2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
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American International Group, Inc. and Subsidiaries<br />
charge resulting from the annual review of General Insurance loss<br />
and loss adjustment reserves.<br />
Remediation<br />
Throughout <strong>2007</strong> and 2006, as part of its continuing remediation<br />
efforts, <strong>AIG</strong> recorded out of period adjustments which are detailed<br />
below. In addition, certain revisions were made to the Consoli-<br />
dated Statement of Cash Flows.<br />
tax) of expenses related to deferred advertising costs; and<br />
$125 million ($116 million after tax) of additional expense,<br />
primarily related to other remediation activities.<br />
Results in 2006 were also negatively affected by a one-time<br />
charge relating to the C.V. Starr & Co., Inc. (Starr) tender offer<br />
($54 million before and after tax) and an additional allowance for<br />
losses in <strong>AIG</strong> Credit Card Company (Taiwan) ($88 million before<br />
and after tax), both of which were recorded in first quarter of<br />
2006.<br />
<strong>2007</strong> Adjustments<br />
Cash Flows<br />
During <strong>2007</strong>, out of period adjustments collectively decreased pre-<br />
As part of its ongoing remediation activities, <strong>AIG</strong> has made<br />
tax operating in<strong>com</strong>e by $372 million ($399 million after tax). The<br />
certain revisions to the Consolidated Statement of Cash Flows,<br />
adjustments were <strong>com</strong>prised of a charge of $380 million<br />
primarily relating to the effect of reclassifying certain policyhold-<br />
($247 million after tax) to reverse net gains on transfers of<br />
ers’ account balances, the elimination of certain inter<strong>com</strong>pany<br />
investment securities among legal entities consolidated within<br />
balances and revisions related to separate account assets.<br />
<strong>AIG</strong>FP and a corresponding increase to accumulated other <strong>com</strong>pre-<br />
Accordingly, <strong>AIG</strong> revised the previous periods presented to<br />
hensive in<strong>com</strong>e (loss); $156 million of additional in<strong>com</strong>e tax<br />
conform to the revised presentation. See Note 24 to Consolidated<br />
expense related to the successful remediation of the material<br />
Financial Statements for further information.<br />
weakness in internal control over in<strong>com</strong>e tax accounting;<br />
$142 million ($92 million after tax) of additional expense related<br />
to insurance reserves and DAC in connection with improvements<br />
In<strong>com</strong>e Taxes<br />
in internal control over financial reporting and consolidation<br />
The effective tax rate declined from 30.1 percent in 2006 to<br />
processes; $42 million ($29 million after tax) of additional<br />
16.3 percent in <strong>2007</strong>, primarily due to the unrealized market<br />
expense, primarily related to other remediation activities; and valuation losses on <strong>AIG</strong>FP’s super senior credit default swap<br />
$192 million ($125 million after tax) of net realized capital gains portfolio and other-than-temporary impairment charges. These<br />
related to foreign exchange.<br />
losses, which are taxed at a U.S. tax rate of 35 percent and are<br />
included in the calculation of in<strong>com</strong>e tax expense, reduced <strong>AIG</strong>’s<br />
2006 Adjustments<br />
overall effective tax rate. In addition, other tax benefits, including<br />
tax exempt interest and effects of foreign operations are propor-<br />
During 2006, out of period adjustments collectively increased pretionately<br />
larger in <strong>2007</strong> than in 2006 due to the decline in pre-tax<br />
tax operating in<strong>com</strong>e by $313 million ($65 million after tax). The<br />
in<strong>com</strong>e in <strong>2007</strong>. Furthermore, tax deductions taken in <strong>2007</strong> for<br />
adjustments were <strong>com</strong>prised of $773 million ($428 million after<br />
SICO <strong>com</strong>pensation plans for which the expense had been<br />
tax) of additional investment in<strong>com</strong>e related to the accounting for<br />
recognized in prior years also reduced the effective tax rate in<br />
certain interests in unit investment trusts (UCITS); $300 million<br />
<strong>2007</strong>. <strong>AIG</strong> has now <strong>com</strong>pleted its claims for tax refunds<br />
($145 million after tax) of charges primarily related to the<br />
attributable to adjustments made for 2004 and prior financial<br />
remediation of the material weakness in internal control over the<br />
statements. Refund claims for tax years 1991-1996 were filed<br />
accounting for certain derivative transactions under FAS 133;<br />
with the Internal Revenue Service in June <strong>2007</strong>. Claims for tax<br />
$58 million of additional in<strong>com</strong>e tax expense related to the<br />
years 1997-2004 will be filed before September 2008.<br />
remediation of the material weakness in internal control over<br />
<strong>AIG</strong> expects to receive cash tax benefits in 2008 as a result of<br />
in<strong>com</strong>e tax accounting; $85 million ($55 million after tax) of<br />
the unrealized market valuation losses on <strong>AIG</strong>FP’s super senior<br />
interest in<strong>com</strong>e related to interest earned on deposit contracts;<br />
credit default swap portfolio, whether <strong>AIG</strong> is in a regular or<br />
$61 million (before and after tax) of expenses related to the Starr<br />
alternative minimum tax position.<br />
International Company, Inc. (SICO) Deferred Compensation Profit<br />
Participation Plans (SICO Plans); $59 million ($38 million after<br />
<strong>AIG</strong> <strong>2007</strong> Form 10-K 35