2007 Annual Report - AIG.com

ILFC—Revenues by Region
Total = $4.7 billion
Europe 44.9%
Asia and the Pacific 26.8%
United States and Canada 11.7%
Africa/Middle East 11.5%
Latin America 5.1%
strategy of focusing on products with higher margin opportunities
and moving away from markets where profit margins have narrowed.
A key attribute that differentiates AIGFP from its peers is its
ability to commit significant amounts of its own capital—depending
on the opportunity arising from a particular investment—at different
levels of a company’s debt and equity capital structure. AIGFP
has demonstrated this capability in its energy and infrastructure
investments, both as a single investor and in partnership with
other investors.
The firm is also a major investor in a wide array of debt and
equity securities. As an innovator in the commodity and commodity
index markets, AIGFP played an instrumental role in attracting the
investing public’s interest in commodities as an alternative asset class.
AIGFP is increasingly concentrating on developing enhanced
investment products as the demand for commodities continues to
grow in global markets.
As a result of the severe disruption in the U.S. residential mortgage
and credit markets that accelerated during the fourth quarter of 2007,
AIGFP recognized unrealized market valuation losses of more than
$11 billion on its credit default swap portfolio written principally on
the super senior tranches of multisector collateralized debt obligations.
Based upon its most current analysis, AIG believes any losses that are
realized over time on this super senior credit default swap portfolio
will not be material to AIG’s consolidated financial condition,
although it is possible that realized losses could be material to AIG’s
consolidated results of operations for an individual reporting period.
American General Finance, Inc. (AGF), one of the largest
consumer finance organizations in the United States, is a lender and
originator of real estate and non-real estate loans, and retail sales
finance receivables. The company has been lending for more than
80 years and serves approximately two million customers.
Disciplined underwriting, conservative lending standards and
a mortgage portfolio of primarily fixed-rate loans enabled AGF
to manage its residential mortgage credit risks well during 2007,
compared to many lenders that have now withdrawn from the market.
AGF has the experience to manage its business through credit cycles
and is well-positioned to take advantage of opportunities to meet
consumer borrowing needs. In January 2008, AGF announced
the acquisition of more than $1.49 billion of consumer finance
receivables from a bank-owned competitor.
In 2007, AGF also added 65 new offices, which brought its core
network to more than 1,600 branches in 45 states, Puerto Rico and
the U.S.Virgin Islands; extended its operations into the U.K.; grew
the number of retail merchant relationships to more than 31,000;
and increased its total lending of non-real estate and branch-based
retail sales finance products.
In 2007, the AIG Consumer Finance Group, Inc. (CFG) loan
portfolio reached record levels, ending the year at $4.8 billion and
generating strong growth in revenues. However, the increase in revenues
was offset by increased expenses related to organic branch
expansion efforts, acquisitions, as well as product promotion and
development costs. The overall credit quality of the CFG loan portfolio
has remained stable despite the contraction in consumer credit
experienced in Taiwan, which impacted CFG’s credit card profits.
CFG achieved record earnings in Poland as receivables registered
high growth. Market strategy in Poland was focused on growing the
credit card business and expanding the personal loan branch system.
The personal branch system was also the driving force behind the
success in Mexico, where 22 new branches were opened. CFG operations
in Argentina reported another year of strong receivables growth.
Two new acquisitions were completed in India, which provide a
platform for building a consumer finance franchise.
Additionally, the purchase of a branch-based consumer finance
business in Thailand positioned CFG to significantly expand its
distribution channels by adding approximately 130 up country
branches. CFG continues to research and explore opportunities
to expand its geographic presence in emerging and developing
countries throughout the world.
Imperial A.I. Credit Companies, Inc., the largest financer
of insurance premiums in North America, continued to grow its
high-net-worth life insurance financing business in 2007. It implemented
new marketing initiatives to grow the agent/broker
distribution partner network and differentiate its brand positioning
from competitors.
Among Imperial A.I. Credit’s major Deliver the Firm strategic
initiatives in 2007 were new account opportunities and crossintroductions
to regional agent/brokers through the Domestic
Brokerage Group and new loan business activities in excess of
$70 million from leads that came from AIG’s Office of the Customer.
Financial Services Operating Income (Loss) (a)
(billions of dollars)
1.3
2.1
4.4
0.4
(9.5)
2003 2004 2005 2006 2007
(b)
(a) Includes gains (losses) from hedging activities that do not qualify for hedge accounting
under FAS 133. In addition, fluctuations in operating income from period to period are
not unusual because of the transaction-oriented nature of Capital Markets operations.
(b) In 2007, operating income (loss) includes an unrealized market valuation loss of
$11.5 billion on AIGFP’s super senior credit default swap portfolio and an other-thantemporary
impairment charge of $643 million on AIGFP’s available-for-sale investment
securities .
AIG 2007 Annual Report 37