, and rig bids. These actions,
including 24 complaints filed in different federal courts naming
AIG or an AIG subsidiary as a defendant, were consolidated by
the judicial panel on multi-district litigation and transferred
to the United States District Court for the District of New
Jersey (District of New Jersey) for coordinated pretrial
proceedings. The consolidated actions have proceeded in that
court in two parallel actions, In re Insurance Brokerage
Antitrust Litigation (the Commercial Complaint) and In re
Employee Benefit Insurance Brokerage Antitrust Litigation (the
Employee Benefits Complaint, and, together with the Commercial
Complaint, the Multi-district Litigation).
The plaintiffs in the Commercial Complaint are a group of
corporations, individuals and public entities that contracted
with the broker defendants for the provision of insurance
brokerage services for a variety of insurance needs. The broker
defendants are alleged to have placed insurance coverage on the
plaintiffs behalf with a number of insurance companies
named as defendants, including AIG subsidiaries. The Commercial
Complaint also named various brokers and other insurers as
defendants (three of which have since settled). The Commercial
Complaint alleges, among other things, that defendants engaged
in a widespread conspiracy to allocate customers through
bid-rigging and steering practices. Plaintiffs assert that the
defendants violated the Sherman Antitrust Act, RICO, and the
antitrust laws of 48 states and the District of Columbia,
and are liable under common law breach of fiduciary
73
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
duty and unjust enrichment theories. Plaintiffs seek treble
damages plus interest and attorneys fees as a result of
the alleged RICO and Sherman Antitrust Act violations.
The plaintiffs in the Employee Benefits Complaint are a group of
individual employees and corporate and municipal employers
alleging claims on behalf of two separate nationwide purported
classes: an employee class and an employer class that acquired
insurance products from the defendants from January 1, 1998
to December 31, 2004. The Employee Benefits Complaint names
AIG, as well as various other brokers and insurers, as
defendants. The activities alleged in the Employee Benefits
Complaint, with certain exceptions, track the allegations made
in the Commercial Complaint.
The Court in connection with the Commercial Complaint granted
(without leave to amend) defendants motions to dismiss the
federal antitrust and RICO claims on August 31, 2007 and
September 28, 2007, respectively. The court declined to
exercise supplemental jurisdiction over the state law claims in
the Commercial Complaint and therefore dismissed it in its
entirety. On January 14, 2008, the court granted
defendants motion for summary judgment on the ERISA claims
in the Employee Benefits Complaint and subsequently dismissed
the remaining state law claims without prejudice, thereby
dismissing the Employee Benefits Complaint in its entirety. On
February 12, 2008, plaintiffs filed a notice of appeal to
the United States Court of Appeals for the Third Circuit with
respect to the dismissal of the Employee Benefits Complaint.
Plaintiffs previously appealed the dismissal of the Commercial
Complaint to the United States Court of Appeals for the Third
Circuit on October 10, 2007. Both appeals are fully briefed
and oral argument in both appeals was held on April 21,
2009.
A number of complaints making allegations similar to those in
the Multi-district Litigation have been filed against AIG and
other defendants in state and federal courts around the country.
The defendants have thus far been successful in having the
federal actions transferred to the District of New Jersey and
consolidated into the Multi-district Litigation. These
additional consolidated actions are still pending in the
District of New Jersey, but are currently stayed pending a
decision by the court on whether they will proceed during the
appeal of the dismissal of the Multi-district Litigation. On
August 20, 2008, the District Court, however, granted
plaintiffs motion to lift the stay in one tag-along matter
and suggested that the case be remanded to the transferor court,
and on November 26, 2008, the Judicial Panel on
Multi-district Litigation issued an order remanding the case to
the transferor court. On March 12, 2009, the transferor
court held oral argument on the insurer defendants motion
to dismiss and granted that motion from the bench. The AIG
defendants have also sought to have state court actions making
similar allegations stayed pending resolution of the
Multi-district Litigation proceeding. These efforts have
generally been successful, although discovery has recently
commenced in one case pending in New Jersey state court.
Plaintiffs in another case pending in Texas state court moved to
reopen discovery, and a hearing on that motion was held on
April 9, 2008. The court subsequently issued an order
deferring a ruling on the motion until a hearing was held on
defendants special exceptions, which was held on
April 3, 2009. At the April 3, 2009 hearing, the Court
sustained defendants special exceptions and granted
plaintiff leave to replead. The Court also continued the
discovery stay. On July 13, 2009, Plaintiff filed an
amended petition. AIG has settled several of the various federal
and state actions alleging claims similar to those in the
Multi-district Litigation, including a state court action
pending in Florida in which discovery had been allowed to
proceed.
Ohio Attorney General Action Ohio Court of Common
Pleas. On August 24, 2007, the Ohio Attorney
General filed a complaint in the Ohio Court of Common Pleas
against AIG and a number of its subsidiaries, as well as several
other broker and insurer defendants, asserting violation of
Ohios antitrust laws. The complaint, which is similar to
the Commercial Complaint, alleges that AIG and the other broker
and insurer defendants conspired to allocate customers, divide
markets, and restrain competition in commercial lines of
casualty insurance sold through the broker defendant. The
complaint seeks treble damages on behalf of Ohio public
purchasers of commercial casualty insurance, disgorgement on
behalf of both public and private purchasers of commercial
casualty insurance, and a $500-per-day penalty for each day of
conspiratorial conduct. AIG, along with other co-defendants,
moved to dismiss the complaint on November 16, 2007. On
June 30, 2008, the Court denied defendants motion to
dismiss. On August 18, 2008, defendants filed their answers
to the complaint. Discovery is ongoing.
74
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Actions Relating to Workers Compensation Premium
Reporting Northern District of
Illinois. On May 24, 2007, the National
Workers Compensation Reinsurance Pool (the NWCRP), on
behalf of its participant members, filed a lawsuit in the United
States District Court for the Northern District of Illinois
against AIG with respect to the underpayment by AIG of its
residual market assessments for workers compensation
insurance. The complaint alleges claims for violations of RICO,
breach of contract, fraud and related state law claims arising
out of AIGs alleged underpayment of these assessments
between 1970 and the present and seeks damages purportedly in
excess of $1 billion. On August 6, 2007, the court
denied AIGs motion seeking to dismiss or stay the
complaint or, in the alternative, to transfer to the Southern
District of New York. On December 26, 2007, the court
denied AIGs motion to dismiss the complaint. On
March 17, 2008, AIG filed an amended answer, counterclaims
and third-party claims against the National Council on
Compensation Insurance (in its capacity as attorney-in-fact for
the NWCRP), the NWCRP, its board members, and certain of the
other insurance companies that are members of the NWCRP alleging
violations of RICO, as well as claims for conspiracy, fraud, and
other state law claims. The counterclaim-defendants and
third-party defendants filed motions to dismiss on June 9,
2008. On January 26, 2009, AIG filed a motion to dismiss
all claims in the complaint for lack of subject-matter
jurisdiction. On February 23, 2009, the Court issued a
decision and order sustaining AIGs counterclaims and
sustaining, in part, AIGs third-party claims. The Court
also dismissed certain of AIGs third-party claims without
prejudice. On April 13, 2009, third-party defendant Liberty
Mutual filed third-party counterclaims against AIG, certain of
its subsidiaries, and former AIG executives. The third-party
counterclaims are substantially similar to those filed by the
NWCRP, but also seek damages related to non-NWCRP states,
guaranty funds, and special assessments, in addition to
asserting claims for other violations of state law. On
April 16, 2009, the Court ordered that all third-party
defendants must assert any third-party counterclaims by
April 30, 2009. The Court has otherwise stayed the entire
case pending a ruling on AIGs motion to dismiss for lack
of subject matter jurisdiction.
On April 1, 2009, Safeco Insurance Company of America and
Ohio Casualty Insurance Company filed a complaint in the United
States District Court for the Northern District of Illinois, on
behalf of a purported class of all NWCRP participant members,
against AIG and certain of its subsidiaries with respect to the
underpayment by AIG of its residual market assessments for
workers compensation insurance. The complaint is styled as
an alternative complaint, should the court grant
AIGs motion to dismiss the NWCRP lawsuit for lack of
subject-matter jurisdiction. The allegations in the class action
complaint are substantially similar to those filed by the NWCRP,
but the complaint names former AIG executives as defendants and
asserts a RICO claim against those executives. On April 9,
2009, the Court stayed the case pending disposition of
AIGs motion to dismiss for lack of subject-matter
jurisdiction in the NWCRP lawsuit.
Action Relating to Workers Compensation Premium
Reporting District of South
Carolina. A purported class action was filed in
the United States District Court for the District of South
Carolina on January 25, 2008 against AIG and certain of its
subsidiaries, on behalf of a class of employers that obtained
workers compensation insurance from AIG companies and
allegedly paid inflated premiums as a result of AIGs
alleged underreporting of workers compensation premiums.
An amended complaint was filed on March 24, 2008, and AIG
filed a motion to dismiss the amended complaint on
April 21, 2008. On July 8, 2008, the court granted
AIGs motion to dismiss all claims without prejudice and
granted plaintiff leave to refile subject to certain conditions.
Plaintiffs filed their second amended complaint on July 22,
2008. AIG moved to dismiss the second amended complaint on
August 22, 2008. On March 27, 2009, the court granted
AIGs motion to dismiss all claims related to pre-2001
policies and all claims against two AIG subsidiaries but denied
the motion to dismiss as to claims against AIG and the remaining
subsidiaries. The court also granted AIGs motion to strike
certain allegations from the complaint, including allegations
relating to AIGs alleged underreporting of workers
compensation premiums. Limited discovery related to AIGs
filed-rate doctrine defense was conducted and certain legal
issues related to that defense have been certified to the South
Carolina Supreme Court for determination. However, this action
no longer involves allegations of underreporting of
workers compensation premiums and no longer relates to the
regulatory settlements and litigation concerning those issues.
Litigation Relating to SICO. In July 2005 SICO
filed a complaint against AIG in the Southern District of New
York, claiming that AIG had refused to provide SICO access to
certain artwork, and asking the court to order
75
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
AIG immediately to release the property to SICO. AIG filed an
answer denying SICOs allegations and setting forth
defenses to SICOs claims. In addition, AIG filed
counterclaims asserting breach of contract, unjust enrichment,
conversion, breach of fiduciary duty, a constructive trust and
declaratory judgment relating to SICOs breach of its
commitment to use its AIG shares only for the benefit of AIG and
AIG employees. On June 23, 2008, the Court denied in part
and granted in part SICOs motion for summary
judgment, and on July 31, 2008 the parties submitted a
joint pre-trial order. Trial of AIGs claims for breach of
fiduciary duty and conversion commenced on June 15, 2009.
On July 7, 2009, a jury returned a verdict in SICOs
favor on the conversion claim and an advisory verdict in
SICOs favor on AIGs breach of fiduciary duty claim.
The Court indicated that it would reach its own binding decision
on the breach of fiduciary duty claim in August 2009.
Litigation
Matters Relating to AIGs General Insurance
Operations
Caremark. AIG and certain of its subsidiaries
have been named defendants in two putative class actions in
state court in Alabama that arise out of the 1999 settlement of
class and derivative litigation involving Caremark Rx, Inc.
(Caremark). The plaintiffs in the second-filed action have
intervened in the first-filed action, and the second-filed
action has been dismissed. An excess policy issued by a
subsidiary of AIG with respect to the 1999 litigation was
expressly stated to be without limit of liability. In the
current actions, plaintiffs allege that the judge approving the
1999 settlement was misled as to the extent of available
insurance coverage and would not have approved the settlement
had he known of the existence
and/or
unlimited nature of the excess policy. They further allege that
AIG, its subsidiaries, and Caremark are liable for fraud and
suppression for misrepresenting
and/or
concealing the nature and extent of coverage. In addition, the
intervenor-plaintiffs originally alleged that various lawyers
and law firms who represented parties in the underlying class
and derivative litigation (the Lawyer Defendants) were also
liable for fraud and suppression, misrepresentation, and breach
of fiduciary duty. The complaints filed by the plaintiffs and
the intervenor-plaintiffs request compensatory damages for the
1999 class in the amount of $3.2 billion, plus punitive
damages. AIG and its subsidiaries deny the allegations of fraud
and suppression and have asserted that information concerning
the excess policy was publicly disclosed months prior to the
approval of the settlement. AIG and its subsidiaries further
assert that the current claims are barred by the statute of
limitations and that plaintiffs assertions that the
statute was tolled cannot stand against the public disclosure of
the excess coverage. The plaintiffs and intervenor-plaintiffs,
in turn, have asserted that the disclosure was insufficient to
inform them of the nature of the coverage and did not start the
running of the statute of limitations. On November 26,
2007, the trial court issued an order that dismissed the
intervenors complaint against the Lawyer Defendants and
entered a final judgment in favor of the Lawyer Defendants. The
matter was stayed pending appeal to the Alabama Supreme Court.
In September 2008, the Alabama Supreme Court affirmed the trial
courts dismissal of the Lawyer Defendants. After the case
was sent back down to the trial court, the intervenor-plaintiffs
retained additional counsel the law firm of Haskell
Slaughter Young & Rediker, LLC (Haskell
Slaughter) and filed an Amended Complaint in
Intervention on December 1, 2008. The Amended Complaint in
Intervention names only Caremark and AIG and various
subsidiaries as defendants and purports to bring claims against
all defendants for deceit and conspiracy to deceive. In
addition, the Amended Complaint in Intervention purports to
bring a claim against AIG and its subsidiaries for aiding and
abetting Caremarks alleged deception. The defendants have
moved to dismiss the Amended Complaint, and, in the alternative,
for a more definite statement. The intervenor-plaintiffs have
yet to respond to defendants motion but have indicated to
the court that they intend to remedy any defects in their
Amended Complaint by filing another amended complaint. After the
appearance of the Haskell Slaughter firm on behalf of the
intervenor-plaintiffs, the plaintiffs moved to disqualify all of
the lawyers for the intervenor-plaintiffs because, among other
things, the Haskell Slaughter firm previously represented
Caremark. The intervenor-plaintiffs, in turn, moved to
disqualify the lawyers for the plaintiffs in the first-filed
action. The trial court heard oral argument on the motions to
disqualify on February 6, 2009. On March 2, 2009, both
sets of plaintiffs filed motions to withdraw their respective
motions to disqualify each other after reaching an agreement
among themselves that the Lauriello plaintiffs would act as lead
counsel. The McArthur intervenors also moved to withdraw their
Amended Complaint in Intervention. The trial court granted all
motions to withdraw and ordered the parties to appear on
March 26, 2009 for a status conference. Before the
conference, the McArthur intervenors purported to dismiss their
claims against Lauriello with prejudice pursuant to Ala. R. Civ.
P. 41. The defendants argued that such dismissal was
improper absent Court
76
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
approval, but the Court approved the dismissal on April 2,
2009. At a class action scheduling conference held on
April 14, 2009, the Court established a schedule for class
action discovery that will lead to a hearing on class
certification in March 2010. The parties are presently engaged
in class discovery.
Flight
Equipment
At June 30, 2009, ILFC had committed to purchase 128 new
aircraft deliverable from 2009 through 2019, at an estimated
aggregate purchase price of $14.3 billion. ILFC will be
required to find lessees for any aircraft acquired and to
arrange financing for a substantial portion of the purchase
price.
Included in the 128 new aircraft are 74 Boeing 787 aircraft
(B787s), with the first aircraft currently scheduled to be
delivered in July 2012, not taking into account recent
additional delays in the production of the B787s. ILFC is in
discussion with Boeing related to revisions to the delivery
schedule and potential delay compensation and penalties for
which ILFC may be eligible. ILFC has signed contracts for 31 of
the 74 B787s on order. Under the terms of ILFCs B787
leases, the lessees may be entitled to share in any compensation
which ILFC receives from Boeing for late delivery of the
aircraft.
Other
Commitments
In the normal course of business, AIG enters into commitments to
invest in limited partnerships, private equities, hedge funds
and mutual funds and to purchase and develop real estate in the
U.S. and abroad. These commitments totaled
$7.9 billion at June 30, 2009.
On June 27, 2005, AIG entered into an agreement pursuant to
which AIG agreed, subject to certain conditions, to make any
payment that is not promptly paid with respect to the benefits
accrued by certain employees of AIG and its subsidiaries under
the SICO Plans (as discussed in (c) below under
Benefits Provided by Starr International Company, Inc. and
C.V. Starr & Co., Inc.).
Liability
for unpaid claims and claims adjustment expense
Although AIG regularly reviews the adequacy of the established
liability for unpaid claims and claims adjustment expense, there
can be no assurance that AIGs ultimate liability for
unpaid claims and claims adjustment expense will not develop
adversely and materially exceed AIGs current liability for
unpaid claims and claims adjustment expense. Estimation of
ultimate net claims, claims adjustment expenses and liability
for unpaid claims and claims adjustment expense is a complex
process for long-tail casualty lines of business, which include
excess and umbrella liability, directors and officers liability
(D&O), professional liability, medical malpractice,
workers compensation, general liability, products
liability and related classes, as well as for asbestos and
environmental exposures. Generally, actual historical loss
development factors are used to project future loss development.
However, there can be no assurance that future loss development
patterns will be the same as in the past. Moreover, any
deviation in loss cost trends or in loss development factors
might not be discernible for an extended period of time
subsequent to the recording of the initial loss reserve
estimates for any accident year. Thus, there is the potential
for reserves with respect to a number of years to be
significantly affected by changes in loss cost trends or loss
development factors that were relied upon in setting the
reserves. These changes in loss cost trends or loss development
factors could be attributable to changes in inflation, in labor
and material costs or in the judicial environment, or in other
social or economic phenomena affecting claims.
Benefits
Provided by Starr International Company, Inc. and C.V.
Starr & Co., Inc.
SICO has provided a series of two-year Deferred Compensation
Profit Participation Plans (SICO Plans) to certain AIG
employees. The SICO Plans were created in 1975 when the voting
shareholders and Board of Directors of SICO, a private holding
company whose principal asset is AIG common stock, decided that
a portion of the
77
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
capital value of SICO should be used to provide an incentive
plan for the current and succeeding managements of all American
International companies, including AIG.
None of the costs of the various benefits provided under the
SICO Plans has been paid by AIG, although AIG has recorded a
charge to reported earnings for the deferred compensation
amounts paid to AIG employees by SICO, with an offsetting amount
credited to additional paid-in capital reflecting amounts
considered to be contributed by SICO. The SICO Plans provide
that shares currently owned by SICO are set aside by SICO for
the benefit of the participant and distributed upon retirement.
The SICO Board of Directors currently may permit an early payout
of units under certain circumstances. Prior to payout, the
participant is not entitled to vote, dispose of or receive
dividends with respect to such shares, and shares are subject to
forfeiture under certain conditions, including but not limited
to the participants voluntary termination of employment
with AIG prior to normal retirement age. Under the SICO Plans,
SICOs Board of Directors may elect to pay a participant
cash in lieu of shares of AIG common stock. Following
notification from SICO to participants in the SICO Plans that it
will settle specific future awards under the SICO Plans with
shares rather than cash, AIG modified its accounting for the
SICO Plans from variable to fixed measurement accounting. AIG
gave effect to this change in settlement method beginning on
December 9, 2005, the date of SICOs notice to
participants in the SICO Plans.
AIG has issued unconditional guarantees with respect to the
prompt payment, when due, of all present and future payment
obligations and liabilities of AIGFP arising from transactions
entered into by AIGFP. Also see Note 13 herein for
additional disclosures on guarantees of outstanding debt.
SAI Deferred Compensation Holdings, Inc., a wholly owned
subsidiary of AIG, has established a deferred compensation plan
for registered representatives of certain AIG subsidiaries,
pursuant to which participants have the opportunity to invest
deferred commissions and fees on a notional basis. The value of
the deferred compensation fluctuates with the value of the
deferred investment alternatives chosen. AIG has provided a full
and unconditional guarantee of the obligations of SAI Deferred
Compensation Holdings, Inc. to pay the deferred compensation
under the plan. In December 2008, AIG terminated the plan for
current employees and ceased to permit new deferrals into the
plan.
See Note 6 herein for commitments and guarantees associated
with VIEs.
The components of the net periodic benefit cost with respect
to pensions and other postretirement benefits were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
Postretirement
|
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
|
|
|
|
Plans
|
|
|
Plans
|
|
|
Total
|
|
|
Plans
|
|
|
Plans
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
29
|
|
|
$
|
39
|
|
|
$
|
68
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Interest cost
|
|
|
14
|
|
|
|
54
|
|
|
|
68
|
|
|
|
1
|
|
|
|
4
|
|
|
|
5
|
|
Expected return on assets
|
|
|
(7
|
)
|
|
|
(59
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses
|
|
|
10
|
|
|
|
23
|
|
|
|
33
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
48
|
|
|
$
|
56
|
|
|
$
|
104
|
|
|
$
|
3
|
|
|
$
|
7
|
|
|
$
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pensions
|
|
|
Postretirement
|
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
|
|
|
Non U.S.
|
|
|
U.S.
|
|
|
|
|
|
|
Plans
|
|
|
Plans
|
|
|
Total
|
|
|
Plans
|
|
|
Plans
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
26
|
|
|
$
|
32
|
|
|
$
|
58
|
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
4
|
|
Interest cost
|
|
|
14
|
|
|
|
50
|
|
|
|
64
|
|
|
|
1
|
|
|
|
4
|
|
|
|
5
|
|
Expected return on assets
|
|
|
(12
|
)
|
|
|
(59
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses
|
|
|
3
|
|
|
|
5
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
31
|
|
|
$
|
27
|
|
|
$
|
58
|
|
|
$
|
3
|
|
|
$
|
6
|
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
60
|
|
|
$
|
80
|
|
|
$
|
140
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
10
|
|
Interest cost
|
|
|
30
|
|
|
|
109
|
|
|
|
139
|
|
|
|
2
|
|
|
|
8
|
|
|
|
10
|
|
Expected return on assets
|
|
|
(16
|
)
|
|
|
(114
|
)
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses
|
|
|
21
|
|
|
|
47
|
|
|
|
68
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Other
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
97
|
|
|
$
|
121
|
|
|
$
|
218
|
|
|
$
|
7
|
|
|
$
|
11
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
50
|
|
|
$
|
64
|
|
|
$
|
114
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
8
|
|
Interest cost
|
|
|
28
|
|
|
|
100
|
|
|
|
128
|
|
|
|
2
|
|
|
|
8
|
|
|
|
10
|
|
Expected return on assets
|
|
|
(23
|
)
|
|
|
(119
|
)
|
|
|
(142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of prior service credit
|
|
|
(5
|
)
|
|
|
(1
|
)
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net actuarial losses
|
|
|
7
|
|
|
|
9
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
59
|
|
|
$
|
53
|
|
|
$
|
112
|
|
|
$
|
6
|
|
|
$
|
12
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with the sale of HSB on March 31, 2009, AIG
recognized in income as part of the net gain from the sale, a
net settlement gain of $57 million due to the transfer of
certain HSB-sponsored pension plans in the first quarter.
As of the end of the first six months of 2009, AIG has
contributed $509 million to its U.S. and
non-U.S. pension
plans and expects to contribute approximately an additional
$91 million during 2009. Such subsequent 2009 contributions
will depend, however, on various factors including AIGs
liquidity, asset dispositions, market performance and management
discretion.
In connection with the closing of the sale of 21st Century
Insurance Group on July 1, 2009, AIG will remeasure certain
of its pension and postretirement plans to determine the
curtailment/settlement effect. The effect of remeasurement is
expected to result in an increase to Accumulated other
comprehensive loss of approximately $226 million and a net
loss of approximately $63 million. In addition, the
remeasurement is expected to reduce the estimated 2009 expense
for the AIG U.S. Retirement Plan by approximately
$50 million.
79
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Interim
Period Tax Assumptions and Effective Tax Rates
The U.S. federal income tax rate is 35 percent for
2009. Actual tax expense on income (loss) differs from the
statutory amount computed by applying the federal income tax
rate because of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
of Pre-tax
|
|
|
|
|
|
of Pre-tax
|
|
|
|
Amount
|
|
|
Income
|
|
|
Amount
|
|
|
Income
|
|
|
|
(dollars in millions)
|
|
|
U.S. federal income tax at statutory rate
|
|
$
|
462
|
|
|
|
35.0
|
%
|
|
$
|
(1,767
|
)
|
|
|
35.0
|
%
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(1,828
|
)
|
|
|
(138.6
|
)
|
|
|
(195
|
)
|
|
|
3.9
|
|
Effect of foreign operations
|
|
|
(104
|
)
|
|
|
(7.9
|
)
|
|
|
(50
|
)
|
|
|
1.0
|
|
Uncertain tax positions
|
|
|
360
|
|
|
|
27.3
|
|
|
|
403
|
|
|
|
(8.0
|
)
|
Tax exempt interest
|
|
|
(170
|
)
|
|
|
(12.9
|
)
|
|
|
(366
|
)
|
|
|
7.2
|
|
FIN 46(R) income
|
|
|
17
|
|
|
|
1.3
|
|
|
|
290
|
|
|
|
(5.7
|
)
|
Dividends received deduction
|
|
|
(40
|
)
|
|
|
(3.0
|
)
|
|
|
(71
|
)
|
|
|
1.4
|
|
State income taxes
|
|
|
(37
|
)
|
|
|
(2.8
|
)
|
|
|
41
|
|
|
|
(0.8
|
)
|
Investment in subsidiaries
|
|
|
720
|
|
|
|
54.6
|
|
|
|
(156
|
)
|
|
|
3.1
|
|
Other
|
|
|
94
|
|
|
|
7.0
|
|
|
|
110
|
|
|
|
(2.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual income tax expense
|
|
$
|
(526
|
)
|
|
|
(40.0
|
)%
|
|
$
|
(1,761
|
)
|
|
|
34.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective tax rate on pre-tax income for the three-month
period ended June 30, 2009 was (40.0) percent. The
effective tax rate was negative because AIG recorded a tax
benefit on pre-tax income. The tax benefit was due primarily to
a $1.8 billion decrease in the deferred tax valuation
allowance resulting from the effects of recently announced
transactions, including the sale of AIGs headquarters
building in Tokyo. This benefit was partially offset by
$720 million of deferred tax expense mainly attributable to
the book and tax basis differences of AIG Parents
investment in subsidiaries, primarily attributable to AIGs
divestiture plan, and an increase of $360 million in the
reserve for uncertain tax positions and other discrete period
items. The effective tax rate on the pre-tax loss for the six
months ended June 30, 2009 was 34.9 percent.
The effective tax rate on the pre-tax loss for the three-month
period ended June 30, 2008 was 38.4 percent. The
effective tax rate was higher than the statutory rate of
35 percent due primarily to tax benefits from foreign
operations and tax exempt interest. The effective tax rate on
the pre-tax loss for the six-month period ended June 30,
2008 was 34.4 percent. The effective tax rate was adversely
affected by $703 million of tax charges from the first
three months of 2008, comprised of increases in the reserve for
uncertain tax positions, tax benefits from foreign operations
and tax exempt income and other discrete period items.
AIG is unable to make a reliable estimate of the annual
effective tax rate for 2009 due to the significant variations in
the customary relationship between income tax expense and
pre-tax accounting income or loss; consequently, the actual
effective tax rate for the interim period is being utilized.
Valuation
Allowances on Deferred Tax Assets
AIG recorded a net deferred tax asset after valuation allowance
of $12.8 billion at June 30, 2009 and
$11.0 billion at December 31, 2008.
80
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
A rollforward of the net deferred tax asset was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
Net
|
|
|
|
Tax Asset Before
|
|
|
Valuation
|
|
|
Deferred
|
|
|
|
Valuation Allowance
|
|
|
Allowance
|
|
|
Tax Asset
|
|
|
|
(In billions)
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
$
|
27.5
|
|
|
$
|
(20.9
|
)
|
|
$
|
6.6
|
|
Accumulated other comprehensive loss
|
|
|
4.4
|
|
|
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year
|
|
|
31.9
|
|
|
|
(20.9
|
)
|
|
|
11.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of FSP
FAS 115-2
recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(5.2
|
)
|
|
|
2.7
|
|
|
|
(2.5
|
)
|
Accumulated other comprehensive loss
|
|
|
5.2
|
|
|
|
(0.2
|
)
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Effect of adoption of FSP
FAS 115-2
|
|
|
|
|
|
|
2.5
|
|
|
|
2.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit (provision) for the six months ended June 30, 2009
recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
3.4
|
|
|
|
0.2
|
|
|
|
3.6
|
|
Other comprehensive income (loss)
|
|
|
(3.0
|
)
|
|
|
(0.4
|
)
|
|
|
(3.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Benefit (provision) for the six months ended June 30,
2009
|
|
|
0.4
|
|
|
|
(0.2
|
)
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of sales/deconsolidations on:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
Accumulated other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total effect of sales/deconsolidations
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period recorded in:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
24.8
|
|
|
|
(18.0
|
)
|
|
|
6.8
|
|
Accumulated other comprehensive loss
|
|
|
6.6
|
|
|
|
(0.6
|
)
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
31.4
|
|
|
$
|
(18.6
|
)
|
|
$
|
12.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIG reduced its deferred tax asset valuation allowance by
$2.5 billion as a result of the adoption of FSP
FAS 115-2.
This decrease reflected the reversal of that portion of the
allowance pertaining to the other-than-temporary severity
impairments reclassified from Accumulated deficit to Accumulated
other comprehensive loss.
In addition, AIG recorded an income tax benefit through the
income statement of $0.2 billion for the six months ended
June 30, 2009 comprised of a $1.6 billion charge in
the first quarter offset by a $1.8 billion benefit in the
second quarter. The charge in the first quarter reflected
managements revised projection of future income. The
benefit in the second quarter was primarily related to the
favorable effects of the aforementioned recently announced
transactions.
AIG also recognized a $0.4 billion charge for the three and
six months ended June 30, 2009 in Other comprehensive
income (loss) related primarily to certain available for sale
fixed maturity securities for which management could no longer
assert it has the intent and ability to hold to recovery for tax
purposes.
At June 30, 2009, AIG reported a net deferred tax asset
after valuation allowance of $12.8 billion. This asset was
net of $4.2 billion of net deferred tax liabilities related
to foreign subsidiaries and certain domestic subsidiaries that
file separate tax returns. Management determined that it is more
likely than not that the remaining $17.0 billion net
deferred tax asset is realizable. AIG has also determined that
no valuation allowance is required on $4.3 billion of tax
benefit on available for sale fixed maturity securities that
management has asserted it has the ability and intent
81
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
to hold to recovery. The remaining $12.7 billion of net
deferred tax asset is supported based on managements
assessment of future income, principally related to AIGs
divestiture plan.
Realization of AIGs net deferred tax asset depends on
AIGs ability to consummate the AIA and ALICO transactions
and to generate sufficient future taxable income of the
appropriate character within carryforward periods of the
jurisdictions in which the net operating and capital losses, tax
credits and deductible temporary differences were incurred.
Estimates of future taxable income could change in the near
term, perhaps materially, which may require AIG to adjust its
valuation allowance. Such adjustment, either positive or
negative, could be material to AIGs consolidated financial
condition or its results of operations.
When making its assessment about the realization of its deferred
tax assets at June 30, 2009, AIG considered all available
evidence, including (i) the nature, frequency, and severity
of current and cumulative financial reporting losses,
(ii) actions completed to date and additional actions
expected to be completed, (iii) the carryforward periods
for the net operating and capital loss and foreign tax credit
carryforwards, (iv) the sources and timing of future
taxable income, giving greater weight to discrete sources and to
earlier years in the forecast period, and (v) tax planning
strategies that would be implemented, if necessary, to
accelerate taxable amounts. Management has also considered the
period during which it expects to receive support from the FRBNY.
At June 30, 2009, AIG has deferred tax assets related to
stock compensation of $211 million. Due to the significant
decline in AIGs stock price, these deferred tax assets may
not be realizable in the future. FAS 123(R),
Share-Based Payments, precludes AIG from recognizing
an impairment charge on these assets until the related stock
awards are exercised, vested or expired. Any charge associated
with the deferred tax assets is reported in additional paid-in
capital until the pool of previously recognized tax benefits
recorded in additional paid-in capital is reduced to zero.
Income tax expense would be recognized for any additional charge.
Tax
Litigation
On February 26, 2009, AIG filed a complaint in the United
States District Court for the Southern District of New York
seeking a refund of approximately $306 million in taxes,
interest and penalties paid with respect to its 1997 taxable
year. AIG alleges that the IRS improperly disallowed foreign tax
credits and that AIGs taxable income should be reduced as
a result of AIGs 2005 restatement of its consolidated
financial statements.
FIN 48
At June 30, 2009 and December 31, 2008, AIGs
unrecognized tax benefits, excluding interest and penalties,
were $3.7 billion and $3.4 billion, respectively. The
increase during the first six months of 2009 is primarily
attributable to foreign tax credits associated with cross border
financing transactions. At both June 30, 2009 and
December 31, 2008, AIGs unrecognized tax benefits
included $0.7 billion related to tax positions the
disallowance of which would not affect the effective tax rate.
Accordingly, at June 30, 2009 and December 31, 2008,
the amounts of unrecognized tax benefits that, if recognized,
would favorably affect the effective tax rate were
$3.0 billion and $2.7 billion, respectively.
Interest and penalties related to unrecognized tax benefits are
recognized in income tax expense. At June 30, 2009 and
December 31, 2008 AIG had accrued $553 million and
$426 million, respectively, for the payment of interest
(net of the federal benefit) and penalties.
AIG continually evaluates adjustments proposed by taxing
authorities. At June 30, 2009, such proposed adjustments
would not result in a material change to AIGs consolidated
financial condition, although it is possible that the effect
could be material to AIGs consolidated results of
operations for an individual reporting period. Although it is
reasonably possible that a change in the balance of unrecognized
tax benefits may occur within the next twelve months, at this
time it is not possible to estimate the range of the change due
to the uncertainty of the potential outcomes.
82
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
13.
|
Information
Provided in Connection With Outstanding Debt
|
The following condensed consolidating financial statements
reflect the results of AIG Life Holdings (US), Inc. (AIGLH),
formerly known as American General Corporation, a holding
company and a wholly owned subsidiary of AIG. AIG provides a
full and unconditional guarantee of all outstanding debt of
AIGLH.
In addition, AIG Liquidity Corp. and AIG Program Funding, Inc.
are both wholly owned subsidiaries of AIG. AIG provides a full
and unconditional guarantee of all obligations of AIG Liquidity
Corp. and AIG Program Funding, Inc. There are no reportable
amounts for these entities.
Condensed
Consolidating Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group, Inc.
|
|
|
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
(As Guarantor)
|
|
|
AIGLH
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
AIG
|
|
|
|
(In millions)
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(a)
|
|
$
|
9,742
|
|
|
$
|
|
|
|
$
|
681,392
|
|
|
$
|
(72,629
|
)
|
|
$
|
618,505
|
|
Loans to subsidiaries(b)
|
|
|
69,886
|
|
|
|
|
|
|
|
(69,886
|
)
|
|
|
|
|
|
|
|
|
Cash
|
|
|
63
|
|
|
|
|
|
|
|
5,739
|
|
|
|
|
|
|
|
5,802
|
|
Investment in consolidated subsidiaries(b)
|
|
|
74,975
|
|
|
|
26,405
|
|
|
|
(10,550
|
)
|
|
|
(90,830
|
)
|
|
|
|
|
Debt issuance costs, including prepaid commitment asset of
$13,814
|
|
|
14,106
|
|
|
|
|
|
|
|
170
|
|
|
|
|
|
|
|
14,276
|
|
Other assets
|
|
|
13,644
|
|
|
|
2,633
|
|
|
|
175,360
|
|
|
|
192
|
|
|
|
191,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
182,416
|
|
|
$
|
29,038
|
|
|
$
|
782,225
|
|
|
$
|
(163,267
|
)
|
|
$
|
830,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
489,922
|
|
|
$
|
136
|
|
|
$
|
490,058
|
|
Federal Reserve Bank of New York credit facility
|
|
|
44,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,816
|
|
Federal Reserve Bank of New York Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper Funding Facility
|
|
|
|
|
|
|
|
|
|
|
11,152
|
|
|
|
|
|
|
|
11,152
|
|
Other debt
|
|
|
46,233
|
|
|
|
2,137
|
|
|
|
147,985
|
|
|
|
(72,630
|
)
|
|
|
123,725
|
|
Other liabilities(a)
|
|
|
33,409
|
|
|
|
4,060
|
|
|
|
58,498
|
|
|
|
1,489
|
|
|
|
97,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
124,458
|
|
|
|
6,197
|
|
|
|
707,557
|
|
|
|
(71,005
|
)
|
|
|
767,207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest in partially owned
consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
1,072
|
|
|
|
|
|
|
|
1,072
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AIG shareholders equity
|
|
|
57,958
|
|
|
|
22,841
|
|
|
|
68,798
|
|
|
|
(91,639
|
)
|
|
|
57,958
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
4,798
|
|
|
|
(623
|
)
|
|
|
4,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
57,958
|
|
|
|
22,841
|
|
|
|
73,596
|
|
|
|
(92,262
|
)
|
|
|
62,133
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
182,416
|
|
|
$
|
29,038
|
|
|
$
|
782,225
|
|
|
$
|
(163,267
|
)
|
|
$
|
830,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group, Inc.
|
|
|
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
(As Guarantor)
|
|
|
AIGLH
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
AIG
|
|
|
|
(In millions)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments(a)
|
|
$
|
16,110
|
|
|
$
|
|
|
|
$
|
753,181
|
|
|
$
|
(132,379
|
)
|
|
$
|
636,912
|
|
Loans to subsidiaries(b)
|
|
|
64,283
|
|
|
|
|
|
|
|
(64,283
|
)
|
|
|
|
|
|
|
|
|
Cash
|
|
|
103
|
|
|
|
|
|
|
|
8,539
|
|
|
|
|
|
|
|
8,642
|
|
Investment in consolidated subsidiaries(b)
|
|
|
65,724
|
|
|
|
23,256
|
|
|
|
34,499
|
|
|
|
(123,479
|
)
|
|
|
|
|
Debt issuance costs, including prepaid commitment asset of
$15,458
|
|
|
15,743
|
|
|
|
|
|
|
|
172
|
|
|
|
|
|
|
|
15,915
|
|
Other assets
|
|
|
11,707
|
|
|
|
2,626
|
|
|
|
184,923
|
|
|
|
(307
|
)
|
|
|
198,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
173,670
|
|
|
$
|
25,882
|
|
|
$
|
917,031
|
|
|
$
|
(256,165
|
)
|
|
$
|
860,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
503,171
|
|
|
$
|
(103
|
)
|
|
$
|
503,068
|
|
Federal Reserve Bank of New York credit facility
|
|
|
40,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,431
|
|
Federal Reserve Bank of New York Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paper Funding Facility
|
|
|
|
|
|
|
|
|
|
|
15,105
|
|
|
|
|
|
|
|
15,105
|
|
Other debt
|
|
|
47,928
|
|
|
|
2,097
|
|
|
|
219,596
|
|
|
|
(131,954
|
)
|
|
|
137,667
|
|
Other liabilities(a)
|
|
|
32,601
|
|
|
|
3,063
|
|
|
|
64,804
|
|
|
|
953
|
|
|
|
101,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
120,960
|
|
|
|
5,160
|
|
|
|
802,676
|
|
|
|
(131,104
|
)
|
|
|
797,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interest in partially owned
consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
1,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AIG shareholders equity
|
|
|
52,710
|
|
|
|
20,722
|
|
|
|
103,489
|
|
|
|
(124,211
|
)
|
|
|
52,710
|
|
Noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
8,945
|
|
|
|
(850
|
)
|
|
|
8,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
52,710
|
|
|
|
20,722
|
|
|
|
112,434
|
|
|
|
(125,061
|
)
|
|
|
60,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
173,670
|
|
|
$
|
25,882
|
|
|
$
|
917,031
|
|
|
$
|
(256,165
|
)
|
|
$
|
860,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes intercompany derivative positions, which are
reported at fair value before credit valuation adjustment. |
|
(b) |
|
Eliminated in consolidation. |
84
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Condensed
Consolidating Statement of Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group, Inc.
|
|
|
|
|
|
Other
|
|
|
|
|
|
Consolidated
|
|
|
|
Guarantor
|
|
|
AIGLH
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
AIG
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(665
|
)
|
|
$
|
(39
|
)
|
|
$
|
2,023
|
|
|
$
|
|
|
|
$
|
1,319
|
|
Equity in undistributed net income (loss) of consolidated
subsidiaries(a)
|
|
|
1,967
|
|
|
|
136
|
|
|
|
|
|
|
|
(2,103
|
)
|
|
|
|
|
Dividend income from consolidated subsidiaries(a)
|
|
|
294
|
|
|
|
169
|
|
|
|
|
|
|
|
(463
|
)
|
|
|
|
|
Income tax expense (benefit)(b)
|
|
|
(226
|
)
|
|
|
(11
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
(526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,822
|
|
|
|
277
|
|
|
|
2,312
|
|
|
|
(2,566
|
)
|
|
|
1,845
|
|
Less: Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG
|
|
$
|
1,822
|
|
|
$
|
277
|
|
|
$
|
2,312
|
|
|
$
|
(2,589
|
)
|
|
$
|
1,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(52
|
)
|
|
$
|
(20
|
)
|
|
$
|
(8,684
|
)
|
|
$
|
|
|
|
$
|
(8,756
|
)
|
Equity in undistributed net income (loss) of consolidated
subsidiaries(a)
|
|
|
(6,164
|
)
|
|
|
(1,729
|
)
|
|
|
|
|
|
|
7,893
|
|
|
|
|
|
Dividend income from consolidated subsidiaries(a)
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
(724
|
)
|
|
|
|
|
Income tax expense (benefit)(b)
|
|
|
(135
|
)
|
|
|
(4
|
)
|
|
|
(3,218
|
)
|
|
|
|
|
|
|
(3,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(5,357
|
)
|
|
|
(1,745
|
)
|
|
|
(5,466
|
)
|
|
|
7,169
|
|
|
|
(5,399
|
)
|
Less: Net income attributable to the noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to AIG
|
|
$
|
(5,357
|
)
|
|
$
|
(1,745
|
)
|
|
$
|
(5,424
|
)
|
|
$
|
7,169
|
|
|
$
|
(5,357
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
(3,599
|
)
|
|
$
|
(68
|
)
|
|
$
|
(1,382
|
)
|
|
$
|
|
|
|
$
|
(5,049
|
)
|
Equity in undistributed net income (loss) of consolidated
subsidiaries(a)
|
|
|
(631
|
)
|
|
|
(886
|
)
|
|
|
|
|
|
|
1,517
|
|
|
|
|
|
Dividend income from consolidated subsidiaries(a)
|
|
|
520
|
|
|
|
169
|
|
|
|
|
|
|
|
(689
|
)
|
|
|
|
|
Income tax expense (benefit)(b)
|
|
|
(1,179
|
)
|
|
|
(19
|
)
|
|
|
(563
|
)
|
|
|
|
|
|
|
(1,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(2,531
|
)
|
|
|
(766
|
)
|
|
|
(819
|
)
|
|
|
828
|
|
|
|
(3,288
|
)
|
Less: Net loss attributable to noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(757
|
)
|
|
|
(757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG
|
|
$
|
(2,531
|
)
|
|
$
|
(766
|
)
|
|
$
|
(819
|
)
|
|
$
|
1,585
|
|
|
$
|
(2,531
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(885
|
)
|
|
$
|
(41
|
)
|
|
$
|
(19,094
|
)
|
|
$
|
|
|
|
$
|
(20,020
|
)
|
Equity in undistributed net income (loss) of consolidated
subsidiaries(a)
|
|
|
(13,918
|
)
|
|
|
(2,975
|
)
|
|
|
|
|
|
|
16,893
|
|
|
|
|
|
Dividend income from consolidated subsidiaries(a)
|
|
|
1,473
|
|
|
|
|
|
|
|
|
|
|
|
(1,473
|
)
|
|
|
|
|
Income tax expense (benefit)(b)
|
|
|
(168
|
)
|
|
|
(7
|
)
|
|
|
(6,719
|
)
|
|
|
|
|
|
|
(6,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(13,162
|
)
|
|
|
(3,009
|
)
|
|
|
(12,375
|
)
|
|
|
15,420
|
|
|
|
(13,126
|
)
|
Less: Net income attributable to the noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to AIG
|
|
$
|
(13,162
|
)
|
|
$
|
(3,009
|
)
|
|
$
|
(12,411
|
)
|
|
$
|
15,420
|
|
|
$
|
(13,162
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Eliminated in consolidation. |
|
(b) |
|
The net tax benefit recorded with respect to AIG parent
includes decreases in the valuation allowance of
$1.8 billion, and $195 million for the three and six
months ended June 30, 2009, respectively. The decrease in
valuation allowance is mainly attributable to the effects of
recently announced transactions. See Note 12 for additional
information. |
85
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Condensed
Consolidating Statement of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
|
|
|
|
|
|
|
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
Group, Inc.
|
|
|
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
Guarantor
|
|
|
AIGLH
|
|
|
Subsidiaries
|
|
|
AIG
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(313
|
)
|
|
$
|
|
|
|
$
|
8,349
|
|
|
$
|
8,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested assets disposed
|
|
|
5,168
|
|
|
|
|
|
|
|
63,489
|
|
|
|
68,657
|
|
Invested assets acquired
|
|
|
(4,418
|
)
|
|
|
|
|
|
|
(46,663
|
)
|
|
|
(51,081
|
)
|
Sales of divested businesses, net
|
|
|
850
|
|
|
|
169
|
|
|
|
1,836
|
|
|
|
2,855
|
|
Loans to subsidiaries net
|
|
|
(3,858
|
)
|
|
|
|
|
|
|
3,858
|
|
|
|
|
|
Other
|
|
|
(930
|
)
|
|
|
(1,150
|
)
|
|
|
(10,817
|
)
|
|
|
(12,897
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(3,188
|
)
|
|
|
(981
|
)
|
|
|
11,703
|
|
|
|
7,534
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Reserve Bank of New York credit facility borrowings
|
|
|
15,700
|
|
|
|
|
|
|
|
|
|
|
|
15,700
|
|
Repayment of Federal Reserve Bank of New York credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
borrowings
|
|
|
(12,500
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,500
|
)
|
Issuance of long-term debt
|
|
|
|
|
|
|
|
|
|
|
2,558
|
|
|
|
2,558
|
|
Repayments of long-term debt
|
|
|
(1,876
|
)
|
|
|
|
|
|
|
(9,094
|
)
|
|
|
(10,970
|
)
|
Proceeds from drawdown on the Department of the Treasury
Commitment
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
1,150
|
|
Other
|
|
|
987
|
|
|
|
981
|
|
|
|
(16,347
|
)
|
|
|
(14,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
3,461
|
|
|
|
981
|
|
|
|
(22,883
|
)
|
|
|
(18,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
(40
|
)
|
|
|
|
|
|
|
(2,800
|
)
|
|
|
(2,840
|
)
|
Cash at beginning of period
|
|
|
103
|
|
|
|
|
|
|
|
8,539
|
|
|
|
8,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
63
|
|
|
$
|
|
|
|
$
|
5,739
|
|
|
$
|
5,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
$
|
(594
|
)
|
|
$
|
115
|
|
|
$
|
16,607
|
|
|
$
|
16,128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invested assets disposed
|
|
|
603
|
|
|
|
|
|
|
|
79,738
|
|
|
|
80,341
|
|
Invested assets acquired
|
|
|
(2,096
|
)
|
|
|
|
|
|
|
(87,214
|
)
|
|
|
(89,310
|
)
|
Other
|
|
|
(11,466
|
)
|
|
|
(116
|
)
|
|
|
(1,589
|
)
|
|
|
(13,171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities
|
|
|
(12,959
|
)
|
|
|
(116
|
)
|
|
|
(9,065
|
)
|
|
|
(22,140
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of long-term debt
|
|
|
13,080
|
|
|
|
|
|
|
|
42,605
|
|
|
|
55,685
|
|
Repayments of long-term debt
|
|
|
(1,912
|
)
|
|
|
|
|
|
|
(54,733
|
)
|
|
|
(56,645
|
)
|
Proceeds from common stock issued
|
|
|
7,343
|
|
|
|
|
|
|
|
|
|
|
|
7,343
|
|
Payments advanced to purchase shares
|
|
|
(1,000
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,000
|
)
|
Cash dividends paid to shareholders
|
|
|
(1,036
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,036
|
)
|
Other
|
|
|
(3,003
|
)
|
|
|
|
|
|
|
4,568
|
|
|
|
1,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
13,472
|
|
|
|
|
|
|
|
(7,560
|
)
|
|
|
5,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
|
|
|
|
|
|
|
45
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash
|
|
|
(81
|
)
|
|
|
(1
|
)
|
|
|
27
|
|
|
|
(55
|
)
|
Cash at beginning of period
|
|
|
84
|
|
|
|
1
|
|
|
|
2,199
|
|
|
|
2,284
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period
|
|
$
|
3
|
|
|
$
|
|
|
|
$
|
2,226
|
|
|
$
|
2,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86
American International Group, Inc.
and Subsidiaries
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (continued)
Condensed
Consolidating Statement of Cash Flows
(Continued)
American
International Group, Inc. Guarantor supplementary disclosure of
cash flow information:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Intercompany non-cash financing/investing activities:
|
|
|
|
|
|
|
|
|
Capital contributions in the form of bonds
|
|
$
|
2,698
|
|
|
$
|
|
|
Other non-cash capital contributions to subsidiaries
|
|
$
|
725
|
|
|
$
|
498
|
|
|
|
|
|
|
|
|
|
|
87
American International Group, Inc.
and Subsidiaries
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
Managements Discussion and Analysis of Financial
Condition and Results of Operations is designed to provide the
reader a narrative with respect to American International Group,
Inc.s (AIGs) operations, financial condition and
liquidity and certain other significant matters.
|
|
|
|
|
Index
|
|
Page
|
|
|
|
|
|
88
|
|
|
|
|
89
|
|
|
|
|
92
|
|
|
|
|
100
|
|
|
|
|
110
|
|
|
|
|
111
|
|
|
|
|
117
|
|
|
|
|
118
|
|
|
|
|
123
|
|
|
|
|
131
|
|
|
|
|
146
|
|
|
|
|
148
|
|
|
|
|
154
|
|
|
|
|
156
|
|
|
|
|
159
|
|
|
|
|
182
|
|
|
|
|
183
|
|
|
|
|
192
|
|
|
|
|
196
|
|
|
|
|
197
|
|
|
|
|
197
|
|
|
|
|
199
|
|
Cautionary
Statement Regarding Forward-Looking Information
This Quarterly Report on
Form 10-Q
and other publicly available documents may include, and
AIGs officers and representatives may from time to time
make, projections and statements which may constitute
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These
projections and statements are not historical facts but instead
represent only AIGs belief regarding future events, many
of which, by their nature, are inherently uncertain and outside
AIGs control. These projections and statements may
address, among other things:
|
|
|
|
|
the outcome of the recently completed and proposed transactions
with the Federal Reserve Bank of New York (FRBNY) and the United
States Department of the Treasury (Department of the Treasury);
|
|
|
|
the number, size, terms, cost and timing of dispositions and
their potential effect on AIGs businesses, financial
condition, results of operations, cash flows and liquidity (and
AIG at any time and from time to time may change its plans with
respect to the sale of one or more businesses);
|
|
|
|
AIGs exposures to subprime mortgages, monoline insurers
and the residential and commercial real estate markets;
|
|
|
|
the separation of AIGs businesses from AIG parent company;
|
|
|
|
AIGs ability to retain and motivate its employees; and
|
|
|
|
AIGs strategy for customer retention, growth, product
development, market position, financial results and reserves.
|
88
American International Group, Inc.
and Subsidiaries
It is possible that AIGs actual results and financial
condition will differ, possibly materially, from the anticipated
results and financial condition indicated in these projections
and statements. Factors that could cause AIGs actual
results to differ, possibly materially, from those in the
specific projections and statements include:
|
|
|
|
|
a failure of the completed transactions with the FRBNY or the
Department of the Treasury to achieve their desired objectives;
|
|
|
|
a failure to complete the proposed transactions with the FRBNY;
|
|
|
|
developments in global credit markets; and
|
|
|
|
such other factors as discussed throughout this
Managements Discussion and Analysis of Financial Condition
and Results of Operations and in Part II, Item 1A.
Risk Factors of this Quarterly Report on
Form 10-Q,
in Part II, Item 1A. Risk Factors of AIGs
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009, and in Part I,
Item 1A. Risk Factors of the Annual Report on
Form 10-K
for the year ended December 31, 2008.
|
AIG is not under any obligation (and expressly disclaims any
obligation) to update or alter any projection or other
statement, whether written or oral, that may be made from time
to time, whether as a result of new information, future events
or otherwise.
In addition to reviewing AIGs results for the three- and
six-month periods ended June 30, 2009, this
Managements Discussion and Analysis of Financial Condition
and Results of Operations (MD&A) supplements and updates
the information and discussion included in the Annual Report on
Form 10-K
of AIG for the year ended December 31, 2008 (including the
Form 10-K/A
(Amendment No. 1) filed on April 30, 2009) (the
2008
Form 10-K)
and the revised financial information reflecting the adoption of
Statement of Financial Accounting Standards (FAS) No. 160,
Noncontrolling Interests in Consolidated Financial
Statements, an amendment of ARB No. 51
(FAS 160), included in AIGs Current Report on
Form 8-K
filed on June 29, 2009 (such revised financial information
and the financial statements included in the 2008
Form 10-K,
collectively, the 2008 Financial Statements), to reflect
developments in or affecting AIGs business to date during
2009. Throughout this MD&A, AIG presents its operations in
the way it believes will be most meaningful. Statutory
underwriting profit (loss) is presented in accordance with
accounting principles prescribed by insurance regulatory
authorities because these are standard measures of performance
used in the insurance industry and thus allow more meaningful
comparisons with AIGs insurance competitors. AIG also uses
cross-references to additional information included in this
Quarterly Report on
Form 10-Q
and in the 2008
Form 10-K
to assist readers seeking related information on a particular
subject.
Overview
Operations
AIG identifies its operating segments by product line,
consistent with its management structure. These segments are
General Insurance, Life Insurance & Retirement
Services, Financial Services and Asset Management. Through these
operating segments, AIG provides insurance, financial and
investment products and services to both businesses and
individuals in more than 130 countries and jurisdictions.
AIGs subsidiaries serve commercial, institutional and
individual customers through an extensive property-casualty and
life insurance and retirement services network. AIGs
Financial Services businesses include commercial aircraft and
equipment leasing, capital markets operations and consumer
finance, both in the United States and abroad. AIG also provides
asset management services to institutions and individuals.
Consideration
of AIGs Ability to Continue as a Going
Concern
In the 2008
Form 10-K,
management disclosed the conditions and events that led
management to conclude that AIG would have adequate liquidity to
finance and operate AIGs businesses, execute its asset
disposition plan and repay its obligations for at least the next
twelve months. At that time, the United States government issued
the following statement referring to the March 2009 agreements
in principle and other transactions they expected to
89
American International Group, Inc.
and Subsidiaries
undertake with AIG (many of which were subsequently undertaken)
to strengthen its capital position, enhance its liquidity,
reduce its borrowing costs and facilitate AIGs asset
disposition program.
The steps announced today provide tangible evidence of the
U.S. governments commitment to the orderly
restructuring of AIG over time in the face of continuing market
dislocations and economic deterioration. Orderly restructuring
is essential to AIGs repayment of the support it has
received from U.S. taxpayers and to preserving financial
stability. The U.S. government is committed to continuing
to work with AIG to maintain its ability to meet its obligations
as they come due.
In connection with the preparation of this Quarterly Report on
Form 10-Q,
management assessed whether AIG had the ability to continue as a
going concern. In making this assessment, AIG considered:
|
|
|
|
|
The commitment of the FRBNY and the Department of the Treasury
to the orderly restructuring of AIG and their commitment to
continuing to work with AIG to maintain its ability to meet its
obligations as they come due;
|
|
|
|
AIGs liquidity-related actions and plans to stabilize its
businesses and repay the debt outstanding under the facility
(the FRBNY Facility) provided by the FRBNY under the Credit
Agreement, dated as of September 22, 2008 (as amended, the
FRBNY Credit Agreement), between AIG and the FRBNY;
|
|
|
|
The level of AIGs realized and unrealized losses and the
negative impact of these losses in shareholders equity and
on the capital levels of AIGs insurance subsidiaries;
|
|
|
|
The substantial resolution of the liquidity issues surrounding
the multi-sector super senior credit default swap portfolio of
AIG Financial Products Corp. and AIG Trading Group, Inc. and
their respective subsidiaries (collectively, AIGFP) and the
U.S. securities lending program;
|
|
|
|
The additional capital provided to AIG by the Department of the
Treasury;
|
|
|
|
The proposed transactions contemplated by the Purchase
Agreement, dated as of June 25, 2009, between AIG, American
International Reinsurance Company, Limited (AIRCO) and the FRBNY
(the AIA Purchase Agreement) and the Purchase Agreement, dated
as of June 25, 2009, between AIG and the FRBNY (the ALICO
Purchase Agreement);
|
|
|
|
The planned sales of significant subsidiaries;
|
|
|
|
The continuing liquidity issues in AIGs businesses and
AIGs actions to address such issues; and
|
|
|
|
The substantial risks to which AIG is subject.
|
See Managements Discussion and Analysis of Financial
Condition and Results of Operations in the 2008
Form 10-K,
Notes 1 and 8 to the Consolidated Financial Statements and
the discussion below for further details on these items.
In considering these items, management made significant
judgments and estimates with respect to the potentially adverse
financial and liquidity effects of AIGs risks and
uncertainties. Management also assessed other items and risks
arising in AIGs businesses and made reasonable judgments
and estimates with respect thereto. After consideration,
management believes that it will have adequate liquidity to
finance and operate AIGs businesses and continue as a
going concern for at least the next twelve months.
It is possible that the actual outcome of one or more of
managements plans could be materially different or that
one or more of managements significant judgments or
estimates about the potential effects of the risks and
uncertainties could prove to be materially incorrect or that the
proposed transactions discussed below are not consummated. If
one or more of these possible outcomes is realized, AIG may need
additional U.S. government support to meet its obligations
as they come due.
90
American International Group, Inc.
and Subsidiaries
Capital
Resources and Liquidity
Liquidity
Liquidity
Position
At July 29, 2009, AIG had outstanding net borrowings under
the FRBNY Facility of $40.0 billion, with a remaining
borrowing capacity of $20.0 billion, and accrued
compounding interest and fees totaled $4.8 billion.
Net borrowings outstanding and remaining available amount
that can be borrowed under the FRBNY Facility were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception Through
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
Increase
|
|
|
|
2008
|
|
|
2009
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Net borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans to AIGFP for collateral postings, GIA and other debt
maturities
|
|
$
|
46,997
|
|
|
$
|
50,847
|
|
|
$
|
3,850
|
|
AIGFP repayments to AIG
|
|
|
(4,093
|
)
|
|
|
(7,939
|
)
|
|
|
(3,846
|
)
|
Capital contributions and loans to insurance companies(a)
|
|
|
20,850
|
|
|
|
23,233
|
|
|
|
2,383
|
|
Repayment of obligations to securities lending program
|
|
|
3,160
|
|
|
|
3,160
|
|
|
|
|
|
Repayment of intercompany loans
|
|
|
1,528
|
|
|
|
1,528
|
|
|
|
|
|
Contributions to AIGCFG subsidiaries(b)
|
|
|
1,672
|
|
|
|
1,215
|
|
|
|
(457
|
)
|
Loans to ILFC
|
|
|
|
|
|
|
1,700
|
|
|
|
1,700
|
|
Debt payments
|
|
|
2,109
|
|
|
|
3,474
|
|
|
|
1,365
|
|
Funding of equity interest in ML III
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
|
Repayment from the proceeds of the issuance of Series D
Preferred Stock and common stock warrant
|
|
|
(40,000
|
)
|
|
|
(40,000
|
)
|
|
|
|
|
Other(c)
|
|
|
(423
|
)
|
|
|
(2,218
|
)
|
|
|
(1,795
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings
|
|
|
36,800
|
|
|
|
40,000
|
|
|
|
3,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total FRBNY Facility
|
|
|
60,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining available amount
|
|
|
23,200
|
|
|
|
20,000
|
|
|
|
(3,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net borrowings
|
|
|
36,800
|
|
|
|
40,000
|
|
|
|
3,200
|
|
Accrued compounding interest and fees(d)
|
|
|
3,631
|
|
|
|
4,816
|
|
|
|
1,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total balance outstanding
|
|
$
|
40,431
|
|
|
$
|
44,816
|
|
|
$
|
4,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes securities lending activities. |
|
(b) |
|
Includes repayments and sales of subsidiaries. |
|
(c) |
|
Includes repayments with proceeds from the CPFF and tax
refunds. |
|
(d) |
|
Excludes interest payable of $8 million and
$5 million at December 31, 2008 and June 30,
2009, respectively, which was included in Other liabilities. |
On April 17, 2009, AIG entered into a Securities Purchase
Agreement with the Department of the Treasury, pursuant to which
the Department of the Treasury will provide an amount up to
$29.835 billion (the Department of the Treasury Commitment)
in exchange for increases in the liquidation preference of
AIGs Series F Fixed Rate Non-Cumulative Perpetual
Preferred Stock, par value $5.00 per share (the AIG
Series F Preferred Stock), so long as (i) AIG is not a
debtor in a pending case under Title 11 of the United
States Code; and (ii) the AIG Credit Facility Trust, a
trust established for the sole benefit of the United States
Treasury (Trust) (or any successor entity established for the
sole benefit of the United States Treasury) and the Department
of the Treasury, in the aggregate, beneficially own
more than 50 percent of the aggregate voting power of
AIGs voting securities. Upon drawings under this
commitment, the liquidation preference of the AIG Series F
Preferred Stock increases proportionately.
91
American International Group, Inc.
and Subsidiaries
A summary of drawdown activity and available amount under the
Department of the Treasury Commitment were as follows:
|
|
|
|
|
|
|
Inception Through
|
|
|
|
June 30, 2009
|
|
|
|
(In millions)
|
|
|
Initial drawdown for capital contribution to Domestic
Life & Retirement Services companies
|
|
$
|
1,150
|
|
|
|
|
|
|
Total drawdowns
|
|
|
1,150
|
|
|
|
|
|
|
|
|
|
|
|
Original availability under commitment
|
|
$
|
29,835
|
|
Total drawdowns
|
|
|
(1,150
|
)
|
|
|
|
|
|
Remaining available amount
|
|
$
|
28,685
|
|
|
|
|
|
|
|
|
|
|
|
On August 6, 2009, AIG delivered a notice of an additional
drawdown of approximately $2.1 billion under the Department
of Treasury Commitment. AIG expects to receive the funds on
August 13, 2009.
Additional details regarding liquidity sources are included in
Liquidity of Parent and Subsidiaries below.
Completed
and Proposed Transactions in the Second Quarter of
2009
See Notes 1 and 8 to the Consolidated Financial Statements
for information regarding the following transactions that were
consummated in April 2009:
|
|
|
|
|
Exchange of AIG Series D Preferred Stock for AIGs
Series E Fixed Rate Non-Cumulative Perpetual Preferred
Stock, par value $5.00 per share (AIG Series E Preferred
Stock);
|
|
|
|
Issuance of AIG Series F Preferred Stock and the entry into
the Department of the Treasury Commitment; and
|
|
|
|
Amendment No. 3 to the FRBNY Credit Agreement which, among
other things, removed the minimum 3.5 percent London
Interbank Offered Rate (LIBOR) borrowing rate floor.
|
AIA Purchase
Agreement
On June 25, 2009, AIG and AIRCO entered into the AIA
Purchase Agreement with the FRBNY pursuant to which the FRBNY
will purchase preferred equity interests in a newly-formed
special purpose vehicle in exchange for a reduction of
$16 billion in the outstanding balance of the FRBNY
Facility and the maximum amount available to be borrowed
thereunder (provided the maximum amount available under the
FRBNY Facility will not be less than $25 billion as a
result of such reduction).
ALICO
Purchase Agreement
On June 25, 2009, AIG entered into the ALICO Purchase
Agreement with the FRBNY pursuant to which the FRBNY will
purchase preferred equity interests in a newly-formed special
purpose vehicle in exchange for a reduction of $9 billion
in the outstanding balance of the FRBNY Facility and the maximum
amount available to be borrowed thereunder (provided the maximum
amount available under the FRBNY Facility will not be less than
$25 billion as a result of such reduction).
Amortization
of Prepaid Commitment Asset
Any permanent reduction in the FRBNY Facility will result in
accelerated amortization of a portion of the prepaid commitment
asset. Therefore, AIG anticipates that the consummation of each
of the AIA Purchase Agreement and the ALICO Purchase Agreement
will result in accelerated amortization of the prepaid
commitment asset at the time that the senior interests are
transferred to the FRBNY, currently expected to occur no earlier
than the fourth quarter of 2009. Acceleration of the
amortization will result in a pre-tax charge to earnings which
could aggregate to approximately $5.0 billion.
92
American International Group, Inc.
and Subsidiaries
Life
Insurance Securitizations
On March 2, 2009, AIG and the Board of Governors of the
Federal Reserve System announced their intent to enter into
transactions pursuant to which the FRBNY will purchase embedded
value securitization notes issued by newly-formed SPVs to be
repaid with the net cash flows from designated blocks of
existing life insurance policies. The proceeds of the notes
would be applied in settlement of a portion of the outstanding
balance of the FRBNY Facility and would reduce the maximum
amount to be borrowed thereunder (provided the maximum amount
available under the FRBNY Facility will not be less than
$25 billion as a result of such reduction). The amount of
the FRBNY Facility reduction will be based on the proceeds
received and will also result in accelerated amortization of a
portion of the prepaid commitment asset. The SPVs are expected
to be consolidated by AIG.
See Note 1 to the Consolidated Financial Statements for
further information on these transactions.
AIGs
Strategy for Stabilization and Repayment of its Obligations as
They Come Due
Future
Cash Requirements
The following table shows the maturing debt of AIG and its
subsidiaries for the next four quarters:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
Fourth
|
|
|
First
|
|
|
Second
|
|
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
|
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
AIG
|
|
$
|
4
|
|
|
$
|
1,000
|
|
|
$
|
888
|
|
|
$
|
|
|
|
$
|
1,892
|
|
AIG MIP
|
|
|
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
500
|
|
AIGFP
|
|
|
2,092
|
|
|
|
1,183
|
|
|
|
891
|
|
|
|
423
|
|
|
|
4,589
|
|
ILFC(a)
|
|
|
1,199
|
|
|
|
2,998
|
|
|
|
738
|
|
|
|
1,473
|
|
|
|
6,408
|
|
AGF(b)(c)
|
|
|
3,209
|
|
|
|
1,661
|
|
|
|
739
|
|
|
|
591
|
|
|
|
6,200
|
|
Other subsidiaries
|
|
|
169
|
|
|
|
294
|
|
|
|
219
|
|
|
|
206
|
|
|
|
888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,673
|
|
|
$
|
7,136
|
|
|
$
|
3,975
|
|
|
$
|
2,693
|
|
|
$
|
20,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
International Lease Finance Corporation. |
|
(b) |
|
American General Finance, Inc. |
|
(c) |
|
On July 9, 2009, AGF converted the $2.45 billion of
loans that AGF had previously drawn on its
364-Day
Syndicated Facility into one-year term loans. These termed-out
loans must be repaid by July 9, 2010. |
In addition, at July 29, 2009, AIG affiliates had
$10.7 billion of commercial paper outstanding under the
CPFF, all of which matures in October 2009. This includes
$3.4 billion issued by AIG Funding, Inc. (AIG Funding). If
AIGs short-term ratings are downgraded, AIG may lose
access to the CPFF and would be required to find other sources
to fund the maturing commercial paper.
AIG expects to meet these obligations primarily through
borrowings from the FRBNY Facility and the cash flows from, and
the disposition of, assets supporting these obligations.
Additional liquidity is also available under the Department of
Treasury Commitment. Debt maturities for the Matched Investment
Program (MIP) are expected to be funded through cash flows
generated from invested assets (principal and interest) as well
as the sale or financing of the asset portfolios in the program.
Approximately $3.3 billion of AIGFPs debt maturities
through June 30, 2010 are fully collateralized with assets
backing the corresponding liabilities. It is expected that AGF
and ILFC will require support from AIG, in addition to their
cash flows from operations and proceeds from potential asset
sales and securitizations, to meet their existing obligations.
AIG intends to provide such support through August 15, 2010
to the extent that asset sales, securitizations
and/or other
transactions are not sufficient.
In the first six months of 2009, AIG made capital contributions
of $2.4 billion to certain of its Domestic Life
Insurance & Retirement Services companies.
Approximately $1.2 billion of this amount was funded
through drawdowns under the Department of the Treasury
Commitment. If a substantial portion of the Domestic Life
Insurance & Retirement Services bond portfolio
diminishes significantly in value or suffers adverse credit
events, AIG may need to provide additional capital support for
these operations.
93
American International Group, Inc.
and Subsidiaries
AIG made capital contributions of $641 million to its
Commercial Insurance companies in the first six months of 2009,
all of which was returned as a dividend to AIG in July 2009. In
addition, in connection with the sale by a Commercial Insurance
subsidiary of a portion of its common stock of Transatlantic
Holdings, Inc. (Transatlantic), AIG made a capital contribution
of $91 million in the second quarter of 2009 to that
company.
AIG also made a $600 million capital contribution to AGF
(through AIG Capital Corporation) during the first six months of
2009, and AGF loaned $800 million to AIG parent under a
demand note.
AIG has developed certain plans (described below), some of which
have already been implemented, to provide stability to its
businesses and to provide for the timely repayment of the FRBNY
Facility; other plans are still being formulated.
Asset
Disposition Plan
AIG has revised its asset disposition plans over the last nine
months to take into account the deterioration of global market
conditions. AIGs current asset disposition plan is to
maximize the value of its businesses over a longer time frame.
AIG continually reassesses its disposition plans and may revise
its disposition plans at any time and from time to time.
Sales of
Businesses and Specific Asset Dispositions
Sales of
Businesses
Dispositions of certain businesses will be subject to regulatory
approval. Proceeds from these dispositions, to the extent they
do not represent capital of AIGs insurance subsidiaries
required for regulatory or ratings purposes, are contractually
required to be applied toward the repayment of the FRBNY
Facility as mandatory prepayments.
During the first six months of 2009 and through July 31,
2009, AIG entered into agreements to sell or completed the sale
of operations and assets, excluding AIGFP assets, that had
aggregate assets and liabilities with carrying values of
$31.2 billion and $23.8 billion, respectively, at
June 30, 2009 or the date of sale or in the case of
Transatlantic, deconsolidation. Aggregate net proceeds from
these sale transactions are expected to be approximately
$8.0 billion. These transactions are expected to generate
approximately $4.6 billion of aggregate net cash proceeds
to repay outstanding borrowings on, and reduce the amount of,
the FRBNY Facility, after taking into account taxes, transaction
expenses and capital required to be retained for regulatory or
ratings purposes. Gains and losses recorded in connection with
the disposals of businesses include estimates that are subject
to subsequent adjustment. Based on the transactions thus far,
AIG does not believe that such adjustments will be material to
future results of operations or cash flows.
These transactions included the following:
|
|
|
|
|
On June 10, 2009, AIG closed a public offering of
29.9 million shares of Transatlantic common stock owned by
AIG for aggregate proceeds of $1.1 billion. At the close of
the public offering, AIG retained 13.9 percent of
Transatlantics outstanding shares of common stock. As a
result, AIG deconsolidated Transatlantic, which resulted in a
$1.4 billion reduction in Noncontrolling interest, a component
of Total equity.
|
|
|
|
On July 1, 2009, AIG closed the sale of its U.S. auto
insurance business, 21st Century Insurance Group. This
operation had total assets and liabilities with carrying values
of $5.7 billion and $3.4 billion, respectively, at
June 30, 2009. Aggregate proceeds from the sale of this
business, including proceeds applied to repay intercompany loan
facilities, were $1.9 billion.
|
|
|
|
On May 28, 2009, AIG completed the sale of its headquarters
building in Tokyo for approximately $1.2 billion in cash.
Due to AIGs continued involvement as a lessee, primarily
in the form of a lease deposit, through 2011, the sale is
accounted for as a financing arrangement with any gain deferred
until the expiration of AIGs leases in early 2011.
|
|
|
|
On July 28, 2009, AIG completed the sale of a majority of
the U.S. life insurance premium finance business of AIG
Credit Corp. and A.I. Credit Consumer Discount Company
(A.I.Credit), with a carrying value of $941.3 million at
that date, for $680 million in cash, including
$230 million held in escrow.
|
94
American International Group, Inc.
and Subsidiaries
Securitization
Transaction
During the first six months of 2009, AGF received proceeds of
$1.4 billion from real estate loan portfolio sales. In
addition, on July 30, 2009, AGF issued mortgage-backed
certificates in a private securitization transaction of certain
AGF real estate loans and received initial cash proceeds of
$967 million.
AIGFP
Wind-down
AIGFP is engaged in a multi-step process of unwinding its
businesses and portfolios. In connection with that process,
certain assets have been sold, or are under contract to be sold.
The proceeds from these sales will be used to
fund AIGFPs wind-down and are not included in the
amounts above. The FRBNY has waived the requirement under the
FRBNY Credit Agreement that the proceeds of these specific
pending sales be applied as a mandatory prepayment under the
FRBNY Facility, which would result in a permanent reduction of
the FRBNYs commitment to lend to AIG. Instead, the FRBNY
has given AIGFP permission to retain the proceeds of these
completed sales, and has required that such proceeds received
from certain future sales be used to voluntarily prepay the
FRBNY Facility, with the amounts prepaid available for future
reborrowing subject to the terms of the FRBNY Facility. With the
consent of the FRBNY, AIGFP is also opportunistically
terminating contracts. AIGFP is entering into new derivative
transactions only to hedge its current portfolio, reduce risk
and hedge the currency, interest rate and other market risks
associated with AIGs affiliated businesses. Due to the
long-term duration of AIGFPs derivative contracts and the
complexity of AIGFPs portfolio, AIG expects that an
orderly wind-down of AIGFP will take a substantial period of
time. The cost of executing the wind-down will depend on many
factors, many of which are not within AIGs control,
including market conditions, AIGFPs access to markets via
market counterparties, the availability of liquidity and the
potential implications of further rating downgrades.
AIG continually evaluates overall market conditions, performance
of businesses that are for sale, and market and business
performance of competitors and likely bidders for these assets.
This evaluation informs decision-making about the timing and
process of putting businesses up for sale. Depending on market
and business conditions, as noted above, AIG can modify its
sales approach to maximize value for AIG and the
U.S. taxpayers in the disposition process. Such a
modification could result in the sale of additional or other
assets.
Liquidity
of Parent and Subsidiaries
AIG
(Parent)
AIG Parent had the following sources of liquidity:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
June 30,
|
|
|
July 29,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Available borrowing under the FRBNY Facility
|
|
$
|
20,000
|
|
|
$
|
20,000
|
|
Available commercial paper borrowings under the CPFF
|
|
|
1,945
|
|
|
|
3,493
|
|
Cash and short-term investments
|
|
|
639
|
|
|
|
407
|
|
Available capacity under the Department of the Treasury
Commitment
|
|
|
28,685
|
|
|
|
28,685
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
51,269
|
|
|
$
|
52,585
|
|
|
|
|
|
|
|
|
|
|
As a result, AIG believes that it has sufficient liquidity at
the Parent to meet its obligations through at least the next
twelve months. However, no assurance can be given that
AIGs cash needs will not exceed projected amounts.
Additional collateral calls at AIGFP, a further downgrade of
AIGs credit ratings or unexpected capital or liquidity
needs of AIGs subsidiaries may result in significant
additional cash needs. For a further discussion of this risk,
see Item 1A. Risk Factors in the 2008
Form 10-K.
Since the fourth quarter of 2008, AIG has not had access to its
traditional sources of long-term or short-term financing through
the public debt markets. Further, in light of the performance of
AIGs common stock, AIG does not expect to be able to issue
equity securities for cash in the public markets in the
foreseeable future.
95
American International Group, Inc.
and Subsidiaries
Historically AIG depended on dividends, distributions, and other
payments from subsidiaries to fund payments on its obligations.
In light of AIGs current financial situation, many of its
regulated subsidiaries are restricted from making dividend
payments, or advancing funds, to AIG (see Item 1A. Risk
Factors in the 2008
Form 10-K).
As a result, AIG has been dependent on the FRBNY Facility, the
CPFF and other transactions with the FRBNY and the Department of
the Treasury as its primary sources of liquidity. Primary uses
of cash flow are for debt service and subsidiary funding. In the
six-month period ended June 30, 2009, AIG parent collected
$608 million in dividends and other payments from
subsidiaries (primarily from insurance company subsidiaries),
and retired $381 million of debt, excluding MIP and
Series AIGFP debt. Excluding MIP and Series AIGFP
debt, AIG parent made interest payments totaling
$1.0 billion, and made $2.3 billion in net capital
contributions to subsidiaries in the six months ended
June 30, 2009. In addition, during the six months ended
June 30, 2009, AIG parent made loans totaling
$1.2 billion to wholly owned subsidiaries, which in turn
principally were used to make capital contributions to insurance
companies.
AIG parent traditionally funded a portion of its short-term
working capital needs through commercial paper issued by AIG
Funding. Since October 2008, all commercial paper issuance for
AIG Funding has been through the CPFF program. AIG Funding was
accepted into the CPFF with a total borrowing limit of
$6.9 billion, and had approximately $4.9 billion and
$3.4 billion outstanding at June 30, 2009 and
July 29, 2009, respectively. All commercial paper
outstanding for AIG Funding as of these dates was issued under
the CPFF. As of June 30, 2009 and July 29, 2009, AIG
Fundings commercial paper program had average maturities
of 25 days, and 86 days, respectively. The Board of
Governors of the Federal Reserve System has extended the CPFF
program until February 1, 2010, with the maximum final
maturity of 90 days from that date. If AIGs
short-term ratings are downgraded, AIG may lose access to the
CPFF and would be required to find other sources to fund the
maturing commercial paper.
AIG expects to use a portion of the proceeds from the repayment
of intercompany debt received in connection with the sales of
assets to fund maturing commercial paper.
AIGs liquidity could also be further impaired by
unforeseen significant outflows of cash. This situation may
arise due to circumstances that AIG may be unable to control,
such as a further reduction in asset values, a ratings
downgrade, a worsening of the current recession or the
requirements of subsidiaries to replace capital as a consequence
of catastrophe claims. Regulatory and other legal restrictions
would likely limit AIGs ability to transfer funds freely,
either to or from its subsidiaries.
General
Insurance
During the six months ended June 30, 2009, AIG made a
capital contribution of $641 million to a Commercial
Insurance subsidiary, all of which was returned as a dividend to
AIG in July 2009. In addition, in connection with the sale by a
Commercial Insurance subsidiary of a portion of its common
shares of Transatlantic, AIG made a capital contribution of
$91 million in the second quarter of 2009 to that company.
AIG currently expects that its General Insurance 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
AIGs credit ratings could put pressure on the insurer
financial strength ratings of these 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 these companies ability
to meet their own obligations and require that AIG provide
capital or liquidity support to them. For a discussion of
AIGs potential inability to support its subsidiaries, see
Item 1A. Risk Factors Liquidity in the 2008
Form 10-K.
At June 30, 2009, General Insurance had liquidity in the
form of cash and short-term investments of $12.4 billion.
These are consolidated cash and short-term investments for a
number of legal entities within General Insurance. Generally,
these assets are not transferable across various legal entities;
however, there are generally sufficient cash and short-term
investments within those legal entities such that they can meet
their individual liquidity needs. In the event additional
liquidity is required, management believes it can provide such
liquidity through sale of a portion of its substantial holdings
in government and corporate bonds as well as equity securities.
Government and corporate bonds represented 95.8 percent of
General Insurance total fixed income
96
American International Group, Inc.
and Subsidiaries
investments at June 30, 2009. Given the size and liquidity
profile of AIGs General Insurance investment portfolios,
AIG believes that deviations from its projected claim experience
do not constitute a significant liquidity risk. AIGs
asset/liability management process takes into account the
expected maturity of investments and the specific nature and
risk profile of liabilities. Historically, there has been no
significant variation between the expected maturities of
AIGs General Insurance investments and the payment of
claims.
Life
Insurance & Retirement Services
At June 30, 2009, Life Insurance & Retirement
Services had liquidity in the form of cash and short-term
investments of $39.8 billion. These are consolidated cash
and short-term investments for a number of legal entities within
Life Insurance & Retirement Services. Generally, these
assets are not transferable across various legal entities;
however, there are generally sufficient cash and short-term
investments within those legal entities such that they can meet
their individual liquidity needs. In the event additional
liquidity is required, management believes it can provide such
liquidity through sale of a portion of its substantial holdings
in government and corporate bonds as well as equity securities.
Government and corporate bonds represented 86.2 percent of
Life Insurance & Retirement Services total fixed
income investments at June 30, 2009. Given the size and
liquidity profile of AIGs Life Insurance &
Retirement Services investment portfolios, AIG believes that
deviations from its projected claim experience do not constitute
a significant liquidity risk. The Life Insurance &
Retirement Services subsidiaries have been able to meet
liquidity needs, even during the period of higher surrenders
which was experienced from mid-September 2008 through
June 30, 2009, and expect to be able to do so in the
foreseeable future. A significant increase in policy surrenders
and withdrawals, which could be triggered by a variety of
factors, including AIG specific concerns, could result in a
substantial liquidity strain. Other potential events causing a
liquidity strain could include economic collapse of a nation or
region significant to Life Insurance & Retirement
Services operations, nationalization, catastrophic terrorist
acts, pandemics or other economic or political upheaval.
Foreign
Life Insurance Companies
AIGs Foreign Life Insurance companies (including ALICO)
had significant capital needs following publicity of AIG
parents liquidity issues, related credit ratings
downgrades and the decline in the equity markets in 2008. During
the six months ended June 30, 2009, AIG provided funding of
$300 million to a subsidiary within the Foreign Life
Insurance companies.
AIG believes that its Foreign Life Insurance subsidiaries have
adequate capital to support their business plans through 2009.
However, to the extent the investment portfolios of the Foreign
Life Insurance companies continue to be adversely affected by
market conditions, AIG may need to lend or contribute additional
capital to these companies. For a discussion of AIGs
potential inability to support its subsidiaries, see
Item 1A. Risk Factors Liquidity in the 2008
Form 10-K.
Domestic
Life Insurance and Domestic Retirement Services
Companies
During the six months ended June 30, 2009, AIG contributed
capital totaling $2.4 billion to certain of its Domestic
Life Insurance and Domestic Retirement Services subsidiaries (of
which $165 million was retained in the Domestic Life
Insurance holding company and not contributed to the operating
companies) to replace a portion of the capital lost as a result
of net realized capital losses (primarily resulting from
other-than-temporary
impairment charges) and other investment-related items. Of this
amount, $1.2 billion was funded by a drawdown under the
Department of the Treasury Commitment in May 2009. Further
capital contributions may be required to maintain desired levels
of capital to the extent the investment portfolios of the
Domestic Life Insurance and Domestic Retirement Services
companies continue to be adversely affected by market conditions.
The most significant potential liquidity needs of AIGs
Domestic Life Insurance and Domestic Retirement Services
companies are the funding of surrenders and the restoration of
capital eroded by investment related losses. A substantial
increase in these needs could place stress on the liquidity of
these companies. However, AIG currently has sufficient
short-term liquidity to meet such demands. For a discussion of
AIGs potential inability to support its subsidiaries, see
Item 1A. Risk Factors Liquidity in the 2008
Form 10-K.
97
American International Group, Inc.
and Subsidiaries
Financial
Services
AIGs major Financial Services operating subsidiaries
consist of ILFC, AIGFP, AGF and AIG Consumer Finance Group, Inc.
(AIGCFG). Traditional sources of funds considered in meeting the
liquidity needs of these operations are generally no longer
available. These sources included issuances of guaranteed
investment agreements (GIAs), issuance of long-and short-term
debt, issuance of commercial paper, bank loans and bank credit
facilities. However, ILFC has been able to finance Airbus
aircraft purchases under its 2004 Export Credit Agency (ECA)
Facility, as further described below, and AIGCFG has been able
to retain a significant portion of customer deposits, providing
a measure of liquidity.
ILFC
Prior to September 2008, ILFCs traditional sources of
liquidity had been collections of aircraft lease payments,
borrowings in the public debt markets, borrowings under its 1999
and 2004 ECA Facilities to fund aircraft purchases, proceeds of
aircraft sales and income from third parties for fleet
management services.
During the first six months of 2009, ILFC was unable to borrow
in the public debt markets and, due to downgrades in its
short-term credit rating, lost access to the CPFF and therefore
borrowed $1.7 billion from AIG Funding to repay its
maturing debt and other contractual obligations. In addition,
ILFC borrowed approximately $161 million through secured
financing arrangements. ILFC is currently pursuing additional
secured financings from banks and manufacturers. ILFC has the
capacity under its present facilities and indentures to enter
into secured financing of approximately $5.0 billion (or
more through subsidiaries that qualify as non-restricted
subsidiaries under ILFCs indentures, subject to the
receipt of any required consents under the FRBNY Facility and
under its bank facilities and terms loans). If ILFC does not
receive sufficient secured financing, AIG expects that
ILFCs current borrowings and future cash flows from
operations, which may include aircraft sales, will be inadequate
to permit ILFC to meet its existing obligations. Therefore, AIG
intends to provide support to ILFC through August 15, 2010
to the extent that secured financing, aircraft sales and other
sources of funds are not sufficient.
Under its current long-term debt ratings, ILFC needs written
consent from the security trustee of its 2004 ECA Facility
before it can fund Airbus purchases under the facility. ILFC
financed 24 aircraft under the facility during the first six
months of 2009, 18 of which required written consent, which was
obtained. ILFCs current credit ratings also require
segregation of security deposits and maintenance reserves
related to aircraft funded under both its 1999 and 2004 ECA
Facilities into separate accounts. At June 30, 2009, ILFC
had segregated approximately $264 million of deposits and
maintenance reserves. As a result of Moodys downgrade of
ILFCs long-term debt ratings to Baa3 on July 31,
2009, ILFC will be required to segregate subsequent rental
payments on the aircraft funded under its 2004 ECA Facility and
may be required to transfer control of the segregated rentals,
maintenance reserves and security deposits related to these
aircraft, currently $192.7 million, to the security trustee
of the facility. ILFC may also be required to file individual
mortgages on the aircraft funded under the facility in the
respective local jurisdictions in which its lessees operate. The
amount of funds segregated fluctuates with changes in the
related deposits, maintenance reserves and debt maturities.
Further downgrades by S&P and Moodys could impose
additional restrictions under the 1999 ECA Facility, including
the requirement to segregate rental payments and to receive
prior consent to withdraw funds from the segregated accounts.
AIGFP
Prior to September 2008, AIGFP had historically funded its
operations through the issuance of notes and bonds, GIA
borrowings, other structured financing transactions and
repurchase agreements.
In the second half of 2008, AIGFPs access to its
traditional sources of liquidity was significantly reduced and
it relied on AIG parent to meet most of its liquidity needs.
AIGFPs asset backed commercial paper conduit, Curzon
Funding LLC, was accepted into the CPFF with a total borrowing
limit of $7.2 billion, and had approximately
$6.2 billion outstanding at July 29, 2009. Separately,
a structured investment vehicle sponsored, but not consolidated,
by AIGFP, Nightingale Finance LLC, was also accepted into the
CPFF with a borrowing limit of $1.1 billion. As of
July 29, 2009, this vehicle had issued approximately
$1.1 billion under the CPFF. If AIGs short-term
ratings are downgraded, these entities may lose access to the
CPFF and would be required to find other sources to fund the
maturing commercial paper.
98
American International Group, Inc.
and Subsidiaries
The following table presents a rollforward of the amount of
collateral posted by AIGFP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Collateral
|
|
|
Postings,
|
|
|
Collateral
|
|
|
Collateral
|
|
Six Months Ended
|
|
Posted as of
|
|
|
Netted by
|
|
|
Returned by
|
|
|
Posted as of
|
|
June 30, 2009
|
|
December 31, 2008
|
|
|
Counterparty
|
|
|
Counterparties
|
|
|
June 30, 2009
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Collateralized GIAs and other borrowings
|
|
$
|
9,401
|
|
|
$
|
374
|
|
|
$
|
2,533
|
|
|
$
|
7,242
|
|
Derivatives (including super senior credit default swaps)
|
|
|
22,791
|
|
|
|
6,146
|
|
|
|
9,532
|
|
|
|
19,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,192
|
|
|
$
|
6,520
|
|
|
$
|
12,065
|
|
|
$
|
26,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGF
Prior to September 2008, AGFs traditional source of
liquidity has been collections of customer receivables and
borrowings in the public markets.
With its continued inability to access traditional capital
market sources, AGF anticipates that its primary source of funds
to support its operations and repay its obligations will be
customer receivable collections. In order to improve cash flow
from operations, AGF has significantly limited its lending
activities and aggressively managed its expenses. Since
September 2008 and through July 2009, AGFs alternative
funding sources have included proceeds of $1.4 billion from
real estate loan portfolio sales and initial cash proceeds of
$967 million from a real estate loan securitization. AGF is
considering additional sales
and/or
securitizations of its finance receivables. AIG intends to
provide support to AGF through August 15, 2010 to the
extent that asset sales, securitizations
and/or other
transactions are not sufficient. In March 2009, AIG made a
$600 million capital contribution to AGF (through AIG
Capital Corporation), and AGF loaned $800 million to AIG
parent under a demand note.
With AIGs continued support, AIG believes that AGF will
have adequate funds to meet its debt and other obligations
payable during the next twelve months.
AIGCFG
AIG believes that the funding needs of AIGCFG have stabilized,
but it is possible that renewed customer and counterparty
concerns could substantially increase AIGCFGs liquidity
needs in 2009. During the first six months of 2009 and through
July 31, 2009, AIG has completed the sale of certain AIGCFG
businesses in China, Thailand, the Philippines and Mexico.
Asset
Management
Asset Managements principal cash requirements are to fund
general working capital needs, investment commitments related to
proprietary investments in private equity and real estate as
well as any liquidity mismatches in the Spread-Based Investment
business. Management continues to work closely with partners and
counterparties to manage future funding requirements on
proprietary investments through various strategies including
through relinquishing rights in certain properties and funds and
the restructuring of investment relationships.
Cash requirements related to Institutional Asset Management are
funded through general operating cash flows from management and
performance fees, proceeds from events in underlying funds
(capital calls to third parties, sale of portfolio companies,
etc.) as well as intercompany funding provided by AIG.
Consequently, Institutional Asset Managements ability to
fund certain of its needs may depend on advances from AIG under
various intercompany borrowing facilities. Restrictions on these
facilities would have adverse consequences on the ability of the
business to satisfy its obligations. With respect to the Global
Real Estate business, investing activities are also funded
through third-party financing arrangements which are secured by
the relevant properties.
The Guaranteed Investment Contract (GIC) and MIP programs are in
run-off. AIG expects to fund its obligations under these
programs through cash flows generated from invested assets
(principal and interest) as well as sales of investments,
primarily fixed maturity securities. However, market illiquidity
and diminished values within the investment portfolios may
impair AIGs ability to sell the related program assets or
sell such assets for a
99
American International Group, Inc.
and Subsidiaries
price adequate to settle the corresponding liabilities when they
come due. In such a case, AIG parent would need to fund the
obligations.
Debt
Total debt was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Debt issued by AIG:
|
|
|
|
|
|
|
|
|
FRBNY Facility (secured)
|
|
$
|
44,816
|
|
|
$
|
40,431
|
|
Notes and bonds payable
|
|
|
11,392
|
|
|
|
11,756
|
|
Junior subordinated debt
|
|
|
12,001
|
|
|
|
11,685
|
|
Junior subordinated debt attributable to equity units
|
|
|
5,880
|
|
|
|
5,880
|
|
Loans and mortgages payable
|
|
|
381
|
|
|
|
416
|
|
MIP matched notes and bonds payable
|
|
|
13,137
|
|
|
|
14,446
|
|
Series AIGFP matched notes and bonds payable
|
|
|
3,980
|
|
|
|
4,660
|
|
|
|
|
|
|
|
|
|
|
Total AIG debt
|
|
|
91,587
|
|
|
|
89,274
|
|
|
|
|
|
|
|
|
|
|
Debt guaranteed by AIG:
|
|
|
|
|
|
|
|
|
AIGFP, at fair value
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt(a)
|
|
|
6,233
|
|
|
|
6,802
|
|
GIAs
|
|
|
9,070
|
|
|
|
13,860
|
|
Notes and bonds payable
|
|
|
3,530
|
|
|
|
5,250
|
|
Loans and mortgages payable
|
|
|
2,023
|
|
|
|
2,175
|
|
Hybrid financial instrument liabilities
|
|
|
1,530
|
|
|
|
2,113
|
|
|
|
|
|
|
|
|
|
|
Total AIGFP debt
|
|
|
22,386
|
|
|
|
30,200
|
|
|
|
|
|
|
|
|
|
|
AIG Funding commercial paper(a)
|
|
|
4,919
|
|
|
|
6,856
|
|
|
|
|
|
|
|
|
|
|
AIGLH notes and bonds payable
|
|
|
798
|
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
Liabilities connected to trust preferred stock
|
|
|
1,339
|
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
Total debt issued or guaranteed by AIG
|
|
|
121,029
|
|
|
|
128,543
|
|
|
|
|
|
|
|
|
|
|
Debt not guaranteed by AIG:
|
|
|
|
|
|
|
|
|
ILFC
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt(a)
|
|
|
100
|
|
|
|
1,748
|
|
Junior subordinated debt
|
|
|
999
|
|
|
|
999
|
|
Notes and bonds payable, ECA Facilities and bank
financings(b)
|
|
|
29,323
|
|
|
|
30,047
|
|
|
|
|
|
|
|
|
|
|
Total ILFC debt
|
|
|
30,422
|
|
|
|
32,794
|
|
|
|
|
|
|
|
|
|
|
AGF
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
|
|
15
|
|
|
|
188
|
|
Junior subordinated debt
|
|
|
349
|
|
|
|
349
|
|
Notes and bonds payable
|
|
|
21,353
|
|
|
|
23,089
|
|
|
|
|
|
|
|
|
|
|
Total AGF debt
|
|
|
21,717
|
|
|
|
23,626
|
|
|
|
|
|
|
|
|
|
|
AIGCFG
|
|
|
|
|
|
|
|
|
Commercial paper and other short-term debt
|
|
|
82
|
|
|
|
124
|
|
Loans and mortgages payable
|
|
|
1,036
|
|
|
|
1,596
|
|
|
|
|
|
|
|
|
|
|
Total AIGCFG debt
|
|
|
1,118
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
Other subsidiaries
|
|
|
391
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
Debt of consolidated investments held through:
|
|
|
|
|
|
|
|
|
AIG Investments
|
|
|
539
|
|
|
|
1,300
|
|
AIG Global Real Estate Investment
|
|
|
4,466
|
|
|
|
4,545
|
|
SunAmerica
|
|
|
11
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total debt of consolidated investments
|
|
|
5,016
|
|
|
|
5,850
|
|
|
|
|
|
|
|
|
|
|
Total debt not guaranteed by AIG
|
|
|
58,664
|
|
|
|
64,660
|
|
|
|
|
|
|
|
|
|
|
Total debt:
|
|
|
|
|
|
|
|
|
Total commercial paper and other short-term debt
|
|
|
197
|
|
|
|
613
|
|
Federal Reserve Bank of New York commercial paper funding
facility
|
|
|
11,152
|
|
|
|
15,105
|
|
Total long-term debt
|
|
|
168,344
|
|
|
|
177,485
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$
|
179,693
|
|
|
$
|
193,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes borrowings of $6.2 billion and
$4.9 billion for AIGFP (through Curzon Funding LLC,
AIGFPs asset-backed commercial paper conduit) and AIG
Funding, respectively, under the CPFF at June 30, 2009 and
$6.8 billion, $6.6 billion and $1.7 billion,
respectively, for AIGFP (through Curzon Funding LLC,
AIGFPs |
100
|
|
|
|
|
American International Group, Inc.
and Subsidiaries
|
asset-backed commercial paper conduit), AIG Funding and ILFC,
respectively, under the CPFF at December 31, 2008.
|
|
|
(b) |
|
Includes borrowings under the 1999 and 2004 ECA Facility of
$3.2 billion and $2.4 billion at June 30, 2009
and December 31, 2008, respectively. |
Long-Term
Debt
A roll forward of long-term debt, excluding debt of
consolidated investments, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
Maturities
|
|
|
Effect of
|
|
|
Other
|
|
|
Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
and
|
|
|
Foreign
|
|
|
Non-Cash
|
|
|
June 30,
|
|
Six Months Ended June 30, 2009
|
|
2008
|
|
|
Issuances
|
|
|
Repayments
|
|
|
Exchange
|
|
|
Changes*
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
AIG
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRBNY Facility
|
|
$
|
40,431
|
|
|
$
|
15,700
|
|
|
$
|
(12,500
|
)
|
|
$
|
|
|
|
$
|
1,185
|
|
|
$
|
44,816
|
|
Notes and bonds payable
|
|
|
11,756
|
|
|
|
|
|
|
|
(381
|
)
|
|
|
94
|
|
|
|
(77
|
)
|
|
|
11,392
|
|
Junior subordinated debt
|
|
|
11,685
|
|
|
|
|
|
|
|
|
|
|
|
315
|
|
|
|
1
|
|
|
|
12,001
|
|
Junior subordinated debt attributable to equity units
|
|
|
5,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,880
|
|
Loans and mortgages payable
|
|
|
416
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
2
|
|
|
|
|
|
|
|
381
|
|
MIP matched notes and bonds payable
|
|
|
14,446
|
|
|
|
|
|
|
|
(1,159
|
)
|
|
|
(1
|
)
|
|
|
(149
|
)
|
|
|
13,137
|
|
Series AIGFP matched notes and bonds payable
|
|
|
4,660
|
|
|
|
|
|
|
|
(335
|
)
|
|
|
|
|
|
|
(345
|
)
|
|
|
3,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGFP, at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GIAs
|
|
|
13,860
|
|
|
|
349
|
|
|
|
(2,584
|
)
|
|
|
|
|
|
|
(2,555
|
)
|
|
|
9,070
|
|
Notes and bonds payable and hybrid financial instrument
liabilities
|
|
|
7,363
|
|
|
|
14
|
|
|
|
(1,442
|
)
|
|
|
|
|
|
|
(875
|
)
|
|
|
5,060
|
|
Loans and mortgages payable
|
|
|
2,175
|
|
|
|
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
(53
|
)
|
|
|
2,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGLH notes and bonds payable
|
|
|
798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
798
|
|
Liabilities connected to trust preferred stock
|
|
|
1,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(76
|
)
|
|
|
1,339
|
|
ILFC notes and bonds payable, ECA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facilities and bank financings
|
|
|
30,047
|
|
|
|
1,228
|
|
|
|
(2,023
|
)
|
|
|
68
|
|
|
|
3
|
|
|
|
29,323
|
|
ILFC junior subordinated debt
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
AGF notes and bonds payable
|
|
|
23,089
|
|
|
|
|
|
|
|
(1,812
|
)
|
|
|
104
|
|
|
|
(28
|
)
|
|
|
21,353
|
|
AGF junior subordinated debt
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349
|
|
AIGCFG loans and mortgages payable
|
|
|
1,596
|
|
|
|
738
|
|
|
|
(1,251
|
)
|
|
|
(44
|
)
|
|
|
(3
|
)
|
|
|
1,036
|
|
Other subsidiaries
|
|
|
670
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
1
|
|
|
|
(246
|
)
|
|
|
391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
171,635
|
|
|
$
|
18,029
|
|
|
$
|
(23,657
|
)
|
|
$
|
539
|
|
|
$
|
(3,218
|
)
|
|
$
|
163,328
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes $1.2 billion of accrued compounding interest
and fees on the FRBNY Facility and a decline of
$3.5 billion in the fair value of AIGFP debt. |
101
American International Group, Inc.
and Subsidiaries
Maturities of long-term debt, excluding borrowings of
consolidated investments, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
|
|
|
Year Ending
|
|
At June 30, 2009
|
|
Total
|
|
|
of 2009
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
AIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FRBNY Facility
|
|
$
|
44,816
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
44,816
|
|
|
$
|
|
|
|
$
|
|
|
Notes and bonds payable
|
|
|
11,392
|
|
|
|
1,000
|
|
|
|
1,350
|
|
|
|
530
|
|
|
|
27
|
|
|
|
998
|
|
|
|
|
|
|
|
7,487
|
|
Junior subordinated debt
|
|
|
12,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,001
|
|
Junior subordinated debt attributable to equity units
|
|
|
5,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,880
|
|
Loans and mortgages payable
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
MIP matched notes and bonds payable
|
|
|
13,137
|
|
|
|
|
|
|
|
2,248
|
|
|
|
3,155
|
|
|
|
2,102
|
|
|
|
881
|
|
|
|
380
|
|
|
|
4,371
|
|
Series AIGFP matched notes and bonds payable
|
|
|
3,980
|
|
|
|
4
|
|
|
|
38
|
|
|
|
27
|
|
|
|
56
|
|
|
|
3
|
|
|
|
|
|
|
|
3,852
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AIG
|
|
|
91,587
|
|
|
|
1,004
|
|
|
|
3,636
|
|
|
|
3,712
|
|
|
|
2,519
|
|
|
|
46,698
|
|
|
|
380
|
|
|
|
33,638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGFP, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GIAs
|
|
|
9,070
|
|
|
|
571
|
|
|
|
689
|
|
|
|
282
|
|
|
|
273
|
|
|
|
267
|
|
|
|
679
|
|
|
|
6,309
|
|
Notes and bonds payable
|
|
|
3,530
|
|
|
|
1,509
|
|
|
|
496
|
|
|
|
157
|
|
|
|
513
|
|
|
|
39
|
|
|
|
76
|
|
|
|
740
|
|
Loans and mortgages payable
|
|
|
2,023
|
|
|
|
1,051
|
|
|
|
305
|
|
|
|
191
|
|
|
|
190
|
|
|
|
77
|
|
|
|
149
|
|
|
|
60
|
|
Hybrid financial instrument liabilities
|
|
|
1,530
|
|
|
|
144
|
|
|
|
225
|
|
|
|
202
|
|
|
|
74
|
|
|
|
231
|
|
|
|
129
|
|
|
|
525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AIGFP
|
|
|
16,153
|
|
|
|
3,275
|
|
|
|
1,715
|
|
|
|
832
|
|
|
|
1,050
|
|
|
|
614
|
|
|
|
1,033
|
|
|
|
7,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGLH notes and bonds payable
|
|
|
798
|
|
|
|
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities connected to trust preferred stock
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ILFC(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and bonds payable
|
|
|
18,394
|
|
|
|
1,451
|
|
|
|
4,002
|
|
|
|
4,380
|
|
|
|
3,572
|
|
|
|
3,542
|
|
|
|
1,042
|
|
|
|
405
|
|
Junior subordinated debt
|
|
|
999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
999
|
|
ECA Facilities(b)
|
|
|
3,221
|
|
|
|
280
|
|
|
|
507
|
|
|
|
419
|
|
|
|
389
|
|
|
|
389
|
|
|
|
384
|
|
|
|
853
|
|
Bank financings
|
|
|
7,708
|
|
|
|
2,466
|
|
|
|
2,116
|
|
|
|
2,849
|
|
|
|
165
|
|
|
|
16
|
|
|
|
37
|
|
|
|
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ILFC
|
|
|
30,322
|
|
|
|
4,197
|
|
|
|
6,625
|
|
|
|
7,648
|
|
|
|
4,126
|
|
|
|
3,947
|
|
|
|
1,463
|
|
|
|
2,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGF(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and bonds payable(c)
|
|
|
21,353
|
|
|
|
4,870
|
|
|
|
4,179
|
|
|
|
3,148
|
|
|
|
2,079
|
|
|
|
2,122
|
|
|
|
380
|
|
|
|
4,575
|
|
Junior subordinated debt
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
349
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AGF
|
|
|
21,702
|
|
|
|
4,870
|
|
|
|
4,179
|
|
|
|
3,148
|
|
|
|
2,079
|
|
|
|
2,122
|
|
|
|
380
|
|
|
|
4,924
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGCFG Loans and mortgages payable(a)
|
|
|
1,036
|
|
|
|
460
|
|
|
|
546
|
|
|
|
10
|
|
|
|
8
|
|
|
|
7
|
|
|
|
3
|
|
|
|
2
|
|
Other subsidiaries(a)
|
|
|
391
|
|
|
|
3
|
|
|
|
3
|
|
|
|
5
|
|
|
|
4
|
|
|
|
3
|
|
|
|
5
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163,328
|
|
|
$
|
13,809
|
|
|
$
|
17,204
|
|
|
$
|
15,355
|
|
|
$
|
9,786
|
|
|
$
|
53,391
|
|
|
$
|
3,264
|
|
|
$
|
50,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
AIG does not guarantee these borrowings. |
|
(b) |
|
Reflects future minimum payment for ILFCs borrowings
under the 1999 and 2004 ECA Facilities. |
|
(c) |
|
On July 9, 2009, AGF converted the $2.45 billion of
loans that AGF had previously drawn on its
364-Day
Syndicated Facility into one-year term loans. These termed-out
loans must be repaid by July 9, 2010. |
102
American International Group, Inc.
and Subsidiaries
AIG
(Parent Company)
AIG historically issued debt securities from time to time to
meet its financing needs and those of certain of its
subsidiaries, as well as to opportunistically fund the MIP. The
maturities of the debt securities issued by AIG to fund the MIP
are generally expected to be paid using the cash flows of assets
held by AIG as part of the MIP portfolio. However, mismatches in
the timing of cash inflows and outflows of the MIP, as well as
shortfalls due to impairments of MIP assets, would need to be
funded by AIG parent.
As of June 30, 2009, approximately $7.1 billion
principal amount of senior notes were outstanding under
AIGs medium-term note program, of which $3.2 billion
was used for AIGs general corporate purposes,
$561 million was used by AIGFP (included within
Series AIGFP matched notes and bonds payable in
the preceding tables) and $3.3 billion was used to fund the
MIP. The maturity dates of these notes range from 2009 to 2052.
To the extent considered appropriate, AIG may enter into swap
transactions to manage its effective borrowing rates with
respect to these notes.
As of June 30, 2009, the equivalent of $11.3 billion
of notes were outstanding under AIGs Euro medium-term note
program, of which $9.3 billion were used to fund the MIP
and the remainder was used for AIGs general corporate
purposes. The aggregate amount outstanding includes a
$686 million loss resulting from foreign exchange
translation into U.S. dollars, including a $45 million
loss related to notes issued by AIG for general corporate
purposes and a $641 million loss related to notes issued to
fund the MIP. AIG has economically hedged the currency exposure
arising from its foreign currency denominated notes.
AIGFP
Approximately $3.3 billion of AIGFPs debt maturing
through June 30, 2010 is 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
AIGFPs 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.
ILFC
ILFC has a $4.3 billion 1999 ECA Facility that was used in
connection with the purchase of 62 Airbus aircraft delivered
through 2001. This facility is guaranteed by various European
Export Credit Agencies. The interest rate varies from
5.77 percent to 5.86 percent on these amortizing
ten-year borrowings depending on the delivery date of the
aircraft. At June 30, 2009, ILFC had 37 loans with a
remaining principal balance of $232 million outstanding
under this facility. The debt is collateralized by a pledge of
the shares of a subsidiary of ILFC, which holds title to the
aircraft financed under the facility.
ILFC has a similarly structured 2004 ECA Facility, which was
amended in May 2009 to allow ILFC to borrow up to a maximum of
$4.6 billion to fund the purchase of Airbus aircraft
delivered through June 30, 2010. The facility becomes
available as the various European Export Credit Agencies provide
their guarantees for aircraft based on a forward-looking
calendar, and the interest rate is determined through a bid
process. The interest rates are either LIBOR based with spreads
ranging from (0.04) percent to 2.25 percent or at fixed
rates ranging from 4.20 percent to 4.71 percent. At
June 30, 2009, ILFC had approximately $3.0 billion
outstanding under this facility. At June 30, 2009, the
interest rate of the loans outstanding ranged from
1.24 percent to 4.71 percent. The debt is
collateralized by a pledge of shares of a subsidiary of ILFC,
which holds title to the aircraft financed under the facility.
Borrowings with respect to these facilities are included in
ILFCs notes and bonds payable in the preceding table of
borrowings.
At June 30, 2009, the total funded amount of ILFCs
bank financings was $7.6 billion, which includes
$6.5 billion of revolving credit facilities (see Revolving
Credit Facilities below). The fundings mature through February
2012. The interest rates are LIBOR-based, with spreads ranging
from 0.25 percent to 1.63 percent. At June 30,
2009, the interest rates ranged from 0.91 percent to
2.25 percent. AIG does not guarantee any of the debt
obligations of ILFC.
103
American International Group, Inc.
and Subsidiaries
In April 2009, ILFC entered into a $100 million
90-day
promissory note agreement with a supplier in connection with the
purchase of an aircraft. The interest rate was fixed at an
annual rate of 5.00 percent. The note was paid in full in
July 2009, when it matured.
AGF
As of June 30, 2009, notes and bonds aggregating
$21.4 billion were outstanding with maturity dates ranging
from 2009 to 2031 at interest rates ranging from
0.71 percent to 9.00 percent. To the extent considered
appropriate, AGF may enter into swap transactions to manage its
effective borrowing rates with respect to these notes and bonds.
AIG does not guarantee any of the debt obligations of AGF but
has provided a capital support agreement for the benefit of
AGFs lenders under the AGF
364-Day
Syndicated Facility. Under this support agreement, AIG has
agreed to cause AGF to maintain (1) consolidated net worth
of $2.2 billion and (2) an adjusted tangible leverage
ratio of less than or equal to 8 to 1 at the end of each fiscal
quarter. This support agreement only benefits the lenders under
the AGF
364-Day
Syndicated Facility and does not benefit, and is not enforceable
by, any of the other creditors of AGF. This support agreement
continued for the benefit of AGFs lenders upon the
conversion of the facility borrowings into one-year term loans
in July 2009.
Revolving
Credit Facilities
AIG, ILFC and AGF maintain committed, unsecured revolving credit
facilities listed on the table below in order to support their
respective commercial paper programs and for general corporate
purposes. Some of the facilities, as noted below, contain a
term-out option allowing for the conversion by the
borrower of any outstanding loans at expiration into one-year
term loans. Both ILFC and AGF have drawn the full amount
available under their revolving credit facilities. In July 2009,
AIGs
364-Day
Syndicated Facility expired and, in August 2009, AIG terminated
its 5-Year
Syndicated Facility. As a result, AIG no longer has access to
these facilities referenced in the table below.
A summary of revolving credit facilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-Year
|
At June 30, 2009
|
|
|
|
|
|
|
Available
|
|
|
|
|
Term-Out
|
Facility
|
|
Size
|
|
|
Borrower(s)
|
|
Amount
|
|
|
Expiration
|
|
Option
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIG:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364-Day
Syndicated Facility
|
|
$
|
2,125
|
|
|
AIG/AIG Funding(a)
|
|
$
|
2,125
|
|
|
July 2009(b)
|
|
Yes
|
5-Year
Syndicated Facility
|
|
|
1,625
|
|
|
AIG/AIG Funding(a)
|
|
|
1,625
|
|
|
July 2011(c)
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AIG
|
|
$
|
3,750
|
|
|
|
|
$
|
3,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ILFC:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5-Year
Syndicated Facility
|
|
$
|
2,500
|
|
|
ILFC
|
|
$
|
|
|
|
October 2011
|
|
No
|
5-Year
Syndicated Facility
|
|
|
2,000
|
|
|
ILFC
|
|
|
|
|
|
October 2010
|
|
No
|
5-Year
Syndicated Facility
|
|
|
2,000
|
|
|
ILFC
|
|
|
|
|
|
October 2009
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ILFC
|
|
$
|
6,500
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AGF:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
364-Day
Syndicated Facility
|
|
$
|
2,450
|
|
|
American General Finance Corporation
|
|
$
|
|
|
|
July 2009(d)
|
|
Yes
|
|
|
|
|
|
|
American General Finance, Inc.(e)
|
|
|
|
|
|
|
|
|
5-Year Syndicated Facility
|
|
|
2,125
|
|
|
American General Finance Corporation
|
|
|
|
|
|
July 2010
|
|
No
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total AGF
|
|
$
|
4,575
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Guaranteed by AIG. |
|
(b) |
|
On July 9, 2009, AIGs
364-Day
Syndicated Facility expired according to its terms. AIG and AIG
Funding no longer have access to this facility. |
|
(c) |
|
On August 6, 2009, AIG voluntarily terminated its
5-Year
Syndicated Facility. AIG and AIG Funding no longer have access
to this facility. |
104
American International Group, Inc.
and Subsidiaries
|
|
|
(d) |
|
On July 9, 2009, AGF converted the $2.45 billion of
loans that AGF had previously drawn on its
364-Day
Syndicated Facility into one-year term loans. These termed-out
loans must be repaid by July 9, 2010. |
|
(e) |
|
American General Finance, Inc. is an eligible borrower for up
to $400 million only. |
Credit
Ratings
The cost and availability of unsecured financing for AIG and its
subsidiaries are generally dependent on their short-and
long-term debt ratings. The following table presents the credit
ratings of AIG and certain of its subsidiaries as of
July 31, 2009. In parentheses, following the initial
occurrence in the table of each rating, is an indication of that
ratings relative rank within the agencys rating
categories. That ranking refers only to the generic or major
rating category and not to the modifiers appended to the rating
by the rating agencies to denote relative position within such
generic or major category.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-Term Debt
|
|
Senior Long-Term Debt
|
|
|
Moodys
|
|
S&P
|
|
Fitch
|
|
Moodys(a)
|
|
S&P(b)
|
|
Fitch(c)
|
|
AIG
|
|
P-1 (1st of 3)(f)
|
|
A-1 (1st of 8)(f)
|
|
F1 (1st of 5)
|
|
A3 (3rd of 9)(f)
|
|
A- (3rd of 8)(f)
|
|
BBB (4th of 9)(h)
|
AIG Financial Products Corp.(d)
|
|
P-1(f)
|
|
A-1(f)
|
|
|
|
A3(f)
|
|
A-(f)
|
|
|
AIG Funding, Inc.(d)
|
|
P-1(f)
|
|
A-1
|
|
F1
|
|
|
|
|
|
|
ILFC
|
|
P-3 (3rd of 3)(j)
|
|
A-2(2nd of 8)(e)
|
|
F2(g)
|
|
Baa3 (4th of 9)(j)
|
|
BBB+(4th of 8)(e)
|
|
BBB (4th of 9)(g)
|
American General Finance Corporation
|
|
P-3(j)
|
|
B (4th of 8)
|
|
|
|
Baa3 (4th of 9)(j)
|
|
BB+(5th of 8)(f)
|
|
BB (i)
|
American General Finance, Inc.
|
|
P-3(j)
|
|
B (4th of 8)
|
|
|
|
|
|
|
|
BB(i)
|
|
|
|
(a) |
|
Moodys appends numerical modifiers 1, 2 and 3 to the
generic rating categories to show relative position within the
rating categories. |
|
(b) |
|
S&P ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating
categories. |
|
(c) |
|
Fitch ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating
categories. |
|
(d) |
|
AIG guarantees all obligations of AIG Financial Products
Corp. and AIG Funding. |
|
(e) |
|
Credit Watch Negative. |
|
(f) |
|
Negative Outlook. |
|
(g) |
|
Rating Watch Evolving. |
|
(h) |
|
Evolving Outlook. |
|
(i) |
|
Rating Watch Negative. |
|
(j) |
|
Under Review Negative. |
These credit ratings are current opinions of the rating
agencies. As such, they may be changed, suspended or withdrawn
at any time by the rating agencies as a result of changes in, or
unavailability of, information or based on other circumstances.
Ratings may also be withdrawn at AIG managements request.
This discussion of ratings is not a complete list of ratings of
AIG and its subsidiaries.
Ratings triggers have been defined by one
independent rating agency to include clauses or agreements the
outcome of which depends upon the level of ratings maintained by
one or more rating agencies. Ratings triggers
generally relate to events that (i) could result in the
termination or limitation of credit availability, or require
accelerated repayment, (ii) could result in the termination
of business contracts or (iii) could require a company to
post collateral for the benefit of counterparties.
A significant portion of AIGFPs GIAs, structured financing
arrangements and financial derivative transactions include
provisions that require AIGFP, upon a downgrade of AIGs
long-term debt ratings, to post collateral or, with the consent
of the counterparties, assign or repay its positions or arrange
a substitute guarantee of its
105
American International Group, Inc.
and Subsidiaries
obligations by an obligor with higher debt ratings. Furthermore,
certain downgrades of AIGs long-term senior debt ratings
would permit either AIG or the counterparties to elect early
termination of contracts.
The actual amount of collateral that AIGFP would be required to
post to counterparties in the event of such downgrades, or the
aggregate amount of payments that AIG could be required to make,
depends on market conditions, the fair value of outstanding
affected transactions and other factors prevailing at the time
of the downgrade. For a discussion of the effect of a downgrade
in AIGs credit ratings on AIGFPs outstanding
municipal GIAs, secured funding arrangements and financial
derivative transactions, see Item 1A. Risk Factors in the
2008
Form 10-K.
Contractual
Obligations
Contractual obligations in total, and by remaining maturity,
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by Period
|
|
|
|
Total
|
|
|
Remainder
|
|
|
2010
|
|
|
2012
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
Payments
|
|
|
of 2009
|
|
|
2011
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Borrowings(a)
|
|
$
|
118,512
|
|
|
$
|
13,809
|
|
|
$
|
32,559
|
|
|
$
|
18,361
|
|
|
$
|
3,264
|
|
|
$
|
50,519
|
|
FRBNY Facility
|
|
|
44,816
|
|
|
|
|
|
|
|
|
|
|
|
44,816
|
|
|
|
|
|
|
|
|
|
Interest payments on borrowings
|
|
|
69,043
|
|
|
|
2,201
|
|
|
|
8,833
|
|
|
|
15,451
|
|
|
|
3,005
|
|
|
|
39,553
|
|
Loss reserves(b)
|
|
|
82,088
|
|
|
|
10,015
|
|
|
|
26,432
|
|
|
|
14,571
|
|
|
|
4,761
|
|
|
|
26,309
|
|
Insurance and investment contract liabilities(c)
|
|
|
633,681
|
|
|
|
21,375
|
|
|
|
38,323
|
|
|
|
43,211
|
|
|
|
22,302
|
|
|
|
508,470
|
|
GIC liabilities(d)
|
|
|
12,415
|
|
|
|
3,440
|
|
|
|
2,013
|
|
|
|
3,080
|
|
|
|
124
|
|
|
|
3,758
|
|
Aircraft purchase commitments
|
|
|
14,271
|
|
|
|
580
|
|
|
|
490
|
|
|
|
2,917
|
|
|
|
1,791
|
|
|
|
8,493
|
|
Other long-term obligations
|
|
|
503
|
|
|
|
188
|
|
|
|
275
|
|
|
|
20
|
|
|
|
6
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(e)(f)
|
|
$
|
975,329
|
|
|
$
|
51,608
|
|
|
$
|
108,925
|
|
|
$
|
142,427
|
|
|
$
|
35,253
|
|
|
$
|
637,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Excludes commercial paper and borrowings incurred by
consolidated investments and includes hybrid financial
instrument liabilities recorded at fair value. |
|
(b) |
|
Represents future loss and loss adjustment expense payments
estimated based on historical loss development payment patterns.
Due to the significance of the assumptions used, the periodic
amounts presented could be materially different from actual
required payments. |
|
(c) |
|
Insurance and investment contract liabilities include various
investment-type products with contractually scheduled
maturities, including periodic payments of a term certain
nature. Insurance and investment contract liabilities also
include benefit and claim liabilities, of which a significant
portion represents policies and contracts that do not have
stated contractual maturity dates and may not result in any
future payment obligations. For these policies and contracts
(i) AIG is currently not making payments until the
occurrence of an insurable event, such as death or disability,
(ii) payments are conditional on survivorship, or
(iii) payment may occur due to a surrender or other
non-scheduled event out of AIGs control. AIG has made
significant assumptions to determine the estimated undiscounted
cash flows of these contractual policy benefits, which
assumptions include mortality, morbidity, future lapse rates,
expenses, investment returns and interest crediting rates,
offset by expected future deposits and premiums on inforce
policies. Due to the significance of the assumptions used, the
periodic amounts presented could be materially different from
actual required payments. The amounts presented in this table
are undiscounted and therefore exceed the future policy benefits
and policyholder contract deposits included in the balance
sheet. |
|
(d) |
|
Represents guaranteed maturities under GICs. |
|
(e) |
|
Does not reflect unrecognized tax benefits of
$3.7 billion, the timing of which is uncertain. |
|
(f) |
|
The majority of AIGFPs credit default swaps require
AIGFP to provide credit protection on a designated portfolio of
loans or debt securities. At June 30, 2009, the fair value
derivative liability was $5.3 billion relating to
AIGFPs super senior multi-sector CDO credit default swap
portfolio, net of amounts realized in |
106
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
extinguishing derivative obligations. Due to the long-term
maturities of these credit default swaps, AIG is unable to make
reasonable estimates of the periods during which any payments
would be made. However, AIGFP has posted collateral of
$4.6 billion with respect to these swaps (prior to offsets
for other transactions). |
Off-Balance
Sheet Arrangements and Commercial Commitments
Off-Balance Sheet Arrangements and Commercial Commitments in
total, and by remaining maturity were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Commitment Expiration
|
|
|
|
Total Amounts
|
|
|
Remainder
|
|
|
2010
|
|
|
2012
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
Committed
|
|
|
of 2009
|
|
|
2011
|
|
|
2013
|
|
|
2014
|
|
|
Thereafter
|
|
|
|
(In millions)
|
|
|
Guarantees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity facilities(a)
|
|
$
|
922
|
|
|
$
|
|
|
|
$
|
556
|
|
|
$
|
215
|
|
|
$
|
|
|
|
$
|
151
|
|
Standby letters of credit
|
|
|
1,284
|
|
|
|
1,100
|
|
|
|
34
|
|
|
|
19
|
|
|
|
|
|
|
|
131
|
|
Construction guarantees(b)
|
|
|
239
|
|
|
|
2
|
|
|
|
145
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Guarantees of indebtedness
|
|
|
381
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218
|
|
All other guarantees
|
|
|
2,126
|
|
|
|
20
|
|
|
|
46
|
|
|
|
188
|
|
|
|
49
|
|
|
|
1,823
|
|
Commitments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment commitments(c)
|
|
|
7,929
|
|
|
|
2,387
|
|
|
|
2,447
|
|
|
|
1,641
|
|
|
|
409
|
|
|
|
1,045
|
|
Commitments to extend credit
|
|
|
305
|
|
|
|
94
|
|
|
|
168
|
|
|
|
35
|
|
|
|
6
|
|
|
|
2
|
|
Letters of credit
|
|
|
266
|
|
|
|
182
|
|
|
|
83
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Other commercial commitments(d)
|
|
|
697
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
661
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(e)
|
|
$
|
14,149
|
|
|
$
|
3,984
|
|
|
$
|
3,479
|
|
|
$
|
2,099
|
|
|
$
|
464
|
|
|
$
|
4,123
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Primarily liquidity facilities provided in connection with
certain municipal swap transactions and collateralized bond
obligations. |
|
(b) |
|
Primarily SunAmerica construction guarantees connected to
affordable housing investments. |
|
(c) |
|
Includes commitments to invest in limited partnerships,
private equity, hedge funds and mutual funds and commitments to
purchase and develop real estate in the United States and
abroad. |
|
(d) |
|
Includes options to acquire aircraft. Excludes commitments
with respect to pension plans. The annual pension contribution
for 2009 is expected to be approximately $600 million for
U.S. and
non-U.S.
plans. |
|
(e) |
|
Does not include guarantees or other support arrangements
among AIG consolidated entities. |
Arrangements
with Variable Interest Entities
AIG enters into various arrangements with variable interest
entities (VIEs) in the normal course of business. AIGs
insurance companies are involved with VIEs primarily as passive
investors in debt securities (rated and unrated) and equity
interests issued by VIEs. Through its Financial Services and
Asset Management operations, AIG has participated in
arrangements that included designing and structuring entities
(including VIEs), warehousing and managing the collateral of the
entities (including VIEs), entering into insurance transactions
with VIEs. Interest holders in the VIEs generally have recourse
only to the assets and cash flows of the VIEs and do not have
recourse to AIG, except, in limited circumstances, when AIG has
provided a guarantee to the VIEs interest holders.
Under Financial Accounting Standards Board Interpretation
No. 46 (revised December 2003), Consolidation of
Variable Interest Entities, AIG consolidates a VIE when it
is the primary beneficiary of the entity. The primary
beneficiary is the party that either (i) absorbs a majority
of the VIEs expected losses; (ii) receives a majority
of the VIEs expected residual returns; or (iii) both.
For a further discussion of AIGs involvement with VIEs,
see Note 6 to the Consolidated Financial Statements.
107
American International Group, Inc.
and Subsidiaries
Outlook
Global financial markets recovered somewhat in the second
quarter of 2009, with investors apparently anticipating a
bottoming-out of the economic recession. This relative optimism,
increased liquidity and perceived stabilization of the financial
sector and mortgage markets precipitated a rally in bond, equity
and commodity markets. Prices, which had been severely depressed
in recent quarters, stabilized and, in some cases, rose
significantly. Certain sectors, such as commercial mortgages and
municipal bonds, continue to experience lagged effects of the
recession, and thus the price rally, while widespread, was not
uniform.
As AIG implements the proposed transactions with the FRBNY
described in Note 1 to the Consolidated Financial
Statements and executes its plans for repaying the FRBNY
Facility, AIG expects to incur significant additional
restructuring-related charges, such as accelerated amortization
of the prepaid commitment asset and, potentially, the write-off
of intangible assets. Further, if AIG continues to incur losses
in its businesses, AIG may need to write off material amounts of
goodwill and deferred tax assets.
On June 10, 2009, the Treasury Department issued
regulations implementing the compensation limits of the American
Recovery and Reinvestment Act of 2009. These regulations
restrict the amount of bonus and other incentive compensation
that a company may pay to certain employees. For AIG these
limits apply to the five executives named in AIGs proxy
statement and the next twenty highest paid employees of AIG. The
regulations also create the Office of Special Master for TARP
Executive Compensation, which is responsible for interpreting
and applying the compensation regulations. AIG is required to
obtain the Special Masters approval of the compensation of
AIGs five named executives and next 20 most highly
compensated employees, and the compensation structure of
AIGs executive officers and 100 most highly compensated
employees. Given the restrictions on compensation contained in
these regulations, and the necessity of obtaining Special Master
approval for compensation of AIGs most highly compensated
employees, it is possible that AIG may be unable to create a
compensation structure that permits AIG to retain its highest
performing employees.
Almost all of AIGs businesses were adversely affected in
the first half of 2009 by the criticism and negative publicity
that surrounded the honoring of and payment of retention
contracts to employees of AIGFP. For a discussion of the effect
that continued or renewed criticism or additional negative
publicity may have on AIG, see Item 1A. Risk Factors in
Part II of AIGs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009.
General
Insurance
AIGs General Insurance subsidiaries are multiple line
companies writing substantially all lines of property and
casualty insurance and various personal lines both domestically
and abroad and constitute Commercial Insurance and the Foreign
General Insurance Group. On July 27, 2009, it was announced
that AIGs General Insurance would undergo a rebranding and
would do business as Chartis, which will consist of Commercial
Insurance (operating as Chartis U.S.), Foreign General Insurance
(operating as Chartis International), and Private Client Group
(part of Chartis U.S.).
AIGs Commercial Insurance operations have been generally
successful in retaining clients, however, some clients have
reduced the number of lines or limits of coverage. This trend of
de-risking is due in part to the overall state of the economy as
well as continued concerns over AIGs financial strength.
New business production has also been impacted by the economic
downturn, primarily in workers compensation, construction,
transportation and real estate lines of business. Rates in the
second quarter remained stable reflecting the upward pressure on
premiums from the combination of investment and underwriting
losses suffered by the commercial insurance industry, partially
offset by the effects of the current recessionary environment,
such as employment levels for workers compensation
coverages and shipments of goods for commercial automobile
coverages, as well as the recent introduction of new competitors
in the marketplace.
For third quarter, 2009, Foreign General Insurance expects to be
able to maintain solid client retention rates in key regions and
achieve satisfactory underwriting results despite the
challenging environment. The trend of de-risking by some
customers and the economic downturn will continue to adversely
affect Foreign Generals net premiums written, primarily
through a decline in new business production. Although Foreign
General continues to face challenges in commercial lines,
particularly in the U.K. and Europe regions, due to increased
competition and
108
American International Group, Inc.
and Subsidiaries
worldwide credit related insurance exposures, its traditional
capabilities of servicing its customers, innovation and claims
paying ability continue to attract new accounts.
Life
Insurance & Retirement Services
AIG expects that negative publicity about AIG during the first
half of 2009, AIGs previously announced asset disposition
plan and the uncertainties related to AIG will continue to
adversely affect Life Insurance & Retirement Services
operations for the remainder of 2009, especially in the domestic
businesses. In addition, although the markets are showing signs
of modest recovery, the continued market disruption will
adversely affect operating income for the remainder of 2009,
especially with respect to deferred policy acquisition costs
(DAC) and sales inducement asset (SIA) amortization, net
investment income and net realized capital gains (losses). In
addition, AIGs issues have affected certain operations
through higher surrender activity, primarily in the
U.S. domestic retirement fixed annuity business and foreign
investment-oriented and retirement products. While surrender
levels have declined from their peaks in mid-September of 2008,
they continue to be higher than historic levels in certain
products and countries and AIG expects surrender activity to
continue to be volatile.
These uncertainties, together with rating agency downgrades,
have resulted in significantly reduced levels of new sales
activity, particularly among products and markets where ratings
are critical. Sales of investment-oriented and retirement
services products have also declined due to the general decline
in the equity markets. New sales activity is expected to remain
at lower levels for certain markets until the uncertainties
relating to AIG are resolved. With the transactions noted below,
AIA and ALICO have experienced improved operating conditions and
are expected to continue to improve as the separation from AIG
and rebranding initiatives continue.
On June 25, 2009, AIG and AIRCO entered into the AIA
Purchase Agreement with the FRBNY and AIG entered into the ALICO
Purchase Agreement with the FRBNY. The transactions contemplated
by the AIA Purchase Agreement and the ALICO Purchase Agreement
are conditioned on one another and subject to certain other
conditions, including regulatory approvals. It is expected that
the transactions will result in a $25 billion permanent
reduction in the FRBNY credit facility.
With the adoption of FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (FSP
FAS 115-2),
AIG expects future investment yields to decline compared to the
same periods in 2008 due to lower accretion. In prior periods,
AIG accreted into income over the expected period to recovery
the discount or reduced premium resulting from the reduction in
the cost basis of
other-than-temporarily
impaired securities, which consisted primarily of securities
impaired for severity reasons. For the three months ended
March 31, 2009, this accretion totaled $342 million.
Upon the adoption of FSP
FAS 115-2,
approximately $1.8 billion of previously recognized
other-than-temporarily
impaired charges, primarily severity related, were reclassified
from Accumulated deficit to Accumulated other comprehensive
income. As a consequence, commencing in the second quarter of
2009, there will be no accretion attributable to the amounts
reclassified into Accumulated other comprehensive income. This
will be partially offset by lower DAC and SIA amortization in
future periods resulting from the adoption of FSP
FAS 115-2.
Additionally, higher liquidity and de-risking activities
continue to negatively affect net investment income margins.
Financial
Services
AIGFP began unwinding its businesses and portfolios during the
fourth quarter of 2008, and these activities are expected to
continue beyond 2009. In connection with these activities, AIGFP
has disaggregated its portfolio of existing transactions into a
number of separate books, and has developed a plan
for addressing each book, including assessing each books
risks, risk mitigation options, monitoring metrics and certain
implications of various potential outcomes. Each plan has been
reviewed by a steering committee whose membership includes
senior executives of AIG. The plans are subject to change as
efforts progress and as conditions in the financial markets
evolve, and they contemplate, depending on the book in question,
alternative strategies, including sales, assignments or other
transfers of positions, terminations of positions,
and/or
run-offs of positions in accordance with existing terms.
Execution of these plans is overseen by a transaction approval
process involving increasingly senior members of AIGFPs
and AIGs respective management groups as specific actions
entail greater liquidity and financial consequences. Successful
execution of these plans is subject, to varying degrees
depending on the
109
American International Group, Inc.
and Subsidiaries
transactions of a given book, to market conditions and, in many
circumstances, counterparty negotiation and agreement.
As a consequence of its wind-down strategy, AIGFP is entering
into new derivative transactions only to hedge its current
portfolio, reduce risk and hedge the currency, interest rate and
other market risks associated with its affiliated businesses.
AIGFP has already reduced the size of certain portions of its
portfolio, including effecting a substantial reduction in credit
derivative transactions in respect of multi-sector CDOs in
connection with the Maiden Lane III LLC (ML
III) transaction, a sale of its commodity index business,
termination and sale of its activities as a foreign exchange
prime broker, and sale and other disposition of the large
majority of its energy/infrastructure investment portfolio. Due
to the long-term duration of many of AIGFPs derivative
contracts and to the complexity of AIGFPs portfolio, AIG
expects that an orderly wind-down will take a substantial period
of time. The cost of executing the wind-down will depend on many
factors, many of which are not within AIGFPs control,
including market conditions, AIGFPs access to markets via
market counterparties, the availability of liquidity and the
potential implications of further rating downgrades.
Asset
Management
Distressed global markets continue to cause depressed values of
assets under management, translating to lower base management
fees and continued volatility in unrealized carried interest
revenues for Asset Management operations. Current strained
economic conditions have caused a decline in the value of
certain private equity and real estate assets held for
investment purposes resulting in impairment charges. The
persistence of the troubled global economy driven by tight
credit markets and rising unemployment will likely continue to
adversely affect operating income in future periods. Management
continues to assess value declines and the permanence of such
declines. These market conditions have also adversely affected
the ability to pay or refinance maturing debt obligations in the
private equity and real estate portfolios.
The criticism and negative publicity about AIG following the
events of September 2008 and challenging market conditions have
contributed to the loss of institutional and retail clients as
well as significant redemptions from certain of AIGs
managed hedge and mutual funds. Client losses and redemptions
have leveled off from the fourth quarter of 2008 as markets
began to show signs of stabilization in the second quarter of
2009. AIGs third party Institutional Asset Management
business is not expected to launch any new funds or products in
the foreseeable future.
Within the Spread-Based Investment business, distressed markets
have resulted in continued loss of value of AIGs invested
assets.
Results
of Operations
AIG identifies its operating segments by product line,
consistent with its management structure. These segments are
General Insurance, Life Insurance & Retirement
Services, Financial Services and Asset Management. Through these
operating segments, AIG provides insurance, financial and
investment products and services to both businesses and
individuals in more than 130 countries and jurisdictions.
AIGs Other category consists of items not allocated to
AIGs operating segments.
AIGs subsidiaries serve commercial, institutional and
individual customers through an extensive property-casualty and
life insurance and retirement services network. AIGs
Financial Services businesses include commercial aircraft and
equipment leasing, capital markets operations and consumer
finance, both in the United States and abroad. AIG also provides
asset management services to institutions and individuals.
110
American International Group, Inc.
and Subsidiaries
Consolidated
Results
AIGs consolidated results of operations were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Percentage
|
|
|
Six Months Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase
|
|
|
June 30,
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other considerations
|
|
$
|
17,769
|
|
|
$
|
21,735
|
|
|
|
(18
|
)%
|
|
$
|
36,589
|
|
|
$
|
42,407
|
|
|
|
(14
|
)%
|
Net investment income
|
|
|
8,785
|
|
|
|
6,728
|
|
|
|
31
|
|
|
|
11,068
|
|
|
|
11,682
|
|
|
|
(5
|
)
|
Net realized capital losses
|
|
|
(1,299
|
)
|
|
|
(6,081
|
)
|
|
|
|
|
|
|
(4,401
|
)
|
|
|
(12,170
|
)
|
|
|
|
|
Unrealized market valuation gains (losses) on AIGFP super senior
credit default swap portfolio
|
|
|
636
|
|
|
|
(5,565
|
)
|
|
|
|
|
|
|
184
|
|
|
|
(14,672
|
)
|
|
|
|
|
Other income
|
|
|
3,634
|
|
|
|
3,116
|
|
|
|
17
|
|
|
|
6,543
|
|
|
|
6,717
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
29,525
|
|
|
|
19,933
|
|
|
|
48
|
|
|
|
49,983
|
|
|
|
33,964
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits, claims and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder benefits and claims incurred
|
|
|
17,273
|
|
|
|
18,450
|
|
|
|
(6
|
)
|
|
|
33,316
|
|
|
|
34,332
|
|
|
|
(3
|
)
|
Policy acquisition and other insurance expenses
|
|
|
5,694
|
|
|
|
6,029
|
|
|
|
(6
|
)
|
|
|
10,988
|
|
|
|
11,641
|
|
|
|
(6
|
)
|
Interest expense
|
|
|
2,600
|
|
|
|
1,333
|
|
|
|
95
|
|
|
|
5,445
|
|
|
|
2,605
|
|
|
|
109
|
|
Restructuring expenses and related asset impairment and other
expenses
|
|
|
343
|
|
|
|
|
|
|
|
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
Other expenses
|
|
|
2,296
|
|
|
|
2,877
|
|
|
|
(20
|
)
|
|
|
4,578
|
|
|
|
5,406
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total benefits, claims and expenses
|
|
|
28,206
|
|
|
|
28,689
|
|
|
|
(2
|
)
|
|
|
55,032
|
|
|
|
53,984
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) before income tax benefit
|
|
|
1,319
|
|
|
|
(8,756
|
)
|
|
|
|
|
|
|
(5,049
|
)
|
|
|
(20,020
|
)
|
|
|
|
|
Income tax benefit
|
|
|
(526
|
)
|
|
|
(3,357
|
)
|
|
|
|
|
|
|
(1,761
|
)
|
|
|
(6,894
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,845
|
|
|
|
(5,399
|
)
|
|
|
|
|
|
|
(3,288
|
)
|
|
|
(13,126
|
)
|
|
|
|
|
Less: Net income (loss) attributable to the noncontrolling
interest
|
|
|
23
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
(757
|
)
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to AIG
|
|
$
|
1,822
|
|
|
$
|
(5,357
|
)
|
|
|
|
%
|
|
$
|
(2,531
|
)
|
|
$
|
(13,162
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
and Other Considerations
Premiums and other considerations decreased in the three- and
six-month periods ended June 30, 2009 compared to the same
period in 2008 primarily due to:
|
|
|
|
|
a decline in Commercial Insurance reflecting the economys
continued effect on the construction, environmental and
transportation lines of businesses which were negatively
affected by the credit crisis that limited capital for new
projects and a decline in the workers compensation line of
business due to lower payrolls and AIGs strategy to remain
price disciplined in this business;
|
|
|
|
a decrease in Foreign General Insurance due to negative effect
of foreign exchange, the sale of the Brazilian operations in
2008 and lower premiums in Europe, the U.K. and Far East regions;
|
111
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
a decrease in Foreign Life Insurance & Retirement
Services reflecting significant declines in the single premium
production which continues to reflect the effect of equity
markets on investment-linked and annuity products
globally; and
|
|
|
|
a decrease in Domestic Life Insurance premiums, most notably for
payout annuities.
|
See Segment Results herein for further discussion.
Net
Investment Income
The components of consolidated net investment income were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Percentage
|
|
|
Six Months
|
|
|
Percentage
|
|
|
|
Ended June 30,
|
|
|
Increase
|
|
|
Ended June 30,
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Fixed maturities, including short-term investments
|
|
$
|
5,769
|
|
|
$
|
5,445
|
|
|
|
6
|
%
|
|
$
|
8,781
|
|
|
$
|
10,918
|
|
|
|
(20
|
)%
|
Equity securities
|
|
|
123
|
|
|
|
149
|
|
|
|
(17
|
)
|
|
|
207
|
|
|
|
219
|
|
|
|
(5
|
)
|
Interest on mortgage and other loans
|
|
|
381
|
|
|
|
397
|
|
|
|
(4
|
)
|
|
|
784
|
|
|
|
775
|
|
|
|
1
|
|
Partnerships
|
|
|
(93
|
)
|
|
|
66
|
|
|
|
|
|
|
|
(779
|
)
|
|
|
172
|
|
|
|
|
|
Mutual funds
|
|
|
285
|
|
|
|
121
|
|
|
|
136
|
|
|
|
185
|
|
|
|
(24
|
)
|
|
|
|
|
Trading account losses
|
|
|
4
|
|
|
|
(133
|
)
|
|
|
|
|
|
|
(34
|
)
|
|
|
(221
|
)
|
|
|
|
|
Other investments
|
|
|
344
|
|
|
|
341
|
|
|
|
1
|
|
|
|
493
|
|
|
|
540
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income before policyholder income and trading
gains (losses)
|
|
|
6,813
|
|
|
|
6,386
|
|
|
|
7
|
|
|
|
9,637
|
|
|
|
12,379
|
|
|
|
(22
|
)
|
Policyholder investment income and trading losses
|
|
|
2,135
|
|
|
|
617
|
|
|
|
246
|
|
|
|
1,828
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
8,948
|
|
|
|
7,003
|
|
|
|
28
|
|
|
|
11,465
|
|
|
|
12,211
|
|
|
|
(6
|
)
|
Investment expenses
|
|
|
163
|
|
|
|
275
|
|
|
|
(41
|
)
|
|
|
397
|
|
|
|
529
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
8,785
|
|
|
$
|
6,728
|
|
|
|
31
|
%
|
|
$
|
11,068
|
|
|
$
|
11,682
|
|
|
|
(5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income increased in the three-month period ended
June 30, 2009 compared to the same period in 2008 due to:
|
|
|
|
|
increased policyholder investment income and trading gains and
losses for Foreign Life Insurance & Retirement
Services (together, policyholder trading gains (losses)), which
were $2.1 billion for the three months ended June 30,
2009 compared to $606 million for the same period in 2008.
Policyholder trading losses are offset by a change in
policyholder benefits and claims incurred and generally reflect
the trends in equity markets, principally in Japan and Asia;
|
|
|
|
a gain of $1.0 billion for the second quarter of 2009
associated with the change in fair value of AIGs equity
interest in ML III, reported in fixed maturities and reflected
in the Other category in AIGs segment results; and
|
|
|
|
lower levels of trading account losses for the Foreign Life
Insurance & Retirement Services business in the U.K.
associated with certain investment-linked products.
|
These increases were partially offset by:
|
|
|
|
|
losses from partnership investments reflecting weaker market
conditions in 2009 than in 2008;
|
|
|
|
losses associated with the change in fair value of AIGs
equity interest in Maiden Lane II LLC (ML II) of
$105 million in 2009, reported in fixed maturities and
reflected in the Life Insurance & Retirement Services
segment results;
|
112
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
lower levels of invested assets in 2009 compared to
2008; and
|
|
|
|
lower returns as a result of increased levels of short-term
investments for liquidity purposes.
|
Net investment income decreased in the six-month period ended
June 30, 2009 compared to the same period in 2008 primarily
due to:
|
|
|
|
|
losses associated with the change in fair value of AIGs
equity interest in ML III of $939 million in 2009;
|
|
|
|
losses associated with the change in fair value of AIGs
equity interest in ML II of approximately $340 million in
2009;
|
|
|
|
losses from partnership investments reflecting significantly
weaker market conditions in 2009 than in 2008;
|
|
|
|
lower levels of invested assets in 2009 compared to
2008; and
|
|
|
|
lower returns as a result of increased levels of short-term
investments for liquidity purposes.
|
These declines were partially offset by increased policyholder
trading gains (losses) for Foreign Life Insurance &
Retirement Services, which were $1.8 billion for the six
months ended June 30, 2009 compared to $(156) million
for the same period in 2008.
Net
Realized Capital Gains (Losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Sales of fixed maturity securities
|
|
$
|
873
|
|
|
$
|
(29
|
)
|
|
$
|
793
|
|
|
$
|
(10
|
)
|
Sales of equity securities
|
|
|
170
|
|
|
|
240
|
|
|
|
136
|
|
|
|
320
|
|
Sales of real estate and other assets
|
|
|
(304
|
)
|
|
|
172
|
|
|
|
(594
|
)
|
|
|
325
|
|
Divested businesses
|
|
|
(566
|
)
|
|
|
|
|
|
|
(316
|
)
|
|
|
|
|
Other-than-temporary
impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
|
(14
|
)
|
|
|
(4,843
|
)
|
|
|
(1,779
|
)
|
|
|
(8,948
|
)
|
Change in intent
|
|
|
(172
|
)
|
|
|
(241
|
)
|
|
|
(964
|
)
|
|
|
(1,021
|
)
|
Foreign currency declines
|
|
|
(186
|
)
|
|
|
(633
|
)
|
|
|
(352
|
)
|
|
|
(1,034
|
)
|
Issuer-specific credit events
|
|
|
(608
|
)
|
|
|
(322
|
)
|
|
|
(1,727
|
)
|
|
|
(493
|
)
|
Adverse projected cash flows on structured securities
|
|
|
(3
|
)
|
|
|
(738
|
)
|
|
|
(148
|
)
|
|
|
(874
|
)
|
Foreign exchange transactions
|
|
|
(1,302
|
)
|
|
|
(74
|
)
|
|
|
(1,017
|
)
|
|
|
(738
|
)
|
Derivative instruments
|
|
|
813
|
|
|
|
387
|
|
|
|
1,567
|
|
|
|
303
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,299
|
)
|
|
$
|
(6,081
|
)
|
|
$
|
(4,401
|
)
|
|
$
|
(12,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital losses decreased in the three-and six-month
periods ended June 30, 2009 compared to the same periods in
2008 primarily due to the decline in
other-than-temporary
impairments driven by improved market conditions, principally in
the second quarter. Additionally, the three- and six-month
periods ended June 30, 2008 included non-credit impairments
(i.e. severity losses) that are no longer required for fixed
maturity securities upon the adoption of FSP
FAS 115-2.
See Note 35 to the Consolidated Financial Statements; and
Investments Portfolio Review
Other-Than-Temporary
Impairments. Net realized capital losses also decreased due to
favorable effect of foreign exchange transactions, which was
offset by the effect of derivative instruments that did not
qualify for hedge accounting treatment under FAS 133.
Unrealized
Market Valuation Gains (Losses) on AIGFP Super Senior Credit
Default Swap Portfolio
AIGFP reported unrealized market valuation gains related to its
super senior credit default swap portfolio of $636 million
and $184 million in the three- and six-month periods ended
June 30, 2009, respectively, and unrealized market
valuation losses of $5.6 billion and $14.7 billion in
the three- and six-month periods ended June 30, 2008,
113
American International Group, Inc.
and Subsidiaries
respectively. The change in the unrealized market valuation
gains (losses) related to AIGFPs super senior credit
default swap portfolio was due to the substantial decline in
outstanding net notional amount resulting from the termination
of contracts in the fourth quarter of 2008 associated with the
ML III transaction as well as the narrowing of corporate credit
spreads. Changes in fair value of AIGs interest in ML III
are recorded in Net investment income. See Financial Services
Operations Capital Markets Results; Critical
Accounting Estimates Valuation of Level 3
Assets and Liabilities; Note 4 to the Consolidated
Financial Statements; and Note 5 to the Consolidated
Financial Statements in the 2008 Financial Statements.
Other
Income (Loss)
Other income increased in the three-month period ended
June 30, 2009 compared to the same period in 2008 due to
the effect of hedging activities that did not qualify for hedge
accounting treatment under FAS 133, which was driven by the
weakening of the U.S. dollar against most major currencies
during the second quarter of 2009. This increase was partially
offset by a decline in Institutional Asset Management revenues,
primarily resulting from real estate equity losses, including
the effect of investment impairments and lower base management
fees. Other income for the six months ended June 30, 2009
was essentially unchanged compared to the same period in 2008.
Policyholder
Benefits and Claims Incurred
Policyholder benefits and claims incurred decreased in the
three-and six-month periods ended June 30, 2009 compared to
the same periods in 2008 due to lower claims expense in the
General Insurance segment. Declines in production levels, the
sale of the Brazilian operations in 2008, the effect of foreign
exchange rates and the deconsolidation of Transatlantic
contributed to these declines.
Policy
Acquisition and Other Insurance Expenses
Policy acquisition and other insurance expenses decreased in the
three-month period ended June 30, 2009 compared to the same
period in 2008 primarily due to a $243 million decrease in
General Insurance expenses reflecting a decline in production
levels and a decrease of $192 million due to the
deconsolidation of Transatlantic and disposition of HSB. These
declines were partially offset by a $242 million increase
in policy acquisition and other insurance expenses for Life
Insurance and Retirement Services primarily due to deferred
policy acquisition costs (DAC) amortization related to net
realized capital gains (losses) of $141 million for the
three-month period ended June 30, 2009 compared to a DAC
benefit of $180 million for the same period in 2008.
Policy acquisition and other insurance expenses decreased in the
six-month period ended June 30, 2009 compared to the same
period in 2008 primarily due to a $314 million decrease in
General Insurance expenses reflecting a decline in production
levels and a decrease of $228 million due to the
deconsolidation of Transatlantic and disposition of HSB Group,
Inc. (HSB). These declines were partially offset by a
$338 million increase in policy acquisition and other
insurance expenses for Life Insurance & Retirement
Services primarily due to higher DAC unlockings of
$377 million related to changes in the long-term separate
account growth rate assumption for Domestic Retirement Services
and restructuring costs, partially offset by a higher DAC
benefit of $94 million related to net realized capital
losses.
Interest
Expense
Interest expense increased in the three- and six-month periods
ended June 30, 2009 compared to the same period in 2008
primarily due to $1.4 billion and $2.9 billion,
respectively, of interest expense on the FRBNY Facility which
was comprised of $822 million and $1.6 billion,
respectively, of amortization of the prepaid commitment fee
asset and $552 million and $1.3 billion, respectively,
of accrued compounding interest. These amounts are reflected in
the Other category in AIGs segment results.
Restructuring
Expenses and Related Asset Impairment and Other
Expenses
In the fourth quarter of 2008, AIG commenced an
organization-wide restructuring plan under which some of its
businesses are being divested, some will be held for later
divestiture, some are being prepared for potential offerings to
the public and some will be retained. In connection with
activities under this plan, AIG recorded
114
American International Group, Inc.
and Subsidiaries
restructuring and separation expenses of $343 million in
the three-month period ended June 30, 2009, consisting of
severance expenses of $43 million, contract termination
expenses of $19 million, asset write-downs of
$10 million, other exit expenses of $146 million and
separation expenses of $125 million. AIG recorded
restructuring and separation expenses of $705 million in
the six-month period ended June 30, 2009, consisting of
severance expenses of $81 million, contract termination
expenses of $39 million, asset write-downs of
$21 million, other exit expenses of $281 million, and
separation expenses of $283 million.
Other exit expenses primarily include professional fees related
to (i) disposition activities, (ii) AIGs capital
restructuring program with the FRBNY and the Department of the
Treasury and (iii) unwinding of AIGFPs businesses and
portfolios.
Severance and separation expenses described above include
retention awards of $120 million and $281 million for
the three- and six-month periods ended June 30, 2009,
respectively, to key employees to maintain ongoing business
operations and facilitate the successful execution of the
restructuring and asset disposition plan. The awards under these
retention plans were granted in 2008 and are accrued ratably
over the future service periods, which range from 2008 to 2011.
The total amount expected to be incurred related to these 2008
retention plans is approximately $1.1 billion. AIG made
payments to the employees under these plans in 2008 and the
first six months of 2009 and expects to make further payments
for the remainder of 2009 through 2011. The ultimate amount paid
could be less primarily due to the effect of forfeitures.
Amounts charged to expense, and expected to be charged to
expense, and the total amounts expected to be incurred under the
2008 retention plans, by operating segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
|
Life Insurance &
|
|
|
Financial
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Retirement Services
|
|
|
Services
|
|
|
Management
|
|
|
Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Amounts charged to expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2009
|
|
$
|
40
|
|
|
$
|
33
|
|
|
$
|
33
|
|
|
$
|
6
|
|
|
$
|
8
|
|
|
$
|
120
|
|
Six months ended June 30, 2009
|
|
|
69
|
|
|
|
78
|
|
|
|
91
|
|
|
|
15
|
|
|
|
28
|
|
|
|
281
|
|
Cumulative incurred since inception of restructuring plan*
|
|
|
152
|
|
|
|
131
|
|
|
|
378
|
|
|
|
62
|
|
|
|
101
|
|
|
|
824
|
|
Amounts expected to be incurred in future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2009
|
|
|
64
|
|
|
|
62
|
|
|
|
93
|
|
|
|
13
|
|
|
|
17
|
|
|
|
249
|
|
2010
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
18
|
|
2011
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts expected to be incurred in future periods
|
|
|
64
|
|
|
|
79
|
|
|
|
93
|
|
|
|
13
|
|
|
|
19
|
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total amounts expected to be incurred
|
|
$
|
216
|
|
|
$
|
210
|
|
|
$
|
471
|
|
|
$
|
75
|
|
|
$
|
120
|
|
|
$
|
1,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes an adjustment of $51 million in Financial
Services to increase the cumulative amount incurred since
inception for retention amounts paid in 2008. |
Total restructuring and separation expenses could have a
material effect on future consolidated results of operations and
cash flows.
See Note 2 to the Consolidated Financial Statements for
additional discussion regarding restructuring and separation
expenses.
Other
Expenses
Other Expenses decreased in the three- and six-month periods
ended June 30, 2009 compared to the same periods in 2008
primarily due to a decrease in compensation-related costs in the
Financial Services and Asset Management segments and lower
interest expense on GICs.
115
American International Group, Inc.
and Subsidiaries
Income
Taxes (Benefits)
The effective tax rate on pre-tax income for the three-month
period ended June 30, 2009 was (40.0) percent. The
effective tax rate was negative because AIG recorded a tax
benefit on pre-tax income. The tax benefit was due primarily to
a $1.8 billion decrease in the deferred tax valuation
allowance resulting from the effects of recently announced
transactions, including the sale of AIGs headquarters
building in Tokyo. This benefit was partially offset by
$720 million of deferred tax expense mainly attributable to
the book and tax basis differences of AIG Parents
investment in subsidiaries, primarily attributable to AIGs
divestiture plan, and an increase of $360 million in the
reserve for uncertain tax positions and other discrete period
items. The effective tax rate on the pre-tax loss for the six
months ended June 30, 2009 was 34.9 percent.
At June 30, 2009, AIG has recorded a net deferred tax asset
after valuation allowance of $12.8 billion. This asset was
net of $4.2 billion of net deferred tax liabilities related
to foreign subsidiaries and certain domestic subsidiaries that
file separate tax returns. Management determined that it is more
likely than not that the remaining $17.0 billion net
deferred tax asset is realizable. AIG has also determined that
no valuation allowance is required on $4.3 billion of tax
benefit on available for sale fixed maturity securities that
management has asserted it has the ability and intent to hold to
recovery. The remaining $12.7 billion of net deferred tax
asset is supported based on managements assessment of
future income, principally related to AIGs divestiture
plan.
Realization of AIGs net deferred tax asset depends on
AIGs ability to consummate the AIA and ALICO transactions
and to generate sufficient future taxable income of the
appropriate character within carryforward periods of the
jurisdictions in which the net operating and capital losses, tax
credits and deductible temporary differences were incurred.
Estimates of future taxable income could change in the near
term, perhaps materially, which may require AIG to adjust its
valuation allowance. Such adjustment, either positive or
negative, could be material to AIGs consolidated financial
condition or its results of operations.
When making its assessment about the realization of its deferred
tax assets at June 30, 2009, AIG considered all available
evidence, including (i) the nature, frequency, and severity
of current and cumulative financial reporting losses,
(ii) actions completed to date and additional actions
expected to be completed, (iii) the carryforward periods
for the net operating and capital loss and foreign tax credit
carryforwards, (iv) the sources and timing of future
taxable income, giving greater weight to discrete sources and to
earlier years in the forecast period, and (v) tax planning
strategies that would be implemented, if necessary, to
accelerate taxable amounts. Management has also considered the
period during which it expects to receive support from the FRBNY.
The effective tax rate on the pre-tax loss for the three-month
period ended June 30, 2008 was 38.4 percent. The
effective tax rate was higher than the statutory rate of
35 percent due primarily to tax benefits from foreign
operations and tax exempt interest. The effective tax rate on
the pre-tax loss for the six-month period ended June 30,
2008 was 34.4 percent. The effective tax rate was adversely
affected by $703 million of tax charges from the first
three months of 2008, comprised of increases in the reserve for
uncertain tax positions, tax benefits from foreign operations
and tax exempt income and other discrete period items.
See Note 12 to the Consolidated Financial Statements for a
rollforward of the deferred tax asset and related valuation
allowance.
116
American International Group, Inc.
and Subsidiaries
Segment
Results
The following table summarizes the operations of each
operating segment. (See also Note 3 to Consolidated
Financial Statements.)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Percentage
|
|
|
Six Months Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase
|
|
|
June 30,
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Total Revenues(a)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance(c)
|
|
$
|
8,847
|
|
|
$
|
10,120
|
|
|
|
(13
|
)%
|
|
$
|
16,974
|
|
|
$
|
19,738
|
|
|
|
(14
|
)%
|
Life Insurance & Retirement Services
|
|
|
14,997
|
|
|
|
10,161
|
|
|
|
48
|
|
|
|
23,854
|
|
|
|
18,913
|
|
|
|
26
|
|
Financial Services(d)(e)
|
|
|
2,155
|
|
|
|
(3,605
|
)
|
|
|
|
|
|
|
3,428
|
|
|
|
(10,165
|
)
|
|
|
|
|
Asset Management
|
|
|
452
|
|
|
|
797
|
|
|
|
(43
|
)
|
|
|
751
|
|
|
|
648
|
|
|
|
16
|
|
Other(c)
|
|
|
3,276
|
|
|
|
2,845
|
|
|
|
15
|
|
|
|
5,801
|
|
|
|
5,388
|
|
|
|
8
|
|
Consolidation and eliminations
|
|
|
(202
|
)
|
|
|
(385
|
)
|
|
|
|
|
|
|
(825
|
)
|
|
|
(558
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,525
|
|
|
$
|
19,933
|
|
|
|
48
|
%
|
|
$
|
49,983
|
|
|
$
|
33,964
|
|
|
|
47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital gains (losses)(a)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance(c)
|
|
$
|
(45
|
)
|
|
$
|
(493
|
)
|
|
|
|
|
|
$
|
(653
|
)
|
|
$
|
(739
|
)
|
|
|
|
|
Life Insurance & Retirement Services
|
|
|
297
|
|
|
|
(5,010
|
)
|
|
|
|
|
|
|
(2,811
|
)
|
|
|
(9,379
|
)
|
|
|
|
|
Financial Services(d)
|
|
|
10
|
|
|
|
15
|
|
|
|
|
|
|
|
(24
|
)
|
|
|
(136
|
)
|
|
|
|
|
Asset Management
|
|
|
78
|
|
|
|
(464
|
)
|
|
|
|
|
|
|
(74
|
)
|
|
|
(1,869
|
)
|
|
|
|
|
Other(c)
|
|
|
(1,639
|
)
|
|
|
(129
|
)
|
|
|
|
|
|
|
(839
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(1,299
|
)
|
|
$
|
(6,081
|
)
|
|
|
|
|
|
$
|
(4,401
|
)
|
|
$
|
(12,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (loss)(a)(b):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance(c)
|
|
$
|
971
|
|
|
$
|
1,212
|
|
|
|
(20
|
)%
|
|
$
|
1,094
|
|
|
$
|
2,727
|
|
|
|
(60
|
)%
|
Life Insurance & Retirement Services
|
|
|
1,818
|
|
|
|
(2,401
|
)
|
|
|
|
|
|
|
(55
|
)
|
|
|
(4,232
|
)
|
|
|
|
|
Financial Services(d)(e)
|
|
|
(89
|
)
|
|
|
(5,905
|
)
|
|
|
|
|
|
|
(1,211
|
)
|
|
|
(14,677
|
)
|
|
|
|
|
Asset Management
|
|
|
(222
|
)
|
|
|
(314
|
)
|
|
|
|
|
|
|
(855
|
)
|
|
|
(1,565
|
)
|
|
|
|
|
Other(c)
|
|
|
(1,337
|
)
|
|
|
(1,100
|
)
|
|
|
|
|
|
|
(3,809
|
)
|
|
|
(2,046
|
)
|
|
|
|
|
Consolidation and eliminations
|
|
|
178
|
|
|
|
(248
|
)
|
|
|
|
|
|
|
(213
|
)
|
|
|
(227
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,319
|
|
|
$
|
(8,756
|
)
|
|
|
|
%
|
|
$
|
(5,049
|
)
|
|
$
|
(20,020
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes gains (losses) from hedging activities that did not
qualify for hedge accounting treatment under
FAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (FAS 133),
including the related foreign exchange gains and losses. For the
three-month periods ended June 30, 2009 and 2008, the
effect was $167 million and $272 million,
respectively, in both revenues and operating income (loss). For
the six-month periods ended June 30, 2009 and 2008, the
effect was $881 million and $(476) million,
respectively, in both revenues and operating income (loss).
These amounts result primarily from interest rate and foreign
currency derivatives that are effective economic hedges of
investments and borrowings. |
|
(b) |
|
Includes
other-than-temporary
impairment charges. See also Invested Assets
Portfolio Review
Other-Than-Temporary
Impairments for further discussion. |
|
(c) |
|
In order to better align financial reporting with the manner
in which AIGs chief operating decision makers manage their
businesses, beginning in the second quarter of 2009, the results
for Transatlantic, Personal Lines, Mortgage Guaranty and HSB are
now included in AIGs Other operations. These amounts were
previously reported as part of the General Insurance operating
segment. Prior period amounts have been revised to |
117
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
conform to the current presentation. As a result of
dispositions, only Mortgage Guaranty is expected to report
ongoing results of operations commencing in the third quarter of
2009. |
|
(d) |
|
Includes gains (losses) from hedging activities that did not
qualify for hedge accounting treatment under FAS 133,
including the related foreign exchange gains and losses. For the
three-month periods ended June 30, 2009 and 2008, the
effect was $235 million and $5 million, respectively,
in both revenues and operating income (loss). For the six-month
periods ended June 30, 2009 and 2008, the effect was
$232 million and $(199) million, respectively, in both
revenues and operating income (loss). These amounts result
primarily from interest rate and foreign currency derivatives
that are effective economic hedges of investments and
borrowings. |
|
(e) |
|
Includes unrealized market valuation gains of
$636 million and losses of $5.6 billion for the
three-month periods ended June 30, 2009 and 2008,
respectively, and gains of $184 million and losses of
$14.7 billion for the six-month periods ended June 30,
2009 and 2008, respectively, on AIGFPs super senior credit
default swap portfolio. |
General
Insurance Operations
AIGs General Insurance subsidiaries are multiple line
companies writing substantially all lines of property and
casualty insurance and various personal lines both domestically
and abroad.
Commercial Insurance writes substantially all classes of
business insurance, accepting such business mainly from
insurance brokers. This provides Commercial Insurance the
opportunity to select specialized markets and retain
underwriting control. Any licensed broker is able to submit
business to Commercial Insurance without the traditional
agent-company contractual relationship, but such broker usually
has no authority to commit Commercial Insurance to accept a risk.
AIGs Foreign General insurance group writes both
commercial and consumer lines of insurance through a network of
branches and foreign based insurance subsidiaries. Foreign
General insurance group uses various marketing methods and
multiple distribution channels to write both commercial and
consumer lines insurance with certain refinements for local
laws, customs and needs. Foreign General insurance group
operates in Asia, the Pacific Rim, Europe, the U.K., Africa, the
Middle East and Latin America.
In order to better align financial reporting with the manner in
which AIGs chief operating decision makers manage their
businesses, beginning in the second quarter of 2009, the results
for Transatlantic, Personal Lines (excluding the results of the
Private Client Group), and Mortgage Guaranty, previously
reported as part of the General Insurance operating segment, are
now included in AIGs Other operations. In addition, the
historical results of HSB (which was sold on March 31,
2009), which were previously included in Commercial Insurance,
are also now included in AIGs Other operations. Prior
period amounts have been revised to conform to the current
presentation.
118
American International Group, Inc.
and Subsidiaries
General
Insurance Results
General Insurance operating income is comprised of statutory
underwriting profit (loss), changes in DAC, net investment
income and net realized capital gains and losses. Operating
income (loss), as well as net premiums written, net premiums
earned, net investment income and net realized capital gains
(losses) and statutory ratios, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Percentage
|
|
|
Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase
|
|
|
June 30,
|
|
|
Increase
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions, except ratios)
|
|
|
Net premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
4,968
|
|
|
$
|
6,079
|
|
|
|
(18
|
)%
|
|
$
|
9,152
|
|
|
$
|
11,203
|
|
|
|
(18
|
)%
|
Foreign General Insurance
|
|
|
2,954
|
|
|
|
3,726
|
|
|
|
(21
|
)
|
|
|
6,506
|
|
|
|
8,065
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,922
|
|
|
$
|
9,805
|
|
|
|
(19
|
)%
|
|
$
|
15,658
|
|
|
$
|
19,268
|
|
|
|
(19
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
4,948
|
|
|
$
|
5,924
|
|
|
|
(16
|
)%
|
|
$
|
10,175
|
|
|
$
|
11,334
|
|
|
|
(10
|
)%
|
Foreign General Insurance
|
|
|
3,076
|
|
|
|
3,740
|
|
|
|
(18
|
)
|
|
|
6,130
|
|
|
|
7,208
|
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,024
|
|
|
$
|
9,664
|
|
|
|
(17
|
)%
|
|
$
|
16,305
|
|
|
$
|
18,542
|
|
|
|
(12
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
645
|
|
|
$
|
592
|
|
|
|
9
|
%
|
|
$
|
945
|
|
|
$
|
1,336
|
|
|
|
(29
|
)%
|
Foreign General Insurance
|
|
|
223
|
|
|
|
357
|
|
|
|
(38
|
)
|
|
|
377
|
|
|
|
599
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
868
|
|
|
$
|
949
|
|
|
|
(9
|
)%
|
|
$
|
1,322
|
|
|
$
|
1,935
|
|
|
|
(32
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized capital gains (losses)
|
|
$
|
(45
|
)
|
|
$
|
(493
|
)
|
|
|
|
%
|
|
$
|
(653
|
)
|
|
$
|
(739
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
583
|
|
|
$
|
416
|
|
|
|
40
|
%
|
|
$
|
359
|
|
|
$
|
1,195
|
|
|
|
(70
|
)%
|
Foreign General Insurance
|
|
|
388
|
|
|
|
796
|
|
|
|
(51
|
)
|
|
|
735
|
|
|
|
1,532
|
|
|
|
(52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
971
|
|
|
$
|
1,212
|
|
|
|
(20
|
)%
|
|
$
|
1,094
|
|
|
$
|
2,727
|
|
|
|
(60
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory underwriting profit (loss)*:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
6
|
|
|
$
|
340
|
|
|
|
(98
|
)%
|
|
$
|
115
|
|
|
$
|
538
|
|
|
|
(79
|
)%
|
Foreign General Insurance
|
|
|
157
|
|
|
|
443
|
|
|
|
(65
|
)
|
|
|
330
|
|
|
|
807
|
|
|
|
(59
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163
|
|
|
$
|
783
|
|
|
|
(79
|
)%
|
|
$
|
445
|
|
|
$
|
1,345
|
|
|
|
(67
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
79.8
|
|
|
|
74.6
|
|
|
|
|
|
|
|
79.1
|
|
|
|
74.5
|
|
|
|
|
|
Expense ratio
|
|
|
20.0
|
|
|
|
19.3
|
|
|
|
|
|
|
|
21.1
|
|
|
|
20.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
99.8
|
|
|
|
93.9
|
|
|
|
|
|
|
|
100.2
|
|
|
|
95.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign General Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
54.9
|
|
|
|
53.7
|
|
|
|
|
|
|
|
55.2
|
|
|
|
52.8
|
|
|
|
|
|
Expense ratio
|
|
|
40.6
|
|
|
|
35.7
|
|
|
|
|
|
|
|
37.6
|
|
|
|
33.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
95.5
|
|
|
|
89.4
|
|
|
|
|
|
|
|
92.8
|
|
|
|
86.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
70.3
|
|
|
|
66.5
|
|
|
|
|
|
|
|
70.1
|
|
|
|
66.0
|
|
|
|
|
|
Expense ratio
|
|
|
27.9
|
|
|
|
25.7
|
|
|
|
|
|
|
|
27.3
|
|
|
|
25.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined ratio
|
|
|
98.2
|
|
|
|
92.2
|
|
|
|
|
|
|
|
97.4
|
|
|
|
91.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
American International Group, Inc.
and Subsidiaries
|
|
|
* |
|
Statutory underwriting profit (loss) is a measure that U.S.
domiciled insurance companies are required to report to their
regulatory authorities. The following table reconciles statutory
underwriting profit (loss) to operating income (loss) for
General Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
|
|
|
|
Commercial
|
|
|
General
|
|
|
|
|
|
|
Insurance
|
|
|
Insurance
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory underwriting profit (loss)
|
|
$
|
6
|
|
|
$
|
157
|
|
|
$
|
163
|
|
Increase (decrease) in DAC
|
|
|
3
|
|
|
|
(18
|
)
|
|
|
(15
|
)
|
Net investment income
|
|
|
645
|
|
|
|
223
|
|
|
|
868
|
|
Net realized capital gains (losses)
|
|
|
(71
|
)
|
|
|
26
|
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
583
|
|
|
$
|
388
|
|
|
$
|
971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory underwriting profit (loss)
|
|
$
|
340
|
|
|
$
|
443
|
|
|
$
|
783
|
|
Increase in DAC
|
|
|
19
|
|
|
|
(46
|
)
|
|
|
(27
|
)
|
Net investment income
|
|
|
592
|
|
|
|
357
|
|
|
|
949
|
|
Net realized capital gains (losses)
|
|
|
(535
|
)
|
|
|
42
|
|
|
|
(493
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
416
|
|
|
$
|
796
|
|
|
$
|
1,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory underwriting profit (loss)
|
|
$
|
115
|
|
|
$
|
330
|
|
|
$
|
445
|
|
Increase (decrease) in DAC
|
|
|
(127
|
)
|
|
|
107
|
|
|
|
(20
|
)
|
Net investment income
|
|
|
945
|
|
|
|
377
|
|
|
|
1,322
|
|
Net realized capital gains (losses)
|
|
|
(574
|
)
|
|
|
(79
|
)
|
|
|
(653
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
359
|
|
|
$
|
735
|
|
|
$
|
1,094
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory underwriting profit (loss)
|
|
$
|
538
|
|
|
$
|
807
|
|
|
$
|
1,345
|
|
Increase in DAC
|
|
|
20
|
|
|
|
166
|
|
|
|
186
|
|
Net investment income
|
|
|
1,336
|
|
|
|
599
|
|
|
|
1,935
|
|
Net realized capital gains (losses)
|
|
|
(699
|
)
|
|
|
(40
|
)
|
|
|
(739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
$
|
1,195
|
|
|
$
|
1,532
|
|
|
$
|
2,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIG transacts business in most major foreign currencies. The
following table summarizes the effect of changes in foreign
currency exchange rates on the growth of General Insurance net
premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Growth in original currency*
|
|
|
(16.4
|
)%
|
|
|
(2.1
|
)%
|
|
|
(15.5
|
)%
|
|
|
(3.4
|
)%
|
Foreign exchange effect
|
|
|
(2.8
|
)
|
|
|
3.3
|
|
|
|
(3.2
|
)
|
|
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth as reported in U.S. dollars
|
|
|
(19.2
|
)%
|
|
|
1.2
|
%
|
|
|
(18.7
|
)%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Computed using a constant exchange rate for each period. |
120
American International Group, Inc.
and Subsidiaries
Quarterly
General Insurance Results
General Insurance operating income decreased in the three-month
period ended June 30, 2009 compared to the same period in
2008 due to a decline in underwriting income, a decline in net
investment income, partially offset by lower net realized
capital losses. The combined ratio for the three-month period
ended June 30, 2009 increased compared to the same period
in 2008, primarily due to an increase in the loss ratio. The
loss ratio for accident year 2009 recorded in the three-month
period ended June 30, 2009 was 2.6 points higher than the
loss ratio for accident year 2008 recorded in the three-month
period ended June 30, 2008 due to premium rate decreases
and changes in loss trends. Prior year development increased
incurred losses by $60 million in the three-month period
ended June 30, 2009 and increased incurred losses by
$73 million in the three-month period ended June 30,
2008. The net adverse development for the three-month period
2009 includes $71 million of favorable development related
to loss sensitive policies. The favorable development related to
loss sensitive policies had no effect on underwriting profit as
it was entirely offset by a decline in earned premiums.
General Insurance net premiums written decreased in the
three-month period ended June 30, 2009 compared to the same
period in 2008. Net premiums written were impacted by foreign
exchange rates, the U.S. construction, environmental and
transportation lines of business, which were negatively affected
by the credit crisis that limited capital for new projects, and
a decline in U.S. workers compensation premiums due
to lower payrolls and a strategy to remain price disciplined.
General Insurance net premiums written also declined due to the
previous sale of the Brazilian operations.
Year-to-Date
General Insurance Results
General Insurance operating income decreased in the six-month
period ended June 30, 2009 compared to the same period in
2008 due to a decline in underwriting income, a decline in net
investment income, partially offset by lower net realized
capital losses. The combined ratio for the six-month period
ended June 30, 2009 increased compared to the same period
in 2008, primarily due to an increase in the loss ratio. The
loss ratio for accident year 2009 recorded in the six-month
period ended June 30, 2009 was 2.0 points higher than the
loss ratio for accident year 2008 recorded in the six-month
period ended June 30, 2008 due to premium rate decreases
and changes in loss trends. Prior year development increased
incurred losses by $232 million in the six-month period
ended June 30, 2009 and decreased incurred losses by
$152 million in the six-month period ended June 30,
2008. The net adverse development for 2009 includes
$171 million of favorable development related to loss
sensitive policies compared to $339 million of favorable
development related to loss sensitive policies in the same
period in 2008. The favorable development related to loss
sensitive policies had no effect on underwriting profit as it
was entirely offset by a decline in earned premiums.
General Insurance net premiums written decreased in the
six-month period ended June 30, 2009 compared to the same
period in 2008. Net premiums written were affected by foreign
exchange rates, the U.S. construction, real estate and
transportation lines of business, which were negatively affected
by the credit crisis that limited capital for new projects, and
a decline in U.S. workers compensation premiums due
to lower payrolls and a strategy to remain price disciplined.
General Insurance net premiums written also declined due to the
previous sale of the Brazilian operations.
See Results of Operations Consolidated Results for
further discussion on Net investment income and Realized capital
gains (losses).
Quarterly
Commercial Insurance Results
Commercial Insurance operating income increased in the
three-month period ended June 30, 2009 compared to the same
period in 2008 mainly due to an increase in net investment
income and lower
other-than-temporary
impairment charges on invested assets.
Commercial Insurance net premiums written decreased in the
three-month period ended June 30, 2009 compared to the same
period in 2008 due to the economys continued effect on the
construction, real estate and transportation lines of
businesses, which were negatively affected by the credit crisis
that limited capital for new
121
American International Group, Inc.
and Subsidiaries
projects, and a decline in the workers compensation line
of business due to lower payrolls and a strategy to remain price
disciplined.
The loss ratio recorded in the three-month period ended
June 30, 2009 increased compared to the same period in
2008. The loss ratio for accident year 2009 recorded in the
three-month period ended June 30, 2009 was 3.2 points
higher than the loss ratio for accident year 2008 recorded in
the three-month period ended June 30, 2008 due to premium
rate decreases and adverse changes in loss trends. Net prior
year development increased incurred losses by $62 million
in the three-month period ended June 30, 2009 and increased
incurred losses by $72 million in the three-month period
ended June 30, 2008. The net adverse development for 2009
includes $71 million of favorable development related to
loss sensitive policies. The favorable development related to
loss sensitive policies had no effect on underwriting profit as
it was entirely offset by a decline in earned premiums.
The expense ratio increased in the three-month period ended
June 30, 2009 compared to the same period in 2008 driven by
the decline in premiums. Overall expenses were down
$156 million, or 14 percent from prior year due to
continued expense saving initiatives, partially offset by higher
pension costs.
Year-to-Date
Commercial Insurance Results
Commercial Insurance operating income decreased in the six-month
period ended June 30, 2009 compared to the same period in
2008 mainly due to a decrease in underwriting income, and a
decline in net investment income, partially offset by lower net
realized capital losses.
Net premiums written decreased in the six-month period ended
June 30, 2009 compared to the same period in 2008 due to
declines in workers compensation premiums and the
construction, real estate and transportation lines of businesses
as described above. Net premiums written were also adversely
affected by AIGs negative publicity in the current year.
The loss ratio recorded in the six-month period ended
June 30, 2009 increased compared to the same period in
2008. The loss ratio for accident year 2009 recorded in the
six-month period ended June 30, 2009 was 1.6 points higher
than the loss ratio for accident year 2008 recorded in the
six-month period ended June 30, 2008 due to premium rate
decreases and adverse changes in loss trends. The loss ratio for
accident year 2008 recorded in the six-month period ended
June 30, 2008 included a 1.4 point effect related to the
Atlanta tornado and Midwest flood catastrophe losses. Prior year
development increased incurred losses by $226 million in
the six-month period ended June 30, 2009 and reduced
incurred losses by $136 million in the six-month period
ended June 30, 2008. The net adverse development includes
favorable development related to loss sensitive policies of
$171 million in the six-month period ended June 30,
2009 and $339 million in the six-month period ended
June 30, 2008.
The expense ratio increased in the six-month period ended
June 30, 2009 compared to the same period in 2008 driven by
the decline in premiums. Overall expenses were down
$188 million, or 8 percent from prior year due to
continued expense saving initiatives, partially offset by higher
pension costs and other restructuring costs.
Foreign
General Insurance Results
AIG transacts business in most major foreign currencies. The
following table summarizes the effect of changes in foreign
currency exchange rates on the growth of Foreign General
Insurance net premiums written:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Growth in original currency*
|
|
|
(13.3
|
)%
|
|
|
5.3
|
%
|
|
|
(11.7
|
)%
|
|
|
8.1
|
%
|
Foreign exchange effect
|
|
|
(7.4
|
)
|
|
|
9.6
|
|
|
|
(7.6
|
)
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth as reported in U.S. dollars
|
|
|
(20.7
|
)%
|
|
|
14.9
|
%
|
|
|
(19.3
|
)%
|
|
|
17.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Computed using a constant exchange rate for each period. |
122
American International Group, Inc.
and Subsidiaries
Quarterly
Foreign General Insurance Results
Foreign General Insurance operating income decreased in the
three-month period ended June 30, 2009 compared to the same
period in 2008 due a decline in underwriting profit and decrease
in interest income reflecting lower yields and lower partnership
income related to lower IPO activity and weaker performance in
the equity markets.
Net premiums written decreased in the three-month period ended
June 30, 2009 compared to the same period in 2008. The
effect of foreign exchange contributed to 7.4 percent of
this decline and the sale of the Brazilian operations in 2008
contributed to 6.7 percent of the decline. Approximately
one-half of the decline in net premiums written was due to the
negative effect of the economic downturn and customer de-risking
most notably seen in the deterioration of new business across
casualty and financial lines primarily in Europe and the U.K.
The consumer lines business was affected by the continued global
recessionary pressure reducing the number of overseas travelers
and auto sales, particularly in the Far East region.
The loss ratio in the three-month period ended June 30,
2009 increased compared to the same period in 2008. This is
primarily due to claim increases in the financial institutions
professional indemnity book as a result of stock market declines
and claims related to credit and fraud exposure and major
aviation losses.
The expense ratio increased in the three-month period ended
June 30, 2009 compared to the same period in 2008 due to
increased separation costs, restructuring charges, bad debt
expenses and decreased earned premiums.
Year-to-Date
Foreign General Insurance Results
Foreign General Insurance operating income decreased in the
six-month period ended June 30, 2009 compared to the same
period in 2008 primarily due to a decrease in underwriting
profit as well as a decrease in net investment income reflecting
lower interest income and partnership income related to
continued weak performance in the equity markets.
Net premiums written decreased in the six-month period ended
June 30, 2009 compared to the same period in 2008. The
effect of foreign exchange contributed to 7.6 percent of
this decline and the sale of the Brazilian operations in 2008
contributed to 6.2 percent of the decline. The Europe
region maintained strong client and policy retention in the
second quarter and continues to return to historical levels. In
the Far East operations, the economic downturn continued to
negatively affect new business in the consumer lines portfolio.
The loss ratio in the six-month period ended June 30, 2009
increased compared to the same period in 2008 reflecting claim
increases in the financial institutions professional indemnity
book as a result of stock market declines, continued exposure to
credit and fraud claims along with higher claims frequency in
major markets.
The expense ratio increased in the six-month period ended
June 30, 2009 compared to the same period in 2008 due to
increased separation costs, restructuring charges, bad debt
expenses and decreased earned premiums.
Liability
for unpaid claims and claims adjustment
expense
The following discussion on the consolidated liability for
unpaid claims and claims adjustment expenses (loss reserves)
presents loss reserves for the Commercial Insurance and Foreign
General Insurance reporting units in the General Insurance
operating segment and loss reserves pertaining to divested
and/or
noncore businesses, comprising the Transatlantic, Personal Lines
and Mortgage Guaranty reporting units reported in AIGs
Other category.
123
American International Group, Inc.
and Subsidiaries
The following table presents the components of the loss
reserves by major lines of business on a statutory annual
statement basis(a):
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Other liability occurrence
|
|
$
|
19,299
|
|
|
$
|
19,773
|
|
Workers compensation
|
|
|
14,566
|
|
|
|
15,170
|
|
Other liability claims made
|
|
|
12,122
|
|
|
|
13,189
|
|
International
|
|
|
11,898
|
|
|
|
11,786
|
|
Auto liability
|
|
|
5,099
|
|
|
|
5,593
|
|
Property
|
|
|
4,030
|
|
|
|
5,201
|
|
Mortgage Guaranty/Credit
|
|
|
4,545
|
|
|
|
3,137
|
|
Reinsurance
|
|
|
133
|
|
|
|
3,102
|
|
Products liability
|
|
|
2,317
|
|
|
|
2,400
|
|
Medical malpractice
|
|
|
1,601
|
|
|
|
2,210
|
|
Aircraft
|
|
|
1,406
|
|
|
|
1,693
|
|
Accident and health
|
|
|
1,546
|
|
|
|
1,451
|
|
Commercial multiple peril
|
|
|
1,058
|
|
|
|
1,163
|
|
Fidelity/surety
|
|
|
799
|
|
|
|
1,028
|
|
Other
|
|
|
1,669
|
|
|
|
2,362
|
|
|
|
|
|
|
|
|
|
|
Total(b)
|
|
$
|
82,088
|
|
|
$
|
89,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Presented by lines of business pursuant to statutory
reporting requirements as prescribed by the National Association
of Insurance Commissioners. |
|
(b) |
|
The decrease from the December 31, 2008 loss reserve
amount was primarily due to the deconsolidation of
Transatlantic. |
AIGs gross loss reserves represent the accumulation of
estimates of ultimate losses, including estimates for incurred
but not yet reported reserves (IBNR) and loss expenses. The
methods used to determine loss reserve estimates and to
establish the resulting reserves are continually reviewed and
updated. Any adjustments resulting therefrom are currently
reflected in operating income. Because loss reserve estimates
are subject to the outcome of future events, changes in
estimates are unavoidable given that loss trends vary and time
is often required for changes in trends to be recognized and
confirmed. Reserve changes that increase previous estimates of
ultimate cost are referred to as unfavorable or adverse
development or reserve strengthening. Reserve changes that
decrease previous estimates of ultimate cost are referred to as
favorable development.
Estimates for mortgage guaranty insurance losses and loss
adjustment expense reserves are based on notices of mortgage
loan delinquencies and estimates of delinquencies that have been
incurred but have not been reported by loan servicers, based
upon historical reporting trends. Mortgage Guaranty establishes
reserves using a percentage of the contractual liability (for
each delinquent loan reported) that is based upon past
experience regarding certain loan factors such as age of the
delinquency, cure rates, dollar amount of the loan and type of
mortgage loan. Because mortgage delinquencies and claims
payments are affected primarily by macroeconomic events, such as
changes in home price appreciation or depreciation, interest
rates and unemployment, the determination of the ultimate loss
cost requires a high degree of judgment. AIG believes it has
provided appropriate reserves for currently delinquent loans.
Consistent with industry practice, AIG does not establish a
reserve for insured loans that are not currently delinquent, but
that may become delinquent in future periods.
At June 30, 2009, net loss reserves decreased
$6.69 billion from the prior year-end to
$65.77 billion. The net loss reserves represent loss
reserves reduced by reinsurance recoverable, net of an allowance
for unrecoverable reinsurance and applicable discount for future
investment income.
124
American International Group, Inc.
and Subsidiaries
The following table classifies the components of the net
liability for unpaid claims and claims adjustment expense by
business unit:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
General Insurance segment:
|
|
|
|
|
|
|
|
|
Commercial Insurance(a)
|
|
$
|
48,484
|
|
|
$
|
48,896
|
|
Foreign General Insurance
|
|
|
11,548
|
|
|
|
10,853
|
|
|
|
|
|
|
|
|
|
|
Total General Insurance
|
|
|
60,032
|
|
|
|
59,749
|
|
|
|
|
|
|
|
|
|
|
Noncore businesses:
|
|
|
|
|
|
|
|
|
Transatlantic(b)
|
|
|
|
|
|
|
7,349
|
|
21st Century(a)(b)
|
|
|
1,819
|
|
|
|
2,065
|
|
Mortgage Guaranty
|
|
|
3,919
|
|
|
|
3,004
|
|
HSB(b)
|
|
|
|
|
|
|
288
|
|
|
|
|
|
|
|
|
|
|
Total noncore businesses
|
|
|
5,738
|
|
|
|
12,706
|
|
|
|
|
|
|
|
|
|
|
Total net loss reserves
|
|
$
|
65,770
|
|
|
$
|
72,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
December 31, 2008 balances have been revised to
reclassify Private Client Group into Commercial Insurance. |
|
(b) |
|
Transatlantic was deconsolidated during the second quarter of
2009, 21st Century was sold on July 1, 2009 and HSB was
sold during the first quarter of 2009. |
Discounting
of Reserves
At June 30, 2009, net loss reserves reflect a loss reserve
discount of $2.57 billion, including tabular and
non-tabular calculations. The tabular workers compensation
discount is calculated using a 3.5 percent interest rate
and the
1979-81
Decennial Mortality Table. The non-tabular workers
compensation discount is calculated separately for companies
domiciled in New York and Pennsylvania, and follows the
statutory regulations for each state. For New York companies,
the discount is based on a five percent interest rate and the
companies own payout patterns. For Pennsylvania companies,
the statute has specified discount factors for accident years
2001 and prior, which are based on a six percent interest rate
and an industry payout pattern. For accident years 2002 and
subsequent, the discount is based on the payout patterns and
investment yields of the companies. Certain other liability
occurrence and products liability occurrence business in AIRCO
that was written by Commercial Insurance is discounted based on
the yield of Department of the Treasury securities ranging from
one to twenty years and the Commercial Insurance payout pattern
for this business. The discount is comprised of the following:
$733 million tabular discount for workers
compensation in Commercial Insurance;
$1.69 billion non-tabular discount for
workers compensation in Commercial Insurance;
$150 million non-tabular discount for other
liability occurrence and products liability occurrence in AIRCO
for Commercial Insurance business; and $83 million
pertaining to certain long-term environmental liabilities in
Commercial Insurance. Since 1998, AIRCO has assumed on a quota
share basis certain general liability and products liability
business written by Commercial Insurance, and the reserves for
this business are carried on a discounted basis by AIRCO.
Quarterly
Reserving Process
AIG believes that the net loss reserves are adequate to cover
net losses and loss expenses as of June 30, 2009. While AIG
regularly reviews the adequacy of established loss reserves,
there can be no assurance that AIGs ultimate loss reserves
will not develop adversely and materially exceed AIGs loss
reserves as of June 30, 2009. In the opinion of management,
such adverse development and resulting increase in reserves is
not likely to have a material adverse effect on AIGs
consolidated financial condition, although it could have a
material adverse effect on AIGs consolidated results of
operations for an individual reporting period.
125
American International Group, Inc.
and Subsidiaries
The following table presents the reconciliation of net loss
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net liability for unpaid claims and claims adjustment expense at
beginning of year
|
|
$
|
72,254
|
|
|
$
|
70,507
|
|
|
$
|
72,455
|
|
|
$
|
69,288
|
|
Foreign exchange effect
|
|
|
1,080
|
|
|
|
193
|
|
|
|
790
|
|
|
|
263
|
|
Dispositions*
|
|
|
(7,551
|
)
|
|
|
|
|
|
|
(7,838
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses incurred:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
6,932
|
|
|
|
8,620
|
|
|
|
14,798
|
|
|
|
16,641
|
|
Prior years, other than accretion of discount
|
|
|
272
|
|
|
|
93
|
|
|
|
336
|
|
|
|
(71
|
)
|
Prior years, accretion of discount
|
|
|
98
|
|
|
|
72
|
|
|
|
196
|
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses incurred
|
|
|
7,302
|
|
|
|
8,785
|
|
|
|
15,330
|
|
|
|
16,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss expenses paid
|
|
|
7,315
|
|
|
|
7,154
|
|
|
|
14,967
|
|
|
|
13,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability for unpaid claims and claims adjustment expense at
end of period
|
|
$
|
65,770
|
|
|
|
72,331
|
|
|
$
|
65,770
|
|
|
$
|
72,331
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Transatlantic was deconsolidated during the second quarter of
2009 and HSB was sold during the first quarter of 2009. |
The following tables summarize development, (favorable) or
unfavorable, of incurred losses and loss expenses for prior
years (other than accretion of discount):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Prior Accident Year Development by Reporting Unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General Insurance segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Insurance
|
|
$
|
62
|
|
|
$
|
72
|
|
|
$
|
226
|
|
|
$
|
(136
|
)
|
Foreign General Insurance
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
6
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total General Insurance segment
|
|
|
60
|
|
|
|
73
|
|
|
|
232
|
|
|
|
(152
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncore businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transatlantic*
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
21st Century*
|
|
|
(7
|
)
|
|
|
37
|
|
|
|
(17
|
)
|
|
|
84
|
|
Mortgage Guaranty
|
|
|
222
|
|
|
|
(10
|
)
|
|
|
129
|
|
|
|
58
|
|
HSB*
|
|
|
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncore businesses
|
|
|
212
|
|
|
|
20
|
|
|
|
104
|
|
|
|
118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asbestos settlements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years, other than accretion of discount
|
|
$
|
272
|
|
|
$
|
93
|
|
|
$
|
336
|
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Transatlantic was deconsolidated during the second quarter of
2009, 21st Century was sold on July 1, 2009 and HSB was
sold during the first quarter of 2009. |
126
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calendar Year
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
(In millions)
|
|
|
|
|
|
Prior Accident Year Development by Accident Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accident Year
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
94
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
98
|
|
|
$
|
(135
|
)
|
|
|
|
|
2006
|
|
|
(132
|
)
|
|
|
(256
|
)
|
|
|
|
|
2005
|
|
|
(22
|
)
|
|
|
(260
|
)
|
|
|
|
|
2004
|
|
|
28
|
|
|
|
(190
|
)
|
|
|
|
|
2003
|
|
|
4
|
|
|
|
16
|
|
|
|
|
|
2002 and prior
|
|
|
266
|
|
|
|
754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior years, other than accretion of discount
|
|
$
|
336
|
|
|
$
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In determining the quarterly loss development from prior
accident years, AIG conducts analyses to determine the change in
estimated ultimate loss for each accident year for each profit
center. For example, if loss emergence for a profit center is
different than expected for certain accident years, AIGs
actuaries examine the indicated effect such emergence would have
on the reserves of that profit center. In some cases, the higher
or lower than expected emergence may result in no clear change
in the ultimate loss estimate for the accident years in
question, and no adjustment would be made to the profit
centers reserves for prior accident years. In other cases,
the higher or lower than expected emergence may result in a
larger change, either favorable or unfavorable, than the
difference between the actual and expected loss emergence. Such
additional analyses were conducted for each profit center, as
appropriate, in the three-month period ended June 30, 2009
to determine the loss development from prior accident years for
the three-month period ended June 30, 2009. As part of its
reserving process, AIG also considers notices of claims received
with respect to emerging issues, such as those related to the
U.S. mortgage and housing market.
2009
Net Loss Development
In the three-month period ended June 30, 2009, General
Insurance net loss development from prior accident years was
adverse by approximately $60 million excluding
approximately $98 million from accretion of loss reserve
discount. The overall General Insurance adverse development of
approximately $60 million included approximately
$160 million of adverse development relating to excess
casualty business within Commercial Insurance, primarily from
accident years 2004 through 2006. Offsetting the excess casualty
adverse development within Commercial Insurance was
approximately $160 million of favorable development from
Lexington Insurance Companys (Lexington) healthcare, CAT
excess, and casualty businesses. The Commercial Insurance
overall adverse development in the three-month period ended
June 30, 2009 also included approximately $40 million
of adverse development pertaining to asbestos, largely
attributable to one defendant, and approximately
$40 million of adverse development pertaining to property
business relating primarily to the 2008 hurricanes Ike and
Gustav, and approximately $50 million from a variety of
other classes of business. The Commercial Insurance overall
adverse development also includes approximately $70 million
of favorable development pertaining to loss sensitive business;
however the Commercial Insurance underwriting results did not
benefit from this $70 million as it was offset by a
corresponding $70 million reduction to net earned premiums
The AIG total net loss development from prior accident years for
the three-month period ended June 30, 2009, including
noncore businesses, was approximately $272 million. The
noncore businesses prior year development includes approximately
$222 million of adverse development from Mortgage Guaranty,
with approximately $160 million of this amount pertaining
to accident year 2008 and $76 million to accident year
2007, partially offset by a modest amount of favorable
development from earlier accident years.
In the six-month period ended June 30, 2009, General
Insurance net loss development from prior accident years was
adverse by approximately $232 million excluding
approximately $196 million from accretion of loss reserve
discount. The General Insurance overall adverse development of
$232 million included approximately $330 million
relating to excess casualty business within Commercial
Insurance, partially offset by approximately
127
American International Group, Inc.
and Subsidiaries
$230 million of favorable development pertaining to
Lexingtons healthcare, CAT excess, and casualty
businesses. The General Insurance overall adverse development of
$232 million also included approximately $80 million
pertaining to a surety claim and an additional $80 million
pertaining to a reinsurance commutation, both of which occurred
in the first three months of 2009 within Commercial Insurance.
Also included in the overall development was approximately
$90 million of adverse development from property business
within Commercial Insurance, largely relating to prior accident
year hurricanes. The Commercial Insurance overall adverse
development of approximately $226 million included
approximately $170 million of favorable development
relating to loss sensitive business; however the Commercial
Insurance underwriting result did not benefit from this
$170 million as it was offset by a corresponding
$170 million reduction to net earned premiums. The excess
casualty adverse development of approximately $330 million
arose from accident year 2006 and prior, and was attributable to
loss emergence significantly in excess of the historical loss
emergence pattern for this class of business. The Lexington
favorable development of approximately $230 million was
related primarily to accident years 2002 through 2007, and was
attributable to continued favorable loss emergence and loss
trends for these accident years. The AIG total net loss
development from prior accident years for the six-month period
ended June 30, 2009, including noncore businesses, was
adverse by approximately $336 million. Mortgage Guaranty
accounted for approximately $129 million of adverse
development, consisting of approximately $22 million of
adverse development relating to accident year 2008 and
approximately $111 million of adverse development from
accident year 2007, partially offset by a modest amount of
favorable development from earlier accident years.
2008
Net Loss Development
In the three-month period ended June 30, 2008, net loss
development from prior accident years was adverse by
approximately $93 million, excluding approximately
$72 million from accretion of loss reserve discount. The
overall adverse development of $93 million consisted of
approximately $292 million of favorable development from
accident years 2004 through 2007 offset by approximately
$385 million of adverse loss development from accident
years 2003 and prior. The adverse development from accident
years 2003 and prior was primarily related to excess casualty
business within Commercial Insurance. The favorable development
from accident years 2004 through 2007 included approximately
$80 million of favorable development from business written
by Lexington, including Healthcare and Casualty and Program
businesses. AIG Executive Liability business contributed
approximately $65 million to the favorable development from
accident years 2004 and 2005, relating primarily to D&O.
Within Commercial Insurance, the overall adverse development of
approximately $75 million consisted of approximately
$160 million of adverse development relating to excess
casualty business and approximately $50 million of adverse
development relating to property business, partially offset by
favorable development from D&O, healthcare and other
classes. A significant portion of the adverse development
relating to excess casualty was related to a variety of latent
exposures, including construction defect exposures, product
aggregate exposure and pharmaceutical related exposures, as well
as a significant number of other large losses primarily from
accident years 1998 through 2002. In addition, the loss
development assumptions applicable to excess casualty reserves
were modified in the second quarter of 2008 to reflect the
adverse experience being observed, and this caused approximately
$90 million of the overall adverse development from
accident years 2003 and prior. Excess casualty results for the
more recent accident years, i.e. 2004 and subsequent years, has
continued to be favorable. AIGs exposure to these latent
exposures was reduced after 2002 due to significant changes in
policy terms and conditions as well as underwriting guidelines.
In the six-month period ended June 30, 2008, net loss
development from prior accident years was favorable by
approximately $71 million, including approximately
$339 million of favorable development relating to loss
sensitive business in the first three months of 2008 (which was
offset by an equal amount of negative earned premium
development), and excluding approximately $176 million from
accretion of loss reserve discount. Excluding both the favorable
development relating to loss sensitive business and accretion of
loss reserve discount, net loss development from prior accident
years in the six-month period ended June 30, 2008, was
adverse by approximately $268 million. The overall
favorable development of approximately $71 million
consisted of approximately $841 million of favorable
development from accident years 2004 through 2007 partially
offset by approximately $770 million of adverse loss
development from accident years 2003 and prior. Excluding the
favorable development from loss sensitive business, the overall
adverse development of approximately $268 million consisted
of approximately $561 million of favorable development from
accident years 2004 through 2007 offset by
128
American International Group, Inc.
and Subsidiaries
approximately $829 million of adverse development from
accident years 2003 and prior. The adverse development from
accident years 2003 and prior was primarily related to excess
casualty business within Commercial Insurance. The favorable
development from accident years 2004 through 2007 included
approximately $280 million in favorable development from
loss sensitive business written by AIG Risk Management, and
approximately $220 million in favorable development from
business written by Lexington, including Healthcare, AIG CAT
Excess, Casualty and Program businesses. AIG Executive Liability
business contributed approximately $110 million to the
favorable development from accident years 2004 and 2005,
relating primarily to D&O. The adverse development from
accident years 2003 and prior included approximately
$200 million related to claims involving MTBE, a gasoline
additive, primarily on excess casualty business within
Commercial Insurance from accident years 2000 and prior. In
addition, as described above for the three months ended
June 30, 2008, the excess casualty adverse developments
reflect a variety of other latent claims and large losses, as
well as an approximately $90 million increase resulting
from the modification of loss development factors to reflect
adverse experience in excess casualty.
Asbestos
and Environmental Reserves
The estimation of loss reserves relating to asbestos and
environmental claims on insurance policies written many years
ago is subject to greater uncertainty than other types of claims
due to inconsistent court decisions as well as judicial
interpretations and legislative actions that in some cases have
tended to broaden coverage beyond the original intent of such
policies and in others have expanded theories of liability.
As described more fully in the 2008
Form 10-K,
AIGs reserves relating to asbestos and environmental
claims reflect a comprehensive
ground-up
analysis. In the six-month period ended June 30, 2009, a
minor amount of adverse incurred loss development pertaining to
asbestos was reflected in the table that follows. This
development was primarily attributable to several large
defendants.
129
American International Group, Inc.
and Subsidiaries
A summary of reserve activity, including estimates for
applicable IBNR, relating to asbestos and environmental claims
separately and combined appears in the table below. The vast
majority of such claims arise from policies written in 1984 and
prior years. The current environmental policies that AIG
underwrites on a claims-made basis have been excluded from the
table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
|
(In millions)
|
|
|
Asbestos:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense at
beginning of period
|
|
$
|
3,443
|
|
|
$
|
1,200
|
|
|
$
|
3,864
|
|
|
$
|
1,454
|
|
Dispositions(a)
|
|
|
(26
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
Losses and loss expenses incurred(b)
|
|
|
120
|
|
|
|
50
|
|
|
|
60
|
|
|
|
4
|
|
Losses and loss expenses paid(b)
|
|
|
(295
|
)
|
|
|
(77
|
)
|
|
|
(383
|
)
|
|
|
(170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense at end
of period
|
|
$
|
3,242
|
|
|
$
|
1,152
|
|
|
$
|
3,541
|
|
|
$
|
1,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense at
beginning of period
|
|
$
|
417
|
|
|
$
|
194
|
|
|
$
|
515
|
|
|
$
|
237
|
|
Dispositions(a)
|
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Losses and loss expenses incurred(b)
|
|
|
2
|
|
|
|
(1
|
)
|
|
|
(40
|
)
|
|
|
1
|
|
Losses and loss expenses paid(b)
|
|
|
(29
|
)
|
|
|
(16
|
)
|
|
|
(25
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense at end
of period
|
|
$
|
390
|
|
|
$
|
170
|
|
|
$
|
450
|
|
|
$
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense at
beginning of period
|
|
$
|
3,860
|
|
|
$
|
1,394
|
|
|
$
|
4,379
|
|
|
$
|
1,691
|
|
Dispositions(a)
|
|
|
(26
|
)
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
Losses and loss expenses incurred(b)
|
|
|
122
|
|
|
|
49
|
|
|
|
20
|
|
|
|
5
|
|
Losses and loss expenses paid(b)
|
|
|
(324
|
)
|
|
|
(93
|
)
|
|
|
(408
|
)
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability for unpaid claims and claims adjustment expense at end
of period
|
|
$
|
3,632
|
|
|
$
|
1,322
|
|
|
$
|
3,991
|
|
|
$
|
1,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes reserves for Transatlantic, which was deconsolidated
during the second quarter of 2009. |
|
(b) |
|
All amounts pertain to policies underwritten in prior years,
primarily to policies issued in 1984 and prior years. |
The gross and net IBNR included in the liability for unpaid
claims and claims adjustment expense, relating to asbestos and
environmental claims separately and combined were estimated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Six Months Ended June 30,
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
|
(In millions)
|
|
|
Asbestos
|
|
$
|
2,151
|
|
|
$
|
894
|
|
|
$
|
2,256
|
|
|
$
|
997
|
|
Environmental
|
|
|
228
|
|
|
|
84
|
|
|
|
264
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined
|
|
$
|
2,379
|
|
|
$
|
978
|
|
|
$
|
2,520
|
|
|
$
|
1,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
130
American International Group, Inc.
and Subsidiaries
A summary of asbestos and environmental claims count activity
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Six Months Ended June 30,
|
|
Asbestos
|
|
|
Environmental
|
|
|
Combined
|
|
|
Asbestos
|
|
|
Environmental
|
|
|
Combined
|
|
|
Claims at beginning of year
|
|
|
5,780
|
|
|
|
6,674
|
|
|
|
12,454
|
|
|
|
6,563
|
|
|
|
7,652
|
|
|
|
14,215
|
|
Claims during year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opened
|
|
|
380
|
|
|
|
548
|
|
|
|
928
|
|
|
|
392
|
|
|
|
674
|
|
|
|
1,066
|
|
Settled
|
|
|
(161
|
)
|
|
|
(101
|
)
|
|
|
(262
|
)
|
|
|
(97
|
)
|
|
|
(65
|
)
|
|
|
(162
|
)
|
Dismissed or otherwise resolved
|
|
|
(514
|
)
|
|
|
(562
|
)
|
|
|
(1,076
|
)
|
|
|
(551
|
)
|
|
|
(1,172
|
)
|
|
|
(1,723
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claims at end of period
|
|
|
5,485
|
|
|
|
6,559
|
|
|
|
12,044
|
|
|
|
6,307
|
|
|
|
7,089
|
|
|
|
13,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Survival
Ratios Asbestos and Environmental
The following table presents AIGs survival ratios for
asbestos and environmental claims at June 30, 2009 and
2008. The survival ratio is derived by dividing the current
carried loss reserve by the average payments for the three most
recent calendar years for these claims. Therefore, the survival
ratio is a simplistic measure estimating the number of years it
would be before the current ending loss reserves for these
claims would be paid off using recent year average payments. The
June 30, 2009 survival ratio is lower than the ratio at
June 30, 2008 because the more recent periods included in
the rolling average reflect higher claims payments. In addition,
AIGs survival ratio for asbestos claims was negatively
affected by certain favorable settlements during 2008 and 2007.
These settlements reduced gross and net asbestos survival ratios
at June 30, 2009 by approximately 1.0 years and
2.1 years, respectively, and reduced gross and net asbestos
survival ratios at June 30, 2008 by approximately
1.4 years and 3.0 years, respectively. Many factors,
such as aggressive settlement procedures, mix of business and
level of coverage provided, have a significant effect on the
amount of asbestos and environmental reserves and payments and
the resultant survival ratio. Moreover, as discussed above, the
primary basis for AIGs determination of its reserves is
not survival ratios, but instead the
ground-up
and top-down analysis. Thus, caution should be exercised in
attempting to determine reserve adequacy for these claims based
simply on this survival ratio.
AIGs survival ratios for asbestos and environmental
claims, separately and combined, were based upon a three-year
average payment and were as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
Gross
|
|
|
Net
|
|
|
2009
|
|
|
|
|
|
|
|
|
Survival ratios:
|
|
|
|
|
|
|
|
|
Asbestos
|
|
|
4.8
|
|
|
|
3.7
|
|
Environmental
|
|
|
4.5
|
|
|
|
3.4
|
|
Combined
|
|
|
4.8
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
Survival ratios:
|
|
|
|
|
|
|
|
|
Asbestos
|
|
|
5.7
|
|
|
|
4.3
|
|
Environmental
|
|
|
4.5
|
|
|
|
3.7
|
|
Combined
|
|
|
5.5
|
|
|
|
4.2
|
|
|
|
|
|
|
|
|
|
|
Life
Insurance & Retirement Services Operations
AIGs Life Insurance & Retirement Services
operations offer a wide range of insurance and retirement
savings products both domestically and abroad.
AIGs Foreign Life Insurance & Retirement
Services operations include insurance and investment-oriented
products such as whole and term life, investment linked,
universal life and endowments, personal accident and health
products, group products including pension, life and health, and
fixed and variable annuities. The Foreign
131
American International Group, Inc.
and Subsidiaries
Life Insurance & Retirement Services products are sold
through independent producers, career agents, financial
institutions and direct marketing channels.
AIGs Domestic Life Insurance operations offer a broad
range of protection products, such as individual life insurance
and group life and health products, including disability income
products and payout annuities, which include single premium
immediate annuities, structured settlements and terminal funding
annuities. The Domestic Life Insurance products are sold through
independent producers, career agents, financial institutions and
direct marketing channels. Home service operations include an
array of life insurance, accident and health and annuity
products sold primarily through career agents.
AIGs Domestic Retirement Services operations include group
retirement products, individual fixed and variable annuities
sold through banks, broker-dealers and exclusive sales
representatives, and annuity runoff operations, which include
previously acquired closed blocks and other fixed
and variable annuities largely sold through distribution
relationships that have been discontinued.
AIGs Life Insurance & Retirement Services
reports its operations through the following major internal
reporting units and legal entities:
Foreign
Life Insurance & Retirement Services
Japan and Other
|
|
|
|
|
American Life Insurance Company (ALICO)
|
|
|
|
AIG Star Life Insurance Co., Ltd. (AIG Star Life)
|
|
|
|
AIG Edison Life Insurance Company (AIG Edison Life)
|
Asia
|
|
|
|
|
American International Assurance Company, Limited, together with
American International Assurance Company (Bermuda) Limited (AIA)
|
|
|
|
Nan Shan Life Insurance Company, Ltd. (Nan Shan)
|
|
|
|
American International Reinsurance Company Limited (AIRCO)
|
|
|
|
The Philippine American Life and General Insurance Company
(Philamlife)
|
Domestic Life Insurance
|
|
|
|
|
American General Life Insurance Company (AIG American General)
|
|
|
|
The United States Life Insurance Company in the City of New York
(USLIFE)
|
|
|
|
American General Life and Accident Insurance Company (AGLA)
|
Domestic Retirement Services
|
|
|
|
|
The Variable Annuity Life Insurance Company (VALIC)
|
|
|
|
Western National Life Insurance Company (formerly AIG Annuity
Insurance Company) (Western National)
|
|
|
|
SunAmerica Annuity and Life Assurance Company (SunAmerica)
|
132
American International Group, Inc.
and Subsidiaries
Life
Insurance & Retirement Services
Results
Life Insurance & Retirement Services results were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums
|
|
|
Net
|
|
|
Net Realized
|
|
|
|
|
|
Operating
|
|
|
|
and Other
|
|
|
Investment
|
|
|
Capital Gains
|
|
|
Total
|
|
|
Income
|
|
|
|
Considerations
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
(loss)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
$
|
3,359
|
|
|
$
|
2,035
|
|
|
$
|
(760
|
)
|
|
$
|
4,634
|
|
|
$
|
94
|
|
Asia
|
|
|
3,478
|
|
|
|
2,425
|
|
|
|
868
|
|
|
|
6,771
|
|
|
|
1,267
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Life & Retirement Services
|
|
|
6,837
|
|
|
|
4,460
|
|
|
|
108
|
|
|
|
11,405
|
|
|
|
1,361
|
|
Domestic Life Insurance
|
|
|
1,059
|
|
|
|
931
|
|
|
|
214
|
|
|
|
2,204
|
|
|
|
559
|
|
Domestic Retirement Services
|
|
|
223
|
|
|
|
1,190
|
|
|
|
(25
|
)
|
|
|
1,388
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,119
|
|
|
$
|
6,581
|
|
|
$
|
297
|
|
|
$
|
14,997
|
|
|
$
|
1,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
$
|
3,896
|
|
|
$
|
1,902
|
|
|
$
|
(429
|
)
|
|
$
|
5,369
|
|
|
$
|
577
|
|
Asia
|
|
|
3,795
|
|
|
|
1,260
|
|
|
|
(480
|
)
|
|
|
4,575
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Life & Retirement Services
|
|
|
7,691
|
|
|
|
3,162
|
|
|
|
(909
|
)
|
|
|
9,944
|
|
|
|
773
|
|
Domestic Life Insurance
|
|
|
1,604
|
|
|
|
1,006
|
|
|
|
(1,376
|
)
|
|
|
1,234
|
|
|
|
(1,005
|
)
|
Domestic Retirement Services
|
|
|
290
|
|
|
|
1,418
|
|
|
|
(2,725
|
)
|
|
|
(1,017
|
)
|
|
|
(2,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,585
|
|
|
$
|
5,586
|
|
|
$
|
(5,010
|
)
|
|
$
|
10,161
|
|
|
$
|
(2,401
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
|
(14
|
)%
|
|
|
7
|
%
|
|
|
|
%
|
|
|
(14
|
)%
|
|
|
(84
|
)%
|
Asia
|
|
|
(8
|
)
|
|
|
92
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Life & Retirement Services
|
|
|
(11
|
)
|
|
|
41
|
|
|
|
|
|
|
|
15
|
|
|
|
76
|
|
Domestic Life Insurance
|
|
|
(34
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
79
|
|
|
|
|
|
Domestic Retirement Services
|
|
|
(23
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(15
|
)%
|
|
|
18
|
%
|
|
|
|
%
|
|
|
48
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
$
|
6,598
|
|
|
$
|
2,838
|
|
|
$
|
(1,559
|
)
|
|
$
|
7,877
|
|
|
$
|
172
|
|
Asia
|
|
|
7,179
|
|
|
|
3,403
|
|
|
|
638
|
|
|
|
11,220
|
|
|
|
1,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Life & Retirement Services
|
|
|
13,777
|
|
|
|
6,241
|
|
|
|
(921
|
)
|
|
|
19,097
|
|
|
|
1,695
|
|
Domestic Life Insurance
|
|
|
2,241
|
|
|
|
1,753
|
|
|
|
(275
|
)
|
|
|
3,719
|
|
|
|
251
|
|
Domestic Retirement Services
|
|
|
436
|
|
|
|
2,217
|
|
|
|
(1,615
|
)
|
|
|
1,038
|
|
|
|
(2,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,454
|
|
|
$
|
10,211
|
|
|
$
|
(2,811
|
)
|
|
$
|
23,854
|
|
|
$
|
(55
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
$
|
7,385
|
|
|
$
|
2,652
|
|
|
$
|
(772
|
)
|
|
$
|
9,265
|
|
|
$
|
1,060
|
|
Asia
|
|
|
7,753
|
|
|
|
1,958
|
|
|
|
(859
|
)
|
|
|
8,852
|
|
|
|
448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Life & Retirement Services
|
|
|
15,138
|
|
|
|
4,610
|
|
|
|
(1,631
|
)
|
|
|
18,117
|
|
|
|
1,508
|
|
Domestic Life Insurance
|
|
|
3,191
|
|
|
|
1,990
|
|
|
|
(2,664
|
)
|
|
|
2,517
|
|
|
|
(1,875
|
)
|
Domestic Retirement Services
|
|
|
574
|
|
|
|
2,789
|
|
|
|
(5,084
|
)
|
|
|
(1,721
|
)
|
|
|
(3,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,903
|
|
|
$
|
9,389
|
|
|
$
|
(9,379
|
)
|
|
$
|
18,913
|
|
|
$
|
(4,232
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Japan and Other
|
|
|
(11
|
)%
|
|
|
7
|
%
|
|
|
|
%
|
|
|
(15
|
)%
|
|
|
(84
|
)%
|
Asia
|
|
|
(7
|
)
|
|
|
74
|
|
|
|
|
|
|
|
27
|
|
|
|
240
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Foreign Life & Retirement Services
|
|
|
(9
|
)
|
|
|
35
|
|
|
|
|
|
|
|
5
|
|
|
|
12
|
|
Domestic Life Insurance
|
|
|
(30
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
48
|
|
|
|
|
|
Domestic Retirement Services
|
|
|
(24
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(13
|
)%
|
|
|
9
|
%
|
|
|
|
%
|
|
|
26
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
American International Group, Inc.
and Subsidiaries
The following table presents the gross insurance in force for
Life Insurance & Retirement Services:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In billions)
|
|
|
Foreign*
|
|
$
|
1,444
|
|
|
$
|
1,352
|
|
Domestic
|
|
|
1,009
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,453
|
|
|
$
|
2,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes an increase of $59.7 billion related to changes
in foreign exchange rates at June 30, 2009. |
Quarterly
Life Insurance & Retirement Services
Results
Total revenues increased significantly in the three-month period
ended June 30, 2009 compared to the same period in 2008,
due to net realized capital gains of $297 million compared
to losses of $5.0 billion and higher policyholder trading
gains. See Consolidated Results Premiums and Other
Considerations, Net Investment Income and Net Realized Capital
Gains (Losses) for further discussion.
Operating income for the three-month period ended June 30,
2009 increased significantly compared to the same period in 2008
primarily due to the change to net realized capital gains from
losses shown above. Other items affecting the three-month
results were:
|
|
|
|
|
U.K. trading gains of $4 million in the three-month period
ended June 30, 2009 compared to losses of $133 million
in 2008;
|
|
|
|
DAC and SIA amortization related to net realized capital gains
of $191 million for the three-month period ended
June 30, 2009 compared to a DAC and SIA benefit of
$212 million for the same period in 2008;
|
|
|
|
a $134 million loss recognition charge for the Philippine
operations;
|
|
|
|
lower investment margins due to de-risking activities and higher
short-term liquidity;
|
|
|
|
lower assets under management in the investment-oriented
portfolios;
|
|
|
|
losses of $105 million related to AIGs retained
interest in ML II;
|
|
|
|
DAC unlocking charges of $43 million related to expected
higher surrenders in Domestic Retirement Services individual
fixed annuities; and
|
|
|
|
higher expenses related to restructuring.
|
Year-to-Date
Life Insurance & Retirement Services
Results
Total revenues increased significantly in the six-month period
ended June 30, 2009 compared to the same period in 2008,
due to lower net realized capital losses and higher policyholder
trading gains, partially offset by lower premiums and other
considerations. See Consolidated Results Premiums
and Other Considerations, Net Investment Income and Net Realized
Capital Gains (Losses) for further discussion.
Life Insurance & Retirement Services reported a lower
operating loss for the six-month period ended June 30, 2009
compared to the same period in 2008 primarily due to
considerably lower net realized capital losses. Other items
affecting the six-month results were:
|
|
|
|
|
DAC and SIA unlocking and related reserve strengthening charges
of $558 million in the first six months of 2009 in the
Domestic Retirement Services operations resulting from a
reduction in the long-term growth rates assumptions used to
determine DAC amortization;
|
|
|
|
DAC unlocking charges of $43 million related to expected
higher surrenders in Domestic Retirement Services individual
fixed annuities;
|
|
|
|
DAC and SIA benefits of $505 million related to net
realized capital losses for the six-month period ended
June 30, 2009 compared to $479 million for the same
period in 2008;
|
134
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
a $134 million loss recognition charge for the Philippine
operations;
|
|
|
|
losses of $340 million related to AIGs retained
interest in ML II;
|
|
|
|
lower investment margins due to de-risking activities and higher
short-term liquidity;
|
|
|
|
losses on partnership investments; and
|
|
|
|
higher expenses related to restructuring.
|
Foreign
Life Insurance & Retirement Services
Results
Foreign Life Insurance & Retirement Services
results on a
sub-product
basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and
|
|
|
Net
|
|
|
Net Realized
|
|
|
|
|
|
Operating
|
|
|
|
Other
|
|
|
Investment
|
|
|
Capital Gains
|
|
|
Total
|
|
|
Income
|
|
|
|
Considerations
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
(Loss)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
4,218
|
|
|
$
|
3,051
|
|
|
$
|
463
|
|
|
$
|
7,732
|
|
|
$
|
1,119
|
|
Personal accident
|
|
|
1,699
|
|
|
|
113
|
|
|
|
(4
|
)
|
|
|
1,808
|
|
|
|
401
|
|
Group products
|
|
|
681
|
|
|
|
125
|
|
|
|
60
|
|
|
|
866
|
|
|
|
147
|
|
Individual fixed annuities
|
|
|
178
|
|
|
|
622
|
|
|
|
(411
|
)
|
|
|
389
|
|
|
|
(343
|
)
|
Individual variable annuities
|
|
|
61
|
|
|
|
549
|
|
|
|
|
|
|
|
610
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,837
|
|
|
$
|
4,460
|
|
|
$
|
108
|
|
|
$
|
11,405
|
|
|
$
|
1,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
4,634
|
|
|
$
|
1,813
|
|
|
$
|
(750
|
)
|
|
$
|
5,697
|
|
|
$
|
252
|
|
Personal accident
|
|
|
1,855
|
|
|
|
109
|
|
|
|
(26
|
)
|
|
|
1,938
|
|
|
|
386
|
|
Group products
|
|
|
1,002
|
|
|
|
244
|
|
|
|
(11
|
)
|
|
|
1,235
|
|
|
|
116
|
|
Individual fixed annuities
|
|
|
79
|
|
|
|
660
|
|
|
|
(115
|
)
|
|
|
624
|
|
|
|
44
|
|
Individual variable annuities
|
|
|
121
|
|
|
|
336
|
|
|
|
(7
|
)
|
|
|
450
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
7,691
|
|
|
$
|
3,162
|
|
|
$
|
(909
|
)
|
|
$
|
9,944
|
|
|
$
|
773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
|
(9
|
)%
|
|
|
68
|
%
|
|
|
|
%
|
|
|
36
|
%
|
|
|
344
|
%
|
Personal accident
|
|
|
(8
|
)
|
|
|
4
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
4
|
|
Group products
|
|
|
(32
|
)
|
|
|
(49
|
)
|
|
|
|
|
|
|
(30
|
)
|
|
|
27
|
|
Individual fixed annuities
|
|
|
125
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(38
|
)
|
|
|
|
|
Individual variable annuities
|
|
|
(50
|
)
|
|
|
63
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(11
|
)%
|
|
|
41
|
%
|
|
|
|
%
|
|
|
15
|
%
|
|
|
76
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and
|
|
|
Net
|
|
|
Net Realized
|
|
|
|
|
|
Operating
|
|
|
|
Other
|
|
|
Investment
|
|
|
Capital Gains
|
|
|
Total
|
|
|
Income
|
|
|
|
Considerations
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
(Loss)
|
|
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
8,562
|
|
|
$
|
4,238
|
|
|
$
|
(180
|
)
|
|
$
|
12,620
|
|
|
$
|
1,061
|
|
Personal accident
|
|
|
3,474
|
|
|
|
209
|
|
|
|
(48
|
)
|
|
|
3,635
|
|
|
|
694
|
|
Group products
|
|
|
1,440
|
|
|
|
170
|
|
|
|
(7
|
)
|
|
|
1,603
|
|
|
|
163
|
|
Individual fixed annuities
|
|
|
188
|
|
|
|
1,203
|
|
|
|
(689
|
)
|
|
|
702
|
|
|
|
(264
|
)
|
Individual variable annuities
|
|
|
113
|
|
|
|
421
|
|
|
|
3
|
|
|
|
537
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,777
|
|
|
$
|
6,241
|
|
|
$
|
(921
|
)
|
|
$
|
19,097
|
|
|
$
|
1,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
9,146
|
|
|
$
|
2,732
|
|
|
$
|
(1,317
|
)
|
|
$
|
10,561
|
|
|
$
|
483
|
|
Personal accident
|
|
|
3,546
|
|
|
|
201
|
|
|
|
(66
|
)
|
|
|
3,681
|
|
|
|
763
|
|
Group products
|
|
|
1,998
|
|
|
|
397
|
|
|
|
(41
|
)
|
|
|
2,354
|
|
|
|
206
|
|
Individual fixed annuities
|
|
|
208
|
|
|
|
1,229
|
|
|
|
(228
|
)
|
|
|
1,209
|
|
|
|
102
|
|
Individual variable annuities
|
|
|
240
|
|
|
|
51
|
|
|
|
21
|
|
|
|
312
|
|
|
|
(46
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,138
|
|
|
$
|
4,610
|
|
|
$
|
(1,631
|
)
|
|
$
|
18,117
|
|
|
$
|
1,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
|
(6
|
)%
|
|
|
55
|
%
|
|
|
|
%
|
|
|
19
|
%
|
|
|
120
|
%
|
Personal accident
|
|
|
(2
|
)
|
|
|
4
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(9
|
)
|
Group products
|
|
|
(28
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
(32
|
)
|
|
|
(21
|
)
|
Individual fixed annuities
|
|
|
(10
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(42
|
)
|
|
|
|
|
Individual variable annuities
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(9
|
)%
|
|
|
35
|
%
|
|
|
|
%
|
|
|
5
|
%
|
|
|
12
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIG transacts business in most major foreign currencies and
therefore premiums and other considerations reported in
U.S. dollars vary by volume and changes in foreign currency
translation rates.
The following table summarizes the effect of changes in
foreign currency exchange rates on the growth of the Foreign
Life Insurance & Retirement Services premiums and
other considerations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
Growth in original currency*
|
|
|
(3.6
|
)%
|
|
|
7.5
|
%
|
|
|
(5.4
|
)%
|
|
|
7.1
|
%
|
Foreign exchange effect
|
|
|
(7.5
|
)
|
|
|
10.8
|
|
|
|
(3.6
|
)
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Growth as reported in U.S. dollars
|
|
|
(11.1
|
)%
|
|
|
18.3
|
%
|
|
|
(9.0
|
)%
|
|
|
15.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Computed using a constant exchange rate each period. |
Quarterly
Foreign Life Insurance & Retirement Services
Results
Total revenues for Foreign Life Insurance & Retirement
Services in the three-month period ended June 30, 2009
increased compared to the same period in 2008 primarily due to
net realized capital gains of $108 million in the
three-month period ended June 30, 2009 compared to net
realized capital losses of $909 million in the same period
of 2008 along with higher policyholder trading gains, partially
offset by lower premiums and other considerations and the effect
of the sale of the Brazil operations. See Consolidated
Results Premiums and Other
Considerations; Net Investment Income;
and Net Realized Capital Gains (Losses).
136
American International Group, Inc.
and Subsidiaries
Operating income in the three-month period ended June 30,
2009 increased significantly compared to the same period in 2008
primarily due to the change to net realized capital gains from
losses shown above. Other items affecting the three-month
results were:
|
|
|
|
|
U.K. trading gains of $4 million in 2009 compared to
trading losses of $133 million in 2008;
|
|
|
|
a $134 million loss recognition charge related to the
Philippine operations;
|
|
|
|
lower investment margins due to de-risking activities and higher
short-term liquidity;
|
|
|
|
lower assets under management in the U.K., Japan and Asia
investment-linked portfolios;
|
|
|
|
the sale of the Brazil operations; and
|
|
|
|
higher expenses due to restructuring charges.
|
Year-to-Date
Foreign Life Insurance & Retirement Services Results
Total revenues for Foreign Life Insurance & Retirement
Services in the six-month period ended June 30, 2009
increased compared to the same period in 2008 primarily due to
lower net realized capital losses along with higher policyholder
trading gains, partially offset by lower premiums and other
considerations and the effect of the sale of the Brazil
operations. See Consolidated Results Premiums and
Other Considerations; Net Investment Income;
and Net Realized Capital Gains (Losses).
Operating income in the six-month period ended June 30,
2009 increased compared to the same period in 2008 due primarily
to lower net realized capital losses and higher DAC and SIA
benefits of $369 million related to net realized capital
losses in 2009 compared to $57 million in 2008. Other items
affecting operating income in the period were:
|
|
|
|
|
lower U.K. trading losses of $187 million;
|
|
|
|
a $134 million loss recognition charge related to the
Philippine operations;
|
|
|
|
lower investment margins due to de-risking activities and higher
short-term liquidity;
|
|
|
|
lower assets under management in the U.K., Japan and Asia
investment-linked portfolios;
|
|
|
|
the sale of the Brazil operations; and
|
|
|
|
higher expenses due to restructuring charges.
|
Foreign
Life Insurance & Retirement Services Sales and
Deposits
First year premium, single premium and annuity deposits for
Foreign Life Insurance & Retirement Services were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase (Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Original
|
|
|
|
2009
|
|
|
2008*
|
|
|
U.S. $
|
|
|
Currency
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First year premium
|
|
$
|
1,013
|
|
|
$
|
1,321
|
|
|
|
(23
|
)%
|
|
|
(17
|
)%
|
Single premium
|
|
|
632
|
|
|
|
2,953
|
|
|
|
(79
|
)
|
|
|
(76
|
)
|
Annuity deposits
|
|
|
583
|
|
|
|
6,352
|
|
|
|
(91
|
)
|
|
|
(90
|
)
|
Six Months Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First year premium
|
|
$
|
2,042
|
|
|
$
|
2,529
|
|
|
|
(19
|
)%
|
|
|
(15
|
)%
|
Single premium
|
|
|
1,192
|
|
|
|
6,765
|
|
|
|
(82
|
)
|
|
|
(81
|
)
|
Annuity deposits
|
|
|
1,238
|
|
|
|
12,191
|
|
|
|
(90
|
)
|
|
|
(89
|
)
|
|
|
|
* |
|
Excludes divested operations. |
137
American International Group, Inc.
and Subsidiaries
Quarterly
Foreign Life Insurance & Retirement Services Sales and
Deposits
First year premium sales in the three-month period ended
June 30, 2009 remained stable from the first quarter of
2009 but declined compared to the same period in 2008. Life
insurance sales of investment-linked products in Asia were
adversely affected by equity market performance and the negative
effect of foreign exchange. Life insurance sales in Japan
increased as a result of sales incentives, while personal
accident sales declined.
Single premium sales in the three-month period ended
June 30, 2009 declined significantly compared to the same
period in 2008 primarily due to lower guaranteed income bond
deposits in the U.K. resulting from poor market conditions and
the effect of the adverse publicity surrounding AIG. Single
premium sales in Asia improved during the three-month period
ended June 30, 2009 but remained at depressed levels
compared to the same period in 2008 due to equity markets
performance.
Annuity deposits decreased significantly in the three-month
period ended June 30, 2009 compared to the same period in
2008 primarily due to the decline in individual variable annuity
deposits. Investment-linked deposits in the U.K. decreased
significantly in the three-month period ended June 30, 2009
resulting from declines in the U.K. Premier Access Bond product
following significant surrender activity as a result of the AIG
issues. Adverse publicity surrounding AIG and the planned
disposition of AIGs Japan life operations continued to
negatively affect deposits in Japan during the three-month
period ended June 30, 2009 due to the suspension of sales
by banks. While some banks in Japan have resumed sales of
annuity products, most have not. AIG has, therefore, focused its
efforts to sell annuity deposit products through agents.
Year-to-Date
Foreign Life Insurance & Retirement Services Sales and
Deposits
First year premium sales in the six-month period ended
June 30, 2009 declined compared to the same period in 2008
primarily due to decreases in life insurance and personal
accident sales. Life insurance sales of investment-linked
products in Asia were adversely affected by equity market
performance and the negative effect of foreign exchange. Life
insurance sales in Japan increased as a result of sales
incentives and the positive effect of foreign exchange while
personal accident sales declined.
Single premium sales in the six-month period ended June 30,
2009 declined significantly compared to the same period in 2008
primarily due to lower guaranteed income bond deposits in the
U.K. resulting from poor market conditions and the effect of the
adverse publicity surrounding AIG. Single premium sales also
decreased in Asia as customers remained concerned about equity
markets performance, particularly in Singapore, Hong Kong and
Taiwan.
Annuity deposits decreased significantly in the six-month period
ended June 30, 2009 compared to the same period in 2008
primarily due to the decline in individual variable annuity
deposits in the U.K. and individual fixed annuity deposits in
Japan. Investment-linked deposits in the U.K. decreased
significantly in the six-month period ended June 30, 2009
resulting from declines in the U.K. Premier Access Bond product
following significant surrender activity as a result of the AIG
issues. Adverse publicity surrounding AIG and the planned
disposition of AIGs Japan life operations continued to
negatively affect deposits in Japan during the first six months
of 2009 due to the suspension of sales by banks. While some
banks in Japan have resumed sales of annuity products, most have
not. AIG has, therefore, focused its efforts to sell annuity
deposit products through agents.
138
American International Group, Inc.
and Subsidiaries
Domestic
Life Insurance Results
Domestic Life Insurance results, presented on a
sub-product
basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and
|
|
|
Net
|
|
|
Net Realized
|
|
|
|
|
|
Operating
|
|
|
|
Other
|
|
|
Investment
|
|
|
Capital Gains
|
|
|
Total
|
|
|
Income
|
|
|
|
Considerations
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
(Loss)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
590
|
|
|
$
|
320
|
|
|
$
|
242
|
|
|
$
|
1,152
|
|
|
$
|
409
|
|
Home service
|
|
|
182
|
|
|
|
159
|
|
|
|
(21
|
)
|
|
|
320
|
|
|
|
55
|
|
Group life/health
|
|
|
192
|
|
|
|
47
|
|
|
|
(8
|
)
|
|
|
231
|
|
|
|
10
|
|
Payout annuities*
|
|
|
81
|
|
|
|
308
|
|
|
|
1
|
|
|
|
390
|
|
|
|
50
|
|
Individual fixed and runoff annuities
|
|
|
14
|
|
|
|
97
|
|
|
|
|
|
|
|
111
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,059
|
|
|
$
|
931
|
|
|
$
|
214
|
|
|
$
|
2,204
|
|
|
$
|
559
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
621
|
|
|
$
|
365
|
|
|
$
|
(1,110
|
)
|
|
$
|
(124
|
)
|
|
$
|
(918
|
)
|
Home service
|
|
|
186
|
|
|
|
163
|
|
|
|
(198
|
)
|
|
|
151
|
|
|
|
(112
|
)
|
Group life/health
|
|
|
218
|
|
|
|
48
|
|
|
|
(13
|
)
|
|
|
253
|
|
|
|
4
|
|
Payout annuities*
|
|
|
564
|
|
|
|
320
|
|
|
|
(33
|
)
|
|
|
851
|
|
|
|
17
|
|
Individual fixed and runoff annuities
|
|
|
15
|
|
|
|
110
|
|
|
|
(22
|
)
|
|
|
103
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,604
|
|
|
$
|
1,006
|
|
|
$
|
(1,376
|
)
|
|
$
|
1,234
|
|
|
$
|
(1,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
|
(5
|
)%
|
|
|
(12
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Home service
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
112
|
|
|
|
|
|
Group life/health
|
|
|
(12
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
150
|
|
Payout annuities
|
|
|
(86
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
(54
|
)
|
|
|
194
|
|
Individual fixed and runoff annuities
|
|
|
(7
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(34
|
)%
|
|
|
(7
|
)%
|
|
|
|
%
|
|
|
79
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
1,224
|
|
|
$
|
510
|
|
|
$
|
(38
|
)
|
|
$
|
1,696
|
|
|
$
|
154
|
|
Home service
|
|
|
365
|
|
|
|
295
|
|
|
|
(94
|
)
|
|
|
566
|
|
|
|
33
|
|
Group life/health
|
|
|
393
|
|
|
|
100
|
|
|
|
(27
|
)
|
|
|
466
|
|
|
|
18
|
|
Payout annuities*
|
|
|
230
|
|
|
|
642
|
|
|
|
(87
|
)
|
|
|
785
|
|
|
|
22
|
|
Individual fixed and runoff annuities
|
|
|
29
|
|
|
|
206
|
|
|
|
(29
|
)
|
|
|
206
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,241
|
|
|
$
|
1,753
|
|
|
$
|
(275
|
)
|
|
$
|
3,719
|
|
|
$
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
$
|
1,210
|
|
|
$
|
738
|
|
|
$
|
(2,165
|
)
|
|
$
|
(217
|
)
|
|
$
|
(1,757
|
)
|
Home service
|
|
|
374
|
|
|
|
316
|
|
|
|
(338
|
)
|
|
|
352
|
|
|
|
(174
|
)
|
Group life/health
|
|
|
422
|
|
|
|
95
|
|
|
|
(27
|
)
|
|
|
490
|
|
|
|
6
|
|
Payout annuities*
|
|
|
1,158
|
|
|
|
623
|
|
|
|
(55
|
)
|
|
|
1,726
|
|
|
|
55
|
|
Individual fixed and runoff annuities
|
|
|
27
|
|
|
|
218
|
|
|
|
(79
|
)
|
|
|
166
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,191
|
|
|
$
|
1,990
|
|
|
$
|
(2,664
|
)
|
|
$
|
2,517
|
|
|
$
|
(1,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance
|
|
|
1
|
%
|
|
|
(31
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Home service
|
|
|
(2
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
61
|
|
|
|
|
|
Group life/health
|
|
|
(7
|
)
|
|
|
5
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
200
|
|
Payout annuities
|
|
|
(80
|
)
|
|
|
3
|
|
|
|
|
|
|
|
(55
|
)
|
|
|
(60
|
)
|
Individual fixed and runoff annuities
|
|
|
7
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(30
|
)%
|
|
|
(12
|
)%
|
|
|
|
%
|
|
|
48
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Premiums and other considerations include structured
settlements, single premium immediate annuities and terminal
funding annuities. |
139
American International Group, Inc.
and Subsidiaries
Quarterly
Domestic Life Insurance Results
Total revenues for Domestic Life Insurance increased in the
three-month period ended June 30, 2009 compared to the same
period in 2008 primarily due to net realized capital gains of
$214 million in the three-month period ended June 30,
2009 compared to losses of $1.4 billion in 2008, partially
offset by lower net investment income and lower premiums and
other considerations. See Results of Operations
Consolidated Results Premiums and Other
Considerations; Net Investment Income;
and Net Realized Capital Losses and Investments.
Domestic Life Insurance reported operating income in the
three-month period ended June 30, 2009 compared to an
operating loss in the same period in 2008 due principally to
significantly lower
other-than-temporary
impairments and favorable mortality. Operating income was
adversely affected by lower net investment income due to reduced
overall investment yields from increased levels of short-term
investments, lower partnership income and a current period
decline of $36 million in fair value of the economic
interest in ML II.
Year-to-Date
Domestic Life Insurance Results
Total revenues for Domestic Life Insurance increased in the
six-month period ended June 30, 2009 compared to the same
period in 2008 primarily due to considerably lower net realized
capital losses. See Results of Operations
Consolidated Results Premiums and Other
Considerations; Net Investment Income;
and Net Realized Capital Losses and Investments.
Domestic Life Insurance reported an operating gain in the
six-month period ended June 30, 2009 compared to an
operating loss in the same period in 2008 due principally to
significantly lower
other-than-temporary
impairments and favorable mortality. Operating income was
adversely affected by lower net investment income due to reduced
overall investment yields from increased levels of short-term
investments and a current period decline of $118 million in
fair value of the economic interest in ML II.
140
American International Group, Inc.
and Subsidiaries
Domestic
Life Insurance Sales and Deposits
Domestic Life Insurance sales and deposits by
product*
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
Percentage
|
|
|
Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase/
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Life insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic premium by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Universal life
|
|
$
|
16
|
|
|
$
|
46
|
|
|
|
(65
|
)%
|
|
$
|
30
|
|
|
$
|
93
|
|
|
|
(68
|
)%
|
Variable universal life
|
|
|
1
|
|
|
|
12
|
|
|
|
(92
|
)
|
|
|
8
|
|
|
|
33
|
|
|
|
(76
|
)
|
Term life
|
|
|
18
|
|
|
|
58
|
|
|
|
(69
|
)
|
|
|
41
|
|
|
|
107
|
|
|
|
(62
|
)
|
Whole life/other
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
(50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total periodic premiums by product
|
|
|
36
|
|
|
|
117
|
|
|
|
(69
|
)
|
|
|
80
|
|
|
|
235
|
|
|
|
(66
|
)
|
Unscheduled and single deposits
|
|
|
17
|
|
|
|
105
|
|
|
|
(84
|
)
|
|
|
50
|
|
|
|
160
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total life insurance
|
|
|
53
|
|
|
|
222
|
|
|
|
(76
|
)
|
|
|
130
|
|
|
|
395
|
|
|
|
(67
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home service
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance and accident and health
|
|
|
21
|
|
|
|
24
|
|
|
|
(13
|
)
|
|
|
38
|
|
|
|
44
|
|
|
|
(14
|
)
|
Fixed annuities
|
|
|
41
|
|
|
|
40
|
|
|
|
3
|
|
|
|
97
|
|
|
|
69
|
|
|
|
41
|
|
Unscheduled and single deposits
|
|
|
5
|
|
|
|
5
|
|
|
|
|
|
|
|
9
|
|
|
|
10
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total home service
|
|
|
67
|
|
|
|
69
|
|
|
|
(3
|
)
|
|
|
144
|
|
|
|
123
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group life/health
|
|
|
11
|
|
|
|
26
|
|
|
|
(58
|
)
|
|
|
45
|
|
|
|
63
|
|
|
|
(29
|
)
|
Payout annuities
|
|
|
227
|
|
|
|
549
|
|
|
|
(59
|
)
|
|
|
435
|
|
|
|
1,122
|
|
|
|
(61
|
)
|
Individual fixed and runoff annuities
|
|
|
199
|
|
|
|
255
|
|
|
|
(22
|
)
|
|
|
394
|
|
|
|
337
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total sales and deposits
|
|
$
|
557
|
|
|
$
|
1,121
|
|
|
|
(50
|
)%
|
|
$
|
1,148
|
|
|
$
|
2,040
|
|
|
|
(44
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Excludes divested operations. Life insurance sales include
periodic premium from new business expected to be collected over
a one-year period and unscheduled and single premiums from new
and existing policyholders. Sales of group accident and health
insurance represent annualized first year premium from new
policies. Annuity sales represent deposits from new and existing
policyholders. |
Total Domestic Life Insurance sales and deposits decreased in
the three- and six-month periods ended June 30, 2009
compared to the same periods in 2008 primarily due to lower
payout annuities and life insurance premiums. Payout annuities
sales and life insurance premiums decreased primarily due to
AIGs lower ratings and negative publicity.
141
American International Group, Inc.
and Subsidiaries
Domestic
Retirement Services Results
Domestic Retirement Services results, presented on a
sub-product
basis were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and
|
|
|
Net
|
|
|
Net Realized
|
|
|
|
|
|
Operating
|
|
|
|
Other
|
|
|
Investment
|
|
|
Capital Gains
|
|
|
Total
|
|
|
Income
|
|
|
|
Considerations
|
|
|
Income
|
|
|
(Losses)
|
|
|
Revenues
|
|
|
(Loss)
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group retirement products
|
|
$
|
82
|
|
|
$
|
459
|
|
|
$
|
(90
|
)
|
|
$
|
451
|
|
|
$
|
37
|
|
Individual fixed annuities
|
|
|
27
|
|
|
|
642
|
|
|
|
(129
|
)
|
|
|
540
|
|
|
|
(131
|
)
|
Individual variable annuities
|
|
|
111
|
|
|
|
36
|
|
|
|
214
|
|
|
|
361
|
|
|
|
17
|
|
Individual annuities runoff*
|
|
|
3
|
|
|
|
53
|
|
|
|
(20
|
)
|
|
|
36
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
223
|
|
|
$
|
1,190
|
|
|
$
|
(25
|
)
|
|
$
|
1,388
|
|
|
$
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group retirement products
|
|
$
|
111
|
|
|
$
|
488
|
|
|
$
|
(940
|
)
|
|
$
|
(341
|
)
|
|
$
|
(699
|
)
|
Individual fixed annuities
|
|
|
17
|
|
|
|
817
|
|
|
|
(1,591
|
)
|
|
|
(757
|
)
|
|
|
(1,274
|
)
|
Individual variable annuities
|
|
|
157
|
|
|
|
34
|
|
|
|
(43
|
)
|
|
|
148
|
|
|
|
(50
|
)
|
Individual annuities runoff*
|
|
|
5
|
|
|
|
79
|
|
|
|
(151
|
)
|
|
|
(67
|
)
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
290
|
|
|
$
|
1,418
|
|
|
$
|
(2,725
|
)
|
|
$
|
(1,017
|
)
|
|
$
|
(2,169
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group retirement products
|
|
|
(26
|
)%
|
|
|
(6
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Individual fixed annuities
|
|
|
59
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual variable annuities
|
|
|
(29
|
)
|
|
|
6
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
Individual annuities runoff
|
|
|
(40
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(23
|
)%
|
|
|
(16
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group retirement products
|
|
$
|
154
|
|
|
$
|
831
|
|
|
$
|
(651
|
)
|
|
$
|
334
|
|
|
$
|
(432
|
)
|
Individual fixed annuities
|
|
|
59
|
|
|
|
1,205
|
|
|
|
(999
|
)
|
|
|
265
|
|
|
|
(939
|
)
|
Individual variable annuities
|
|
|
216
|
|
|
|
61
|
|
|
|
159
|
|
|
|
436
|
|
|
|
(507
|
)
|
Individual annuities runoff*
|
|
|
7
|
|
|
|
120
|
|
|
|
(124
|
)
|
|
|
3
|
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
436
|
|
|
$
|
2,217
|
|
|
$
|
(1,615
|
)
|
|
$
|
1,038
|
|
|
$
|
(2,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group retirement products
|
|
$
|
218
|
|
|
$
|
982
|
|
|
$
|
(1,680
|
)
|
|
$
|
(480
|
)
|
|
$
|
(1,192
|
)
|
Individual fixed annuities
|
|
|
40
|
|
|
|
1,576
|
|
|
|
(2,837
|
)
|
|
|
(1,221
|
)
|
|
|
(2,230
|
)
|
Individual variable annuities
|
|
|
309
|
|
|
|
69
|
|
|
|
(295
|
)
|
|
|
83
|
|
|
|
(187
|
)
|
Individual annuities runoff*
|
|
|
7
|
|
|
|
162
|
|
|
|
(272
|
)
|
|
|
(103
|
)
|
|
|
(256
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
574
|
|
|
$
|
2,789
|
|
|
$
|
(5,084
|
)
|
|
$
|
(1,721
|
)
|
|
$
|
(3,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage Increase/(Decrease) from Prior Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group retirement products
|
|
|
(29
|
)%
|
|
|
(15
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
Individual fixed annuities
|
|
|
48
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual variable annuities
|
|
|
(30
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
425
|
|
|
|
|
|
Individual annuities runoff
|
|
|
|
|
|
|
(26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(24
|
)%
|
|
|
(21
|
)%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Primarily represents runoff annuity business sold through
discontinued distribution relationships. |
142
American International Group, Inc.
and Subsidiaries
Quarterly
Domestic Retirement Services Results
Domestic Retirement Services reported significantly lower
operating losses in the three-month period ended June 30,
2009 compared to the same period in 2008 primarily due to lower
net realized capital losses principally due to lower
other-than-temporary
impairment charges as well as a $174 million increase in
gains from embedded policy derivative liability valuations, net
of related economic hedges, due to improved equity market
conditions. The results for the three-month period ended
June 30, 2008 included impairments of $1.9 billion
related to AIGs U.S. securities lending program which
was terminated in December 2008.
These increases were partially offset by higher DAC and SIA
amortization relating to net realized capital gains of
$202 million for individual variable annuities. In
addition, for group retirement products and individual fixed
annuities, DAC and SIA benefits relating to net realized capital
losses were lower in the three-month period ended June 30,
2009 by $50 million and $111 million, respectively,
compared to the same period last year. DAC charges for
individual fixed annuities related to projected increases in
surrenders totaled $43 million for the three-month period
ended June 30, 2009. Current period results were also
negatively affected by the $66 million decline in the fair
value of the economic interest in ML II, increased levels of
short-term investments and lower assets under management. See
Consolidated Results Net Investment Income;
and Net Realized Capital Losses for further
discussion.
Year-to-Date
Domestic Retirement Services Results
Domestic Retirement Services reported lower operating losses in
the six-month period ended June 30, 2009 compared to the
same period in 2008 primarily due to considerably lower net
realized capital losses arising principally from lower
other-than-temporary
impairment charges and a $366 million decrease in the fair
value of embedded policy derivative liabilities, net of related
economic hedges, driven by improved equity market conditions.
The results for the six-month period ended June 30, 2008
included impairments of $3.3 billion related to AIGs
U.S. securities lending program which was terminated in
December 2008.
The improvement in operating income was partially offset by
losses on partnership investments principally related to the
private equity portfolio, lower yield enhancement income and
higher DAC and SIA amortization charges relating to net realized
capital gains of $242 million for individual variable
annuities. DAC and SIA benefits for group retirement products
and individual fixed annuities relating to net realized capital
losses were $148 million and $150 million,
respectively, for the six-month period ended June 30, 2009
compared to $89 million and $240 million,
respectively, for the same period in 2008. DAC and SIA unlocking
and related reserve strengthening due to deteriorating equity
market conditions and reductions in long-term growth rate
assumptions for group retirement products and individual
variable annuities totaled $78 million and
$480 million, respectively, in the six-month period ended
June 30, 2009. DAC charges for individual fixed annuities
related to projected increases in surrenders totaled
$43 million in the six-month period ended June 30,
2009. Current year results were also negatively affected by a
$214 million decline in the fair value of the economic
interest in ML II, increased levels of short-term investments
and lower assets under management. See Consolidated
Results Net Investment Income; and Net
Realized Capital Losses for further discussion.
143
American International Group, Inc.
and Subsidiaries
Domestic
Retirement Services Sales and Deposits
The following table presents the account value roll forward
for Domestic Retirement Services by product:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Group retirement products
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
54,864
|
|
|
$
|
65,640
|
|
|
$
|
56,861
|
|
|
$
|
68,109
|
|
Deposits annuities
|
|
|
1,111
|
|
|
|
1,472
|
|
|
|
2,339
|
|
|
|
2,925
|
|
Deposits mutual funds
|
|
|
312
|
|
|
|
371
|
|
|
|
713
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Deposits
|
|
|
1,423
|
|
|
|
1,843
|
|
|
|
3,052
|
|
|
|
3,720
|
|
Surrenders and other withdrawals
|
|
|
(1,679
|
)
|
|
|
(1,282
|
)
|
|
|
(3,348
|
)
|
|
|
(2,772
|
)
|
Death benefits
|
|
|
(61
|
)
|
|
|
(64
|
)
|
|
|
(129
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inflows (outflows)
|
|
|
(317
|
)
|
|
|
497
|
|
|
|
(425
|
)
|
|
|
825
|
|
Change in fair value of underlying investments, interest
credited, net of fees
|
|
|
3,791
|
|
|
|
52
|
|
|
|
1,902
|
|
|
|
(2,745
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
58,338
|
|
|
$
|
66,189
|
|
|
$
|
58,338
|
|
|
$
|
66,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual fixed annuities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
47,530
|
|
|
$
|
51,540
|
|
|
$
|
48,394
|
|
|
$
|
50,508
|
|
Deposits
|
|
|
812
|
|
|
|
1,944
|
|
|
|
2,286
|
|
|
|
4,475
|
|
Surrenders and other withdrawals
|
|
|
(2,227
|
)
|
|
|
(1,461
|
)
|
|
|
(4,634
|
)
|
|
|
(3,040
|
)
|
Death benefits
|
|
|
(462
|
)
|
|
|
(442
|
)
|
|
|
(857
|
)
|
|
|
(824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inflows (outflows)
|
|
|
(1,877
|
)
|
|
|
41
|
|
|
|
(3,205
|
)
|
|
|
611
|
|
Change in fair value of underlying investments, interest
credited, net of fees
|
|
|
471
|
|
|
|
496
|
|
|
|
935
|
|
|
|
958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
46,124
|
|
|
$
|
52,077
|
|
|
$
|
46,124
|
|
|
$
|
52,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individual variable annuities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
21,497
|
|
|
$
|
30,830
|
|
|
$
|
23,593
|
|
|
$
|
33,108
|
|
Deposits
|
|
|
202
|
|
|
|
1,122
|
|
|
|
464
|
|
|
|
2,139
|
|
Surrenders and other withdrawals
|
|
|
(621
|
)
|
|
|
(964
|
)
|
|
|
(1,353
|
)
|
|
|
(1,873
|
)
|
Death benefits
|
|
|
(103
|
)
|
|
|
(123
|
)
|
|
|
(213
|
)
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inflows (outflows)
|
|
|
(522
|
)
|
|
|
35
|
|
|
|
(1,102
|
)
|
|
|
16
|
|
Change in fair value of underlying investments, interest
credited, net of fees
|
|
|
1,626
|
|
|
|
(198
|
)
|
|
|
110
|
|
|
|
(2,457
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
22,601
|
|
|
$
|
30,667
|
|
|
$
|
22,601
|
|
|
$
|
30,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
144
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Total Domestic Retirement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
123,891
|
|
|
$
|
148,010
|
|
|
$
|
128,848
|
|
|
$
|
151,725
|
|
Deposits
|
|
|
2,437
|
|
|
|
4,909
|
|
|
|
5,802
|
|
|
|
10,334
|
|
Surrenders and other withdrawals
|
|
|
(4,527
|
)
|
|
|
(3,707
|
)
|
|
|
(9,335
|
)
|
|
|
(7,685
|
)
|
Death benefits
|
|
|
(626
|
)
|
|
|
(629
|
)
|
|
|
(1,199
|
)
|
|
|
(1,197
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net inflows (outflows)
|
|
|
(2,716
|
)
|
|
|
573
|
|
|
|
(4,732
|
)
|
|
|
1,452
|
|
Change in fair value of underlying investments, interest
credited, net of fees
|
|
|
5,888
|
|
|
|
350
|
|
|
|
2,947
|
|
|
|
(4,244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period, excluding runoff
|
|
|
127,063
|
|
|
|
148,933
|
|
|
|
127,063
|
|
|
|
148,933
|
|
Individual annuities runoff
|
|
|
4,773
|
|
|
|
5,476
|
|
|
|
4,773
|
|
|
|
5,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
131,836
|
|
|
$
|
154,409
|
|
|
$
|
131,836
|
|
|
$
|
154,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and separate account reserves and mutual funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General account reserve
|
|
|
|
|
|
|
|
|
|
$
|
85,716
|
|
|
$
|
91,467
|
|
Separate account reserve
|
|
|
|
|
|
|
|
|
|
|
39,073
|
|
|
|
54,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total general and separate account reserves
|
|
|
|
|
|
|
|
|
|
|
124,789
|
|
|
|
146,096
|
|
Group retirement mutual funds
|
|
|
|
|
|
|
|
|
|
|
7,047
|
|
|
|
8,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reserves and mutual funds
|
|
|
|
|
|
|
|
|
|
$
|
131,836
|
|
|
$
|
154,409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits in all three product lines have been negatively
affected by lower AIG ratings and continued negative AIG
publicity. For individual variable annuities, the decrease is
also attributable to the decline in equity markets since March
2008 and a general decline in industry sales volumes. Individual
fixed and variable annuity sales have decreased due to the
temporary suspension of product sales at certain large selling
organizations due to the effect of the AIG events.
Surrender rates and other withdrawals increased for group
retirement products and individual variable and fixed annuities
in the three- and six-month periods ended June 30, 2009
compared to the same periods in 2008 primarily due to the AIG
ratings downgrades and negative publicity about AIG. However,
surrender rates and net flows have continued to improve in all
three product lines from the fourth quarter of 2008. Surrender
rates for group retirement products are expected to increase in
the second half of 2009 as several large group surrenders are
anticipated.
145
American International Group, Inc.
and Subsidiaries
The following table presents Domestic Retirement Services
reserves by surrender charge category and surrender rates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group
|
|
|
Individual
|
|
|
Individual
|
|
|
|
Retirement
|
|
|
Fixed
|
|
|
Variable
|
|
At June 30,
|
|
Products*
|
|
|
Annuities
|
|
|
Annuities
|
|
|
|
(In millions)
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
No surrender charge
|
|
$
|
43,592
|
|
|
$
|
10,094
|
|
|
$
|
9,234
|
|
0% 2%
|
|
|
1,792
|
|
|
|
2,931
|
|
|
|
3,308
|
|
Greater than 2% 4%
|
|
|
1,894
|
|
|
|
6,559
|
|
|
|
2,103
|
|
Greater than 4%
|
|
|
3,099
|
|
|
|
23,331
|
|
|
|
6,930
|
|
Non-Surrenderable
|
|
|
914
|
|
|
|
3,209
|
|
|
|
1,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reserves
|
|
$
|
51,291
|
|
|
$
|
46,124
|
|
|
$
|
22,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surrender rates
|
|
|
12.0
|
%
|
|
|
19.6
|
%
|
|
|
13.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
No surrender charge
|
|
$
|
48,399
|
|
|
$
|
11,465
|
|
|
$
|
12,288
|
|
0% 2%
|
|
|
2,659
|
|
|
|
3,519
|
|
|
|
4,545
|
|
Greater than 2% 4%
|
|
|
3,309
|
|
|
|
7,325
|
|
|
|
4,002
|
|
Greater than 4%
|
|
|
2,621
|
|
|
|
26,441
|
|
|
|
9,524
|
|
Non-Surrenderable
|
|
|
888
|
|
|
|
3,327
|
|
|
|
308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reserves
|
|
$
|
57,876
|
|
|
$
|
52,077
|
|
|
$
|
30,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Surrender rates
|
|
|
8.4
|
%
|
|
|
11.8
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Excludes mutual funds of $7.0 billion and
$8.3 billion at June 30, 2009 and 2008,
respectively. |
Deferred
Policy Acquisition Costs and Sales Inducement
Assets
DAC for Life Insurance & Retirement Services products
arises from the deferral of costs that vary with, and are
directly related to, the acquisition of new or renewal business.
Policy acquisition costs for life insurance products are
generally deferred and amortized over the premium paying period
in accordance with FAS 60, Accounting and Reporting
by Insurance Enterprises. Policy acquisition costs that
relate to universal life and investment-type products are
generally deferred and amortized, with interest in relation to
the incidence of estimated gross profits to be realized over the
estimated lives of the contracts in accordance with FAS 97,
Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains from the
Sale of Investments. Value of Business Acquired (VOBA) is
determined at the time of acquisition and is reported on the
consolidated balance sheet with DAC and amortized over the life
of the business similar to DAC. AIG offers sales inducements to
contract holders (bonus interest) on certain annuity and
investment contracts. Sales inducements are recognized as an
asset (SIA) with a corresponding increase to the liability for
policyholder contract deposits on the consolidated balance sheet
and are amortized over the life of the contract similar to DAC.
The deferral of acquisition and sales inducement costs decreased
$683 million in the six-month period ended June 30,
2009 compared to the same period in 2008 primarily due to
declines in new business production. Current year amortization
for Domestic Retirement Services also includes charges for DAC
and SIA unlocking of $412 million related to a reduction in
the long-term separate account growth rate assumption and
$43 million related to higher anticipated surrenders for
individual fixed annuities. Annualized amortization expense
levels in the six-month period ended June 30, 2009 and 2008
were approximately 15 percent and 11 percent,
respectively, of the opening DAC balance.
AIG adopted FSP
FAS 115-2
on April 1, 2009 resulting in a one-time adjustment to the
cost basis of affected securities and DAC and SIA charges
related to
other-than-temporary
impairments previously taken. There was no material effect to
DAC and SIA assets on the Consolidated Balance Sheet. However,
because realized capital gains
146
American International Group, Inc.
and Subsidiaries
and losses are included in the estimated gross profits used to
amortize DAC for investment-oriented products, DAC amortization
is expected to be lower in future periods.
The following table summarizes the major components of the
changes in DAC/VOBA and SIA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
Six Months Ended June 30,
|
|
DAC/VOBA
|
|
|
SIA
|
|
|
Total
|
|
|
DAC/VOBA
|
|
|
SIA
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Foreign Life Insurance & Retirement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
26,166
|
|
|
$
|
317
|
|
|
$
|
26,483
|
|
|
$
|
26,175
|
|
|
$
|
681
|
|
|
$
|
26,856
|
|
Acquisition costs deferred
|
|
|
2,482
|
|
|
|
16
|
|
|
|
2,498
|
|
|
|
2,711
|
|
|
|
49
|
|
|
|
2,760
|
|
Amortization (charged) or credited to operating income
|
|
|
(1,886
|
)
|
|
|
(21
|
)
|
|
|
(1,907
|
)
|
|
|
(1,727
|
)
|
|
|
(33
|
)
|
|
|
(1,760
|
)
|
Change in unrealized gains (losses) on securities(a)
|
|
|
(198
|
)
|
|
|
|
|
|
|
(198
|
)
|
|
|
692
|
|
|
|
5
|
|
|
|
697
|
|
Increase (decrease) due to foreign exchange
|
|
|
693
|
|
|
|
11
|
|
|
|
704
|
|
|
|
781
|
|
|
|
2
|
|
|
|
783
|
|
Other(b)(c)
|
|
|
(205
|
)
|
|
|
(4
|
)
|
|
|
(209
|
)
|
|
|
(1,090
|
)
|
|
|
(299
|
)
|
|
|
(1,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
27,052
|
|
|
$
|
319
|
|
|
$
|
27,371
|
|
|
$
|
27,542
|
|
|
$
|
405
|
|
|
$
|
27,947
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Life Insurance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
7,236
|
|
|
$
|
66
|
|
|
$
|
7,302
|
|
|
$
|
6,432
|
|
|
$
|
53
|
|
|
$
|
6,485
|
|
Acquisition costs deferred
|
|
|
276
|
|
|
|
8
|
|
|
|
284
|
|
|
|
439
|
|
|
|
10
|
|
|
|
449
|
|
Amortization (charged) or credited to operating income
|
|
|
(346
|
)
|
|
|
(7
|
)
|
|
|
(353
|
)
|
|
|
(265
|
)
|
|
|
(5
|
)
|
|
|
(270
|
)
|
Change in unrealized gains (losses) on securities(a)
|
|
|
71
|
|
|
|
4
|
|
|
|
75
|
|
|
|
210
|
|
|
|
|
|
|
|
210
|
|
Increase (decrease) due to foreign exchange
|
|
|
(14
|
)
|
|
|
|
|
|
|
(14
|
)
|
|
|
(17
|
)
|
|
|
|
|
|
|
(17
|
)
|
Other(b)
|
|
|
(760
|
)
|
|
|
(6
|
)
|
|
|
(766
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
6,463
|
|
|
$
|
65
|
|
|
$
|
6,528
|
|
|
$
|
6,799
|
|
|
$
|
58
|
|
|
$
|
6,857
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Retirement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
7,211
|
|
|
$
|
1,415
|
|
|
$
|
8,626
|
|
|
$
|
5,838
|
|
|
$
|
991
|
|
|
$
|
6,829
|
|
Acquisition costs deferred
|
|
|
235
|
|
|
|
79
|
|
|
|
314
|
|
|
|
462
|
|
|
|
108
|
|
|
|
570
|
|
Amortization (charged) or credited to operating income
|
|
|
(699
|
)
|
|
|
(164
|
)
|
|
|
(863
|
)
|
|
|
(100
|
)
|
|
|
(16
|
)
|
|
|
(116
|
)
|
Change in unrealized gains (losses) on securities(a)
|
|
|
6
|
|
|
|
1
|
|
|
|
7
|
|
|
|
439
|
|
|
|
96
|
|
|
|
535
|
|
Increase (decrease) due to foreign exchange
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Other(b)
|
|
|
(1,067
|
)
|
|
|
(273
|
)
|
|
|
(1,340
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
5,686
|
|
|
$
|
1,058
|
|
|
$
|
6,744
|
|
|
$
|
6,640
|
|
|
$
|
1,179
|
|
|
$
|
7,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life Insurance & Retirement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
$
|
40,613
|
|
|
$
|
1,798
|
|
|
$
|
42,411
|
|
|
$
|
38,445
|
|
|
$
|
1,725
|
|
|
$
|
40,170
|
|
Acquisition costs deferred
|
|
|
2,993
|
|
|
|
103
|
|
|
|
3,096
|
|
|
|
3,612
|
|
|
|
167
|
|
|
|
3,779
|
|
Amortization (charged) or credited to operating income
|
|
|
(2,931
|
)
|
|
|
(192
|
)
|
|
|
(3,123
|
)
|
|
|
(2,092
|
)
|
|
|
(54
|
)
|
|
|
(2,146
|
)
|
Change in unrealized gains (losses) on securities(a)
|
|
|
(121
|
)
|
|
|
5
|
|
|
|
(116
|
)
|
|
|
1,341
|
|
|
|
101
|
|
|
|
1,442
|
|
Increase due to foreign exchange
|
|
|
679
|
|
|
|
11
|
|
|
|
690
|
|
|
|
765
|
|
|
|
2
|
|
|
|
767
|
|
Other(b)(c)
|
|
|
(2,032
|
)
|
|
|
(283
|
)
|
|
|
(2,315
|
)
|
|
|
(1,090
|
)
|
|
|
(299
|
)
|
|
|
(1,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
39,201
|
|
|
$
|
1,442
|
|
|
$
|
40,643
|
|
|
$
|
40,981
|
|
|
$
|
1,642
|
|
|
$
|
42,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
American International Group, Inc.
and Subsidiaries
|
|
|
(a) |
|
In 2009, includes increases of $191 million,
$286 million and $1.3 billion for Foreign Life
Insurance & Retirement Services, Domestic Life
Insurance and Domestic Retirement Services, respectively,
related to the cumulative effect of adoption of FSP
FAS 115-2. |
|
(b) |
|
In 2009, includes decreases of $197 million,
$286 million and $1.3 billion for Foreign Life
Insurance & Retirement Services, Domestic Life
Insurance and Domestic Retirement Services, respectively,
related to the cumulative effect of adoption of FSP
115-2. For
Domestic Life Insurance, 2009 also includes a decrease of
$479 million related to the divestiture of the operations
in Canada. |
|
(c) |
|
In 2008, primarily represents the cumulative effect of
adoption of FAS 159, The Fair Value Option for
Financial Assets and Financial Liabilities
(FAS 159). |
As AIG operates in various global markets, the estimated gross
profits used to amortize DAC, VOBA and SIA are subject to
differing market returns and interest rate environments in any
single period. The combination of market returns and interest
rates may lead to acceleration of amortization in some products
and regions and simultaneous deceleration of amortization in
other products and regions.
DAC, VOBA and SIA for insurance-oriented, investment-oriented
and retirement services products are reviewed for
recoverability, which involves estimating the future
profitability of current business. This review involves
significant management judgment. If actual future profitability
is substantially lower than estimated, AIGs DAC, VOBA and
SIA may be subject to an impairment charge and AIGs
results of operations could be significantly affected in future
periods.
Financial
Services Operations
AIGs Financial Services subsidiaries engage in diversified
activities including aircraft leasing, capital markets, and
consumer finance and insurance premium finance. Together, the
Aircraft Leasing, Capital Markets and Consumer Finance
operations generate the majority of the revenues produced by the
Financial Services operations.
Aircraft
Leasing
AIGs Aircraft Leasing operations are the operations of
ILFC, which generates its revenues primarily from leasing new
and used commercial jet aircraft to foreign and domestic
airlines. Revenues also result from the remarketing of
commercial jet aircraft for ILFCs own account, and
remarketing and fleet management services for airlines and other
aircraft fleet owners.
Capital
Markets
Capital Markets represents the operations of AIGFP, which
engaged as principal in a wide variety of financial
transactions, including standard and customized financial
products involving commodities, credit, currencies, energy,
equities and interest rates. AIGFP also invests in a diversified
portfolio of securities and engages in borrowing activities that
involve issuing standard and structured notes and other
securities and entering into GIAs. Given the extreme market
conditions experienced in 2008, downgrades of AIGs credit
ratings by the rating agencies and AIGs intent to refocus
on its core businesses, in late 2008 AIGFP began to unwind its
businesses and portfolios, including those associated with
credit protection written through credit default swaps on super
senior risk tranches of diversified pools of loans and debt
securities.
Historically, AIGs Capital Markets operations derived a
significant portion of their revenues from hedged financial
positions entered into in connection with counterparty
transactions. AIGFP has also participated as a dealer in a wide
variety of financial derivatives transactions. Revenues and
operating income of the Capital Markets operations and the
percentage change in these amounts for any given period are
significantly affected by changes in the fair value of
AIGFPs assets and liabilities and by the number, size and
profitability of transactions entered into during that period
relative to those entered into during the comparative period.
148
American International Group, Inc.
and Subsidiaries
Consumer
Finance
AIGs Consumer Finance operations in North America are
principally conducted through AGF. AGF derives most of its
revenues from finance charges assessed on real estate loans,
secured and unsecured non-real estate loans and retail sales
finance receivables.
AIGs foreign consumer finance operations are principally
conducted through AIGCFG. AIGCFG operates primarily in emerging
and developing markets. At June 30, 2009, AIGCFG had
operations in Argentina, China, Brazil, Hong Kong, Mexico,
Poland, Russia, Taiwan, Thailand, India and Colombia. During the
first six months of 2009 and through July 31, 2009, AIG has
completed the sale of certain AIGCFG operations in China,
Thailand, the Philippines and Mexico. AIG has also entered into
contracts to sell certain AIGCFG operations in Argentina, China,
Colombia, Poland, Russia, Taiwan and Thailand.
Financial
Services Results
Financial Services results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Percentage
|
|
|
Six Months Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase/
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Leasing
|
|
$
|
1,384
|
|
|
$
|
1,298
|
|
|
|
7
|
%
|
|
$
|
2,665
|
|
|
$
|
2,463
|
|
|
|
8
|
%
|
Capital Markets
|
|
|
(8
|
)
|
|
|
(6,088
|
)
|
|
|
|
|
|
|
(977
|
)
|
|
|
(14,831
|
)
|
|
|
|
|
Consumer Finance
|
|
|
565
|
|
|
|
1,028
|
|
|
|
(45
|
)
|
|
|
1,386
|
|
|
|
1,959
|
|
|
|
(29
|
)
|
Other, including intercompany adjustments
|
|
|
214
|
|
|
|
157
|
|
|
|
36
|
|
|
|
354
|
|
|
|
244
|
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,155
|
|
|
$
|
(3,605
|
)
|
|
|
|
%
|
|
$
|
3,428
|
|
|
$
|
(10,165
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aircraft Leasing
|
|
$
|
410
|
|
|
$
|
334
|
|
|
|
23
|
%
|
|
$
|
726
|
|
|
$
|
555
|
|
|
|
31
|
%
|
Capital Markets
|
|
|
(128
|
)
|
|
|
(6,284
|
)
|
|
|
|
|
|
|
(1,249
|
)
|
|
|
(15,211
|
)
|
|
|
|
|
Consumer Finance
|
|
|
(404
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
(702
|
)
|
|
|
(85
|
)
|
|
|
|
|
Other, including intercompany adjustments
|
|
|
33
|
|
|
|
78
|
|
|
|
(58
|
)
|
|
|
14
|
|
|
|
64
|
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(89
|
)
|
|
$
|
(5,905
|
)
|
|
|
|
%
|
|
$
|
(1,211
|
)
|
|
$
|
(14,677
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services reported operating losses in the three- and
six-month periods ended June 30, 2009 and 2008 due to the
following:
|
|
|
|
|
AIGFP reported unrealized market valuation gains related to its
super senior credit default swap portfolios of $636 million
and $184 million in the three- and six-month periods ended
June 30, 2009, respectively, and unrealized market
valuation losses of $5.6 billion and $14.7 billion in
the three- and six-month periods ended June 30, 2008,
respectively. Interest expense on intercompany borrowings and
the effect on operating results related to the continued
wind-down of AIGFPs portfolios in 2009 more than offset
the unrealized market valuation gains related to AIGFPs
credit default swap portfolios. The operating loss in the three-
and six-month periods ended June 30, 2009 also included a
loss of $37 million and a gain of $1.8 billion,
respectively, representing the effect of changes in credit
spreads on the valuation of AIGFPs assets and liabilities,
including a loss of $17 million and a gain of
$89 million, respectively, reflected in the unrealized
market valuations on the super senior credit default swaps.
|
|
|
|
AGFs operating loss increased in the three- and six-month
periods ended June 30, 2009 compared to the same periods in
2008 primarily due to the 45 percent and 29 percent
declines, respectively, in finance charges and other revenues
reflecting the sales of real estate portfolios as part of
AGFs liquidity management efforts and increases in the
provision for finance receivable losses of $22 million and
$208 million,
|
149
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
respectively, resulting from increases to the allowance for
finance receivable losses in response to the higher levels of
delinquencies on AGFs finance receivable portfolio and
higher net charge-offs. This decline was partially offset by
lower operating expenses and interest expense. AGFs
reduced operating expenses resulted from AGFs decision to
cease its wholesale originations in 2008 and AGFs branch
office closings in 2008 and 2009.
|
|
|
|
|
|
ILFC generated strong operating income growth in the three- and
six-month periods ended June 30, 2009 compared to the same
periods in 2008, due to a larger aircraft fleet size and lower
composite borrowing rates partially offset by higher
depreciation expense, lower flight equipment marketing revenue
and an impairment charge of $16 million.
|
Quarterly
Capital Markets Results
AIGFPs operating loss decreased in the three-month period
ended June 30, 2009 compared to the same period in 2008
primarily related to a market valuation gain in 2009 compared to
a loss in 2008 on its super senior CDO credit default swap
portfolio. AIGFPs results also reflect the effects of its
wind-down activities.
AIGFP recognized an unrealized market valuation gain of
$636 million in the three-month period ended June 30,
2009 compared to an unrealized market valuation loss of
$5.6 billion in 2008, representing the change in fair value
of its super senior credit default swap portfolio. The principal
components of the valuation gains and losses recognized were as
follows:
|
|
|
|
|
AIGFP recognized an unrealized market valuation loss of
$284 million in the second quarter of 2009 with respect to
credit default swaps (CDS) transactions written on multi-sector
CDOs, compared to a $5.6 billion unrealized market
valuation loss for the same period in 2008. The decrease in the
unrealized market valuation loss on this portfolio was largely
due to the substantial decline in outstanding net notional
amount resulting from the termination of CDS contracts in the
fourth quarter of 2008 in connection with the ML III transaction.
|
|
|
|
AIGFP recognized an unrealized market valuation gain of
$792 million in the second quarter of 2009 with respect to
CDS transactions in the corporate arbitrage portfolio, compared
to a $126 million market valuation gain for the same period
in 2008. During the second quarter of 2009, the valuation of
these contracts benefited from the narrowing of corporate credit
spreads, while these spreads also narrowed during the same
period in 2008 although to a lesser extent as compared to the
same period in 2009.
|
See Critical Accounting Estimates Level 3
Assets and Liabilities Valuation of Level 3
Assets and Liabilities for a discussion of AIGFPs super
senior credit default swap portfolio.
During the three-month period ended June 30, 2009, AIGFP
recognized a gain of $105 million on credit default swap
contracts referencing single-name exposures written on
corporate, index and asset-backed credits which are not included
in the super senior credit default swap portfolio, compared to a
net loss of $26 million in the same period of 2008.
During the three-month period ended June 30, 2009, AIGFP
incurred an additional charge of $198 million related to a
transaction entered into in 2002 whereby AIGFP guaranteed
obligations under leases of office space from a counterparty.
AIGFP increased its reserve from $158 million as of
March 31, 2009 to $356 million as of June 30,
2009.
150
American International Group, Inc.
and Subsidiaries
The following table presents AIGFPs credit valuation
adjustment gains (losses) (excluding intercompany
transactions):
|
|
|
|
|
|
|
|
|
|
|
Counterparty Credit
|
|
|
AIGs Own Credit
|
|
Valuation Adjustment on Assets
|
|
|
Valuation Adjustment on Liabilities
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Bond trading securities
|
|
$
|
869
|
|
|
Notes and bonds payable
|
|
$
|
(397
|
)
|
Loans and other assets
|
|
|
(14
|
)
|
|
Hybrid financial instrument liabilities
|
|
|
(293
|
)
|
Derivative assets
|
|
|
361
|
|
|
GIAs
|
|
|
(132
|
)
|
|
|
|
|
|
|
Other liabilities
|
|
|
(47
|
)
|
|
|
|
|
|
|
Derivative liabilities*
|
|
|
(384
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Increase in assets
|
|
$
|
1,216
|
|
|
Increase in liabilities
|
|
$
|
(1,253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax decrease to other income
|
|
$
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
Bond trading securities
|
|
$
|
(503
|
)
|
|
Notes and bonds payable
|
|
$
|
(79
|
)
|
Loans and other assets
|
|
|
(4
|
)
|
|
Hybrid financial instrument liabilities
|
|
|
(47
|
)
|
Derivative assets
|
|
|
145
|
|
|
GIAs
|
|
|
(84
|
)
|
|
|
|
|
|
|
Other liabilities
|
|
|
(2
|
)
|
|
|
|
|
|
|
Derivative liabilities*
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in assets
|
|
$
|
(362
|
)
|
|
Increase in liabilities
|
|
$
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax decrease to other income
|
|
$
|
(474
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes super senior credit default swap portfolio. |
AIGFPs operating loss in the three-month period ended
June 30, 2009 includes a loss of $37 million
representing the effect of changes in credit spreads on the
valuation of AIGFPs assets and liabilities, including
$17 million of losses reflected in the unrealized market
valuation gain on super senior credit default swaps. The loss in
the second quarter of 2009 was primarily the result of the
narrowing in credit spreads since March 31, 2009, including
AIGs credit spreads.
The operating loss for the three-month period ended
June 30, 2008 included a net credit valuation adjustment
loss of $474 million, and reflected $44 million of gains
included in unrealized market valuation loss on super senior
credit default swaps. Credit valuation adjustment losses of
$362 million on AIGFP assets were primarily due to the
widening of credit spreads on CDOs and ABS products, which
represented a significant portion of AIGFPs investment
portfolio. Credit spreads on the ABS and CDO investments widened
significantly more than the widening in AIGs credit
spreads. Furthermore, while AIGs credit spreads widened
during the second quarter of 2008, the credit valuation
adjustment on its liabilities decreased due to a decline in
AIGFPs outstanding debt obligations and the shortened
maturity of its liabilities.
Included in AIGFPs financial results for the second
quarter of 2009 is $702 million of interest charges on
intercompany borrowings with AIG that are eliminated in
consolidation.
Historically, the most significant component of Capital Markets
operating expenses was compensation, which was approximately
$155 million, or 77 percent of operating expense in
the three-month period ended June 30, 2008. For the
three-month period ended June 30, 2009, however,
compensation expense was approximately $23 million, or only
19 percent of operating expenses. In addition, AIGFP
recognized $43 million in expenses related to pre-existing
retention plans that were reported as part of restructuring
expenses.
151
American International Group, Inc.
and Subsidiaries
Year-to-Date
Capital Markets Results
AIGFPs operating loss decreased in the six-month period
ended June 30, 2009 compared to the same period in 2008
primarily related to a reduced valuation loss on its super
senior multi-sector CDO credit default swap portfolio and the
positive effect related to credit spreads on the valuation of
its assets and liabilities. AIGFPs results reflect the
effects of its wind-down activities.
AIGFP recognized an unrealized market valuation gain of
$184 million in the six-month period ended June 30,
2009 compared to an unrealized market valuation loss of
$14.7 billion in 2008, representing the change in fair
value of its super senior credit default swap portfolio. The
principal components of the valuation losses recognized were as
follows:
|
|
|
|
|
AIGFP recognized an unrealized market valuation loss of
$1.1 billion in the first six-months of 2009 with respect
to CDS transactions written on multi-sector CDOs, compared to
$13.6 billion for the same period in 2008. The decrease in
the unrealized market valuation loss on this portfolio was
largely due to the substantial decline in outstanding net
notional amount resulting from the termination of CDS contracts
in the fourth quarter of 2008 in connection with the ML III
transaction.
|
|
|
|
AIGFP recognized an unrealized market valuation gain of
$1.2 billion in the first six-months of 2009 with respect
to CDS transactions in the corporate arbitrage portfolio,
compared to an unrealized market valuation loss of
$770 million for the same period in 2008. During the first
six-months of 2009, the valuation of these contracts benefited
from the narrowing of corporate credit spreads, while these
spreads widened during the same period in 2008.
|
See Critical Accounting Estimates Level 3
Assets and Liabilities Valuation of Level 3
Assets and Liabilities for a discussion of AIGFPs super
senior credit default swap portfolio.
During the six-month period ended June 30, 2009, AIGFP
recognized a loss of $119 million on credit default swap
contracts referencing single-name exposures written on
corporate, index and asset-backed credits which are not included
in the super senior credit default swap portfolio, compared to a
net loss of $83 million in the same period of 2008.
152
American International Group, Inc.
and Subsidiaries
The following table presents AIGFPs credit valuation
adjustment gains (losses) (excluding intercompany
transactions):
|
|
|
|
|
|
|
|
|
|
|
Counterparty Credit
|
|
|
AIGs Own Credit
|
|
Valuation Adjustment on Assets
|
|
|
Valuation Adjustment on Liabilities
|
|
(In millions)
|
|
|
Six Months Ended June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Bond trading securities
|
|
$
|
(262
|
)
|
|
Notes and bonds payable
|
|
$
|
247
|
|
Loans and other assets
|
|
|
(62
|
)
|
|
Hybrid financial instrument liabilities
|
|
|
311
|
|
Derivative assets
|
|
|
802
|
|
|
GIAs
|
|
|
319
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
57
|
|
|
|
|
|
|
|
Derivative liabilities*
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in assets
|
|
$
|
478
|
|
|
Decrease in liabilities
|
|
$
|
1,272
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax increase to other income
|
|
$
|
1,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
Bond trading securities
|
|
$
|
(2,651
|
)
|
|
Notes and bonds payable
|
|
$
|
182
|
|
Loans and other assets
|
|
|
(28
|
)
|
|
Hybrid financial instrument liabilities
|
|
|
615
|
|
Derivative assets
|
|
|
(303
|
)
|
|
GIAs
|
|
|
1,072
|
|
|
|
|
|
|
|
Other liabilities
|
|
|
28
|
|
|
|
|
|
|
|
Derivative liabilities*
|
|
|
639
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in assets
|
|
$
|
(2,982
|
)
|
|
Decrease in liabilities
|
|
$
|
2,536
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pre-tax decrease to other income
|
|
$
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Includes super senior credit default swap portfolio. |
AIGFPs operating loss in the six-month period ended
June 30, 2009 includes a gain of $1.8 billion
representing the effect of changes in credit spreads on the
valuation of AIGFPs assets and liabilities, including
$89 million of gains reflected in the unrealized market
valuation gain on super senior credit default swaps. The gain in
the six-month period ended June 30, 2009 was primarily the
result of significant widening in AIGs credit spreads
since December 31, 2008 and the continued widening of
spreads on asset-backed securities and CDOs, which represent a
significant segment of AIGFPs investment portfolio.
For the six-month period ended June 30, 2008 AIGFPs
operating loss included a credit valuation adjustment loss of
$446 million representing the effect of changes in credit
spreads on the valuation of AIGFPs assets and liabilities,
including $109 million of credit valuation adjustment gains
reflected in the unrealized market valuation loss on super
senior credit default swaps. Included in the six-month period
ended June 30, 2008 net operating loss is the
transition amount of $291 million related to the adoption
of FAS 157 and FAS 159, as well as a credit valuation
adjustment gain of $193 million for derivatives AIGFP
entered into with other AIG entities, which is eliminated in
consolidation.
Included in AIGFPs financial results for the six-month
period ended June 30, 2009 is $1.6 billion of interest
charges on intercompany borrowings with AIG that are eliminated
in consolidation.
Historically, the most significant component of Capital Markets
operating expenses was compensation, which was approximately
$298 million, or 77 percent of operating expense in
the first six months of 2008. For the six-month period ended
June 30, 2009, however, compensation expense was
approximately $50 million, or only 18 percent of
operating expenses. In addition, AIGFP recognized
$87 million in expenses related to pre-existing retention
plans that were reported as part of restructuring expenses.
153
American International Group, Inc.
and Subsidiaries
Asset
Management Operations
AIGs Asset Management operations comprise a wide variety
of investment-related services and investment products. These
services and products are offered to individuals, pension funds
and institutions (including AIG subsidiaries) globally through
AIGs Spread-Based Investment business, Institutional Asset
Management, and Brokerage Services and Mutual Funds businesses.
Also included in Asset Management operations are the results of
certain SunAmerica sponsored partnership investments.
The revenues and operating income (loss) for this segment are
affected by the general conditions in the equity and credit
markets. In addition, net realized gains and carried interest
are contingent upon investment maturity levels and market
conditions. In the Institutional Asset Management business,
carried interest, computed in accordance with each funds
governing agreement, is based on the investments
performance over the life of each fund. Unrealized carried
interest is recognized based on each funds performance as
of the balance sheet date. Future fund performance may
negatively affect previously recognized carried interest.
AIG has offered for sale its Institutional Asset Management
businesses excluding those investment services providing
traditional fixed income and shorter duration asset and
liability management for AIGs insurance company
subsidiaries as well as proprietary real estate and private
equity investments. AIG expects to continue relationships with
any divested businesses for other investment management services
used by those insurance company subsidiaries.
See the 2008
Form 10-K
for a further description of the Asset Management businesses.
Asset
Management Results
Asset
Management results were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Percentage
|
|
|
Six Months Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase/
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread-Based Investment business
|
|
$
|
586
|
|
|
$
|
2
|
|
|
|
|
%
|
|
$
|
471
|
|
|
$
|
(807
|
)
|
|
|
|
%
|
Institutional Asset Management
|
|
|
(222
|
)
|
|
|
687
|
|
|
|
|
|
|
|
110
|
|
|
|
1,211
|
|
|
|
(91
|
)
|
Brokerage Services and Mutual Funds
|
|
|
49
|
|
|
|
74
|
|
|
|
(34
|
)
|
|
|
95
|
|
|
|
148
|
|
|
|
(36
|
)
|
Other Asset Management
|
|
|
39
|
|
|
|
34
|
|
|
|
15
|
|
|
|
75
|
|
|
|
96
|
|
|
|
(22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
452
|
|
|
$
|
797
|
|
|
|
(43
|
)%
|
|
$
|
751
|
|
|
$
|
648
|
|
|
|
16
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spread-Based Investment business
|
|
$
|
386
|
|
|
$
|
(420
|
)
|
|
|
|
%
|
|
$
|
27
|
|
|
$
|
(1,671
|
)
|
|
|
|
%
|
Institutional Asset Management
|
|
|
(637
|
)
|
|
|
58
|
|
|
|
|
|
|
|
(947
|
)
|
|
|
(20
|
)
|
|
|
|
|
Brokerage Services and Mutual Funds
|
|
|
(10
|
)
|
|
|
17
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
36
|
|
|
|
|
|
Other Asset Management
|
|
|
39
|
|
|
|
31
|
|
|
|
26
|
|
|
|
75
|
|
|
|
90
|
|
|
|
(17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(222
|
)
|
|
$
|
(314
|
)
|
|
|
|
%
|
|
$
|
(855
|
)
|
|
$
|
(1,565
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Management recognized significantly lower operating losses
in the three and six months ended June 30, 2009 compared to
the same periods in 2008, due to lower
other-than-temporary
impairments on fixed maturity investments, foreign exchange and
interest rate gains on derivatives not qualifying for hedge
accounting and a $72 million gain on the sale of AIG
Private Bank. Offsetting these improvements were higher losses
on equity method investments in real estate joint ventures
impairments on proprietary real estate investments and lower
base management fees.
Other-than-temporary
impairments declined significantly in the three and six months
ended June 30, 2009 primarily due to a change in the
recognition of impairment losses resulting from the adoption of
FSP
FAS 115-2.
See Investments Portfolio
Review
Other-Than-Temporary
Impairments.
154
American International Group, Inc.
and Subsidiaries
Restructuring-related expenses during the three and six months
ended June 30, 2009 for the Asset Management segment were
$10 million and $25 million, respectively.
Quarterly
Spread-Based Investment Business Results
The Spread-Based Investment business reported operating income
in the three-month period ended June 30, 2009 compared to
an operating loss in the same period in 2008 due to
significantly lower
other-than-temporary
impairments on fixed maturity investments, net fair value gains
on short credit default swap positions due to narrowing credit
spreads, net realized gains on foreign exchange and interest
rate derivatives not qualifying for hedge accounting and lower
funding costs in the GIC business. These improvements were
partially offset by net unrealized losses due to foreign
exchange movements on foreign currency denominated GIC
liabilities and a decline in income from partnership investments
held in the GIC portfolio.
AIG enters into derivative arrangements to hedge the effect of
changes in currency and interest rates associated with the fixed
and floating rate and foreign currency denominated obligations
issued under these programs. Some of these hedging relationships
do not qualify for hedge accounting treatment and therefore
create volatility in operating results despite being effective
economic hedges.
Year-to-Date
Spread-Based Investment Business Results
The Spread-Based Investment business reported operating income
in the six-month period ended June 30, 2009 compared to an
operating loss in the same period in 2008 due to significantly
lower
other-than-temporary
impairments on fixed maturity investments, net realized gains on
short credit default swap positions due to narrowing credit
spreads, net fair value gains on foreign exchange and interest
rate derivatives not qualifying for hedge accounting and lower
losses driven by foreign exchange movements on foreign currency
denominated GIC liabilities. These improvements were partially
offset by a decline in income from partnership investments held
in the GIC portfolio.
The GIC program is in runoff with no new GICs issued
subsequent to 2005. The anticipated runoff of the domestic GIC
portfolio was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
of 2009
|
|
2010-2012
|
|
2013-2014
|
|
Thereafter
|
|
Total
|
|
|
(In billions)
|
|
Domestic GICs
|
|
$
|
2.1
|
|
|
$
|
2.7
|
|
|
$
|
2.5
|
|
|
$
|
3.6
|
|
|
$
|
10.9
|
|
Contractual maturities of debt issued under the MIP was as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder
|
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
of 2009
|
|
2010-2012
|
|
2013-2014
|
|
Thereafter
|
|
Total
|
|
|
(In billions)
|
|
MIP liabilities
|
|
$
|
|
|
|
$
|
7.5
|
|
|
$
|
1.2
|
|
|
$
|
4.4
|
|
|
$
|
13.1
|
|
The GIC and MIP both invest in various fixed income asset
classes which include corporate debt, both public and private,
and structured fixed income products consisting of residential
mortgage-backed securities (RMBS), commercial mortgage-backed
securities (CMBS) and CDOs. The majority of these investments
are currently rated investment grade. In addition, the GIC and
the MIP invests in bank loans, commercial mortgage loans and
single name credit default swaps. The GIC invests in limited
partnership (or equivalent) interests in private equity and
hedge funds, however the MIP does not.
Quarterly
Institutional Asset Management Results
Institutional Asset Management recognized an operating loss in
the three-month period ended June 30, 2009 compared to
operating income in the same period in 2008, primarily resulting
from losses on equity method investments in real estate joint
ventures, impairments of proprietary real estate investments,
lower base management fees and net realized capital losses
primarily related to credit default swaps. The operating loss
was partially offset by a $72 million gain on the sale of
AIG Private Bank.
155
American International Group, Inc.
and Subsidiaries
Real estate impairments continue within the direct investment
portfolio as well as through real estate joint ventures as the
global credit crisis has continued to put pressure on real
estate values, occupancy rates and leasing. This downward
pressure has caused impairments across the portfolio.
Base management fees have declined from prior year periods due
to lower average assets under management. The lower average
asset base is a function of reduced asset values and client
loss, which primarily occurred in the second half of 2008 and
has since abated.
Year-to-Date
Institutional Asset Management Results
Institutional Asset Management recognized an increased operating
loss in the six-month period ended June 30, 2009 compared
to the same period in 2008, primarily resulting from losses on
equity method investments in real estate joint ventures,
impairments of proprietary real estate investments, lower base
management fees and lower carried interest revenues. The
operating loss was partially offset by a $72 million gain
on the sale of AIG Private Bank. The drivers for the increase in
real estate impairments and reduced management fees are similar
to the results drivers for the three months ended June 30,
2009 and 2008. In addition, during the six months ended
June 30, 2009, unrealized carried interest revenues have
declined as compared to the prior year period due to a decline
in portfolio asset valuations. Unrealized carried interest
revenues are impacted by asset valuation changes within the
managed portfolio and typically move in tandem with the level of
assets under management and related base management fees.
Real estate impairments continue within the direct investment
portfolio as well as through real estate joint ventures as the
global credit crisis has continued to put pressure on real
estate values, occupancy rates and leasing. This downward
pressure has caused impairments across the portfolio.
AIGs unaffiliated client assets under management,
including retail mutual funds and institutional accounts, were
$64.0 billion, $68.9 billion and $92.8 billion at
June 30, 2009, December 31, 2008 and June 30,
2008, respectively. The decline from December 31, 2008 and
June 30, 2008 reflects lower asset values due to the
significant deterioration in the credit and equity markets
during 2008 as well as the effect of net client outflows.
Brokerage
Services and Mutual Funds
Revenues and operating income related to Brokerage Services and
Mutual Fund activities decreased in the three- and six-month
periods ended June 30, 2009 from the same periods in 2008
due to lower fee income as a result of a lower asset base and a
decline in commission income resulting from difficult market
conditions.
Other
Asset Management Results
Revenues and operating income related to Other Asset Management
activities increased in the three-month period ended
June 30, 2009 from the same period in 2008, due to higher
partnership income. Revenues and operating income related to
Other Asset Management activities decreased in the six-month
period ended June 30, 2009 from the same period in 2008,
due to lower partnership income driven by weaker market
conditions.
Other
Operations
AIGs Other operations include interest expense,
restructuring costs, expenses of corporate staff not
attributable to specific business segments, expenses related to
efforts to improve internal controls, corporate initiatives and
certain compensation plan expenses.
Additionally, beginning in the second quarter of 2009, in order
to better align financial reporting with the manner in which
AIGs chief operating decision makers manage their
businesses, the results for Mortgage Guaranty, Transatlantic,
Personal Lines (excluding Private Client Group) and HSB are now
included in AIGs Other operations. These amounts were
previously reported as part of General Insurance operations.
Prior period amounts have been revised to conform to the current
presentation.
156
American International Group, Inc.
and Subsidiaries
Other
Results
The operating income of AIGs Other category was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Percentage
|
|
|
Six Months Ended
|
|
|
Percentage
|
|
|
|
June 30,
|
|
|
Increase/
|
|
|
June 30,
|
|
|
Increase/
|
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
2009
|
|
|
2008
|
|
|
(Decrease)
|
|
|
|
(In millions)
|
|
|
Parent company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from equity method investments, net of dividends or
distributions
|
|
$
|
(5
|
)
|
|
$
|
8
|
|
|
|
|
%
|
|
$
|
(32
|
)
|
|
$
|
16
|
|
|
|
|
%
|
Interest income
|
|
|
748
|
|
|
|
68
|
|
|
|
|
|
|
|
1,724
|
|
|
|
90
|
|
|
|
|
|
Interest expense on Federal Reserve Bank of New York credit
facility
|
|
|
(1,374
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,904
|
)
|
|
|
|
|
|
|
|
|
Other interest expense
|
|
|
(547
|
)
|
|
|
(452
|
)
|
|
|
|
|
|
|
(1,093
|
)
|
|
|
(820
|
)
|
|
|
|
|
Unallocated corporate expenses
|
|
|
(356
|
)
|
|
|
(350
|
)
|
|
|
|
|
|
|
(419
|
)
|
|
|
(465
|
)
|
|
|
|
|
Restructuring expenses
|
|
|
(130
|
)
|
|
|
|
|
|
|
|
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
|
Change in fair value of ML III
|
|
|
539
|
|
|
|
|
|
|
|
|
|
|
|
(1,401
|
)
|
|
|
|
|
|
|
|
|
Net realized capital gains (losses)
|
|
|
(387
|
)
|
|
|
30
|
|
|
|
|
|
|
|
596
|
|
|
|
(235
|
)
|
|
|
|
|
Other miscellaneous, net
|
|
|
86
|
|
|
|
(19
|
)
|
|
|
|
|
|
|
254
|
|
|
|
(69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Parent company
|
|
|
(1,426
|
)
|
|
|
(715
|
)
|
|
|
|
%
|
|
|
(3,523
|
)
|
|
|
(1,483
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncore businesses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Guaranty
|
|
|
(488
|
)
|
|
|
(518
|
)
|
|
|
|
%
|
|
|
(968
|
)
|
|
|
(872
|
)
|
|
|
|
%
|
Change in fair value of ML III
|
|
|
462
|
|
|
|
|
|
|
|
|
|
|
|
462
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
115
|
|
|
|
133
|
|
|
|
(14
|
)
|
|
|
220
|
|
|
|
309
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total noncore businesses
|
|
|
89
|
|
|
|
(385
|
)
|
|
|
|
%
|
|
|
(286
|
)
|
|
|
(563
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other operations
|
|
$
|
(1,337
|
)
|
|
$
|
(1,100
|
)
|
|
|
|
%
|
|
$
|
(3,809
|
)
|
|
$
|
(2,046
|
)
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
Company
Parent company operating loss in the three months ended
June 30, 2009 increased compared to the same period in 2008
primarily due to interest expense on the FRBNY Facility, net
realized capital losses primarily arising from asset
dispositions, and restructuring expenses. These were partially
offset by interest income on intercompany loans, which are
eliminated in consolidation, and a gain associated with the
change in fair value of AIGs equity interest in ML III.
Parent company contributed its equity interest in ML III to an
AIG subsidiary, reported above in Noncore businesses, during the
second quarter of 2009.
Parent company operating loss in the six months ended
June 30, 2009 increased compared to the same period in 2008
primarily due to interest expense on the FRBNY Facility, losses
associated with the change in fair value of AIGs equity
interest in ML III, and restructuring expenses. These were
partially offset by interest income on intercompany loans and
realized capital gains primarily arising from foreign currency
gains in the first quarter of 2009 from hedging activities that
did not qualify for hedge accounting. Also included in both the
three- and six-month periods ended June 30, 2009 was an
addition of $225 million to litigation reserves.
Noncore
businesses
Mortgage
Guaranty
The main business of the subsidiaries of UGC is the issuance of
residential mortgage guaranty insurance, both domestically and
internationally, that covers the first loss for credit defaults
on high
loan-to-value
conventional first-lien mortgages for the purchase or refinance
of one- to four-family residences.
Mortgage Guarantys operating loss decreased for the
three-month period ended June 30, 2009 compared to the same
period in 2008 due to lower loss and loss adjustment expenses in
domestic first- and second-liens offset by
157
American International Group, Inc.
and Subsidiaries
higher losses and loss adjustment expenses in international. The
domestic first-lien operating loss for the three-month period
ended June 30, 2009 decreased $12 million from the
same period in 2008 to $239 million while the second-lien
three month June 30, 2009 operating loss of
$166 million decreased $105 million compared to the
same period in 2008. The decline in first-lien operating loss
reflects the recognition of a $148 million benefit due to
stop loss limits on certain first-lien pool business. These
results were partially offset by the increased operating loss in
international for the three-month period ended June 30,
2009 of $69 million which is $65 million higher than
the same period in 2008.
During 2008, UGC tightened underwriting guidelines and increased
premium rates for its first-lien business, ceased insuring
second-lien business as of September 30, 2008 and during
the fourth quarter of 2008 ceased insuring new private student
loan business and suspended insuring new business throughout its
European operations. All of these actions were in response to
the worsening conditions in the global housing markets and
resulted in a significant decline in new business written during
the second half of 2008 and the first six months of 2009.
UGCs domestic mortgage risk in force totaled
$29.4 billion as of June 30, 2009 and the
60+-day
delinquency ratio was 9.9 percent (based on number of
policies, consistent with mortgage industry practice) compared
to domestic mortgage risk in force of $31.8 billion and a
delinquency ratio of 4.9 percent at June 30, 2008.
Approximately 85 percent of the domestic mortgage risk is
secured by first-lien, owner-occupied properties.
The second-lien risk in force at June 30, 2009 totaled
$2.7 billion compared to $3.5 billion of risk in force
at June 30, 2008. Risk in force represents the full amount
of second-lien loans insured reduced for contractual aggregate
loss limits on certain pools of loans, usually 10 percent
of the full amount of loans insured in each pool. Certain
second-lien pools have reinstatement provisions. Mortgage
Guarantys loss projections include expected losses of
$230 million related to reinstatement layers with
approximately $1 billion of risk in force exposure for
pools that have already or are expected to reach the stop loss.
Mortgage Guarantys operating loss for the six-month period
ended June 30, 2009 increased compared to the same period
in 2008. The increased operating loss reflects increased loss
and loss adjustment expenses of $285 million offset by a
release of $222 million of premium deficiency reserve in
the first quarter of 2009. Domestic first-lien and international
business operating losses of $643 million and
$94 million respectively for the six-month period ended
June 30, 2009 were $227 million and $83 million
higher respectively during the same period in 2008. Domestic
second-lien business reported an operating loss of
$203 million for the six-month period ended June 30,
2009 which was $259 million lower than the same period in
2008 reflecting the release of the premium deficiency reserve in
the first quarter of 2009.
Other noncore businesses consist of the following:
Transatlantic
Transatlantic offers reinsurance capacity on both a treaty and
facultative basis both in the U.S. and abroad.
Transatlantic structures programs for a full range of property
and casualty products with an emphasis on specialty risk.
On June 10, 2009, AIG closed the previously announced
public offering of 29.9 million shares of Transatlantic
common stock owned directly and indirectly by AIG for aggregate
gross proceeds of $1.1 billion. At the close of the public
offering, AIG indirectly retained 13.9 percent of the
Transatlantic common stock issued and outstanding. As a result,
AIG deconsolidated Transatlantic, which resulted in a
$1.4 billion reduction in Noncontrolling interest, a
component of Total equity. Operating income for the three- and
six-month periods ended June 30, 2009 include a loss of
$217 million related to the deconsolidation of
Transatlantic.
21st
Century
On July 1, 2009, AIG closed the sale of 21st Century
Insurance Group and the Agency Auto Division (excluding AIG
Private Client Group). Operating income for the three- and
six-month periods ended June 30, 2009 include a loss of
$471 million related to the sale of 21st Century.
158
American International Group, Inc.
and Subsidiaries
HSB
On March 31, 2009, AIG closed the sale of HSB, the parent
company of the Hartford Steam Boiler Inspection and Insurance
Company, to Munich Re Group. Operating income for the six-month
period ended June 30, 2009 includes a gain of
$251 million related to the sale of HSB.
Critical
Accounting Estimates
The preparation of financial statements in conformity with GAAP
requires the application of accounting policies that often
involve a significant degree of judgment. AIG considers that its
accounting policies that are most dependent on the application
of estimates and assumptions, and therefore viewed as critical
accounting estimates, to be those relating to items considered
by management in the determination of
|
|
|
|
|
AIGs ability to continue as a going concern,
|
|
|
|
liability for general insurance unpaid claims and claims
adjustment expenses,
|
|
|
|
future policy benefits for life and accident and health
contracts,
|
|
|
|
recoverability of DAC, estimated gross profits for
investment-oriented products,
|
|
|
|
the allowance for finance receivable losses,
|
|
|
|
flight equipment recoverability,
|
|
|
|
other-than-temporary
impairments,
|
|
|
|
goodwill impairment,
|
|
|
|
estimates with respect to income taxes, and
|
|
|
|
fair value measurements of certain financial assets and
liabilities, including credit default swaps and AIGs
economic interest in ML II and equity interest in ML III (Maiden
Lane Interests).
|
These accounting estimates require the use of assumptions about
matters, some of which are highly uncertain at the time of
estimation. To the extent actual experience differs from the
assumptions used, AIGs results of operations would be
directly affected.
The major categories for which assumptions are developed and
used to establish each critical accounting estimate are
highlighted below.
AIGs
Ability to Continue as a Going Concern
When assessing AIGs ability to continue as a going
concern, management must make judgments and estimates about the
following:
|
|
|
|
|
the marketability of assets to be disposed of and the timing and
amount of related cash proceeds to be used to repay indebtedness;
|
|
|
|
the planned sales of significant subsidiaries;
|
|
|
|
plans to raise new funds or restructure debt;
|
|
|
|
projections of future profitability and the timing and amount of
cash flows from operating activities;
|
|
|
|
the funding needs of regulated subsidiaries;
|
|
|
|
AIGs ability to comply with debt covenants;
|
|
|
|
plans to reduce expenditures;
|
|
|
|
the effects of ratings agency actions on collateral requirements
and other contractual conditions; and
|
|
|
|
the future regulatory, business, credit, and competitive
environments in which AIG operates around the world.
|
159
American International Group, Inc.
and Subsidiaries
These factors, individually and collectively, will have a
significant effect on AIGs ability to generate sufficient
cash to repay indebtedness as it becomes due and profitably
operate its businesses as it executes its restructuring
initiatives.
|
|
|
|
|
Liability for Unpaid Claims and Claims Adjustment Expenses
(General Insurance):
|
|
|
|
|
|
Loss trend factors: used to establish expected
loss ratios for subsequent accident years based on premium rate
adequacy and the projected loss ratio with respect to prior
accident years.
|
|
|
|
Expected loss ratios for the latest accident
year: in this case, accident year 2009 for the
year-end 2009 loss reserve analysis. For low-frequency,
high-severity classes such as excess casualty, expected loss
ratios generally are utilized for at least the three most recent
accident years.
|
|
|
|
Loss development factors: used to project the
reported losses for each accident year to an ultimate amount.
|
|
|
|
Reinsurance recoverable on unpaid losses: the
expected recoveries from reinsurers on losses that have not yet
been reported
and/or
settled.
|
For discussion of sensitivity analysis on the reserve for unpaid
claims and claims adjustment expenses, see Results of
Operations Segment Results General
Insurance Operations Liability for Unpaid Claims and
Claims Adjustment Expense.
|
|
|
|
|
Future Policy Benefits for Life and Accident and Health
Contracts (Life Insurance & Retirement Services):
|
|
|
|
|
|
Interest rates: which vary by geographical
region, year of issuance and products.
|
|
|
|
Mortality, morbidity and surrender
rates: based upon actual experience by
geographical region modified to allow for variation in policy
form, risk classification and distribution channel.
|
Periodically, the net benefit reserves (policy benefit reserves
less DAC) established for Life Insurance & Retirement
Services companies are tested to ensure that, including
consideration of future expected premium payments, they are
adequate to provide for future policyholder benefit obligations.
The assumptions used to perform the tests are current
best-estimate assumptions as to policyholder mortality,
morbidity, terminations, company maintenance expenses and
invested asset returns. For long duration traditional business,
a lock-in principle applies, whereby the assumptions
used to calculate the benefit reserves and DAC are set when a
policy is issued and do not change with changes in actual
experience. These assumptions include margins for adverse
deviation in the event that actual experience might deviate from
these assumptions. For business in force outside of North
America, 52 percent of total policyholder benefit
liabilities at June 30, 2009 resulted from traditional
business where the lock-in principle applies. In most foreign
locations, various guarantees are embedded in policies in force
that may remain applicable for many decades into the future.
As experience changes over time, the best-estimate assumptions
are updated to reflect observed changes. Because of the
long-term nature of many of AIGs liabilities subject to
the lock-in principle, small changes in certain of the
assumptions may cause large changes in the degree of reserve
adequacy. In particular, changes in estimates of future invested
asset return assumptions have a large effect on the degree of
reserve adequacy.
|
|
|
|
|
Deferred Policy Acquisition Costs (Life Insurance &
Retirement Services):
|
|
|
|
|
|
Recoverability: based on current and future
expected profitability, which is affected by interest rates,
foreign exchange rates, mortality/morbidity experience,
expenses, investment returns and policy persistency.
|
|
|
|
|
|
Deferred Policy Acquisition Costs (General Insurance):
|
|
|
|
|
|
Recoverability: based upon the current terms
and profitability of the underlying insurance contracts.
|
|
|
|
|
|
Estimated Gross Profits for Investment-Oriented Products (Life
Insurance & Retirement Services):
|
|
|
|
|
|
Estimated gross profits: to be realized over
the estimated duration of the contracts (investment-oriented
products), which affect the carrying value of DAC, unearned
revenue liability, SIAs and associated
|
160
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
amortization patterns. Estimated gross profits include
investment income and gains and losses on investments less
required interest, actual mortality and other expenses.
|
|
|
|
|
|
Allowance for Finance Receivable Losses (Financial Services):
|
|
|
|
|
|
Historical defaults and delinquency
experience: utilizing factors, such as
delinquency ratio, allowance ratio, charge-off ratio and
charge-off coverage.
|
|
|
|
Portfolio characteristics: portfolio
composition and consideration of the recent changes to
underwriting criteria and portfolio seasoning.
|
|
|
|
External factors: consideration of current
economic conditions, including levels of unemployment and
personal bankruptcies.
|
|
|
|
Migration analysis: empirical technique
measuring historical movement of similar finance receivables
through various levels of repayment, delinquency, and loss
categories to existing finance receivable pools.
|
|
|
|
|
|
Flight Equipment Recoverability (Financial Services):
|
|
|
|
|
|
Expected undiscounted future net cash
flows: based upon current lease rates, projected
future lease rates and estimated terminal values of each
aircraft based on expectations of market participants.
|
|
|
|
|
|
Other-Than-Temporary
Impairments:
|
At each balance sheet date, AIG evaluates its available for sale
securities holdings with unrealized losses. Prior to
April 1, 2009, these reviews were conducted pursuant to FSP
FAS 115-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments. See
AIGs Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 for a discussion of
AIGs process for evaluating
other-than-temporary
impairments prior to the adoption of FSP
FAS 115-2.
In April 2009, the Financial Accounting Standards Board issued
FSP
FAS 115-2
and
FAS 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments, (FSP
FAS 115-2),
which amends the
other-than-temporary
impairment model for fixed maturity securities and requires
additional disclosures. The impairment model for equity
securities was not affected. See Note 1 to the Consolidated
Financial Statements for additional discussion on the FSP
FAS 115-2.
In connection with AIGs adoption of FSP
FAS 115-2
on April 1, 2009, AIG changed its process for determining
other-than-temporary
impairments with respect to available for sale fixed maturity
securities. If AIG intends to sell a fixed maturity security or
it is more likely than not that AIG will be required to sell a
fixed maturity security before recovery of its amortized cost
basis and the fair value of the security is below amortized
cost, an
other-than-temporary
impairment has occurred and the amortized cost is written down
to current fair value, with a corresponding charge to earnings.
For all other fixed maturity securities for which a credit
impairment has occurred, the amortized cost is written down to
the estimated recovery value with a corresponding charge to
earnings. Additional fair value decline below recovery value, if
any, is charged to unrealized appreciation (depreciation) of
fixed maturity investments on which
other-than-temporary
credit impairments were taken (a component of accumulated other
comprehensive income (loss)) because this is considered a
non-credit impairment.
When assessing AIGs intent to sell a fixed maturity
security, or if it is more likely than not that AIG will be
required to sell a fixed maturity security before recovery of
its amortized cost basis, management evaluates relevant facts
and circumstances including, but not limited to, decisions to
reposition AIGs investment portfolio, sale of securities
to meet cash flow needs and sales of securities to capitalize on
favorable pricing.
See the discussion in Note 5 for additional information on
the methodology and significant inputs, by security type, which
AIG uses to determine the amount of a credit loss.
161
American International Group, Inc.
and Subsidiaries
AIG continues to evaluate its available for sale equity
securities, equity method and cost method investments for
impairment such that a security is considered a candidate for
other-than-temporary
impairment if it meets any of the following criteria:
|
|
|
|
|
Trading at a significant (25 percent or more) discount to
cost for an extended period of time (nine consecutive months or
longer);
|
|
|
|
The occurrence of a discrete credit event resulting in
(i) the issuer defaulting on a material outstanding
obligation; (ii) the issuer seeking protection from
creditors under the bankruptcy laws or any similar laws intended
for court supervised reorganization of insolvent enterprises; or
(iii) the issuer proposing a voluntary reorganization
pursuant to which creditors are asked to exchange their claims
for cash or securities having a fair value substantially lower
than par value of their claims; or
|
|
|
|
AIG may not realize a full recovery on its investment,
regardless of the occurrence of one of the foregoing events.
|
The determination that an equity security is
other-than-temporarily
impaired requires the judgment of management and consideration
of the fundamental condition of the issuer, its near-term
prospects and all the relevant facts and circumstances. The
above criteria also consider circumstances of a rapid and severe
market valuation decline, such as that experienced in current
credit markets, in which AIG could not reasonably assert that
the impairment period would be temporary (severity losses).
For further discussion, see Note 5 Investments
Other-Than-Temporary
Impairments.
In periods subsequent to the recognition of an
other-than-temporary
impairment charge for available for sale fixed maturity
securities that is not foreign exchange related, AIG generally
prospectively accretes into income the difference between the
new amortized cost and the expected undiscounted recovery value
over the remaining expected holding period of the security.
Goodwill is the excess of the cost of an acquired business over
the fair value of the identifiable net assets of the acquired
business. Goodwill is tested for impairment annually or more
frequently if circumstances indicate impairment may have
occurred. AIG performed goodwill impairment testing at
June 30, 2009.
The impairment assessment involves a two-step process in which
an initial assessment for potential impairment is performed and,
if potential impairment is present, the amount of impairment is
measured (if any) and recorded. Impairment is tested at the
reporting unit level.
Management initially assesses the potential for impairment by
estimating the fair value of each of AIGs reporting units
and comparing the estimated fair values with the carrying
amounts of those reporting units, including allocated goodwill.
The estimate of a reporting units fair value may be based
on one or a combination of approaches including market-based
earning multiples of the units peer companies, discounted
expected future cash flows, external appraisals or, in the case
of reporting units being considered for sale, third-party
indications of fair value, if available. Management considers
one or more of these estimates when determining the fair value
of a reporting unit to be used in the impairment test. As part
of the impairment test, management compares the sum of the
estimated fair values of all AIGs reporting units with
AIGs fully diluted common stock market capitalization as a
basis for concluding on the reasonableness of the estimated
reporting unit fair values.
If the estimated fair value of a reporting unit exceeds its
carrying value, goodwill is not impaired. If the carrying value
of a reporting unit exceeds its estimated fair value, goodwill
associated with that reporting unit potentially is impaired. The
amount of impairment, if any, is measured as the excess of the
carrying value of goodwill over the estimated fair value of the
goodwill. The estimated fair value of the goodwill is measured
as the excess of the fair value of the reporting unit over the
amounts that would be assigned to the reporting units
assets and liabilities in a hypothetical business combination.
An impairment charge is recognized in income to the extent of
the excess.
Management observed a narrowing of the fair values over the
carrying values of the Life Insurance & Retirement
Services Japan and Other and the Life
Insurance & Retirement Services Asia
reporting units
162
American International Group, Inc.
and Subsidiaries
during the first six months of 2009. AIG will continue to
monitor overall competitive, business and economic conditions,
and other events or circumstances that might result in an
impairment of goodwill in the future.
|
|
|
|
|
Valuation Allowance on Deferred Tax Assets:
|
At June 30, 2009 and December 31, 2008, AIG recorded a
net deferred tax asset after valuation allowance of
$12.8 billion and $11 billion, respectively.
FAS 109, Accounting for Income Taxes, permits
this asset to be recorded if the asset meets a more likely than
not standard (i.e., more than 50 percent likely) that the
asset will be realized. Realization of AIGs net deferred
tax asset depends on AIGs ability to consummate the
proposed AIA and ALICO purchase agreements and to generate
sufficient future taxable income of the appropriate character
within carryforward periods of the jurisdictions in which the
net operating and capital losses, tax credits and deductible
temporary differences were incurred. Estimates of future taxable
income could change in the near term, perhaps materially, which
may require AIG to adjust its valuation allowance. Such
adjustment, either positive or negative, could be material to
AIGs consolidated financial condition or its results of
operations. Because the realization of the deferred tax asset
relies on the completion of the proposed transactions and a
projection of future taxable income, AIG views this as a
critical accounting estimate.
AIG is relying upon producing taxable operating profits from the
businesses to be retained, principally Commercial Insurance and
Foreign General Insurance. AIG has evaluated its forecasts of
future operating income and determined that there will be
sufficient operating income, inclusive of gains on the
divestiture of businesses to realize the recorded net deferred
tax asset.
When making its assessment about the realization of its deferred
tax assets at June 30, 2009, AIG considered all available
evidence, including (i) the nature, frequency, and severity
of current and cumulative financial reporting losses,
(ii) actions completed through July 31, 2009 and
additional actions expected to be completed during the remainder
of 2009, (iii) the carryforward periods for the net
operating and capital loss and foreign tax credit carryforwards,
(iv) the sources and timing of future taxable income,
giving greater weight to discrete sources and to earlier future
years in the forecast period, and (v) tax planning
strategies that would be implemented, if necessary, to
accelerate taxable amounts.
In assessing future GAAP taxable income, AIG considered its
strong earnings history exclusive of the recent losses on the
AIGFP super senior credit default swap portfolio and from the
securities lending program. AIG also considered the completed
transactions with the FRBNY and the Department of the Treasury,
including (i) the execution of the ALICO and AIA purchase
agreements, (ii) reduction of the interest rate payable on
outstanding borrowing and undrawn amounts under the FRBNY
Facility; (iii) the transfer of RMBS related to AIGs
U.S. securities lending program to ML II; (iv) the
termination of substantially all multi-sector credit default
swap transactions and sale of underlying CDO securities to ML
III; (v) the issuance of the AIG Series E Preferred
Stock in exchange for the AIG Series D Preferred Stock; and
(vi) the issuance of the AIG Series F Preferred Stock
and the establishment of the Department of the Treasury
Commitment.
AIGs profitability in any given period can be materially
affected by conditions in global financial markets, economic
conditions, catastrophes and other events around the world and,
currently, AIG-specific events. Further, the results of
operations in the first six months of 2009 may not be
indicative of the results expected for the full year because
certain transactions proposed to be entered into with the
Department of the Treasury and the FRBNY are not expected to be
in place. However, AIG believes its forecasts are achievable.
There are many important factors that could significantly affect
the attainment of AIGs forecasted results. For a
discussion of some of these factors, see Part II,
Item 1A. Risk Factors in this Quarterly Report on
Form 10-Q,
Part II, Item 1A. Risk Factors in AIGs Quarterly
Report on
Form 10-Q
for the quarter ended March 31, 2009 and in Part I,
Item 1A. Risk Factors in the 2008
Form 10-K.
|
|
|
|
|
U.S. Income Taxes on Earnings of Certain Foreign
Subsidiaries:
|
Due to the complexity of the U.S. federal income tax laws
involved in determining the amount of income taxes incurred on
potential dispositions, as well as AIGs reliance on
reasonable assumptions and estimates in calculating this
liability, AIG considers the U.S. federal income taxes
accrued on the earnings of certain foreign subsidiaries to be a
critical accounting estimate.
163
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
Fair Value Measurements of Certain Financial Assets and
Liabilities:
|
Overview
AIG measures at fair value on a recurring basis financial
instruments in its trading and available for sale securities
portfolios, certain mortgage and other loans receivable, certain
spot commodities, derivative assets and liabilities, securities
purchased/sold under agreements to resell/repurchase, securities
lending invested collateral, non-traded equity investments and
certain private limited partnerships and certain hedge funds
included in other invested assets, certain short-term
investments, separate and variable account assets, certain
policyholder contract deposits, securities and spot commodities
sold but not yet purchased, certain trust deposits and deposits
due to banks and other depositors, certain CPFF and other
commercial paper, certain long-term debt, and certain hybrid
financial instruments included in other liabilities. The fair
value of a financial instrument is the amount that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between willing, able and knowledgeable
market participants at the measurement date.
The degree of judgment used in measuring the fair value of
financial instruments generally correlates with the level of
pricing observability. Financial instruments with quoted prices
in active markets generally have more pricing observability and
less judgment is used in measuring fair value. Conversely,
financial instruments traded in
other-than-active
markets or that do not have quoted prices have less
observability and are measured at fair value using valuation
models or other pricing techniques that require more judgment.
An active market is one in which transactions for the asset or
liability being valued occur with sufficient frequency and
volume to provide pricing information on an ongoing basis. An
other-than-active
market is one in which there are few transactions, the prices
are not current, price quotations vary substantially either over
time or among market makers, or in which little information is
released publicly for the asset or liability being valued.
Pricing observability is affected by a number of factors,
including the type of financial instrument, whether the
financial instrument is new to the market and not yet
established, the characteristics specific to the transaction and
general market conditions.
AIG management is responsible for the determination of the value
of the financial assets and financial liabilities carried at
fair value and the supporting methodologies and assumptions.
With respect to securities, AIG employs independent third-party
valuation service providers to gather, analyze, and interpret
market information and derive fair values based upon relevant
methodologies and assumptions for individual instruments. When
AIGs valuation service providers are unable to obtain
sufficient market observable information upon which to estimate
the fair value for a particular security, fair value is
determined either by requesting brokers who are knowledgeable
about these securities to provide a quote, which is generally
non-binding, or by employing widely accepted internal valuation
models.
Valuation service providers typically obtain data about market
transactions and other key valuation model inputs from multiple
sources and, through the use of widely accepted internal
valuation models, provide a single fair value measurement for
individual securities for which a fair value has been requested
under the terms of service agreements. The inputs used by the
valuation service providers include, but are not limited to,
market prices from recently completed transactions and
transactions of comparable securities, interest rate yield
curves, credit spreads, currency rates, and other
market-observable information, as applicable. The valuation
models take into account, among other things, market observable
information as of the measurement date as well as the specific
attributes of the security being valued including its term,
interest rate, credit rating, industry sector, and when
applicable, collateral quality and other issue or
issuer-specific information. When market transactions or other
market observable data is limited, the extent to which judgment
is applied in determining fair value is greatly increased.
AIG employs specific control processes to determine the
reasonableness of the fair values of AIGs financial assets
and financial liabilities. AIGs processes are designed to
ensure that the values received or internally estimated are
accurately recorded and that the data inputs and the valuation
techniques utilized are appropriate, consistently applied, and
that the assumptions are reasonable and consistent with the
objective of determining fair value. AIG assesses the
reasonableness of individual security values received from
valuation service providers through various analytical
techniques. In addition, AIG may validate the reasonableness of
fair values by comparing information obtained from AIGs
valuation service providers to other third-party valuation
sources for selected securities. AIG also validates prices for
selected securities obtained from brokers through reviews by
members of
164
American International Group, Inc.
and Subsidiaries
management who have relevant expertise and who are independent
of those charged with executing investing transactions.
The fair value of fixed income and equity securities by
source of value determination was as follows:
|
|
|
|
|
|
|
|
|
|
|
Fair
|
|
|
Percent
|
|
At June 30, 2009
|
|
Value
|
|
|
of Total
|
|
|
|
(In billions)
|
|
|
Fair value based on external sources(a)
|
|
$
|
383
|
|
|
|
94
|
%
|
Fair value based on internal sources
|
|
|
26
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
Total fixed income and equity securities(b)
|
|
$
|
409
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes $28.2 billion whose primary source is broker
quotes. |
|
(b) |
|
Includes available for sale, trading and securities lending
invested collateral securities. |
See Note 4 to the Consolidated Financial Statements for
more detailed information about AIGs accounting policy for
the incorporation of credit risk in fair value measurements and
the measurement of fair value of the following financial assets
and financial liabilities:
|
|
|
|
|
Fixed maturity securities trading and available for
sale;
|
|
|
|
Equity securities traded in active markets trading
and available for sale;
|
|
|
|
Non-traded equity investments other invested assets;
|
|
|
|
Private limited partnership and hedge fund
investments other invested assets;
|
|
|
|
Separate account assets;
|
|
|
|
Freestanding derivatives;
|
|
|
|
Embedded policy derivatives;
|
|
|
|
AIGFPs super senior credit default swap portfolio; and
|
|
|
|
Policyholder contract deposits.
|
Level 3
Assets and Liabilities
Under FAS 157, assets and liabilities recorded at fair
value in the consolidated balance sheet are classified in a
hierarchy for disclosure purposes consisting of three
levels based on the observability of inputs
available in the marketplace used to measure the fair value. See
Note 4 to the Consolidated Financial Statements for
additional information about fair value measurements.
At June 30, 2009, AIG classified $36.0 billion and
$19.1 billion of assets and liabilities, respectively,
measured at fair value on a recurring basis as Level 3.
This represented 4.3 percent and 2.5 percent of the
total assets and liabilities, respectively, measured at fair
value on a recurring basis at June 30, 2009. At
December 31, 2008, AIG classified $42.1 billion and
$21.1 billion of assets and liabilities, respectively,
measured at fair value on a recurring basis as Level 3.
This represented 4.9 percent and 2.6 percent of the
total assets and liabilities, respectively, measured at fair
value on a recurring basis at December 31, 2008.
Level 3 fair value measurements are based on valuation
techniques that use at least one significant input that is
unobservable. These measurements are made under circumstances in
which there is little, if any, market activity for the asset or
liability. AIGs assessment of the significance of a
particular input to the fair value measurement in its entirety
requires judgment.
In making the assessment, AIG considers factors specific to the
asset or liability. In certain cases, the inputs used to measure
fair value of an asset or a liability may fall into different
levels of the fair value hierarchy. In such cases, the level in
the fair value hierarchy within which the fair value measurement
in its entirety is classified is determined based on the lowest
level input that is significant to the fair value measurement in
its entirety.
165
American International Group, Inc.
and Subsidiaries
Valuation
of Level 3 Assets and Liabilities
AIG values its assets and liabilities classified as Level 3
using judgment and valuation models or other pricing techniques
that require a variety of inputs including contractual terms,
market prices and rates, yield curves, credit curves, measures
of volatility, prepayment rates and correlations of such inputs,
some of which may be unobservable. The following paragraphs
describe the methods AIG uses to measure on a recurring basis
the fair value of the major classes of assets and liabilities
classified in Level 3.
Private equity and real estate fund investments: These assets
initially are valued at the transaction price, i.e., the price
paid to acquire the asset. Subsequently, they are measured based
on net asset value using information provided by the general
partner or manager of these investments, the accounts of which
generally are audited on an annual basis. AIG considers
observable market data and performs diligence procedures in
validating the appropriateness of using the net asset value as a
fair value measurement.
Corporate bonds and private placement debt: These assets
initially are valued at the transaction price. Subsequently,
they are valued using market data for similar instruments (e.g.,
recent transactions, bond spreads or credit default swap
spreads), comparisons to benchmark derivative indices or
movements in underlying credit spreads. When observable price
quotations are not available, fair value is determined based on
cash flow models with yield curves, bond or single-name credit
default swap spreads and estimated recovery rates.
Certain RMBS and CMBS: These assets initially are valued at the
transaction price. Subsequently, they may be valued by
comparison to transactions in instruments with similar
collateral and risk profiles, remittances received and updated
cumulative loss data on underlying obligations, discounted cash
flow techniques,
and/or for
RMBS option adjusted spread analyses.
Certain Asset-Backed Securities non-mortgage: These
assets initially are valued at the transaction price.
Subsequently, they may be valued based on external price/spread
data. When position-specific external price data are not
observable, the valuation is based on prices of comparable
securities.
CDOs: These assets initially are valued at the transaction
price. Subsequently, they are valued based on external
price/spread data from independent third parties, dealer
quotations, matrix pricing, the Binomial Expansion Technique
(BET) model or a combination thereof.
Interests in ML II and ML III: At their inception, AIGs
Maiden Lane Interests were valued at the transaction prices of
$1 billion and $5 billion, respectively. Subsequently,
Maiden Lane Interests are valued using a discounted cash flow
methodology that uses the estimated future cash flows of the
assets to which the Maiden Lane Interests are entitled and the
discount rates applicable to such interests as derived from the
fair value of the entire asset pool. The implicit discount rates
are calibrated to the changes in the estimated asset values for
the underlying assets commensurate with AIGs interests in
the capital structure of the respective entities. Estimated cash
flows and discount rates used in the valuations are validated,
to the extent possible, using market observable information for
securities with similar asset pools, structure and terms.
The fair value methodology used assumes that the underlying
collateral in ML II and ML III will continue to be held and
generate cash flows into the foreseeable future and does not
assume a current liquidation of the assets of ML II and ML III.
Other methodologies employed or assumptions made in determining
fair value for these investments could result in amounts that
differ significantly from the amounts reported.
See Note 4 to the Consolidated Financial Statements for
further discussion on the fair value of the Maiden Lane
Interests.
166
American International Group, Inc.
and Subsidiaries
Increases in the discount rate or decreases in estimated
future cash flows used in the valuation would decrease
AIGs estimate of the fair value of the Maiden Lane
Interests as shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
Fair Value Change
|
|
Six Months Ended June 30, 2009
|
|
Maiden Lane II
|
|
|
Maiden Lane III
|
|
|
|
(In millions)
|
|
|
Discount Rates
|
|
|
|
|
|
|
|
|
200 basis point increase
|
|
$
|
(52
|
)
|
|
$
|
(453
|
)
|
400 basis point increase
|
|
|
(97
|
)
|
|
|
(837
|
)
|
|
|
|
|
|
|
|
|
|
Estimated Future Cash Flows
|
|
|
|
|
|
|
|
|
10% decrease
|
|
|
(218
|
)
|
|
|
(660
|
)
|
20% decrease
|
|
|
(370
|
)
|
|
|
(1,323
|
)
|
|
|
|
|
|
|
|
|
|
AIGFPs Super Senior Credit Default Swap Portfolio: AIGFP
wrote credit protection on the super senior risk layer of
collateralized loan obligations (CLOs), multi-sector CDOs and
diversified portfolios of corporate debt, and prime residential
mortgages. In these transactions, AIGFP is at risk of credit
performance on the super senior risk layer related to such
assets. To a lesser extent, AIGFP also wrote protection on
tranches below the super senior risk layer, primarily in respect
of regulatory capital relief transactions.
The net notional amount, fair value of derivative liability
and unrealized market valuation gain (loss) of the AIGFP super
senior credit default swap portfolio, including credit default
swaps written on mezzanine tranches of certain regulatory
capital relief transactions, by asset class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Market Valuation Gain (Loss)
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Net Notional Amount
|
|
|
of Derivative Liability at
|
|
|
Three Months Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
December 31,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2009(a)(b)
|
|
|
2008(a)
|
|
|
2009(b)(c)
|
|
|
2008(c)
|
|
|
2009(d)
|
|
|
2008(d)
|
|
|
2009(d)
|
|
|
2008(d)
|
|
|
|
(In millions)
|
|
|
Regulatory Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate loans
|
|
$
|
83,301
|
|
|
$
|
125,628
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Prime residential mortgages
|
|
|
92,130
|
|
|
|
107,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other(e)
|
|
|
2,042
|
|
|
|
1,575
|
|
|
|
47
|
|
|
|
379
|
|
|
|
23
|
|
|
|
(125
|
)
|
|
|
9
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
177,473
|
|
|
|
234,449
|
|
|
|
47
|
|
|
|
379
|
|
|
|
23
|
|
|
|
(125
|
)
|
|
|
9
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-sector CDOs(f)(g)
|
|
|
9,151
|
|
|
|
12,556
|
|
|
|
5,271
|
|
|
|
5,906
|
|
|
|
(284
|
)
|
|
|
(5,569
|
)
|
|
|
(1,093
|
)
|
|
|
(13,606
|
)
|
Corporate debt/CLOs(h)
|
|
|
40,941
|
|
|
|
50,495
|
|
|
|
1,104
|
|
|
|
2,554
|
|
|
|
792
|
|
|
|
126
|
|
|
|
1,150
|
|
|
|
(770
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
50,092
|
|
|
|
63,051
|
|
|
|
6,375
|
|
|
|
8,460
|
|
|
|
508
|
|
|
|
(5,443
|
)
|
|
|
57
|
|
|
|
(14,376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine tranches(i)
|
|
|
3,501
|
|
|
|
4,701
|
|
|
|
77
|
|
|
|
195
|
|
|
|
105
|
|
|
|
3
|
|
|
|
118
|
|
|
|
(171
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
231,066
|
|
|
$
|
302,201
|
|
|
$
|
6,499
|
|
|
$
|
9,034
|
|
|
$
|
636
|
|
|
$
|
(5,565
|
)
|
|
$
|
184
|
|
|
$
|
(14,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Net notional amounts presented are net of all structural
subordination below the covered tranches. |
|
(b) |
|
During the second quarter of 2009, AIGFP terminated certain
CDS transactions with its counterparties with a net notional
amount of $11.4 billion, comprised of $1.5 billion in
Regulatory Capital Other, $2.8 billion in
Multi-sector CDOs and $7.1 billion in Corporate debt/CLOs.
These transactions were terminated at approximately their fair
value at the time of the termination. As a result, a
$2.4 billion loss, which was previously included in the
fair value derivative liability as an unrealized market
valuation loss, was realized. |
|
(c) |
|
Fair value amounts are shown before the effects of
counterparty netting adjustments and offsetting cash collateral
in accordance with FIN 39. |
|
(d) |
|
Includes credit valuation adjustment loss of $17 million
and gain of $44 million in the three-month periods ended
June 30, 2009 and 2008, respectively, and credit valuation
adjustment gains of $89 million and $109 million in
the six-month periods ended June 30, 2009 and 2008,
respectively, representing the effect of changes in AIGs
credit spreads on the valuation of the derivatives
liabilities. |
167
American International Group, Inc.
and Subsidiaries
|
|
|
(e) |
|
During the first six months of 2009, AIGFP reclassified one
regulatory capital CDS transaction from Regulatory
Capital Corporate loans to Regulatory
Capital Other, given the higher likelihood that it
will not be terminated when the regulatory capital benefit
expires for the counterparty. |
|
(f) |
|
Includes $6.5 billion and $9.7 billion in net
notional amount of credit default swaps written with cash
settlement provisions at June 30, 2009 and
December 31, 2008, respectively. |
|
(g) |
|
During the fourth quarter of 2008, AIGFP terminated the
majority of the CDS transactions written on multi-sector CDOs in
connection with the ML III transaction. |
|
(h) |
|
Includes $1.5 billion in net notional amount of credit
default swaps written on the super senior tranches of CLOs as of
both June 30, 2009 and December 31, 2008. |
|
(i) |
|
Net of offsetting purchased CDS of $1.7 billion and
$2.0 billion in net notional amount at June 30, 2009
and December 31, 2008, respectively. |
The changes in the net notional amount of the AIGFP super
senior credit default swap portfolio, including credit default
swaps written on mezzanine tranches of certain regulatory
capital relief transactions were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Notional
|
|
|
|
|
|
Effect of
|
|
|
|
|
|
Net Notional
|
|
|
|
Amount
|
|
|
Terminations
|
|
|
Foreign
|
|
|
|
|
|
Amount
|
|
For the Six Months Ended
|
|
December 31,
|
|
|
and
|
|
|
Exchange
|
|
|
Amortization/
|
|
|
June 30,
|
|
June 30, 2009
|
|
2008
|
|
|
Maturities(a)
|
|
|
Rates(b)
|
|
|
Reclassification(c)(d)
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Regulatory Capital:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate loans
|
|
$
|
125,628
|
|
|
$
|
(34,152
|
)
|
|
$
|
67
|
|
|
$
|
(8,242
|
)
|
|
$
|
83,301
|
|
Prime residential mortgages
|
|
|
107,246
|
|
|
|
(11,727
|
)
|
|
|
440
|
|
|
|
(3,829
|
)
|
|
|
92,130
|
|
Other
|
|
|
1,575
|
|
|
|
(1,464
|
)
|
|
|
161
|
|
|
|
1,770
|
|
|
|
2,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
234,449
|
|
|
|
(47,343
|
)
|
|
|
668
|
|
|
|
(10,301
|
)
|
|
|
177,473
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbitrage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Multi-sector CDOs
|
|
|
12,556
|
|
|
|
(2,792
|
)
|
|
|
17
|
|
|
|
(630
|
)
|
|
|
9,151
|
|
Corporate debt/CLOs
|
|
|
50,495
|
|
|
|
(9,251
|
)
|
|
|
(238
|
)
|
|
|
(65
|
)
|
|
|
40,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
63,051
|
|
|
|
(12,043
|
)
|
|
|
(221
|
)
|
|
|
(695
|
)
|
|
|
50,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine tranches
|
|
|
4,701
|
|
|
|
(508
|
)
|
|
|
10
|
|
|
|
(702
|
)
|
|
|
3,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
302,201
|
|
|
$
|
(59,894
|
)
|
|
$
|
457
|
|
|
$
|
(11,698
|
)
|
|
$
|
231,066
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
During the six months ended June 30, 2009, AIGFP
terminated certain CDS transactions with its counterparties in
net notional amount of $54.5 billion, comprised of
$30.9 billion in Regulatory Capital Corporate
loans, $11.7 billion in Regulatory Capital
Prime residential mortgages, $1.5 billion in Regulatory
Capital Other, $2.8 billion in Multi-sector
CDOs, $7.1 billion in Corporate debt/CLOs and
$508 million in Mezzanine tranches. |
|
(b) |
|
Relates to the strengthening of the U.S. dollar,
primarily against the Euro and the British Pound. |
|
(c) |
|
During the first six months of 2009, AIGFP reclassified one
regulatory capital CDS transaction from Regulatory
Capital Corporate loans to Regulatory
Capital Other. |
|
(d) |
|
During the three months ended June 30, 2009, AIGFP
reclassified two mezzanine trades having net notional amounts of
$462 million and $240 million, respectively, into
Regulatory Capital Corporate loans and Regulatory
Capital Other, respectively, after determining that
the trades were not stand-alone but rather part of the related
regulatory capital trades. The effect on unrealized market
valuation gain (loss) was not significant. |
168
American International Group, Inc.
and Subsidiaries
The summary statistics for AIGFPs super senior credit
default swaps at June 30, 2009 and totals for
December 31, 2008 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory Capital Portfolio
|
|
|
Arbitrage Portfolio
|
|
|
Total
|
|
|
|
|
|
|
Prime
|
|
|
|
|
|
|
|
|
|
|
|
Multi-Sector
|
|
|
Multi-Sector
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Residential
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
CDOs
|
|
|
CDOs w/ No
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Category
|
|
Loans
|
|
|
Mortgages
|
|
|
Other
|
|
|
Subtotal
|
|
|
Debt/CLOs
|
|
|
w/Subprime
|
|
|
Subprime
|
|
|
Subtotal
|
|
|
2009
|
|
|
2008
|
|
|
Gross Transaction Notional Amount (in millions)
|
|
$
|
109,313
|
|
|
$
|
115,503
|
|
|
$
|
2,371
|
|
|
$
|
227,187
|
|
|
$
|
54,710
|
|
|
$
|
8,490
|
|
|
$
|
11,323
|
|
|
$
|
74,523
|
|
|
$
|
301,710
|
|
|
$
|
390,100
|
|
Net Notional Amount (in millions)
|
|
|
83,301
|
|
|
|
92,130
|
|
|
|
2,042
|
|
|
|
177,473
|
|
|
|
40,941
|
|
|
|
4,233
|
|
|
|
4,918
|
|
|
|
50,092
|
|
|
|
227,565
|
|
|
|
297,500
|
|
Number of Transactions
|
|
|
20
|
|
|
|
19
|
|
|
|
1
|
|
|
|
40
|
|
|
|
26
|
|
|
|
11
|
|
|
|
6
|
|
|
|
43
|
|
|
|
83
|
|
|
|
109
|
|
Weighted Average Subordination (%)
|
|
|
18.63
|
%
|
|
|
13.57
|
%
|
|
|
13.90
|
%
|
|
|
16.01
|
%
|
|
|
17.35
|
%
|
|
|
38.17
|
%
|
|
|
20.54
|
%
|
|
|
20.21
|
%
|
|
|
17.04
|
%
|
|
|
16.90
|
%
|
Weighted Average Number of Obligors / Transaction
|
|
|
1,671
|
|
|
|
93,222
|
|
|
|
2,232
|
|
|
|
|
|
|
|
117
|
|
|
|
160
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected Maturity (Years)
|
|
|
0.82
|
|
|
|
0.67
|
|
|
|
6.29
|
|
|
|
|
|
|
|
3.19
|
|
|
|
5.04
|
|
|
|
6.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulatory
Capital Portfolio
During the six-month period ended June 30, 2009,
$45.8 billion in net notional amount was terminated or
matured at no cost to AIGFP. Through July 31, 2009, AIGFP
had also received a formal termination notice with respect to an
additional $2.8 billion in net notional amount with an
effective termination date in 2009. AIG expects that the
counterparties in the remaining regulatory capital CDS
transactions will terminate within the next 9 months the
vast majority of transactions with AIGFP during the transition
period of the Revised Framework for the International
Convergence of Capital Standards issued by the Basel Committee
on Banking Supervision. AIGFP has not been required to make any
payments as part of terminations initiated by counterparties.
During the first six months of 2009, AIGFP reclassified one
regulatory capital CDS transaction from Regulatory
Capital Corporate loans to Regulatory
Capital Other given the higher likelihood that it
will not be terminated when the regulatory capital benefit
expires for the counterparty. AIG does not believe that at this
time the CDS provides significant risk transfer benefit to the
counterparty; however, AIGFP will continue to monitor this
transaction closely.
During April 2009, AIGFP effected the early termination of a CDS
transaction written on a European RMBS security of
$1.5 billion in net notional amount that was reported as
part of Regulatory Capital Other at March 31,
2009 at a level approximating its fair value at that time. Given
its unique structure and concentrated exposure to high
loan-to-value Spanish residential mortgages, this transaction
had exposed AIGFP to a relatively higher level of liquidity and
credit risk than any other regulatory capital CDS exposure, and
AIG felt it prudent to terminate the transaction to avoid
further deterioration.
In light of early termination experience to date and after
analyses of other market data, to the extent deemed relevant and
available, AIG determined that there was no unrealized market
valuation adjustment for any of the transactions in this
regulatory capital relief portfolio for the six months ended
June 30, 2009 other than for transactions where AIGFP
believes the counterparty is no longer using the transaction to
obtain regulatory capital relief as discussed above. Although
AIGFP believes the value of contractual fees receivable on these
transactions through maturity exceeds the economic benefits of
any potential payments to the counterparties, the
counterparties early termination rights, and AIGFPs
expectation that such rights will be exercised, preclude the
recognition of a derivative asset for these transactions.
169
American International Group, Inc.
and Subsidiaries
The following table presents, for each of the regulatory
capital CDS transactions in the corporate loan portfolio, the
gross transaction notional amount at June 30, 2009, net
notional amount at June 30, 2009, attachment point at
inception and at June 30, 2009, inception to date realized
losses through June 30, 2009 and percent non-investment
grade at June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Transaction
|
|
|
Net Notional
|
|
|
|
|
|
|
|
|
Realized Losses
|
|
|
Percent
|
|
|
|
Notional Amount at
|
|
|
Amount at
|
|
|
Attachment Point
|
|
|
Attachment Point
|
|
|
through
|
|
|
Non-investment Grade
|
|
CDS
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
at Inception(a)
|
|
|
at June 30, 2009(a)
|
|
|
June 30, 2009(b)
|
|
|
at June 30, 2009(c)
|
|
|
|
(Dollars in millions)
|
|
|
1(d)
|
|
$
|
3,332
|
|
|
$
|
2,788
|
|
|
|
11.00
|
%
|
|
|
16.00
|
%
|
|
|
0.15
|
%
|
|
|
95.70
|
%
|
2
|
|
|
3,509
|
|
|
|
2,948
|
|
|
|
16.00
|
%
|
|
|
16.00
|
%
|
|
|
0.00
|
%
|
|
|
42.42
|
%
|
3
|
|
|
891
|
|
|
|
791
|
|
|
|
10.03
|
%
|
|
|
11.23
|
%
|
|
|
0.52
|
%
|
|
|
16.58
|
%
|
4
|
|
|
14,037
|
|
|
|
7,861
|
|
|
|
44.00
|
%
|
|
|
44.00
|
%
|
|
|
0.00
|
%
|
|
|
0.68
|
%
|
5
|
|
|
2,523
|
|
|
|
2,273
|
|
|
|
10.00
|
%
|
|
|
9.86
|
%
|
|
|
0.15
|
%
|
|
|
13.88
|
%
|
6
|
|
|
9,585
|
|
|
|
8,143
|
|
|
|
12.02
|
%
|
|
|
15.04
|
%
|
|
|
0.00
|
%
|
|
|
14.98
|
%
|
7
|
|
|
8,423
|
|
|
|
7,481
|
|
|
|
11.00
|
%
|
|
|
11.18
|
%
|
|
|
0.00
|
%
|
|
|
8.59
|
%
|
8
|
|
|
598
|
|
|
|
345
|
|
|
|
18.00
|
%
|
|
|
42.28
|
%
|
|
|
0.00
|
%
|
|
|
62.59
|
%
|
9
|
|
|
10,865
|
|
|
|
9,652
|
|
|
|
10.80
|
%
|
|
|
11.17
|
%
|
|
|
0.00
|
%
|
|
|
6.04
|
%
|
10
|
|
|
11,767
|
|
|
|
10,312
|
|
|
|
11.30
|
%
|
|
|
12.36
|
%
|
|
|
0.16
|
%
|
|
|
21.87
|
%
|
11
|
|
|
5,396
|
|
|
|
4,783
|
|
|
|
11.00
|
%
|
|
|
11.36
|
%
|
|
|
0.09
|
%
|
|
|
10.65
|
%
|
12
|
|
|
4,998
|
|
|
|
4,320
|
|
|
|
13.26
|
%
|
|
|
13.55
|
%
|
|
|
0.00
|
%
|
|
|
71.62
|
%
|
13
|
|
|
9,826
|
|
|
|
3,011
|
|
|
|
12.00
|
%
|
|
|
12.00
|
%
|
|
|
0.00
|
%
|
|
|
4.15
|
%
|
14
|
|
|
2,425
|
|
|
|
2,028
|
|
|
|
15.85
|
%
|
|
|
16.35
|
%
|
|
|
0.00
|
%
|
|
|
7.75
|
%
|
15
|
|
|
4,075
|
|
|
|
3,288
|
|
|
|
14.50
|
%
|
|
|
19.31
|
%
|
|
|
0.00
|
%
|
|
|
74.48
|
%
|
16
|
|
|
2,015
|
|
|
|
1,532
|
|
|
|
12.30
|
%
|
|
|
23.96
|
%
|
|
|
0.00
|
%
|
|
|
28.98
|
%
|
17
|
|
|
1,063
|
|
|
|
712
|
|
|
|
23.44
|
%
|
|
|
33.03
|
%
|
|
|
0.00
|
%
|
|
|
28.98
|
%
|
18
|
|
|
2,323
|
|
|
|
1,937
|
|
|
|
11.73
|
%
|
|
|
16.62
|
%
|
|
|
0.00
|
%
|
|
|
28.98
|
%
|
19
|
|
|
2,000
|
|
|
|
1,820
|
|
|
|
9.00
|
%
|
|
|
9.00
|
%
|
|
|
0.00
|
%
|
|
|
6.25
|
%
|
20
|
|
|
9,662
|
|
|
|
7,276
|
|
|
|
17.00
|
%
|
|
|
24.69
|
%
|
|
|
0.00
|
%
|
|
|
13.04
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
109,313
|
|
|
$
|
83,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Expressed as a percentage of gross transaction notional
amount of the referenced obligations. As a result of
participation ratios and replenishment rights, the attachment
point may not always be computed by dividing net notional amount
by gross transaction notional amount. |
|
(b) |
|
Represents realized losses incurred by the transaction
(defaulted amounts less amounts recovered) from inception
through June 30, 2009 expressed as a percentage of the
initial gross transaction notional amount. |
|
(c) |
|
Represents non-investment grade obligations in the underlying
pools of corporate loans expressed as a percentage of gross
transaction notional amount. |
|
(d) |
|
Trade termination notice received by AIGFP with effective
date of July 6, 2009. |
170
American International Group, Inc.
and Subsidiaries
The following table presents, for each of the regulatory
capital CDS transactions prime residential mortgage
portfolio, the gross transaction notional amount at
June 30, 2009, net notional amount at June 30, 2009,
attachment point at inception and at June 30, 2009, and
inception to date realized losses through June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Transaction
|
|
|
Net Notional
|
|
|
|
|
|
|
|
|
Realized Losses
|
|
|
|
Notional Amount at
|
|
|
Amount at
|
|
|
Attachment Point
|
|
|
Attachment Point
|
|
|
through
|
|
CDS
|
|
June 30, 2009
|
|
|
June 30, 2009
|
|
|
at Inception(a)
|
|
|
at June 30, 2009(a)
|
|
|
June 30, 2009(b)
|
|
|
|
(Dollars in millions)
|
|
|
1
|
|
$
|
582
|
|
|
$
|
359
|
|
|
|
17.01
|
%
|
|
|
37.59
|
%
|
|
|
2.19
|
%
|
2
|
|
|
379
|
|
|
|
230
|
|
|
|
18.48
|
%
|
|
|
39.04
|
%
|
|
|
1.57
|
%
|
3
|
|
|
1,919
|
|
|
|
1,283
|
|
|
|
14.70
|
%
|
|
|
33.15
|
%
|
|
|
0.09
|
%
|
4
|
|
|
326
|
|
|
|
226
|
|
|
|
16.81
|
%
|
|
|
30.52
|
%
|
|
|
1.02
|
%
|
5
|
|
|
1,404
|
|
|
|
1,263
|
|
|
|
10.00
|
%
|
|
|
10.00
|
%
|
|
|
0.00
|
%
|
6
|
|
|
2,232
|
|
|
|
1,708
|
|
|
|
10.70
|
%
|
|
|
23.46
|
%
|
|
|
0.04
|
%
|
7
|
|
|
438
|
|
|
|
347
|
|
|
|
13.19
|
%
|
|
|
20.65
|
%
|
|
|
0.34
|
%
|
8(c)
|
|
|
6,099
|
|
|
|
5,607
|
|
|
|
7.95
|
%
|
|
|
8.21
|
%
|
|
|
0.02
|
%
|
9(c)
|
|
|
2,065
|
|
|
|
1,693
|
|
|
|
7.95
|
%
|
|
|
17.91
|
%
|
|
|
0.04
|
%
|
10(c)
|
|
|
5,602
|
|
|
|
5,162
|
|
|
|
8.00
|
%
|
|
|
8.00
|
%
|
|
|
0.02
|
%
|
11
|
|
|
30,885
|
|
|
|
18,226
|
|
|
|
18.25
|
%
|
|
|
18.25
|
%
|
|
|
0.00
|
%
|
12(c)
|
|
|
6,428
|
|
|
|
5,930
|
|
|
|
7.85
|
%
|
|
|
7.85
|
%
|
|
|
0.01
|
%
|
13
|
|
|
11,309
|
|
|
|
10,463
|
|
|
|
7.50
|
%
|
|
|
7.48
|
%
|
|
|
0.02
|
%
|
14(c)
|
|
|
8,521
|
|
|
|
7,848
|
|
|
|
7.95
|
%
|
|
|
7.95
|
%
|
|
|
0.01
|
%
|
15
|
|
|
2,762
|
|
|
|
2,256
|
|
|
|
12.40
|
%
|
|
|
18.30
|
%
|
|
|
0.00
|
%
|
16
|
|
|
23,860
|
|
|
|
21,668
|
|
|
|
9.20
|
%
|
|
|
9.19
|
%
|
|
|
0.01
|
%
|
17
|
|
|
4,441
|
|
|
|
3,015
|
|
|
|
11.50
|
%
|
|
|
16.35
|
%
|
|
|
0.00
|
%
|
18
|
|
|
4,507
|
|
|
|
3,569
|
|
|
|
11.50
|
%
|
|
|
20.81
|
%
|
|
|
0.00
|
%
|
19
|
|
|
1,744
|
|
|
|
1,277
|
|
|
|
14.57
|
%
|
|
|
26.73
|
%
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,503
|
|
|
$
|
92,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Expressed as a percentage of gross transaction notional
amount of the referenced obligations. As a result of
participation ratios and replenishment rights, the attachment
point may not always be computed by dividing net notional amount
by gross transaction notional amount. |
|
(b) |
|
Represents realized losses incurred by the transaction
(defaulted amounts less amounts recovered) from inception
through June 30, 2009 expressed as a percentage of the
initial gross transaction notional amount. |
|
(c) |
|
Delinquency information is not provided to AIGFP for the
underlying pools of residential mortgages of these transactions.
However, information with respect to principal amount
outstanding, defaults, recoveries, remaining term, property use,
geography, interest rates, and ratings of the underlying junior
tranches are provided to AIGFP for such referenced pools. |
All of the regulatory capital CDS transactions directly or
indirectly reference tranched pools of large numbers of whole
loans that were originated by the financial institution (or its
affiliates) receiving the credit protection, rather than
structured securities containing loans originated by other third
parties. In the vast majority of transactions, the loans are
intended to be retained by the originating financial institution
and in all cases the originating financial institution is the
purchaser of the CDS, either directly or through an intermediary.
As further discussed below, AIGFP receives information monthly
or quarterly regarding the performance and credit quality of the
underlying referenced assets. AIGFP also obtains other
information, such as ratings of the tranches below the super
senior risk layer. The nature of the information provided or
otherwise available to AIGFP with respect to the underlying
assets in each regulatory capital CDS transaction is not
consistent across all transactions. Furthermore, in a majority
of corporate loan transactions and all of the residential
mortgage
171
American International Group, Inc.
and Subsidiaries
transactions, the pools are blind, meaning that the identities
of the obligors are not disclosed to AIGFP. In addition,
although AIGFP receives periodic reports on the underlying asset
pools, virtually all of the regulatory capital CDS transactions
contain confidentiality restrictions that preclude AIGFPs
public disclosure of information relating to the underlying
referenced assets. The originating financial institutions,
calculation agents or trustees (each a Report Provider) provide
periodic reports on all underlying referenced assets as
described below, including for those within the blind pools.
While much of this information received by AIGFP cannot be
aggregated in a comparable way for disclosure purposes because
of the confidentiality restrictions and the inconsistency of the
information, it does provide a sufficient basis for AIGFP to
evaluate the risks of the portfolio and to determine a
reasonable estimate of fair value.
For regulatory capital CDS transactions written on underlying
pools of corporate loans, AIGFP receives monthly or quarterly
updates from one or more Report Providers for each such
referenced pool detailing, with respect to the corporate loans
comprising such pool, the principal amount outstanding and
defaults. In virtually all of these reports, AIGFP also receives
information on recoveries and realized losses. AIGFP also
receives quarterly stratification tables for each pool
incorporating geography, industry and, when not publicly rated,
the counterpartys assessment of the credit quality of the
underlying corporate loans. Additionally, for a significant
majority of these regulatory capital CDS transactions, upon the
occurrence of a credit event with respect to any corporate loan
included in any such pool, AIG receives a notice detailing the
identity or identification number of the borrower, notional
amount of such loan and the effective date of such credit event.
Ratings from independent ratings agencies for the underlying
assets of the corporate loan portfolio are not universally
available, but AIGFP estimates the ratings for the assets not
rated by independent agencies by mapping the information
obtained from the Report Providers to rating agency criteria.
The
Percent Non-Investment
Grade information in the table above is provided as an
indication of the nature of loans underlying the transactions,
not necessarily as an indicator of relative risk of the CDS
transactions, which is determined by the individual transaction
structures. For example, Small and Medium Enterprise (SME) loan
balances tend to be rated lower than loans to large,
well-established enterprises. However, the greater number of
loans and the smaller average size of the SME loans mitigate the
risk profile of the pools. In addition, the transaction
structures reflect AIGFPs assessment of the loan
collateral arrangements, expected recovery values, and reserve
accounts in determining the level of subordination required to
minimize the risk of loss. The percentage of non-investment
grade obligations in the underlying pools of corporate loans
varies considerably. The four pools containing the highest
percentages of non-investment grade obligations, which include
all transactions with pools having non-investment grade
percentages greater than 45.00 percent, are all granular
SME loan pools which benefit from collateral arrangements made
by the originating financial institutions and from work out of
recoveries by the originating financial institutions. The
average number of loans in each pool is over 7,000. This large
number of smaller balance loans increases the predictability of
the expected loss and lessens the probability that discrete
events will have a meaningful impact on the results of the
overall pool. Each transaction benefits from a tranche junior to
it which was still rated AAA by at least two rating agencies at
June 30, 2009. Only one other pool has non-investment grade
percentage greater than 30.00 percent, but this transaction
has 2.50 years remaining, benefits from a reserve account
which absorbs losses prior to any tranche being impacted, has no
realized losses from inception through June 30, 2009 (after
the application of the reserve account) and has a tranche junior
to it which was rated AAA by two rating agencies at
June 30, 2009. Approximately 0.25 percent of the
assets underlying the corporate loan transactions are in
default. The percentage of assets in default by transaction was
available for all transactions and ranged from 0.00 percent
to 1.03 percent.
For regulatory capital CDS transactions written on underlying
pools of residential mortgages, AIGFP receives quarterly reports
for each such referenced pool detailing, with respect to the
residential mortgages comprising such pool, the aggregate
principal amount outstanding, defaults and realized losses.
These reports include additional information on delinquencies
for the large majority of the transactions and recoveries for
substantially all transactions. AIGFP also receives quarterly
stratification tables for each pool incorporating geography for
the underlying residential mortgages. The stratification tables
also include information on remaining term, property use and
interest rates for a large majority of the transactions.
Delinquency information for the mortgages underlying the
residential mortgage transactions was available on approximately
75.14 percent of the total gross transaction notional
amount and mortgages delinquent more than 30 days ranged
from 0.13 percent to 4.29 percent, averaging
0.79 percent. For all but three transactions, which
172
American International Group, Inc.
and Subsidiaries
comprised less than 1.20 percent of the total gross
transaction notional amount, the average default rate (expressed
as a percentage of gross transaction notional amount) was 0.27
percent and ranged from 0.01 percent to 2.16 percent.
The default rate on the remaining three transactions ranged from
4.11 percent to 11.95 percent. The subordination on
these three transactions ranged from 30.52 percent to
39.04 percent.
Where the rating agencies directly rate the junior tranches of
the pools, AIG monitors the rating agencies releases for
any affirmations or changes in such ratings, as well as any
changes in rating methodologies or assumptions used by the
rating agencies to the extent available. The tables below show
the percentage of regulatory capital CDS transactions where
there is an immediately junior tranche that is rated and the
average rating of that tranche across all rated transactions.
AIGFP analyzes the information regarding the performance and
credit quality of the underlying pools of assets to make its own
risk assessment and to determine any changes in credit quality
with respect to such pools of assets. This analysis includes a
review of changes in pool balances, subordination levels,
delinquencies, realized losses, and expected performance under
more adverse credit conditions. Using data provided by the
Report Providers, and information available from rating
agencies, governments, and other public sources that relate to
macroeconomic trends and loan performance, AIGFP is able to
analyze the expected performance of the overall portfolio
because of the large number of loans with similar
characteristics that comprise the collateral pools.
Given the current performance of the underlying portfolios, the
level of subordination and AIGFPs own assessment of the
credit quality, as well as the risk mitigants inherent in the
transaction structures, AIGFP does not expect that it will be
required to make payments pursuant to the contractual terms of
those transactions providing regulatory relief. Further, AIGFP
expects that counterparties will terminate these transactions
prior to their maturity.
The following table presents AIGFPs Regulatory
Capital Corporate loans portfolio by geographic
location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Losses
|
|
|
Weighted Average
|
|
|
|
|
|
Ratings of
|
|
|
|
Net
|
|
|
|
|
|
Average
|
|
|
through
|
|
|
Maturity (Years)
|
|
|
|
|
|
Junior Tranches(c)
|
|
At June 30, 2009
|
|
Notional
|
|
|
Percent
|
|
|
Attachment
|
|
|
June 30,
|
|
|
To First
|
|
|
To
|
|
|
Number of
|
|
|
Percent
|
|
|
Average
|
|
Exposure Portfolio
|
|
Amount
|
|
|
of Total
|
|
|
Point(a)
|
|
|
2009(b)
|
|
|
Call
|
|
|
Maturity
|
|
|
Transactions
|
|
|
Rated
|
|
|
Rating
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Primarily Single Country:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
$
|
7,385
|
|
|
|
8.87
|
%
|
|
|
12.20
|
%
|
|
|
0.09
|
%
|
|
|
3.24
|
|
|
|
9.55
|
|
|
|
3
|
|
|
|
100
|
%
|
|
|
AA+
|
|
Netherlands
|
|
|
3,288
|
|
|
|
3.95
|
|
|
|
19.31
|
|
|
|
|
|
|
|
0.72
|
|
|
|
44.47
|
|
|
|
1
|
|
|
|
100
|
|
|
|
AAA
|
|
Portugal
|
|
|
2,787
|
|
|
|
3.35
|
|
|
|
16.00
|
|
|
|
0.15
|
|
|
|
|
|
|
|
0.01
|
|
|
|
1
|
|
|
|
100
|
|
|
|
AAA
|
|
Australia
|
|
|
1,820
|
|
|
|
2.18
|
|
|
|
9.00
|
|
|
|
|
|
|
|
0.24
|
|
|
|
1.74
|
|
|
|
1
|
|
|
|
100
|
|
|
|
AAA
|
|
Finland
|
|
|
345
|
|
|
|
0.41
|
|
|
|
42.28
|
|
|
|
|
|
|
|
2.54
|
|
|
|
5.54
|
|
|
|
1
|
|
|
|
100
|
|
|
|
AAA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Single Country
|
|
$
|
15,625
|
|
|
|
18.76
|
%
|
|
|
15.10
|
%
|
|
|
|
|
|
|
1.75
|
|
|
|
14.57
|
|
|
|
7
|
|
|
|
100
|
%
|
|
|
AA+
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regional:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
2,028
|
|
|
|
2.43
|
|
|
|
16.35
|
|
|
|
|
|
|
|
0.51
|
|
|
|
2.75
|
|
|
|
1
|
|
|
|
100
|
|
|
|
AAA
|
|
Europe
|
|
|
54,557
|
|
|
|
65.50
|
|
|
|
20.14
|
|
|
|
0.03
|
|
|
|
0.65
|
|
|
|
5.73
|
|
|
|
10
|
|
|
|
100
|
|
|
|
AAA
|
|
North America
|
|
|
11,091
|
|
|
|
13.31
|
|
|
|
15.30
|
|
|
|
|
|
|
|
0.52
|
|
|
|
2.15
|
|
|
|
2
|
|
|
|
100
|
|
|
|
AAA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal Regional
|
|
|
67,676
|
|
|
|
81.24
|
|
|
|
19.34
|
|
|
|
|
|
|
|
0.63
|
|
|
|
5.14
|
|
|
|
13
|
|
|
|
100
|
|
|
|
AAA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
83,301
|
|
|
|
100.00
|
%
|
|
|
18.60
|
%
|
|
|
|
|
|
|
0.82
|
|
|
|
6.73
|
|
|
|
20
|
|
|
|
100
|
%
|
|
|
AAA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Expressed as a percentage of gross transaction notional
amount of the referenced obligations. |
|
(b) |
|
Represents realized losses incurred by the transaction
(defaulted amounts less amounts recovered) from inception
through June 30, 2009 expressed as a percentage of the
initial gross transaction notional amount. |
|
(c) |
|
Represents the weighted average ratings, when available, of
the tranches immediately junior to AIGFPs super senior
tranche. The percentage rated represents the percentage of net
notional amount where there exists a rated tranche immediately
junior to AIGFPs super senior tranche. |
173
American International Group, Inc.
and Subsidiaries
The following table presents AIGFPs Regulatory
Capital Prime residential mortgage portfolio
summarized by geographic location:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Losses
|
|
|
Weighted Average
|
|
|
|
|
|
Ratings of
|
|
|
|
Net
|
|
|
|
|
|
Average
|
|
|
through
|
|
|
Maturity (Years)
|
|
|
|
|
|
Junior Tranches(c)
|
|
|
|
Notional
|
|
|
Percent
|
|
|
Attachment
|
|
|
June 30,
|
|
|
To First
|
|
|
To
|
|
|
Number of
|
|
|
Percent
|
|
|
Average
|
|
At June 30, 2009
|
|
Amount
|
|
|
of Total
|
|
|
Point(a)
|
|
|
2009(b)
|
|
|
Call
|
|
|
Maturity
|
|
|
Transactions
|
|
|
Rated
|
|
|
Rating
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Country:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denmark
|
|
$
|
35,146
|
|
|
|
38.16
|
%
|
|
|
9.50
|
%
|
|
|
0.02
|
%
|
|
|
0.58
|
|
|
|
30.28
|
|
|
|
3
|
|
|
|
100.00
|
%
|
|
|
AAA
|
|
France
|
|
|
26,240
|
|
|
|
28.48
|
|
|
|
8.84
|
|
|
|
0.02
|
|
|
|
0.71
|
|
|
|
30.74
|
|
|
|
5
|
|
|
|
100.00
|
|
|
|
AAA
|
|
Germany
|
|
|
7,686
|
|
|
|
8.34
|
|
|
|
25.89
|
|
|
|
0.30
|
|
|
|
1.27
|
|
|
|
42.94
|
|
|
|
8
|
|
|
|
88.23
|
|
|
|
AAA
|
|
Netherlands
|
|
|
19,489
|
|
|
|
21.15
|
|
|
|
17.89
|
|
|
|
|
|
|
|
0.56
|
|
|
|
5.55
|
|
|
|
2
|
|
|
|
95.65
|
|
|
|
AAA
|
|
Sweden
|
|
|
3,569
|
|
|
|
3.87
|
|
|
|
20.81
|
|
|
|
|
|
|
|
0.60
|
|
|
|
30.60
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
92,130
|
|
|
|
100.00
|
%
|
|
|
13.57
|
%
|
|
|
|
|
|
|
0.67
|
|
|
|
24.63
|
|
|
|
19
|
|
|
|
93.37
|
%
|
|
|
AAA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Expressed as a percentage of gross transaction notional
amount of the referenced obligations. |
|
(b) |
|
Represents realized losses incurred by the transaction
(defaulted amounts less amounts recovered) from inception
through June 30, 2009 expressed as a percentage of the
initial gross transaction notional amount. |
|
(c) |
|
Represents the weighted average ratings, when available, of
the tranches immediately junior to AIGFPs super senior
tranche. The percentage rated represents the percentage of net
notional amount where there exists a rated tranche immediately
junior to AIGFPs super senior tranche. |
Arbitrage
Portfolio
A total of $50.1 billion in net notional amount of
AIGFPs super senior credit default swaps as of
June 30, 2009 are arbitrage-motivated transactions written
on multi-sector CDOs or designated pools of investment grade
senior unsecured corporate debt or CLOs.
Multi-Sector
CDOs
The gross transaction notional amount of the multi-sector
CDOs on which AIGFP wrote protection on the super senior
tranche, subordination below the super senior risk layer, net
notional amount and fair value of derivative liability by
underlying collateral type were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Subordination
|
|
|
|
|
|
|
|
|
|
Transaction
|
|
|
Below the
|
|
|
Net
|
|
|
Fair Value
|
|
|
|
Notional
|
|
|
Super Senior
|
|
|
Notional
|
|
|
of Derivative
|
|
At June 30, 2009
|
|
Amount(a)
|
|
|
Risk Layer
|
|
|
Amount
|
|
|
Liability
|
|
|
|
(In millions)
|
|
|
High grade with sub-prime collateral
|
|
$
|
3,850
|
|
|
$
|
2,175
|
|
|
$
|
1,675
|
|
|
$
|
793
|
|
High grade with no sub-prime collateral
|
|
|
9,626
|
|
|
|
5,504
|
|
|
|
4,122
|
|
|
|
1,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total high grade(b)
|
|
|
13,476
|
|
|
|
7,679
|
|
|
|
5,797
|
|
|
|
2,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mezzanine with sub-prime collateral
|
|
|
4,640
|
|
|
|
2,082
|
|
|
|
2,558
|
|
|
|
2,009
|
|
Mezzanine with no sub-prime collateral
|
|
|
1,697
|
|
|
|
901
|
|
|
|
796
|
|
|
|
685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mezzanine(c)
|
|
|
6,337
|
|
|
|
2,983
|
|
|
|
3,354
|
|
|
|
2,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,813
|
|
|
$
|
10,662
|
|
|
$
|
9,151
|
|
|
$
|
5,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Total outstanding principal amount of securities held by a
CDO. |
|
(b) |
|
High grade refers to transactions in which the
underlying collateral credit ratings on a stand-alone basis were
predominantly AA or higher at origination. |
|
(c) |
|
Mezzanine refers to transactions in which the
underlying collateral credit ratings on a stand-alone basis were
predominantly A or lower at origination. |
174
American International Group, Inc.
and Subsidiaries
The net notional amounts of the remaining multi-sector CDOs
on which AIGFP wrote protection on the super senior tranche, by
settlement alternative, were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
CDS transactions with cash settlement provisions
|
|
|
|
|
|
|
|
|
US dollar-denominated
|
|
$
|
4,778
|
|
|
$
|
7,947
|
|
Euro-denominated
|
|
|
1,735
|
|
|
|
1,780
|
|
|
|
|
|
|
|
|
|
|
Total CDS transactions with cash settlement provisions
|
|
|
6,513
|
|
|
|
9,727
|
|
|
|
|
|
|
|
|
|
|
CDS transactions with physical settlement provisions
|
|
|
|
|
|
|
|
|
US dollar-denominated
|
|
|
669
|
|
|
|
766
|
|
Euro-denominated
|
|
|
1,969
|
|
|
|
2,063
|
|
|
|
|
|
|
|
|
|
|
Total CDS transactions with physical settlement provisions
|
|
|
2,638
|
|
|
|
2,829
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,151
|
|
|
$
|
12,556
|
|
|
|
|
|
|
|
|
|
|
The changes in the fair values of the derivative liability of
the AIGFP super senior multi-sector CDO credit default swap
portfolio were as follows:
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Fair value of derivative liability, beginning of period
|
|
$
|
5,906
|
|
|
$
|
11,246
|
|
Unrealized market valuation (gain) loss
|
|
|
1,093
|
|
|
|
25,700
|
|
Purchases of underlying CDO securities(a)
|
|
|
|
|
|
|
(995
|
)
|
Terminated in connection with the ML III transaction(b)
|
|
|
|
|
|
|
(30,045
|
)
|
Other terminations
|
|
|
(1,728
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivative liability, end of period
|
|
$
|
5,271
|
|
|
$
|
5,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
In connection with the exercise of the maturity-shortening
puts that allow the holders of the securities issued by certain
CDOs to treat the securities as short-term 2a-7 eligible
investments under the Investment Company Act of 1940 (2a-7 Puts)
by counterparties, AIGFP acquired the underlying CDO securities.
In certain cases, simultaneously with the exercise of the 2a-7
Puts by AIGFPs counterparties, AIGFP accessed financing
arrangements previously entered into with such counterparties,
pursuant to which the counterparties remained the legal owners
of the underlying CDO securities. However, these securities were
reported as part of AIGFPs investment portfolio as
required by generally accepted accounting principles. Most of
these underlying CDO securities were later acquired by ML III
from AIGFPs counterparties. In a separate case, AIGFP
extinguished its obligations with respect to one CDS by
purchasing the protected CDO security. |
|
(b) |
|
The CDS in respect of the ML III transaction were terminated
in the fourth quarter of 2008 based on the fair value of the
underlying multi-sector CDOs at October 31, 2008, as
mutually agreed between the FRBNY and AIG. AIGFP recognized the
change in fair value of the CDS through that date. |
175
American International Group, Inc.
and Subsidiaries
The unrealized market valuation gain (loss) of the AIGFP
super senior multi-sector CDO credit default swaps were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Year Ended
|
|
|
|
Ended June 30,
|
|
|
Ended June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2007
|
|
|
|
(In millions)
|
|
|
CDS terminated in connection with ML III
|
|
$
|
|
|
|
$
|
(4,324
|
)
|
|
$
|
|
|
|
$
|
(11,078
|
)
|
|
$
|
(20,365
|
)
|
|
$
|
(9,680
|
)
|
CDS underlying CDO purchased by AIGFP
|
|
|
|
|
|
|
(587
|
)
|
|
|
|
|
|
|
(898
|
)
|
|
|
(854
|
)
|
|
|
(141
|
)
|
CDS all other
|
|
|
(284
|
)
|
|
|
(658
|
)
|
|
|
(1,093
|
)
|
|
|
(1,630
|
)
|
|
|
(4,481
|
)
|
|
|
(1,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(284
|
)
|
|
$
|
(5,569
|
)
|
|
$
|
(1,093
|
)
|
|
$
|
(13,606
|
)
|
|
$
|
(25,700
|
)
|
|
$
|
(11,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents, for each multi-sector CDO that
is a reference obligation in a CDS written by AIGFP, the gross
and net notional amounts at June 30, 2009, attachment
points at inception and at June 30, 2009 and percentage of
gross notional amount rated less than B-/B-3 at June 30,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Gross
|
|
|
|
Gross Notional
|
|
|
Net Notional
|
|
|
|
|
|
|
|
|
Notional Amount Rated
|
|
|
|
Amount at
|
|
|
Amount at
|
|
|
|
|
|
Attachment Point
|
|
|
Less than B-/B-3 at
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
Attachment Point
|
|
|
at June 30,
|
|
|
June 30,
|
|
CDO
|
|
2009
|
|
|
2009
|
|
|
at Inception*
|
|
|
2009*
|
|
|
2009
|
|
|
1
|
|
$
|
1,216
|
|
|
$
|
479
|
|
|
|
40.00
|
%
|
|
|
60.64
|
%
|
|
|
52.94
|
%
|
2
|
|
|
697
|
|
|
|
326
|
|
|
|
53.00
|
%
|
|
|
53.20
|
%
|
|
|
22.78
|
%
|
3
|
|
|
1,000
|
|
|
|
470
|
|
|
|
53.00
|
%
|
|
|
53.00
|
%
|
|
|
57.38
|
%
|
4
|
|
|
1,384
|
|
|
|
321
|
|
|
|
76.00
|
%
|
|
|
76.79
|
%
|
|
|
69.27
|
%
|
5
|
|
|
1,012
|
|
|
|
4
|
|
|
|
10.83
|
%
|
|
|
11.44
|
%
|
|
|
21.58
|
%
|
6
|
|
|
329
|
|
|
|
205
|
|
|
|
39.33
|
%
|
|
|
37.84
|
%
|
|
|
89.08
|
%
|
7
|
|
|
1,201
|
|
|
|
1,079
|
|
|
|
12.27
|
%
|
|
|
10.16
|
%
|
|
|
12.91
|
%
|
8
|
|
|
1,266
|
|
|
|
890
|
|
|
|
25.24
|
%
|
|
|
24.62
|
%
|
|
|
10.43
|
%
|
9
|
|
|
1,454
|
|
|
|
1,350
|
|
|
|
10.00
|
%
|
|
|
7.14
|
%
|
|
|
26.24
|
%
|
10
|
|
|
532
|
|
|
|
314
|
|
|
|
33.00
|
%
|
|
|
41.04
|
%
|
|
|
71.36
|
%
|
11
|
|
|
506
|
|
|
|
247
|
|
|
|
33.25
|
%
|
|
|
26.41
|
%
|
|
|
74.21
|
%
|
12
|
|
|
2,519
|
|
|
|
1,735
|
|
|
|
16.50
|
%
|
|
|
18.31
|
%
|
|
|
0.00
|
%
|
13
|
|
|
425
|
|
|
|
224
|
|
|
|
32.00
|
%
|
|
|
47.35
|
%
|
|
|
62.87
|
%
|
14
|
|
|
622
|
|
|
|
468
|
|
|
|
24.49
|
%
|
|
|
24.72
|
%
|
|
|
74.17
|
%
|
15
|
|
|
676
|
|
|
|
421
|
|
|
|
32.90
|
%
|
|
|
37.71
|
%
|
|
|
93.26
|
%
|
16
|
|
|
333
|
|
|
|
200
|
|
|
|
34.51
|
%
|
|
|
40.00
|
%
|
|
|
93.49
|
%
|
17
|
|
|
4,641
|
|
|
|
418
|
|
|
|
9.72
|
%
|
|
|
11.43
|
%
|
|
|
35.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,813
|
|
|
$
|
9,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Expressed as a percentage of gross notional amount. |
In a number of instances, the level of subordination with
respect to individual CDOs has increased since inception
relative to the overall size of the CDO. While the super senior
tranches are amortizing, subordinate layers have not been
reduced by realized losses to date. Such losses are expected to
emerge in the future. At inception, substantially all of the
underlying assets were rated B-/B3 or higher and in most cases
at least BBB or Baa. Thus, the percentage of gross notional
amount rated less than B-/B3 represents deterioration in the
credit quality of the underlying assets.
176
American International Group, Inc.
and Subsidiaries
The gross transaction notional amount, percentage of the
total CDO collateral pools, and ratings and vintage breakdown of
collateral securities in the multi-sector CDOs, by asset-backed
securities (ABS) category, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
Transaction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS
|
|
Notional
|
|
|
Percent
|
|
|
Ratings
|
|
|
Vintage
|
|
Category
|
|
Amount
|
|
|
of Total
|
|
|
AAA
|
|
|
AA
|
|
|
A
|
|
|
BBB
|
|
|
BB
|
|
|
<BB
|
|
|
NR
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005+P
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS PRIME
|
|
$
|
2,742
|
|
|
|
13.84
|
%
|
|
|
1.95
|
%
|
|
|
1.93
|
%
|
|
|
1.47
|
%
|
|
|
2.52
|
%
|
|
|
3.80
|
%
|
|
|
2.17
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
8.52
|
%
|
|
|
3.93
|
%
|
|
|
1.39
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS ALT-A
|
|
|
3,355
|
|
|
|
16.93
|
%
|
|
|
1.38
|
%
|
|
|
0.20
|
%
|
|
|
0.29
|
%
|
|
|
1.63
|
%
|
|
|
0.74
|
%
|
|
|
12.69
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.75
|
%
|
|
|
4.51
|
%
|
|
|
6.05
|
%
|
|
|
5.62
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS SUBPRIME
|
|
|
4,673
|
|
|
|
23.59
|
%
|
|
|
0.75
|
%
|
|
|
1.49
|
%
|
|
|
1.29
|
%
|
|
|
1.12
|
%
|
|
|
1.24
|
%
|
|
|
17.70
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
1.43
|
%
|
|
|
2.15
|
%
|
|
|
20.01
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
3,330
|
|
|
|
16.81
|
%
|
|
|
3.22
|
%
|
|
|
1.09
|
%
|
|
|
1.86
|
%
|
|
|
4.37
|
%
|
|
|
2.10
|
%
|
|
|
4.08
|
%
|
|
|
0.09
|
%
|
|
|
0.00
|
%
|
|
|
0.09
|
%
|
|
|
1.53
|
%
|
|
|
7.21
|
%
|
|
|
7.98
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO
|
|
|
2,077
|
|
|
|
10.48
|
%
|
|
|
0.66
|
%
|
|
|
0.95
|
%
|
|
|
0.86
|
%
|
|
|
0.97
|
%
|
|
|
0.64
|
%
|
|
|
6.34
|
%
|
|
|
0.06
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.77
|
%
|
|
|
2.02
|
%
|
|
|
7.69
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
|
|
|
3,636
|
|
|
|
18.35
|
%
|
|
|
5.06
|
%
|
|
|
5.04
|
%
|
|
|
5.19
|
%
|
|
|
2.12
|
%
|
|
|
0.59
|
%
|
|
|
0.33
|
%
|
|
|
0.02
|
%
|
|
|
0.00
|
%
|
|
|
0.50
|
%
|
|
|
0.90
|
%
|
|
|
4.84
|
%
|
|
|
12.11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,813
|
|
|
|
100.00
|
%
|
|
|
13.02
|
%
|
|
|
10.70
|
%
|
|
|
10.96
|
%
|
|
|
12.73
|
%
|
|
|
9.11
|
%
|
|
|
43.31
|
%
|
|
|
0.17
|
%
|
|
|
0.00
|
%
|
|
|
1.34
|
%
|
|
|
17.66
|
%
|
|
|
26.20
|
%
|
|
|
54.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Debt/CLOs
The corporate arbitrage portfolio consists principally of CDS
written on portfolios of corporate obligations that were
generally rated investment grade at the inception of the CDS.
These CDS transactions require cash settlement. This portfolio
also includes CDS with a net notional amount of
$1.5 billion written on the senior part of the capital
structure of CLOs, which require physical settlement.
The gross transaction notional amount of CDS transactions
written on portfolios of corporate obligations, percentage of
the total referenced portfolios, and ratings by industry sector,
in addition to the subordinations below the super senior risk
layer and AIGFPs net notional amounts were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2009
|
|
Gross Transaction
|
|
|
Percent
|
|
|
Ratings
|
|
Industry Sector
|
|
Notional Amount
|
|
|
of Total
|
|
|
AAA
|
|
|
Aa
|
|
|
A
|
|
|
Baa
|
|
|
Ba
|
|
|
<Ba
|
|
|
NR
|
|
|
|
(In millions)
|
|
|
United States Industrial
|
|
$
|
20,042
|
|
|
|
36.6
|
%
|
|
|
0.0
|
%
|
|
|
0.3
|
%
|
|
|
7.6
|
%
|
|
|
16.1
|
%
|
|
|
5.3
|
%
|
|
|
5.3
|
%
|
|
|
2.0
|
%
|
Financial
|
|
|
8,265
|
|
|
|
15.1
|
%
|
|
|
0.0
|
%
|
|
|
0.5
|
%
|
|
|
5.7
|
%
|
|
|
3.8
|
%
|
|
|
1.8
|
%
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
Utilities
|
|
|
1,941
|
|
|
|
3.6
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.5
|
%
|
|
|
2.7
|
%
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
|
0.3
|
%
|
Other
|
|
|
58
|
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total United States
|
|
|
30,306
|
|
|
|
55.4
|
%
|
|
|
0.0
|
%
|
|
|
0.8
|
%
|
|
|
13.8
|
%
|
|
|
22.6
|
%
|
|
|
7.1
|
%
|
|
|
7.0
|
%
|
|
|
4.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-United
States Industrial
|
|
|
18,556
|
|
|
|
34.0
|
%
|
|
|
0.0
|
%
|
|
|
0.7
|
%
|
|
|
6.6
|
%
|
|
|
12.7
|
%
|
|
|
3.0
|
%
|
|
|
1.9
|
%
|
|
|
9.1
|
%
|
Financial
|
|
|
2,747
|
|
|
|
5.0
|
%
|
|
|
0.0
|
%
|
|
|
0.4
|
%
|
|
|
3.0
|
%
|
|
|
1.0
|
%
|
|
|
0.1
|
%
|
|
|
0.1
|
%
|
|
|
0.4
|
%
|
Government
|
|
|
1,554
|
|
|
|
2.8
|
%
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
1.4
|
%
|
|
|
1.0
|
%
|
|
|
0.2
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
Utilities
|
|
|
1,282
|
|
|
|
2.3
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
1.1
|
%
|
|
|
0.7
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.5
|
%
|
Other
|
|
|
265
|
|
|
|
0.5
|
%
|
|
|
0.1
|
%
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
0.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Non-United
States
|
|
|
24,404
|
|
|
|
44.6
|
%
|
|
|
0.1
|
%
|
|
|
1.3
|
%
|
|
|
12.3
|
%
|
|
|
15.4
|
%
|
|
|
3.3
|
%
|
|
|
2.0
|
%
|
|
|
10.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gross transaction notional amount
|
|
|
54,710
|
|
|
|
100.0
|
%
|
|
|
0.1
|
%
|
|
|
2.1
|
%
|
|
|
26.1
|
%
|
|
|
38.0
|
%
|
|
|
10.4
|
%
|
|
|
9.0
|
%
|
|
|
14.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordination
|
|
|
13,769
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Notional Amount
|
|
$
|
40,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Derivative Liability
|
|
$
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177
American International Group, Inc.
and Subsidiaries
The following table presents, for each of the corporate debt
and CLO CDS transactions, the net notional amounts at
June 30, 2009, attachment points at inception and at
June 30, 2009 and inception to date defaults through
June 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Notional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at
|
|
|
|
|
|
Attachment Point
|
|
|
Defaults through
|
|
|
|
|
|
June 30,
|
|
|
Attachment Point
|
|
|
at June 30,
|
|
|
June 30,
|
|
CDS
|
|
Type
|
|
2009
|
|
|
at Inception(a)
|
|
|
2009(a)
|
|
|
2009(b)
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Corporate debt
|
|
$
|
4,452
|
|
|
|
20.62
|
%
|
|
|
18.68
|
%
|
|
|
3.08
|
%
|
2
|
|
Corporate debt
|
|
|
4,371
|
|
|
|
12.09
|
%
|
|
|
10.41
|
%
|
|
|
2.44
|
%
|
3
|
|
Corporate debt
|
|
|
2,574
|
|
|
|
13.64
|
%
|
|
|
10.17
|
%
|
|
|
4.71
|
%
|
4
|
|
Corporate debt
|
|
|
2,139
|
|
|
|
12.10
|
%
|
|
|
11.26
|
%
|
|
|
3.73
|
%
|
5
|
|
Corporate debt
|
|
|
7,343
|
|
|
|
11.70
|
%
|
|
|
8.78
|
%
|
|
|
4.93
|
%
|
6
|
|
Corporate debt
|
|
|
1,163
|
|
|
|
6.61
|
%
|
|
|
9.05
|
%
|
|
|
3.03
|
%
|
7
|
|
Corporate debt
|
|
|
2,540
|
|
|
|
20.68
|
%
|
|
|
19.63
|
%
|
|
|
4.19
|
%
|
8
|
|
Corporate debt
|
|
|
994
|
|
|
|
22.14
|
%
|
|
|
20.67
|
%
|
|
|
2.27
|
%
|
9
|
|
Corporate debt
|
|
|
5,580
|
|
|
|
22.00
|
%
|
|
|
20.76
|
%
|
|
|
2.22
|
%
|
10
|
|
Corporate debt
|
|
|
994
|
|
|
|
22.14
|
%
|
|
|
20.67
|
%
|
|
|
2.27
|
%
|
11
|
|
Corporate debt
|
|
|
1,991
|
|
|
|
22.15
|
%
|
|
|
21.08
|
%
|
|
|
1.69
|
%
|
12
|
|
Corporate debt
|
|
|
1,236
|
|
|
|
14.80
|
%
|
|
|
13.59
|
%
|
|
|
2.80
|
%
|
13
|
|
Corporate debt
|
|
|
991
|
|
|
|
20.80
|
%
|
|
|
19.04
|
%
|
|
|
3.09
|
%
|
14
|
|
Corporate debt
|
|
|
211
|
|
|
|
30.00
|
%
|
|
|
30.00
|
%
|
|
|
0.00
|
%
|
15
|
|
Corporate debt
|
|
|
225
|
|
|
|
28.00
|
%
|
|
|
27.68
|
%
|
|
|
1.01
|
%
|
16
|
|
Corporate debt
|
|
|
686
|
|
|
|
26.00
|
%
|
|
|
29.28
|
%
|
|
|
0.00
|
%
|
17
|
|
Corporate debt
|
|
|
653
|
|
|
|
24.00
|
%
|
|
|
23.50
|
%
|
|
|
0.86
|
%
|
18
|
|
Corporate debt
|
|
|
1,313
|
|
|
|
24.00
|
%
|
|
|
23.48
|
%
|
|
|
0.89
|
%
|
19
|
|
CLO
|
|
|
248
|
|
|
|
35.85
|
%
|
|
|
29.53
|
%
|
|
|
3.68
|
%
|
20
|
|
CLO
|
|
|
142
|
|
|
|
43.76
|
%
|
|
|
39.36
|
%
|
|
|
4.49
|
%
|
21
|
|
CLO
|
|
|
211
|
|
|
|
44.20
|
%
|
|
|
41.97
|
%
|
|
|
2.07
|
%
|
22
|
|
CLO
|
|
|
60
|
|
|
|
44.20
|
%
|
|
|
41.97
|
%
|
|
|
2.07
|
%
|
23
|
|
CLO
|
|
|
160
|
|
|
|
44.20
|
%
|
|
|
41.97
|
%
|
|
|
2.07
|
%
|
24
|
|
CLO
|
|
|
179
|
|
|
|
31.76
|
%
|
|
|
33.33
|
%
|
|
|
3.18
|
%
|
25
|
|
CLO
|
|
|
345
|
|
|
|
30.40
|
%
|
|
|
28.90
|
%
|
|
|
2.46
|
%
|
26
|
|
CLO
|
|
|
140
|
|
|
|
31.23
|
%
|
|
|
29.69
|
%
|
|
|
2.40
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
40,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Expressed as a percentage of gross transaction notional
amount of the referenced obligations. |
|
(b) |
|
Represents defaults (assets that are technically defaulted
but for which the losses have not yet been realized) from
inception through June 30, 2009 expressed as a percentage
of the gross transaction notional amount at June 30,
2009. |
Collateral
Most of AIGFPs credit default swaps are subject to
collateral posting provisions. These provisions differ among
counterparties and asset classes. Although AIGFP has collateral
posting obligations associated with both regulatory capital
relief transactions and arbitrage transactions, the large
majority of these obligations to date have been associated with
arbitrage transactions in respect of multi-sector CDOs.
178
American International Group, Inc.
and Subsidiaries
Regulatory
Capital Relief Transactions
As of June 30, 2009, 76.1 percent of AIGFPs
regulatory capital relief transactions (measured by net notional
amount) were subject to a Credit Support Annex (CSA) and
23.9 percent of the regulatory capital relief transactions
were not subject to collateral posting provisions. In general,
each regulatory capital relief transaction is subject to a
stand-alone Master Agreement or similar agreement, under which
the aggregate Exposure is calculated with reference to only a
single transaction.
The underlying mechanism that determines the amount of
collateral to be posted varies from one counterparty to another,
and there is no standard formula. The varied mechanisms resulted
from varied negotiations with different counterparties. The
following is a brief description of the primary mechanisms that
are currently being employed to determine the amount of
collateral posting for this portfolio.
Reference to Market Indices Under this
mechanism, the amount of collateral to be posted is determined
based on a formula that references certain tranches of a market
index, such as either iTraxx or CDX. This mechanism is used for
CDS transactions that reference either corporate loans, or
residential mortgages. While the market index is not a direct
proxy, it has the advantage of being readily obtainable.
Market Value of Reference Obligation Under
this mechanism the amount of collateral to be posted is
determined based on the difference between the net notional
amount of a referenced RMBS security and the securitys
market value.
Expected Loss Models Under this mechanism,
the amount of collateral to be posted is determined based on the
amount of expected credit losses, generally determined using a
rating-agency model.
Negotiated Amount Under this mechanism, the
amount of collateral to be posted is determined based on terms
negotiated between AIGFP and the counterparty, which could be a
fixed percentage of the notional amount or present value of
premiums to be earned by AIGFP.
The amount of collateral postings by underlying mechanism as
described above with respect to the regulatory capital relief
portfolio (prior to consideration of transactions other than
AIGFPs super senior credit default swaps subject to the
same Master Agreements) as of the periods ended were as follows
(there were no collateral postings on this portfolio prior to
March 31, 2008):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
July 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Reference to market indices
|
|
$
|
212
|
|
|
$
|
177
|
|
|
$
|
157
|
|
|
$
|
667
|
|
|
$
|
598
|
|
|
$
|
293
|
|
|
$
|
221
|
|
Market value of referenced obligation
|
|
|
|
|
|
|
142
|
|
|
|
286
|
|
|
|
380
|
|
|
|
317
|
|
|
|
|
|
|
|
|
|
Expected loss models
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
24
|
|
|
|
26
|
|
|
|
27
|
|
Negotiated amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
235
|
|
|
|
225
|
|
|
|
220
|
|
|
|
224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
212
|
|
|
$
|
319
|
|
|
$
|
443
|
|
|
$
|
1,287
|
|
|
$
|
1,164
|
|
|
$
|
539
|
|
|
$
|
472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateral
Calls
AIGFP has received collateral calls from counterparties in
respect of certain super senior credit default swaps, of which a
large majority relate to multi-sector CDOs. To a lesser extent,
AIGFP has also received collateral calls in respect of certain
super senior credit default swaps entered into by counterparties
for regulatory capital relief purposes and in respect of
corporate arbitrage.
179
American International Group, Inc.
and Subsidiaries
The amount of collateral postings with respect to
AIGFPs super senior credit default swap portfolio (prior
to offsets for other transactions) as of the periods ended were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
July 31,
|
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
|
(In millions)
|
|
|
Regulatory capital
|
|
$
|
212
|
|
|
$
|
319
|
|
|
$
|
443
|
|
|
$
|
1,287
|
|
|
$
|
1,164
|
|
|
$
|
539
|
|
|
$
|
472
|
|
Arbitrage multi-sector CDO
|
|
|
7,590
|
|
|
|
13,241
|
|
|
|
31,469
|
|
|
|
5,129
|
|
|
|
6,208
|
|
|
|
4,586
|
|
|
|
4,328
|
|
Arbitrage corporate
|
|
|
368
|
|
|
|
259
|
|
|
|
902
|
|
|
|
2,349
|
|
|
|
1,995
|
|
|
|
1,165
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,170
|
|
|
$
|
13,819
|
|
|
$
|
32,814
|
|
|
$
|
8,765
|
|
|
$
|
9,367
|
|
|
$
|
6,290
|
|
|
$
|
5,812
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of future collateral posting requirements is a
function of AIGs credit ratings, the rating of the
reference obligations and any further decline in the market
value of the relevant reference obligations, with the latter
being the most significant factor. While a high level of
correlation exists between the amount of collateral posted and
the valuation of these contracts in respect of the arbitrage
portfolio, a similar relationship does not exist with respect to
the regulatory capital portfolio given the nature of how the
amount of collateral for these transactions is determined. Given
the severe market disruption, lack of observable data and the
uncertainty regarding the potential effects on market prices of
measures recently undertaken by the federal government to
address the credit market disruption, AIGFP is unable to
reasonably estimate the amounts of collateral that it may be
required to post in the future.
Valuation
Sensitivity Arbitrage Portfolio
Multi-Sector
CDOs
AIG utilizes sensitivity analyses that estimate the effects of
using alternative pricing and other key inputs on AIGs
calculation of the unrealized market valuation loss related to
the AIGFP super senior credit default swap portfolio. While AIG
believes that the ranges used in these analyses are reasonable,
given the current difficult market conditions, AIG is unable to
predict which of the scenarios is most likely to occur. As
recent experience demonstrates, actual results in any period are
likely to vary, perhaps materially, from the modeled scenarios,
and there can be no assurance that the unrealized market
valuation loss related to the AIGFP super senior credit default
swap portfolio will be consistent with any of the sensitivity
analyses. On average for any quarterly period during the past
year, prices for CDOs declined between 5.57 percent and
11.93 percent of the notional amount outstanding. Further,
it is difficult to extrapolate future experience based on
current dislocated market conditions.
For the purposes of estimating sensitivities for the super
senior multi-sector CDO credit default swap portfolio, the
change in valuation derived using the BET model is used to
estimate the change in the fair value of the derivative
liability. Out of the total $9.2 billion net notional
amount of CDS written on multi-sector CDOs outstanding at
June 30, 2009, a BET value is available for
$5.5 billion net notional amount. No BET value is
determined for $3.7 billion of CDS written on European
multi-sector CDOs as prices on the underlying securities held by
the CDOs are not provided by collateral managers; instead these
CDS are valued using counterparty prices. Therefore,
sensitivities disclosed below apply only to the net notional
amount of $5.5 billion.
As mentioned above, the most significant assumption used in the
BET model is the estimated price of the securities within the
CDO collateral pools. If the actual price of the securities
within the collateral pools differs from the price used in
estimating the fair value of the super senior credit default
swap portfolio, there is potential for material variation in the
fair value estimate. Any further declines in the value of the
underlying collateral securities held by a CDO will similarly
affect the value of the super senior CDO securities given their
significantly depressed valuations. Given the current difficult
market conditions, AIG cannot predict reasonably likely changes
in the prices of the underlying collateral securities held
within a CDO at this time.
180
American International Group, Inc.
and Subsidiaries
The following table presents key inputs used in the BET
model, and the potential increase (decrease) to the fair value
of the derivative liability by ABS category at June 30,
2009 corresponding to changes in these key inputs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inputs Used at
|
|
|
|
Increase (Decrease) to Fair Value of Derivative Liability
|
|
|
|
June 30,
|
|
|
|
Entire
|
|
|
RMBS
|
|
|
RMBS
|
|
|
RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Change
|
|
Portfolio
|
|
|
PRIME
|
|
|
ALT-A
|
|
|
Subprime
|
|
|
CMBS
|
|
|
CDOs
|
|
|
Other
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
Bond prices
|
|
33 points
|
|
Increase of 5 points
|
|
$
|
(581
|
)
|
|
$
|
(19
|
)
|
|
$
|
(52
|
)
|
|
$
|
(249
|
)
|
|
$
|
(128
|
)
|
|
$
|
(102
|
)
|
|
$
|
(31
|
)
|
|
|
|
|
Decrease of 5 points
|
|
|
495
|
|
|
|
19
|
|
|
|
49
|
|
|
|
214
|
|
|
|
126
|
|
|
|
56
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average life
|
|
5.01 years
|
|
Increase of 1 year
|
|
|
171
|
|
|
|
5
|
|
|
|
9
|
|
|
|
163
|
|
|
|
(12
|
)
|
|
|
2
|
|
|
|
4
|
|
|
|
|
|
Decrease of 1 year
|
|
|
(347
|
)
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
(330
|
)
|
|
|
9
|
|
|
|
(6
|
)
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery rates
|
|
21%
|
|
Increase of 10%
|
|
|
(75
|
)
|
|
|
(5
|
)
|
|
|
(7
|
)
|
|
|
(22
|
)
|
|
|
(36
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
|
|
Decrease of 10%
|
|
|
106
|
|
|
|
6
|
|
|
|
9
|
|
|
|
43
|
|
|
|
44
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversity score(a)
|
|
16
|
|
Increase of 5
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease of 5
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount curve(b)
|
|
N/A
|
|
Increase of 100bps
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The diversity score is an input at the CDO level. A
calculation of sensitivity to this input by type of security is
not possible. |
|
(b) |
|
The discount curve is an input at the CDO level. A
calculation of sensitivity to this input by type of security is
not possible. Furthermore, for this input it is not possible to
disclose a weighted average input as a discount curve consists
of a series of data points. |
These results are calculated by stressing a particular
assumption independently of changes in any other assumption. No
assurance can be given that the actual levels of the key inputs
will not exceed, perhaps significantly, the ranges assumed by
AIG for purposes of the above analysis. No assumption should be
made that results calculated from the use of other changes in
these key inputs can be interpolated or extrapolated from the
results set forth above.
Corporate
Debt
The following table represents the relevant market credit
indices and CDS maturity used to estimate the sensitivity for
the credit default swap portfolio written on investment-grade
corporate debt and the estimated increase (decrease) to fair
value of derivative liability at June 30, 2009
corresponding to changes in these market credit indices and
maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) To
|
|
Input Used at June 30, 2009
|
|
Fair Value of Derivative Liability
|
|
|
|
(Dollars in millions)
|
|
|
CDS maturity (in years)
|
|
|
5
|
|
|
|
7
|
|
|
|
10
|
|
CDX Index spread (in basis points)
|
|
|
31
|
|
|
|
45
|
|
|
|
49
|
|
Effect of an increase of 10 basis points
|
|
$
|
(4
|
)
|
|
$
|
(31
|
)
|
|
$
|
(17
|
)
|
Effect of a decrease of 10 basis points
|
|
$
|
4
|
|
|
$
|
31
|
|
|
$
|
17
|
|
iTraxx Index spread (in basis points)
|
|
|
40
|
|
|
|
43
|
|
|
|
46
|
|
Effect of an increase of 10 basis points
|
|
$
|
(7
|
)
|
|
$
|
(18
|
)
|
|
$
|
|
|
Effect of a decrease of 10 basis points
|
|
$
|
7
|
|
|
$
|
18
|
|
|
$
|
|
|
These results are calculated by stressing a particular
assumption independently of changes in any other assumption. No
assurance can be given that the actual levels of the indices and
maturity will not exceed, perhaps significantly, the ranges
assumed by AIGFP for purposes of the above analysis. No
assumption should be made that results calculated from the use
of other changes in these indices and maturity can be
interpolated or extrapolated from the results set forth above.
181
American International Group, Inc.
and Subsidiaries
Other derivatives. Valuation models that
incorporate unobservable inputs initially are calibrated to the
transaction price. Subsequent valuations are based on observable
inputs to the valuation model (e.g., interest rates, credit
spreads, volatilities, etc.). Model inputs are changed only when
corroborated by observable market data.
Transfers
into Level 3
During the three-month period ended June 30, 2009, AIG
transferred from Level 2 to Level 3 approximately
$995 million of assets, primarily representing downgraded
fixed maturity securities for which the observable market prices
were not indicative of fair value. See Note 4 to the
Consolidated Financial Statements for additional information
about transfers into Level 3.
Investments
Investments
by Segment
The following tables summarize the composition of AIGs
investments by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
|
Retirement
|
|
|
Financial
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Services
|
|
|
Services
|
|
|
Management
|
|
|
Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
At June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale, at fair value
|
|
$
|
72,481
|
|
|
$
|
263,915
|
|
|
$
|
1,866
|
|
|
$
|
8,512
|
|
|
$
|
6,934
|
|
|
$
|
353,708
|
|
Bond trading securities, at fair value
|
|
|
|
|
|
|
6,136
|
|
|
|
22,064
|
|
|
|
|
|
|
|
3,159
|
|
|
|
31,359
|
|
Securities lending invested collateral, at fair value
|
|
|
|
|
|
|
1,108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,108
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and preferred stock available for sale, at fair value
|
|
|
2,542
|
|
|
|
6,173
|
|
|
|
7
|
|
|
|
544
|
|
|
|
23
|
|
|
|
9,289
|
|
Common and preferred stock trading, at fair value
|
|
|
39
|
|
|
|
12,805
|
|
|
|
370
|
|
|
|
|
|
|
|
|
|
|
|
13,214
|
|
Mortgage and other loans receivable, net of allowance
|
|
|
5
|
|
|
|
26,207
|
|
|
|
326
|
|
|
|
5,841
|
|
|
|
1
|
|
|
|
32,380
|
|
Finance receivables, net of allowance
|
|
|
|
|
|
|
|
|
|
|
25,342
|
|
|
|
|
|
|
|
|
|
|
|
25,342
|
|
Flight equipment primarily under operating leases, net of
accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
44,692
|
|
|
|
|
|
|
|
|
|
|
|
44,692
|
|
Other invested assets
|
|
|
10,866
|
|
|
|
15,615
|
|
|
|
588
|
|
|
|
12,246
|
|
|
|
4,281
|
|
|
|
43,596
|
|
Securities purchased under agreements to resell, at fair value
|
|
|
|
|
|
|
|
|
|
|
4,481
|
|
|
|
|
|
|
|
|
|
|
|
4,481
|
|
Short-term investments
|
|
|
11,259
|
|
|
|
38,449
|
|
|
|
6,135
|
|
|
|
2,419
|
|
|
|
1,074
|
|
|
|
59,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments(a)
|
|
|
97,192
|
|
|
|
370,408
|
|
|
|
105,871
|
|
|
|
29,562
|
|
|
|
15,472
|
|
|
|
618,505
|
|
Cash
|
|
|
1,167
|
|
|
|
1,328
|
|
|
|
2,381
|
|
|
|
676
|
|
|
|
250
|
|
|
|
5,802
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Investments
|
|
$
|
98,359
|
|
|
$
|
371,736
|
|
|
$
|
108,252
|
|
|
$
|
30,238
|
|
|
$
|
15,722
|
|
|
$
|
624,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
182
American International Group, Inc.
and Subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
|
Retirement
|
|
|
Financial
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Services
|
|
|
Services
|
|
|
Management
|
|
|
Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
At December 31, 2008(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds available for sale, at fair value
|
|
$
|
69,106
|
|
|
$
|
262,824
|
|
|
$
|
1,971
|
|
|
$
|
12,284
|
|
|
$
|
16,857
|
|
|
$
|
363,042
|
|
Bond trading securities, at fair value
|
|
|
|
|
|
|
6,296
|
|
|
|
26,848
|
|
|
|
5
|
|
|
|
4,099
|
|
|
|
37,248
|
|
Securities lending invested collateral, at fair value
|
|
|
790
|
|
|
|
3,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,844
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common and preferred stock available for sale, at fair value
|
|
|
2,812
|
|
|
|
4,988
|
|
|
|
8
|
|
|
|
299
|
|
|
|
701
|
|
|
|
8,808
|
|
Common and preferred stock trading, at fair value
|
|
|
283
|
|
|
|
11,312
|
|
|
|
737
|
|
|
|
1
|
|
|
|
2
|
|
|
|
12,335
|
|
Mortgage and other loans receivable, net of allowance
|
|
|
5
|
|
|
|
27,709
|
|
|
|
367
|
|
|
|
6,558
|
|
|
|
48
|
|
|
|
34,687
|
|
Finance receivables, net of allowance
|
|
|
|
|
|
|
5
|
|
|
|
30,944
|
|
|
|
|
|
|
|
|
|
|
|
30,949
|
|
Flight equipment primarily under operating leases, net of
accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
43,395
|
|
|
|
|
|
|
|
|
|
|
|
43,395
|
|
Other invested assets
|
|
|
11,474
|
|
|
|
17,184
|
|
|
|
1,247
|
|
|
|
14,540
|
|
|
|
7,533
|
|
|
|
51,978
|
|
Securities purchased under agreements to resell, at fair value
|
|
|
|
|
|
|
|
|
|
|
3,960
|
|
|
|
|
|
|
|
|
|
|
|
3,960
|
|
Short-term investments
|
|
|
9,253
|
|
|
|
26,554
|
|
|
|
6,238
|
|
|
|
2,347
|
|
|
|
2,274
|
|
|
|
46,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investments(b)
|
|
|
93,723
|
|
|
|
359,926
|
|
|
|
115,715
|
|
|
|
36,034
|
|
|
|
31,514
|
|
|
|
636,912
|
|
Cash
|
|
|
549
|
|
|
|
5,765
|
|
|
|
1,719
|
|
|
|
169
|
|
|
|
440
|
|
|
|
8,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash and Investments
|
|
$
|
94,272
|
|
|
$
|
365,691
|
|
|
$
|
117,434
|
|
|
$
|
36,203
|
|
|
$
|
31,954
|
|
|
$
|
645,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Revised to reflect the reclassification of noncore businesses
from General Insurance to Other. See Note 3 to the
Consolidated Financial Statements. |
|
(b) |
|
At June 30, 2009, approximately 58 percent and
42 percent of investments were held by domestic and foreign
entities, respectively, compared to approximately
54 percent and 46 percent, respectively, at
December 31, 2008. |
Investment
Strategy
AIGs investment strategies are tailored to the specific
business needs of each operating unit. The investment objectives
are driven by the business model for each of the businesses:
General Insurance, Life Insurance, Retirement Services and Asset
Management.
Spread-Based Investment business. The primary objectives are
liquidity, preservation of capital, growth of surplus and
generation of investment income to support the insurance
products. Difficult market conditions in recent quarters have
significantly hindered AIGs ability to achieve these
objectives, and these challenges are expected to persist for the
foreseeable future.
At the local operating unit level, investment strategies are
based on considerations that include the local market, liability
duration and cash flow characteristics, rating agency and
regulatory capital considerations, legal investment limitations,
tax optimization and diversification.
The majority of assets backing insurance liabilities at AIG
consist of intermediate and long duration fixed maturity
securities. In the case of Life Insurance & Retirement
Services companies, as well as in the GIC and MIP portfolios of
the Asset Management segment, the fundamental investment
strategy is to match, as nearly as is practicable, the duration
characteristics of the liabilities with comparable duration
assets. Fixed maturity securities
183
American International Group, Inc.
and Subsidiaries
held by the insurance companies included in Commercial Insurance
historically have consisted primarily of laddered holdings of
tax-exempt municipal bonds, which provided attractive after-tax
returns and limited credit risk. In light of AIGs net
operating losses in the third quarter of 2008, AIG changed its
intent to hold to maturity certain tax-exempt municipal
securities held by its insurance subsidiaries. Fixed maturity
securities held by Foreign General Insurance companies consist
primarily of intermediate duration high grade securities.
The market price of fixed maturity securities reflects numerous
components, including interest rate environment, credit spread,
embedded optionality (such as call features), liquidity,
structural complexity, foreign exchange risk, and other credit
and non-credit factors. However, in most circumstances, pricing
is most sensitive to interest rates, such that the market price
declines as interest rates rise, and increases as interest rates
fall. This effect is more pronounced for longer duration
securities.
AIG records at fair value the vast majority of the invested
assets held by its insurance companies pursuant to FAS 115,
Accounting for Certain Investments in Debt and Equity
Securities, and related accounting pronouncements.
However, with limited exceptions (primarily with respect to
separate account products consolidated on AIGs balance
sheet pursuant to
SOP 03-01),
AIG does not adjust the fair value of its insurance liabilities
for changes in interest rates, even though rising interest rates
have the effect of reducing the fair value of such liabilities,
and falling interest rates have the opposite effect. This
results in the recording of changes in unrealized gains (losses)
on securities in Accumulated other comprehensive income
resulting from changes in interest rates without any
correlative, inverse changes in gains (losses) on AIGs
liabilities. Because AIGs asset duration in certain
low-yield currencies, particularly Japan and Taiwan, is shorter
than its liability duration, AIG views increasing interest rates
in these countries as economically advantageous, notwithstanding
the effect that higher rates have on the fair value of its fixed
maturity portfolio.
At June 30, 2009, approximately 51 percent of the
fixed maturity securities were in domestic entities.
Approximately 25 percent of such securities were rated AAA
by one or more of the principal rating agencies. Approximately
10 percent were below investment grade or not rated.
AIGs investment decision process relies primarily on
internally generated fundamental analysis and internal risk
ratings. Third-party rating services ratings and opinions
provide one source of independent perspectives for consideration
in the internal analysis.
A significant portion of the foreign fixed maturity portfolio is
rated by Moodys, S&P or similar foreign rating
services. Rating services are not available in all overseas
locations. AIGs Credit Risk Committee closely reviews the
credit quality of the foreign portfolios non-rated fixed
maturity securities. At June 30, 2009, approximately
13 percent of the foreign fixed income investments were
either rated AAA or, on the basis of AIGs internal
analysis, were equivalent from a credit standpoint to securities
so rated. Approximately six percent were below investment grade
or not rated at that date. Approximately one third of the
foreign fixed maturity portfolio is sovereign fixed maturity
securities supporting policy liabilities in the country of
issuance.
The credit ratings of AIGs fixed maturity investments
were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Rating
|
|
|
|
|
|
|
|
|
AAA
|
|
|
19
|
%
|
|
|
22
|
%
|
AA
|
|
|
29
|
|
|
|
30
|
|
A
|
|
|
26
|
|
|
|
26
|
|
BBB
|
|
|
19
|
|
|
|
16
|
|
Below investment grade
|
|
|
6
|
|
|
|
4
|
|
Non-rated
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
184
American International Group, Inc.
and Subsidiaries
The industry categories of AIGs available for sale
corporate debt securities, other than those of AIGFP, were as
follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
Industry Category
|
|
2009
|
|
|
2008
|
|
|
Financial institutions:
|
|
|
|
|
|
|
|
|
Money Center /Global Bank Groups
|
|
|
18
|
%
|
|
|
20
|
%
|
Regional banks other
|
|
|
6
|
|
|
|
5
|
|
Life insurance
|
|
|
4
|
|
|
|
4
|
|
Securities firms and other finance companies
|
|
|
3
|
|
|
|
4
|
|
Insurance non-life
|
|
|
2
|
|
|
|
5
|
|
Regional banks North America
|
|
|
3
|
|
|
|
3
|
|
Other financial institutions
|
|
|
4
|
|
|
|
1
|
|
Utilities
|
|
|
13
|
|
|
|
13
|
|
Communications
|
|
|
8
|
|
|
|
8
|
|
Consumer noncyclical
|
|
|
8
|
|
|
|
8
|
|
Capital goods
|
|
|
6
|
|
|
|
6
|
|
Consumer cyclical
|
|
|
5
|
|
|
|
5
|
|
Energy
|
|
|
5
|
|
|
|
5
|
|
Other
|
|
|
15
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
Total*
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
At June 30, 2009 and December 31, 2008,
approximately 95 percent and 96 percent, respectively,
of these investments were rated investment grade. |
Investments
in RMBS, CMBS, CDOs and ABS
The amortized cost, gross unrealized gains (losses) and fair
value of AIGs investments in RMBS, CMBS, CDOs and ABS were
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
(In millions)
|
|
|
Bonds available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIG, excluding AIGFP:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS
|
|
$
|
34,872
|
|
|
$
|
940
|
|
|
$
|
(7,054
|
)
|
|
$
|
28,758
|
|
|
$
|
32,092
|
|
|
$
|
645
|
|
|
$
|
(2,985
|
)
|
|
$
|
29,752
|
|
CMBS
|
|
|
19,002
|
|
|
|
66
|
|
|
|
(8,048
|
)
|
|
|
11,020
|
|
|
|
14,205
|
|
|
|
126
|
|
|
|
(3,105
|
)
|
|
|
11,226
|
|
CDO/ABS
|
|
|
8,039
|
|
|
|
133
|
|
|
|
(3,007
|
)
|
|
|
5,165
|
|
|
|
6,741
|
|
|
|
233
|
|
|
|
(843
|
)
|
|
|
6,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal, excluding AIGFP
|
|
|
61,913
|
|
|
|
1,139
|
|
|
|
(18,109
|
)
|
|
|
44,943
|
|
|
|
53,038
|
|
|
|
1,004
|
|
|
|
(6,933
|
)
|
|
|
47,109
|
|
AIGFP
|
|
|
143
|
|
|
|
8
|
|
|
|
|
|
|
|
151
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
62,056
|
|
|
$
|
1,147
|
|
|
$
|
(18,109
|
)
|
|
$
|
45,094
|
|
|
$
|
53,255
|
|
|
$
|
1,004
|
|
|
$
|
(6,933
|
)
|
|
$
|
47,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
185
American International Group, Inc.
and Subsidiaries
Investments
in RMBS
The amortized cost, gross unrealized gains (losses) and
estimated fair value of AIGs investments in RMBS
securities, other than those of AIGFP, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Percent
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
Percent
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
of Total
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
of Total
|
|
|
|
(In millions)
|
|
|
RMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. agencies
|
|
$
|
13,168
|
|
|
$
|
679
|
|
|
$
|
(25
|
)
|
|
$
|
13,822
|
|
|
|
48
|
%
|
|
$
|
12,793
|
|
|
$
|
537
|
|
|
$
|
(22
|
)
|
|
$
|
13,308
|
|
|
|
45
|
%
|
Prime non-agency(a)
|
|
|
13,047
|
|
|
|
154
|
|
|
|
(3,146
|
)
|
|
|
10,055
|
|
|
|
35
|
|
|
|
12,744
|
|
|
|
41
|
|
|
|
(1,984
|
)
|
|
|
10,801
|
|
|
|
36
|
|
Alt-A
|
|
|
5,997
|
|
|
|
48
|
|
|
|
(2,412
|
)
|
|
|
3,633
|
|
|
|
13
|
|
|
|
4,927
|
|
|
|
25
|
|
|
|
(743
|
)
|
|
|
4,209
|
|
|
|
14
|
|
Other housing- related(b)
|
|
|
903
|
|
|
|
42
|
|
|
|
(534
|
)
|
|
|
411
|
|
|
|
1
|
|
|
|
410
|
|
|
|
23
|
|
|
|
(54
|
)
|
|
|
379
|
|
|
|
1
|
|
Subprime
|
|
|
1,757
|
|
|
|
17
|
|
|
|
(937
|
)
|
|
|
837
|
|
|
|
3
|
|
|
|
1,218
|
|
|
|
19
|
|
|
|
(182
|
)
|
|
|
1,055
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
34,872
|
|
|
$
|
940
|
|
|
$
|
(7,054
|
)
|
|
$
|
28,758
|
|
|
|
100
|
%
|
|
$
|
32,092
|
|
|
$
|
645
|
|
|
$
|
(2,985
|
)
|
|
$
|
29,752
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Includes foreign and jumbo RMBS-related securities. |
|
(b) |
|
Primarily wrapped second-lien. |
AIGs operations, other than AIGFP, held investments in
RMBS with an estimated fair value of $28.8 billion at
June 30, 2009, or approximately 5 percent of
AIGs total invested assets. In addition, AIGs
insurance operations held investments with a fair value totaling
$5.2 billion in CDOs/ABS, of which $6 million included
some level of subprime exposure. AIGs RMBS investments are
predominantly in tranches that contain substantial protection
features through collateral subordination. At June 30,
2009, approximately 69 percent of these investments were
rated AAA, and approximately 7 percent were rated AA by one
or more of the principal rating agencies. AIGs investments
rated BBB or below totaled $6.7 billion, or approximately
1 percent of AIGs total invested assets at
June 30, 2009. As of July 31, 2009, $12.5 billion
of AIGs RMBS portfolio had been downgraded as a result of
rating agency actions since January 1, 2007, and
$174 million of such investments had been upgraded. Of the
downgrades, $11.0 billion were AAA rated securities. In
addition to the downgrades, as of July 31, 2009, the rating
agencies had $830 million of RMBS on watch for downgrade.
In the six-month period ended June 30, 2009, AIG collected
approximately $2.5 billion of principal payments on RMBS.
186
American International Group, Inc.
and Subsidiaries
The amortized cost of AIGs RMBS investments, other than
those of AIGFP, by year of vintage and credit rating were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year of Vintage
|
|
At June 30, 2009
|
|
Prior
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
10,258
|
|
|
$
|
3,357
|
|
|
$
|
3,226
|
|
|
$
|
2,888
|
|
|
$
|
3,507
|
|
|
$
|
863
|
|
|
$
|
24,099
|
|
AA
|
|
|
1,364
|
|
|
|
438
|
|
|
|
265
|
|
|
|
321
|
|
|
|
|
|
|
|
|
|
|
|
2,388
|
|
A
|
|
|
551
|
|
|
|
582
|
|
|
|
318
|
|
|
|
209
|
|
|
|
52
|
|
|
|
|
|
|
|
1,712
|
|
BBB and below
|
|
|
462
|
|
|
|
1,095
|
|
|
|
2,394
|
|
|
|
2,653
|
|
|
|
52
|
|
|
|
17
|
|
|
|
6,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total RMBS*
|
|
$
|
12,635
|
|
|
$
|
5,472
|
|
|
$
|
6,203
|
|
|
$
|
6,071
|
|
|
$
|
3,611
|
|
|
$
|
880
|
|
|
$
|
34,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alt-A RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
1,159
|
|
|
$
|
618
|
|
|
$
|
875
|
|
|
$
|
653
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,305
|
|
AA
|
|
|
345
|
|
|
|
141
|
|
|
|
138
|
|
|
|
191
|
|
|
|
|
|
|
|
|
|
|
|
815
|
|
A
|
|
|
68
|
|
|
|
47
|
|
|
|
178
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
345
|
|
BBB and below
|
|
|
67
|
|
|
|
179
|
|
|
|
491
|
|
|
|
795
|
|
|
|
|
|
|
|
|
|
|
|
1,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Alt-A
|
|
$
|
1,639
|
|
|
$
|
985
|
|
|
$
|
1,682
|
|
|
$
|
1,691
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subprime RMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
364
|
|
|
$
|
169
|
|
|
$
|
151
|
|
|
$
|
32
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
716
|
|
AA
|
|
|
175
|
|
|
|
105
|
|
|
|
40
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
A
|
|
|
161
|
|
|
|
179
|
|
|
|
12
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
359
|
|
BBB and below
|
|
|
138
|
|
|
|
108
|
|
|
|
54
|
|
|
|
32
|
|
|
|
|
|
|
|
|
|
|
|
332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Subprime
|
|
$
|
838
|
|
|
$
|
561
|
|
|
$
|
257
|
|
|
$
|
101
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prime non-agency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
4,098
|
|
|
$
|
899
|
|
|
$
|
1,111
|
|
|
$
|
736
|
|
|
$
|
11
|
|
|
$
|
27
|
|
|
$
|
6,882
|
|
AA
|
|
|
814
|
|
|
|
184
|
|
|
|
87
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
1,185
|
|
A
|
|
|
267
|
|
|
|
285
|
|
|
|
121
|
|
|
|
151
|
|
|
|
52
|
|
|
|
|
|
|
|
876
|
|
BBB and below
|
|
|
217
|
|
|
|
774
|
|
|
|
1,453
|
|
|
|
1,592
|
|
|
|
52
|
|
|
|
16
|
|
|
|
4,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total prime non-agency
|
|
$
|
5,396
|
|
|
$
|
2,142
|
|
|
$
|
2,772
|
|
|
$
|
2,579
|
|
|
$
|
115
|
|
|
$
|
43
|
|
|
$
|
13,047
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
The weighted average expected life is 6 years. |
AIGs underwriting practices for investing in RMBS, other
asset-backed securities and CDOs take into consideration the
quality of the originator, the manager, the servicer, security
credit ratings, underlying characteristics of the mortgages,
borrower characteristics, and the level of credit enhancement in
the transaction. AIGs strategy is typically to invest in
securities rated AA or better at the time of the investment.
187
American International Group, Inc.
and Subsidiaries
Investments
in CMBS
The amortized cost of AIGs CMBS investments, other than
those of AIGFP, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Percent
|
|
|
Amortized
|
|
|
Percent
|
|
|
|
Cost
|
|
|
of Total
|
|
|
Cost
|
|
|
of Total
|
|
|
|
(In millions)
|
|
|
CMBS (traditional)
|
|
$
|
17,293
|
|
|
|
91
|
%
|
|
$
|
13,033
|
|
|
|
92
|
%
|
ReRemic/CRE CDO
|
|
|
1,204
|
|
|
|
6
|
|
|
|
583
|
|
|
|
4
|
|
Agency
|
|
|
158
|
|
|
|
1
|
|
|
|
159
|
|
|
|
1
|
|
Other
|
|
|
347
|
|
|
|
2
|
|
|
|
430
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,002
|
|
|
|
100
|
%
|
|
$
|
14,205
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The percentage of AIGs CMBS investments, other than
those of AIGFP, by credit rating was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Rating:
|
|
|
|
|
|
|
|
|
AAA
|
|
|
72
|
%
|
|
|
84
|
%
|
AA
|
|
|
13
|
|
|
|
8
|
|
A
|
|
|
9
|
|
|
|
6
|
|
BBB and below
|
|
|
6
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The percentage of AIGs CMBS investments, other than
those of AIGFP, by year of vintage was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Year:
|
|
|
|
|
|
|
|
|
2008
|
|
|
1
|
%
|
|
|
1
|
%
|
2007
|
|
|
26
|
|
|
|
23
|
|
2006
|
|
|
15
|
|
|
|
11
|
|
2005
|
|
|
21
|
|
|
|
17
|
|
2004 and prior
|
|
|
37
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
188
American International Group, Inc.
and Subsidiaries
The percentage of AIGs CMBS investments, other than
those of AIGFP, by geographic region was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Geographic region:
|
|
|
|
|
|
|
|
|
New York
|
|
|
16
|
%
|
|
|
15
|
%
|
California
|
|
|
15
|
|
|
|
13
|
|
Texas
|
|
|
7
|
|
|
|
6
|
|
Florida
|
|
|
7
|
|
|
|
6
|
|
Illinois
|
|
|
4
|
|
|
|
3
|
|
Virginia
|
|
|
4
|
|
|
|
3
|
|
New Jersey
|
|
|
3
|
|
|
|
3
|
|
Pennsylvania
|
|
|
3
|
|
|
|
3
|
|
Maryland
|
|
|
3
|
|
|
|
2
|
|
Georgia
|
|
|
3
|
|
|
|
2
|
|
All Other
|
|
|
35
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
The percentage of AIGs CMBS investments, other than
those of AIGFP, by industry was as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Industry:
|
|
|
|
|
|
|
|
|
Office
|
|
|
32
|
%
|
|
|
33
|
%
|
Retail
|
|
|
31
|
|
|
|
31
|
|
Multi-family
|
|
|
17
|
|
|
|
17
|
|
Lodging
|
|
|
7
|
|
|
|
7
|
|
Industrial
|
|
|
7
|
|
|
|
7
|
|
Other
|
|
|
6
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
There have been disruptions in the commercial mortgage markets
in general, and the CMBS market in particular, with credit
default swaps indices and quoted prices of securities at levels
consistent with a severe correction in lease rates, occupancy
and fair value of properties. In addition, spreads in the
primary mortgage market have widened significantly.
189
American International Group, Inc.
and Subsidiaries
Investments
in CDOs
The amortized cost of AIGs CDO investments, other than
those of AIGFP, by collateral type was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Percent
|
|
|
Amortized
|
|
|
Percent
|
|
|
|
Cost
|
|
|
of Total
|
|
|
Cost
|
|
|
of Total
|
|
|
|
(In millions)
|
|
|
Collateral Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans (CLO)
|
|
$
|
1,987
|
|
|
|
68
|
%
|
|
$
|
824
|
|
|
|
61
|
%
|
Synthetic investment grade
|
|
|
428
|
|
|
|
15
|
|
|
|
210
|
|
|
|
16
|
|
Other
|
|
|
442
|
|
|
|
15
|
|
|
|
291
|
|
|
|
22
|
|
Subprime ABS
|
|
|
68
|
|
|
|
2
|
|
|
|
12
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,925
|
|
|
|
100
|
%
|
|
$
|
1,337
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized cost of AIGs CDO investments, other than
those of AIGFP, by credit rating was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Amortized
|
|
|
Percent
|
|
|
Amortized
|
|
|
Percent
|
|
|
|
Cost
|
|
|
of Total
|
|
|
Cost
|
|
|
of Total
|
|
|
|
(In millions)
|
|
|
Rating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
$
|
353
|
|
|
|
12
|
%
|
|
$
|
386
|
|
|
|
29
|
%
|
AA
|
|
|
139
|
|
|
|
5
|
|
|
|
180
|
|
|
|
13
|
|
A
|
|
|
1,550
|
|
|
|
53
|
|
|
|
574
|
|
|
|
43
|
|
BBB
|
|
|
352
|
|
|
|
12
|
|
|
|
168
|
|
|
|
13
|
|
Below investment grade and equity
|
|
|
531
|
|
|
|
18
|
|
|
|
29
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,925
|
|
|
|
100
|
%
|
|
$
|
1,337
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
Mortgage Loans
At June 30, 2009, AIG had direct commercial mortgage loan
exposure of $16.6 billion, with $15.3 billion
representing U.S. loan exposure. At that date,
substantially all of the U.S. loans were current. Foreign
commercial mortgage loans of $1.3 billion are secured
predominantly by properties in Japan. In addition, at
June 30, 2009, AIG had $2.1 billion in residential
mortgage loans in jurisdictions outside the United States,
primarily secured by properties in Taiwan, Malaysia and
Thailand. For the six-month period ended June 30, 2009, AIG
recorded a valuation allowance of $356 million on the
U.S. commercial mortgage loan portfolio and $3 million
in the foreign commercial mortgage loan portfolio.
190
American International Group, Inc.
and Subsidiaries
The U.S. commercial mortgage loan exposure by state and
type of loan was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
# of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%of
|
|
At June 30, 2009
|
|
Loans
|
|
|
Amount
|
|
|
Apartments
|
|
|
Offices
|
|
|
Retails
|
|
|
Industrials
|
|
|
Hotels
|
|
|
Others
|
|
|
Total
|
|
|
|
(Dollars in millions)
|
|
|
State
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
California
|
|
|
219
|
|
|
$
|
4,253
|
|
|
$
|
134
|
|
|
$
|
1,815
|
|
|
$
|
234
|
|
|
$
|
1,027
|
|
|
$
|
503
|
|
|
$
|
540
|
|
|
|
27
|
%
|
New York
|
|
|
76
|
|
|
|
1,777
|
|
|
|
318
|
|
|
|
1,109
|
|
|
|
176
|
|
|
|
40
|
|
|
|
48
|
|
|
|
86
|
|
|
|
11
|
|
New Jersey
|
|
|
71
|
|
|
|
1,322
|
|
|
|
641
|
|
|
|
279
|
|
|
|
273
|
|
|
|
50
|
|
|
|
|
|
|
|
79
|
|
|
|
9
|
|
Texas
|
|
|
77
|
|
|
|
1,061
|
|
|
|
84
|
|
|
|
462
|
|
|
|
137
|
|
|
|
267
|
|
|
|
81
|
|
|
|
30
|
|
|
|
7
|
|
Florida
|
|
|
107
|
|
|
|
1,039
|
|
|
|
46
|
|
|
|
389
|
|
|
|
242
|
|
|
|
115
|
|
|
|
29
|
|
|
|
218
|
|
|
|
7
|
|
Pennsylvania
|
|
|
69
|
|
|
|
556
|
|
|
|
106
|
|
|
|
136
|
|
|
|
160
|
|
|
|
121
|
|
|
|
18
|
|
|
|
15
|
|
|
|
4
|
|
Ohio
|
|
|
63
|
|
|
|
439
|
|
|
|
210
|
|
|
|
52
|
|
|
|
74
|
|
|
|
49
|
|
|
|
41
|
|
|
|
13
|
|
|
|
3
|
|
Maryland
|
|
|
24
|
|
|
|
406
|
|
|
|
29
|
|
|
|
197
|
|
|
|
170
|
|
|
|
2
|
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
Arizona
|
|
|
18
|
|
|
|
361
|
|
|
|
122
|
|
|
|
54
|
|
|
|
62
|
|
|
|
13
|
|
|
|
9
|
|
|
|
101
|
|
|
|
2
|
|
Illinois
|
|
|
33
|
|
|
|
346
|
|
|
|
61
|
|
|
|
159
|
|
|
|
13
|
|
|
|
59
|
|
|
|
49
|
|
|
|
5
|
|
|
|
2
|
|
Other states
|
|
|
439
|
|
|
|
3,953
|
|
|
|
335
|
|
|
|
1,595
|
|
|
|
778
|
|
|
|
371
|
|
|
|
350
|
|
|
|
524
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,196
|
|
|
$
|
15,513
|
|
|
$
|
2,086
|
|
|
$
|
6,247
|
|
|
$
|
2,319
|
|
|
$
|
2,114
|
|
|
$
|
1,132
|
|
|
$
|
1,615
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AIGFP
Trading Investments
The fair value of AIGFPs fixed maturity trading
investments was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Fair
|
|
|
Percent
|
|
|
Fair
|
|
|
Percent
|
|
|
|
Value
|
|
|
of Total
|
|
|
Value
|
|
|
of Total
|
|
|
|
(In millions)
|
|
|
U.S. government and government sponsored entities
|
|
$
|
7,509
|
|
|
|
35
|
%
|
|
$
|
9,594
|
|
|
|
37
|
%
|
Non-U.S.
governments
|
|
|
406
|
|
|
|
2
|
|
|
|
500
|
|
|
|
2
|
|
Corporate debt
|
|
|
2,980
|
|
|
|
14
|
|
|
|
3,530
|
|
|
|
13
|
|
State, territories and political subdivisions
|
|
|
105
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
Mortgage-backed, asset-backed and collateralized
|
|
|
10,294
|
|
|
|
48
|
|
|
|
12,445
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,294
|
|
|
|
100
|
%
|
|
$
|
26,069
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The credit ratings of AIGFPs fixed maturity trading
investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
Rating:
|
|
|
|
|
|
|
|
|
AAA
|
|
|
67
|
%
|
|
|
74
|
%
|
AA
|
|
|
10
|
|
|
|
10
|
|
A
|
|
|
14
|
|
|
|
11
|
|
BBB
|
|
|
4
|
|
|
|
3
|
|
Below investment grade
|
|
|
5
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
191
American International Group, Inc.
and Subsidiaries
The fair value of AIGFPs trading investments in RMBS,
CDO, ABS and other collateralized securities was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
December 31, 2008
|
|
|
|
Fair
|
|
|
Percent
|
|
|
Fair
|
|
|
Percent
|
|
|
|
Value
|
|
|
of Total
|
|
|
Value
|
|
|
of Total
|
|
|
|
(In millions)
|
|
|
RMBS
|
|
$
|
2,934
|
|
|
|
29
|
%
|
|
$
|
3,679
|
|
|
|
30
|
%
|
CMBS
|
|
|
1,770
|
|
|
|
17
|
|
|
|
2,020
|
|
|
|
16
|
|
CDO/ABS and other collateralized
|
|
|
5,590
|
|
|
|
54
|
|
|
|
6,746
|
|
|
|
54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
10,294
|
|
|
|
100
|
%
|
|
$
|
12,445
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other-Than-Temporary
Impairments
Refer to Note 5 to the Consolidated Financial Statements
for a discussion of AIGs other-than-temporary impairment
accounting policy.
As a result of AIGs periodic evaluation of its securities
for other-than-temporary impairments in value, AIG recorded
impairment charges in earnings of $983 million and
$6.8 billion in the three-month periods ended June 30,
2009 and 2008, respectively, and $5.0 billion and
$12.4 billion in the six-month periods ended June 30,
2009 and 2008, respectively.
192
American International Group, Inc.
and Subsidiaries
Other-than-temporary impairment charges in earnings by
segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance &
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
|
|
|
Retirement
|
|
|
Financial
|
|
|
Asset
|
|
|
|
|
|
|
|
|
|
Insurance
|
|
|
Services
|
|
|
Services
|
|
|
Management
|
|
|
Other
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14
|
|
Change in intent
|
|
|
1
|
|
|
|
163
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
172
|
|
Foreign currency declines
|
|
|
|
|
|
|
186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
Issuer-specific credit events
|
|
|
48
|
|
|
|
377
|
|
|
|
3
|
|
|
|
180
|
|
|
|
|
|
|
|
608
|
|
Adverse projected cash flows on structured securities
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50
|
|
|
$
|
740
|
|
|
$
|
3
|
|
|
$
|
190
|
|
|
$
|
|
|
|
$
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
599
|
|
|
$
|
3,374
|
|
|
$
|
16
|
|
|
$
|
820
|
|
|
$
|
34
|
|
|
$
|
4,843
|
|
Change in intent
|
|
|
|
|
|
|
237
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
241
|
|
Foreign currency declines
|
|
|
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
633
|
|
Issuer-specific credit events
|
|
|
46
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
Adverse projected cash flows on structured securities
|
|
|
6
|
|
|
|
673
|
|
|
|
|
|
|
|
59
|
|
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
651
|
|
|
$
|
5,193
|
|
|
$
|
17
|
|
|
$
|
882
|
|
|
$
|
34
|
|
|
$
|
6,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
110
|
|
|
$
|
963
|
|
|
$
|
2
|
|
|
$
|
667
|
|
|
$
|
37
|
|
|
$
|
1,779
|
|
Change in intent
|
|
|
122
|
|
|
|
766
|
|
|
|
|
|
|
|
58
|
|
|
|
18
|
|
|
|
964
|
|
Foreign currency declines
|
|
|
|
|
|
|
352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
352
|
|
Issuer-specific credit events
|
|
|
300
|
|
|
|
896
|
|
|
|
10
|
|
|
|
489
|
|
|
|
32
|
|
|
|
1,727
|
|
Adverse projected cash flows on structured securities
|
|
|
1
|
|
|
|
90
|
|
|
|
4
|
|
|
|
53
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
533
|
|
|
$
|
3,067
|
|
|
$
|
16
|
|
|
$
|
1,267
|
|
|
$
|
87
|
|
|
$
|
4,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
696
|
|
|
$
|
6,530
|
|
|
$
|
27
|
|
|
$
|
1,645
|
|
|
$
|
50
|
|
|
$
|
8,948
|
|
Change in intent
|
|
|
20
|
|
|
|
928
|
|
|
|
2
|
|
|
|
70
|
|
|
|
1
|
|
|
|
1,021
|
|
Foreign currency declines
|
|
|
|
|
|
|
1,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,034
|
|
Issuer-specific credit events
|
|
|
67
|
|
|
|
388
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
493
|
|
Adverse projected cash flows on structured securities
|
|
|
7
|
|
|
|
705
|
|
|
|
|
|
|
|
162
|
|
|
|
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
790
|
|
|
$
|
9,585
|
|
|
$
|
29
|
|
|
$
|
1,915
|
|
|
$
|
51
|
|
|
$
|
12,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193
American International Group, Inc.
and Subsidiaries
Other-than-temporary impairment charges in earnings by type
of security and type of impairment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Fixed
|
|
|
Equities/Other
|
|
|
|
|
|
|
RMBS
|
|
|
CDO/ABS
|
|
|
CMBS
|
|
|
Income
|
|
|
Invested Assets
|
|
|
Total
|
|
|
|
(In millions)
|
|
|
Three Months Ended June 30, 2009 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
14
|
|
|
$
|
14
|
|
Change in intent
|
|
|
|
|
|
|
4
|
|
|
|
6
|
|
|
|
157
|
|
|
|
5
|
|
|
|
172
|
|
Foreign currency declines
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
170
|
|
|
|
2
|
|
|
|
186
|
|
Issuer-specific credit events
|
|
|
286
|
|
|
|
39
|
|
|
|
42
|
|
|
|
39
|
|
|
|
202
|
|
|
|
608
|
|
Adverse projected cash flows on structured securities
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
288
|
|
|
$
|
58
|
|
|
$
|
48
|
|
|
$
|
366
|
|
|
$
|
223
|
|
|
$
|
983
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2008 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
4,102
|
|
|
$
|
47
|
|
|
$
|
387
|
|
|
$
|
|
|
|
$
|
307
|
|
|
$
|
4,843
|
|
Change in intent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241
|
|
|
|
|
|
|
|
241
|
|
Foreign currency declines
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
562
|
|
|
|
8
|
|
|
|
633
|
|
Issuer-specific credit events
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
110
|
|
|
|
63
|
|
|
|
322
|
|
Adverse projected cash flows on structured securities
|
|
|
734
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,985
|
|
|
$
|
114
|
|
|
$
|
387
|
|
|
$
|
913
|
|
|
$
|
378
|
|
|
$
|
6,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2009 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
844
|
|
|
$
|
481
|
|
|
$
|
55
|
|
|
$
|
113
|
|
|
$
|
286
|
|
|
$
|
1,779
|
|
Change in intent
|
|
|
|
|
|
|
4
|
|
|
|
6
|
|
|
|
736
|
|
|
|
218
|
|
|
|
964
|
|
Foreign currency declines
|
|
|
|
|
|
|
16
|
|
|
|
17
|
|
|
|
317
|
|
|
|
2
|
|
|
|
352
|
|
Issuer-specific credit events
|
|
|
1,016
|
|
|
|
62
|
|
|
|
139
|
|
|
|
166
|
|
|
|
344
|
|
|
|
1,727
|
|
Adverse projected cash flows on structured securities
|
|
|
104
|
|
|
|
36
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,964
|
|
|
$
|
599
|
|
|
$
|
225
|
|
|
$
|
1,332
|
|
|
$
|
850
|
|
|
$
|
4,970
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2008 Impairment Type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severity
|
|
$
|
7,250
|
|
|
$
|
158
|
|
|
$
|
904
|
|
|
$
|
53
|
|
|
$
|
583
|
|
|
$
|
8,948
|
|
Change in intent
|
|
|
|
|
|
|
30
|
|
|
|
38
|
|
|
|
953
|
|
|
|
|
|
|
|
1,021
|
|
Foreign currency declines
|
|
|
|
|
|
|
64
|
|
|
|
|
|
|
|
639
|
|
|
|
331
|
|
|
|
1,034
|
|
Issuer-specific credit events
|
|
|
234
|
|
|
|
2
|
|
|
|
|
|
|
|
158
|
|
|
|
99
|
|
|
|
493
|
|
Adverse projected cash flows on structured securities
|
|
|
831
|
|
|
|
42
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,315
|
|
|
$
|
296
|
|
|
$
|
943
|
|
|
$
|
1,803
|
|
|
$
|
1,013
|
|
|
$
|
12,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In light of the significant disruption in the
U.S. residential mortgage and credit markets, AIG has
recognized an other-than-temporary impairment charge (severity
loss) of $14 million and $4.8 billion in the
three-month periods ended June 30, 2009 and 2008,
respectively, and $1.8 billion and $8.9 billion in the
six-month periods ended June 30, 2009 and 2008,
respectively. With the adoption of FSP
FAS 115-2
on April 1, 2009, such charges in the three months ended
June 30, 2009, primarily related to equity securities of
financial institutions. In all prior periods, such charges
primarily related to mortgage-backed, asset-backed and
collateral securities, securities of financial institutions and
other equity securities. Notwithstanding AIGs intent and
ability to hold such securities until they
194
American International Group, Inc.
and Subsidiaries
had recovered their cost basis, and despite structures that
indicated, at the time, that a substantial amount of the
securities should have continued to perform in accordance with
original terms, AIG concluded, at the time, that it could not
reasonably assert that the impairment would be temporary.
Pricing of CMBS had been adversely affected by concerns that
underlying mortgage defaults will increase. As a result, AIG
recognized $55 million of other-than-temporary impairment
severity charges in the six-month period ended June 30,
2009, all in the first quarter prior to the adoption of FSP
FAS 115-2,
on CMBS valued at a severe discount to cost, despite the absence
of any meaningful deterioration in performance of the underlying
credits, because AIG concluded that it could not reasonably
assert that the impairment period was temporary.
In addition to the above severity losses, AIG recorded
other-than-temporary impairment charges in the three- and
six-month periods ended June 30, 2009 and 2008 related to:
|
|
|
|
|
securities for which AIG has changed its intent to hold or sell;
|
|
|
|
declines due to foreign exchange rates;
|
|
|
|
issuer-specific credit events;
|
|
|
|
certain structured securities impaired under Emerging Issues
Task Force (EITF)
99-20,
Recognition of Interest Income and Impairment on Purchased
Beneficial Interests That Continue to Be Held by a Transferor in
Securitized Financial Assets, and related interpretative
guidance; and
|
|
|
|
other impairments, including equity securities and partnership
investments.
|
AIG recognized $608 million and $1.7 billion in
other-than-temporary impairment charges in the three- and
six-month periods ended June 30, 2009, respectively, due to
issuer-specific credit events, and $172 million and
$964 million in other-than-temporary impairment charges in
the three- and six-month periods ended June 30, 2009,
respectively, due to changes in intent.
No other-than-temporary impairment charge with respect to any
one single credit was significant to AIGs consolidated
financial condition or results of operations, and no individual
other-than-temporary impairment charge exceeded
0.05 percent of Total equity in the six-month period ended
June 30, 2009.
In periods subsequent to the recognition of an
other-than-temporary impairment charge for available for sale
fixed maturity securities that is not foreign exchange related,
AIG generally prospectively accretes into income the difference
between the new amortized cost and the expected undiscounted
recovery value over the remaining expected holding period of the
security. The amount of accretion recognized in earnings for the
six-month period ended June 30, 2009 was $465 million.
For a discussion of recent accounting standards affecting fair
values and other-than-temporary impairments (FSP
FAS 115-2
and FSP
FAS 157-4),
see Outlook Life Insurance & Retirement
Services; and Notes 1 and 5 to the Consolidated Financial
Statements.
195
American International Group, Inc.
and Subsidiaries
An aging of the pre-tax unrealized losses of fixed maturity
and equity securities, distributed as a percentage of cost
relative to unrealized loss (the extent by which the fair value
is less than amortized cost or cost), including the number of
respective items was as follows :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than or equal
|
|
|
Greater than 20%
|
|
|
Greater than 50%
|
|
|
|
|
|
|
to 20% of Cost(b)
|
|
|
to 50% of Cost(b)
|
|
|
of Cost(b)
|
|
|
Total
|
|
At June 30, 2009
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
Aging(a)
|
|
Cost(c)
|
|
|
Loss
|
|
|
Items
|
|
|
Cost(c)
|
|
|
Loss
|
|
|
Items
|
|
|
Cost(c)
|
|
|
Loss
|
|
|
Items
|
|
|
Cost(c)
|
|
|
Loss(d)
|
|
|
Items
|
|
|
|
(Dollars in millions)
|
|
|
Investment grade bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months
|
|
$
|
43,512
|
|
|
$
|
1,729
|
|
|
|
4,201
|
|
|
$
|
10,289
|
|
|
$
|
3,700
|
|
|
|
905
|
|
|
$
|
11,000
|
|
|
$
|
7,910
|
|
|
|
1,153
|
|
|
$
|
64,801
|
|
|
$
|
13,339
|
|
|
|
6,259
|
|
7-12 months
|
|
|
23,700
|
|
|
|
1,764
|
|
|
|
2,432
|
|
|
|
4,739
|
|
|
|
1,354
|
|
|
|
452
|
|
|
|
643
|
|
|
|
416
|
|
|
|
67
|
|
|
|
29,082
|
|
|
|
3,534
|
|
|
|
2,951
|
|
> 12 months
|
|
|
57,805
|
|
|
|
4,855
|
|
|
|
5,834
|
|
|
|
17,800
|
|
|
|
5,098
|
|
|
|
1,747
|
|
|
|
2,461
|
|
|
|
1,595
|
|
|
|
241
|
|
|
|
78,066
|
|
|
|
11,548
|
|
|
|
7,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
125,017
|
|
|
$
|
8,348
|
|
|
|
12,467
|
|
|
$
|
32,828
|
|
|
$
|
10,152
|
|
|
|
3,104
|
|
|
$
|
14,104
|
|
|
$
|
9,921
|
|
|
|
1,461
|
|
|
$
|
171,949
|
|
|
$
|
28,421
|
|
|
|
17,032
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below investment grade bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months
|
|
$
|
3,039
|
|
|
$
|
232
|
|
|
|
883
|
|
|
$
|
2,672
|
|
|
$
|
907
|
|
|
|
413
|
|
|
$
|
1,485
|
|
|
$
|
1,090
|
|
|
|
307
|
|
|
$
|
7,196
|
|
|
$
|
2,229
|
|
|
|
1,603
|
|
7-12 months
|
|
|
1,058
|
|
|
|
91
|
|
|
|
204
|
|
|
|
294
|
|
|
|
76
|
|
|
|
40
|
|
|
|
252
|
|
|
|
184
|
|
|
|
49
|
|
|
|
1,604
|
|
|
|
351
|
|
|
|
293
|
|
> 12 months
|
|
|
2,265
|
|
|
|
206
|
|
|
|
276
|
|
|
|
1,584
|
|
|
|
521
|
|
|
|
196
|
|
|
|
245
|
|
|
|
158
|
|
|
|
32
|
|
|
|
4,094
|
|
|
|
885
|
|
|
|
504
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,362
|
|
|
$
|
529
|
|
|
|
1,363
|
|
|
$
|
4,550
|
|
|
$
|
1,504
|
|
|
|
649
|
|
|
$
|
1,982
|
|
|
$
|
1,432
|
|
|
|
388
|
|
|
$
|
12,894
|
|
|
$
|
3,465
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months
|
|
$
|
46,551
|
|
|
$
|
1,961
|
|
|
|
5,084
|
|
|
$
|
12,961
|
|
|
$
|
4,607
|
|
|
|
1,318
|
|
|
$
|
12,485
|
|
|
$
|
9,000
|
|
|
|
1,460
|
|
|
$
|
71,997
|
|
|
$
|
15,568
|
|
|
|
7,862
|
|
7-12 months
|
|
|
24,758
|
|
|
|
1,855
|
|
|
|
2,636
|
|
|
|
5,033
|
|
|
|
1,430
|
|
|
|
492
|
|
|
|
895
|
|
|
|
600
|
|
|
|
116
|
|
|
|
30,686
|
|
|
|
3,885
|
|
|
|
3,244
|
|
> 12 months
|
|
|
60,070
|
|
|
|
5,061
|
|
|
|
6,110
|
|
|
|
19,384
|
|
|
|
5,619
|
|
|
|
1,943
|
|
|
|
2,706
|
|
|
|
1,753
|
|
|
|
273
|
|
|
|
82,160
|
|
|
|
12,433
|
|
|
|
8,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(e)
|
|
$
|
131,379
|
|
|
$
|
8,877
|
|
|
|
13,830
|
|
|
$
|
37,378
|
|
|
$
|
11,656
|
|
|
|
3,753
|
|
|
$
|
16,086
|
|
|
$
|
11,353
|
|
|
|
1,849
|
|
|
$
|
184,843
|
|
|
$
|
31,886
|
|
|
|
19,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0-6 months
|
|
$
|
1,105
|
|
|
$
|
58
|
|
|
|
44,592
|
|
|
$
|
40
|
|
|
$
|
12
|
|
|
|
3,066
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
33,490
|
|
|
$
|
1,149
|
|
|
$
|
74
|
|
|
|
81,148
|
|
7-12 months
|
|
|
583
|
|
|
|
58
|
|
|
|
258
|
|
|
|
227
|
|
|
|
75
|
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
810
|
|
|
|
133
|
|
|
|
410
|
|
> 12 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,688
|
|
|
$
|
116
|
|
|
|
44,850
|
|
|
$
|
267
|
|
|
$
|
87
|
|
|
|
3,217
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
|
33,491
|
|
|
$
|
1,959
|
|
|
$
|
207
|
|
|
|
81,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the number of consecutive months that fair value
has been less than cost by any amount. |
|
(b) |
|
Represents the percentage by which fair value is less than
cost at the balance sheet date. |
|
(c) |
|
For bonds, represents amortized cost. |
|
(d) |
|
The effect on net income of unrealized losses after taxes
will be mitigated upon realization because certain realized
losses will be charged to participating policyholder accounts,
or realization will result in current decreases in the
amortization of certain DAC. |
|
(e) |
|
Includes securities lending invested collateral. |
The significant increase in the amounts shown as Cost in the
table above from the previous quarter reflects the effects of
the adoption of FSP
FAS 115-2.
Upon adoption, $16.1 billion of previously recorded
other-than-temporary impairment charges on fixed maturity
securities, primarily severity related, was added to the cost
basis of the securities, with a corresponding increase in
Unrealized Loss. Offsetting the increase in Unrealized Loss was
$9.6 billion of unrealized appreciation on such securities
during the second quarter of 2009.
See also Note 5 to the Consolidated Financial Statements.
Risk
Management
For a complete discussion of AIGs risk management program,
see Risk Management in the 2008
Form 10-K.
196
American International Group, Inc.
and Subsidiaries
Overview
AIG continues to reassess its risk management control
environment and its enterprise risk management functions, both
in its individual businesses as well as at the corporate level,
in light of AIGs current situation. AIG continues to focus
on enhancing its risk management processes and de-risking
certain exposures, both at the corporate and business levels in
an effort to minimize the capital and liquidity needs of
AIGs local legal entities. However, market turmoil and
associated price declines, limited liquidity in the markets and
a decline in the number of counterparties willing to transact
with AIG continue to severely constrain AIGs ability to
utilize techniques for mitigating its exposure to credit, market
and liquidity risks.
Credit
Risk Management
AIG defines its aggregate credit exposures to a counterparty as
the sum of its fixed maturities, loans, finance leases,
reinsurance recoverables, derivatives, deposits and letters of
credit (both in the case of financial institutions) and the
specified credit equivalent exposure to certain insurance
products which embody credit risk.
The following table presents AIGs largest credit
exposures as a percentage of Total equity: At June 30,
2009
|
|
|
|
|
|
|
|
|
|
|
Credit Exposure
|
|
At June 30, 2009
|
|
|
|
as a Percentage of
|
|
Category
|
|
Risk Rating(a)
|
|
Total Equity
|
|
|
Investment Grade:
|
|
|
|
|
|
|
10 largest combined
|
|
A−(b)
|
|
|
158.8
|
%(c)
|
Single largest non-sovereign (financial institution)
|
|
BBB−
|
|
|
16.2
|
|
Single largest corporate
|
|
AA
|
|
|
7.2
|
|
Single largest sovereign
|
|
AAA
|
|
|
31.4
|
|
Non-Investment Grade:
|
|
|
|
|
|
|
Single largest sovereign
|
|
BB−
|
|
|
2.6
|
|
Single largest non-sovereign
|
|
BB
|
|
|
0.9
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Reflects AIGs internal risk ratings. |
|
(b) |
|
Four of the ten largest credit exposures are to financial
institutions, four are to investment-grade rated sovereigns and
two are to government-sponsored entities. None of the top ten is
rated lower than BBB- or its equivalent. |
|
(c) |
|
Exposure to the ten largest combined as a percentage of Total
equity was 150.7 percent at December 31, 2008. |
AIG monitors its aggregate cross-border exposures by country and
regional group of countries. AIG defines its cross-border
exposure to include both cross-border credit exposures and its
cross-border investments in its own international subsidiaries.
Nine countries had cross-border exposures in excess of
20 percent of Total equity at June 30, 2009. Based on
AIGs internal risk ratings, at that date, seven were rated
AAA, one was rated AA and one was rated A.
In addition, AIG reviews and manages its industry
concentrations. AIGs single largest industry credit
exposure is to the global financial institutions sector,
comprised of banks, securities firms, life and non-life
insurance companies, reinsurance companies, finance companies
and government-sponsored entities.
197
American International Group, Inc.
and Subsidiaries
The following table presents AIGs largest credit
exposures to the global financial institution sector as a
percentage of Total equity: At June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
Credit Exposure
|
|
|
|
|
|
|
as a Percentage of
|
|
|
|
|
|
|
Total Equity
|
|
|
|
|
|
Industry Category:
|
|
|
|
|
|
|
|
|
Money Center / Global Bank Groups
|
|
|
138.2
|
%*
|
|
|
|
|
Government-Sponsored Entities
|
|
|
31.6
|
|
|
|
|
|
Global Life Insurance Companies
|
|
|
24.1
|
|
|
|
|
|
European Regional Financial Institutions
|
|
|
20.9
|
|
|
|
|
|
Global Reinsurance Companies
|
|
|
19.2
|
|
|
|
|
|
Asian Regional Financial Institutions
|
|
|
14.1
|
|
|
|
|
|
North American Based Regional Financial Institutions
|
|
|
13.4
|
|
|
|
|
|
Global Securities Companies
|
|
|
10.3
|
|
|
|
|
|
Non-Life Insurance Companies
|
|
|
8.5
|
|
|
|
|
|
|
|
|
* |
|
Exposure to Money Center/Global Bank Groups as a percentage
of Total equity was 138.7 percent at December 31,
2008. |
AIGs exposure to its five largest money center/global bank
group institutions was 55.8 percent of Total equity at
June 30, 2009.
Credit exposure to Global Reinsurance Companies grew from
18.4 percent of Total equity at December 31, 2008 as
the credit exposure to Transatlantic, previously a consolidated
subsidiary, has been added to this category. Transatlantic is
now AIGs largest third-party reinsurer, representing
approximately $1.5 billion of uncollateralized reinsurance
assets. Transatlantics core operating subsidiaries have
financial strength ratings of A+ by S&P and A by
A.M. Best; the issuer credit rating is a by
A.M. Best.
AIGs exposure to global financial institutions includes
$5.8 billion of preferred stock and Tier 1 securities,
$1.1 billion of upper Tier 2 securities and
$8.8 billion of lower Tier 2 securities. These
securities can be subject to a higher risk of dividend or
interest deferral and principal non-payment or non-redemption
because they provide various levels of capital support to these
institutions, and may be subject to regulatory and contractual
restrictions. These securities are held by various AIG
subsidiaries and are diversified by obligor and country. In
addition, AIGs financial institution exposures include
other subordinated securities totaling $17.2 billion.
AIG also has a risk concentration through the investment
portfolios of its insurance companies in the U.S. municipal
sector. AIG holds approximately $51.2 billion of tax-exempt
and taxable securities issued by a wide number of municipal
authorities across the U.S. and its territories. A majority
of these securities are held in available-for-sale portfolios of
AIGs domestic property-casualty insurance companies. These
securities are comprised of the general obligations of states
and local governments, revenue bonds issued by these same
governments and bonds issued by transportation authorities,
universities, state housing finance agencies and hospital
systems. The average credit quality of these issuers is AA-.
Currently, several states, local governments and other issuers
are facing pressures on their budget revenues from the effects
of the recession and have had to cut spending and draw on
reserve funds. Consequently, several municipal issuers in
AIGs portfolios have been downgraded one or more notches
by the rating agencies. The most notable of these issuers is the
State of California, of which AIG holds approximately
$1.4 billion of general obligation bonds and which is also
the largest single issuer in AIGs portfolio. Nevertheless,
despite the budget pressures facing the sector, AIG does not
expect any significant deterioration in the average credit
quality of its portfolio holdings of municipal issuers.
198
American International Group, Inc.
and Subsidiaries
Insurance
Risk Management
Catastrophe
Exposures
The nature of AIGs business exposes it to various
catastrophic events in which multiple losses across multiple
lines of business can occur in any calendar year. In order to
control this exposure, AIG uses a combination of techniques,
including setting aggregate limits in key business units,
monitoring and modeling accumulated exposures, and purchasing
catastrophe reinsurance to supplement its other reinsurance
protections.
Natural disasters, such as hurricanes, earthquakes and other
catastrophes have the potential to adversely affect AIGs
operating results. Other risks, such as an outbreak of a
pandemic disease, like the Swine Flu Influenza A Virus (H1N1),
could adversely affect AIGs business and operating results
to an extent that may be only partially offset by reinsurance
programs.
Pandemic
Influenza
On June 11, 2009, the World Health Organization (WHO)
raised its alert level to 6 and declared that the new variant
influenza A/H1N1 had reached pandemic alert status. Although AIG
continues to monitor the developing facts, current evidence
suggests that a resulting pandemic will be of moderate severity
with some chance that it could be severe. To date, the virus has
been mostly mild. The virus is occurring disproportionately in
younger people and there is some evidence that individuals over
60 may have some resistance to the virus due to
pre-existing immunity. Individuals infected generally recover
fully after a few days and hospitalization rates have been low.
However, it should be noted that as of July 7, three
instances had been identified in which the H1N1 virus
demonstrated a resistance to Tamiflu, the preferred treatment
for the virus. The emergence of this resistant virus, or the
emergence of a more virulent virus during the on-coming Northern
Hemisphere flu season could result in a more severe pandemic.
A significant global pandemic could have a material adverse
effect on Life Insurance & Retirement Services
operating results and liquidity from increased mortality and
morbidity rates.
Utilizing a scenario-based approach and an industry standard
model, AIG has analyzed its insurance risk associated with
pandemic influenza. For a severe event, considered to be a
recurrence of the 1918 Flu Pandemic, the analysis indicates AIG
could incur a pre-tax loss of approximately $6.3 billion if
this event were to recur. For a mild event, considered to be a
recurrence of the influenza epidemic of 1968, the analysis
indicates AIG could incur a pre-tax loss of approximately
$0.6 billion if such an event were to recur. These analyses
were based on 2008 policy data representing approximately
95 percent of AIGs individual life, group life and
credit life books of business, net of reinsurance at that point
in time. These estimates do not include claims that could be
made under other policies, such as business interruption or
general liability policies, and does not reflect estimates for
losses resulting from disruption of AIGs own business
operations or asset valuation losses that may arise consequent
to such a pandemic. These related losses may be significant and
in some scenarios exceed the losses incurred from AIGs
life insurance coverages.
|
|
ITEM 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Included in Item 2. Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
ITEM 4.
|
Controls
and Procedures
|
In connection with the preparation of this Quarterly Report on
Form 10-Q,
an evaluation was carried out by AIGs management, with the
participation of AIGs Chief Executive Officer and Chief
Financial Officer, of the effectiveness of AIGs disclosure
controls and procedures (as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Securities Exchange Act of 1934 (Exchange Act)).
Disclosure controls and procedures are designed to ensure that
information required to be disclosed in reports filed or
submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms and that such information is accumulated and
communicated to management, including the Chief Executive
Officer and Chief Financial Officer, to allow timely decisions
regarding required disclosures. Based on that evaluation,
AIGs Chief Executive Officer and Chief Financial Officer
have concluded that, as of June 30, 2009, AIGs
disclosure controls and procedures were effective. There has
been no change in AIGs internal control over financial
reporting (as defined in
Rule 13a-15(f)
under the Exchange Act) that occurred during the quarter ended
June 30, 2009 that has materially affected, or is
reasonably likely to materially affect, AIGs internal
control over financial reporting.
199
American International Group, Inc.
and Subsidiaries
Part II
OTHER INFORMATION
|
|
ITEM 1.
|
Legal
Proceedings
|
Included in Note 10(a) to the Consolidated Financial
Statements.
The following supplements the risk factors set forth in
Item 1A. Risk Factors of Part I of the 2008
Form 10-K
and in item 1A. Risk Factors of Part II of AIGs
Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2009 and summarizes
information previously disclosed by AIG.
If the credit markets continue to deteriorate, AIG may
recognize unrealized market valuation losses in AIGFPs
regulatory capital super senior credit default swap portfolio in
future periods which could have a material adverse effect on
AIGs consolidated financial condition or consolidated
results of operations. Moreover, the period of time that AIGFP
remains at risk for such deterioration could be significantly
longer than anticipated if AIGFPs expectations with
respect to the termination of transactions in its regulatory
capital portfolio do not materialize.
A total of $177.5 billion (consisting of corporate loans
and prime residential mortgages) in net notional amount of the
super senior credit default swap CDS portfolio of AIG Financial
Products Corp. and AIG Trading Group, Inc. and their respective
subsidiaries (collectively, AIGFP), as of June 30, 2009,
represented derivatives written for financial institutions,
principally in Europe, for the purpose of providing regulatory
capital relief rather than for arbitrage purposes. The fair
value of the derivative liability for these CDS transactions was
$47 million at June 30, 2009.
The regulatory benefit of these transactions for AIGFPs
financial institution counterparties is generally derived from
the terms of the Capital Accord of the Basel Committee on
Banking Supervision (Basel I) that existed through the end
of 2007 and which is in the process of being replaced by the
Revised Framework for the International Convergence of Capital
Measurement and Capital Standards issued by the Basel Committee
on Banking Supervision (Basel II). Financial institution
counterparties are expected to transition from Basel I to
Basel II over a two-year adoption period through
December 31, 2009, after which they will receive little or
no additional regulatory benefit from these CDS transactions,
except in a small number of specific instances, and therefore
AIGFP expects that the counterparties will terminate the vast
majority of these transactions within the next 9 months.
The pace at which these CDS transactions will be terminated
following the transition to Basel II is affected by a
number of factors, including the credit performance of the
underlying assets.
The nature of the information provided or otherwise available to
AIGFP regarding the performance and credit quality of the
underlying assets in each regulatory capital CDS transaction is
not consistent across all transactions. Furthermore, in a
majority of corporate loan transactions and all of the
residential mortgage transactions, the pools are blind, meaning
that the identities of obligors are not disclosed to AIGFP. In
addition, although AIGFP receives periodic reports on the
underlying asset pools, virtually all of the regulatory capital
CDS transactions contain confidentiality restrictions that
preclude AIGFPs public disclosure of information relating
to the underlying referenced assets. AIGFP analyzes the
information regarding the performance and credit quality of the
underlying pools of assets required to make its own risk
assessment and to determine any changes in credit quality with
respect to such pools of assets. While much of this information
received by AIGFP cannot be aggregated in a comparable way for
disclosure purposes because of the confidentiality restrictions
and the inconsistency of the information, it does provide a
sufficient basis for AIGFP to evaluate the risks of the
portfolio and to determine a reasonable estimate of fair value.
Given the current performance of the underlying portfolios, the
level of subordination and AIGFPs own assessment of the
credit quality, as well as the risk mitigants inherent in the
transaction structures, AIGFP does not expect that it will be
required to make payments pursuant to the contractual terms of
those transactions providing regulatory capital relief. Further,
AIGFP expects that counterparties will terminate these
transactions prior to their maturity. AIGFP will continue to
assess the valuation of this portfolio and monitor developments
in the marketplace. Given the potential for further significant
deterioration in the credit markets, there can be no assurance
that AIG will not recognize unrealized market valuation losses
from this portfolio in future periods. AIG could also
200
American International Group, Inc.
and Subsidiaries
remain at risk for a significantly longer period of time than
anticipated if AIGFPs expectations with respect to the
termination of these transactions by its counterparties do not
materialize. Moreover, given the size of the credit exposure, a
decline in the fair value of this portfolio could have a
material adverse effect on AIGs consolidated results of
operations or consolidated financial condition.
|
|
ITEM 4.
|
Submission
of Matters to a Vote of Security Holders
|
At the Annual Meeting of Shareholders held on June 30,
2009, the Shareholders:
(a) Elected eleven directors as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominee
|
|
Shares For
|
|
|
Shares Withheld
|
|
|
Abstained
|
|
|
Dennis D. Dammerman
|
|
|
11,938,113,848
|
|
|
|
422,721,838
|
|
|
|
48,081,980
|
|
Harvey Golub
|
|
|
12,212,248,475
|
|
|
|
147,050,579
|
|
|
|
49,618,612
|
|
Laurette T. Koellner
|
|
|
11,957,954,654
|
|
|
|
401,282,148
|
|
|
|
49,680,864
|
|
Edward M. Liddy
|
|
|
11,940,512,780
|
|
|
|
425,652,019
|
|
|
|
42,752,867
|
|
Christopher S. Lynch
|
|
|
11,946,435,744
|
|
|
|
417,191,338
|
|
|
|
45,290,584
|
|
Arthur C. Martinez
|
|
|
11,916,844,822
|
|
|
|
442,237,884
|
|
|
|
49,834,960
|
|
George L. Miles, Jr.
|
|
|
11,796,090,907
|
|
|
|
547,204,186
|
|
|
|
65,622,573
|
|
Robert S. Miller
|
|
|
11,903,879,215
|
|
|
|
456,583,807
|
|
|
|
48,454,644
|
|
Suzanne Nora Johnson
|
|
|
11,941,841,333
|
|
|
|
418,961,112
|
|
|
|
48,115,221
|
|
Morris W. Offit
|
|
|
11,810,838,096
|
|
|
|
530,417,710
|
|
|
|
67,661,860
|
|
Douglas M. Steenland
|
|
|
11,936,491,704
|
|
|
|
421,986,728
|
|
|
|
50,439,234
|
|
There were no broker non-votes with respect to this item.
(b) Approved by a vote of 12,152,103,773 shares for
and 223,994,011 shares against, with 32,819,882 shares
abstaining, a non-binding shareholder resolution to approve
executive compensation.
(c) Failed to approve, by failure to receive the vote of a
majority of the outstanding AIG Common Stock, a proposal to
amend AIGs Restated Certificate of Incorporation to
increase the authorized shares of AIG Common Stock from
5,000,000,000 shares to 9,225,000,000 shares. The
class vote of the AIG Common Stock was 1,229,406,549 shares
for and 515,550,521 shares against, with
21,701,796 shares abstaining, and the combined vote of the
AIG Common Stock and the AIG Series C Preferred Stock was
11,871,665,349 shares for and 515,550,521 shares
against, with 21,701,796 shares abstaining.
(d) Approved by a vote of 12,133,960,487 shares for
and 228,802,024 shares against, with 46,155,155 shares
abstaining, a proposal to amend AIGs Restated Certificate
of Incorporation to effect a reverse stock split of the
outstanding AIG Common Stock at a ratio of one-for-twenty.
(e) Approved by a vote of 10,863,510,490 shares for
and 560,128,380 shares against, with 4,156,043 shares
abstaining, a proposal to amend AIGs Restated Certificate
of Incorporation to increase the authorized shares of preferred
stock from 6,000,000 shares to 100,000,000 shares.
(f) Approved by a vote of 11,089,731,042 shares for
and 329,484,803 shares against, with 8,579,068 shares
abstaining, a proposal to amend AIGs Restated Certificate
of Incorporation to (i) permit AIGs Board of
Directors to issue series of preferred stock that are not of
equal rank and (ii) cause the AIG Series E Preferred
Stock, the AIG Series F Preferred Stock and any other
series of preferred stock subsequently issued to the Department
of the Treasury to rank senior to all other series of preferred
stock.
(g) Approved by a vote of 11,106,060,210 shares for
and 313,840,324 shares against, with 7,894,379 shares
abstaining, a proposal to amend AIGs Restated Certificate
of Incorporation to eliminate any restriction on the pledging of
all or substantially all of the property or assets of AIG.
201
American International Group, Inc.
and Subsidiaries
(h) Approved by a vote of 11,921,112,861 shares for
and 462,631,785 shares against, with 25,173,020 shares
abstaining, a proposal to ratify the selection of
PricewaterhouseCoopers LLP as AIGs independent registered
public accounting firm for 2009.
(i) Rejected by a vote of 420,131,927 shares for and
10,999,792,794 shares against, with 7,870,192 shares
abstaining, a shareholder proposal relating to executive
compensation retention upon termination of employment.
(j) Rejected by a vote of 525,096,995 shares for and
10,894,674,277 shares against, with 8,023,641 shares
abstaining, a shareholder proposal relating to special meetings
of shareholders.
(k) Rejected by a vote of 300,298,291 shares for and
11,117,264,111 shares against, with 10,232,511 shares
abstaining, a shareholder proposal relating to reincorporation
of AIG in North Dakota.
See accompanying Exhibit Index.
202
American International Group, Inc.
and Subsidiaries
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AMERICAN INTERNATIONAL GROUP, INC.
(Registrant)
David
L. Herzog
Executive Vice President
Chief Financial Officer
Principal Financial Officer
Joseph
D. Cook
Vice President
Controller
Principal Accounting Officer
Dated: August 7, 2009
203
American International Group, Inc.
and Subsidiaries
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
Location
|
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of American
International Group, Inc.
|
|
Incorporated by reference to Exhibit 3(i)(a) to AIGs
Registration Statement on Form S-3 filed with the SEC on July
17, 2009 (File No. 333-160645).
|
|
10
|
.1
|
|
Shortfall Agreement, dated as of November 25, 2008, and as
amended as of December 18, 2008, between Maiden
Lane III LLC and AIG Financial Products Corp. (portions of
the exhibit have been redacted pursuant to a request for
confidential treatment)
|
|
Incorporated by reference to Exhibit 10.1 to AIGs Current
Report on Form 8-K/A filed with the SEC on May 15, 2009 (File
No. 1-8787).
|
|
10
|
.2
|
|
Purchase Agreement, dated as of June 25, 2009, among
American International Group, Inc., American International
Reinsurance Company, Limited and the Federal Reserve Bank of New
York
|
|
Incorporated by reference to Exhibit 2.1 to AIGs Current
Report on Form 8-K filed with the SEC on June 25, 2009 (File No.
1-8787).
|
|
10
|
.3
|
|
Purchase Agreement, dated as of June 25, 2009, between
American International Group, Inc. and the Federal Reserve Bank
of New York
|
|
Incorporated by reference to Exhibit 2.2 to AIGs Current
Report on Form 8-K filed with the SEC on June 25, 2009 (File No.
1-8787).
|
|
11
|
|
|
Statement re computation of per share earnings
|
|
Included in Note 8 to the Consolidated Financial Statements.
|
|
12
|
|
|
Computation of ratios of earnings to fixed charges
|
|
Filed herewith.
|
|
31
|
|
|
Rule 13a-14(a)/15d-14(a)
Certifications
|
|
Filed herewith.
|
|
32
|
|
|
Section 1350 Certifications
|
|
Filed herewith.
|