2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
2007, AIGFP purchased securities with a principal amount of Shareholders’ Equity
approximately $754 million in connection with these obligations.
In respect of certain of the 2a-7 Puts, AIGFP has contracted with The changes in AIG’s consolidated shareholders’ equity
third parties to provide liquidity for the securities if they are put to during 2007 and 2006 follows:
AIGFP for up to a three-year period. Such liquidity facilities totaled (in millions) 2007 2006
approximately $3 billion at December 31, 2007. As of Febru-
Beginning of year $101,677 $ 86,317
ary 26, 2008, AIGFP has not utilized these liquidity facilities. At
Net income 6,200 14,048
December 31, 2007, AIGFP had approximately $6.5 billion of
Unrealized appreciation (depreciation)
notional exposure on these 2a-7 Puts.
of investments, net of tax (5,708) 1,735
Structured Investment Vehicle
Cumulative translation adjustment,
net of tax 1,185 936
AIGFP sponsors one unconsolidated SIV that invests in variable
Dividends to shareholders (1,964) (1,690)
rate, investment-grade debt securities with a weighted average
Payments advanced to purchase
shares, net (912) —
remaining life of four years at December 31, 2007. Assets of the
Share purchases (5,104) —
SIV totaled $2.4 billion at December 31, 2007. Approximately
Other* 427 331
$31.9 million of these assets have been downgraded one notch
from Aa3/AA– to A1/A+ by Moody’s and S&P, respectively, since End of year $ 95,801 $101,677
the purchase of these assets by the SIV. The SIV funds its assets * Reflects the effects of employee stock transactions and cumulative
by issuing secured financing, commercial paper, and medium-term effect of accounting changes.
notes that had a weighted-average remaining life of less than six
As indicated in the table above, a significant portion of the
months at December 31, 2007. The mismatch between the
2007 decrease in AIG’s consolidated equity during 2007 was the
weighted average remaining life of the SIV’s assets and liabilities
result of share purchases, substantially all of which were funded
has been removed through the funding support from AIGFP
from the issuance of hybrid debt securities. The effect of these
described in the next paragraph. The SIV also issued approxitransactions
was to replace high cost equity securities (common
mately $300 million of capital notes originally rated Baa2 and
stock) with cost efficient hybrid securities, a substantial portion of
BBB by Moody’s and S&P, respectively, and subsequently downwhich
is treated as equity capital for the purpose of rating agency
graded in 2007 to B3 and BB– (credit watch negative), respecleverage
calculations.
tively, of which AIGFP owns 12 percent.
AIG has in the past reinvested most of its unrestricted
At December 31, 2007, AIGFP had $1.7 billion of balance
earnings in its operations and believes such continued reinvestsheet
exposure to this SIV representing investments in securities
ment in the future will be adequate to meet any foreseeable
purchased under agreements to resell, commercial paper, and
capital needs. However, AIG may choose from time to time to
medium-term and capital notes. During the credit market disrupraise
additional funds through the issuance of additional
tions during the last half of 2007, the SIV experienced difficulty
securities.
attracting purchasers for its commercial paper and medium-term
In February 2007, AIG’s Board of Directors adopted a new
notes. In January 2008, AIGFP agreed to provide funding support
dividend policy, which took effect with the dividend declared in the
to the SIV, as necessary, to allow the SIV to redeem its
second quarter of 2007, providing that under ordinary circumcommercial
paper and medium-term notes as they become due.
stances, AIG’s plan will be to increase its common stock dividend
Moody’s affirmed the SIV’s senior debt ratings of Aaa. S&P
by approximately 20 percent annually. The payment of any
affirmed the SIV’s long term issuer credit rating of AAA with a
dividend, however, is at the discretion of AIG’s Board of Directors,
negative outlook and downgraded its capital notes from BB– to
and the future payment of dividends will depend on various
CCC– and this rating remains on credit watch negative. AIG does
factors, including the performance of AIG’s businesses, AIG’s
not believe its management of, and current or future investments
consolidated financial position, results of operations and liquidity
in, the SIV could have any effect on AIG’s debt ratings under any
and the existence of investment opportunities.
circumstances.
Share Repurchases
From time to time, AIG may buy shares of its common stock for
general corporate purposes, including to satisfy its obligations
under various employee benefit plans. In February 2007, AIG’s
Board of Directors increased AIG’s share repurchase program by
authorizing the purchase of shares with an aggregate purchase
price of $8 billion. In November 2007, AIG’s Board of Directors
authorized the purchase of an additional $8 billion in common
stock. From March through December 31, 2007, AIG entered into
structured share repurchase arrangements providing for the
purchase of shares over time with an aggregate purchase price of
AIG 2007 Form 10-K 97