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    American International Group, Inc. 2010 Annual Report


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    Table of Contents AIG at a Glance 1 Chairman’s Message 2 Letter to Shareholders 3 A Conversation with AIG Chairman Steve Miller and AIG President and CEO Bob Benmosche 7 Board of Directors 12 Form 10-K 13 Shareholder Information Inside back cover About AIG American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.


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    American International Group 2010 Annual Report AIG at a Glance Chartis Inc. Chartis is a world-leading property-casualty and general insurance organization serving more than 45 million clients worldwide. With a 90-year history, one of the industry’s most extensive ranges of products and services, deep claims expertise, and excellent financial strength, Char- tis enables its commercial and personal insurance clients alike to manage virtually any risk with confidence. Chartis had $31.6 billion in net premiums written in 2010. SunAmerica Financial Group T he companies that make up SunAmerica Financial Group have been keeping their promises for more than 150 years. They remain focused on what really matters — advising customers and helping them secure a safe and strong financial future. This has been, and always will be, what you can count on from SunAmerica Financial Group.With over 13,000 employees, over 300,000 financial professionals appointed to sell its insurance and retirement products, and sales locations in every state in the nation, SunAmerica Financial Group is one of the largest life insurance and retirement services organizations in the United States. Its businesses serve over 19 million customers with over $248 billion in total assets under management. International Lease Finance International Lease Finance Corporation (ILFC) is an international market Corporation leader in the leasing and remarketing of advanced technology commercial 38 jet aircraft to airlines around the world. For years, the people of ILFC have had a strong commitment to aviation and its role in building relationships across the globe that drive innovation, prosperity, and under- standing. ILFC serves more than 200 airline customers with its portfolio of approximately 930 jet aircraft. United Guaranty Corporation United Guaranty Corporation (UGC) began operations in 1963. Over the years, UGC subsidiaries have insured mortgage loans for more than 4.4 million households. With more than 1,000 employees worldwide, UGC currently serves 4,511 mortgage lenders and credit unions of all sizes in the United States and is insuring new business in two countries in Asia. UGC has $5.0 billion in total assets. AIG 2010 Annual Report 1


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    Chairman’s Message Robert S. Miller Non-Executive Chairman of the Board t is hard to believe the changes at I have had the privilege of serving on cated extensive time, study, and insight I AIG just since I joined the Board in June 2009, when many thought AIG was headed for a controlled liquidation. many boards and have seen my way through a share of corporate turn- arounds. My own experience gives me a to get us to this point. Yes, we do have differing opinions and healthy, vigor- ous debates, but this is to be expected A few months later, we were joined by unique appreciation of the teams of dedi- with a Board as engaged as the current AIG President and Chief Executive cated AIG people – and advisors – who AIG Board of Directors. We are pas- Officer Bob Benmosche, who had a very executed this restructuring. These teams sionate about AIG and committed to different vision. By July 2010, I became are among the best I have ever known. ensuring that AIG pays back every Chairman, and we have seen incred- dime that U.S. taxpayers loaned us as It’s impossible to recognize everyone at ible progress. Despite the complexities quickly as possible. We will also ensure AIG who contributed to the company’s involved, AIG is now on the cusp of that AIG management is accountable success during 2010, but in particular I completing a truly remarkable recovery now and in the future, and that there feel several people played key roles in from dependence on government sup- are processes and oversight in place so the turnaround over the past 14 months. port to becoming an independent leader the actions that nearly destroyed this Clearly, Bob Benmosche’s leadership in insurance ser- company are never repeated. During 2010 was a has been pivotal. He and all of us have vices worldwide. the year, former Chairman Harvey transformational also been greatly supported by Peter Golub resigned, and the Board thanks time in AIG’s The year ended Hancock, Executive Vice President, Harvey for his contributions to helping with AIG nearly Finance, Risk and Investments; David 90-year history… create the momentum that enabled the completing the Herzog, Executive Vice President, Chief few believed we recapitalization to happen. full restructuring Financial Officer; Brian Schreiber, would be in the of the government Executive Vice President, Treasury and While there is still much work to be positive position ownership – it was Capital Markets; and Tom Russo, Exec- done, we are encouraged by the prog- we found our- finalized on Janu- utive Vice President, Legal, Compliance, ress made and the strength of AIG’s selves in at the ary 14, 2011. We Regulatory Affairs and Government continuing operations, and we look end of 2010. also raised more Affairs, and General Counsel. beyond 2010 to the day when AIG than $37 billion returns to being a normally capitalized Our partners in the U.S. government in cash and securities through the initial company without the need for extraor- – especially the U.S. Department of public offering (IPO) of AIA and the dinary assistance. the Treasury, the Federal Reserve, the sale of ALICO, as well as other asset Federal Reserve Bank of New York On behalf of the entire AIG Board of sales, and we started to regain investor (FRBNY), and the AIG Trustees – Directors, we thank all of our long- confidence, tapping the credit markets should all be recognized for the leader- term shareholders, our customers, our after more than a two-year absence. By ship and commitment each person partners, and the people of AIG for any objective measure, AIG is now a has given to seeing that AIG begins to their commitment and dedication to stronger company. emerge as a strong and independent the success of this great company. From my perspective, 2010 was as company. Jim Millstein, Chief Restruc- transformational a time as any in AIG’s turing Officer at the U.S. Treasury, and 90-year history. When the year began, Sarah Dahlgren, at the FRBNY, have few believed we would be in the posi- been strong, reliable stewards of U.S. tive position we found ourselves in at taxpayers’ interests. the end of 2010. It is a testament to Robert S. Miller My fellow AIG Board members must February 24, 2011 Bob’s leadership that we have come also be commended. They have put this far in so little time. their personal lives on hold, and dedi- 2 AIG 2010 Annual Report


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    Letter to Shareholders Robert H. Benmosche President and Chief Executive Officer n 2010, American International need to dismantle AIG to repay our I Group began a transformation that previously had been unimaginable. We demonstrated the strengths of obligations, a foundation was laid for the recapitalization of the govern- ment’s ownership of the company. The result is a simplified structure that will AIG’s core businesses, which have enable the U.S. Treasury Department enabled us to remain market leaders. to sell its AIG shares over time and for Supported by our powerful culture AIG to emerge as a financially strong, of entrepreneurism and innovation, redefined, stand-alone company. we retained and regained customers, and grew our businesses. At the same We also have made significant progress time, we worked with the U.S. govern- extracting value from other assets that ment to begin the process of repaying are no longer core to AIG’s operations, American tax- but are still outstanding businesses AIG’s core payers for their on their own. We rebuilt many of our businesses, sup- unprecedented key functions in finance, enterprise ported by our financial support. risk management, investments, human powerful culture resources, and technology, as well Without a doubt, of entrepre- as supporting AIG’s already strong 2010 saw much neurism and management team with a number of change at AIG innovation, have key hires. as we refocused enabled us to our energies and There is, however, still much work to remain market resources, reduced be done, and 2010 had its challenges. leaders. our size, rebuilt AIG’s unique our functions, We rebuilt key business, much and uncovered significant opportunities. functions of which we We had growth at Chartis and in finance, pioneered in the SunAmerica Financial Group. Also, enterprise risk 1960s, 1970s, and United Guaranty Corporation (UGC), management, 1980s, created our mortgage insurance business, and investments, unprecedented International Lease Finance Corpo- human resources, growth for AIG, ration (ILFC), our aircraft leasing and technology. but some of this business, have both rebounded and are business has also again self-supporting. exposed AIG to new risks decades after Our restructuring did result in some some policies were written. As illustrat- asset sales – in particular, the sale of ed by our decision to again strengthen ALICO and the IPO of AIA, with the cash proceeds from those two business- es going directly to repaying taxpayers. But once it became clear that we didn’t AIG 2010 Annual Report 3


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    Letter to Shareholders reserves at Chartis, our world-leading tion of the U.S. government ownership property and casualty (P&C) insurer, of AIG completed on January 14, 2011. some of AIG’s legacy liability policies, The Treasury Department is now in a especially those related to asbestos position to sell its 92 percent common claims, excess casualty, and primary and equity stake over time. excess workers’ compensation claims, At Chartis, the team has brought to have proved to have the industry’s lon- market more new products and ser- gest tails. We also increased reserves vices, while continuing to expand and for certain business written since 2005. enhance its existing offerings. For ex- Over the past couple of years, Chartis ample, Chartis has launched a series of has significantly reduced exposure to market-leading directors and officers excess casualty and guaranteed work- (D&O) products that have changed ers’ compensation, and it has exited how the industry insures corporate a troublesome segment of the excess management teams and boards of workers’ compensation business. directors. Chartis also launched a new We make no excuses and are com- Internet portal for brokers who sell our mitted to comprehensive reviews U.S. commercial products and services. of our exposures and, when neces- Called MyChartis, the portal is now sary, strengthening on the basis of a used by more than 17,000 indepen- thorough assessment process. These dent brokers in the United States and decisions have adversely affected our Canada. These results, but they are appropriate for AIG has made are examples of AIG at this time. great strides the innovations since the end of that maintain cus- Progress 2009 to reorga- tomers and drive AIG has made great strides since the nize, expand its new business. end of 2009 to reorganize, expand its business base, In addition, the business base, and develop additional and develop strength of the growth engines. additional Chartis brand is Perhaps our biggest accomplishment growth engines. now widely ac- in 2010 was the agreed-upon road cepted across the map for the recapitalization of AIG. globe. Recent market research indi- What began as a series of discussions cated that, for a relatively new brand, over last summer culminated in an Chartis has particularly high aware- agreement-in-principle at the end of ness, familiarity, and trust levels – espe- September with an entire recapitaliza- cially among brokers but also among commercial decision makers. SunAmerica Financial Group made great progress in 2010 in reestablish- 4 AIG 2010 Annual Report


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    ing relationships with its distribution franchises that complement our core products and great customer support. partners and has built positive mo- insurance businesses. We know from our experiences over mentum for continuing sales growth. the past couple of years that even when UGC made important contributions SunAmerica Financial Group has now AIG was at its lowest reputational to our 2010 results. There is no doubt been reinstated by 14 of the 16 distri- point, at the end of the day, having that being an insurer of first and bution partners AIG people behind the products we second lien mortgages will continue to SunAmerica that suspended offer was a distinct competitive advan- have its ups and downs – a continuing Financial Group sales of its fixed tage. It is because of their entrepre- industry-wide issue – but new busi- has now been or variable annu- neurial spirit, deep product experience, ness is promising. UGC is writing its reinstated by 14 ity products as a and industry knowledge that our busi- highest-quality book of business ever, of the 16 distri- result of the AIG nesses are poised for growth. and is effectively managing its legacy bution partners crisis. These are business. During 2010, UGC posted its While we lost some business in 2009 that suspended huge wins. first profitable quarter in years, proving because of the cloud hanging over sales of its fixed Despite sig- that discipline and hard work can make AIG, in 2010, we saw key indicators or variable nificantly lower a difference even in the most challeng- of strength – such as surrender levels annuity products individual fixed ing businesses. and employee as a result of the annuity sales in At AIG, our retention – ILFC made substantial progress in AIG crisis. 2010 due to the 63,000 employ- return to pre- 2010 to fund its own operations. impact of very ees around the crisis levels. Beginning in March, ILFC raised low interest rates industry-wide, globe provide Customers who more than $14 billion during the year SunAmerica Financial Group suc- customers with stayed with through a variety of funding sources ceeded in increasing total sales over industry-leading AIG have told and other liquidity initiatives, enabling 2009 levels. This success highlights the products and me personally it to pay off loans from AIG and the advantages of our diversified product great customer that they did so U.S. government. And with the addi- portfolio, multi-channel distribution support. because of their tion of aviation industry veteran Henri network, and strong relationships with relationships Courpron as Chief Executive Officer, producers. Improved sales from life in- with the people here. They know that ILFC has continued to rework its op- surance, payout annuities, group retire- AIG’s people are empowered to make erations, and remains the international ment products, and individual variable the decisions necessary to serve as their leader in the leasing and remarketing annuities offset the decline in indi- true partners. of commercial jet aircraft to airlines vidual fixed annuity deposits. Addition- around the world. Clearly, the key to our success has been ally, SunAmerica’s Western National our employees. Even in the darkest maintained its number one ranking for Our People: A Foundation for days of the crisis, the people who make fixed annuity sales in the bank channel Growth up AIG never gave up. Instead, they and is well positioned to capitalize on a At AIG, we know that our ability to persevered and are bringing AIG back rising interest rate environment. create shareholder value is inextrica- to its former prominence. Also in 2010, we saw significant prog- bly tied to the ability of our 63,000 ress in our investments in the valuable employees around the globe to provide customers with industry-leading AIG 2010 Annual Report 5


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    Letter to Shareholders Our people, many of whom have flecting a reduction in unrealized mar- same time, the significant progress we worked for AIG for more than 10, 20, ket valuation gains on the super senior have made with oversight and controls even 30 years, have seen history unfold credit default swap portfolio in Capital will enable us to grow with the right around them. Their dedication to Markets of $820 million, as well as an checks and balances. always doing what is in the best inter- increase in ILFC impairment charges We have strong companies that offer est of AIG and our shareholders is the of $1.6 billion. AIG also recorded a net a powerful array of products and ser- foundation for how AIG will compete loss from discon- vices. Moreover, we are well positioned and grow in the future. As we know We have strong tinued operations to take advantage of global growth from our interaction with our custom- companies that of $2.1 billion in trends – as well as the growing need ers, the key in the insurance business is offer a powerful 2010, reflecting in the U.S. for life and retirement reputation. array of products goodwill impair- products and services. Given our re- and services. ment charges 2010 Financial Highlights markable people, an unparalleled sales Moreover, we are of $4.6 billion and distribution network, and a solid AIG posted income from continu- well positioned to related to the financial position, I am confident we ing operations before income taxes of take advantage sales of ALICO, will take advantage of the many oppor- $17.9 billion, compared with a loss of global growth AIG Star, and tunities ahead as our industry grows. of $14.3 billion in 2009. The improve- trends – as well AIG Edison. ment of $32.2 billion compared to as the grow- I am proud of the accomplishments In 2010, we 2009 reflects a gain of $17.8 billion of the entire AIG team, and I look ing need in the returned to the from sales of divested businesses in forward to building on our strengths U.S. for life and financial markets, 2010, including a gain of $16.3 billion to deliver growth and increase share- retirement prod- raising more from the proceeds of the AIA IPO holder value in the future. ucts and services. than $10 billion on October 29, 2010. AIG also had at the corporate a decline in interest expense on the and operating levels. We maintain solid FRBNY credit facility, an improve- financial resources to independently ment of $2.7 billion in asset manage- support our ongoing operations and ment pre-tax earnings, and a reduction future growth initiatives. in net realized capital losses of $4.9 billion. Looking Forward Robert H. Benmosche February 24, 2011 Our profitability was offset by un- AIG entered 2011 poised to emerge as derwriting losses at Chartis after the a company independent of government $4.2 billion net reserve strengthening support. We have worked hard to en- charge in the fourth quarter. In addi- hance our businesses and functions so tion, we saw a decline of $2.6 billion in that the U.S. government – and the in- Financial Services’ pre-tax income, re- vestment community – will have confi- dence in our ability to operate without government financial assistance. We will look to maximize our opportuni- ties to extend the reach of Chartis and SunAmerica Financial Group. At the 6 AIG 2010 Annual Report


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    A Conversation with AIG Chairman Steve Miller and AIG President and CEO Bob Benmosche Now that AIG and the U.S. government have vastly sim- plified the government’s investment and ownership stake in AIG through the recent recapitalization, what are the company’s key priorities over the next year? Bob: We are grateful to the American tax- payers for their unprecedented support – it gave AIG a second chance. We now have an obligation to absolutely perform on all of our basic business measures. As we think about our future, we have to focus on sales, on customer retention, on expense I n January 2011, Robert H. Benmosche, AIG President management, and continually develop new technology and processes to most effec- and Chief Executive Officer, and Robert S. “Steve” tively manage our businesses. Miller, Chairman of the AIG Board of Directors, sat down at AIG’s new corporate headquarters at 180 Steve: The recapitalization was a mile- Maiden Lane in Manhattan to answer questions about stone where we changed the focus from AIG’s progress during 2010, and the opportunities crisis management to execution, from an intense focus on the balance sheet and and challenges the company faces in the future. That managing liquidity to trying to maximize conversation is chronicled here. the performance and earning power of the underlying businesses. We have returned to being an operating company. We’re also working hard not only on execution at the operating company levels, but also on having management systems designed to prevent another situation like we faced in September 2008. Our system of controls – take enterprise risk manage- ment, for example – is getting much more sophisticated. We are also investing more in our people and our systems with the goal of ensuring that AIG never gets into trouble like it did before. Bob: Right. We have been making signifi- cant organizational changes across the en- terprise. For example, in finance, we have AIG 2010 Annual Report 7


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    right thing for their constituencies. And even more broadly, they want to do the right thing for the bigger picture. We have been fortunate to have many hardworking, talented people in the government sitting revamped risk management, audit, finan- with us day-to-day making sure we do the cial analysis, and planning so that – while right things and partnering with us to help we want to be a strong, entrepreneurial, us get out of the hole we were in. client-focused company – we have the right This partnership has been very successful, level of checks and balances to help make and AIG is now in a position to help, as sure that we’re running our businesses in a Steve said, the taxpayers recoup all of their sound way. money, hopefully with a profit. Steve: The fact remains that the U.S. How important was the U.S. government support to AIG, Treasury Department is a major share- and what has made the partnership so successful? holder that will continue to oversee AIG, as you would expect any major share- Bob: U.S. government intervention was holder to do. The key to their stepping absolutely essential for AIG, as well as for away from day-to-day involvement will be the global financial system. I want to stress our performance, and our ability to run that in 2008 the world found itself with an the business the right way, provide good incredible liquidity crisis and a dramatic results, and make sure we do things right. failure of markets to be able to allow We have to keep asking ourselves, are we people to sell certain assets. doing the right things as we improve our Steve: In our hour of need, the taxpayers business and make sure we’re getting the and the government were very supportive. right risk-adjusted returns for the assets They gave us a chance to prove what we we still have? can do, and we are pleased we were given that opportunity. We are happy we are now in a position to begin to pay back In addition to the U.S. taxpayers, how important were the the American taxpayers, hopefully with a contributions from AIG employees during these difficult profit. times? Bob: It is important to recognize that the Bob: AIG has always had the reputation government is made up of people just like of having the best people, very results- us, who have a responsibility to the orga- oriented, independent thinkers. And when nization they’re part of and want to do the I came here in 2009, it was absolutely true. Our customers tell us that we have bright, innovative, entrepreneurial people who solve their complex problems. Customers are pleased that many of the people at AIG stayed at AIG to continue to work with them. We recently conducted a global employee survey – in which we had 92 percent par- ticipation, which is a very high number for an organization our size – and a key theme that came out was a strong commitment to integrity and compliance by our people across all our organizations. You have to remember, AIG employees continued to have faith in AIG when many outside the company did not. They have been the 8 AIG 2010 Annual Report


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    backbone of AIG’s recovery. Our success is a testament to their individual hard work. I was recently out on the road, meeting our people and telling them, here’s what I’ve heard; here’s what I’m expecting from your management; and here are the things our other partners. We are doing every- that you should expect from AIG in the thing we can to help make sure that never next couple of months. happens again. Steve: We are now really primed to focus Bob: We understand that some didn’t on our people and developing our people. want to continue to be protected by Our people have made the difference, AIG – clearly, they wanted to make sure whether it’s the people who have been that AIG paid back its obligations – and here a long time in leadership – so many with the recent clarity, as a result of the people have been here more than 10 recapitalization, we hope to win them years – or those who joined AIG since back. Some are coming back because September 2008. Our customers know our they moved too fast, and the companies employees are empowered and don’t have that they moved to can’t support them. to go through many bureaucratic layers. Customers tell me they stayed with or returned to AIG because our people have Bob: If you look at the way Chartis oper- the ability to solve complex problems for ates today, and you visit with our custom- them, and AIG will stand by them when it ers, our customers routinely ask, “Can we comes time to paying the claim. still count on your people to be entre- preneurial, and be key decision makers in the local communities?” A lot of custom- What challenges and opportunities do you see in 2011? ers don’t like to work with others in the industry because they find there are too Bob: Our challenges are to deliver on what many layers of bureaucracy to get things we said we are going to deliver, to enable approved. the U.S. government to reduce its hold- ings so that their shares are in the hands of more natural investors and funds. What would you say to the customers and partners who Steve: It’s not so much that we’re look- stuck with us? ing to get rid of the U.S. government – it’s Bob: To our customers, I say: Thank you. more that we owe the U.S. government Thank you for taking the risk. Because and the taxpayers a debt of gratitude. It is they stuck with us, because they had faith more that our challenge is to fully return we could pull it off. Because if we didn’t to being a normally capitalized company pull it off, they would have been rushing without the need for extraordinary assis- to the door to find somebody else to take tance going forward. their capacity, and they would have been Bob: We are going to see opportunities criticized within their companies. So I now in an improving economy over the next tell them that they are going to look pretty year or two, and regulatory opportunities smart because they stayed with the right around the world. In Europe, for example, company. We remember that the people where regulators are focusing on solvency who stayed with us need priority attention. and requiring companies to raise more Steve: A lot of people who were in a capital for risk-based businesses, we may position to desert us stood by us and had see some companies deciding to sell great faith, and we want them to feel good about their decision. We are well aware that AIG embarrassed many of our customers and AIG 2010 Annual Report 9


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    tive in the not-for-profit market, and we’re continuing to build even more innovative products in the life market. With ILFC, while it’s not core, the com- businesses to raise capital. So we will not pany has been a very good value invest- rule out acquisition opportunities to en- ment for us. ILFC management is manag- hance the core of AIG. ing it for the long haul, and to the extent that we ultimately find a way to monetize In addition, some of the customers we’ve that asset for the benefit of ILFC, its cus- lost have realized that they left behind tomers, and for AIG, we would consider a very strong company and very strong that. people, so there are opportunities not only to grow our business, but also to always The team at UGC has done an absolutely be mindful of the customers that we lost. outstanding job of dealing with all the So on a go-forward basis, where histori- claims management and client manage- cally we were always focused on top-line ment. They built a new underwriting and new business, well, top-line and new model that allows them to write business business are important, but retaining and today that is very, very good. And, in fact, maintaining the relationships with our ex- it is, by far, best in class, and it puts them isting customers and rebuilding trust with in a league by themselves. The way they’re those we lost will be high priorities. doing the underwriting, they’re still getting close to 18 to 20 percent market share, which is incredible, considering how What are the key competitive factors affecting Chartis, restrictive it is. Had the model been in SunAmerica Financial Group and other operations? place for 2006 and 2007, where we took $2 billion in losses, the outcome could Bob: For Chartis, there is no question that have been significantly different. there is a competitive market, and pric- ing is not as strong as it should be. But we Steve: I think the important thing is we need to remember that, as we do business have ILFC and UGC set up now as self- today, we’ll wake up in a couple years and financed and not burdens on the parent still be here and have to deal with the company. ILFC is a good company, and prices we’ve charged today, and it’s impor- we would expect it to have great value and tant that we don’t shortchange the future. monetize it at some point, but not now. That has put a little pressure on sales. I think the one thing we could do a better job of is selling the people of AIG so that Can you talk a little bit about the company’s views on it isn’t simply my price versus someone employee performance and compensation? What changes else’s price. It’s what you’re getting for the were made in 2010, and how do you see the company’s price, and the people of AIG are worth approach to these two things evolving over the next year? a lot more than the competition, and we need to account for that. Bob: We are developing and implementing new compensation and reward programs The same applies to SunAmerica Financial that recognize the contributions of our Group. Look at their innovative products people and differentiate pay based on per- on the variable annuity side. SunAmerica formance. Also, we developed longer-term Financial Group continues to be the most incentive compensation for the senior innovative in selling fixed annuities in the team, which promotes better judgment of banking system, which is why we’re still risk. These are important steps in creating number one, and we’re still making sales a transparent and consistent performance in a market of historically low interest management culture, while also ensuring rates. We have always been very competi- that the day-to-day activities of our people are aligned with the interests of U.S. taxpayers. 10 AIG 2010 Annual Report


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    Steve, regarding Bob’s health, what has the Board put in place to address succession? Steve: First off, we are delighted with Bob’s prognosis. At our Board meeting in Janu- ary, we received a briefing by a physician fully aware of Bob’s medical condition, test results, and prognosis. While in matters of cancer, circumstances can change, the Board anticipates that Bob should be able In 2010, AIG rolled out a comprehensive to serve in his role as AIG President and Relative Performance Rating process. The Chief Executive Officer on his previously RPR process – which I have found works announced timetable. Regarding succes- well – ranks individuals based on perfor- sion, we have already started our thinking mance of their peers. and planning ahead. We are doing a full look at internal candidates and determin- Steve: These compensation programs are ing the kind of characteristics we would be consistent with the philosophy of the AIG looking for in external candidates. Board and our approach to management compensation. Even with the recapital- ization, AIG remains subject to legally What metrics should investors focus on when looking mandated limits on executive compensa- at AIG? tion and structure. As a Board, we are committed to compensation practices that Bob: Much has changed at AIG – with the enable the company to attract and retain sale of ALICO and the IPO of AIA, as well capable and experienced professionals, and as other asset sales – and we’re a different motivate them to achieve strong business company than we were before September results in both the short and long term. 2008. With the recapitalization, we now We are also strongly focused on compen- have more clarity about what AIG will sation structures and programs that align look like at the end of 2011 and beyond. with the interests of all our constituents. For us to be truly valued by the investment community, we must, as we emerge from our restructuring, focus on growing our Bob, how do you feel, and what is your vision for the already strong businesses domestically and future AIG leadership? around the world. We also need to focus on cost savings at the corporate center and Bob: I feel great. In January, my doctors in the businesses, risk and capital manage- gave me an encouraging prognosis as I ment, and strategic asset management. continue to undergo treatment for cancer. There will continue to be operational Given that I have responded very well to hiccups along the way, but those are key my treatment, my doctors believe I can for us. continue to apply the same commitment and energy to AIG as I have since I joined Steve: We have reconfigured and strength- ened the portfolio, and made some painful in August 2009. Nothing in life is certain, decisions to get here. With much of the but, most likely, I plan to return to retire- restructuring of the government owner- ment sometime in 2012. ship completed, we’re settled on what we want to be. Now we will start delivering measurable long-term value to all of our stakeholders. AIG 2010 Annual Report 11


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    Board of Directors Robert H. Benmosche Robert S. Miller President and Chief Executive Officer Non-Executive Chairman of the Board American International Group, Inc. American International Group, Inc. Former Executive Chairman Laurette T. Koellner Delphi Corporation Former President Boeing International Suzanne Nora Johnson Former Executive Vice President Former Vice Chairman The Boeing Company The Goldman Sachs Group, Inc. Donald H. Layton Morris W. Offit Former Chairman and Chief Executive Officer Chairman E*TRADE Financial Corporation Offit Capital Advisors LLC Former Vice Chairman Founder and Former Chief Executive Officer J.P. Morgan Chase & Co. OFFITBANK Christopher S. Lynch Ronald A. Rittenmeyer Former Partner in Charge of Financial Services Former Chairman, Chief Executive Officer, KPMG LLP and President Electronic Data Systems Corporation Arthur C. Martinez Former Chairman, Chief Executive Officer, Former Chairman of the Board, and President President, and Chief Executive Officer Safety-Kleen Corp. Sears, Roebuck and Co. Douglas M. Steenland George L. Miles, Jr. Former President and Chief Executive Officer Executive Chairman Northwest Airlines Corporation Chester Engineers, Inc. Former President and Chief Executive Officer WQED Multimedia Henry S. Miller Chairman and Managing Director Miller Buckfire & Co., LLC Chairman and Chief Executive Officer Marblegate Asset Management 12 AIG 2010 Annual Report


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    Form 10-K AIG AIG 2010 2010 Annual Annual Report Report 13 13


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    14 AIG 2010 Annual Report


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    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2010 Commission file number 1-8787 16FEB201111041141 American International Group, Inc. (Exact name of registrant as specified in its charter) Delaware 13-2592361 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 180 Maiden Lane, New York, New York 10038 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code (212) 770-7000 Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.02 Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ፼ No អ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes អ No ፼ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ፼ No អ Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ፼ No អ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. អ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act. Large accelerated filer ፼ Accelerated filer អ Non-accelerated filer អ Smaller reporting company អ (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes អ No ፼ The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant (based on the closing price of the registrant’s most recently completed second fiscal quarter) was approximately $4,397,000,000. As of January 31, 2011, there were outstanding 1,795,503,716 shares of Common Stock, $2.50 par value per share, of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Document of the Registrant Form 10-K Reference Locations Portions of the registrant’s definitive proxy statement Part III, Items 10, 11, 12, 13 and 14 for the 2011 Annual Meeting of Shareholders


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


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    American International Group, Inc., and Subsidiaries Table of Contents Index Page PART I Item 1. Business 4 Item 1A. Risk Factors 26 Item 1B. Unresolved Staff Comments 39 Item 2. Properties 39 Item 3. Legal Proceedings 39 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 40 Item 6. Selected Financial Data 42 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 43 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 194 Item 8. Financial Statements and Supplementary Data 195 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 375 Item 9A. Controls and Procedures 375 PART III Item 10. Directors, Executive Officers and Corporate Governance 377 Item 11. Executive Compensation 377 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 377 Item 13. Certain Relationships and Related Transactions, and Director Independence 377 Item 14. Principal Accounting Fees and Services 377 PART IV Item 15. Exhibits, Financial Statement Schedules 378 Signatures 379 AIG 2010 Form 10-K 3


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    American International Group, Inc., and Subsidiaries Part I Item 1. Business American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more than 130 countries. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. Throughout this Annual Report on Form 10-K, the terms AIG, the Company, we, us and our are used to collectively refer to AIG, a Delaware corporation, and its consolidated subsidiaries. The term AIG Parent refers solely to American International Group, Inc., a Delaware corporation, and not to any of its consolidated subsidiaries. In September 2008, liquidity issues resulted in AIG seeking and receiving governmental support through a credit facility from the Federal Reserve Bank of New York (the FRBNY, and such credit facility, the FRBNY Credit Facility) and funding from the United States Department of the Treasury (Department of the Treasury) through the Troubled Asset Relief Program (TARP). On January 14, 2011, AIG was recapitalized (the Recapitalization) and the FRBNY Credit Facility was repaid and terminated through a series of transactions that resulted in the Department of the Treasury becoming AIG’s majority shareholder with ownership of approximately 92 percent of AIG’s outstanding common stock. AIG understands that, subject to market conditions, the Department of the Treasury intends to dispose of its ownership interest over time, and AIG has granted certain registration rights to the Department of the Treasury to facilitate such sales. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity and Notes 1 and 26 to the Consolidated Financial Statements for further discussion of the governmental support provided to AIG and the Recapitalization. AIG reports the results of its operations through the following three reportable segments: • Chartis — AIG’s property and casualty operations are conducted through multiple line companies writing substantially all commercial and consumer lines both domestically and abroad. Beginning in the third quarter of 2010, reporting includes the results of Fuji Fire & Marine Insurance Company Limited (Fuji), a recently consolidated business writing primarily consumer lines in Japan. These operations were rebranded under the Chartis brand in 2009. • SunAmerica Financial Group (SunAmerica) — SunAmerica offers a comprehensive suite of products and services to individuals and groups, including term life, universal life, accident and health (A&H), fixed and variable deferred annuities, fixed payout annuities, mutual funds and financial planning. SunAmerica offers its products and services through a diverse, multi-channel distribution network that includes banks, national, regional and independent broker-dealers, affiliated financial advisors, independent marketing organizations, independent and career insurance agents, structured settlement brokers, benefit consultants and direct-to-consumer platforms. These operations were previously known as AIG Domestic Life Insurance & Retirement Services and were renamed SunAmerica in 2009. • Financial Services — AIG’s financial services businesses engage in commercial aircraft leasing through International Lease Finance Corporation (ILFC) and the remaining Capital Markets portfolios through AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries (collectively, AIGFP). 4 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries The principal business units in each of AIG’s reportable segments at year-end 2010 are as follows. Chartis SunAmerica National Union Fire Insurance Company of American General Life Insurance Company (American General) Pittsburgh, Pa. (National Union) New Hampshire Insurance Company American General Life and Accident Insurance Company (AGLA) (New Hampshire) American Home Assurance Company The United States Life Insurance Company in the City of New York (American Home) (USLIFE) Lexington Insurance Company (Lexington) The Variable Annuity Life Insurance Company (VALIC) AIU Insurance Company (AIUI) Western National Life Insurance Company (Western National) Chartis Overseas, Ltd. SunAmerica Annuity and Life Assurance Company (SunAmerica Annuity) Fuji Fire & Marine Insurance Company Limited (Fuji) Chartis UK Holdings Limited (Chartis UK) Chartis Europe, S.A. (Chartis Europe) Financial Services International Lease Finance Corporation (ILFC) AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries (AIGFP) The following principal business units are not included in AIG’s reportable segments because they consist of businesses and items not allocated to AIG’s reportable segments or have been or are in the process of being divested: Other Operations, Including Divested Businesses Discontinued Operations Other operations: American Life Insurance Company (ALICO) (sold in November 2010) AIG Parent AIG Star Life Insurance Co., Ltd. (AIG Star) (sold in February 2011) United Guaranty Corporation (UGC) AIG Edison Life Insurance Company (AIG Edison) (sold in February 2011) American International Reinsurance Company Nan Shan Life Insurance Company, Ltd. (Nan Shan) Limited (AIRCO) (expected to be sold in 2011) Institutional Asset Management: American General Finance, Inc. (AGF) (sold in November 2010) AIG Global Asset Management Holdings Corp., AIG Markets, Inc., AIG Asset Management U.S., LLC (and, until their collective sale on March 26, 2010, PineBridge Capital Partners, LLC, PineBridge Global Investments LLC, and PineBridge Securities LLC,) Direct Investment business: AIG Global Real Estate Corp. Divested businesses: American International Assurance Company, Limited, together with American International Assurance Company (Bermuda) Limited, until their collective deconsolidation on October 29, 2010 as a result of the initial public offering of their parent holding company, AIA Group Limited (AIA) For financial information concerning AIG’s reportable segments, including geographic areas of operation, and changes made in 2010, see Note 3 to the Consolidated Financial Statements. AIG 2010 Form 10-K 5


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    American International Group, Inc., and Subsidiaries The following charts present the sources of AIG’s revenues for the years ended December 31, 2010 and 2009: 2010 2009 26% 19% 7% 4% Chartis 6% SunAmerica Financial Group 9% Financial Services 19% Divested businesses 46% 49% Other operations* 15% 19FEB201100402776 19FEB201100402570 * Includes consolidation and eliminations, but excludes discontinued operations. Additional information about AIG’s operations follows: Chartis Operations Chartis is a major global property and casualty insurance franchise built over 90 years and serving more than 45 million clients. Chartis wrote $31.6 billion in net premiums in 2010. Chartis is diversified both in terms of classes of businesses and geographic locations. Chartis U.S. writes commercial and consumer products throughout the U.S. and Canada. Chartis International writes commercial and consumer products outside the U.S. and Canada. For the year ended December 31, 2010, Chartis U.S. and Chartis International comprised approximately 55 percent and 45 percent, respectively, of the Chartis business, measured by net premiums written. Chartis’ combination of global reach and scale, extensive range of products and services, diversified, multi-channel distribution network and strong capital positions it to meet the demands of a broad range of customers worldwide. Chartis is diversified both in terms of classes of business and geographic locations. During 2010, 6 percent and 5 percent of its direct premiums written (gross premiums less return premiums and cancellations, excluding insurance assumed and before deducting reinsurance ceded) were written in the states of California and New York, respectively, and 13 percent and 8 percent in Japan and the United Kingdom, respectively. No other state or foreign jurisdiction accounted for more than five percent of such premiums. The composition of Chartis net premiums written in 2010 is as follows: NPW by Region. NPW by Line of Business 18% 10% 28% Accident & Health 1% Growth Economies Personal Lines 54% Far East Casualty Europe 27% Property 18% U.S. and Canada 17% Specialty Life 10% 17% 23FEB201104565047 19FEB201100403410 6 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Business Strategy Chartis leverages its global knowledge and experience in the property and casualty markets by competing in selected commercial lines such as executive liability/ director’s and officer’s liability (D&O), large risk management programs and commercial property. In recent years, Chartis has repositioned its Commercial Lines business mix by increasingly complementing its portfolio of Fortune 1000 and multinational clients with small- and medium-sized enterprises. Its global geographic footprint and local presence enable Chartis to provide multinational customers with insurance programs across borders and continents. Chartis also has a strong and growing consumer business. The consumer business underwrites lines such as Accident & Health, property, auto and liability for high-net-worth individuals, extended warranty and travel insurance products and services. Chartis’ scale and diverse product offerings allow it to pursue cross-selling opportunities among its businesses. For example, Chartis can provide primary casualty coverage for an account as part of its commercial casualty unit, underwrite that account’s board of directors through its executive liability business and insure the personal needs of its management through its Private Client Group as part of its Consumer segment. Client Approach Chartis clients benefit from its substantial underwriting capacity, long-term commitment to the markets and clients it serves and tradition of product innovation and expertise. In 2010, Chartis introduced more than 200 products and services worldwide. Capital Deployment Chartis’ scale and geographical diversification also allow the business to strategically deploy capital to pursue the more attractive long-term opportunities around the world. Chartis regularly reviews and adjusts its business mix with the goals of aligning risk profile with risk tolerance and meeting capital management objectives. Chartis U.S. The Chartis U.S. companies comprise the largest U.S.-domiciled commercial property and casualty group by 2010 net premiums written. Chartis U.S. distributes its products through independent retail and wholesale brokers, and writes business on both an admitted and surplus line basis. Chartis U.S. business in the United States and Canada is conducted through American Home, National Union, Lexington, the market leader in surplus lines, and certain other property-casualty insurance company subsidiaries of Chartis U.S. Inc. Chartis U.S.’s business strategy focuses on growing high-margin, less capital intensive lines of business, including segments of consumer lines, specialty markets and its multinational business, while leveraging its distribution relationships, innovation, national footprint and extensive product offering. Chartis U.S. commercial lines include: Casualty: Includes general liability, commercial automobile liability, excess casualty and workers’ compensation coverages. Also includes insurance and risk management programs for large corporate customers and other customized structured insurance products. Property: Includes industrial and commercial property insurance products, which cover exposures to man-made and natural disasters. Specialty: Includes aviation, marine and energy, environmental, kidnap-ransom, export credit and political risk coverages. It also offers various forms of professional liability insurance including D&O, fidelity, employment practices, fiduciary liability and errors and omissions coverages. Chartis U.S. also offers products and services to U.S.-based multinational clients doing business overseas and to foreign corporations doing business in the U.S. as part of its Worldsource business. AIG 2010 Form 10-K 7


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    American International Group, Inc., and Subsidiaries Chartis U.S. consumer insurance lines include: Accident & Health: Includes voluntary and sponsor-paid accidental and supplemental health products, including accidental death and disability and medical excess for employees, associations and other organizations. It also includes a broad range of travel insurance products and services for leisure and business travelers, including trip cancellation, trip interruption, lost baggage, travel assistance and concierge services. Personal: Includes insurance products and risk management services for high net worth individuals (Private Client Group) including homeowners, automobile, umbrella, yacht and fine art coverages, as well as extended service contracts, primarily for consumer electronics products. Chartis U.S. net premiums written for 2010 are as follows: Chartis U.S. NPW 35% 11% Accident & Health Personal Lines Casualty 8% Property Specialty 36% 10% 19FEB201100402989 Chartis International Chartis International is the largest U.S.-based property and casualty insurer in Europe, the largest foreign insurance company in Japan and China, and an established leader in other developing markets such as India, Korea, Argentina and Russia. Chartis International is also a market leader in aerospace, marine, energy and financial lines. Chartis International’s geographic footprint, its history in markets and its access to local resources allow it to better serve global clients and to take advantage of new and emerging opportunities around the world. Chartis International writes commercial (Casualty, Property and Specialty) and consumer (A&H, Personal and Life) lines through a network of agencies, branches and foreign-based insurance subsidiaries. Chartis International uses various marketing methods and multiple distribution channels to write both commercial and consumer lines of insurance with refinements for local laws, customs and needs. Given its extensive worldwide presence, Chartis International organizes itself into three broad regions: the Far East, Europe and Growth Economies (which primarily include Asia Pacific, the Middle East and Latin America). Chartis International’s business strategy, aided by its competitive position in the international market and ability to write both commercial and consumer lines, is focused on growing its commercial business in emerging economies and consumer lines in many parts of the world. The acquisition of a controlling stake in Fuji Fire & Marine Insurance Company Limited (Fuji) in 2010 was consistent with this strategy. The acquisition of Fuji enhances Chartis’ position in the substantial Japanese insurance market and provides a new distribution channel. As a result of this transaction, Chartis International has solidified its position as the largest foreign-owned property and casualty insurance group at December 31, 2010. 8 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Chartis International net premiums written for 2010 are as follows: Chartis International NPW 10% 20% 16% Accident & Health Personal Lines Casualty 2% Property Specialty Life 24% 28% 19FEB201100403183 Discussion and Analysis of Consolidated Loss Reserve Development The net liability for unpaid claims and claims adjustment expense (net loss reserves) shown in the following tables represents management’s best estimate of future payments for covered losses, which is derived from the accumulation of estimates for reported losses (case basis reserves) and provisions for losses incurred but not reported (IBNR), both reduced by applicable reinsurance recoverable and the discount for future expected investment income, where permitted. Net losses and loss expenses are charged to income as incurred. For a discussion of our loss reserve experience in 2010, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Segment Results — Chartis Operations — Liability for Unpaid Claims and Claims Adjustment Expense. The loss reserves established with respect to foreign business are set and monitored in the currencies in which payment is expected to be made. Therefore, no assumption is included for changes in exchange rates. See Note 2(v) to the Consolidated Financial Statements. A significant portion of Chartis’ business is in the commercial casualty class, which tends to involve longer periods of time for the reporting and settlement of claims and may increase the risk and uncertainty with respect to Chartis’ loss reserve development. Management reviews the adequacy of established net loss reserves utilizing a number of analytical reserve development techniques. Through the use of these techniques, management monitors the adequacy of AIG’s established reserves and determines appropriate assumptions for inflation and other factors influencing loss costs. Also, analysis of emerging specific development patterns, such as case reserve redundancies or deficiencies and IBNR emergence, allows management to determine any required adjustments. The ‘‘Analysis of Consolidated Loss Reserve Development’’ table presents the development of net loss reserves for calendar years 2000 through 2010. Immediately following this table is a second table that presents all data on a basis that excludes asbestos and environmental net loss reserve development. The opening reserves held are shown at the top of the table for each year-end date. The amount of loss reserve discount included in the opening reserve at each date is shown immediately below the reserves held for each year. The undiscounted reserve at each date is equal to the sum of the discount and the reserve held. The upper half of the table presents the cumulative amounts paid during successive years related to the undiscounted opening loss reserves. For example, in the table that excludes asbestos and environmental losses, with respect to the net loss reserve of $35.56 billion at December 31, 2003, by the end of 2010 (seven years later) $43.18 billion had actually been paid in settlement of this net loss reserve. In addition, as reflected in the lower section of the table, the original undiscounted reserve of $37.08 billion was re-estimated to be $55.75 billion at December 31, 2010. This increase from the original estimate generally results from a combination of a number of factors, including claims being settled for larger amounts than originally estimated. The original estimates are also increased or decreased AIG 2010 Form 10-K 9


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    American International Group, Inc., and Subsidiaries as more information becomes known about the individual claims and overall claim frequency and severity patterns. The redundancy (deficiency) depicted in the table, for any particular calendar year, presents the aggregate change in estimates over the period of years subsequent to the calendar year reflected at the top of the respective column heading. For example, the deficiency of $2.68 billion at December 31, 2010 related to December 31, 2009 net losses and loss expense reserves of $69.24 billion represents the cumulative amount by which reserves in 2009 and prior years have developed unfavorably during 2010. The bottom of each table below presents the remaining undiscounted and discounted net loss reserves for each year. For example, in the table that excludes asbestos and environmental losses, for the 2002 year-end, the remaining undiscounted reserves held at December 31, 2010 are $11.04 billion, with a corresponding discounted net reserve of $10.08 billion. For a sensitivity analysis of loss reserves held at December 31, 2010, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates — Liability for Unpaid Claims and Claims Adjustment Expense. Analysis of Consolidated Loss Reserve Development The following table presents for each calendar year the loss reserves and the development thereof including those with respect to asbestos and environmental claims.* (in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Reserves Held $25,684 $26,005 $29,347 $36,228 $47,253 $57,476 $62,630 $69,288 $72,455 $67,899 $71,507 Discount (in Reserves Held) 1,287 1,423 1,499 1,516 1,553 2,110 2,264 2,429 2,574 2,655 3,217 Net Reserves Held (Undiscounted) 26,971 27,428 30,846 37,744 48,806 59,586 64,894 71,717 75,029 70,554 74,724 Paid (Cumulative) as of: One year later 9,709 11,007 10,775 12,163 14,910 15,326 14,862 16,531 24,267 15,919 Two years later 17,149 18,091 18,589 21,773 24,377 25,152 24,388 31,791 36,164 Three years later 21,930 23,881 25,513 28,763 31,296 32,295 34,647 40,401 Four years later 26,090 28,717 30,757 33,825 36,804 40,380 40,447 Five years later 29,473 32,685 34,627 38,087 43,162 44,473 Six years later 32,421 35,656 37,778 42,924 46,330 Seven years later 34,660 38,116 41,493 45,215 Eight years later 36,497 41,055 43,312 Nine years later 38,943 42,591 Ten years later 40,153 (in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Reserves Held (Undiscounted) $26,971 $27,428 $30,846 $37,744 $48,806 $59,586 $64,894 $71,717 $75,029 $70,554 $74,724 Undiscounted Liability as of: One year later 26,979 31,112 32,913 40,931 53,486 59,533 64,238 71,836 77,800 74,736 Two years later 30,696 33,363 37,583 49,463 55,009 60,126 64,764 74,318 82,043 Three years later 32,732 37,964 46,179 51,497 56,047 61,242 67,303 78,275 Four years later 36,210 45,203 48,427 52,964 57,618 63,872 70,733 Five years later 41,699 47,078 49,855 54,870 60,231 67,102 Six years later 43,543 48,273 51,560 57,300 63,348 Seven years later 44,475 49,803 53,917 60,283 Eight years later 45,767 52,034 56,827 Nine years later 47,682 54,847 Ten years later 50,422 Net Redundancy / (Deficiency) (23,451) (27,419) (25,981) (22,539) (14,542) (7,516) (5,839) (6,558) (7,014) (4,182) Remaining Reserves (Undiscounted) 10,269 12,256 13,515 15,068 17,018 22,629 30,286 37,874 45,879 58,817 Remaining Discount 824 941 1,116 1,245 1,363 1,531 1,751 2,056 2,425 2,836 Remaining Reserves 9,445 11,315 12,399 13,823 15,655 21,098 28,535 35,818 43,454 55,981 10 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries The following table presents the gross liability (before discount), reinsurance recoverable and net liability recorded for each calendar year, and the reestimation of these amounts as of December 31, 2010: (in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Gross Liability, End of Year $39,222 $42,629 $48,173 $53,388 $63,430 $79,279 $82,263 $87,929 $91,832 $88,041 $94,368 Reinsurance Recoverable, End of Year 12,251 15,201 17,327 15,644 14,624 19,693 17,369 16,212 16,803 17,487 19,644 Net Liability, End of Year 26,971 27,428 30,846 37,744 48,806 59,586 64,894 71,717 75,029 70,554 74,724 Reestimated Gross Liability 75,731 80,801 82,628 83,659 84,848 91,544 91,738 97,890 101,022 94,070 Reestimated Reinsurance Recoverable 25,309 25,954 25,801 23,376 21,500 24,442 21,005 19,615 18,979 19,334 Reestimated Net Liability 50,422 54,847 56,827 60,283 63,348 67,102 70,733 78,275 82,043 74,736 Cumulative Gross Redundancy/(Deficiency) (36,509) (38,172) (34,455) (30,271) (21,418) (12,265) (9,475) (9,961) (9,190) (6,029) * During 2009, Transatlantic Holdings, Inc. (Transatlantic) was deconsolidated and 21st Century Insurance Group and Agency Auto Division (excluding AIG Private Client Group) (21st Century) and HSB Group, Inc. (HSB) were sold. The sales and deconsolidation are reflected in the table above as a reduction in December 31, 2009 net reserves of $9.7 billion and as an $8.6 billion increase in paid losses for the years 1999 through 2008 to remove the reserves for these divested entities from the ending balance. Analysis of Consolidated Losses and Loss Expense Reserve Development Excluding Asbestos and Environmental Losses and Loss Expense Reserve Development The following table presents the losses and loss expense reserves and the development thereof excluding those for asbestos and environmental claims for each calendar year.* (in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Reserves Held $24,829 $25,286 $28,651 $35,559 $45,742 $55,226 $60,451 $67,597 $71,062 $66,588 $69,157 Discount (in Reserves Held) 1,287 1,423 1,499 1,516 1,553 2,110 2,264 2,429 2,574 2,655 3,055 Net Reserves Held (Undiscounted) 26,116 26,709 30,150 37,075 47,295 57,336 62,715 70,026 73,636 69,243 72,212 Paid (Cumulative) as of: One year later 9,515 10,861 10,632 11,999 14,718 15,047 14,356 16,183 24,028 15,618 Two years later 16,808 17,801 18,283 21,419 23,906 24,367 23,535 31,204 35,613 Three years later 21,447 23,430 25,021 28,129 30,320 31,163 33,555 39,503 Four years later 25,445 28,080 29,987 32,686 35,481 39,009 39,044 Five years later 28,643 31,771 33,353 36,601 41,600 42,791 Six years later 31,315 34,238 36,159 41,198 44,456 Seven years later 33,051 36,353 39,637 43,178 Eight years later 34,543 39,055 41,163 Nine years later 36,752 40,299 Ten years later 37,671 AIG 2010 Form 10-K 11


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    American International Group, Inc., and Subsidiaries (in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Net Reserves Held (Undiscounted) $26,116 $26,709 $30,150 $37,075 $47,295 $57,336 $62,715 $70,026 $73,636 $69,243 $72,212 Undiscounted Liability as of: One year later 26,071 30,274 32,129 39,261 51,048 57,077 62,043 70,096 76,251 71,925 Two years later 29,670 32,438 35,803 46,865 52,364 57,653 62,521 72,423 78,994 Three years later 31,619 36,043 43,467 48,691 53,385 58,721 64,904 74,880 Four years later 34,102 42,348 45,510 50,140 54,908 61,195 66,833 Five years later 38,655 44,018 46,925 51,997 57,365 62,924 Six years later 40,294 45,201 48,584 54,272 58,981 Seven years later 41,213 46,685 50,786 55,753 Eight years later 42,459 48,761 52,199 Nine years later 44,219 50,077 Ten years later 45,463 Net Redundancy/(Deficiency) (19,347) (23,368) (22,049) (18,678) (11,686) (5,588) (4,118) (4,854) (5,358) (2,682) Remaining Reserves (Undiscounted) 7,792 9,778 11,036 12,575 14,525 20,133 27,789 35,377 43,381 56,307 Remaining Discount 662 779 953 1,083 1,201 1,369 1,589 1,894 2,263 2,674 Remaining Reserves 7,130 8,999 10,083 11,492 13,324 18,764 26,200 33,483 41,118 53,633 The following table presents the gross liability excluding liability for asbestos and environmental claims (before discount), reinsurance recoverable and net liability for each calendar year and the reestimation of these amounts as of December 31, 2010: (in millions) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Gross Liability, End of Year $36,777 $40,400 $46,036 $51,363 $59,790 $73,808 $77,111 $83,551 $87,973 $84,467 $87,830 Reinsurance Recoverable, End of Year 10,661 13,691 15,887 14,288 12,495 16,472 14,396 13,525 14,337 15,224 15,618 Net Liability, End of Year 26,116 26,709 30,149 37,075 47,295 57,336 62,715 70,026 73,636 69,243 72,212 Reestimated Gross Liability 63,792 69,391 71,561 72,973 74,452 81,570 82,422 89,452 93,331 87,149 Reestimated Reinsurance Recoverable 18,329 19,314 19,362 17,220 15,471 18,646 15,589 14,572 14,337 15,224 Reestimated Net Liability 45,463 50,077 52,199 55,753 58,981 62,924 66,833 74,880 78,994 71,925 Cumulative Gross Redundancy/(Deficiency) (27,015) (28,991) (25,525) (21,610) (14,662) (7,762) (5,311) (5,901) (5,358) (2,682) * During 2009, Transatlantic was deconsolidated and 21st Century and HSB were sold. The sales and deconsolidation are reflected in the table above as a reduction in December 31, 2009 net reserves of $9.6 billion and as an $8.6 billion increase in paid losses for the years 1999 through 2008 to remove the reserves for these divested entities from the ending balance. The Liability for unpaid claims and claims adjustment expense as reported in AIG’s Consolidated Balance Sheet at December 31, 2010 differs from the total reserve reported in the Annual Statements filed with state insurance departments and, where appropriate, with foreign regulatory authorities. The differences at December 31, 2010 relate primarily to reserves for certain foreign operations not required to be reported in the United States for statutory reporting purposes. Further, statutory practices in the United States require reserves to be shown net of applicable reinsurance recoverable. In addition, AIG’s Consolidated Balance Sheet and the amounts in the tables above are reflected net of intercompany transactions, whereas statutory financial statements include reserves for intercompany transactions. Gross loss reserves are calculated without reduction for reinsurance recoverable and represent the accumulation of estimates for reported losses and IBNR. Management reviews the adequacy of established gross loss reserves in the manner previously described for net loss reserves. 12 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries For further discussion regarding net loss reserves, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Segment Results — Chartis Operations — Liability for Unpaid Claims and Claims Adjustment Expense. SunAmerica Operations SunAmerica offers a comprehensive suite of products and services to individuals and groups including term life, universal life, accident and health (A&H), fixed and variable deferred annuities, fixed payout annuities, mutual funds and financial planning. SunAmerica offers its products and services through a diverse, multi-channel distribution network that includes banks, national, regional and independent broker-dealers, affiliated financial advisors, independent marketing organizations, independent and career insurance agents, structured settlement brokers, benefit consultants and direct-to-consumer platforms. The SunAmerica segment has two operating segments: Domestic Life, which focuses on mortality-and morbidity- based protection products, and Domestic Retirement Services, which focuses on investment, retirement savings and income solutions. Business Strategy SunAmerica’s strategy is to increase sales of its products and services in a disciplined manner that drives consistent, profitable earnings growth and efficient use of capital. To do so, SunAmerica will seek to take advantage of the growing need for insurance solutions to help Americans achieve their protection, investment, retirement savings and retirement income goals. With its comprehensive platform of products and services offered through a diverse multi-channel distribution network, SunAmerica is well positioned to help a wide array of customers meet their goals. SunAmerica plans to further expand its distribution network by adding more distribution firms, increasing the number of individual agents and financial advisors who sell its products and seeking to increase the productivity of those agents and advisors already selling its products — especially those in its affiliated group of career and independent agents and financial advisors. SunAmerica will pursue a disciplined approach to pricing, product feature development, risk management, asset/liability management and expense control. SunAmerica will work to enhance operational efficiencies and service levels through prudent investments in technology, leveraging resources and enhancing utilization of lower cost operations centers. Domestic Life SunAmerica’s Domestic Life operations are conducted through the American General business unit: American General is a leading provider of individual term and universal life insurance solutions to middle- income and high-net-worth customers. Primary products include term, universal and whole life insurance, A&H, fixed and indexed deferred annuities, fixed payout annuities, private placement variable annuities, structured settlements, terminal funding, corporate-owned life insurance, bank-owned life insurance and group benefits. American General distributes its products through independent marketing organizations, independent and career insurance agents, structured settlement brokers, benefit consultants and direct-to-consumer platforms, including its wholly owned Matrix Direct platform. Domestic Retirement Services SunAmerica’s Domestic Retirement Services operations consist of five business units: VALIC is a leading provider of defined contribution retirement savings plans sponsored by education, not-for-profit and government organizations. Primary products include fixed and variable group annuities, and group mutual funds. VALIC also offers group administrative and compliance services, and individual annuity and mutual fund products. VALIC utilizes career and independent financial advisors to provide enrollment support and comprehensive financial planning services. AIG 2010 Form 10-K 13


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    American International Group, Inc., and Subsidiaries Western National is a leading provider of fixed deferred annuities to bank customers. Primary products include single and flexible premium deferred fixed annuities. Western National sustains its leading position in bank distribution through its collaborative product design process and efficient and flexible administration platform. SunAmerica Retirement Markets is a leading provider of deferred variable annuities, which provide comprehensive retirement income solutions. Variable annuities provide market participation through a diverse menu of equity and fixed income portfolios, guaranteed death benefits and a suite of guaranteed retirement income solutions. SunAmerica Retirement Markets distributes products through national, regional, bank and independent broker-dealer firms. Brokerage Services and Retail Mutual Funds includes the operations of SunAmerica Asset Management, which provides retail mutual funds and administration services for VALIC’s and SunAmerica Retirement Markets’ variable annuity funds, and The Advisor Group, which is one of the largest networks of independent financial advisors in the U.S. Other includes the operations of SunAmerica Affordable Housing Partners, runoff Guaranteed Investment Contracts (GIC) and individual annuity portfolios. The following charts present SunAmerica premiums and other considerations and premiums, deposits and other considerations by line of business: Premiums and Other Considerations Premiums, Deposits and Other Considerations 4% Life Insurance 9% 6% 20% 1% 11% Payout annuities 1% Group retirement products 3% 7% Individual annuities - runoff 10% Individual fixed annuities 68% 26% Individual variable annuities 33% Brokerage services and 1% retail mutual funds 19FEB201100403734 19FEB201100403879 Premiums and other considerations represent premiums received on traditional life insurance policies, deposits on life contingent payout annuities and fee income related to annuities and life insurance policies. Premiums, deposits and other considerations is a non-GAAP measure which includes life insurance premiums, deposits on annuity contracts and mutual funds. The following table presents a reconciliation of premiums, deposits and other considerations to premiums and other considerations: Year Ended December 31, (in millions) 2010 Premiums, deposits and other considerations $ 19,086 Deposits (16,461) Fee income 2,710 Other (105) Premiums and other considerations $ 5,230 14 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Reinsurance Activities Chartis subsidiaries operate worldwide primarily by underwriting and accepting risks for their direct account on a gross line basis and subsequently reinsuring on either an individual risk or an aggregate basis to the extent those risks exceed the desired retention level. For a further discussion of reinsurance, see Item 1A. Risk Factors — Reinsurance; and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Insurance Risk Management — Reinsurance. Insurance Investment Activities A significant portion of the revenues of Chartis and SunAmerica operations are derived from AIG’s insurance investment activities. As insurance companies, Chartis and SunAmerica generally receive premiums and deposits well in advance of paying covered claims or benefits. In the intervening periods, these premiums and deposits are invested to generate net investment income and fee income that is available to pay claims or benefits. AIG’s worldwide insurance investment policy places primary emphasis on investments in fixed income securities of corporations, municipal bonds and government issuances in all of its portfolios, and, to a lesser extent, investments in high-yield bonds, common stocks, real estate, hedge funds and other alternative investments. The majority of assets backing insurance liabilities at AIG consist of intermediate and long duration fixed maturity securities. In the case of SunAmerica, the fundamental investment strategy is, as nearly as is practicable, to match the duration characteristics of the liabilities with assets of comparable duration. Fixed maturity securities held by the insurance companies included in Chartis U.S. historically have consisted primarily of laddered holdings of tax-exempt municipal bonds, which provided attractive after-tax returns and limited credit risk. In order to meet the Chartis U.S. current risk/return and tax objectives, the domestic property and casualty companies have begun to shift investment allocations away from tax-exempt municipal bonds towards taxable instruments which meet the companies’ liquidity, duration and quality objectives as well as current risk-return and tax objectives. Fixed maturity securities held by Chartis International companies consist primarily of intermediate duration high-grade securities. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments — Investment Strategy for discussion of AIG’s investment strategy. The following table summarizes the investment results of AIG’s insurance operations, excluding the results of discontinued operations: Annual Net Years Ended December 31, Average Investment Pre-tax Return on (in millions) Investments(a) Income Average Investments(b) Chartis: 2010 $100,583 $ 4,392 4.4% 2009 89,236 3,292 3.7 2008 92,313 2,567 2.8 SunAmerica: 2010 $154,167 $10,768 7.0% 2009 148,202 9,553 6.4 2008 196,515 9,134 4.6 (a) Includes real estate investments and, in 2008, collateral assets invested under the securities lending program, and excludes cash and short-term investments. (b) Net investment income divided by the annual average investments. AIG 2010 Form 10-K 15


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    American International Group, Inc., and Subsidiaries Financial Services Operations Aircraft Leasing International Lease Finance Corporation (ILFC), one of the world’s leading aircraft lessors, acquires commercial jet aircraft from various manufacturers and other parties and leases those aircraft to airlines around the world. As of December 31, 2010, ILFC managed a lease portfolio of over 1,000 aircraft, including an owned fleet of 933 aircraft with a net book value of approximately $38.5 billion. Additionally, ILFC had contracted with Boeing and Airbus to purchase 115 new aircraft through 2019, with an estimated purchase price of approximately $13.5 billion. ILFC believes its scale, the breadth and mix of its aircraft portfolio and its long-standing relationships with a global customer base that includes the majority of the world’s leading airlines allow it to lease aircraft under favorable terms and maximize utilization. As part of its ongoing fleet strategy, ILFC may pursue potential aircraft sales or opportunities to sell parts of aircraft. In evaluating its fleet strategies, ILFC is balancing the need for funding with the long-term value of holding aircraft and other financing alternatives. Capital Markets AIGFP has continued to unwind its portfolios, including those associated with credit protection written through credit default swaps on super senior risk tranches of diversified pools of loans and debt securities. As a consequence of its wind-down strategy, AIGFP is entering into new derivative transactions only to hedge its current portfolio, reduce risk and hedge the currency, interest rate and other market risks associated with its affiliated businesses. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity of Parent and Subsidiaries — Financial Services — Capital Markets Wind-down. Prior to the wind-down, AIGFP engaged as principal in a wide variety of financial transactions, including standard and customized financial products involving commodities, credit, currencies, energy, equities and interest rates. Historically, AIGFP derived a significant portion of its revenues from hedged financial positions entered into in connection with counterparty transactions. Prior to the wind-down, AIGFP also participated as a dealer in a wide variety of financial derivatives transactions. Other Operations AIG’s Other operations include results from Parent & Other operations, after allocations to AIG’s business segments, Mortgage Guaranty operations, Asset Management operations and results from those divested businesses not included in Discontinued operations. Parent & Other AIG’s Parent & Other operations consist primarily of interest expense, intercompany interest income that is eliminated in consolidation, restructuring costs, expenses of corporate staff not attributable to specific reportable segments, expenses related to efforts to improve internal controls and the financial and operating platforms, corporate initiatives, certain compensation plan expenses, corporate level net realized capital gains and losses, certain litigation related charges and net gains and losses on sale of divested businesses and properties that did not qualify for discontinued operations accounting treatment. In addition, fair value gains or losses on AIG’s remaining interest in AIA and in the MetLife, Inc. (MetLife) securities received as consideration from the sale of ALICO are recorded as Net investment income and are included in Parent & Other operations. Mortgage Guaranty The main business of the subsidiaries of UGC is the issuance of residential mortgage guaranty insurance, both domestically and internationally, that covers mortgage lenders for the first loss for credit defaults on high loan-to-value conventional first-lien mortgages for the purchase or refinance of one- to four-family residences. 16 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries UGC previously insured second-lien and private student loans, but ceased insuring new business in these products in 2008, although certain of the second-lien policies are subject to reinstatement. Mortgage Guaranty is seeking to take advantage of its risk-based pricing approach, expand into new attractive markets and manage its legacy exposures through risk mitigation strategies. Asset Management Operations AIG’s Asset Management operations include the results of the Direct Investment business and the Institutional Asset Management business. On March 26, 2010, AIG completed the sale of its third-party asset management business. The results of operations through the closing of the sale are included in the Institutional Asset Management results. Subsequent to the sale, Institutional Asset Management derives the majority of its revenues from providing asset management services to AIG and its subsidiaries and are eliminated in consolidation. Direct Investment Business The Direct Investment business includes results of AIG Global Real Estate, the Matched Investment Program (MIP), AIG’s historical program to generate spread income from investments yielding returns greater than AIG’s cost of funds, and certain non-derivative assets and liabilities of AIGFP. The MIP assets and liabilities and the AIGFP portfolio are being managed as a single portfolio to better match maturities of assets and liabilities. AIG Global Real Estate is selling, restructuring or otherwise divesting its assets and reducing its funding obligations. Direct Investment business operating results are significantly impacted by performance in the credit, equity, interest rate, foreign exchange and real estate markets. Institutional Asset Management Business AIG’s Institutional Asset Management business is conducted through AIG Global Asset Management Holdings Corp. and its subsidiaries, including AIG Markets, Inc. (AIG Markets). AIG Markets acts as a derivative intermediary transacting with AIG, its subsidiaries and third parties. Divested Businesses Divested businesses include the historical results of divested entities that did not meet the criteria for discontinued operations accounting treatment as well as certain immaterial non-core businesses currently in run-off. Divested businesses include the historical results of AIA through October 29, 2010 and AIG’s remaining consumer finance business, discussed below. In the third quarter of 2010 AIG completed an initial public offering of ordinary shares of AIA; upon completion of the initial public offering, AIG owned approximately 33 percent of the outstanding shares of AIA. Based on AIG’s continuing involvement with AIA, as a result of its ownership of 33 percent of AIA’s shares and board representation, AIA is not presented as a discontinued operation. Discontinued Operations Discontinued operations include the results of ALICO, AIG Star, AIG Edison, Nan Shan and AGF. In the fourth quarter of 2010 AIG closed the sales of ALICO and AGF, and on February 1, 2011 AIG closed the sale of AIG Star and AIG Edison. On January 12, 2011, AIG entered into an agreement to sell Nan Shan, and expects to close the sale within the next 12 months. See Note 4 to the Consolidated Financial Statements for additional information on discontinued operations. Additionally, following the classification of AGF as a discontinued operation in the third quarter of 2010 (see Note 4 to the Consolidated Financial Statements), AIG’s remaining consumer finance business, which is conducted through the AIG Federal Savings Bank and the Consumer Finance Group in Poland, is now reported in AIG’s Other operations category as part of Divested businesses. AIG 2010 Form 10-K 17


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    American International Group, Inc., and Subsidiaries Locations of Certain Assets As of December 31, 2010, approximately 25 percent of the consolidated assets of AIG were located outside the U.S. and Canada, including $3.6 billion of cash and securities on deposit with regulatory authorities in those locations. Operations outside the U.S. and Canada and assets held abroad may be adversely affected by political developments in foreign countries, including tax changes, nationalization and changes in regulatory policy, as well as by consequence of hostilities and unrest. The risks of such occurrences and their overall effect upon AIG vary from country to country and cannot easily be predicted. If expropriation or nationalization does occur, AIG’s policy is to take all appropriate measures to seek recovery of any affected assets. Certain of the countries in which AIG’s business is conducted have currency restrictions that generally cause a delay in a company’s ability to repatriate assets and profits. See also Item 1A. Risk Factors — Foreign Operations and Notes 2 and 3 to the Consolidated Financial Statements. Regulation AIG’s operations around the world are subject to regulation by many different types of regulatory authorities, including insurance, securities, investment advisory, banking and thrift regulators in the United States and abroad. Supervisory Coordinator In 1999, AIG became a unitary savings and loan holding company within the meaning of the Home Owners’ Loan Act (HOLA) when the U.S. Office of Thrift Supervision (OTS) granted AIG approval to organize AIG Federal Savings Bank. Until March 2010, AIG was subject to OTS regulation, examination, supervision and reporting requirements. Under prior law, a unitary savings and loan holding company, such as AIG, was not restricted as to the types of business in which it could engage, provided that its savings association subsidiary continued to be a qualified thrift lender. The Gramm-Leach-Bliley Act of 1999 (GLBA) provides that no company may acquire control of an OTS-regulated institution after May 4, 1999 unless it engages only in the financial activities permitted for financial holding companies under the law or for multiple savings and loan holding companies. The GLBA, however, grandfathered the unrestricted authority for activities with respect to a unitary savings and loan holding company existing prior to May 4, 1999, so long as its savings association subsidiary continues to be a qualified thrift lender under the HOLA. As a unitary savings and loan holding company whose application was pending as of May 4, 1999, AIG is grandfathered under the GLBA and generally is not restricted under existing laws as to the types of business activities in which it may engage, provided that AIG Federal Savings Bank continues to be a qualified thrift lender under the HOLA. Directive 2002/87/EC (Directive) issued by the European Parliament provides that certain financial conglomerates with regulated entities in the European Union, such as AIG, are subject to supplementary supervision. Pursuant to the Directive, the Commission Bancaire, the French banking regulator, was appointed as AIG’s supervisory coordinator. From February 2007 until March 2010, with the approval of the Commission Bancaire, OTS acted as AIG’s equivalent supervisor, as permitted by the Directive in circumstances in which a financial conglomerate organized outside the European Union, such as AIG, has proposed to have one of its existing regulators recognized as its coordinator and such regulator’s supervision is determined to be equivalent to that required by the Directive. Since March 2010, AIG has been in discussions with, and has provided information to, the Autorité de Contrôle Prudentiel (formerly, the Commission Bancaire) and the UK Financial Services Authority regarding the possibility of proposing another of AIG’s existing regulators as its equivalent supervisor. Dodd-Frank Wall Street Reform and Consumer Protection Act On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law. Dodd-Frank effects comprehensive changes to the regulation of financial services in the United States and will subject AIG to substantial additional federal regulation. Dodd-Frank is intended to enhance the safety and soundness of U.S. financial institutions and increase public confidence in them. Dodd-Frank directs existing and newly-created government agencies and oversight bodies to promulgate regulations implementing the law, an 18 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries ongoing process anticipated to continue over the next few years. Many of the regulations must be adopted before July 16, 2011. AIG cannot predict with certainty the requirements of the regulations ultimately adopted or how or whether Dodd-Frank and such regulations will affect the financial markets generally; impact AIG’s businesses, results of operations, cash flows or financial condition; or require AIG to raise additional capital or result in a downgrade of AIG’s credit ratings. Dodd-Frank’s potential impact on AIG includes the following: • The new legislation provides two scenarios in which the Board of Governors of the Federal Reserve System (FRB) could become AIG’s regulator: (1) if AIG is recognized as a ‘‘savings and loan holding company’’ as defined by the Home Owners’ Loan Act (HOLA); and/or (2) if the newly created systemic risk regulator — the Financial Stability Oversight Council (Council) — designates AIG as a company whose material financial distress, or whose nature, scope, size, scale, concentration, interconnectedness or mix of activities, could pose a threat to the financial stability of the United States (a Designated Financial Company). • If AIG becomes subject, as a savings and loan holding company, to the examination, enforcement and supervisory authority of the FRB, the FRB would be required to impose minimum leverage and risk-based capital requirements on AIG and its subsidiaries. AIG cannot predict what capital regulations the FRB would promulgate under these authorizations, either generally or as applicable to insurance businesses, nor can AIG predict how the FRB would exercise general supervisory authority over AIG. If designated as a Designated Financial Company, AIG would become subject to stricter prudential standards not yet specified, including stricter requirements and limitations relating to risk-based capital, leverage, liquidity and credit exposure, as well as overall risk management requirements, management interlock prohibitions, a new early remediation process and a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial distress. • If AIG is designated as a Designated Financial Company and determined to be a grave threat to U.S. financial stability, it would be required to maintain a debt-to-equity ratio of no more than 15:1, and the FRB could (i) limit AIG’s ability to merge with, acquire, consolidate with, or become affiliated with another company, to offer specified financial products or to terminate specified activities; (ii) impose conditions on how we conduct our activities or (iii) with approval of the Council, and a determination that the foregoing actions are inadequate to mitigate a threat to U.S. financial stability, require AIG to sell or otherwise transfer assets or off-balance-sheet items to unaffiliated entities. • In either scenario, AIG may become subject to stress tests to determine whether, on a consolidated basis, AIG has the capital necessary to absorb losses due to adverse economic conditions. AIG cannot predict how the stress tests would be designed or conducted or whether the results thereof would cause AIG to alter its business practices or affect the perceptions of regulators, rating agencies, customers, counterparties or investors about AIG’s financial strength. • The Council may recommend that state insurance regulators or other regulators apply new or heightened standards and safeguards for activities or practices that AIG and other insurers or other financial services companies engage in. • If AIG is considered a banking entity for purposes of certain provisions in Dodd-Frank referred to as the ‘‘Volcker Rule’’ AIG would become subject to the provisions of Dodd-Frank prohibiting, subject to the rule’s exceptions, ‘‘proprietary trading’’ and the sponsorship of, or investment in, hedge, private equity or similar funds. Even if AIG no longer controlled an insured depository institution, AIG might still be subject to additional capital and quantitative limitations under the Volcker Rule. • Title II of Dodd-Frank provides that a financial company whose largest United States subsidiary is an insurer may be subject to a special liquidation process outside the federal bankruptcy code. That process is to be administered by the Federal Deposit Insurance Corporation (FDIC) upon a coordinated determination by the Secretary of the Treasury, the director of the Federal Insurance Office and the Board of Governors of the Federal Reserve System, in consultation with the FDIC, that such a financial company is in default or in AIG 2010 Form 10-K 19


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    American International Group, Inc., and Subsidiaries danger of default and presents a systemic risk to U.S. financial stability. AIG is a financial company and its largest U.S. subsidiary is an insurer. • Dodd-Frank establishes a new framework for regulation of the over-the-counter (OTC) derivatives markets and certain market participants that could affect various activities of AIG and its insurance subsidiaries, as well as Capital Markets. These regulations could impose margin or collateral requirements on derivative transactions entered into by AIG prior to the passage of Dodd-Frank or intercompany derivative transactions between AIG and one or more of its affiliates or between affiliates. Any such margin or collateral requirements could adversely affect AIG’s liquidity and credit ratings. The CFTC and SEC have published proposed rules governing major swap participants and major security-based swap participants. If AIG or one or more of its subsidiaries meet the tests finally adopted by the CFTC or SEC, AIG or one or more of its subsidiaries may become subject to derivative transaction clearing, execution and reporting requirements, capital and margin requirements and business conduct rules. • Dodd-Frank establishes a Federal Insurance Office (FIO) within the Department of the Treasury to be headed by a director appointed by the Secretary of the Treasury. While not having a general supervisory or regulatory authority over the business of insurance, the director of this office would perform various functions with respect to insurance (other than health insurance), including serving as a non-voting member of the Council and participating in the Council’s decisions regarding insurers, potentially including AIG to be designated for stricter prudential regulation. The director is also required to conduct a study on how to modernize and improve the system of insurance regulation in the United States, including by increased national uniformity through either a federal charter or effective action by the states. The FIO may also recommend enhanced regulations to state insurance regulatory bodies. • Dodd-Frank authorizes the FRB to require a savings and loan holding company or a Designated Financial Company to place its financial activities in an intermediate holding company separate from non-financial activities (as defined for purposes of the Bank Holding Company Act) and imposes restrictions on transactions between the two businesses, which could be burdensome and costly to implement. • Dodd-Frank establishes the Bureau of Consumer Financial Protection (BCFP) as an independent agency within the FRB to regulate consumer financial products and services offered primarily for personal, family or household purposes. Insurance products and services are not within the BCFP’s general jurisdiction, and broker-dealers and investment advisers are not subject to the BCFP’s jurisdiction when acting in their registered capacity. • Title XIV of Dodd-Frank also restricts certain terms for mortgage loans, such as loan fees, prepayment fees and other charges, and imposes certain duties on a lender to ensure that a borrower can afford to repay the loan. These changes may adversely affect UGC’s business. • Dodd-Frank seeks to increase efficiency, reduce transaction costs and improve consumer access in the nonadmitted property and casualty insurance market (excess and surplus lines). AIG expects that these measures will make certain of Chartis’ operations within the U.S. more streamlined and efficient, although they could lead to greater competition in these markets. • Dodd-Frank includes various securities law reforms that may affect AIG’s business practices and the liabilities and/or exposures associated therewith, including: • The SEC recently completed a staff report on registered broker-dealers who provide personalized investment advice to retail investors, such as certain of SunAmerica’s operations. The staff report recommended to Congress a uniform fiduciary standard of conduct for broker-dealers and investment advisers. The SEC may also require broker-dealers selling proprietary or a limited range of products to make certain disclosures and obtain customer consents or acknowledgements. • The SEC and other regulators are required to promulgate regulations requiring the originator of certain asset-backed securities to retain at least five percent of the credit risk of securities sold, which may apply to activities of subsidiaries of AIG as part of their funding activities in the future. 20 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Dodd-Frank imposes various assessments on financial companies, including, as applicable to AIG, ex-post assessments to provide funds necessary to repay any borrowing and to cover the costs of any special resolution of a financial company conducted under Title II (although the regulatory authority would have to take account of the amounts paid by AIG into state guaranty funds). AIG cannot predict the potential effects the new legislation will have on its organizational structure, financial condition or results of operations. However, it is possible that such effect could be materially adverse. In addition to the adoption of Dodd-Frank in the United States, regulators and lawmakers around the world are actively reviewing the causes of the financial crisis and taking steps to avoid similar problems in the future. The Financial Stability Board (FSB), consisting of representatives of national financial authorities of the G20 nations, has issued a series of frameworks and recommendations intended to produce significant changes in how financial companies, particularly systematically important financial institutions, should be regulated. These frameworks and recommendations address such issues as financial group supervision, capital and solvency standards, systemic economic risk, corporate governance including compensation, and a host of related issues associated with responses to the financial crisis. The FSB has directed the International Association of Insurance Supervisors (the IAIS, headquartered in Basel, Switzerland) to create standards relative to these areas and incorporate them within that body’s Insurance Core Principles. IAIS Insurance Core Principles form the baseline threshold for how countries’ financial services regulatory efforts are measured relative to the insurance sector. That measurement is made by periodic Financial Sector Assessment Program (FSAP) reviews conducted by the World Bank and the International Monetary Fund and the reports thereon spur the development of country-specific additional or amended regulatory changes. Lawmakers and regulatory authorities in a number of jurisdictions in which AIG’s subsidiaries conduct business have already begun implementing legislative and regulatory changes consistent with these recommendations, including proposals governing consolidated regulation of insurance holdings companies by the Financial Services Agency (FSA) in Japan, financial and banking regulation adopted in France and compensation regulations proposed or adopted by the financial regulators in Germany (BaFIN) and the United Kingdom (FSA). AIG cannot predict whether these actions will become effective or the effect they may have on the financial markets or on AIG’s business, results of operations, cash flows, financial condition and credit ratings. Other Regulatory Developments AIG’s operations are subject to regulatory supervision and the possibility of intervention. In light of AIG’s liquidity problems beginning in the third quarter of 2008, AIG and its regulated subsidiaries have been subject to intense review and supervision around the world. Regulators have taken significant steps to protect the businesses of the entities they regulate. These steps have included: • restricting or prohibiting the payment of dividends to AIG Parent and its subsidiaries; • restricting or prohibiting other payments to AIG Parent and its subsidiaries; • requesting additional capital contributions from AIG Parent; • requesting that intercompany reinsurance reserves be covered by assets locally; • restricting the business in which the subsidiaries may engage; • requiring pre-approval of all proposed transactions between the regulated subsidiaries and AIG Parent or any affiliate; and • requiring more frequent reporting, including with respect to capital and liquidity positions. Legislation in the European Union could also affect AIG’s international insurance operations. The Solvency II Directive (2009/138/EEC), which was adopted on November 25, 2009 and is expected to become effective in January 2013 (Solvency II), reforms the insurance industry’s solvency framework, including minimum capital and solvency requirements, governance requirements, risk management and public reporting standards. The impact on AIG will depend on whether the U.S. insurance regulatory regime is deemed ‘‘equivalent’’ to Solvency II; if the U.S. insurance regulatory regime is not equivalent, then AIG as a group could be required to be supervised under AIG 2010 Form 10-K 21


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    American International Group, Inc., and Subsidiaries Solvency II standards. Whether the U.S. insurance regulatory regime will be deemed ‘‘equivalent’’ is still under consideration by European authorities and remains uncertain, so AIG is not currently able to predict the impact of Solvency II. AIG expects that the regulations applicable to it and its regulated entities will continue to evolve for the foreseeable future. Regulation of Domestic Insurance Subsidiaries Certain states require registration and periodic reporting by insurance companies that are licensed in such states and are controlled by other corporations. Applicable legislation typically requires periodic disclosure concerning the corporation that controls the registered insurer and the other companies in the holding company system and prior approval of intercorporate services and transfers of assets, including in some instances payment of dividends by the insurance subsidiary, within the holding company system. AIG’s subsidiaries are registered under such legislation in those states that have such requirements. AIG’s insurance subsidiaries, in common with other insurers, are subject to regulation and supervision by the states and by other jurisdictions in which they do business. Within the United States, the method of such regulation varies but generally has its source in statutes that delegate regulatory and supervisory powers to an insurance official. The regulation and supervision relate primarily to the financial condition of the insurers and their corporate conduct and market conduct activities. This includes approval of policy forms and rates, the standards of solvency that must be met and maintained, including with respect to risk-based capital, the licensing of insurers and their agents, the nature of and limitations on investments, restrictions on the size of risks that may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for acceptability of reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed and reserves for unearned premiums, losses and other purposes. In general, such regulation is for the protection of policyholders rather than the equity owners of these companies. AIG has taken various steps to enhance the capital positions of the Chartis U.S. and SunAmerica companies. AIG entered into capital maintenance agreements with these companies that set forth procedures through which AIG has provided, and expects to continue to provide, capital support. Also, in order to allow the Chartis U.S. companies to record as an admitted asset at December 31, 2010 certain reinsurance ceded to non-U.S. reinsurers, which has the effect of maintaining the level of the statutory surplus of such companies, AIG obtained and entered into reimbursement agreements for approximately $6.1 billion of letters of credit issued by several commercial banks in favor of certain Chartis and SunAmerica companies and funded trusts totaling $800 million in favor of certain Chartis companies. In the U.S., the Risk-Based Capital (RBC) formula is designed to measure the adequacy of an insurer’s statutory surplus in relation to the risks inherent in its business. The RBC Model Law, which allows states to act upon the results of RBC calculations, provides for four incremental levels of regulatory action regarding insurers whose RBC calculations fall below specific thresholds. Those levels of action range from the requirement to submit a plan describing how an insurer would regain a calculated RBC ratio above the respective threshold through a mandatory regulatory takeover of the company. The action thresholds are based on RBC levels that are calculated so that a company, subject to such actions, is solvent but its future solvency is in doubt without some type of corrective action. The RBC formula computes a risk-adjusted surplus level by applying discreet factors to various asset, premium and reserve items. These factors are developed to be risk-sensitive so that higher factors are applied to items exposed to greater risk. The statutory surplus of each of AIG’s U.S.-based life and property and casualty insurance subsidiaries exceeded RBC minimum required levels as of December 31, 2010. To the extent that any of AIG’s insurance entities would fall below prescribed levels of statutory surplus, it would be AIG’s intention to provide appropriate capital or other types of support to that entity, under formal support or capital maintenance agreements or otherwise. 22 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries There are a number of proposals to amend state insurance laws and regulations in ways that could affect AIG and its subsidiaries. The National Association of Insurance Commissioners (NAIC) has recently adopted or amended model laws on holding company regulation that would provide for supervision of insurers at the corporate group level. Although these changes are only beginning to be adopted by individual state regulators, it can be expected that most will ultimately adopt them in some form. The various proposals to implement group supervision include: • uniform standards for insurer corporate governance; • group-wide supervision of insurance holding companies; • adjustments to RBC calculations to account for group-wide risks; and • additional regulatory and disclosure requirements for insurance holding companies. Additionally, the NAIC has undertaken the Solvency Modernization Initiative (SMI) which focuses on a review of insurance solvency regulations throughout the U.S. financial regulatory system and will lead to a set of long-term solvency modernization goals. SMI is broad in scope, but NAIC has stated that its focus will include the U.S. solvency framework, group solvency issues, capital requirements, international accounting and regulatory standards, reinsurance and corporate governance. AIG cannot predict the potential effect that any new regulations would have on AIG’s insurance subsidiaries or on AIG’s business, results of operations, cash flows or financial condition. Regulation of Domestic Subsidiaries in Foreign Jurisdictions A substantial portion of Chartis’ business is conducted in foreign countries. The degree of regulation and supervision in foreign jurisdictions varies. Generally, AIG, as well as the underwriting companies operating in such jurisdictions, must satisfy local regulatory requirements. Licenses issued by foreign authorities to AIG subsidiaries are subject to modification or revocation by such authorities, and these subsidiaries could be prevented from conducting business in certain of the jurisdictions where they currently operate. In addition to licensing requirements, AIG’s foreign operations are also regulated in various jurisdictions with respect to currency, policy language and terms, advertising, amount and type of security deposits, amount and type of reserves, amount and type of capital to be held, amount and type of local investment and the share of profits to be returned to policyholders on participating policies. Some foreign countries regulate rates on various types of policies. Certain countries have established reinsurance institutions, wholly or partially owned by the local government, to which admitted insurers are obligated to cede a portion of their business on terms that may not always allow foreign insurers, including AIG subsidiaries, full compensation. In some countries, regulations governing constitution of technical reserves and remittance balances may hinder remittance of profits and repatriation of assets. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity — Regulation and Supervision and Note 18 to Consolidated Financial Statements. Competition AIG’s businesses operate in highly competitive environments, both domestically and overseas. Principal sources of competition are insurance companies, banks, investment banks and other non-bank financial institutions. AIG considers its principal competitors to be other large multi-national insurance organizations. The insurance industry in particular is highly competitive. Within the United States, Chartis subsidiaries compete with approximately 3,300 other stock companies, specialty insurance organizations, mutual companies and other underwriting organizations. SunAmerica subsidiaries compete in the United States with approximately 1,800 life insurance companies and other participants in related financial services fields. Overseas, AIG’s subsidiaries compete for business with the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies in particular areas in which they are active. AIG 2010 Form 10-K 23


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    American International Group, Inc., and Subsidiaries As a result of the reduction of the credit ratings of AIG and its subsidiaries, AIG’s businesses have faced and continue to face intense competition to retain existing customers and to maintain business with existing customers and counterparties at historical levels. General insurance and life insurance companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. For a further discussion of the risks relating to retaining existing customers, soliciting new customers and retaining key employees, see Item 1A. Risk Factors. Other Information about AIG At December 31, 2010, AIG and its subsidiaries had approximately 63,000 employees. AIG’s internet address for its corporate website is www.aigcorporate.com. AIG makes available free of charge, through the Investor Information section of AIG’s corporate website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Proxy Statements on Schedule 14A and amendments to those reports or statements filed or furnished pursuant to Sections 13(a), 14(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act), as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). AIG also makes available on its corporate website copies of the charters for its Audit, Nominating and Corporate Governance and Compensation and Management Resources Committees, as well as its Corporate Governance Guidelines (which include Director Independence Standards), Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics, Employee Code of Conduct and Related-Party Transactions Approval Policy. Except for the documents specifically incorporated by reference into this Annual Report on Form 10-K, information contained on AIG’s website or that can be accessed through its website is not incorporated by reference into this Annual Report on Form 10-K. Directors and Executive Officers of AIG All directors of AIG are elected for one-year terms at the annual meeting of shareholders. All executive officers are elected to one-year terms, but serve at the pleasure of the Board of Directors. Except as hereinafter noted, each of the executive officers has, for more than five years, occupied an executive position with AIG or companies that are now its subsidiaries. There are no arrangements or understandings between any executive officer and any other person pursuant to which the executive officer was elected to such position. Robert Benmosche joined AIG as Chief Executive Officer in August 2009. Prior to joining AIG, Mr. Benmosche served as a member of the Board of Directors of Credit Suisse Group since 2002. Mr. Benmosche was former Chairman, President and Chief Executive Officer of MetLife, a leading provider of insurance and other financial services. Thomas Russo joined AIG as Executive Vice President — Legal, Compliance, Regulatory Affairs and Government Affairs and General Counsel in February 2010. Prior to joining AIG, Mr. Russo was with the law firm of Patton Boggs, LLP, where he served as Senior Counsel. Prior to that, he was a Vice Chairman of Lehman Brothers Inc. and Chief Legal Officer of Lehman Brothers Holdings, Inc. Before joining Lehman Brothers in 1993, he was a partner at the law firm of Cadwalader, Wickersham & Taft and a member of its Management Committee. Peter Hancock joined AIG in February 2010 as Executive Vice President of Finance and Risk. Prior to joining AIG, Mr. Hancock served as Vice Chairman of KeyCorp, responsible for Key National Banking. Prior to that position, Mr. Hancock was at JP Morgan for 20 years, eventually serving as head of its fixed income division and ultimately Chief Financial Officer. Sid Sankaran joined AIG in December 2010 as Senior Vice President and Chief Risk Officer. Prior to that, he was a partner in the Finance and Risk practice of Oliver Wyman Financial Services and served as Canadian Market Manager since 2006. 24 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Charles S. Shamieh joined AIG in 2007 as Executive Director of Enterprise Risk management. In January 2011, Mr. Shamieh was elected to his current position of Senior Vice President and Corporate Chief Actuary. Prior to joining AIG, Mr. Shamieh was Group Chief Risk Officer for Munich Re Group and a Member of the Group Committee of Munich Re’s Board of Management since 2006. Information concerning the directors and executive officers of AIG as of February 24, 2011 is set forth below. Served as Director or Name Title Age Officer Since Robert H. Benmosche Director and Chief Executive Officer 66 2009 Laurette T. Koellner Director 56 2009 Donald H. Layton Director 60 2010 Christopher S. Lynch Director 53 2009 Arthur C. Martinez Director 71 2009 George L. Miles, Jr. Director 69 2005 Henry S. Miller Director 65 2010 Robert S. Miller Chairman 69 2009 Suzanne Nora Johnson Director 53 2008 Morris W. Offit Director 74 2005 Ronald A. Rittenmeyer Director 63 2010 Douglas M. Steenland Director 59 2009 William N. Dooley Executive Vice President – Investments and Financial Services 58 1992 Peter D. Hancock Executive Vice President – Finance, Risk and Investments 52 2010 David L. Herzog Executive Vice President and Chief Financial Officer 51 2005 Kristian P. Moor Executive Vice President – Domestic General Insurance 51 1998 Thomas A. Russo Executive Vice President – Legal, Compliance, Regulatory Affairs, Government Affairs and General Counsel 67 2010 Brian T. Schreiber Executive Vice President – Treasury and Capital Markets 45 2002 Nicholas C. Walsh Executive Vice President – Foreign General Insurance 60 2005 Jay S. Wintrob Executive Vice President – SunAmerica Financial Group 53 1999 Jeffrey J. Hurd Senior Vice President – Human Resources and Communications 44 2010 Sid Sankaran Senior Vice President and Chief Risk Officer 33 2010 Monika M. Machon Senior Vice President and Chief Investment Officer 50 2009 Charles S. Shamieh Senior Vice President – Corporate Chief Actuary 44 2011 AIG 2010 Form 10-K 25


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    American International Group, Inc., and Subsidiaries Item 1A. Risk Factors We were significantly and adversely affected by the market turmoil in late 2008 and early 2009 and, despite the recovery in the markets in mid-2009 through 2010 and our recapitalization activities, are subject to significant risks, as discussed below. The risks described below are not the only ones we face. Additional risks that are not currently known to us or that we currently believe are immaterial may also adversely affect our business, results of operations, financial condition or liquidity. Many of these risks are interrelated and occur under similar business and economic conditions, and the occurrence of certain of them may in turn cause the emergence, or exacerbate the effect, of others. Such a combination could materially increase the severity of the impact on us. As a result, should certain of these risks emerge, we may need to raise additional capital or obtain other sources of commercial funding, such as through additional credit facilities, which may not be available. Credit and Financial Strength Ratings A downgrade in the Insurer Financial Strength ratings of our insurance companies could prevent the companies from writing new business and retaining customers and business. Insurer Financial Strength (IFS) ratings are an important factor in establishing the competitive position of insurance companies. IFS ratings measure an insurance company’s ability to meet its obligations to contract holders and policyholders. High ratings help maintain public confidence in a company’s products, facilitate marketing of products and enhance a company’s competitive position. Further downgrades of the IFS ratings of our insurance companies may prevent these companies from offering products and services or result in increased policy cancellations or termination of assumed reinsurance contracts. Moreover, a downgrade in AIG Parent’s credit ratings may, under credit rating agency policies concerning the relationship between parent and subsidiary ratings, result in a downgrade of the IFS ratings of our insurance subsidiaries. A downgrade in our credit ratings could require us to post additional collateral and result in the termination of derivative transactions. Adverse ratings actions regarding our long-term debt ratings by the major rating agencies would require us to post additional collateral payments pursuant to, and/or permit the termination of, derivative transactions to which AIGFP is a party, which could adversely affect our business, our consolidated results of operations in a reporting period or our liquidity. Credit ratings estimate a company’s ability to meet its obligations and may directly affect the cost and availability to that company of financing. In the event of a further downgrade of our long-term senior debt ratings, AIGFP would be required to post additional collateral, and certain of AIGFP’s counterparties would be permitted to elect early termination of contracts. Based on our financial derivative transactions, including those of AIGFP, outstanding at December 31, 2010 (as if the downgrade by Moody’s Investors’ Services (Moody’s) on January 12, 2011 had occurred on December 31, 2010), a one notch downgrade of our long-term senior debt rating to BBB+ by Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc (S&P), would have permitted counterparties to make additional collateral calls and permit the counterparties to elect early termination of contracts, resulting in up to approximately $0.7 billion of corresponding collateral postings and termination payments; a one-notch downgrade to Baa2 by Moody’s and a two-notch downgrade to BBB by S&P would have resulted in approximately $0.4 billion in additional collateral postings and termination payments above the aforementioned $0.7 billion; and a two-notch downgrade to Baa3 by Moody’s and a three-notch downgrade to BBB- by S&P would have resulted in approximately $0.2 billion of additional collateral posting and termination payments above the aforementioned $1.1 billion. Additional collateral postings upon downgrade are estimated based on the factors in the individual collateral posting provisions of the Credit Support Annex (CSA) with each counterparty and current exposure as of December 31, 2010. Factors considered in estimating the termination payments upon downgrade include current 26 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries market conditions, the complexity of the derivative transaction, historical termination experience and other observable market events such as bankruptcy and downgrade events that have occurred at other companies. Management’s estimates are also based on the assumption that counterparties will terminate based on their net exposure to AIG. The actual termination payments could significantly differ from management’s estimates given market conditions at the time of the downgrade and the level of uncertainty in estimating both the number of counterparties who may elect to exercise their right to terminate and the payment that may be triggered in connection with any such exercise. For a further discussion of our liquidity, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity — Liquidity. Market Conditions Our businesses, consolidated results of operations and financial condition have been and may continue to be materially and adversely affected by market conditions. Our businesses are highly dependent on the business environment in which they operate. In 2008 and through early 2009, the significant deterioration in worldwide economic conditions materially and adversely affected our businesses. The global financial crisis resulted in a serious lack of liquidity, highly volatile markets, a steep depreciation in asset values across all classes, an erosion of investor and public confidence, a widening of credit spreads, a lack of price transparency in many markets and the collapse or merger of several prominent financial institutions. Difficult economic conditions also resulted in increased unemployment and a severe decline in business activity across a wide range of industries and regions. While the markets and the business environment have generally stabilized and improved in mid- and late 2009 and in 2010, asset values for many asset classes have not returned to previous levels, and business, financial and economic conditions, particularly unemployment levels, continue to be negatively affected. Revenue and budget constraints affecting U.S. municipalities, lending activities and the housing and commercial property markets also continue to have a negative effect on asset values. There can be no assurance that the conditions supporting the recent recovery will continue in the near or long term. If they do not, we may be negatively affected in a number of ways, including, but not limited to: • declines in the valuation and performance of our investment portfolio; • declines in the value of our remaining shares in AIA and the MetLife securities received in the disposition of ALICO; • unrealized market valuation losses on our super senior credit default swap portfolio; • increased credit losses; • impairments of goodwill and other long-lived assets; • additional statutory capital requirements • limitations on our ability to recover deferred tax assets; • a decline in new business levels; • increased liability associated with interest rate guarantees in life annuity products; • an increase in policy surrenders and cancellations; and • a writeoff of deferred policy acquisition costs (DAC). Investment Portfolio and Concentration of Investments, Insurance and Other Exposures The value of our investment portfolio is subject to a number of risks and uncertainties, including changes in interest rates. Changes in interest rates can negatively affect the performance of our investment securities. Interest rates are highly sensitive to many factors, including monetary policies, domestic and international economic and political issues and other factors beyond our control. Changes in monetary policy or other factors may cause interest rates AIG 2010 Form 10-K 27


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    American International Group, Inc., and Subsidiaries to rise, which would adversely affect the value of the fixed income securities that we hold and could adversely affect our ability to sell these securities. In addition, the evaluation of available-for-sale securities for other-than-temporary impairments is a quantitative and qualitative process that is subject to significant management judgment. Concentration of our investment portfolios in any particular segment of the economy may have adverse effects. Our results of operations have been adversely affected and may continue to be adversely affected by a concentration in residential mortgage-backed, commercial mortgage-backed and other asset-backed securities and commercial mortgage loans. We also have significant exposures to: financial institutions and, in particular, to money center and global banks; U.S. state and local government issuers and authorities (as described below); and Eurozone governments and corporations. These types of concentrations in our investment portfolios could have an adverse effect on the value of these portfolios and consequently on our consolidated results of operations and financial condition. Events or developments that have a negative effect on any particular industry, asset class, group of related industries or geographic region may have a greater adverse effect on the investment portfolios to the extent that the portfolios are concentrated. Furthermore, our ability to sell assets relating to such particular groups of related assets may be limited if other market participants are seeking to sell at the same time. The value of our investment portfolio is exposed to the creditworthiness of state and municipal governments. We hold a large portfolio of state and municipal bonds ($46.6 billion at December 31, 2010), primarily in Chartis, and, because of the budget deficits that most states and many municipalities are continuing to incur in the current economic environment, the risks associated with this portfolio have increased. Negative publicity surrounding certain states and municipal issues has negatively affected the value of our portfolio and reduced the liquidity in the state and municipal bond market. Defaults, or the prospect of imminent defaults, by the issuers of state and municipal bonds could cause our portfolio to decline in value and significantly reduce the portfolio’s liquidity, which could also adversely affect AIG Parent’s liquidity if AIG Parent then needed, or was required by its capital maintenance agreements, to provide additional capital support to the insurance subsidiaries holding the affected state and municipal bonds. As with our fixed income security portfolio generally, rising interest rates would also negatively affect the value of our portfolio of state and municipal bonds and could make those instruments more difficult to sell. A decline in the liquidity or market value of these instruments, which are carried at fair value for statutory purposes, could also result in a decline in the Chartis entities’ capital ratios and, in turn, require AIG Parent to provide additional capital to those entities. Concentration of our insurance and other risk exposures may have adverse effects. We seek to manage the risks to which we are exposed as a result of the insurance policies, derivatives and other obligations that we undertake to customers and counterparties by monitoring the diversification of our exposures by exposure type, industry, geographic region, counterparty and otherwise and by using reinsurance, hedging and other arrangements to limit or offset exposures that exceed the limits we wish to retain. In certain circumstances, or with respect to certain exposures, such risk management arrangements may not be available on acceptable terms or may prove to be ineffective, or our exposure in absolute terms may be so large that even slightly adverse experience compared to our expectations may have a material adverse effect on our consolidated financial condition or results of operations or result in additional statutory capital requirements. Casualty Insurance Underwriting and Reserves Casualty insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss expenses. Although we regularly review the adequacy of the established Liability for unpaid claims and claims adjustment expense and conduct an extensive analysis of our reserves at each year end, there can be no assurance that our loss reserves will not develop adversely and have a material adverse effect on our results of operations. Estimation of ultimate net losses, loss expenses and loss reserves is a complex process for long-tail casualty lines of business, which include excess and umbrella liability, D&O, professional liability, medical malpractice, workers’ compensation, general liability, products liability and related classes, as well as for asbestos and environmental exposures. Generally, actual historical loss development factors are used to project future loss development. However, there can be no assurance that future loss development patterns will be the same as in the past. 28 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Moreover, any deviation in loss cost trends or in loss development factors might not be discernible for an extended period of time subsequent to the recording of the initial loss reserve estimates for any accident year. For example, in the fourth quarter of 2010, we recorded a net charge of $4.2 billion to strengthen Chartis loss reserves, reflecting adverse development in classes of business with long reporting tails, primarily asbestos (which includes policies written more than 25 years ago), excess casualty, excess workers’ compensation and primary workers’ compensation. Thus, there is the potential for reserves with respect to a number of years to be significantly affected by changes in loss cost trends or loss development factors that were relied upon in setting the reserves. These changes in loss cost trends or loss development factors could be attributable to changes in inflation or in the judicial environment, or in other social or economic phenomena affecting claims, such as the effects that the recent disruption in the credit markets could have on reported claims under D&O or professional liability coverages. For a further discussion of our loss reserves, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations — Segment Results — Chartis Operations — Liability for unpaid claims and claims adjustment expense and Critical Accounting Estimates — Liability for unpaid claims and claims adjustment expense (Chartis). Competition We face intense competition in each of our businesses. Our businesses operate in highly competitive environments, both domestically and overseas. Principal sources of competition are insurance companies, banks, investment banks and other non-bank financial institutions. We consider our principal competitors to be other large multi-national insurance organizations. The insurance industry in particular is highly competitive. Within the U.S., Chartis subsidiaries compete with approximately 3,300 other stock companies, specialty insurance organizations, mutual companies and other underwriting organizations. SunAmerica subsidiaries compete in the U.S. with approximately 1,800 life insurance companies and other participants in related financial services fields. Overseas, our subsidiaries compete for business with the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies. As a result of the reduction of our credit ratings and those of our subsidiaries and the lingering effects of AIG’s recent negative publicity, we have faced and continue to face intense competition to retain existing customers and to maintain business with existing customers and counterparties at historical levels. General insurance and life insurance companies compete through a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through crediting rates and the issuance of guaranteed benefits. A decline in our position as to any one or more of these factors could adversely affect our profitability. Guarantees Within Variable Annuities Guarantees Within Certain of Our Products May Decrease Our Earnings and Increase the Volatility of Our Results. Certain variable annuity products that we offer guarantee a certain level of benefits to the policyholder. These guarantee features include guaranteed minimum death benefits (GMDB), guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum account value benefits (GMAV). At December 31, 2010, our net liabilities associated with these guaranteed benefits, representing the aggregate amount of the benefits in excess of the related account values, were $613 million. We use reinsurance in combination with derivative instruments to mitigate the exposure associated with these liabilities, and while we believe that these and other actions have mitigated the risks related to these guaranteed benefits, our exposure is not fully hedged, and we remain liable in the event that reinsurers or counterparties are unable or unwilling to pay. In addition, downturns in equity markets, increased equity volatility or reduced interest rates could result in an increase in the valuation of the future policy benefits or policyholder account balances, increasing the liabilities associated with the guaranteed benefits and resulting in a reduction in our net income. AIG 2010 Form 10-K 29


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    American International Group, Inc., and Subsidiaries Adjustments to Deferred Policy Acquisition Costs for Life Insurance and Retirement Services Companies Interest rate fluctuations, increased surrenders, investment returns and other events may require our subsidiaries to accelerate the amortization of deferred policy acquisition costs (DAC), which could adversely affect our results of operations. DAC represents the costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts. When interest rates rise or customers lose confidence in a company, policy loans and policy surrenders and withdrawals of life insurance policies and annuity contracts may increase as policyholders seek to buy products with perceived higher returns or more stability, resulting in an acceleration of the amortization of DAC. To the extent such amortization exceeds surrender or other charges earned upon surrender and withdrawals of certain life insurance policies and annuity contracts, our results of operations could be negatively affected. DAC for both insurance-oriented and investment-oriented products, as well as retirement services products, is reviewed for recoverability, which involves estimating the future profitability of current business. This review involves significant management judgment. If future profitability is substantially lower than estimated, we could be required to accelerate DAC amortization, and such acceleration could adversely affect our results of operations. For a further discussion of DAC, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates and Notes 2 and 10 to the Consolidated Financial Statements. Catastrophe Exposures The occurrence of catastrophic events could adversely affect our consolidated financial condition or results of operations. The occurrence of events such as hurricanes, earthquakes, pandemic disease, acts of terrorism and other catastrophes could adversely affect our consolidated financial condition or results of operations, including by exposing our businesses to the following: • widespread claim costs associated with property, workers’ compensation, mortality and morbidity claims; • loss resulting from a decline in the value of invested assets to below the amount required to meet policy and contract liabilities; and • loss resulting from actual policy experience emerging adversely in comparison to the assumptions made in the product pricing related to mortality, morbidity, termination and expenses. Reinsurance Reinsurance may not be available or affordable. Our subsidiaries are major purchasers of reinsurance and utilize reinsurance as part of our overall risk management strategy. Reinsurance is an important risk management tool to manage transaction and insurance line risk retention and to mitigate losses that may arise from catastrophes. Market conditions beyond our control determine the availability and cost of the reinsurance purchased by our subsidiaries. For example, reinsurance may be more difficult or costly to obtain after a year with a large number of major catastrophes. Accordingly, we may be forced to incur additional expenses for reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms, in which case we would have to accept an increase in exposure risk, reduce the amount of business written by our subsidiaries or seek alternatives. Reinsurance subjects us to the credit risk of our reinsurers and may not be adequate to protect us against losses. Although reinsurance makes the reinsurer liable to our subsidiary to the extent the risk is ceded, it does not relieve our subsidiary of the primary liability to its policyholders. Accordingly, we bear credit risk with respect to our subsidiaries’ reinsurers to the extent the credit risk is not mitigated by collateral or other credit enhancements. A reinsurer’s insolvency or inability or refusal to make timely payments under the terms of its agreements with our subsidiaries could have a material adverse effect on our results of operations and liquidity. For additional information on our reinsurance, see Management’s Discussion and Analysis of Financial Condition and Results of Operations — Risk Management — Insurance Risk Management — Reinsurance. 30 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries Indemnity Obligations Claims under indemnity obligations may be material. We have provided financial guarantees and indemnities in connection with the businesses sold or under contract for sale, including ALICO, AGF, AIG Star and AIG Edison. While we do not currently believe that the claims under these indemnities will be material, it is possible that significant indemnity claims could be made against us. If such a claim were successful, our results of operations, cash flows and liquidity could be materially adversely affected. See Note 16 to the Consolidated Financial Statements for more information on these financial guarantees and indemnities. Regulation The enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act will subject us to substantial additional federal regulation, which may materially and adversely affect our businesses, results of operations, cash flows, financial condition and credit ratings. On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), which effects comprehensive changes to the regulation of financial services in the United States, was signed into law. Dodd-Frank directs existing and newly created government agencies and bodies to promulgate regulations implementing the law, an ongoing process anticipated to continue over the next few years. We cannot predict with certainty the requirements of the regulations ultimately adopted or how or whether Dodd-Frank and such regulations will affect our businesses, results of operations, cash flows or financial condition, require us to raise additional capital or result in a downgrade of our credit ratings. We may become subject to the examination, enforcement and supervisory authority of the FRB as a savings and loan holding company or a Designated Financial Company. In such an event: • We would become subject to the examination, enforcement and supervisory authority of the FRB. We cannot predict how the FRB would exercise general supervisory authority over us. • The FRB would be required to impose minimum leverage and risk-based capital requirements on us not less than those applicable to insured depository institutions. • We may be required to place our financial activities in an intermediate holding company separate from our non-financial activities (as defined for purposes of the Bank Holding Company Act) subject to restrictions on transactions between the two businesses, which could be burdensome and costly to implement. If we are designated a Designated Financial Company: • We may become subject to stress tests to determine whether, on a consolidated basis, we have the capital necessary to absorb losses due to adverse economic conditions. • We would be subject to stricter prudential standards not yet specified, including stricter requirements and limitations relating to risk-based capital, leverage, liquidity and credit exposure, as well as overall risk management requirements, management interlock prohibitions and a requirement to maintain a plan for rapid and orderly dissolution in the event of severe financial distress. • We would become subject to a new early remediation regime process, the details of which are not yet established, to be administered by the FRB. If we are designated as a Designated Financial Company and determined to be a grave threat to U.S. financial stability: • We would be required to maintain a debt-to-equity ratio of no more than 15:1. • The FRB may: • limit our ability to merge with, acquire, consolidate with, or become affiliated with another company; • restrict our ability to offer specified financial products; • require us to terminate specified activities; AIG 2010 Form 10-K 31


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    American International Group, Inc., and Subsidiaries • impose conditions on how we conduct our activities; or • with approval of the Financial Stability Oversight Council (Council), and a determination that the foregoing actions are inadequate to mitigate a threat to U.S. financial stability, require us to sell or otherwise transfer assets or off-balance-sheet items to unaffiliated entities. If we continue to control AIG Federal Savings Bank or another insured depository institution, we would become subject to the ‘‘Volcker Rule’’, which would place limits on ‘‘proprietary trading’’ and the sponsorship of, or investment in, hedge, private equity or similar funds. Such prohibitions could substantially impact our investment business as it is currently managed. The Volcker Rule contains an exception for trading by insurance companies for their general account, but the extent of this exception cannot be predicted. Even if we no longer controlled an insured depository institution, we might still be subject to additional capital and quantitative limitations under the Volcker Rule. In addition, Dodd-Frank establishes a new framework for regulation of OTC derivatives under which we may have to collateralize previously uncollateralized swaps. These additional obligations to post collateral or the costs of assignment, termination or obtaining alternative credit could have a material adverse affect on us. This new framework may also increase the cost of conducting a hedging program or have other effects materially adverse to us. We cannot predict the requirements of the regulations ultimately adopted, the level and magnitude of supervision we may become subject to, or how Dodd-Frank and such regulations will affect the financial markets generally or our businesses, results of operations, cash flows or financial condition. It is possible that the regulations adopted under Dodd-Frank could significantly alter our business practices, require us to raise additional capital, impose burdensome and costly requirements and add additional costs. Some of the regulations may also affect the perceptions of regulators, rating agencies, customers, counterparties, creditors or investors about our financial strength and could potentially affect our financing costs or result in a ratings downgrade. We are subject to extensive regulation in the jurisdictions in which we conduct our businesses, including with respect to the pricing of policies that we write, and regulatory actions could make it challenging for us to continue to engage in business in the ordinary course. Our operations around the world are subject to regulation by different types of regulatory authorities, including insurance, securities, investment advisory, banking and thrift regulators in the United States and abroad. Regulators have the ability to take various steps to protect the businesses of the entities they regulate. These steps could include: • restricting or prohibiting the payment of dividends to AIG Parent and its subsidiaries; • restricting or prohibiting other payments to AIG Parent and its subsidiaries; • requesting additional capital contributions from AIG Parent; • requesting that intercompany reinsurance reserves be covered by assets locally; • restricting the business in which the subsidiaries may engage; • requiring pre-approval of all proposed transactions between the regulated subsidiaries and AIG Parent or any affiliate; and • requiring more frequent reporting, including with respect to capital and liquidity positions. In addition, the premium rates that we are able to charge and the profits that we are able to obtain are affected by the actions of state and foreign insurance departments that regulate our businesses. In addition to this regulation, our insurance subsidiaries are subject to laws that require insurers to participate in assigned risk plans, or to offer coverage to all consumers or at prices that we might not otherwise offer. Any of these actions could have an adverse effect on our consolidated results of operations. Requirements of the USA PATRIOT Act, the Office of Foreign Assets Control and similar laws that apply to us may expose us to significant penalties. The operations of certain of our subsidiaries are subject to laws and regulations, 32 AIG 2010 Form 10-K


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    American International Group, Inc., and Subsidiaries including the USA PATRIOT Act of 2001, which requires companies to know certain information about their clients and to monitor their transactions for suspicious activities. In addition, the Department of the Treasury’s Office of Foreign Assets Control administers regulations requiring U.S. persons to refrain from doing business, or allowing their clients to do business through them, with certain organizations or individuals on a prohibited list maintained by the U.S. government or with certain countries. The United Kingdom, the European Union and other jurisdictions maintain similar laws and regulations. Although we have instituted compliance programs to address these requirements, there are inherent risks in global transactions. New regulations promulgated from time to time may affect our operations, financial condition and ability to compete effectively. Legislators and regulators may periodically consider and put forward various proposals that may affect the profitability of certain of our businesses or even our ability to conduct certain businesses at all, including proposals relating to restrictions on the type of activities in which financial institutions are permitted to engage and the size of financial institutions, and proposals to impose additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities, geography, government support or other criteria). It is uncertain whether and how these and other such proposals would apply to us or our competitors or how they could impact our consolidated results of operations, financial condition and ability to compete effectively. Change in Control Our ability to utilize tax losses and credits carryforwards to offset future taxable income may be significantly limited if we experience an ‘‘ownership change’’ under the Internal Revenue Code. As of December 31, 2010, we had a U.S. federal net operating loss carryforward of approximately $32.3 billion, $27.8 billion in capital loss carryforwards and $4.6 billion in foreign tax credits (Tax Losses and credits carryforwards). Our ability to utilize such tax attributes to offset future taxable income may be significantly limited if we experience an ‘‘ownership change’’ as defined in Section 382 of the Internal Revenue Code of 1986, as amended (the Code). In general, an ownership change will occur when the percentage of AIG Parent’s ownership (by value) of one or more ‘‘5-percent shareholders’’ (as defined in the Code) has increased by more than 50 percent over the lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling basis). An entity that experiences an ownership change generally will be subject to an annual limitation on its pre-ownership change tax losses and credits carryforwards equal to the equity value of the corporation immediately before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to certain adjustments). The annual limitation would be increased each year to the extent that there is an unused limitation in a prior year. The limitation on our ability to utilize tax losses and credits carryforwards arising from an ownership change under Section 382 would depend on the value of our equity at the time of any ownership change. While the Department of the Treasury owns more than 50 percent of AIG Common Stock, under guidance issued by the Internal Revenue Service, we will not be treated as having experienced an ownership change. However, once the Department of the Treasury’s ownership of outstanding AIG Common Stock falls below 50 percent, it is possible for us to experience an ownership change as a result of purchases of AIG Common Stock by ‘‘5-percent shareholders’’. For the purpose of determining whether there has been an ‘‘ownership change’’, the change in ownership as a result of purchases by ‘‘5-percent shareholders’’ will be aggregated with certain changes in ownership that occurred over the three-year period ending on the date of such purchases, including, for example, the sale of AIG Common Stock that was issued in exchange for the shares of AIG’s Series C Perpetual, Convertible, Participating Preferred Stock, par value $5.00 per share (the Series C Preferred Stock), but excluding the issuance of the AIG Common Stock that was issued in exchange for the shares of AIG’s Series E Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the Series E Preferred Stock), and the shares of AIG’s Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (the Series F Preferred Stock). If we were to experience an ‘‘ownership change’’, it is possible that a significant portion of our tax losses and credits carryforwards could expire before we would be able to use them to offset future taxable income. AIG 2010 Form 10-K 33


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    American International Group, Inc., and Subsidiaries Foreign Operations Our foreign operations expose us to risks that may affect our operations, liquidity and financial condition. We provide insurance, investment and other financial products and services to both businesses and individuals in more than 130 countries. A substantial portion of our Chartis business is conducted outside the United States, and our intention is to continue to grow this business. Operations outside the United States, particularly those in developing nations, may be affected by regional economic downturns, changes in foreign currency exchange rates, political upheaval, nationalization and other restrictive government actions, which could also affect our other operations. The degree of regulation and supervision in foreign jurisdictions varies. Generally, AIG Parent, as well as its subsidiaries operating in such jurisdictions, must satisfy local regulatory requirements. Licenses issued by foreign authorities to our subsidiaries are subject to modification and revocation. Thus, our insurance subsidiaries could be prevented from conducting future business in certain of the jurisdictions where they currently operate. Adverse actions from any single country could adversely affect our results of operations, liquidity and financial condition depending on the magnitude of the event and our financial exposure at that time in that country. Legal Proceedings Significant legal proceedings may adversely affect our results of operations or financial condition. We are party to numerous legal proceedings, including securities class actions and regulatory and governmental investigations. Due to the nature of the litigation, the lack of precise damage claims and the type of claims we are subject to, we cannot currently quantify our ultimate or maximum liability for these actions. It is possible that developments in these unresolved matters could have a material adverse effect on our consolidated financial condition or consolidated results of operations for an individual reporting period. For a discussion of these unresolved matters, see Note 16(a) to the Consolidated Financial Statements. Use of Estimates If actual experience differs from management’s estimates used in the preparation of financial statements, our consolidated results of operations or financial condition could be adversely affected. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the application of accounting policies that often involve a significant degree of judgment. We consider our accounting policies that are most dependent on the application of estimates and assumptions, and therefore viewed as critical accounting estimates, are those described in Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates. These accounting estimates require the use of assumptions, some of which are highly uncertain at the time of estimation. These estimates, by their nature, are based on judgment and current facts and circumstances. Therefore, actual results could differ from these estimates, possibly in the near term, and could have a material effect on the consolidated financial statements. Aircraft Leasing Business Our aircraft leasing business depends on lease revenues and exposes us to the risk of lessee non-performance. Our aircraft leasing business depends on the ability of our customers to meet their obligations to us under their leases; if their ability materially decreases, it may negatively affect our business, results of operations and cash flows. Our aircraft may become obsolete over time. Aircraft are long-lived assets requiring long lead times to develop and manufacture. As a result, aircraft of a particular model and type may become obsolete and less in demand over time, when newer, more advanced and efficient aircraft or aircraft engines are manufactured. This life cycle, however, can be shortened by world events, government regulation or customer preferences. As aircraft in our fleet approach obsolescence, demand for particular models and types may decrease. This may result in declining lease rates or impairment charges and may adversely affect our business, consolidated financial condition, results of operations and cash flows. 34 AIG 2010 Form 10-K

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