2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries Management’s Discussion and Analysis of Financial Condition and Results of Operations Continued Life Insurance & General Retirement Financial Asset (in millions) Insurance Services Services Management Other Total 2006 Fixed maturities: Bonds available for sale, at fair value $ 67,994 $288,018 $ 1,357 $29,500 $ — $386,869 Bonds held to maturity, at amortized cost 21,437 — — — — 21,437 Bond trading securities, at fair value 1 10,835 — — — 10,836 Equity securities: Common stocks available for sale, at fair value 4,245 8,705 — 226 80 13,256 Common stocks trading, at fair value 350 14,505 — — — 14,855 Preferred stocks available for sale, at fair value 1,884 650 5 — — 2,539 Mortgage and other loans receivable, net of allowance 17 21,043 2,398 4,884 76 28,418 Financial services assets: Flight equipment primarily under operating leases, net of accumulated depreciation — — 39,875 — — 39,875 Securities available for sale, at fair value — — 47,205 — — 47,205 Trading securities, at fair value — — 5,031 — — 5,031 Spot commodities — — 220 — — 220 Unrealized gain on swaps, options and forward transactions — — 19,607 — (355) 19,252 Trade receivables — — 4,317 — — 4,317 Securities purchased under agreements to resell, at contract value — — 30,291 — — 30,291 Finance receivables, net of allowance — — 29,573 — — 29,573 Securities lending invested collateral, at fair value 5,376 50,099 76 13,755 — 69,306 Other invested assets 9,207 13,962 2,212 13,198 3,532 42,111 Short-term investments, at cost 3,281 15,192 2,807 6,198 5 27,483 Total investments and financial services assets as shown on the balance sheet 113,792 423,009 184,974 67,761 3,338 792,874 Cash 334 740 390 118 8 1,590 Investment income due and accrued 1,363 4,378 23 326 1 6,091 Real estate, net of accumulated depreciation 570 698 17 75 26 1,386 Total invested assets (a)(b) $116,059 $428,825 $185,404 $68,280 $3,373 $801,941 (a) Certain reclassifications and format changes have been made to prior period amounts to conform to the current period presentation. (b) At December 31, 2006, approximately 68 percent and 32 percent of invested assets were held in domestic and foreign investments, respectively. Investment Strategy AIG’s investment strategies are tailored to the specific business needs of each operating unit. The investment objectives are driven by the business model for each of the businesses: General Insurance, Life Insurance, Retirement Services and Asset Manage- ment’s Spread-Based Investment business. The primary objectives are in terms of preservation of capital, growth of surplus and generation of investment income to support the insurance products. At the local operating unit level, the strategies are based on considerations that include the local market, liability duration and cash flow characteristics, rating agency and regulatory capital considerations, legal investment limitations, tax optimization and diversification. In addition to local risk management considerations, AIG’s corporate risk management guidelines impose limitations on concentrations to promote diversification by industry, asset class and geographic sector. 102 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries The amortized cost or cost and estimated fair value of AIG’s available for sale and held to maturity securities at December 31, 2007 and 2006 were as follows: December 31, 2007* December 31, 2006 Amortized Gross Gross Amortized Gross Gross Cost or Unrealized Unrealized Fair Cost or Unrealized Unrealized Fair (in millions) Cost Gains Losses Value Cost Gains Losses Value Available for sale: * U.S. government and government sponsored entities $ 7,956 $ 333 $ 37 $ 8,252 $ 7,667 $ 221 $ 140 $ 7,748 Obligations of states, municipalities and political subdivisions 46,087 927 160 46,854 59,785 1,056 210 60,631 Non-U.S. governments 67,023 3,920 743 70,200 62,860 5,461 437 67,884 Corporate debt 239,822 6,216 4,518 241,520 257,383 7,443 2,536 262,290 Mortgage-backed, asset-backed and collateralized 140,982 1,221 7,703 134,500 104,687 502 362 104,827 Total bonds $501,870 $12,617 $13,161 $501,326 $492,382 $14,683 $3,685 $503,380 Equity securities 15,188 5,545 463 20,270 13,147 2,807 159 15,795 Total $517,058 $18,162 $13,624 $521,596 $505,529 $17,490 $3,844 $519,175 Held to maturity: * Bonds — Obligations of states, municipalities and political subdivisions $ 21,581 $ 609 $ 33 $ 22,157 $ 21,437 $ 731 $ 14 $ 22,154 * At December 31, 2007 and 2006, fixed maturities held by AIG that were below investment grade or not rated totaled $27.0 billion and $26.6 billion, respectively. AIG’s held to maturity and available for sale fixed maturity securities so rated. Approximately five percent were below investinvestments totaled $523.5 billion at December 31, 2007, ment grade or not rated at that date. A large portion (approxicompared to $525.5 billion at December 31, 2006. At Decem- mately one third) of the foreign fixed income portfolio is sovereign ber 31, 2007, approximately 63 percent of the fixed maturities fixed maturity securities supporting the policy liabilities in the investments were in domestic portfolios. Approximately 53 per- country of issuance. cent of such domestic securities were rated AAA by one or more of the principal rating agencies. Approximately five percent were The credit ratings of AIG’s fixed maturity investments, other below investment grade or not rated. AIG’s investment decision than those of AIGFP, at December 31, 2007 and 2006 were as process relies primarily on internally generated fundamental follows: analysis and internal risk ratings. Third party rating services’ ratings and opinions provide one source of independent perspectives Rating 2007 2006 for consideration in the internal analysis. AAA 38% 37% A significant portion of the foreign fixed income portfolio is AA 28 26 rated by Moody’s, S&P or similar foreign rating services. Rating A 18 20 services are not available in all overseas locations. The Credit BBB 11 12 Risk Committee (CRC) closely reviews the credit quality of the Below investment grade 4 4 foreign portfolio’s non-rated fixed income investments. At December 31, 2007, approximately 19 percent of the foreign fixed Non-rated 1 1 income investments were either rated AAA or, on the basis of Total 100% 100% AIG’s internal analysis, were equivalent from a credit standpoint to AIG 2007 Form 10-K 103
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AMERICAN INTERNATIONAL GROUP, INC.
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FINANCIAL HIGHLIGHTS (in millions,
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overall financial condition, althou
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Group Executive Committee We are ad
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AIG’s life insurance network is t
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We have also begun to address the e
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WHAT WE SEE The ability to see and
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The Major Accounts Practice within
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Around the world, the middle class
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WE SEE GROWTH OPPORTUNITIES IN EMER
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To grow the strength of the AIG glo
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Since 2003, the AIG Disaster Relief
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RESPECT Respect encompasses how we
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Life Insurance & Retirement Service
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Domestic Brokerage Group— Gross P
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In the summer of 2007, widespread f
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in gross premiums written. It launc
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It grew new business premiums from
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emerging markets for its services,
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ILFC—Revenues by Region Total = $
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AIG Investments acquired a 94 perce
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and changing interest rates, as wel
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American International Group, Inc.
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UNITED STATES SECURITIES AND EXCHAN
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SHAREHOLDER INFORMATION Corporate H
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