2007 Annual Report - AIG.com

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American International Group, Inc. and Subsidiaries compensation to each broker. Plaintiffs assert that the defendants and In re Employee Benefit Insurance Brokerage Antitrust Litigaviolated the Sherman Antitrust Act, RICO, the antitrust laws of 48 tion (the Second Employee Benefits Complaint) along with revised states and the District of Columbia, and are liable under common law particularized statements in both actions on May 22, 2007. The breach of fiduciary duty and unjust enrichment theories. Plaintiffs allegations in the Second Commercial Complaint and the Second seek treble damages plus interest and attorneys’ fees as a result of Employee Benefits Complaint are substantially similar to the the alleged RICO and Sherman Antitrust Act violations. allegations in the First Commercial Complaint and First Employee The plaintiffs in the First Employee Benefits Complaint are nine Benefits Complaint, respectively. The complaints also attempt to individual employees and corporate and municipal employers add several new parties and delete others; the Second Commeralleging claims on behalf of two separate nationwide purported cial Complaint adds two new plaintiffs and twenty seven new classes: an employee class and an employer class that acquired defendants (including three new AIG defendants), and the Second insurance products from the defendants from August 26, 1994 to Employee Benefits Complaint adds eight new plaintiffs and nine the date of any class certification. The First Employee Benefits new defendants (including two new AIG defendants). The defend- Complaint names AIG, as well as eleven brokers and five other ants filed motions to dismiss the amended complaints and to insurers, as defendants. The activities alleged in the First strike the newly added parties. The Court granted (without leave Employee Benefits Complaint, with certain exceptions, track the to amend) defendants’ motions to dismiss the federal antitrust allegations of contingent commissions, bid-rigging and tying made and RICO claims on August 31, 2007 and September 28, 2007, in the First Commercial Complaint. respectively. The Court declined to exercise supplemental jurisdic- On October 3, 2006, Judge Hochberg of the District of New tion over the state law claims in the Second Commercial Jersey reserved in part and denied in part motions filed by the Complaint and therefore dismissed it in its entirety. On Januinsurer defendants and broker defendants to dismiss the multi- ary 14, 2008, the court granted defendants’ motion for summary district litigation. The Court also ordered the plaintiffs in both judgment on the ERISA claims in the Second Employee Benefits actions to file supplemental statements of particularity to elabo- Complaint and subsequently dismissed the remaining state law rate on the allegations in their complaints. Plaintiffs filed their claims without prejudice, thereby dismissing the Second Employee supplemental statements on October 25, 2006, and the AIG Benefits Complaint in its entirety. On February 12, 2008, plaintiffs defendants, along with other insurer and broker defendants in the filed a notice of appeal to the United States Court of Appeals for two consolidated actions, filed renewed motions to dismiss on the Third Circuit with respect to the dismissal of the Second November 30, 2006. On February 16, 2007, the case was Employee Benefits Complaint. Plaintiffs previously appealed the transferred to Judge Garrett E. Brown, Chief Judge of the District dismissal of the Second Commercial Complaint to the United of New Jersey. On April 5, 2007, Chief Judge Brown granted the States Court of Appeals for the Third Circuit on October 10, 2007. defendants’ renewed motions to dismiss the First Commercial Several similar actions that were consolidated before Chief Judge Complaint and First Employee Benefits Complaint with respect to Brown are still pending in the District Court. Those actions are the antitrust and RICO claims. The claims were dismissed without currently stayed pending a decision by the court on whether they prejudice and the plaintiffs were given 30 days, later extended to will proceed during the appeal of the dismissal of the Second 45 days, to file amended complaints. On April 11, 2007, the Commercial Complaint and the Second Employee Benefits Court stayed all proceedings, including all discovery, that are part Complaint. of the multi-district litigation until any renewed motions to dismiss On August 24, 2007, the Ohio Attorney General filed a the amended complaints are resolved. complaint in the Ohio Court of Common Pleas against AIG and a A number of complaints making allegations similar to those in number of its subsidiaries, as well as several other broker and the First Commercial Complaint have been filed against AIG and insurer defendants, asserting violation of Ohio’s antitrust laws. other defendants in state and federal courts around the country. The complaint, which is similar to the Second Commercial The defendants have thus far been successful in having the Complaint, alleges that AIG and the other broker and insurer federal actions transferred to the District of New Jersey and defendants conspired to allocate customers, divide markets, and consolidated into the multi-district litigation. The AIG defendants restrain competition in commercial lines of casualty insurance have also sought to have state court actions making similar sold through the broker defendant. The complaint seeks treble allegations stayed pending resolution of the multi-district litigation damages on behalf of Ohio public purchasers of commercial proceeding. In one state court action pending in Florida, the trial casualty insurance, disgorgement on behalf of both public and court recently decided not to grant an additional stay, but instead private purchasers of commercial casualty insurance, as well as a to allow the case to proceed. Defendants filed their motions to $500 per day penalty for each day of conspiratorial conduct. AIG, dismiss, and on September 24, 2007, the court denied the along with other co-defendants, moved to dismiss the complaint motions with respect to the state antitrust, RICO, and common on November 16, 2007. Discovery is stayed in the case pending law claims and granted the motions with respect to both the a ruling on the motion to dismiss or until May 15, 2008, Florida insurance bad faith claim against AIG (with prejudice) and whichever occurs first. the punitive damages claim (without prejudice). Discovery in this SICO. In July, 2005, SICO filed a complaint against AIG in the action is ongoing. Southern District of New York, claiming that AIG had refused to Plaintiffs filed amended complaints in both In re Insurance provide SICO access to certain artwork and asked the court to Brokerage Antitrust Litigation (the Second Commercial Complaint) order AIG immediately to release the property to SICO. AIG filed 24 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries an answer denying SICO’s allegations and setting forth defenses to SICO’s claims. In addition, AIG filed counterclaims asserting breach of contract, unjust enrichment, conversion, breach of fiduciary duty, a constructive trust and declaratory judgment, relating to SICO’s breach of its commitment to use its AIG shares only for the benefit of AIG and AIG employees. Fact and expert discovery has been concluded and SICO’s motion for summary judgment is pending. Effect on AIG In the opinion of AIG management, AIG’s ultimate liability for the unresolved litigation and investigation matters referred to above is not likely to have a material adverse effect on AIG’s consolidated financial condition, although it is possible that the effect would be material to AIG’s consolidated results of operations for an individual reporting period. Regulatory Investigations. Regulators from several states have Item 4. commenced investigations into insurance brokerage practices Submission of Matters to a Vote of Security related to contingent commissions and other industry wide Holders Wells Notices. AIG understands that some of its employees have received Wells notices in connection with previously disclosed SEC investigations of certain of AIG’s transactions or accounting practices. Under SEC procedures, a Wells notice is an indication that the SEC staff has made a preliminary decision to recommend enforcement action that provides recipients with an opportunity to respond to the SEC staff before a formal recommendation is finalized. It is possible that additional current and former employees could receive similar notices in the future as the regulatory investigations proceed. practices as well as other broker-related conduct, such as alleged bid-rigging. In addition, various federal, state and foreign regulatory and governmental agencies are reviewing certain transactions and practices of AIG and its subsidiaries in connection with industry wide and other inquiries. AIG has cooperated, and will continue to cooperate, in producing documents and other information in response to subpoenas and other requests. On January 29, 2008, AIG reached settlement agreements with nine states and the District of Columbia. The settlement agreements call for AIG to pay a total of $12.5 million to be allocated among the ten jurisdictions and also require AIG to continue to maintain certain producer compensation disclosure and ongoing compliance initiatives. AIG will also continue to cooperate with these states in their ongoing investigations. AIG has not admitted liability under the settlement agreements and continues to deny the allegations. Nevertheless, AIG agreed to settle in order to avoid the expense and uncertainty of protracted litigation. The settlement agreements, which remain subject to court approvals, were reached with the Attorneys General of the States of Florida, Hawaii, Maryland, Michigan, Oregon, Texas and West Virginia, the Commonwealths of Massachusetts and Pennsylvania, and the District of Columbia, the Florida Department of Financial Services, and the Florida Office of Insurance Regulation. The agreement with the Texas Attorney General also settles allegations of anticompetitive conduct relating to AIG’s relationship with Allied World Assurance Company and includes an additional settlement payment of $500,000 related thereto. There were no matters submitted to a vote of security holders during the fourth quarter of 2007. AIG 2007 Form 10-K 25
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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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Page 39 and 40: ILFC—Revenues by Region Total = $
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Index of Notes to Consolidated Fina
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SHAREHOLDER INFORMATION Corporate H
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