2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
Other-than-temporary impairment charges for the years ended December 31, 2007, 2006 and 2005 were as follows:
(in millions) 2007 2006 2005
Impairment type:
Severity* $2,200 $ — $ —
Lack of intent to hold to recovery 1,054 619 335
Foreign currency declines 500 — —
Issuer-specific credit events 515 279 257
Adverse projected cash flows on structured securities (EITF 99-20) 446 46 6
Total $4,715 $944 $598
* Includes $643 million related to AIGFP reported in other income.
Other-than-temporary impairment charges for the year ended December 31, 2007 by Reporting Segment were as follows:
Life
Insurance &
General Retirement Financial Asset
(in millions) Insurance Services Services Management Other Total
Impairment Type:
Severity $ 71 $1,070 $643 $416 $ — $2,200
Lack of intent to hold to recovery 91 885 7 71 — 1,054
Foreign currency declines — 500 — — — 500
Issuer-specific credit events 113 177 — 69 156 515
Adverse projected cash flows on structured securities 1 166 — 279 — 446
Total $276 $2,798 $650 $835 $156 $4,715
Other-than-temporary severity-related impairment charges for the year ended December 31, 2007 were as follows:
Rating: RMBS CDO CMBS Other Securities Total
AAA $ 168 $621 $ — $ — $ 789
AA 870 53 6 — 929
A 66 32 77 — 175
BBB and below 28 — 52 — 80
Nonrated — — — 227 227
Total $1,132 $706 $135 $227 $2,200
No other-than-temporary impairment charge with respect to any U.S. loan exposure. At that date, none of the U.S. loans were in
one single credit was significant to AIG’s consolidated financial default or delinquent by 90 days or more. The remaining
condition or results of operations, and no individual other-than- commercial mortgage loans are secured predominantly by propertemporary
impairment charge exceeded two percent of consoli- ties in Japan. In addition, at December 31, 2007, AIG had
dated net income in 2007.
approximately $2.0 billion in residential mortgage loans in
In periods subsequent to the recognition of an other-than- jurisdictions outside the United States, primarily backed by
temporary impairment charge for fixed maturity securities, which is properties in Taiwan and Thailand.
not credit or foreign exchange related, AIG generally accretes into At December 31, 2007, AIG owned $23.9 billion in cost basis
income the discount or amortizes the reduced premium resulting of CMBS. Approximately 78 percent of such holdings were rated
from the reduction in cost basis over the remaining life of the ‘‘AAA’’, approximately 98 percent were rated ‘‘A’’ or higher, and
security. less than 2 percent were rated ‘‘BBB’’ or below. At December 31,
2007, all such securities were current in the payment of principal
Commercial Mortgage Loan Exposure
and interest and none had default rates on underlying collateral at
levels viewed by AIG as likely to result in the loss of principal or
At December 31, 2007, AIG had direct commercial mortgage loan
interest.
exposure of $17.1 billion, with $16.3 billion representing
110 AIG 2007 Form 10-K