avatar American International Group, Inc. Finance, Insurance, And Real Estate

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    Annual Report A M E R I C A N I N T E R N A T I O N A L G R O U P, I N C .


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    ABOUT AIG American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance organization, with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG’s common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. CONTENTS Financial Highlights 1 Letter to Shareholders 2 AIG: What We See 11 AIG at a Glance 24 Review of Operations 26 Reconciliation in Accordance with Regulation G 42 Five Year Summary of Consolidated Operations 43 Five Year Summary of Selected Financial Information 44 Supplemental Financial Information 46 Board of Directors 50 Corporate Directory 51 Annual Report on Form 10-K Inside Shareholder Information Back Cover ABOUT THE COVER AIG headquarters at 70 Pine Street is an Art Deco landmark and the tallest skyscraper in Lower Manhattan. In 1976, AIG purchased the 66-story building, which is crowned with a glass-enclosed observatory that offers a panoramic view of New York City and its surroundings. Today, it is an icon of AIG’s global stature in the insurance and financial services businesses.


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    FINANCIAL HIGHLIGHTS (in millions, except per share data and ratios) 2007 2006 % Change Net income(a) $ 6,200 $ 14,048 (55.9) Net realized capital gains (losses), net of tax (2,386) 33 — Capital Markets other-than-temporary impairments, net of tax(b) (418) — — FAS 133 gains (losses), net of tax (304) (1,424) — Cumulative effect of an accounting change, net of tax — 34 — Adjusted net income (c) 9,308 15,405 (39.6) Net income, per common share —diluted 2.39 5.36 (55.4) Adjusted net income, per common share —diluted(c) 3.58 5.88 (39.1) Book value per common share 37.87 39.09 (3.1) Revenues(d)(e)(f) $ 110,064 $ 113,387 (2.9) Assets 1,060,505 979,410 8.3 Shareholders’ equity 95,801 101,677 (5.8) General Insurance combined loss and expense ratio 90.33 89.06 General Insurance combined loss and expense ratio, excluding catastrophe losses 89.73 89.06 Net Income (a) Net Income per Book Value per Common Share (billions of dollars) Common Share —Diluted (dollars) (dollars) 39.09 14.0 37.87 5.36 33.24 30.69 10.5 9.8 3.99 26.54 3.73 8.1 3.07 6.2 2.39 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Revenues (d)(e) (f ) Assets Shareholders’ Equity (billions of dollars) (billions of dollars) (billions of dollars) 113.4 110.1 1,060.5 101.7 108.8 979.4 95.8 97.8 86.3 853.0 801.0 79.7 79.6 69.2 675.6 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Certain reclassifications have been made to prior period amounts to conform to the current period presentation. (a) In 2007 and 2006, includes out of period increases (decreases) of $(399) million and $65 million, respectively. (b) Represents Capital Markets other-than-temporary impairments on securities available for sale. (c) In 2007 and 2006, includes out of period increases (decreases) of $(261) million and $85 million, respectively. (d) In 2007 and 2006, includes other-than-temporary impairment charges of $4.7 billion and $944 million, respectively. Also in 2007 and 2006, includes gains (losses) of $(1.44) billion and $(1.87) billion, respectively, from hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. (e) In 2006, includes a $730 million increase in revenue for out of period adjustments related to the accounting for UCITS. (f) In 2007, includes an unrealized market valuation loss of $11.5 billion on AIGFP's super senior credit default swap portfolio. AIG 2007 Annual Report 1


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    DEAR FELLOW SHAREHOLDERS: A fter a promising start, 2007 had a 2007 Results disappointing conclusion, both in AIG reported net income of $6.20 bil- Martin J. Sullivan terms of our results and share lion, or $2.39 per diluted share for President and Chief Executive Officer price performance. The U.S. credit crisis, 2007, compared to $14.05 billion, or recession fears and record-high oil prices $5.36 per diluted share for 2006. caused economic disruption and uncer- Full year 2007 adjusted net income, tainty. In addition, some of our businesses excluding the effect of economically did not meet expectations. Nevertheless, effective hedging activities that did not the fundamental strength of our core qualify for hedge accounting treatment We remain confident operations is intact, and we made impor- under FAS 133, and the related in our strategy to tant advances in key markets. We remain foreign exchange gains and losses, was leverage our financial confident in our strategy to leverage our $9.31 billion, or $3.58 per diluted financial strength and global franchise share, compared to $15.41 billion, or strength and global to continue our growth in both emerging $5.88 per diluted share for 2006. franchise to continue and developed markets. Although it Included in 2007 net income and appears economic conditions will not be our growth in both any better in 2008, we continue to see adjusted net income was a charge of $11.47 billion pretax ($7.46 billion after emerging and many opportunities to deliver quality tax) for unrealized market valuation developed markets. insurance and financial products and losses related to the AIG Financial services to customers around the world. Products Corp. (AIGFP) super senior credit default swap portfolio. Based upon its most current analysis, AIG believes any losses that are realized over time on the super senior credit default swap portfolio of AIGFP will not be material to AIG’s 2 AIG 2007 Annual Report


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    overall financial condition, although it is received approval to set up a representative possible that realized losses could be mate- office in Tianjin, our first operation in rial to AIG’s consolidated results of oper- China’s third-largest city. ations for an individual reporting period. In Korea, we obtained preliminary Full year results also include pretax net approval from the Financial Supervisory realized capital losses of $3.59 billion. Service to offer mortgage reinsurance Consolidated assets increased in 2007 through AIG United Guaranty Insurance to $1.061 trillion, up from $979.41 billion (Asia) Limited. We signed a memoran- in 2006. At year end, book value per share dum of understanding with the Bank BusinessWeek named AIG one stood at $37.87, down from $39.09 of Investment and Development of of the 100 Best Global Brands, at the end of 2006. Shareholders’ equity Vietnam for the expansion of our business a testament to the brand’s growing value in markets all over the world. also declined to $95.80 billion from cooperation agreement in that rapidly $101.68 billion at the end of 2006. AIG growing country. The agreement will recorded total revenues during the year of allow us to expand beyond our existing $110.06 billion, 2.9 percent below 2006 relationship in life insurance to include revenues. Revenues, shareholders’ equity a wide range of areas such as general and book value per share were adversely insurance, consumer finance, asset affected by realized capital losses and management and banking services. the net unrealized market valuation loss We are rapidly building a consumer recorded by AIGFP. finance franchise in India to complement our Tata AIG Life and General Insurance 2007 Highlights partnership. In 2007, we established a We overcame the challenges of 2007 to presence in housing finance and consumer make progress on several fronts. We were durable finance. In addition, we are In 2007, AIG received approval from the China Insurance Regulatory pleased when the China Insurance strengthening our presence in asset man- Commission to establish a wholly Regulatory Commission approved our agement and real estate development. owned general insurance subsidiary application to establish a Wholly Owned In the Middle East, American Life in China (pictured, Shanghai skyline). Foreign Enterprise (WOFE) under the Insurance Company (ALICO) received name AIG General Insurance Company a license to operate a retail life insurance China Limited (AIG General). Soon business in the Qatar Financial Centre. after, we opened a new AIG General ALICO is the first life insurance company headquarters in Shanghai and consoli- to receive an expanded license, which is dated our Chinese general insurance in addition to a wholesale life insurance operations there to capture efficiencies license first obtained in February 2007. and provide a platform to establish new Our acquisition of the German branches in other areas of China. AIA insurer Württembergische und Badische China continued to expand on the Versicherungs-AG (WüBa) reaffirmed our provincial licenses granted in 2006, commitment to growth in the German opening 29 new sales and service centers marketplace, and greatly enhanced in 2007, for a total of 104 centers in 19 our insurance offerings to small and The AIG Private Client Group’s cities. In addition, AIG InvestmentsSM midsize companies. Wildfire Protection Unit® uses the latest fire-mitigation technology to We advanced our strategy in the auto help protect policyholders’ proper- insurance sector when we acquired the out- ties in the western United States. standing shares of 21st Century Insurance Group that we did not already own. AIG 2007 Annual Report 3


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    We then consolidated 21st Century with with increasing frequency to allocate cap- We devoted a great AIG’s existing auto platform. The com- ital to promising growth areas, judge per- bined operation, aigdirect.comSM, is an formance on a consistent basis across our deal of attention to organization with the reach and expertise business segments and help us set com- our customers as needed to compete more effectively in pensation policy. AIG’s capital position the U.S. auto insurance marketplace. is excellent and we have the flexibility to we broadened the Through AIG-managed funds, we are take advantage of growth opportunities. implementation of a leading investor in the infrastructure Innovation —Our reputation as an our “Deliver the business. In 2007, our investments in industry innovator gained widespread P&O Ports North America, AMPORTS recognition when AIG Private Client Firm”strategy. and MTC Holdings were organized Group’s Wildfire Protection Unit acted under one management structure. We swiftly to protect client homes from rag- businesses now market under the AIG believe the new entity, Ports America, ing wildfires in the western United States. brand name. We launched a vigorous constitutes the largest and most experi- The unit’s response teams treated client branding campaign in India to support enced independent port operator and homes with a fire retardant in advance our business growth there. National automotive import/export processor in of the flames, reducing losses and claims. Union Fire Insurance Company of the United States. Meanwhile, AIG Product Development Pittsburgh, Pa., now markets under the In addition to these accomplishments, maintained a steady flow of new products, name AIG Executive LiabilitySM and we made good progress on several launching one every 14 days on average, AIG VALIC, a leader in the K-12, other fronts. with individual businesses launching healthcare and higher education markets, Customer Focus —We devoted a even more. New offerings ranged from has re-branded as AIG Retirement. It was great deal of attention to our customers Family Protector, an urban protection gratifying to see the growing strength of as we broadened the implementation package launched in South Africa, to AIG our brand recognized when BusinessWeek of our “Deliver the Firm” strategy. Oilfield Services Insurance, a one-stop magazine included AIG in its annual Specifically, we examined how to realign coverage solution designed specifically list of the world’s top brands, ranking us the way AIG does business so we can for independent oil and gas clients. at 47, the highest rank of any insurer, deploy our products and services in ways Building our Brand—We made sub- in our first-ever appearance on the list. that allow us to meet multiple needs stantial progress in 2007 in strengthening While we are proud of these successes, of customers around the world. For our worldwide recognition of the AIG brand. we clearly need to improve in several areas. customers, it means more convenience, Our success is attributable to greater There is no disputing the severity of the more choices and even better services. consistency in the implementation of U.S. residential mortgage crisis and the For our employees, it means broader our brand and judicious investments dislocation in the credit markets, but engagement with other AIG businesses in brand advertising and sponsorship that cannot be an excuse for poor per- and colleagues. For our shareholders, it opportunities. Our sponsorship of formance. We need to reverse higher means tapping the vast potential for new the Manchester United Football Club losses and expenses and work through growth and higher returns. has helped tremendously to increase our product and distribution shortcomings in Capital Management —The imple- recognition worldwide, particularly in several other businesses. Even though we mentation of our economic capital key Asian markets. Of course, it has have made progress increasing the average model provides us with a tool to help us helped build recognition in the United number of products sold per customer, allocate our capital efficiently. The tool Kingdom as well. The consolidation of there is still room for improvement. provides one of the metrics we will use our New Hampshire and Landmark businesses under the name AIG UK Limited will allow us to further leverage our Manchester United sponsorship. In Australia and New Zealand, all of our 4 AIG 2007 Annual Report


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    Group Executive Committee We are addressing these weaknesses General Insurance Martin J. Sullivan 4 Win J. Neuger 8 President and Executive Vice President through operational and structural invest- In the United States and abroad, AIG’s Chief Executive Officer and Chief Investment Officer ments and improvements, and I can General Insurance businesses write Edmund S.W. Tse 5 Senior Vice Chairman Nicholas C. Walsh 6 assure you we are doing so with a sense substantially all lines of commercial Executive Vice President Life Insurance Foreign General Insurance of urgency. property-casualty insurance and various Steven J. Bensinger 2 personal lines. A combination of product Executive Vice President Jay S. Wintrob12 and Chief Financial Officer Executive Vice President Vision and Values diversification, distribution strength and Retirement Services While financial strength, quality assets Anastasia D. Kelly 3 underwriting discipline allowed the Executive Vice President William N. Dooley 9 Senior Vice President and a solid strategy are critical elements General Insurance group to achieve higher General Counsel and Financial Services Senior Regulatory of success, it is also important to synthe- operating income despite decidedly and Compliance Officer Andrew J. Kaslow1 size those elements with a set of core uneven market conditions. Rodney O. Martin, Jr.11 Senior Vice President and Executive Vice President Chief Human Resources values that are shared by all employees. The Domestic Brokerage Group Life Insurance Officer In 2007, we engaged a sampling of (DBG), which provides commercial Brian T. Schreiber 7 Kristian P. Moor 10 Senior Vice President employees around the world and formal- insurance products and services to a wide Executive Vice President Strategic Planning Domestic General ized a vision and set of values for AIG range of businesses in the United States, Insurance that will serve as our touchstone for had a record year, with operating income future progress: climbing 25 percent. DBG is the largest 7 Our Vision is to be the world’s property-casualty insurance organization 6 8 9 10 11 first-choice provider of insurance and in the United States with market-leading 1 2 3 4 12 5 financial services. businesses such as AIG Executive Our Values are People, Customer Liability, a premier provider of executive Focus, Performance, Integrity, Respect and professional liability insurance; and Entrepreneurship. Our Vision and Values define and unite us as an organization. You can read more about our Vision and Values further on in this report. AIG 2007 Annual Report 5


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    In addition to the WOFE license it received in China, AIG’s Foreign General Insurance group also launched a new operation in Oman and opened a new branch in Qatar, strengthening its position as the most extensive property-casualty network in the world. Full year results were adversely affected by the losses from the June 2007 U.K. floods and Ambassador Frank G. Wisner Dr. Jacob A. Frenkel higher non-catastrophic losses; however, Vice Chairman Vice Chairman External Affairs Global Economic Strategies underwriting results were excellent. Foreign General continues to refine its customized product range to meet the requirements of a growing worldwide Lexington Insurance Company, popularity of its Wildfire Protection Unit middle class while developing products the leading U.S.-based excess and surplus with the deployment of its Hurricane for underserved markets. lines insurer; AIG Excess Casualty®, Protection Unit® in coastal regions. DBG’s leading commercial umbrella Transatlantic Holdings, Inc., a majority- Life Insurance & Retirement Services provider; and AIG Environmental®, owned holding company of international AIG’s Life Insurance & Retirement a pioneer in pollution and eco-friendly reinsurers, achieved record net income Services group carries on a long tradition liability coverages. AIG’s Domestic partly due to higher premium volume of excellence it has earned during many Accident & Health Division, which and favorable loss experience in its years of industry leadership. In 2007, the manages specialized accident and health property lines. group had strong top line growth, and risks for consumer, commercial and Significant home price deterioration momentum is building on the strength affinity group customers, and AIG associated with the ongoing U.S. housing of new and enhanced products, as well Worldsource, which provides innovative crisis resulted in a challenging year for as new distribution initiatives. However, global liability insurance solutions, as the domestic mortgage insurance business operating income decreased compared well as HSB Group, Inc., a leading of United Guaranty Corporation (UGC). to 2006, primarily due to higher net worldwide provider of equipment break- We expect similar domestic market realized capital losses in 2007. down and engineered lines insurance, all conditions to last into 2009. Even so, Foreign Life operations devoted performed well in 2007 due in part growth in international markets, togeth- significant management time and to their execution of unique Deliver the er with higher persistency that lifted resources to building our business in Firm strategies. domestic first-lien renewal premiums, China and India. Progress continues on Integration costs and higher claims produced solid growth in net premiums the merger of AIG Star Life Insurance activity adversely affected results in our written. With operations today in 15 Co., Ltd., and AIG Edison Life Insurance Domestic Personal Lines businesses. countries, UGC is prudently pursuing Company, which we hope to complete in However, consolidation and product additional international opportunities in early 2009. We are encouraged by prom- innovation will improve our market promising markets such as Japan, India, ising results from the introduction of new position going forward. AIG Private Australia and Germany. variable annuity products. In addition, Client Group, which insures more than further deregulation in the bank channel one-third of the Forbes 400 Richest and the privatization of Japan Post Americans, achieved net written Insurance Co., Ltd., are creating opportu- premium growth in excess of 37 percent. nities to sell our products through vast The group is building on the growing new distribution systems. 6 AIG 2007 Annual Report


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    AIG’s life insurance network is the Domestic retirement services opera- most extensive of any life insurance tions continue to address the growing organization. Our life businesses abroad need for asset accumulation, protection include market-leading companies such and guaranteed income solutions. AIG as American International Assurance Annuity Insurance Company, the largest Company, Limited, consistently rated issuer of fixed annuities in the United one of the most trusted brands in States, responded to difficult market con- Southeast Asia. ALICO operates in ditions by launching new products and more than 50 countries, with a strong by expanding distribution. AIG VALIC, and growing presence in Japan, Europe, now operating as AIG Retirement, the Middle East and Latin America. achieved double-digit deposit growth and The Philippine American Life and General a steady increase in fee income and assets Insurance Company observed its 60th under management. AIG SunAmerica, anniversary and remains the premier a leader in variable annuities, achieved life insurer in the Philippines. Our record fee income and assets under man- AIG’s International Lease Finance Taiwan life insurance unit, Nan Shan agement by responding to the demand Corporation (ILFC) has the largest Life Insurance Company, Ltd., once for “income for life” solutions. The aircraft fleet in the world, as measured by fleet value, and is again received recognition throughout launch of the “Live Longer Retire the largest single customer to date the year for its quality customer service. Stronger” national advertising campaign for the new Boeing 787 Dreamliner. In the United States, AIG American boosted recognition of AIG’s retirement General enhanced its position as a lead- services capabilities while supporting our ing life insurer by introducing more than global branding initiative. 25 new or revised products and riders in 2007. Its acquisition of direct marketer Financial Services Matrix Direct, Inc., helped the company The Financial Services group recorded expand beyond its traditional distribution an operating loss of $9.52 billion for 2007 methods. AIG American General contin- primarily due to the unrealized market ues to place significant emphasis on valuation losses related to the AIGFP cross-selling efforts by developing coordi- super senior credit default swap portfolio. nated offerings with AIG Investments, We continue to believe that AIGFP DBG and AIG Retirement. will not realize significant losses from AIG was named one of “The Global this derivative business, which insures 100” most sustainable companies at the World Economic Forum in The launch of the“Live against the default of certain securities. Davos, Switzerland. AIG is develop- Since its creation, AIGFP has been a ing environmentally sustainable Longer Retire Stronger” strong performer and is an important properties, such as Spruce Peak at Stowe, Vt., developed by AIG Global national advertising component of AIG’s diverse portfolio Real Estate. of businesses. campaign boosted We continue to see good potential recognition of AIG’s across all product segments of our retirement services Financial Services group. Together, they diversify our revenues and comple- capabilities while ment our core insurance operations. supporting our global branding initiative. AIG 2007 Annual Report 7


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    International Lease Finance Corporation The group also manages AIG insurance we are working to keep U.S. markets (ILFC), for example, had an excellent and asset management portfolios, which open to foreign trade and investment, year with strong operating income. exceeded $672.3 billion at year end. AIG which is so important to the health of A worldwide leader in aircraft leasing, is the world’s seventh-largest asset manager, the world economy. ILFC executed lease agreements covering with operations in 45 cities, including We recognize that our businesses 138 aircraft and became the largest single new offices in Dubai and Kampala, cannot succeed over the long term unless customer to date for the new Boeing 787 Uganda’s capital. we are mindful of the well-being of others. Dreamliner. ILFC’s fleet of more than Formerly known as AIG Global In 2007, AIG significantly expanded its 900 modern, efficient passenger jets Investment Group, we re-branded our corporate responsibility initiatives to make is the largest in the world, as measured institutional asset management function a greater positive contribution to society by fleet value. AIG Investments, a name that succinctly through both our core business activities American General Finance, Inc. conveys the group’s core business and is and our philanthropic programs. (AGF), a major consumer finance organ- aligned with AIG’s global branding effort. ization in the United States, weathered AIG Private Bank Ltd., continued We are working to keep deteriorating market conditions with con- the expansion of its global wealth man- servative lending practices and a branch agement business, opening AIG’s first U.S. markets open structure that allows it to stay in wealth management office in Taiwan. to foreign trade and close touch with customers and market AIG Private Bank also entered into a investment, which is so trends. AGF is in a position to oppor- joint venture agreement with Bank tunistically expand its business portfolio, Sarasin & Co. Ltd. to establish a new important to the health as it demonstrated in early 2008 when it Swiss bank with a goal of being a strong of the world economy. agreed to acquire a substantial portion player in Switzerland and all of Europe. of the Equity One consumer branch loan AIG Global Real Estate Investment Corp. AIG has a history of addressing soci- portfolio from Popular, Inc. expanded its investment and development ety’s challenges through business success. AIG Consumer Finance Group, Inc. platforms, increasing its equity under Using the same tools that have helped AIG achieved record earnings in Poland and management to more than $23 billion, companies prosper, we leverage our experi- expanded in key markets such as India, and adding new employees in strategic ence and global reach with organizations Thailand and Mexico. The Imperial markets such as the Middle East, India such as ACCION International and A.I. Credit Companies maintained its and other countries throughout Asia. Pro Mujer to promote entrepreneurship, position as the largest financer of innovation, diversity and empowerment. insurance premiums in North America Public Policy and A decade ago, AIG launched the first-ever and continued to grow its high-net-worth Corporate Responsibility microinsurance program for a group of life insurance business. Terrorism is an unconventional risk due local microlenders in Uganda. Today, to its unpredictability and the potential the AIG companies are developing Asset Management severity of losses. So we applaud the microinsurance markets in Africa, India, The Asset Management group provides a U.S. Congress and the White House for Latin America and Southeast Asia, and wide variety of investment-related services extending the federal Terrorism Risk have helped some 2.5 million clients and investment products. Operating Insurance Act as a backstop, which is in 12 countries. income decreased in 2007 due to foreign vital to a secure economy. On another A leader in environmental insurance, exchange, interest rate and credit related important policy front, we continued AIG last year developed a suite of new mark-to-market losses and other-than- our efforts to open global markets to our products to address client needs related temporary impairment charges on fixed insurance products, financial services to alternative energy and limiting carbon income investments. However, the group and investments. At the same time, emissions. We also launched a program grew unaffiliated client assets under man- that enables homeowners to rebuild their agement by 26 percent to $94.2 billion. property to green standards following a covered loss. 8 AIG 2007 Annual Report


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    We have also begun to address the Stock Price and Dividends common shares. AIG does not expect to environmental impact of our own As I mentioned at the outset, the perform- purchase additional shares in the foresee- operations. We conducted the first ance of AIG’s stock in 2007 and into 2008 able future, other than to meet commit- global inventory of AIG’s greenhouse was disappointing. The price of an AIG ments that existed at December 31, 2007. gas emissions and began to develop a common share closed the year at $58.30, We believe this is a prudent decision in mitigation plan, including the purchase of 18.6 percent below the close of 2006. light of the unsettled capital markets and carbon offsets. As a first step, we sponsored By comparison, the S&P 500 Stock Index because it gives AIG maximum flexibility a forum in Beijing for our corporate rose 3.5 percent in 2007. to pursue growth opportunities that clients, where we announced our intent The Board of Directors took several may arise. to fund agricultural projects in steps during 2007 to demonstrate its rural China that reduce or sequester confidence in AIG’s ability to continue Board and Management Changes greenhouse gas emissions. to grow and generate excess capital. Three directors who have made enormous We continue to support and participate In March, the Board approved a new contributions to AIG will retire at the in the Carbon Disclosure Project, the U.S. dividend policy, which provides that, annual meeting in May. It is impossible Climate Action Partnership and other under ordinary circumstances, AIG plans to overstate the contribution Frank Zarb climate initiatives. In September, AIG to increase its common stock dividend made during his seven years on the became an insurance-sector component by approximately 20 percent annually. Board, particularly during his tenure as of the Dow Jones Sustainability Index The new policy became effective in interim Chairman. Frank’s clear judg- North America (DJSI North America). May 2007, when the Board voted to ment and exceptional organizational and Index components are selected according increase the quarterly cash dividend to leadership skills provided the support to a systematic assessment that identifies 20 cents per share, a 21.2 percent increase management needed to work through the leading sustainability-driven compa- over the previous quarterly dividend some of the most difficult challenges in nies in each industry group. and the 22nd consecutive year AIG’s 89-year history. Following the appointment of our that AIG has increased its dividend. Marshall “Mickey” Cohen has been first Chief Diversity Officer early in 2007, a valuable contributor throughout his 16 we took a number of actions to help years on the Board. As AIG has evolved, AIG realize the benefits of a more diverse The Board of Directors the continuity of Mickey’s trusted organization. We established diversity took several steps during counsel has been a steady reference point. steering committees at the business level 2007 to demonstrate As Chairman of the Board’s Compensation to complement our Corporate Executive and Management Resources Committee, Steering Committee; implemented its confidence in AIG’s he has been at the forefront of training programs for existing employees; ability to continue significant enhancements in AIG’s and explored ways to improve how to grow and generate compensation policies. we attract and mentor diverse job Steve Hammerman’s three years of candidates. We are also developing new excess capital. Board service coincided with a period of products to address the needs of diverse important transition at AIG. As Chairman clients, while increasing our supplier Also in March, the Board expanded of the Regulatory, Compliance and Legal diversity. We still have work to do, AIG’s existing share repurchase program Committee, his wisdom and common- but the actions we are taking today by authorizing the repurchase of up to sense approach guided AIG through will help AIG build its reputation as a $8 billion in common stock. In November, difficult regulatory issues. We are truly forward-thinking organization. we announced the Board’s decision to grateful to all of these outstanding authorize the repurchase of an additional individuals for their dedicated service. $8 billion in common stock. During 2007, AIG repurchased more than 76 million AIG 2007 Annual Report 9


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    It is not enough for our These headwinds may require us to tack a we operate; we want those markets to different course, but we expect to achieve grow and produce wealth and opportuni- shareholders merely to success nevertheless. Our five-year goal ty for everyone in them. It is not enough earn a steady return; is to grow adjusted earnings per share by for our employees simply to earn a living; an average of 10 to 12 percent annually, we also want them to be personally we want you to earn and a significant portion of management satisfied in the work they do. And it is superior returns and to compensation is linked to the achievement not enough for our shareholders merely to be proud that you of this goal. earn a steady return; we want you to earn We are confident that we have the superior returns and to be proud that invest in AIG. right strategies and resources to succeed. you invest in AIG. AIG’s financial strength is formidable AIG is a remarkable company, thanks In January 2008, the Board of Directors by any measure, and our capital position to the support of many. I would like to elected Stephen F. Bollenbach a director. is solid. We have established, well-run thank the Board of Directors for its wise Steve recently retired as Co-Chairman and businesses in every corner of the globe. counsel; our customers and business Chief Executive Officer of Hilton Hotels We must remain disciplined in our partners for their loyalty; all of our Corporation, and possesses deep experience underwriting, refusing to chase rates down dedicated employees around the world, in managing complex global businesses. in softening markets. We must continu- who truly make AIG the great company We look forward to his contributions. ally enhance distribution and improve that it is; and you, our shareholders, for cost efficiency. Yet, we will invest your support and confidence in investing 2008 Outlook and Priorities where we need to invest, especially to in AIG. We harbor no illusions about the chal- build out areas of infrastructure that lenges ahead in 2008. The U.S. residential are critical to growth. housing market is expected to remain We will conduct our business respon- Sincerely, weak throughout the year. Uncertainty sibly, working constructively with persists about credit markets and the U.S. regulators, minimizing our impact on economy in general, and competition the environment and cultivating a is increasing in many of our markets. diverse workforce that acts in harmony However, while challenges limit some with our core values. opportunities, they create others. It is not enough simply to profit from Martin J. Sullivan President and Chief Executive Officer our transactions with customers; we want them to manage risk effectively and to March 14, 2008 succeed in their endeavors. It is not enough to thrive in the markets where 10 AIG 2007 Annual Report


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    W H AT W E S E E The ability to see and seize opportunities in the markets we serve has always differentiated AIG from its peers. Where others may see little or no potential, we see new ways to deliver solutions to our 74 million customers worldwide. AIG has many strengths in markets around the world. Our 116,000 employees and over 700,000 agents, brokers and sales representatives strive to exceed client expectations with market-leading products and services. In the following pages, we share with you, our shareholders, what we see and what we do every day to help our clients achieve success—in both local and global markets. AIG 2007 Annual Report 11


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    WE SEE OPPORTUNITIES TO INCREASE SHAREHOLDER VALUE BY LEVERAGING OUR CAPABILITIES TO MAXIMIZE RELATIONSHIPS WITH EXISTING AND NEW CUSTOMERS. AIG’s enterprise-wide initiative to “Deliver the Firm” gained momentum last year. Going beyond cross-selling, this key strategy represents a fully integrated approach to the way we focus on the market. It involves the level of customer service we provide…the type of customer information we develop…the way we collaborate…the way we develop new products and services… and the way our employees achieve a deeper knowledge of AIG’s full capabilities. Deliver the Firm defines the entire AIG experience for our customers. By facilitating an introduction to a Fortune 100 client, AIG Executive Liability provided AIG Investments with an opportunity to demonstrate its asset management capabilities in the corporate pension plan sponsor segment. After an extensive due diligence process, the client entrusted AIG Investments with $175 million to invest in its International Small Cap equity strategy, based on its The AIG Strategic Relationship strong long-term performance Group helped generate gross record and proven investment premiums written of over process, as well as the $350 million in insurance depth of experience of the business in 2007 by access- portfolio management team. ing AIG’s investment and other non-insurance relationships. One of the group’s long- standing relationships is with global growth equity firm General Atlantic, which was introduced by AIG Investments. General Atlantic sees AIG as a key insurance partner and says our ability to deliver a wide range of products and capabilities sets us apart. 12 AIG 2007 Annual Report


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    The Office of the Customer (OOC) contributes to AIG’s Deliver the Firm strategy by providing marketing and technology support to AIG businesses, including best practices in up-selling, cross-selling, retention and referrals. In just one example from commercial lines, OOC capabilities were used to develop and deliver The Major Accounts Practice over 90 types of “marketing within American International opportunity alerts” in more Underwriters is focused than 30 countries. on giving corporations with sales of over $500 million broader access to the AIG enterprise. Average products per customer increased from 3.63 to 4.12 in 2007— equating to 1,866 new prod- ucts for existing customers. The cross-sell rate for the top 100 accounts was 10 products per customer. AIG 2007 Annual Report 13


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    Economic liberalization, technological advances, capital market developments and demographic changes are driving forces in global economic activity. Burgeoning markets such as China, India, Vietnam, Russia and Eastern Europe, where AIG already has a presence, will provide long-term growth opportunities for both commercial and An aging global population personal insurance lines as is placing unprecedented these economies continue demands on public pension to grow. and healthcare services. This demographic shift presents great opportunities for AIG’s Life Insurance & Retirement Services businesses, as well as Asset Management, to provide products such as supplemental medical coverage, investment options and retirement advice. 14 AIG 2007 Annual Report


  • Page 17

    Around the world, the middle class is growing and has more disposable income for housing, cars, life insurance, consumer goods and travel. This trend will continue to increase demand for AIG’s personal lines, travel insur- ance, consumer lending products and International Lease Finance Corporation’s Corporate responsibility for modern aircraft. social, environmental and governance issues is a trend that is accelerating, and AIG has been proactive in this area. We take pride in providing solutions that create long-term value for our customers—such as AIG Environmental’s Sustain-a-BuildSM Initiative, which provides policyholders with premium discounts for properties certified under the U.S. Green Building Increases in severe risks Council’s Leadership in continue to be a challenge for Energy and Environmental all global businesses. At AIG, Design (LEED®) Green our underwriting experience Building Rating System TM. and expertise enable us to respond to potentially devas- tating exposures our cus- tomers face. For example, in 2007 we formed AIG Homeland Security SolutionsSM to provide businesses with access to insurance and risk management products related to terrorism incidents and other catastrophic events. WE SEE GROWING DEMAND FOR PRODUCTS AND SERVICES ARISING FROM EVOLVING ECONOMIC AND DEMOGRAPHIC TRENDS. AIG has always been adept at staying ahead of important macro trends. But what truly differentiates us is how we leverage our unique strengths to capitalize on growth opportunities. AIG’s financial strength, worldwide footprint and diversified businesses enable us to respond quickly and effectively to our customers. Fueled by our entrepreneurial culture, the AIG franchise has an unequaled competitive advantage and growth platform. AIG 2007 Annual Report 15


  • Page 18

    Another rapidly emerging market is Latin America, where we see opportunities for growing all of our lines of insurance. The region’s commercial and consumer insurance sectors both have high growth potential. In Brazil, for example, American Life Insurance Company’s joint venture, Unibanco AIG Seguros S.A., delivered strong revenue growth in insurance, pension and retirement products in 2007. AIG sees many opportunities in India (pictured) from changing lifestyles, a grow- ing middle class with more disposable income, a large rural population receptive to microinsurance and personal insurance products, and a fast-growing economy. We see growth potential in Consumerism is gaining insurance, consumer finance, ground in many Eastern real estate, asset manage- European countries. The ment, infrastructure appetite for consumer goods investments, mutual funds and upscale lifestyles offers and private equity. AIG more opportunities to sell insurance products and financial services. For example, in Poland, AIG Consumer Finance Group is focused on growing its credit card business and expanding its branch-based system for making personal loans. Innovation and entrepreneurial spirit are AIG hallmarks, which we leverage to antici- pate client needs and create new products in developed markets. AIG Europe (UK) Limited, for example, identi- fied an opportunity in the directors and officers liability market for smaller companies listed on the London Stock Exchange’s Alternative Investment Market. Its award- winning product has generated significant new business and strong broker interest. 16 AIG 2007 Annual Report


  • Page 19

    WE SEE GROWTH OPPORTUNITIES IN EMERGING AND DEVELOPED MARKETS. As trade barriers fall and more countries open their markets, AIG sees growth opportunities around the world for its full range of products and services. The demand for insurance, retirement services, consumer finance, private banking and asset management offerings is growing in tandem with the emerging markets of Asia, Latin America, Eastern Europe and the Middle East. In developed markets, AIG continues expanding with new and enhanced products for consumers and businesses of all sizes, and with strategic acquisitions and new lines of business. AIG uses strategic acquisitions to grow its business in market segments around the world. Through the acquisition of WüBa, a German insurer that serves small and midsize enterprises via the broker channel, we are better positioned to cater to this promising market with an extensive array of products and services. AIG 2007 Annual Report 17


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    WE SEE THE VALUE OF A UNIFIED GLOBAL BRAND. 2007 was a landmark year for the AIG brand, with the Manchester United Football Club sponsorship helping drive global awareness and recognition to unprecedented levels. As more customers around the world are exposed to the AIG brand, an opportunity exists to reinforce the consistency of our identity and messages across global markets. Doing so not only generates significant operational efficiencies and more effective selling throughout the organization, but also creates an invaluable platform for more meaningful, extensive and lasting relationships with our customers. The Manchester United spon- sorship has brought significant visibility to AIG’s businesses around the world, particularly in Asia, where the club counts 83 million fans. Capitalizing on this unique opportunity to reach a mass audience, AIG companies executed more than 250 campaigns in 71 countries during the sponsorship’s first year— For the first time, AIG made increasing excitement and BusinessWeek’s annual list of recognition of the AIG brand the top 100 global brands in among customers, producers 2007, ranking 47th overall and employees. and first among insurance companies, with an estimated $7.5 billion brand value. AIG also ranked 30th on the Barron’s 2007 survey of “The World’s Most Respected Companies,” again placing first among insurance companies. 18 AIG 2007 Annual Report


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    To grow the strength of the AIG global brand and more clearly convey the products and services they offer, several U.S. business units changed their names last year. For example, National Union was re-branded as AIG Executive Liability, and AIG Global Investment Group as AIG Investments. AIG enhanced its online presence with the launch of a new version of AIG.com, which enables U.S. commer- cial clients and brokers to quickly access information and conduct business from a single website. The launch marked the first step in A number of business units globalizing AIG.com with a in international markets also consistent brand message underwent brand changes that reflects the breadth to harness AIG’s worldwide and strength of our member brand recognition. In Australia companies’ products around and New Zealand, AIG’s the world. life businesses changed their name from AIA to AIG Life. In the United Kingdom, ALICO introduced two new brands—AIG Life and AIG Life Wealth Management. And in Taiwan, AIU is now known as AIG General Insurance (Taiwan) Co., Ltd. AIG 2007 Annual Report 19


  • Page 22

    AIG demonstrated its commit- ment to the environment when it became the first insurance organization to join the U.S. Climate AIG’s goal is to make a differ- Action Partnership last year. ence with our philanthropic This organization advocates contributions in partnership mandatory greenhouse gas with organizations that (GHG) emissions limits in promote entrepreneurship, the United States. AIG also innovation, diversity and formed a dedicated alternative empowerment around the energy practice, as well as world. In 2007, AIG provided an eco-practice focused on significant support to climate change risks. And AIG charitable organizations announced plans to fund that address the needs of agricultural projects in China the communities where we to generate 310,000 metric do business—empowering tons of carbon offset credits, women, promoting innovative representing about half the education programs and GHG emissions attributable Reflecting AIG’s core value providing opportunities for to our global operations. of entrepreneurship and diverse populations. legacy as a microinsurance pioneer, we continue to help the world’s working poor build businesses. AIG member companies have developed microinsurance markets in Africa, India, Latin America and Southeast Asia—benefitting more than 2.5 million clients in 12 countries (pictured, owner of a weaving business in Peru and her family). WE SEE THE CHANCE TO MAKE THE WORLD A MORE PROSPEROUS AND LIVABLE PLACE. One of the main points in AIG’s Vision is to contribute to the growth of sustainable, prosperous communities. We believe that corporate responsibility is essential to our long-term objective of creating value for our shareholders and serving the interests of our clients. In 2007, AIG took important steps to incorporate social, environmental and governance concerns into our underwriting, risk management and investment decision making. We also grew our philanthropic programs at both the corporate and local levels, leveraging our global reach and relationships with partners in the community. 20 AIG 2007 Annual Report


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    Since 2003, the AIG Disaster Relief Fund (DRF)—funded by donations from AIG and its employees—has contributed over $10 million to emer- gency relief organizations. In 2007, the DRF supported rebuilding and reconstruction efforts after the earthquake in Peru, and responded to the wildfires that burned through southern California. AIG also supports disaster AIG’s commitment to diversity preparedness organizations encompasses support for that focus on planned historically disadvantaged and coordinated responses ethnic groups and women to disasters. around the world. AIG is also recognized for reaching out to people with disabilities. In 2007, New York City Mayor Michael R. Bloomberg recognized AIG with the ADA (Americans with Disabilities Act) Employment Award for its disability initiatives. AIG 2007 Annual Report 21


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    CUSTOMER FOCUS Focusing on AIG’s 74 million customers worldwide begins with anticipating their priorities—not only satisfying current needs, but looking to future needs and doing it P E O P L E Our dedicated better than our competitors. people are the cornerstone of We strive to exceed our cus- AIG’s competitive advantage. tomers’ expectations by deliv- We have a unique global ering high-quality products franchise with a diversity and services at a better value. of cultures, languages, back- grounds and experiences. Valuing people means devel- oping the talents and capa- bilities of each individual; recognizing and rewarding excellence; and encouraging and rewarding teamwork. P E R F O R M A N C E We are accountable for building and preserving AIG’s financial strength. AIG’s franchise has remarkable reach, relationships and resources. Our global footprint, diverse distribution model, extensive product range and financial strength make AIG uniquely suited to serve customers and communities around the world. 22 AIG 2007 Annual Report


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    R E S P E C T Respect encom- passes how we interact with colleagues—seeing and valuing each other as diverse individuals. Our respect transcends national borders and is reflected in the ways we honor the people, history and culture of local communities. Collaboration, so critical in an organization of our size and scope, is built upon respect. ENTREPRENEURSHIP Entrepreneurship speaks to AIG’s ability to capitalize on unmet customer needs. AIG has a long history of respon- sible risk taking, innovation and creative problem solving. Entrepreneurship entails I N T E G R I T Y Integrity championing new initiatives means conducting every with energy and urgency, aspect of AIG’s business with and recognizing the power honesty—meeting our com- that can be unleashed if each mitments to our customers, employee acts every day as colleagues, business partners an owner of the firm. and shareholders. Our empha- sis on improving compliance demonstrates our dedication to integrity and enhances our reputation for strong corporate governance. Integrity is not only a core belief, but a competitive necessity in today’s marketplace. WE SEE A CLEAR COURSE TOWARD BECOMING THE WORLD’S FIRST-CHOICE PROVIDER OF INSURANCE AND FINANCIAL SERVICES. Around the globe—in locations as diverse as Hong Kong (pictured), Stockholm, Los Angeles—AIG businesses and colleagues share a Vision and a set of core Values that play a fundamental role in our company’s global growth and success. Both distinctive and inclusive, the AIG Vision is: To be the world’s first-choice provider of insurance and financial services. We will create unmatched value for our customers, colleagues, business partners and shareholders as we contribute to the growth of sustainable, prosperous communities. Our core Values are: People. Customer Focus. Performance. Integrity. Respect. Entrepreneurship. AIG 2007 Annual Report 23


  • Page 26

    A I G AT A G L A N C E General Insurance Financial Services AIG’s General Insurance operations include the largest U.S. underwriters of commercial AIG’s Financial Services businesses and industrial insurance, the most extensive international property-casualty network, specialize in aircraft and equipment leasing, a personal lines business with an emphasis on auto insurance and high-net-worth clients, capital markets, consumer finance and a mortgage guaranty insurance operation and a leading international reinsurer. AIG’s insurance premium finance. These busi- leadership is a result of its underwriting skill, innovative insurance solutions, financial nesses complement AIG’s core insurance strength, superior service and responsive claims handling. The AIG claims operation operations and achieve a competitive gives clients access to a vast worldwide network of dedicated experts and top legal firms. advantage by capitalizing on opportunities throughout AIG’s global network. Domestic Brokerage Group United Guaranty Corporation The businesses in AIG’s Financial Services Group The principal units of the Domestic Brokerage United Guaranty Corporation subsidiaries provide are leaders in the markets they serve. Group (DBG) provide a wide range of commercial residential mortgage guaranty insurance for first-  International Lease Finance Corporation (ILFC) and industrial coverages. and second-lien mortgages, private education loan is AIG’s aircraft leasing business. With a fleet  AIG Executive Liability is the leading provider default insurance, and other financial services to of more than 900 planes, ILFC is a market leader of directors and officers, and employment financial institutions and mortgage investors. in the leasing and remarketing of new advanced practices liability, and a premier underwriter of technology commercial jet aircraft worldwide. professional liability, fidelity coverage, network ILFC is the largest single customer to date for security insurance and fiduciary coverages. the new Boeing 787 Dreamliner. Its products were previously marketed under  Capital Markets operations are conducted through the National Union Fire Insurance Company AIG Financial Products Corp., which engages in of Pittsburgh, Pa., brand. transactions, as principal, to provide clients with  Lexington Insurance Company is the leading risk management solutions and sophisticated U.S.-based excess and surplus lines carrier, hedging and investment products in standard and specializing in property, casualty, healthcare customized transactions involving commodities, and program risks. credit, currencies, energy, equities and rates.  AIG Excess Casualty is the leading provider Clients include top-tier corporations, financial institutions, governments, agencies, institutional of commercial umbrella and excess casualty Transatlantic Holdings, Inc. investors and high-net-worth individuals liability insurance. Transatlantic Holdings, Inc. (TRH), is a majority- throughout the world.  AIG Specialty Workers’ Compensation® is a owned subsidiary of AIG. TRH’s subsidiaries offer  AIG’s consumer finance business consists of market-leading workers’ compensation insurer reinsurance capacity on both a treaty and faculta- American General Finance, Inc. (AGF) and AIG for small and midsize businesses. tive basis worldwide—structuring programs for Consumer Finance Group, Inc.(CFG). AGF is one  AIG Risk Management® provides casualty risk a full range of property and casualty products, of the largest consumer finance organizations in the management products and services to large with an emphasis on specialty risks. United States, with a branch network in 45 states, commercial customers. Puerto Rico and the U.S. Virgin Islands. AGF’s  AIG Environmental is the largest U.S. provider Foreign General Insurance Group primary market is in the United States, but it of environmental liability coverages and services. The Foreign General Insurance Group comprises continues to explore opportunities in interna-  AIG Worldsource provides global insurance AIG’s international property-casualty operations. tional markets. CFG, through its subsidiaries, programs for U.S.- and Canadian-based  American International Underwriters (AIU) is the offers a broad range of consumer finance products, multinationals, as well as foreign companies with marketing unit for AIG’s overseas property-casualty primarily in emerging markets. As these markets operations in the United States and Canada. operations and the most extensive foreign network continue to attract investment, CFG’s businesses  DBG also includes many specialty business units of any insurance organization. Stretching across have significant potential to expand operations that draw on the worldwide resources of AIG Asia and the Pacific to Latin America, Europe, in developing countries around the world and companies to meet client needs in the aviation, Africa and the Middle East, AIU markets a full provide consumers with more products. transportation and construction industries, range of property-casualty products to both  Imperial A.I. Credit Companies, Inc., is the the small business sector and the accident and commercial and consumer clients. largest insurance premium finance provider in health arena, as well as engineering services  AIU Accident & Health Division is a leading the United States. through AIG Consultants, Inc. provider of accident, supplemental health and  HSB Group, Inc., the parent company of The travel insurance to international businesses Hartford Steam Boiler Inspection and Insurance and consumers. Company, HSB Engineering Insurance Limited,  AIU Commercial Lines Division is a market and The Boiler Inspection and Insurance leader in financial lines in Europe, surpassing Company of Canada, is a leading worldwide one billion dollars in premiums. provider of equipment breakdown and engineered  AIU Personal Lines Division operates globally lines insurance. to provide automobile, personal property Domestic Personal Lines and extended warranty coverages. It also provides products and services for the high-net-worth AIG’s growing Domestic Personal Lines opera- segment, institutional and individual clients. tions provide automobile insurance through aigdirect.com and AIG Agency AutoSM, and offer The General Insurance segment also includes a broad range of coverages for high-net-worth AIG Global Marine and Energy which serves the individuals through AIG Private Client Group. global insurance, risk management and loss control AIG is among the top 10 writers of automobile needs of marine and energy clients, including insurance, with historical growth rates exceeding renewable operations such as biofuel, hydroelectric, industry averages. geothermal, solar and wind. 24 AIG 2007 Annual Report


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    Life Insurance & Retirement Services Asset Management Serving millions of customers around the world, AIG’s growing global Life Insurance busi- AIG’s Asset Management businesses nesses make up the most extensive network of any life insurer. Strategies for enhancing include institutional and individual asset growth focus on developing new markets, expanding distribution channels and broadening management, broker-dealer services, private product offerings. AIG has one of the premier Retirement Services businesses in the banking and spread-based investment United States and it also has an extensive international retirement services network—both programs, as well as the management of poised to meet the asset accumulation, protection and lifetime income needs of individuals AIG insurance invested assets. around the world. Foreign Life Insurance & Retirement Services  The Philippine American Life and General The businesses in AIG’s Asset Management AIG’s Foreign Life Insurance & Retirement Insurance Company (Philamlife) is the largest Group leverage AIG’s deep knowledge of markets Services operations are conducted principally and most profitable life insurance company in around the world and expertise in a wide range through the following market-leading companies: the Philippines. of asset classes.  American International Assurance Company,  AIG Investments manages equities, fixed income, Domestic Life Insurance & Retirement Services Limited (AIA), is AIG’s flagship life insurance private equity, hedge fund of funds and real In the United States, AIG’s Domestic Life estate investments for institutional, individual company for Southeast Asia and the leading life Insurance & Retirement Services businesses offer insurer in the region. Its extensive network of and high-net-worth investors around the world. a comprehensive range of life insurance, annuity, AIG Investments ranks among the top seven branches, subsidiaries and affiliates spans Australia, and accident and health products for financial Brunei, China, Guam, Hong Kong, India, money managers in the world by institutional planning, estate planning and wealth transfer. assets under management. Indonesia, Macau, Malaysia, New Zealand, They use a full complement of distribution Singapore, South Korea, Thailand and Vietnam.  AIG Private Bank Ltd., AIG’s Zurich-based private channels, including banks, national and regional brokerage firms, independent financial planning banking subsidiary, provides personalized private firms, independent and national marketing banking and structured wealth management solu- organizations, brokerage general agencies, tions, including investment advisory and asset independent insurance producers and general management products to a worldwide clientele. agents, and worksite specialists. The principal  AIG SunAmerica Asset Management Corp. manages operations include the following: and/or administers retail mutual funds, as well  AIG American General, one of the largest life as the underlying assets in AIG SunAmerica insurance organizations in the United States, and AIG Retirement variable annuities sold to distributes a broad range of life insurance, annuity, individuals and institutional groups throughout and accident and health products. the United States.  AIG Annuity Insurance Company is the largest  American Life Insurance Company (ALICO) issuer of fixed annuities in the United States is among the largest international life insurance and the leading provider of annuities sold companies in the world, with operations in more through banks.  AIG Retirement (formerly branded as AIG VALIC) than 50 countries. ALICO’s operations stretch from Japan to Europe, the Middle East, Latin is the nation’s leading provider of group retirement America, South Asia and the Caribbean. plans to K-12 education and the third largest to  AIG Star Life Insurance Co., Ltd., and AIG healthcare and higher education institutions.  AIG SunAmerica Retirement Markets is one Edison Life Insurance Company contribute to AIG’s growing life insurance presence in Japan of the nation’s leading distributors of individual through the sale of life, accident and health, variable annuities and income solutions. and retirement services products via agents,  The AIG Advisor Group, Inc., broker-dealers brokers and bank partners. provide financial products, technology support  Nan Shan Life Insurance Company, Ltd., is and business-building programs to independent Taiwan’s second-largest life insurer in terms of financial advisors serving the retirement total premium. planning needs of clients in the United States. Revenues by Major Business Segment* 51.7 53.6 (billions of dollars) 49.2 50.9 2006 2007 7.8 4.5 5.6 (1.3) General Life Insurance Financial Asset Insurance & Retirement Services Management * Includes net realized capital gains (losses). Services AIG 2007 Annual Report 25


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    R E V I E W O F O P E R AT I O N S — GENERAL INSURANCE AIG’s General Insurance operations include the largest Domestic Brokerage Group U.S. underwriters of commercial and industrial insurance, AIG’s Domestic Brokerage Group (DBG) is the largest U.S. com- the most extensive international property-casualty network, mercial property-casualty insurance organization. DBG companies a personal lines business with an emphasis on auto insurance provide commercial insurance products and services to a wide range and high-net-worth clients, a mortgage guaranty insurance of entities, from multinational and middle market companies to operation and an international reinsurance organization. small entrepreneurs and nonprofit organizations. Record operating income in 2007 reflects DBG’s steadfast commitment to disciplined General Insurance Financial Results underwriting and focus on profitability. DBG’s principal operating subsidiaries include American Home (in millions, except ratios) 2007 2006 Assurance Company, National Union Fire Insurance Company of Gross premiums written $58,798 $56,280 Pittsburgh, Pa., and Lexington Insurance Company. Net premiums written 47,067 44,866 Many of DBG’s operating units have been writing commercial insurance for decades. Capitalizing on its market advantages and key Underwriting profit 4,500 4,657 business strategies, DBG is well-positioned to capture new opportu- Net investment income 6,132 5,696 nities and continue leading the U.S. commercial insurance industry. Operating income before net Diversification is a bedrock DBG characteristic that is reflected realized capital gains 10,632 10,353 in its products, distribution network, customer base, regional struc- Net realized capital gains (losses) (106) 59 ture and employees. This balanced approach helps the organization Operating income 10,526 10,412 leverage growth opportunities even in the most challenging markets, Operating income before net realized exercise flexibility in selecting customers and business segments that capital gains (losses), excluding offer the greatest potential, and expand a franchise that cannot easily catastrophe losses 10,908 10,353 be replicated. Consolidated net reserves for losses and loss expenses 69,288 62,630 DBG companies hold high ratings for financial strength—an increasingly important consideration for insurance brokers and Combined ratio 90.33 89.06 customers in placing their business. AIG Executive Liability has Combined ratio, excluding catastrophe losses 89.73 89.06 been a leading executive and professional liability underwriter for AIG Environmental designed an innovative insurance product to cover the specific risks associated with the clean up of Fort Ord, previously a U.S. Army base in California contaminated with munitions and explosives. The compre- hensive solution enabled the Fort Ord Reuse Authority to enter into a contract for munitions removal, leading to multimillion-dollar mixed-use development plans covering over 3,500 acres. 26 AIG 2007 Annual Report


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    Domestic Brokerage Group— U.S. corporations. In 2007, AIGRM expanded its integrated insur- Gross Premiums Written by Line of Business ance program approach, comprising primary casualty, excess workers’ Total = $31.8 billion compensation, surety, risk financing and captive management Workers’ Compensation 16.5% programs, in concert with loss control and claims services, to serve General Liability/Auto Liability 15.8% new industries and market segments. The result is a significant Property 14.1% opportunity with construction, transportation, public entity, real Management/Professional Liability 11.2% estate and midsize organizations that require a comprehensive way Commercial Umbrella/Excess 9.7% Programs 4.7% to manage risk. A&H Products 4.2% AIG’s Deliver the Firm strategy is ingrained in every DBG unit. Multinational P&C 4.1% AIG Worldsource, which serves the needs of U.S. and Canadian Environmental 2.9% customers overseas and foreign businesses with risks in the United Boiler and Machinery 2.9% States and Canada, is no exception. The unit is the primary facilitator Aviation 2.1% All Other 11.8% for delivery of AIG PassportSM services. AIG Passport taps AIG’s global network to provide multinational customers with local insurance worldwide, while offering DBG a competitive edge in more than 40 years. It benefited from its strong financial position an increasingly global liability environment. as over 90 percent of its largest board and corporate customers AIG’s Domestic Accident & Health Division also demonstrates renewed contracts in 2007. DBG’s commitment to the Deliver the Firm strategy. With more DBG companies are consistent, longstanding lead underwriters than 40 years of experience in managing specialized accident and in most lines of business in which they participate. This provides health risks for consumer, commercial and affinity group customers, them with an ability to anticipate emerging risks, which is a hallmark the division recorded excellent premium growth in 2007, in part of AIG Excess Casualty, DBG’s market-leading commercial umbrella because it integrated products such as accidental death and accidental insurance provider. From this leadership position, AIG Excess medical coverages into policies offered by other DBG operating units, Casualty can quickly recognize developing liability trends and a unified solution that appeals to many customers. The unit’s respond with intelligent underwriting solutions. growth also reflects its success in building strong direct marketing, Perhaps no attribute defines DBG better than innovation. travel insurance, and school and student insurance businesses. In 2007, DBG companies introduced an average of one new insurance Several thousand independent insurance brokerage firms do product or service every week, including several groundbreaking business with DBG every year. Expanding these relationships is a products to address global warming risks. DBG’s Lexington business imperative well exemplified by AIG Specialty Workers’ Insurance Company, the leading U.S.-based excess and surplus Compensation, the nation’s leading private writer of this insurance to lines insurer, introduced Upgrade To GreenSM Residential to help midsize and small businesses. The unit’s Internet-based eComp plat- policyholders rebuild damaged homes to green standards using form was enhanced in 2007 to offer greater quote-to-bind capabilities ENERGY STAR® or equivalent energy-efficient and environmentally and improved service. eComp ranks among the top e-commerce sites, friendly materials. Lexington’s accumulated expertise in specialized quoting an average of over $4 million in new business daily. industries has also served as a foundation for product innovation The mission of AIG Small Business® is to be the insurer of choice and risk solutions for such key sectors as healthcare, real estate, for the more than 25 million small businesses in the United States. higher education, agriculture and construction. Using aggregation technologies and select distribution channels, AIG pioneered pollution liability insurance 27 years ago, and the unit is able to provide the full range of DBG’s specialty products, AIG Environmental is leading the way today with a new breed of opening the door to greater opportunities in this sector. environmentally friendly insurance products. Its Sustain-a-BuildSM AIG Global Marine and Energy and AIG Aviation bring coverage encourages environmentally responsible construction and extensive experience to some of the world’s most complex commer- building projects through premium discounts for operations that cial sectors. In 2007, AIG Global Marine and Energy, which serves qualify for the U.S. Green Building Council’s Leadership in Energy customers in the United States and internationally, launched an and Environmental Design (LEED®) certification program. Alternative Energy practice to deliver insurance, engineering and Sustain-a-Build joins a portfolio of AIG Environmental products financial resources to respond to risks posed by alternative and focused on pollution remediation and contaminated property clean up. renewable energy technologies and climate change. The Marine unit DBG’s innovations have produced an extensive portfolio of also teamed with AIG Private Client Group to service the recreational insurance products and services. And nowhere is the significance of marine exposures of the nation’s high-net-worth individuals. this range of offerings more evident than at AIG Risk Management AIG Aviation weathered challenging market conditions by focusing (AIGRM), a provider of risk management solutions for the largest on intelligent risk selection and by delivering a broad range of AIG products to this market. AIG 2007 Annual Report 27


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    R E V I E W O F O P E R AT I O N S — G E N E R A L I N S U R A N C E , C O N T I N U E D DBG’s Claims operations and loss prevention services are just as Domestic Personal Lines important to customers as its underwriting acumen. DBG enhanced AIG’s Domestic Personal Lines—aigdirect.com, AIG Agency Auto its claims processes and introduced technologies in 2007 to reduce and AIG Private Client Group—faced challenging economic and costs and enhance the customer service experience, as highlighted market conditions in 2007. Operating income declined due to losses by the launch of the Catastrophe Advantage ProgramSM (CAP). from the California wildfires, unfavorable loss development from CAP applies sophisticated hurricane modeling technology to DBG’s discontinued lines and AIG Agency Auto, and increased costs proprietary database of policyholders’ insured locations to secure related to the acquisition of the minority interest in 21st Century. critical disaster resources before a hurricane makes landfall and Premium growth exceeded expected industry growth once again, before these resources are engaged by others. The result is greater with strong growth from AIG Private Client Group and growth in aigdirect.com outpacing declines in AIG Agency Auto. Domestic Brokerage Group—Premiums Written In 2007, AIG acquired the remaining shares of 21st Century that (billions of dollars) it did not previously own. The combination of AIG Direct and 21st Century created aigdirect.com, a new private passenger auto- 31.6 31.8 mobile insurance brand. 30.5 30.0 28.6 The combined operation also made progress on plans to integrate 24.3 24.1 22.8 23.1 its infrastructure as it consolidated customer call centers and 19.9 improved efficiencies. The combination creates the fourth-largest Gross Premiums direct response writer of automobile insurance in the United States. Written It will also help develop a strong brand identity in the private Net passenger market, while creating a low-cost, customer-focused Premiums Written platform for selling a wider range of AIG products to consumers. AIG Agency Auto remained focused on improving profitability, 2003 2004 2005 2006 2007 with competitive products, enhanced service offerings for agents and customers, and lower costs through operational efficiencies. It launched eRater, a new web-based quoting system for agents now available in 24 states. AIG Agency Auto also improved the efficiency in the management of catastrophe-related claims and timeliness and accuracy of policy billing information; enhanced delivery of an invaluable service to customers. HSB Group, Inc. (HSB), the parent company of The Hartford Steam Boiler Inspection and Insurance Company, had excellent Personal Lines—Gross Premiums Written operating results in 2007 as it reported strong growth in net premi- Total = $5.0 billion ums written. In addition to equipment breakdown and engineered lines insurance, HSB provides specialty coverages and loss prevention aigdirect.com 59.2% services that become value-added components of other insurers’ AIG Agency Auto 22.5% commercial and personal lines insurance products. AIG Private Client Group 18.3% Including HSB’s specialty insurance coverages as an essential ele- ment of an overall policy allows for more affordable premiums and better integrated protections than when the coverages are purchased as standalone policies. This business model enables HSB to offer an appealing value proposition to many insurance providers in the United States and international markets. HSB’s integrated global loss prevention model includes inspecting many pressure vessels at the point of manufacture. This and other loss prevention initiatives the efficiency and service capabilities of customer call centers; play an important role in HSB’s underwriting performance and help and introduced processes and systems to support a faster, fairer deliver excellent returns on capital. In 2007, HSB conducted more and consistent claims experience. than 1.6 million on-site loss prevention inspections of equipment AIG Private Client Group continued its leadership position and property-casualty risks. in the market for high-net-worth individuals, achieving excellent top line growth over the previous year. The unit continues to insure more than one-third of the Forbes 400 Richest Americans. It expanded the reach of its Hurricane Protection Unit—modeled after its acclaimed Wildfire Protection Unit, which protects high-value residences— 28 AIG 2007 Annual Report


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    In the summer of 2007, widespread flooding throughout the United Kingdom resulted in nearly £3 billion in industry-wide insurance claims. Following the floods, emergency response claims teams from AIG Europe (UK) Limited visited affected policyholders within days to assess damage and expedite payments. to all of coastal Florida and Suffolk County, New York. AIG Transatlantic Holdings, Inc. Private Client Group also offered admitted group excess coverage Transatlantic Holdings, Inc., AIG’s majority-owned reinsurance targeted at wealth advisors and financial services companies; intro- organization, reported record highs in net income and operating duced a risk management program, called Architectural Legacy, for cash flow in 2007 as favorable loss experience in property lines owners of historic homes; and streamlined processes for policy benefited results. Premiums also increased compared to the year-ago issuance by providing agents with an easy-to-use online system. period, largely because of recent underwriting initiatives in the The reach of the Wildfire Protection Unit also expanded to more United States and overseas, and the strength of major foreign than 150 zip codes in the country. currencies against the dollar. The group also began operations overseas as it introduced yacht Transatlantic’s long-term success is built on its financial strength, insurance in the U.K. and established an office in Australia. global reach through a network of offices spanning six continents and its enterprising group of reinsurance professionals worldwide. United Guaranty Corporation To address the challenge of market pricing weakness in many regions The performance of United Guaranty Corporation (UGC) has a and lines of business, Transatlantic continues to focus on underwriting high degree of correlation to the U.S. housing industry, which expe- discipline and is capitalizing on opportunities in less-saturated areas rienced significant home price deterioration in most markets in 2007. in the global reinsurance marketplace. Although UGC had taken steps beginning in 2006 to stem the adverse impact on its business by changing credit underwriting standards, Foreign General Insurance product eligibility guidelines and portfolio caps, its second-lien AIG’s Foreign General Insurance business achieved growth in insurance business had a difficult year. commercial and consumer lines, driven by business from both Reflecting its long-term strategy to diversify income sources, established and new distribution channels. Net premiums written UGC added new customers and products in the domestic private rose 14 percent to $13.05 billion. education loan business; opened a business development office in AIG’s Foreign General and its marketing unit, American India; obtained licenses in Korea and Mexico; and began writing International Underwriters (AIU), have a broad geographic scope mortgage insurance in Canada. and portfolio mix, as well as a seasoned management team, to As mortgage lenders and investors return to higher quality mort- serve clients in more than 80 countries around the world. In 2007, gage lending and standard loan instruments, UGC is well-positioned AIU continued its strategy of expansion into the world’s most to take advantage of opportunities when the market emerges from promising emerging markets, while deepening its footprint in the its current correction. developed markets of Japan, continental Europe and the U.K./Ireland. Its multidistribution strategy targeted commercial and consumer AIG 2007 Annual Report 29


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    R E V I E W O F O P E R AT I O N S — G E N E R A L I N S U R A N C E , C O N T I N U E D clients in markets worldwide through brokers, agents, direct marketing, Foreign General Insurance— associations, bancassurance and other alternative channels. Gross Premiums Written by Division Total = $19.8 billion For its commercial business, AIU strategically deployed dedicated management teams to meet the needs of clients in all three core Property/Energy/Marine 24.3% segments—major, corporate and small-to-medium enterprises— Accident and Health 18.4% and to grow its business more efficiently. Specialty Lines 16.2% Personal Lines 15.9% On the consumer side, AIU expanded production in accident Casualty 11.9% and health by focusing on a “direct” customer relationship through Lloyd’s 5.7% controlled business channels, and continued to deploy high-profit Aviation 3.0% personal lines products, such as personal property and warranty, Other/Service Business 4.6% and other specialty personal products. In Japan, AIU Insurance Company successfully continued to penetrate the large commercial market in 2007. At year end, 203 of the 500 largest Japanese companies were among its clients. The acquisition of Central Insurance in Taiwan has enabled AIG In China, AIU Insurance Company received approval from the companies to become one of the largest general insurance businesses China Insurance Regulatory Commission to establish a foreign with an extensive distribution network in the country. For the second enterprise. The new subsidiary, AIG General Insurance Company consecutive year, American Home Assurance Company Singapore China Limited, positions AIG to meet increasing demand, expand won the “Innovation of the Year” award at the Asia Industry Awards general insurance capabilities, achieve operational and capital for innovative payment methods and claims management processes efficiencies, and, with regulatory approval, secure a platform to executed as part of its public housing fire insurance strategy. establish new branches in the country over time. In Australia, AIG celebrated 50 years of operation. In 2007, In 2007, the commercial lines division achieved steady growth AIG Australia entered the high-net-worth personal lines insurance in China, despite severe competition and continuing rate erosion across business with the establishment of the Australian arm of AIG’s many of its businesses. Its liability line ranked first in the Shanghai Private Client Group and registered good premium growth in market among all insurers—domestic and foreign—in premium other lines of business, while riding out a soft market cycle. production. The accident and health division, operational since 2004, In continental Europe, AIG acquired the German insurer registered strong growth in 2007 and is the number one insurer Württembergische und Badische Versicherungs-AG (WüBa) and among domestic and foreign carriers in the Shanghai market. its subsidiaries to bolster its small and midsize company portfolio. In 2007, AIG’s joint venture in India, Tata AIG General Executing on the Deliver the Firm initiative, AIG Europe Germany Insurance Company Limited, had good premium growth and loss assisted AIG Vie France (ALICO S.A.) with the launch of a new ratios below the industry average. The joint venture has developed branch, AIG Leben, which will offer life, and accident and health a number of innovative products with growth potential, including products targeted to the mass consumer segment. cattle insurance in rural areas. It has also partnered with Spice Jet, In 2007, in response to the European Union’s Environmental a local airline, to sell insurance to its passengers, becoming the first Liability Directive, AIG Europe introduced Enviropro, an innovative private-sector company in India to forge such an agreement with product which covers biodiversity damage in the region. AIG a domestic carrier. Europe’s financial lines business reached the milestone of $1 billion AIU’s strong presence in Southeast Asia continued to grow in 2007. AIG General Insurance (Vietnam) Company Limited introduced its e-Marine service, a real-time, online certification system that offers customers a simple and flexible way to declare shipments and generate insurance policies. The first service of its kind in Vietnam, e-Marine is now available to customers in Southeast Asia. 30 AIG 2007 Annual Report


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    in gross premiums written. It launched a “Blue Ocean” initiative, Executing its strategy of writing businesses that offer the greatest focused on creating uncontested market space and capturing new growth potential and highest profit margins, AIU Latin America demand, to grow its business by developing new markets and Division (AIU LAD) had strong premium growth over the prior delivering new products. year. The division’s strategic focus is on personal accident, warranty, Despite softening rates and intense competition in 2007, the personal property and financial lines products. With more than general insurance operations in the U.K./Ireland region delivered 15 million clients, AIU LAD is one of the leading multinational good production growth. In 2007, AIG Europe (UK) Limited was insurers in the region. While registering double-digit growth in selected “Underwriter of the Year” at the British Insurance Awards several commercial lines of business, the division also expanded for its innovative and profitable strategies in directors and officers its consumer lines by diversifying product offerings, accelerating liability coverage for companies trading on the London Stock automation and expanding distribution channels into bancassurance, Exchange’s Alternative Investment Market. The acquisition of Direct retail and direct marketing. In Brazil, Unibanco AIG Seguros S.A. Travel Insurance Services Limited in 2007 will further complement earned several accolades for market leadership, including AIG’s accident and health insurance business in this region. “The Insurance Company of the Year” award from a leading insur- In Central Europe and the Commonwealth of Independent States, ance publication, Mercado de Seguros. AIU continued its steady growth in property, casualty and consumer lines. It also introduced a directors and officers product for corporate customers in key countries. In 2007, accident and health distribu- Foreign General Insurance—Premiums Written (billions of dollars) tion channels were expanded, using innovative forms of delivery to 19.8 meet the growing market demand for insurance through corporate 17.5 sponsors, employers and airlines. 15.6 In the Middle East, Mediterranean and South Asia region, 14.5 13.1 AIG MEMSA Insurance Company Limited continued to grow by 12.3 11.4 launching a new operation in Oman and opened a new branch in 10.0 Gross 9.1 Qatar. AIG Travel achieved strong premium growth through partner- 7.6 Premiums Written ship relationships throughout the Middle East. AIG Greece recorded Net strong premium growth, which was significantly higher than the Premiums Written market average. It continued to grow its personal lines, small business and financial lines businesses, while developing a new market in 2003 2004 2005 2006 2007 specialized products, such as crisis management and environmental insurance. AIG Sigorta A.S. in Turkey sharpened its market segmen- tation strategy, focused on product innovation and customer service, and further solidified its leadership positions in accident and health, financial lines, liability and marine cargo insurance. During 2007, AIG companies in Africa continued to grow their business. AIG Kenya Insurance Company Limited, one of the largest general insurance businesses in the country, received permis- sion from the country’s insurance regulator to write microfinance institutions (MFI) business. It actively focused on enrolling MFIs and launched the Small Business Solutions insurance package for small and midsize enterprises. AIG South Africa Limited grew its business of insuring small and medium enterprises. AIG 2007 Annual Report 31


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    R E V I E W O F O P E R AT I O N S — LIFE INSURANCE & RETIREMENT SERVICES Serving millions of customers around the world, AIG’s customers. Moreover, AIA has continued to diversify—from selling growing global Life Insurance & Retirement Services busi- traditional insurance products to nontraditional ones, such as nesses constitute the industry’s most extensive network. universal life, structured and investment linked products—in response to the needs of customers. In Vietnam, AIG and the Bank of Investment and Development Life Insurance & Retirement Services Financial Results of Vietnam, the country’s leading state-owned commercial bank, (in millions) 2007 2006 signed a memorandum of understanding to expand business coop- Premiums, deposits and other eration and develop long-term initiatives in banking, insurance and considerations(a) $92,730 $ 81,007 financial services in this important emerging market. AIA Vietnam Premiums and other considerations 33,627 30,766 also launched its first universal life product, which has quickly contributed about 25 percent of its new business. Net investment income 22,341 20,024 AIA Thailand grew its network of agents to more than 76,000, Operating income before net realized capital gains (losses) 10,584 10,033 which is the largest in the country and a substantial generator of new business. AIA Thailand has been actively expanding up country Net realized capital gains (losses) (2,398) 88 to develop attractive business opportunities in that relatively Operating income 8,186 10,121 untapped region. (a) Represents aggregate business activity during the respective periods presented on To provide specialized training to agents and enhance the quality a non-GAAP basis. of customer service, AIA Singapore opened the AIA Financial Health Check Academy. In support of AIG’s Manchester United The underlying performance of AIG’s Life Insurance & Retirement sponsorship, AIA Singapore issued the world’s first “First Day” Services businesses provided further evidence that the continued Commemorative Stamp cover validated by Singapore Post Limited. focus on multiple distribution initiatives to capitalize on its broad AIA Malaysia was the first insurer in the country to launch a product portfolio is gaining traction. Operating income growth in comprehensive medical plan to cover policyholders up to age 100 this segment, however, was affected by unusual items in 2007 and and the first in the local industry to launch a needs-based selling 2006, as well as by market volatility. concept, called Financial Health Check. Foreign Life Insurance & Retirement Services In 2007, AIG Life Korea continued to hold the number one position in fixed annuity products sold through banks—marking the For 76 years, American International Assurance Company, fourth consecutive year it has achieved this distinction. AIG Life Korea Limited (AIA), has served the life insurance market in Asia, also launched its first-ever variable annuity product. and is a household name and a leading provider of insurance and The two life companies in Indonesia—AIA and AIG Life—consoli- financial services. Its reputation and track record are second to dated their business processing, back-office and customer service func- none, earning numerous industry accolades in 2007, ranging from tions for employee benefits under a single umbrella to bring greater consumer confidence to service excellence, and from management operational synergies and economies of scale. Successfully leveraging excellence to outstanding contributions to economic development. AIG’s Manchester United sponsorship, AIG Life Indonesia imple- In 2007, AIA forged significant strategic alliances to diversify mented a recruitment drive for new agents and expanded the bancas- and grow its distribution capabilities, while at the same time surance channel through the branch network of Bank Central Asia. enhancing the agency channel, its core distribution franchise. AIA Hong Kong focused on serving the growing affluent AIA has leveraged AIG’s Manchester United Football Club spon- segment for wealth management products and financial services sorship to deepen the brand affinity with existing and prospective by complementing the agency force with wealth management elites (WMEs), financial advisors who provide investment advice Foreign Life Insurance & Retirement Services—Premiums, and services. In 2007, selected WMEs participated in the Investment Deposits and Other Considerations by Major Product Advisor project jointly conducted by AIA and AIG Wealth Total = $67.5 billion Management Services. AIA also achieved the record of being the first insurer in Hong Kong to have more than 1,000 agents qualify Life Insurance 56.0% Individual Variable Annuities 20.4% for the Million Dollar Round Table, an international association Personal Accident and Health 9.2% of life insurance and financial services professionals. Individual Fixed Annuities 7.9% AIA China celebrated the 15th anniversary of its return to China Group Life/Health 6.5% in 2007, when AIG was the first foreign insurance company to estab- lish operations in Shanghai in 1992. In 2007, AIA China reached the milestone of 30,000 agents, the largest agency force among foreign life insurance companies in the country. It established 29 new sales and service centers for a total of 104 centers in 19 cities in the country. 32 AIG 2007 Annual Report


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    It grew new business premiums from bancassurance by 88 percent direct agency sales, brokers, independent financial advisors and year-on-year and set up a unit to advance banking relationships across group sales. It also continued to invest in existing agents, and built China through strategic partnerships. AIA China also worked with additional agency and specialist sales forces. Alibaba Group, China’s largest e-commerce provider, to jointly develop ALICO’s largest country operation is in Japan, where it markets an insurance distribution through the e-business channel. It introduced array of life, medical and annuity products through multiple distri- several new products and also launched new investment funds on its bution channels, including independent and career agents, direct investment linked products to provide more choices to customers marketing and banks. Despite challenging market conditions, ALICO and better meet their needs. Japan reaffirmed its position as a leading life insurer, being the fifth India’s booming economy provided our joint venture Tata largest in total premium and sixth largest in total assets. With deregu- AIG Life Insurance Company Limited with a strong platform for lation in late 2007 permitting the sale of all life and medical insurance continued expansion. During 2007, Tata AIG Life launched four products through bancassurance, Japan’s four largest banking groups new products, including unit-linked and group retirement products. selected ALICO Japan’s products for sale to their customers. The launch of a new advertising campaign helped extend brand ALICO’s Central and Eastern Europe operations had an excellent recognition for all AIG businesses in the country. year as Bulgaria, Cyprus, the Czech Republic, Hungary, Poland, In 2007, AIA operations in both Australia and New Zealand Romania, Slovakia, Ukraine and Russia all reported double-digit continued to diversify their distribution channels, expanding the revenue and operating income growth. Operations in most of the reach of the independent financial advisor, agency and institutional countries in the region also increased their market share. ALICO’s business-to-business channels. AIA operations were re-branded bancassurance company in Bulgaria, formed through a joint venture as AIG Life in both Australia and New Zealand to leverage the with the National Bank of Greece, completed its first full year AIG brand. of operations. ALICO also entered new business ventures in this Operating in more than 50 countries that span from Japan region, which included a private pension company in Romania. through Europe, the Middle East, South Asia, Latin America and In continental Western Europe, ALICO achieved record premium the Caribbean, American Life Insurance Company (ALICO) has and profit growth. This was achieved by direct life insurance sales via been a consistent contributor to the success of AIG Life Insurance & sponsoring partners, direct sales to the public, credit life and growth Retirement Services. ALICO’s businesses offer traditional life, in the broker distribution channels. ALICO opened a new branch accident and health, group employer and employee insurance for in Germany to sell various life, and accident and sickness protec- large and small organizations, pensions and annuities. tion products. The U.K./Ireland region achieved strong growth in In 2007, ALICO reported record growth in premiums, deposits premiums, deposits and other considerations. ALICO also continued and other considerations. These results were achieved by introducing to focus on the region’s ultra-high-net-worth market and collaborated new products through its distribution channels, especially from with its partners to cross sell AIG’s broad range of products. In December 2007, ALICO became the first life insurance company in Qatar to receive an expanded license to operate a retail life business, having already obtained a wholesale life insurance license (pictured, Qatar Financial Centre). AIG 2007 Annual Report 33


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    R E V I E W O F O P E R AT I O N S — L I F E I N S U R A N C E & R E T I R E M E N T S E R V I C E S , C O N T I N U E D Foreign Life Insurance & Retirement Services Celebrating its 60th year in 2007, The Philippine American Life (billions of dollars) and General Insurance Company (Philamlife) continued its tradi- tion of industry leadership, innovation and dedication to improving 67.5 the lives of Filipinos. Philamlife—the largest life insurance company 56.4 in the Philippines—was once again named a Platinum Trusted Brand 51.1 by Reader’s Digest Asia, making it the only financial institution in the 45.2 nation to receive this award for four consecutive years. Philamlife also Premiums, Deposits 30.0 and Other became the first company in the world to win the Life Office 24.2 26.6 Considerations (a) 22.0 23.1 Management Association’s Excellence in Education Award 13 times. 17.9 Premiums and Other Considerations (b) In 2007, Philamlife registered excellent new business growth. The distribution reach of Philamlife for its products remains 2003 2004 2005 2006 2007 unmatched in the country’s life insurance industry. Its network of 7,000 agents is the largest in the country. In addition, the company focused on alternative distribution channels, including bancassur- (a) Represents aggregate business activity presented on a non-GAAP basis. ance, telemarketing and direct marketing. (b) Includes GAAP premiums and other Life Insurance revenue. AIG International Retirement Services (AIGIRS) is committed to leveraging AIG companies’ presence in local markets worldwide to ALICO Middle East, headquartered in Dubai, continued to build a global retirement services business. enjoy steady premium and profit growth. It benefited from strong In Asia, an aging population and the concern of individuals local presence in the region’s 14 countries and a multiproduct, about the adequacy of corporate and government pensions to fund multidistribution channel that includes agents, brokers, bancassur- retirements are driving the need for retirement savings, investment ance and direct marketing partners. and income-generating products. AIGIRS introduced an innovative ALICO’s joint venture in Brazil, Unibanco AIG Seguros S.A., lifetime guaranteed minimum withdrawal benefit variable annuity recorded strong, double-digit revenue growth. This was achieved product in Japan and AIG’s first variable annuity product in Korea. through continuing improvements to products with a focus on In Europe, AIGIRS benefited from strong sales of its fixed and mortality and health insurance, pension and retirement; more cross- variable annuity products in key growth regions. selling; and an expansion of the direct marketing channel. Operating through AIG’s various foreign life companies and In 2007, AIG Edison Life Insurance and AIG Star Life partners around the globe, the AIG Group Management Division Insurance in Japan made good progress toward completing the (GMD) provides group employee benefits, credit insurance, and integration of their operations, including moving their respective pension products and services to corporate customers in more than headquarters to a single location in Tokyo. They continue to be on 80 countries. In 2007, each of GMD’s three core businesses had track to emerge in 2009 as a single entity to be known as AIG Life. strong premium growth. GMD also focused on high-growth new and This project is a growth strategy designed to merge two mid-tier insurance companies into a bigger and stronger company that will be better positioned to compete more effectively in the increasingly competitive Japanese life insurance market. Nan Shan Life Insurance Company, Ltd., in Taiwan has earned the “Quadruple Crown Award” from Risk Management, Insurance & Finance magazine for the “Most Renowned Company,” “Best Insurance Company,” “Best Claim Service” and “Insurance Company with the Best Agents.” It is the only insurance company ever to win this award. Nan Shan has now won the “Best Agents” award for 15 years in a row. In 2007, Nan Shan continued to achieve success with the shift from traditional life to investment linked product sales, which grew substantially over the prior year. Also in 2007, Nan Shan became the first insurance company to receive permission from the Taiwan Financial Supervisory Commission to enter the wealth management business. It also signed a strategic As America’s 79 million baby boomers approach retirement, they are creating partnership with SinoPac Holdings, a leading Taiwan-based a dynamic market for financial services. AIG’s newest national advertising cam- financial holding company providing banking and other financial paign highlights its leadership position in retirement services. The campaign’s central message resonates among consumers and financial advisors who serve services with branch/representative offices in China, Southeast them: Americans are living longer, healthier lives and are seeking innovative Asia and the United States, to focus on retirement services and products and income solutions to ensure that they never outlive their money. asset management. 34 AIG 2007 Annual Report


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    emerging markets for its services, including group employee benefits Domestic Life Insurance & Retirement Services—Premiums, in China, credit life in Poland and the Middle East, and pension Deposits and Other Considerations by Major Product Total = $25.2 billion products through a new venture in Romania. Group Retirement Products 29.8% Domestic Life Insurance & Retirement Services Individual Fixed Annuities and Run off 22.0% Individual Variable Annuities 17.7% AIG’s Domestic Life Insurance & Retirement Services companies Life Insurance 13.0% maintained leadership positions in 2007 despite challenging condi- Payout Annuities (a) 10.4% tions in some markets. Life insurance, payout annuity and variable Home Service 3.7% annuity products delivered solid performances while fixed annuities Group Life/Health 3.4% continued to face a difficult interest rate environment. These busi- nesses are positioned extremely well to benefit from increasing demand for products that serve the protection, accumulation and (a) Includes structured settlements, single premium immediate annuities and income distribution needs of a growing customer base. terminal funding annuities. With more than 80 years of experience, AIG American General is a leader among life insurance providers in the United States, with In 2007, AIG Retirement’s (formerly branded as AIG VALIC) a track record of delivering innovative solutions to meet emerging focus on increasing assets under management and expanding its consumer needs. The leading issuer of life insurance, as measured capabilities as a leader in both asset accumulation and the income by policy face value, it also ranks among the leaders in term life, distribution phase of retirement led to a 10 percent increase in sales. universal life, structured settlements and single premium immediate Productivity of its career financial advisors improved, reflecting the annuity products. launch of several new products designed to help the baby boomer In 2007, AIG American General introduced more than 25 new generation manage its accumulated wealth in retirement. To reflect its or revised products and riders to meet the needs of both agents and expanded product and service capabilities, the marketing name was consumers. New or revised products contributed 88 percent of changed to AIG Retirement, effective January 1, 2008. individual life sales through independent distributors in 2006-2007. Product development initiatives at AIG SunAmerica Retirement It increased the competitiveness of its employer and association Markets (AIG SunAmerica) kept pace with the growing demand benefit products by introducing five new group worksite and four for innovative “income for life” solutions, resulting in record variable new dental products, and by establishing a relationship with the annuity sales, fee income and assets under management in 2007. Lance Armstrong Foundation to offer supplemental health insurance It launched a new enhancement to its popular “MarketLock” products under the LIVESTRONGTM brand. AIG American General guaranteed minimum withdrawal benefit, called “MarketLock for also acquired Matrix Direct, Inc., to expand its distribution of term Life Plus,” which can guarantee an increase in future income life products directly to the consumer marketplace. despite the volatility of equity market returns. AIG SunAmerica’s AIG American General continued to emphasize operational multiyear effort to achieve service excellence earned the “DALBAR excellence and superior customer service as competitive advantages Service Award,” which recognizes the highest tier of service quality in 2007. To improve the customer experience, AIG American General in the financial services industry. implemented systems to capture and respond to customer feedback at various “touch points” across the organization. In addition, it made significant enhancements to the websites that support its agents, Domestic Life Insurance & Retirement Services making it easier for them to do business with AIG American General. (billions of dollars) DALBAR Inc.’s WebMonitor recognized these improvements when 27.6 27.9 it ranked AIG American General’s independent agent website 25.2 24.6 24.6 among its top eight “Excellent” websites for financial professionals. In 2007, AIG Annuity Insurance Company faced a difficult sales environment for the fourth consecutive year as a flat yield curve Premiums, Deposits and extremely competitive bank certificate of deposit and money and Other market rates continued to challenge the fixed annuity market. Considerations (a) 6.2 6.4 6.6 7.0 Premiums and Other Nevertheless, AIG Annuity continued to launch new products, 5.6 Considerations (b) while expanding distribution with new bank partners, including one of the nation’s largest banks. It also maintained its historic share 2003 2004 2005 2006 2007 of the bank fixed annuity market. AIG Annuity ranked as the largest issuer of fixed annuities in the United States and, for the 11th con- secutive year, the largest issuer of fixed annuities through the bank (a) Represents aggregate business activity presented on a non-GAAP basis. channel. The key account management team helped AIG Annuity (b) Includes GAAP premiums and other GAAP Life Insurance revenue. strengthen existing client relationships and improve market share at its largest bank partners. AIG 2007 Annual Report 35


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    R E V I E W O F O P E R AT I O N S — FINANCIAL SERVICES AIG’s Financial Services businesses specialize in aircraft and In 2007, ILFC executed lease agreements covering 138 aircraft, equipment leasing, capital markets, consumer finance and including 15 new customers, across Asia, North America, South insurance premium finance. These businesses complement America, Europe and the Middle East. Additionally, to advance AIG’s core insurance operations and achieve a competitive AIG’s Deliver the Firm strategic initiative, ILFC provided multiple referrals and contacts from its supplier and customer base to various advantage by capitalizing on opportunities throughout AIG’s AIG companies worldwide. global network. Reflecting its longstanding commitment to offer the most fuel- efficient, cost-effective and environmentally friendly aircraft available, Financial Services Financial Results ILFC significantly increased its order base of new-generation aircraft. (in millions) 2007 2006 ILFC ordered 50 additional new Boeing 787 Dreamliner aircraft for (a)(b) a total firm order of 74 aircraft, with deliveries beginning in 2010. Revenues $(1,309) $7,777 This order has propelled ILFC as Boeing’s single largest customer Operating income (loss) excluding FAS 133, to date for the new 787 aircraft. ILFC also ordered 10 additional other-than-temporary impairments, and net realized capital gains (losses) (a) (8,983) 2,338 Boeing 737-800 aircraft to meet growing customer demand. Further, ILFC revised its original order for 16 Airbus A350s to FAS 133 gains (losses) 211 (1,822) (c) 20 new A350XWB aircraft. First deliveries of the A350XWB are Other-than-temporary impairments (643) — scheduled for 2014. Net realized capital gains (losses) (100) (133) AIG Financial Products Corp. (AIGFP) is at the forefront of (a) Total operating income (loss) (9,515) 383 AIG’s global capital market activities. It acts as a principal in nearly (a) In 2007, both revenues and operating income (loss) include an unrealized market all of its transactions, providing corporate finance, financial risk valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio and management and investment solutions to a wide array of counterpar- an other-than-temporary impairment charge of $643 million on AIGFP’s available-for-sale investment securities. ties, including banks and investment banks, pension funds, corpora- (b) Includes gains (losses) from hedging activities that did not qualify for hedge accounting tions, foundations and endowments, insurance companies, hedge treatment under FAS 133 in 2007 and 2006, respectively; the effect was $104 million and $(1.97) billion. funds, money managers, high-net-worth individuals, municipali- (c) Represents an other-than-temporary impairment charge on AIGFP’s available-for-sale ties, sovereigns and supranational entities. investment securities. From offices in the world’s leading financial centers, AIGFP The excellent results of International Lease Finance Corporation focuses on a variety of over-the-counter derivative and structured (ILFC) in 2007 reflect the strength of the airline industry on a finance transactions, and has an established track record of develop- global basis and the underlying strong demand for ILFC’s aircraft. ing innovative financial products involving rates, currencies, com- Lease rates continued to increase throughout the year across ILFC’s modities, energy, credit and equities. This is consistent with AIGFP’s lease placements of new and used aircraft. Established in 1995, AIG Consumer Finance Group, Inc. (CFG) now has four million customers worldwide, offering products that include personal loans, auto loans, credit cards, sales finance and mortgages. 2007 was both a year of organic growth and global expansion. CFG made several strategic acquisitions, added branches and introduced products in many key markets, including Poland, where the credit card business shows significant potential (pictured, the Market Square in Kraków city center).


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    ILFC—Revenues by Region and increased its total lending of non-real estate and branch-based Total = $4.7 billion retail sales finance products. Europe 44.9% In 2007, the AIG Consumer Finance Group, Inc. (CFG) loan Asia and the Pacific 26.8% portfolio reached record levels, ending the year at $4.8 billion and United States and Canada 11.7% Africa/Middle East 11.5% generating strong growth in revenues. However, the increase in rev- Latin America 5.1% enues was offset by increased expenses related to organic branch expansion efforts, acquisitions, as well as product promotion and development costs. The overall credit quality of the CFG loan port- folio has remained stable despite the contraction in consumer credit experienced in Taiwan, which impacted CFG’s credit card profits. CFG achieved record earnings in Poland as receivables registered high growth. Market strategy in Poland was focused on growing the strategy of focusing on products with higher margin opportunities credit card business and expanding the personal loan branch system. and moving away from markets where profit margins have narrowed. The personal branch system was also the driving force behind the A key attribute that differentiates AIGFP from its peers is its success in Mexico, where 22 new branches were opened. CFG oper- ability to commit significant amounts of its own capital—depending ations in Argentina reported another year of strong receivables growth. on the opportunity arising from a particular investment—at different Two new acquisitions were completed in India, which provide a levels of a company’s debt and equity capital structure. AIGFP platform for building a consumer finance franchise. has demonstrated this capability in its energy and infrastructure Additionally, the purchase of a branch-based consumer finance investments, both as a single investor and in partnership with business in Thailand positioned CFG to significantly expand its other investors. distribution channels by adding approximately 130 up country The firm is also a major investor in a wide array of debt and branches. CFG continues to research and explore opportunities equity securities. As an innovator in the commodity and commodity to expand its geographic presence in emerging and developing index markets, AIGFP played an instrumental role in attracting the countries throughout the world. investing public’s interest in commodities as an alternative asset class. Imperial A.I. Credit Companies, Inc., the largest financer AIGFP is increasingly concentrating on developing enhanced of insurance premiums in North America, continued to grow its investment products as the demand for commodities continues to high-net-worth life insurance financing business in 2007. It imple- grow in global markets. mented new marketing initiatives to grow the agent/broker As a result of the severe disruption in the U.S. residential mortgage distribution partner network and differentiate its brand positioning and credit markets that accelerated during the fourth quarter of 2007, from competitors. AIGFP recognized unrealized market valuation losses of more than Among Imperial A.I. Credit’s major Deliver the Firm strategic $11 billion on its credit default swap portfolio written principally on initiatives in 2007 were new account opportunities and cross- the super senior tranches of multisector collateralized debt obligations. introductions to regional agent/brokers through the Domestic Based upon its most current analysis, AIG believes any losses that are Brokerage Group and new loan business activities in excess of realized over time on this super senior credit default swap portfolio $70 million from leads that came from AIG’s Office of the Customer. will not be material to AIG’s consolidated financial condition, although it is possible that realized losses could be material to AIG’s consolidated results of operations for an individual reporting period. Financial Services Operating Income (Loss) (a) (billions of dollars) American General Finance, Inc. (AGF), one of the largest 4.4 consumer finance organizations in the United States, is a lender and originator of real estate and non-real estate loans, and retail sales 2.1 1.3 finance receivables. The company has been lending for more than 0.4 80 years and serves approximately two million customers. Disciplined underwriting, conservative lending standards and a mortgage portfolio of primarily fixed-rate loans enabled AGF to manage its residential mortgage credit risks well during 2007, compared to many lenders that have now withdrawn from the market. AGF has the experience to manage its business through credit cycles (9.5) and is well-positioned to take advantage of opportunities to meet 2003 2004 2005 2006 2007 consumer borrowing needs. In January 2008, AGF announced (b) the acquisition of more than $1.49 billion of consumer finance receivables from a bank-owned competitor. (a) Includes gains (losses) from hedging activities that do not qualify for hedge accounting under FAS 133. In addition, fluctuations in operating income from period to period are In 2007, AGF also added 65 new offices, which brought its core not unusual because of the transaction-oriented nature of Capital Markets operations. network to more than 1,600 branches in 45 states, Puerto Rico and (b) In 2007, operating income (loss) includes an unrealized market valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio and an other-than- the U.S.Virgin Islands; extended its operations into the U.K.; grew temporary impairment charge of $643 million on AIGFP’s available-for-sale investment the number of retail merchant relationships to more than 31,000; securities . AIG 2007 Annual Report 37


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    R E V I E W O F O P E R AT I O N S — ASSET MANAGEMENT AIG’s Asset Management group manages institutional and India now joins three existing Asian companies serving individual individual money, in addition to AIG insurance company investors in China (AIG Huatai), the Philippines (Philam Asset invested assets.These businesses include retail mutual funds, Management, Inc.) and Taiwan. broker-dealer services, private banking and spread-based AIG Investments closed its largest private equity fund ever, AIG Highstar Capital III, L.P., at $3.5 billion—nearly twice the investment businesses. amount of its initial target. 2007 was a busy year for alternative investments across the board, with three private equity fund closings, Asset Management Financial Results including AIG Asian Opportunity Fund II, L.P.; AIG Private Equity (in millions) 2007 2006 Portfolio IV, L.P.; AIG New Europe Fund II, L.P.; and significant deal activity in the United States, Central and Eastern Europe, Revenues(a) $ 5,625 $4,543 Latin America, and Greater China and India. Rigorous focus on Operating income excluding net realized risk management across the board helped the hedge fund of funds capital gains (losses) 2,164 1,663 avoid problems witnessed in the credit markets impacting many hedge Net realized capital gains (losses) (1,000) (125) fund strategies. As a result, hedge fund strategies now total more than Total operating income 1,164 1,538 $9 billion in affiliated and non-affiliated assets under management. (a) Includes net realized capital gains (losses). The listed equity business performed well in 2007. The Global Emerging Markets strategy delivered strong long-term performance, Asset Management operating income declined in 2007, compared which led to several substantial mandates from new clients. to 2006, primarily due to net realized capital losses related to International equity products also delivered robust performance, foreign exchange, interest rate and credit-related mark-to-market specifically the International Small Cap portfolio, which was closed losses and other-than-temporary impairment charges on fixed to new clients when assets reached capacity. A successor strategy, income investments, partially offset by a gain on the sale of a portion International Small-Mid Cap, was subsequently launched in 2007. of AIG’s investment in Blackstone Group, L.P., in connection with AIG Investments’ focused approach to active risk management its initial public offering. addressed the ongoing turbulence in the credit markets and continues AIG Investments, one of the world’s leading asset managers, saw to create opportunities. AIG Investments attracted more than $5.5 record growth in assets under management in 2007 to more than billion in new fixed income assets, as high yield, leveraged loans and $766 billion, including AIG and non-affiliated client assets, primarily emerging market bonds, to name a few strategies, have performed driven by a robust and diverse product lineup. Non-affiliated client well over the long term. assets grew 26 percent to $94.2 billion from the year-earlier period. During 2007, AIG Global Real Estate (AIGGRE) continued Previously known as AIG Global Investment Group, AIG to grow its global investment and development platforms. Equity Investments adopted its new name in 2007. The business’ brand under management grew to more than $23 billion, and over platform, Investor to Investor, remains unchanged, representing $4.3 billion has been raised to date for its fund business. AIG Investments’ alignment of interests with clients. AIGGRE pursued and completed new transactions in emerging AIG Investments expanded its global presence in both developed markets, including Latin America, Eastern Europe, India and and emerging markets. With offices in 45 cities around the world, other countries in Asia, and closed on a portfolio of 86 apartment the newest being in Dubai and Kampala, Uganda’s capital, it has properties comprising nearly 17,000 units in the northeastern more than 2,500 employees serving the needs of institutional, high- United States, one of its largest real estate transactions. Excavation net-worth and individual clients in traditional and alternative asset also began for the International Finance Centre Seoul in South classes, and private banking. Korea. This 5.4 million-square-foot mixed-use project features Fundamental research, careful evaluation of the risk-reward many significant sustainable design elements, including co-generation, equation, a diversified portfolio of asset classes, prudent risk manage- rainwater harvesting and recharging stations for electric cars. ment to preserve capital and disciplined investment for the long term—values that conform to AIG’s overall business principles— all distinguish AIG Investments in the marketplace. AIG Investments—Revenues* A major thrust in 2007 was a continuation of AIG Investments’ Alternative Investments 23.9% sustainability initiative. The initiative recognizes the risks and Real Estate 23.2% opportunities represented by environmental, social and governance Fixed Income 22.2% (ESG) factors, and consideration of these factors is now an integral Private Banking 13.5% Equities 10.1% part of investment analysis across all asset classes. Securities Lending 3.3% New strategies and expanded capabilities brought a wider range Other 3.8% of opportunities across all asset classes to clients throughout the Americas, Europe, Asia Pacific and, more recently, Australia. In 2007, AIG Investments opened an asset management company in India and launched three new mutual funds there. AIG Investments * Includes AIG Investments, AIG Global Real Estate and AIG Private Bank; excludes warehoused investments. 38 AIG 2007 Annual Report


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    AIG Investments acquired a 94 percent stake in Bulgarian Telecommunications Company from Viva Ventures Holding GmbH and certain minority shareholders in 2007. The acquisition is one of the largest take-private transactions in Bulgaria, and demonstrates AIG’s long-term commitment to investing in emerging Eastern European markets. AIGGRE was named “Developer of the Year”in the office helping clients plan for both accumulation and distribution of category by the Georgia chapter of the National Association of assets in retirement. Industrial and Office Properties, an award that acknowledged its The AIG Advisor Group, Inc., the nation’s largest independent mixed-use Atlantic Station project in Atlanta and achievements in broker-dealer network, achieved record operating income, revenues environmental innovation and community involvement. In addition, and assets under management in 2007. Assets under management AIG Tower, a recent AIGGRE development in Hong Kong, was for fee-based advisors surpassed $40 billion, reflecting the network’s recognized with the prestigious People’s Choice Award in the archi- success in responding to the growing need for professional money tecture category. management services. The AIG Advisor Group introduced a series of AIG Private Bank Ltd., based in Zurich, specializes in providing innovative financial products developed by AIG member companies comprehensive asset management and private banking services to for the nearly 8,000 affiliated financial advisors in the network, a worldwide clientele. The bank performed satisfactorily in 2007 including specialty risk management solutions for high-net-worth while it continued to expand its global wealth management business. clients and a comprehensive liability management program. It established an office in Taipei to provide wealth management The broker-dealer network also implemented a strategic realign- products and services in Taiwan through Nan Shan Life Insurance ment of its core business services to accelerate the delivery of Company’s agency force. AIG Private Bank also signed a joint venture technology support, independent product research and business- agreement with Bank Sarasin & Co. Limited to form a new Swiss building programs. All of these initiatives are designed to strengthen bank that will cater to retail banking customers of both entities. relationships between financial advisors and their clients. AIG SunAmerica Asset Management Corp. (AIG SAAMCo) manages and/or administers over $55 billion in retail mutual funds and investment options in AIG SunAmerica and AIG Retirement Asset Management Operating Income (billions of dollars) (formerly branded as AIG VALIC) variable annuities sold to individ- uals and groups throughout the United States. 2.0 1.9 In 2007, AIG SunAmerica continued to demonstrate strong investment performance across several asset classes, stemming from 1.5 its strategy to expand its internal portfolio manager investment team 1.2 and sub-advisory platform. It was recognized with strong rankings in Barron’s “Fund Family Rankings” published in February 2008. Delivering consistent performance across several investment disci- 0.5 plines is AIG SunAmerica’s primary focus as it expands its product offerings to meet the needs of baby boomers nearing retirement. AIG SAAMCo also continued to enhance its market positioning 2003 2004 2005 2006 2007 with value-added programs, such as Retirement Income Strategy. This comprehensive tool assists financial advisors nationwide in AIG 2007 Annual Report 39


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    INVESTMENTS AIG’s cash and invested assets totaled $862.49 billion at year-end 2007, Consolidated Bond Portfolio Ratings* compared to $801.94 billion at year-end 2006, an increase of 7.6 percent. Of AIG’s total cash and invested assets, 15.0 percent AAA 38% was derived from General Insurance operations, 54.5 percent from AA 28% A 18% Life Insurance & Retirement Services operations, 21.1 percent from BBB 11% Financial Services operations, 8.4 percent from Asset Management Lower 4% operations and 1.0 percent from other sources. Non-rated 1% General Insurance net investment income grew 7.7 percent in 2007 to $6.13 billion. Total General Insurance cash and invested assets amounted to $129.79 billion at year end, an increase of 11.8 percent over year-end 2006. Life Insurance & Retirement *Excluding AIGFP. Services net investment income increased 11.6 percent to $22.34 billion. Life Insurance & Retirement Services cash and invested assets were $470.51 billion at year end, an increase of AIG SunAmerica’s portfolio, as well as the concentration of such 9.7 percent over year-end 2006. assets within AIG’s asset management business, reflecting both AIG’s Asset Management cash and invested assets amounted to interest in sponsored investment products, as well as the impact of $72.04 billion at year end. The majority of these assets relate to consolidation of certain such products on AIG’s balance sheet. guaranteed investment contracts (GICs) or obligations issued Foreign Life Insurance & Retirement Services portfolios, other pursuant to AIG’s Matched Investment Program (MIP). The GIC than those that are dollar-denominated, are generally concentrated portfolio continues to run off, and the MIP has replaced the GIC in local sovereign and other high-quality (in the context of the local program as AIG’s principal institutional spread-based investment market) bonds matched as nearly as possible to the liability charac- activity. The MIP program demonstrated good growth in 2007. teristics of the business. Due to the limited or nonexistent supply Investment strategies are tailored to the specific business needs of of long-dated maturities in certain markets, as well as the very long each operating unit based on considerations that include the realities duration of traditional life products, asset durations tend to be of the local market, liability duration and cash flow characteristics, somewhat short in many non-U.S. jurisdictions relative to liability rating agency and regulatory capital considerations, legal invest- durations. Exposure to corporate credit (other than those entities that ment limitations, tax optimization, diversification and other risk are government related) in non-dollar portfolios is limited outside of control considerations. Overall, these strategies are intended to Western Europe, due to the generally fewer number of corporate produce a reasonably stable and predictable return throughout the issuers in many of the markets in which AIG operates, or, in the economic cycle, without undue risk or volatility. case of Japan, due to the absence of a significant spread differential Domestic General Insurance portfolios consist principally of between sovereign and high-quality non-sovereign debt. highly rated tax-exempt municipal bonds, together with a modest— As markets mature and corporate issuance of debt becomes more about 15 percent—allocation to public and private equity, hedge fund common, the amount of corporate credit positions in non-Western and other partnership investments. Foreign General Insurance assets portfolios is expected to increase. In jurisdictions with limited long- are primarily invested in a mix of high-quality taxable bonds, but also dated bond markets, equities are used to extend the effective duration include a modest allocation to public and private equities. of investment portfolios. In addition, foreign exchange positions are For Domestic Life Insurance & Retirement Services and Asset employed to diversify risk and enhance yield in certain markets with Management companies, the portfolios consist principally of very low domestic interest rate curves, such as Japan and Taiwan. investment grade corporate debt securities and highly rated mortgage- Such foreign exchange positions in both Taiwan and Japan consisted backed and asset-backed securities. In addition, a small allocation— predominantly of high-quality fixed income investments denomi- normally about 10 percent—is made to other, more volatile but nated in developed or newly industrialized currencies, as defined by potentially higher-yielding investments, including high-yield, the International Monetary Fund and the World Bank. distressed and emerging market bonds; public and private equity Assets supporting GICs are invested similarly to other Domestic securities; hedge funds; real estate; and other investments having Life Insurance & Retirement Services and Asset Management portfo- equity-like risks and expected returns. The modestly higher lios, with particular attention given to aligning the maturity profile concentration of such higher risk assets in the Asset Management of assets and liabilities. As the overall maturity profile is somewhat segment reflects both the historical focus on such assets in shorter than that of traditional life products, heavier use is made of asset-backed and floating rate investments. For both Life Insurance & Retirement Services and General Insurance companies, allocation to equities is intended to provide an economic hedge against the potential risks associated with inflation 40 AIG 2007 Annual Report


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    and changing interest rates, as well as the potential for superior Composition of Consolidated Cash and Invested Assets long-term performance in funding liabilities for which there are no, at December 31, 2007 Total = $862.5 billion or very limited, fixed income alternatives. Financial Services cash and invested assets amounted to Taxable Fixed Maturities 43% $181.77 billion at year end, of which $102.10 billion, or Other Financial Services Assets 14% 56.2 percent, related to Capital Markets operations. The majority Tax-exempt Fixed Maturities 7% Cash and Other Short-Term Securities 6% of Capital Markets assets represent the investment of proceeds from Flight Equipment 5% the issuance of guaranteed investment agreements, notes and other Equity Securities 5% bonds in short- and medium-term securities of high credit quality. Mortgage and Other Loans Receivable, Aircraft owned by ILFC for lease to commercial airlines around the and Real Estate 4% Other Investments 16% world is the other principal component of Financial Services cash and invested assets. At year end, the net book value of the fleet totaled $41.98 billion. Within the fixed income credit portfolios, AIG Investments This risk aversion, in turn, pressured credit spreads generally, with conducts rigorous and thorough independent credit analyses, and particular impact on financial institutions. Thus, while default levels follows policies of extensive diversification and active management. remained near historic lows, credit-oriented fixed income investments Portfolios of mortgage-backed securities and related asset classes are generally underperformed treasury securities with similar durations. actively managed to mitigate prepayment risk. In addition, in some Dislocation followed through into the equity markets, which circumstances, derivatives are used to mitigate “tail” risk associated ended the year substantially lower than their October 2007 highs. with very rapid interest rate shifts. As 2008 began, the global sell-off in equities continued, and a The global appetite for risk assets changed significantly in 2007, growing global perception of a slowdown in the U.S. economy led compared with the three preceding years, as growing concern about to weaknesses in most global equity markets. In addition, transaction the U.S. housing market’s valuation led to a sharp reduction in risk volume fell sharply in private equity in the latter half of 2007, as both appetite among investors for non-agency housing-related debt. risk appetites and availability of financing shrank dramatically. Life Insurance Percent (in millions) General & Retirement Financial Asset of December 31, 2007 Insurance Services Services Management Other Total Total Cash and Invested Assets: Fixed maturities $ 95,412 $ 304,111 $ 1,400 $ 28,012 $ — $ 428,935 49.7% Equity securities 7,805 33,119 8 638 76 41,646 4.8 Mortgage and other loans receivable 13 24,851 1,365 7,442 56 33,727 3.9 Securities lending invested collateral 5,031 57,471 148 13,012 75,662 8.8 Other invested assets 11,895 19,015 3,663 17,261 6,989 58,823 6.8 Flight equipment — — 41,984 — — 41,984 4.9 Finance receivables — 5 31,229 — — 31,234 3.6 Trade receivables — — 6,467 — — 6,467 0.8 Unrealized gain (loss) on swaps, options and forward transactions — — 17,134 — (692) 16,442 1.9 Securities available for sale — — 40,305 — — 40,305 4.7 Trading securities — — 4,197 — — 4,197 0.5 Securities purchased under agreements to resell — — 20,950 — — 20,950 2.4 Investment income due and accrued 1,431 4,728 29 401 (2) 6,587 0.8 Real estate 349 976 17 89 231 1,662 0.2 Other, including short-term investments, cash and spot commodities 7,853 26,236 12,876 5,188 1,720 53,873 6.2 Total $129,789 $ 470,512 $181,772 $ 72,043 $ 8,378 $ 862,494 100.0% AIG 2007 Annual Report 41


  • Page 44

    American International Group, Inc. and Subsidiaries R E C O N C I L I AT I O N I N A C C O R D A N C E W I T H R E G U L AT I O N G Regulation G, promulgated by the Securities and Exchange Commission, requires a reconciliation of each non-GAAP financial measure used in this Annual Report to the comparable GAAP figure. Such reconciliations are set forth below, in the Five Year Summary of Consolidated Operations on page 43 and throughout this Annual Report. AIG presents its operations in the way it believes will be most meaningful and useful, as well as most transparent, to the investing public and others who use AIG’s financial information in evaluating the performance of AIG. (in millions, except ratios) Years Ended December 31, 2007 2006 2005 General Insurance revenues: Net premiums earned $ 45,682 $ 43,451 $ 40,809 Net investment income 6,132 5,696 4,031 Net realized capital gains (losses) (106) 59 334 Total $ 51,708 $ 49,206 $ 45,174 General Insurance operating income $ 10,526 $ 10,412 $ 2,315 Net realized capital gains (losses) (106) 59 334 General Insurance operating income excluding net realized capital gains (losses) 10,632 10,353 1,981 Current year catastrophe-related losses (276) — (2,888) Change in estimate for asbestos and environmental reserves — (198) (873) Reserve charge — — (1,824) General Insurance operating income excluding net realized capital gains (losses), current year catastrophe-related losses, change in estimate for asbestos and environmental reserves, and reserve charge $ 10,908 $ 10,551 $ 7,566 General Insurance combined ratio 90.33 89.06 104.69 Current year catastrophe-related losses 0.60 — 7.06 Change in estimate for asbestos and environmental reserves — 0.46 2.14 Reserve charge — — 4.47 General Insurance combined ratio, excluding current year catastrophe-related losses, change in estimate for asbestos and environmental reserves, and reserve charge 89.73 88.60 91.02 Life Insurance & Retirement Services revenues: Premiums and other considerations $ 33,627 $ 30,766 $ 29,501 Net investment income 22,341 20,024 18,677 Net realized capital gains (losses) (2,398) 88 (158) Total $ 53,570 $ 50,878 $ 48,020 Life Insurance & Retirement Services premiums: Premiums and other considerations $ 33,627 $ 30,766 $ 29,501 Deposits and other considerations not included in revenues under GAAP 59,103 50,241 46,221 Premiums, deposits and other considerations $ 92,730 $ 81,007 $ 75,722 Life Insurance & Retirement Services operating income $ 8,186 $ 10,121 $ 8,965 Net realized capital gains (losses) (2,398) 88 (158) Life Insurance & Retirement Services operating income excluding net realized capital gains (losses) $ 10,584 $ 10,033 $ 9,123 Financial Services operating income (loss) $ (9,515) $ 383 $ 4,424 Net realized capital gains (losses) and Capital Markets other-than-temporary impairments (743) (133) 154 FAS 133 gains (losses) 211 (1,822) 2,014 Financial Services operating income (loss) excluding FAS 133 gains (losses), net realized capital gains (losses) and Capital Markets other-than-temporary impairments $ (8,983) $ 2,338 $ 2,256 Asset Management operating income $ 1,164 $ 1,538 $ 1,963 Net realized capital gains (losses) (1,000) (125) 82 Asset Management operating income before net realized capital gains (losses) $ 2,164 $ 1,663 $ 1,881 Consolidated: Net income $ 6,200 $ 14,048 $ 10,477 Net realized capital gains (losses) and Capital Markets other-than-temporary impairment, net of tax (2,804) 33 201 FAS 133 gains (losses), excluding net realized capital gains (losses), net of tax (304) (1,424) 1,530 Cumulative effect of accounting changes, net of tax — 34 — Adjusted net income $ 9,308 $ 15,405 $ 8,746 42 AIG 2007 Annual Report


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    American International Group, Inc. and Subsidiaries F I V E Y E A R S U M M A R Y O F C O N S O L I D A T E D O P E R A T I O N S* Compound Annual (in millions) Growth Rate Years Ended December 31, 2007 2006(a) 2005(a) 2004(a) 2003(a) 2003–2007 General Insurance operations: Gross premiums written $ 58,798 $ 56,280 $ 52,725 $ 52,046 $ 46,938 5.8% Net premiums written 47,067 44,866 41,872 40,623 35,031 7.7 Net premiums earned 45,682 43,451 40,809 38,537 31,306 9.9 Underwriting profit (loss)(b)(c) 4,500 4,657 (2,050) (247) 1,975 22.9 Net investment income(d) 6,132 5,696 4,031 3,196 2,566 24.3 Operating income before net realized capital gains (losses) 10,632 10,353 1,981 2,949 4,541 23.7 Net realized capital gains (losses) (106) 59 334 228 (39) — General Insurance operating income(b)(c)(d) 10,526 10,412 2,315 3,177 4,502 23.7 Life Insurance & Retirement Services operations: Premiums and other considerations 33,627 30,766 29,501 28,167 23,568 9.3 Net investment income(d) 22,341 20,024 18,677 15,654 13,278 13.9 Operating income before net realized capital gains (losses) 10,584 10,033 9,123 7,923 6,608 12.5 Net realized capital gains (losses)(e) (2,398) 88 (158) 45 362 — Life Insurance & Retirement Services operating income(d)(e) 8,186 10,121 8,965 7,968 6,970 4.1 Financial Services operating income (loss), excluding net realized capital gains (losses)(f)(g) (8,983) 2,338 2,256 2,298 2,189 — FAS 133 gains (losses) 211 (1,822) 2,014 (122) (1,010) — Net realized capital gains (losses) (100) (133) 154 (45) 123 — Capital Markets other-than-temporary impairments (643) — — — — — Financial Services operating income (loss)(f)(g) (9,515) 383 4,424 2,131 1,302 — Asset Management operating income, excluding net realized capital gains (losses) 2,164 1,663 1,881 1,887 1,275 14.1 Net realized capital gains (losses) (1,000) (125) 82 60 (754) 7.3 Asset Management operating income 1,164 1,538 1,963 1,947 521 22.3 Other Operations before net realized capital gains (losses)(h) (1,731) (1,398) (3,034) (651) (915) — Other Operations net realized capital gains (losses) (409) (37) 269 78 (473) — Consolidation and elimination adjustments 722 668 311 195 — — Income before income taxes, minority interest and cumulative effect of accounting changes(d)(i) 8,943 21,687 15,213 14,845 11,907 (6.9) Income taxes 1,455 6,537 4,258 4,407 3,556 — Income before minority interest and cumulative effect of accounting changes 7,488 15,150 10,955 10,438 8,351 (2.7) Minority interest (1,288) (1,136) (478) (455) (252) — Cumulative effect of accounting changes — 34 — (144) 9 — Net income $ 6,200 $ 14,048 $ 10,477 $ 9,839 $ 8,108 (6.5)% * Includes reconciliation of certain non-GAAP financial measures in accordance with SEC Regulation G. (a) Certain reclassifications have been made to prior period amounts to conform to the current period presentation. (b) Includes current year catastrophe-related losses of $276 million, $2.89 billion and $1.05 billion in 2007, 2005 and 2004, respectively. There were no significant catastrophe- related losses in 2006 or 2003. (c) Operating income was reduced by fourth quarter charges of $1.8 billion and $850 million in 2005 and 2004, respectively, resulting from the annual review of General Insurance reserves. In 2006, 2005 and 2004, changes in estimates for asbestos and environmental reserves were $198 million, $873 million and $850 million, respectively. (d) In 2006, includes effect of out of period adjustments related to the accounting for certain interests in UCITS. The effect was an increase of $490 million in operating income for General Insurance and an increase of $169 million in operating income for Life Insurance & Retirement Services. (e) In 2007, 2006, 2005, 2004 and 2003, includes other-than-temporary impairment charges of $2.8 billion, $641 million, $425 million, $441 million and $1.2 billion, respectively. (f) These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of investments and borrowings. These gains (losses) in 2007 include a $380 million out of period charge to reverse net gains recognized on transfers of available-for-sale securities among legal entities consolidated within AIGFP. In 2006, includes an out of period charge of $223 million related to the remediation of the material weakness in internal control over the accounting for certain derivative transactions under FAS 133. In the first quarter of 2007, AIGFP began applying hedge accounting for certain of its interest rate swaps and foreign currency forward contracts, hedging its investments and borrowings. (g) In 2007, includes an unrealized market valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio. (h) In 2005, includes $1.6 billion of regulatory settlement costs. (i) In 2007, 2006, 2005, 2004 and 2003, includes other-than-temporary impairment charges of $4.7 billion, $944 million, $598 million, $684 million and $1.5 billion, respectively. Also 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. In 2007, 2006, 2005, 2004 and 2003, the effect was $(1.44) billion, $(1.87) billion, $2.02 billion, $671 million and $(1.22) billion in operating income, respectively. These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of investments and borrowings. AIG 2007 Annual Report 43


  • Page 46

    American International Group, Inc. and Subsidiaries F I V E Y E A R S U M M A RY O F S E L E C T E D F I N A N C I A L I N F O R M AT I O N Compound Annual (in millions, except ratios) Growth Rate Years Ended /As of December 31, 2007 2006 2005 2004 2003 2003–2007 Balance Sheet Data: Total cash and invested assets(a) $ 862,494 $ 801,941 $ 691,767 $ 649,825 $ 528,550 13.0% Total assets 1,060,505 979,410 853,048 801,007 675,602 11.9 Total General Insurance reserves(b) 69,288 62,630 57,476 47,254 36,228 17.6 Total liabilities 964,604 877,542 766,545 721,135 606,180 12.3 Total shareholders’ equity 95,801 101,677 86,317 79,673 69,230 8.5 Income Statement Data: Revenues(c)(d)(e) $ 110,064 $ 113,387 $ 108,781 $ 97,823 $ 79,601 8.4% Net income 6,200 14,048 10,477 9,839 8,108 (6.5) Loss ratio 65.63 64.56 81.09 78.78 73.06 Expense ratio 24.70 24.50 23.60 21.52 19.62 Combined ratio(f) 90.33 89.06 104.69 100.30 92.68 (a) Refer to the table on page 41 of this report for the composition of total cash and invested assets. (b) Represents consolidated General Insurance net reserves for losses and loss expenses. (c) 2007 revenues include an unrealized market valuation loss of $11.5 billion on AIGFP’s super senior credit default swap portfolio. See Management’s Discussion and Analysis of Financial Condition and Results of Operations—Invested Assets—Other-Than-Temporary Impairments. (d) 2007, 2006, 2005, 2004 and 2003 include other-than-temporary impairment charges of $4.7 billion, $944 million, $598 million, $684 million and $1.5 billion, respectively. Also includes gains (losses) from hedging that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. In 2007, 2006, 2005, 2004 and 2003, the effect on revenues was $(1.44) billion, $(1.87) billion, $2.02 billion, $385 million and $(1.50) billion, respectively. These amounts result primarily from interest rate and foreign currency derivatives that are effective economic hedges of investments and borrowings. (e) Represents the sum of General Insurance net premiums earned and net investment income; Life Insurance & Retirement Services premiums and other considerations, and net investment income; Financial Services interest, net realized and unrealized gains (losses), and lease and finance charges; Asset Management investment income from spread-based products and management, advisory and incentive fees; and net realized capital gains (losses). (f) In 2007, 2006, 2005, 2004 and 2003, the combined ratios excluding catastrophe losses, reserve charges and the change in estimate for asbestos and environmental exposures, were 89.73, 88.60, 91.02, 95.35 and 92.41, respectively. General Insurance Net Premiums Written General Insurance Reserves For General Insurance Combined Loss and (index factor) Losses and Loss Expenses Expense Ratio (index factor) (after dividend to policyholders) AIG Industry* AIG Industry* AIG Industry* 1.4 2.00 110 1.34 1.92 105 1.3 1.75 100 1.2 1.50 1.14 94.50 95 1.30 1.1 1.25 90.33 90 1.0 1.00 85 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 (a) (b) * Industry represents U.S. stock companies, * Industry represents U.S. stock companies, * Industry represents U.S. stock companies, 2007 estimated. 2007 estimated. 2007 estimated. Industry sources: Fox-Pitt, Kelton Inc. and Best’s Industry sources: Fox-Pitt, Kelton Inc. and Best’s Industry sources: Fox-Pitt, Kelton Inc. and Best’s Aggregates & Averages. Aggregates & Averages. Aggregates & Averages. A combined ratio of less than 100 reflects an underwriting profit. (a) 2004 includes a charge of $850 million attributable to the change in estimate for asbestos and environmental exposures and $850 million for the fourth quarter charge resulting from the annual review of reserves. (b) 2005 includes a charge of $873 million attributable to the change in estimate for asbestos and environmental exposures and $1.8 billion for the fourth quarter charge resulting from the annual review of reserves. 44 AIG 2007 Annual Report


  • Page 47

    American International Group, Inc. and Subsidiaries Compound Annual (in millions, except per share amounts and ratios) Growth Rate Years Ended /As of December 31, 2007 2006 2005 2004 2003 2003–2007 Return on Equity (ROE):(a) ROE, GAAP basis 6.09% 15.26% 12.34% 13.27% 12.54% Per Common Share Data: Net income Basic $ 2.40 $ 5.39 $ 4.03 $ 3.77 $ 3.10 (6.2)% Diluted 2.39 5.36 3.99 3.73 3.07 (6.1) Cash dividend 0.77 .65 .63 .29 .24 33.8 Book value 37.87 39.09 33.24 30.69 26.54 9.3 Market price 58.30 71.66 68.23 65.67 66.28 (3.2) Market capitalization at December 31(b) $ 147,475 $ 186,402 $ 177,169 $170,507 $ 172,888 (3.9)% (a) Return on equity (ROE) is net income, expressed as a percentage of average shareholders’ equity. (b) Market capitalization is based on the number of AIG shares outstanding multiplied by the closing price per share at December 31 on the New York Stock Exchange. Return on Equity Dividends Per Common Share Market Capitalization at December 31 (percent) (dollars) (billions of dollars) 0.77 15.26 186.4 0.63 0.65 177.2 13.27 172.9 170.5 12.54 12.34 147.5 6.09 0.29 0.24 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 AIG 2007 Annual Report 45


  • Page 48

    American International Group, Inc. and Subsidiaries S U P P L E M E N TA L F I N A N C I A L I N F O R M AT I O N Consolidated(a) (in millions, except ratios) Years Ended December 31, 2007 2006 General Insurance Operating Results Gross premiums written $ 58,798 $ 56,280 Net premiums written 47,067 44,866 Net premiums earned 45,682 43,451 Underwriting profit (loss) 4,500 4,657 Net investment income 6,132 5,696 Operating income (loss) before net realized capital gains (losses) 10,632 10,353 Net realized capital gains (losses) (106) 59 Operating income (loss) $ 10,526 $ 10,412 Combined ratio 90.33 89.06 (a) Consolidated column may not equal the sum of individual group totals due to consolidating adjustments. 2007 2006 Net Percent Net Percent (in millions) Premiums of Premiums of Years Ended December 31, Written Total Written Total General Insurance Net Premiums Written Domestic Brokerage Group $ 24,112 51.3% $ 24,312 54.2% Foreign General 13,051 27.7 11,401 25.4 Domestic Personal Lines 4,808 10.2 4,654 10.4 Transatlantic 3,953 8.4 3,633 8.1 Mortgage Guaranty (UGC) 1,143 2.4 866 1.9 Total $ 47,067 100.0% $ 44,866 100.0% General Insurance Net Premiums Written General Insurance Premiums Written Total = $47.1 billion (billions of dollars) 58.8 56.3 52.0 52.7 Domestic Brokerage Group 51.3% 46.9 47.1 Foreign General 27.7% 44.9 40.6 41.9 Personal Lines 10.2% Transatlantic 8.4% 35.0 Mortgage Guaranty 2.4% Gross Premiums Written Net Premiums Written 2003 2004 2005 2006 2007 46 AIG 2007 Annual Report


  • Page 49

    American International Group, Inc. and Subsidiaries Domestic Domestic Mortgage Brokerage Group Personal Lines Guaranty (UGC) Transatlantic Foreign General 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006 $ 31,759 $31,584 $ 5,025 $ 4,821 $1,374 $1,065 $ 4,284 $ 3,983 $19,778 $17,525 24,112 24,312 4,808 4,654 1,143 866 3,953 3,633 13,051 11,401 23,849 23,910 4,695 4,645 886 740 3,903 3,604 12,349 10,552 3,501 2,336 (162) 206 (792) 191 182 143 1,771 1,781 3,879 3,411 231 225 158 140 470 435 1,388 1,484 7,380 5,747 69 431 (634) 331 652 578 3,159 3,265 (75) 98 (2) 1 (3) (3) 9 11 (22) (37) $ 7,305 $ 5,845 $ 67 $ 432 $ (637) $ 328 $ 661 $ 589 $ 3,137 $ 3,228 85.52 89.96 103.46 95.56 189.78 70.62 95.42 96.17 85.51 82.46 2007 2006 Percent Percent (in millions) Underwriting of Underwriting of Years Ended December 31, Profit (Loss) Total Profit (Loss) Total General Insurance Underwriting Profit (Loss) Domestic Brokerage Group $ 3,501 77.8% $ 2,336 50.2% Foreign General 1,771 39.4 1,781 38.2 Domestic Personal Lines (162) (3.6) 206 4.4 Transatlantic 182 4.0 143 3.1 Mortgage Guaranty (UGC) (792) (17.6) 191 4.1 Total $ 4,500 100.0% $ 4,657 100.0% General Insurance Operating Income (a)(b)(c)(d) General Insurance Net Investment Income (billions of dollars) (billions of dollars) 10.4 10.5 6.1 5.7 4.0 3.2 4.5 2.6 3.2 2.3 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 (a) Includes net realized capital gains (losses). (b) 2007, 2005 and 2004 include current year catastrophe-related losses of $276 million, $2.89 billion and $1.05 billion, respectively. In 2006 and 2003, there were no significant catastrophe-related losses. (c) In 2005 and 2004, operating income was reduced by $1.8 billion and $850 million, respectively, resulting from the annual fourth quarter review of General Insurance loss and loss adjustment reserves. (d) 2006, 2005 and 2004 include a change in estimate for asbestos and environmental reserves of $198 million, $873 million and $850 million, respectively. AIG 2007 Annual Report 47


  • Page 50

    American International Group, Inc. and Subsidiaries S U P P L E M E N TA L F I N A N C I A L I N F O R M AT I O N Premiums, Deposits and Premiums and Other (in millions) Other Considerations(a) Considerations Revenues(b) Years Ended December 31, 2007 2006 2007 2006 2007 2006 Domestic Life Insurance & Retirement Services by Major Product Life Insurance $ 3,281 $ 3,034 $ 2,352 $ 2,127 $ 3,880 $ 3,504 Home service 938 957 767 790 1,407 1,420 Group life/health 854 999 842 995 1,042 1,208 Payout annuities(c) 2,612 2,465 1,820 1,582 2,973 2,586 Individual fixed and run off annuities 420 641 55 49 529 603 Retirement Services Group retirement products 7,531 6,825 446 386 2,726 2,665 Individual fixed annuities 5,085 5,331 96 122 3,760 3,703 Individual variable annuities 4,472 4,266 627 531 793 733 Individual annuities — run off (d) 53 56 21 18 408 444 Total $ 25,246 $ 24,574 $ 7,026 $ 6,600 $17,518 $16,866 (a) Premiums, deposits and other considerations represent aggregate business activity presented on a non-GAAP basis. (b) Excludes net realized capital gains (losses). (c) Includes structured settlements, single premium immediate annuities and terminal funding annuities. (d) Primarily represents run off annuity business sold through discontinued distribution relationships. Life Insurance & Retirement Services Life Insurance & Retirement Services Operating Income* (billions of dollars) (billions of dollars) 10.6 92.7 10.0 81.0 9.1 4.2 73.1 75.7 3.9 7.9 3.9 57.6 6.6 3.4 Premiums, Deposits 3.0 Domestic 6.1 6.4 and Other Foreign 30.8 33.6 Considerations (a) 5.2 28.2 29.5 23.6 4.5 Premiums and Other Considerations (b) 3.6 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 (a) Represents aggregate business activity presented on a non-GAAP basis. * Excludes net realized capital gains (losses). (b) Includes GAAP premiums and other Life Insurance revenue. Domestic Life Insurance—Premiums, Deposits and Other Domestic Retirement Services—Premiums, Deposits and Other Considerations by Major Product Considerations by Major Product Total = $8.1 billion Total = $17.1 billion Life Insurance 40.5% Group Retirement Products 43.9% Payout Annuities 32.2% Individual Fixed Annuities 29.7% Home Service 11.6% Individual Variable Annuities 26.1% Group Life/Health 10.5% Individual Annuities—Run off 0.3% Individual Annuities—Run off 5.2% 48 AIG 2007 Annual Report

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