2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
$7 billion, including a $1.0 billion commitment entered into in carried at amortized cost, assets and liabilities are presented net
December 2007 but not funded until January 2008.
of reinsurance, policyholder liabilities are valued using more
A total of 76,361,209 shares were purchased during 2007. conservative assumptions and certain assets are non-admitted.
The portion of the payments advanced by AIG under the
In connection with the filing of the 2005 statutory financial
structured share repurchase arrangements that had not yet been statements for AIG’s Domestic General Insurance companies, AIG
utilized to repurchase shares at December 31, 2007, amounting agreed with the relevant state insurance regulators on the
to $912 million, has been recorded as a component of sharehold- statutory accounting treatment of various items. The regulatory
ers’ equity under the caption, Payments advanced to purchase authorities have also permitted certain of the domestic and
shares. Purchases have continued subsequent to December 31, foreign insurance subsidiaries to support the carrying value of
2007, with an additional 12,196,187 shares purchased from their investments in certain non-insurance and foreign insurance
January 1 through February 15, 2008. All shares purchased are subsidiaries by utilizing the AIG audited consolidated financial
recorded as treasury stock at cost.
statements to satisfy the requirement that the U.S. GAAP-basis
At February 15, 2008, $10.25 billion was available for
equity of such entities be audited. In addition, the regulatory
purchases under the aggregate authorization. AIG does not expect authorities have permitted the Domestic General Insurance comto
purchase additional shares under its share repurchase program panies to utilize audited financial statements prepared on a basis
for the foreseeable future, other than to meet commitments that of accounting other than U.S. GAAP to value investments in joint
existed at December 31, 2007.
ventures, limited partnerships and hedge funds. AIG has received
similar permitted practices authorizations from insurance regulatory
Dividends from Insurance Subsidiaries
authorities in connection with the 2007 and 2006 statutory
financial statements. These permitted practices did not affect the
Payments of dividends to AIG by its insurance subsidiaries are
Domestic General Insurance companies’ compliance with minisubject
to certain restrictions imposed by regulatory authorities.
mum regulatory capital requirements.
With respect to AIG’s domestic insurance subsidiaries, the
Statutory capital of each company continued to exceed
payment of any dividend requires formal notice to the insurance
minimum company action level requirements following the adjustdepartment
in which the particular insurance subsidiary is
ments, but AIG nonetheless contributed an additional $750 million
domiciled. Under the laws of many states, an insurer may pay a
of capital into American Home effective September 30, 2005 and
dividend without prior approval of the insurance regulator when
contributed a further $2.25 billion of capital in February 2006 for
the amount of the dividend is below certain regulatory thresholds.
a total of approximately $3 billion of capital into Domestic General
Other foreign jurisdictions, notably Bermuda, Japan, Hong Kong,
Insurance subsidiaries effective December 31, 2005. To enhance
Taiwan, the U.K., Thailand and Singapore, may restrict the ability
their current capital positions, AIG suspended dividends from the
of AIG’s foreign insurance subsidiaries to pay dividends. Largely
DBG companies from the fourth quarter 2005 through 2006,
as a result of these restrictions, approximately 81 percent of the
dividend payments resumed in the first quarter of 2007. AIG
aggregate equity of AIG’s consolidated subsidiaries was restricted
believes it has the capital resources and liquidity to fund any
from immediate transfer to AIG parent at December 31, 2007.
necessary statutory capital contributions.
See Regulation and Supervision herein. AIG cannot predict how
As discussed under Item 3. Legal Proceedings, various regularecent
regulatory investigations may affect the ability of its
tors have commenced investigations into certain insurance busiregulated
subsidiaries to pay dividends. To AIG’s knowledge, no
ness practices. In addition, the OTS and other regulators routinely
AIG company is currently on any regulatory or similar ‘‘watch list’’
conduct examinations of AIG and its subsidiaries, including AIG’s
with regard to solvency. See also Liquidity herein, Note 12 to
consumer finance operations. AIG cannot predict the ultimate
Consolidated Financial Statements and Item 1A. Risk Factors —
effect that these investigations and examinations, or any addi-
Liquidity.
tional regulation arising therefrom, might have on its business.
Federal, state or local legislation may affect AIG’s ability to
Regulation and Supervision
operate and expand its various financial services businesses, and
AIG’s insurance subsidiaries, in common with other insurers, are changes in the current laws, regulations or interpretations thereof
subject to regulation and supervision by the states and jurisdic- may have a material adverse effect on these businesses.
tions in which they do business. In the United States, the NAIC AIG’s U.S. operations are negatively affected under guarantee
has developed Risk-Based Capital (RBC) requirements. RBC fund assessment laws which exist in most states. As a result of
relates an individual insurance company’s statutory surplus to the operating in a state which has guarantee fund assessment laws,
risk inherent in its overall operations.
a solvent insurance company may be assessed for certain
AIG’s insurance subsidiaries file financial statements prepared obligations arising from the insolvencies of other insurance
in accordance with statutory accounting practices prescribed or companies which operated in that state. AIG generally records
permitted by domestic and foreign insurance regulatory authoripermit
these assessments upon notice. Additionally, certain states
ties. The principal differences between statutory financial statecredit
at least a portion of the assessed amount to be used as a
ments and financial statements prepared in accordance with
against a company’s future premium tax liabilities. Therements
U.S. GAAP for domestic companies are that statutory financial fore, the ultimate net assessment cannot reasonably be estistatements
do not reflect DAC, some bond portfolios may be mated. The guarantee fund assessments net of credits recognized
98 AIG 2007 Form 10-K