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entitled 'Troubled Asset Relief Program: Third Quarter 2010 Update of 
Government Assistance Provided to AIG and Description of Recent 
Execution of Recapitalization Plan' which was released on January 20, 
2011. 

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United States Government Accountability Office: 
GAO: 

Report to Congressional Addressees: 

January 2011: 

Troubled Asset Relief Program: 

Third Quarter 2010 Update of Government Assistance Provided to AIG and 
Description of Recent Execution of Recapitalization Plan: 

GAO-11-46: 

GAO Highlights: 

Highlights of GAO-11-46, a report to congressional addressees. 

Why GAO Did This Study: 

Assistance provided by the Department of the Treasury (Treasury), 
under the Troubled Asset Relief Program (TARP), and the Board of 
Governors of the Federal Reserve System (Federal Reserve) to American 
International Group, Inc. (AIG) represents one of the federal 
government’s largest investments in a private-sector institution since 
the financial crisis began in 2008. AIG is a holding company that, 
through its subsidiaries, engaged in a broad range of insurance and 
insurance-related activities in the United States and abroad. 

As part of GAO’s statutory oversight of TARP, this report updates a 
set of indicators GAO last reported in April 2010. Specifically, GAO 
discusses (1) trends in AIG’s financial condition, (2) trends in the 
unwinding of AIG Financial Products (AIGFP) and the financial 
condition of AIG’s insurance companies, and (3) the status of the 
government’s exposure to AIG. To update the indicators, GAO primarily 
used available public filings as of September 30, 2010, and more 
current publicly available information; reviewed rating agencies’ 
reports; and identified critical activities and discussed them with 
officials from Treasury, the Federal Reserve, and AIG. 

Treasury, the Federal Reserve, and AIG provided technical comments 
that GAO incorporated, as appropriate. 

What GAO Found: 

Largely due to the federal assistance Treasury and the Federal Reserve 
provided to AIG, as measured by several indicators, AIG’s financial 
condition has generally remained relatively stable or showed signs of 
improvement since GAO’s last report in April 2010. As of September 30, 
2010, the outstanding balance of the Federal Reserve and Treasury 
assistance to AIG was $123.7 billion, down from $129.1 billion in 
December 2009 (see table). Overall, federal assistance appears to be 
facilitating a more orderly restructuring of the company. 

Several indicators show that AIGFP has continued to unwind its credit 
default swap positions and its portfolio of super senior credit 
default swaps. Several indicators on the status of AIG’s insurance 
companies illustrate that its insurance operations are showing signs 
of recovery, but federal assistance has been a critical factor. In 
particular, in the first three quarters of 2010, additions to AIG life 
and retirement policyholder contract deposits exceeded withdrawals and 
the companies’ pretax operating incomes, which increased slightly in 
2009 remained positive. AIG’s property/casualty companies have 
remained stabilized. 

AIG repaid some of its debt to the federal government, but a larger 
volume of activity involved exchanging AIG’s debt on the revolving 
credit facility (facility) with the Federal Reserve Bank of New York 
(FRBNY) for federally owned preferred interests in AIG ($40 billion) 
and AIA Group Limited (AlA) and American Life Insurance Company 
(ALICO) special purpose vehicles (SPV) ($25 billion). As a result of 
this shift from debt to equity, which has occurred gradually, the 
authorized amount of the facility has decreased and the amount of 
preferred equity interests held in AIG and various SPVs for the 
government has increased. For example, as of September 30, 2010, the 
amount of assistance available to AIG through the facility had been 
reduced to $29.2 billion and the amount AIG owed the facility was 
reduced to $20.5 billion. Also, FRBNY’S preferred interests in the 
SPVs created to hold the shares of certain foreign life insurance 
companies—-AIA and ALICO-—have increased nearly $1 billion and the 
Series F stock held by Treasury has increased more than $2 billion 
since December 31, 2009. Upon the execution of the recapitalization 
plan on January 14, 2011, all of the government’s assistance to AIG is 
now in the form of common stock and preferred interests. Consequently, 
the government’s, and thus the taxpayer’s, exposure to AIG 
increasingly is expected to be tied to the success of AIG, its ongoing 
performance, and its value as seen by investors of AIG’s common stock. 
The sustainability of any positive trends in AIG’s operations depends 
on how well AIG manages its business, and the government’s ability to 
fully recoup the federal assistance will be determined by the long-
term health of AIG and subject to uncertainty arising from the 
likelihood of future changes in general economic, regulatory, and 
market conditions. GAO will continue to monitor these issues in its 
future work. 

Table: Overview of Federal Assistance Provided to AIG as of September 
30, 2010: 

Implemented: 
						
Description of the federal assistance: Federal Reserve: FRBNY created 
a revolving credit facility to provide a revolving loan that AIG and 
its subsidiaries could use to enhance their liquidity positions. In 
exchange for the facility and $0.5 million, a trust received Series C 
preferred stock for the benefit of Treasury, which gives the trust an 
approximately 79.75 percent voting interest in AIG; 
Amount of assistance authorized: Debt: $29.175 billion[A]; 
Amount of assistance authorized: Equity: n/a; 
Outstanding balance: $20.470 billion; 
Sources to repay the government: On January 14, 2011, AIG announced 
that it executed the signed recapitalization plan, which stated that 
AIG is using the net cash proceeds from the recent AIA IPO and the 
sale of ALICO to MetLife to repay the FRBNY revolving credit facility. 

Description of the federal assistance: Federal Reserve: FRBNY created 
a SPV—Maiden Lane II—to provide AIG liquidity by purchasing 
residential mortgage-backed securities from AIG life insurance 
companies. FRBNY provided a loan to Maiden Lane II for the purchases. 
FRBNY also terminated its securities lending program with AIG, which 
had provided additional liquidity associated with AIG’s securities 
lending program when it created Maiden Lane II; 
Amount of assistance authorized: Debt: $22.5 billion; 
Amount of assistance authorized: Equity: n/a; 
Outstanding balance: $13.656 billion[B]; 
Sources to repay the government: Proceeds from asset sales in Maiden 
Lane II will be used to repay the FRBNY loan. 

Description of the federal assistance: Federal Reserve: FRBNY created 
an SPV called Maiden Lane III to provide AIG liquidity by purchasing 
collateralized debt obligations from AIGFP counterparties in 
connection with the termination of credit default swaps. FRBNY again 
provided a loan to the SPV for the purchases; 
Amount of assistance authorized: Debt: $30 billion; 
Amount of assistance authorized: Equity: n/a; 
Outstanding balance: $14.638 billion[B]; 
Sources to repay the government: Proceeds from asset sales in Maiden 
Lane III will be used to repay the FRBNY loan. 

Description of the federal assistance: Federal Reserve: AIG created 
two SPVs, one for AIA and one for ALICO, to hold the shares of certain 
of its foreign life insurance businesses. On December 1, 2009, FRBNY 
received preferred interests in the SPVs of $16 billion and $9 
billion, respectively, in exchange for reducing debt AIG owed on the 
revolving credit facility. The SPVs allowed AIG to strengthen its 
balance sheet by reducing debt and increasing equity and also were 
intended to facilitate dispositions to generate cash for repayment of 
the federal assistance; 
Amount of assistance authorized: Debt: n/a; 
Amount of assistance authorized: Equity: $25 billion; 
Outstanding balance: $25.955 billion; 
Sources to repay the government: On November 1, 2010, AIG announced 
the completion of an initial public offering of AIA on the Hong Kong 
Stock Exchange that generated gross proceeds of $20.51 billion. Also, 
on November 1, 2010, AIG announced that it had closed on the sale of 
ALICO to MetLife for approximately $16.2 billion, of which $7.2 
billion is in cash. The cash proceeds will allow AIG to fully repay 
and close the revolving credit facility on closing of the 
recapitalization plan. 

Description of the federal assistance: Treasury: Treasury purchased 
Series D cumulative preferred stock of AIG. AIG used the proceeds to 
pay down part of the FRBNY revolving credit facility. Series D stock 
was later exchanged for Series E noncumulative preferred stock. Unpaid 
dividends on the Series D shares were added to the principal amount of 
Series E stock that Treasury received; 
Amount of assistance authorized: Debt: n/a; 
Amount of assistance authorized: Equity: $40 billion; 
Outstanding balance: $41.605 billion; 
Sources to repay the government: Proceeds from dispositions of AIG 
businesses and internal cash flows of AIG. 

Description of the federal assistance: Treasury: Treasury purchased 
Series F noncumulative preferred stock of AIG. Treasury has committed 
to provide AIG with up to $29.835 billion through an equity capital 
facility to meet its liquidity and capital needs in exchange for an 
increase in the aggregate liquidation preference of the Series F 
shares; 
Amount of assistance authorized: Debt: n/a; 
Amount of assistance authorized: Equity: $29.835 billion; 
Outstanding balance: $7.378 billion[C]; 
Sources to repay the government: Proceeds from dispositions of AIG 
businesses and internal cash flows of AIG. 

Subtotals: 
Amount of assistance authorized: Debt: $81.675 billion; 
Amount of assistance authorized: Equity: $94.835 billion. 

Total authorized (debt and equity): 
Amount of assistance authorized: $176.510 billion[D]. 
				
Total outstanding assistance: 
Outstanding balance: $123.702 billion. 
		
Source: GAO analysis of AIG Securities and Exchange Commission 
filings, Federal Reserve, and Treasury data. 

[A] The borrowing limit on the revolving credit facility was initially 
$85 billion, but was reduced to $60 billion in November 2008 and then 
reduced again to $35 billion in December 2009. The facility was 
reduced to $34.2 billion by March 31, 2010, to $33.728 billion by June 
30, 2010, and to $29.175 billion by October 6, 2010; these reductions 
were attributed to repayments from proceeds obtained from the sale of 
various assets and businesses. The authorized and outstanding balances 
as of September 30, 2010, shown above, include outstanding principal 
and exclude accrued interest and fees of $6.182 billion. The AIG loan 
balance reported in the H.4.1 reflects the outstanding principal 
balance, capitalized interest, unamortized deferred commitment fees, 
and the allowance for the loan restructuring, which was initially 
recorded in July 2009. 

[B] Government debt shown for Maiden Lane facilities as of September 
29, 2010, are principal only and do not include accrued interest of 
$408 million for Maiden Lane II and $499 million for Maiden Lane III. 

[C] As of January 14, 2011, AIG had drawn down approximately $21 
billion as part of the restructuring plan. 

[D] The Federal Reserve and Treasury had made $182.3 billion in 
assistance available as of December 31, 2009. This amount was 
subsequently reduced to $176.5 billion. 

[End of table] 

View [hyperlink, http://www.gao.gov/products/GAO-11-46] or key 
components. For more information, contact Orice Williams Brown at 
(202) 512-8678 or williamso@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Federal Assistance Remains Key to Improving AIG's Financial Condition: 

AIGFP Has Continued to Unwind Its CDS Portfolio Positions and Reduce 
Its Number of Full-Time Equivalent Employees: 

AIG's Insurance Operations Have Continued to Show Signs of Recovery, 
but Federal Aid to Life Insurance Companies Has Been Critical to Their 
Progress: 

The Federal Government's Exposure to AIG Has Declined and Its Ability 
to Fully Recoup Its Assistance Will Be Determined by AIG's Long-term 
Health and Market Conditions: 

Agency Comments and Our Evaluation: 

Appendix I: AIG Operations: 

Appendix II: AIG's Credit Ratings and an Overview of Definitions of 
Credit Ratings: 

Appendix III: Corporate Liquidity Available to AIG: 

Appendix IV: Value of Preferred and Common Shares of AIG: 

Appendix V: AIG Insurance Subsidiaries' Capital and Surplus: 

Appendix VI: Revenues and Expense of AIG Life Insurance and Retirement 
Services: 

Appendix VII: Underwriting Ratios for AIG's Property/Casualty 
Companies: 

Appendix VIII: Detail on AIG's Federal Assistance and the Repayment of 
That Assistance: 

Appendix IX: Disposition of AIG Assets: 

Appendix X: GAO Contact and Staff Acknowledgments: 

Glossary of Terms: 

Tables: 

Table 1: U.S. Government Efforts to Assist AIG and the Government's 
Remaining Exposure, as of September 30, 2010: 

Table 2: Amount of Outstanding Commercial Paper by Source, December 
31, 2007, through September 30, 2010: 

Table 3: Composition of U.S. Government Efforts to Assist AIG and the 
Government's Approximate Remaining Exposures, as of September 30, 2010: 

Table 4: AIG's Key Credit Ratings, March 31, 2009, through September 
30, 2010: 

Table 5: Summary of Rating Agencies' Ratings: 

Table 6: Amounts of Available Corporate Liquidity, November 5, 2008, 
through and October 27, 2010: 

Table 7: Dispositions Closed and Agreements Announced but Not Yet 
Closed, September 30, 2008, through November 30, 2010: 

Figures: 

Figure 1: AIG Corporate Available Liquidity and Companywide Debt 
Projections, Third Quarter of 2008 through Third Quarter of 2010: 

Figure 2: AIG Trends in and Main Components of Consolidated 
Shareholders' Equity, Fourth Quarter of 2007 through Third Quarter of 
2010: 

Figure 3: Net Cash Flows and Changes in Cash from Operating, 
Investing, and Financing Activities, from First Quarter of 2007 
through Third Quarter of 2010: 

Figure 4: Quarterly AIG Pretax Operating Income and Loss by Operating 
Segment, First Quarter of 2008 through Fourth Quarter of 2009: 

Figure 5: AIG Credit Default Swap Premiums on AIG, January 2007 
through November 30, 2010: 

Figure 6: Status of the Winding Down of AIG Financial Products Corp., 
Quarterly from September 30, 2008, through September 30, 2010: 

Figure 7: Net Notional Amount, Fair Value of Derivative Liability, and 
Unrealized Market Valuation Losses and Gains for AIGFP's Super Senior 
(rated BBB or better) CDS Portfolio, Third Quarter of 2008 through 
Third Quarter of 2010: 

Figure 8: Total Gross and Net Notional Amounts of Multisector CDOs 
Compared to Portions of Gross National Portfolio That Have Underlying 
Assets That Were Rated Less than BBB, Third Quarter of 2008 through 
Third Quarter of 2010: 

Figure 9: Regulatory Capital for AIG Domestic Insurance Subsidiaries 
and Primary Activities That Affected Regulatory Capital during 2009: 

Figure 10: AIG Life and Retirement Services Additions and Withdrawals 
from Policyholder Contract Deposits for AIG Life and Retirement 
Services Including Annuities, Guaranteed Investment Contracts, and 
Life Products, First Quarter of 2007 through Third Quarter of 2010: 

Figure 11: AIG General Insurance Premiums Written by Division, First 
Quarter of 2007 through Third Quarter of 2010: 

Figure 12: Quarterly Statutory Underwriting Ratios of AIG (Domestic 
and Foreign Property/Casualty Insurance Companies) Compared to 
Averages for 15 Peers and AIG's Property/Casualty Investment Income 
and Net Income as Percents of Premiums Earned, First Quarter 2007 
through Third Quarter of 2010: 

Figure 13: Debt and Equity Federal Assistance Provided to AIG Compared 
with AIG's Book Value, December 2004 through September 30, 2010: 

Figure 14: Proceeds from Dispositions by Quarter, September 30, 2008, 
through November 30, 2010: 

Figure 15: AIG, Its Subsidiaries, and Percentage Ownership by Parent 
Company as of September 1, 2010: 

Figure 16: Market Capitalization of AIG Outstanding Common Shares, 
Including Trust-Owned Preferred C Shares That Are Convertible into 
Approximately 79.75 Percent of AIG's Outstanding Common Shares, 
December 2004 through September 2010: 

Figure 17: AIG Domestic Insurance Subsidiaries: Capital and Surplus at 
December 31, 2009, and September 30, 2010, and Primary Activities That 
Affected It During the First 9 Months of 2010: 

Figure 18: Key Quarterly Revenues and Expenses for AIG Domestic Life 
Insurance and Retirement Services Companies for First Quarter of 2007 
through Third Quarter of 2010: 

Figure 19: Key Quarterly Revenues and Expenses for AIG, Life Insurance 
and Retirement Services Companies for AIG Foreign Life Insurance and 
Retirement Services Companies First Quarter of 2007 through Third 
Quarter of 2010: 

Figure 20: AIG Commercial Insurance Operating Ratios, First Quarter of 
2007 through Third Quarter of 2010: 

Figure 21: AIG Foreign General Insurance Operating Ratios, First 
Quarter of 2007 through Third Quarter of 2010: 

Figure 22: FRBNY Revolving Credit Facility Balance Owed and Total 
Amount Available, October 2008 through December 1, 2010: 

Figure 23: Amounts Owed and Portfolio Value of Maiden Lane II through 
December 1, 2010: 

Figure 24: Amounts Owed and Portfolio Value of Maiden Lane III through 
December 1, 2010: 

Abbreviations: 

AIA: AIA Group Limited: 

AIG: American International Group, Inc. 

AIGFP: AIG Financial Products Corp. 

ALICO: American Life Insurance Company: 

CDO: collateralized debt obligation: 

CDS: credit default swap: 

CPFF: commercial paper funding facility: 

DPW: direct premiums written: 

EESA: Emergency Economic Stabilization Act of 2008: 

Federal Reserve: Board of Governors of the Federal Reserve System: 

FRBNY: Federal Reserve Bank of New York: 

IPO: initial public offering: 

NAIC: National Association of Insurance Commissioners: 

NYSE: New York Stock Exchange: 

RMBS: residential mortgage-backed security: 

S&P: Standard & Poor's: 

SEC: Securities and Exchange Commission: 

SIGTARP: Special Inspector General for the Troubled Asset Relief 
Program: 

SPV: special purpose vehicle: 

TARP: Troubled Asset Relief Program: 

Treasury: Department of the Treasury: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

January 20, 2011: 

Congressional Addressees: 

Assistance provided to American International Group, Inc. (AIG) 
represented one of the federal government's largest investments in a 
private-sector institution since the financial crisis began in 2008. 
AIG is a holding company that, through its subsidiaries, engages in a 
broad range of insurance and insurance-related activities in the 
United States and abroad, including general insurance, life insurance 
and retirement services, financial services, and asset management. The 
potential demise of this company in 2008 threatened to further disrupt 
the already troubled financial markets. To minimize the likelihood of 
such a scenario, the Board of Governors of the Federal Reserve System 
(Federal Reserve) and, subsequently, the Department of the Treasury 
(Treasury) deemed AIG to be systemically significant, opening the door 
for these entities to provide extraordinary assistance to AIG. The 
Federal Reserve, through its emergency powers under section 13(3) of 
the Federal Reserve Act, and Treasury, through the Emergency Economic 
Stabilization Act of 2008 (EESA), which authorized the Troubled Asset 
Relief Program (TARP), collaborated to make available more than $180 
billion in assistance to AIG.[Footnote 1] The assistance has been used 
to strengthen AIG's financial condition and avert a failure of the 
company and, in turn, further disruption of the financial markets. 
While Treasury, the Federal Reserve Bank of New York (FRBNY), the AIG 
Credit Facility Trust, AIG, and two special purpose vehicles (SPV)-- 
ALICO Holdings LLC and AIA Aurora LLC--recently signed a restructuring 
agreement designed to enable AIG to more quickly repay the assistance, 
Treasury's ability to recoup its investment depends on the long-term 
health of AIG and a number of other factors.[Footnote 2] 

Under our statutorily mandated responsibilities for providing timely 
oversight of TARP, we are continuing to report on the federal 
government's assistance to AIG.[Footnote 3] To help Congress monitor 
the condition of AIG and the government's ability to recoup its 
assistance to AIG, we have developed indicators to monitor trends in 
AIG's operations and the status of repayments. Because government 
assistance to AIG is a coordinated approach, in addition to providing 
timely reporting of Treasury's assistance to AIG, we also are 
monitoring the efforts of the Federal Reserve.[Footnote 4] In 
September 2009 we issued a report on the status of government 
assistance to AIG where we first reported on these indicators, which 
we updated that report in April 2010.[Footnote 5] Since then, we have 
continued to monitor the financial risk posed by AIG, its financial 
condition, and the status of its repayment efforts.[Footnote 6] This 
report provides an update on the AIG indicators primarily based on 
AIG's latest available public filings as of September 30, 2010, and 
other more current publicly available information where available. 
Specifically, the report discusses (1) trends in AIG's financial 
condition, (2) trends in the unwinding of AIG Financial Products 
(AIGFP), (3) the financial condition and performance of AIG's 
insurance companies, and (4) the status of the government's exposure 
to AIG. 

To conduct this work, we updated previously published indicators that 
address several dimensions of AIG's business, including its credit 
ratings, operating performance, capital, debt repayment, and liquidity 
position. The data used to create the indicators are collected from 
several sources, but most are based on publicly available information, 
such as AIG's 10K and 10Q filings with the Securities and Exchange 
Commission (SEC) and National Association of Insurance Commissioners 
reports. We analyzed AIG's SEC filings, and any supplements for those 
filings, through the third quarter of 2010. We also analyzed 
information from Thomson Reuters Datastream and the National 
Association of Insurance Commissioners. We obtained the most recent 
ratings of AIG from credit rating agencies. We also analyzed data from 
recent issues of the Federal Reserve weekly statistical releases H.4.1 
and Treasury's Financial Position Paper 09-07. AIG also provided 
updated information on its asset dispositions. We assessed the 
reliability of the data and found that the data were sufficiently 
reliable for our purposes. 

To assess AIG's financial condition, we updated indicators of key AIG 
credit ratings, its corporate debt and liquidity positions, trends in 
shareholder equity, operating income and losses, and its credit 
default swap (CDS) premiums. We also included a new indicator of AIG's 
operating, investing, and financing cash flows. To assess the 
unwinding of AIGFP, we updated our indicators on AIGFP's trading 
positions and employee count and CDS portfolio.[Footnote 7] To assess 
the financial condition of AIG's insurance companies, we reviewed the 
regulatory capital of AIG's largest domestic property/casualty and 
life insurance and retirement services companies, additions to and 
withdrawals from policyholder contract deposits, revenues and expenses 
for life insurance and retirement services, AIG general insurance 
premiums written, and combined ratios. To determine the status of 
AIG's repayment of its federal assistance, we updated the composition 
of the government's direct and indirect assistance to AIG, FRBNY's 
revolving credit facility balance, balances on the Maiden Lane 
facilities, and AIG's divestitures and asset dispositions.[Footnote 8] 
We report the balances of the federal debt and equity assistance as of 
September 30, 2010, because our primary source for equity data--AIG's 
10Q filing with SEC--is only available quarterly, and the 10Q report 
containing more current data is not yet publicly available. We also 
updated selected information to reflect the January 14, 2011, closing 
of AIG's recapitalization plan. No single indicator provides a 
definitive measure of AIG's progress, and the indicators in this 
report should be considered collectively. We selected indicators that 
appeared to track the most critical activities related to the goals 
for federal assistance to AIG. Since our last report, we have 
developed two new indicators of AIG's financial condition: one to 
track the performance of AIG's insurance companies and one to track 
federal assistance to AIG. 

We conducted our work from May 2010 to January 2011 in accordance with 
all sections of GAO's Quality Assurance Framework that are relevant to 
our objectives. The framework requires that we plan and perform the 
engagement to obtain sufficient and appropriate evidence to meet our 
stated objectives and to discuss any limitations in our work. We 
believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions. 

Background: 

AIG comprises approximately 400 companies and has operations in more 
than 130 countries and jurisdictions worldwide. As of September 30, 
2010, AIG had assets of $872 billion and revenues of $19.1 billion for 
the three preceding months. The AIG companies are among the largest 
domestic life insurers and domestic property/casualty insurers in the 
United States, and they also comprise large foreign general insurance 
and life insurance businesses. Appendix I illustrates the breadth of 
AIG's operations and its subsidiaries. 

AIG Operations: 

Historically, AIG has issued commercial paper to help finance its 
operations, but since the recent financial crisis, at the corporate 
level, AIG has had to draw on other short-term funding sources. 
[Footnote 9] For example, as of December 31, 2007, AIG reported having 
$13.1 billion of commercial paper outstanding, and as of September 30, 
2010, it had none outstanding. It also continues to be a participant 
(although at declining levels) in the derivatives market through 
AIGFP--a financial products subsidiary that engaged in a variety of 
financial transactions, including standard and customized financial 
products, which were a major source of AIG's liquidity problems. As of 
September 30, 2010, AIG's total gross derivatives assets had a fair 
value of $28.1 billion, of which $23.5 billion pertained to capital 
markets, down from $34.5 billion and $32 billion, respectively, at the 
end of 2009. Additionally, until 2008, AIG had maintained a large 
securities lending program operated by its insurance subsidiaries. The 
securities lending program allowed insurance companies, primarily 
AIG's life insurance companies, to lend securities in return for cash 
collateral that was invested in investments such as residential 
mortgage-backed securities (RMBS). This program was the initial source 
of AIG's liquidity problems in 2008. 

Federal, state, and international authorities regulate AIG and its 
subsidiaries. Until recently, the Office of Thrift Supervision was the 
consolidated supervisor of AIG, which was a thrift holding company by 
virtue of its ownership of the AIG Federal Savings Bank. As the 
consolidated supervisor, the Office of Thrift Supervision was charged 
with identifying systemic issues or weaknesses and helping ensure 
compliance with regulations that govern permissible activities and 
transactions.[Footnote 10] AIG's domestic, life, and property/casualty 
insurance companies are regulated by the state insurance regulators in 
the state in which these companies are domiciled.[Footnote 11] These 
state agencies regulate the financial solvency and market conduct of 
these companies, and they have the authority to approve or disapprove 
certain transactions between an insurance company and its parent or 
its parent's subsidiaries. These agencies also coordinate the 
monitoring of companies' insurance lines among multiple state 
insurance regulators. For AIG in particular, these regulators have 
reviewed reports on liquidity, investment income, and surrender and 
renewal statistics; evaluated potential sales of AIG's domestic 
insurance companies; and investigated allegations of pricing 
disparities. Finally, AIG's general insurance business and life 
insurance business that are conducted in foreign countries are 
regulated by the supervisors in those jurisdictions to varying degree. 

In addition, Treasury's purchase, management, and sale of assets under 
TARP, including those associated with AIG, are subject to oversight by 
the Special Inspector General for TARP (SIGTARP). As part of its 
quarterly reports to Congress, SIGTARP has provided information on 
federal assistance and the restructuring of the federal assistance 
provided to AIG, as well as information on the unwinding of AIGFP and 
the sale of certain AIG assets.[Footnote 12] SIGTARP's reporting on 
AIG's activities also has included reports that focused on federal 
oversight of AIG compensation and efforts to limit AIG's payments to 
its counterparties.[Footnote 13] The Congressional Oversight Panel, 
which helps provide oversight of TARP, also issued a report in June 
2010, which reviewed the government's actions precipitating its 
assistance to AIG and identified several of its concerns with the 
rescue of AIG.[Footnote 14] It concluded that while the government 
averted a financial collapse, it put billions of taxpayer dollars at 
risk, changed the marketplace, and adversely affected the confidence 
of the American people in the market. 

Federal Reserve and Treasury Provided Assistance to AIG to Limit 
Systemic Risk to the Financial Markets: 

In September 2008, the Federal Reserve, FRBNY, and Treasury determined 
through analysis of information provided by AIG and insurance 
regulators, as well as publicly available information, that market 
events in September 2008 could cause AIG to fail, which would have 
posed systemic risk to financial markets.[Footnote 15] Consequently, 
the Federal Reserve and Treasury took steps to help ensure that AIG 
obtained sufficient funds to continue to meet its obligations and 
could complete an orderly sale of its operating assets and close its 
investment positions in its securities lending program and AIGFP. The 
federal government first provided assistance to AIG in September 2008 
and subsequently modified and amended that assistance. 

AIG's Financial Problems Mounted Rapidly in 2008: 

From July through early September in 2008, AIG faced increasing 
liquidity pressure following a downgrade in its credit ratings in May 
2008 due in part to losses from its securities lending program. The 
company was experiencing declines in the value and market liquidity of 
the RMBS assets that comprised to collateral for its securities 
lending operation and declining values of collateralized debt 
obligations (CDO) against which AIGFP had written CDS protection. 
[Footnote 16] These losses forced AIG to use an estimated $9.3 billion 
of its cash reserves in July and August 2008 to repay securities 
lending counterparties that terminated existing agreements and to post 
additional collateral required by the trading counterparties of AIGFP. 
AIG attempted to raise additional capital in the private market in 
September 2008, but was unsuccessful. On September 15, 2008, the 
rating agencies downgraded AIG's debt rating, which resulted in the 
need for an additional $20 billion to fund its added collateral 
demands and transaction termination payments. Following the credit 
rating downgrade, an increasing number of counterparties refused to 
transact with AIG for fear that it would fail. Also around this time, 
the insurance regulators decided they would no longer allow AIG's 
insurance subsidiaries to lend funds to the parent company under a 
revolving credit facility that AIG maintained. Furthermore, the 
insurance regulators demanded that any outstanding loans be repaid and 
that the facility be terminated. 

The Federal Reserve and Treasury Took a Variety of Steps to Assist AIG: 

Because of increasing concerns that an AIG failure would have posed 
systemic risk to financial markets, in 2008 and 2009 the federal 
government agreed to make more than $182 billion of federal assistance 
available to AIG. First, in September 2008, the Federal Reserve, with 
the support of Treasury, authorized FRBNY to lend AIG up to $85 
billion.[Footnote 17] The secured loan was set up as a revolving 
credit facility that AIG could use as a reserve to meet its 
obligations. This debt was subsequently restructured in November 2008 
and March 2009. As of September 30, 2010, the amount of assistance to 
available AIG through the FRBNY facility had declined by about $5.8 
billion from December 31, 2009 because of mandatory prepayments that 
reduced the amount available under the facility, lowering the amount 
of federal assistance available to AIG to $176.5 billion. 

In late 2008, AIG's mounting debt--the result of borrowing from the 
revolving credit facility--led to concerns that its credit ratings 
would be lowered, which would have caused its condition to deteriorate 
further. In response, the Federal Reserve and Treasury restructured 
AIG's debt in November 2008. Under the restructured terms, Treasury 
purchased $40 billion in shares of AIG preferred stock (Series D) and 
the cash from the sale was used to pay down a portion of AIG's 
outstanding balance from the revolving credit facility. The limit on 
the facility also was reduced to $60 billion, and other changes were 
made. This restructuring was critical to helping AIG maintain its 
credit ratings. 

In March 2009, the Federal Reserve and Treasury announced plans to 
further restructure AIG's assistance. According to the Federal 
Reserve, debt owed by AIG on the revolving credit facility would be 
reduced by $25 billion in exchange for FRBNY's receipt of preferred 
equity interests totaling $25 billion in two SPVs. AIG created both 
SPVs to hold the outstanding common stock of two life insurance 
company subsidiaries--American Life Insurance Company (ALICO) and AIA 
Group Limited (AIA). FRBNY's preferred interests, which were valued at 
$25 billion in June 2010, are an undisclosed percentage of the fair 
market value of ALICO and AIA as determined by FRBNY. On March 1, 
2010, AIG announced that its board had approved the sale of AIA to 
Prudential PLC. The ultimate disposition is discussed later in the 
report. 

Federal assistance to AIG also included FRBNY's creation of two new 
facilities to purchase some of AIG's more troubled assets. AIG's 
securities lending program continued to be one of the greatest ongoing 
demands on its working capital, and on November 10, 2008, FRBNY 
announced plans to create an RMBS facility--Maiden Lane II LLC--to 
purchase RMBS assets from AIG's U.S. securities lending portfolio. The 
Federal Reserve authorized FRBNY to lend up to $22.5 billion to Maiden 
Lane II; AIG also acquired a subordinated, $1 billion interest in the 
facility, which will absorb the first $1 billion of any losses. On 
December 12, 2008, FRBNY extended a $19.5 billion loan to Maiden Lane 
II to fund its portion of the purchase price of the securities. The 
facility purchased $39.3 billion face value of the RMBS directly from 
AIG subsidiaries (domestic life insurance companies). As of September 
29, 2010, Maiden Lane II owed $14.1 billion in principal and interest 
to FRBNY, down from $16 billion in December 2009. 

In addition, on November 10, 2008, FRBNY announced plans to create a 
separate facility--Maiden Lane III LLC--to purchase multisector CDOs 
on which AIGFP had written CDS contracts.[Footnote 18] This facility 
was aimed at facilitating the restructuring of AIG by addressing the 
greatest threat to AIG's liquidity position. In connection with the 
purchase of the CDOs, AIG's CDS counterparties agreed to terminate the 
CDS contracts.[Footnote 19] The Federal Reserve authorized FRBNY to 
lend up to $30 billion to Maiden Lane III. On November 25, 2008, and 
December 18, 2008, FRBNY extended a total of $24.3 billion in loans to 
Maiden Lane III; AIG also paid $5 billion for an equity interest in 
Maiden Lane III and agreed to absorb the first $5 billion of any 
losses. As of September 29, 2010, Maiden Lane III owed $15.1 billion 
in principal and interest to FRBNY, down from $18.5 billion in 
December 2009. 

When the Maiden Lanes were created, FRBNY officials said that the 
FRBNY loans to Maiden Lane II and Maiden Lane III were both expected 
to be repaid with the proceeds from the interest and principal 
payments or liquidation of the assets in the facilities. The repayment 
is to occur through cash flows from the underlying securities as they 
were paid off. Accordingly, the Federal Reserve did not set a date for 
selling the assets; rather it has indicated that it is prepared to 
hold the assets to maturity if necessary. 

In March 2009, the Federal Reserve announced its intention to assist 
AIG in the form of credit made under section 13(3) of the Federal 
Reserve Act. FRBNY was authorized to make loans of up to an aggregate 
amount of approximately $8.5 billion to SPVs to be established by 
certain AIG domestic life insurance subsidiaries. As announced, the 
SPVs were to repay the loans from the net cash flows they were to 
receive from designated blocks of existing life insurance policies 
issued by the insurance companies. The proceeds of the FRBNY loans 
were to pay down an equivalent amount of outstanding debt under the 
revolving credit facility. However, in February 2010, AIG announced 
that it was no longer pursuing this life insurance securitization 
transaction with FRBNY. 

Treasury also has provided assistance to AIG. On November 10, 2008, 
Treasury's Office of Financial Stability announced plans under TARP to 
purchase $40 billion in AIG preferred shares. AIG entered into an 
agreement with Treasury on November 25, 2008, whereby Treasury agreed 
to purchase $40 billion of fixed-rate cumulative preferred stock of 
AIG (Series D) and received a warrant to purchase approximately 2 
percent of the shares of AIG's common stock.[Footnote 20] As 
previously discussed, the proceeds of this sale were used to pay down 
AIG's outstanding balance on the revolving credit facility. 

On April 17, 2009, AIG and Treasury entered into an agreement in which 
Treasury agreed to exchange its $40 billion of Series D cumulative 
preferred stock for $41.6 billion of Series E fixed-rate noncumulative 
preferred stock of AIG, allowing for a reduction in leverage and 
dividend requirements. The $1.6 billion difference between the initial 
aggregate liquidation preference of the Series E stock and the Series 
D stock represents a compounding of accumulated but unpaid dividends 
owed by AIG to Treasury on the Series D stock. Because the Series E 
preferred stock more closely resembles common stock, principally 
because its dividends are noncumulative, rating agencies viewed the 
stock more positively when rating AIG's financial condition. 

Finally, also on April 17, 2009, Treasury provided a $29.835 billion 
equity capital facility to AIG whereby AIG issued to Treasury 300,000 
shares of fixed-rate noncumulative perpetual preferred stock (Series 
F) and a warrant to purchase up to 3,000 shares of AIG common stock. 
The facility was intended to strengthen AIG's capital levels and 
improve its leverage. 

As AIG draws on the equity capital facility, the aggregate liquidation 
preference of the Series F stock is adjusted upward.[Footnote 21] As 
of September 30, 2010, AIG had drawn down about $7.4 billion of the 
commitment, up from $5.2 billion in December 2009. Table 1 provides an 
overview of the various forms of assistance, the purpose of each form 
of assistance, the amounts authorized, the amounts loaned or used for 
investments, and the outstanding balance as of September 30, 2010. 

Table 1: U.S. Government Efforts to Assist AIG and the Government's 
Remaining Exposure, as of September 30, 2010: 

Description of the federal assistance: Federal Reserve: FRBNY created 
a revolving credit facility to provide a revolving loan that AIG and 
its subsidiaries could use to enhance their liquidity positions. In 
exchange for the facility and $0.5 million, a trust received Series C 
preferred stock for the benefit of Treasury, which gives the trust an 
approximately 79.75 percent voting interest in AIG; 
Amount of assistance authorized: Debt: $29.175 billion[A]; 
Amount of assistance authorized: Equity: n/a; 
Outstanding balance: $20.470 billion; 
Sources to repay the government: On January 14, 2011, AIG announced 
that it executed the signed recapitalization plan, which stated that 
AIG is using the net cash proceeds from the recent AIA IPO and the 
sale of ALICO to MetLife to repay the FRBNY revolving credit facility. 

Description of the federal assistance: Federal Reserve: FRBNY created 
a SPV—Maiden Lane II—to provide AIG liquidity by purchasing 
residential mortgage-backed securities from AIG life insurance 
companies. FRBNY provided a loan to Maiden Lane II for the purchases. 
FRBNY also terminated its securities lending program with AIG, which 
had provided additional liquidity associated with AIG’s securities 
lending program when it created Maiden Lane II; 
Amount of assistance authorized: Debt: $22.5 billion; 
Amount of assistance authorized: Equity: n/a; 
Outstanding balance: $13.656 billion[B]; 
Sources to repay the government: Proceeds from asset sales in Maiden 
Lane II will be used to repay the FRBNY loan. 

Description of the federal assistance: Federal Reserve: FRBNY created 
an SPV called Maiden Lane III to provide AIG liquidity by purchasing 
collateralized debt obligations from AIGFP counterparties in 
connection with the termination of credit default swaps. FRBNY again 
provided a loan to the SPV for the purchases; 
Amount of assistance authorized: Debt: $30 billion; 
Amount of assistance authorized: Equity: n/a; 
Outstanding balance: $14.638 billion[B]; 
Sources to repay the government: Proceeds from asset sales in Maiden 
Lane III will be used to repay the FRBNY loan. 

Description of the federal assistance: Federal Reserve: AIG created 
two SPVs, one for AIA and one for ALICO, to hold the shares of certain 
of its foreign life insurance businesses. On December 1, 2009, FRBNY 
received preferred interests in the SPVs of $16 billion and $9 
billion, respectively, in exchange for reducing debt AIG owed on the 
revolving credit facility. The SPVs allowed AIG to strengthen its 
balance sheet by reducing debt and increasing equity and also were 
intended to facilitate dispositions to generate cash for repayment of 
the federal assistance; 
Amount of assistance authorized: Debt: n/a; 
Amount of assistance authorized: Equity: $25 billion; 
Outstanding balance: $25.955 billion; 
Sources to repay the government: On November 1, 2010, AIG announced 
the completion of an initial public offering of AIA on the Hong Kong 
Stock Exchange that generated gross proceeds of $20.51 billion. Also, 
on November 1, 2010, AIG announced that it had closed on the sale of 
ALICO to MetLife for approximately $16.2 billion, of which $7.2 
billion is in cash. The cash proceeds will allow AIG to fully repay 
and close the revolving credit facility on closing of the 
recapitalization plan. 

Description of the federal assistance: Treasury: Treasury purchased 
Series D cumulative preferred stock of AIG. AIG used the proceeds to 
pay down part of the FRBNY revolving credit facility. Series D stock 
was later exchanged for Series E noncumulative preferred stock. Unpaid 
dividends on the Series D shares were added to the principal amount of 
Series E stock that Treasury received; 
Amount of assistance authorized: Debt: n/a; 
Amount of assistance authorized: Equity: $40 billion; 
Outstanding balance: $41.605 billion; 
Sources to repay the government: Proceeds from dispositions of AIG 
businesses and internal cash flows of AIG. 

Description of the federal assistance: Treasury: Treasury purchased 
Series F noncumulative preferred stock of AIG. Treasury has committed 
to provide AIG with up to $29.835 billion through an equity capital 
facility to meet its liquidity and capital needs in exchange for an 
increase in the aggregate liquidation preference of the Series F 
shares; 
Amount of assistance authorized: Debt: n/a; 
Amount of assistance authorized: Equity: $29.835 billion; 
Outstanding balance: $7.378 billion[C]; 
Sources to repay the government: Proceeds from dispositions of AIG 
businesses and internal cash flows of AIG. 

Subtotals: 
Amount of assistance authorized: Debt: $81.675 billion; 
Amount of assistance authorized: Equity: $94.835 billion. 

Total authorized (debt and equity): 
Amount of assistance authorized: $176.510 billion[D]. 
				
Total outstanding assistance: 
Outstanding balance: $123.702 billion. 
		
Source: GAO analysis of AIG Securities and Exchange Commission 
filings, Federal Reserve, and Treasury data. 

[A] The borrowing limit on the revolving credit facility was initially 
$85 billion, but was reduced to $60 billion in November 2008 and then 
reduced again to $35 billion in December 2009. The facility was 
reduced to $34.2 billion by March 31, 2010, to $33.728 billion by June 
30, 2010, and to $29.175 billion by October 6, 2010; these reductions 
were attributed to repayments from proceeds obtained from the sale of 
various assets and businesses. The authorized and outstanding balances 
as of September 30, 2010, shown above, include outstanding principal 
and exclude accrued interest and fees of $6.182 billion. The AIG loan 
balance reported in the H.4.1 reflects the outstanding principal 
balance, capitalized interest, unamortized deferred commitment fees, 
and the allowance for the loan restructuring, which was initially 
recorded in July 2009. 

[B] Government debt shown for Maiden Lane facilities as of September 
29, 2010, are principal only and do not include accrued interest of 
$408 million for Maiden Lane II and $499 million for Maiden Lane III. 

[C] As of January 14, 2011, AIG had drawn down approximately $21 
billion as part of the restructuring plan. 

[D] The Federal Reserve and Treasury had made $182.3 billion in 
assistance available as of December 31, 2009. This amount was 
subsequently reduced to $176.5 billion. 

[End of table] 

Federal Assistance Remains Key to Improving AIG's Financial Condition: 

As of the third quarter of 2010, AIG's financial condition has 
remained relatively stable or slightly improved as measured by several 
indicators since we last reported on AIG's indicators in April 2010. 
These include the strength of AIG's credit ratings; trends and levels 
of available liquidity and sources for working capital; the level of 
shareholders' equity and trends in operating income; and CDS premiums 
on AIG, which is the going market price for credit protection on AIG. 
This improvement is largely attributable to the assistance AIG has 
received from the Federal Reserve and Treasury, not its ability to 
access private sources of capital. Specifically, AIG's credit ratings 
have remained fairly stable through the third quarter of 2010 in large 
part because government support has continued to fill AIG's short-term 
capital needs and allowed AIG to meet its payment obligations. 
Similarly, AIG's level of available corporate liquidity has remained 
fairly stable, although the FRBNY revolving credit facility and 
Treasury's equity capital facility continue to be its primary sources 
of working capital. While the company's long-term goal is to rely on 
private sector sources of liquidity and its own operations instead of 
the government, AIG remains heavily reliant on federal assistance to 
meet its liquidity needs. Trends and the level of AIG's consolidated 
shareholders' equity--generally, a company's total assets minus total 
liabilities--improved in 2009 and remained fairly stable in the first 
nine months of 2010. While federal assistance largely drove the 
improvements, AIG's performance also has contributed to the 
improvements in its equity position. While our new indicator of AIG's 
cash flows shows that the company's net cash flows from operating, 
investing, and financing activities have been improving, AIG remains 
dependent on federal assistance for liquidity. The efforts of AIG, 
FRBNY, and Treasury to restructure the composition of the federal 
assistance have reduced AIG's debt and boosted its shareholders' 
equity. However, whether AIG will return to positive retained 
earnings, which should further increase shareholders' equity, remains 
unclear. Further, measures of AIG's operating income and losses 
illustrate that because of federal assistance, the large increasing 
losses AIG experienced through 2008 slowed in 2009. AIG generated a 
modest income in the second quarter of 2009 but experienced increasing 
losses in the third and fourth quarters. However, these losses were 
smaller than the operating losses experienced in 2008. During the 
first three quarters of 2010 AIG generated income from continuing 
operations that was more than offset by larger losses from 
discontinued operations. Finally, trends in CDS premiums on AIG showed 
that the downward-trending and stabilizing prices offered for credit 
protection on AIG that began in May 2009 has continued through 
November 2010. 

AIG's Credit Ratings Remained Fairly Stable from December 2009 through 
September 2010: 

Ratings of AIG's debt and financial strength by various credit rating 
agencies have either remained unchanged or improved slightly from 
December 2009 through September 2010, primarily because federal 
assistance has provided AIG with needed capital. Credit ratings 
measure a company's ability to repay its obligations and directly 
affect that company's cost of and ability to access unsecured 
financing. If a company's ratings are downgraded, its borrowing costs 
can increase, capital can be more difficult to raise, business 
partners may terminate contracts or transactions, counterparties can 
demand additional collateral, and operations can become more 
constrained generally. Rating agencies can downgrade the company's key 
credit ratings if they believe it is unable to meet its obligations. 
In AIG's case, this could affect its ability to raise funds and could 
increase the cost of financing its major insurance operations, and, in 
turn, impede its restructuring efforts. A downgrade in AIG's credit 
ratings also could result in downgrades on insurer financial strength 
ratings for the AIG life and property/casualty companies, further 
declines in credit limits, and counterparties demanding that AIG post 
additional collateral. Collectively, these effects from a rating 
downgrade could impede AIG's restructuring efforts and hamper any 
plans to access traditional sources of private capital to replace the 
public investments. Conversely, an upgrade in AIG's credit ratings 
would indicate an improvement in its condition and possibly lead to 
lower borrowing costs and facilitate corporate restructuring. 

While some of AIG's key credit ratings declined in 2009 and early 
2010, overall, they have remained unchanged or improved slightly since 
December 2009.[Footnote 22] For example, from December 2009 to March 
31, 2010, all four of the major rating agencies maintained the same 
credit ratings for AIG's long-term and short-term debt due in large 
part to Federal Reserve and Treasury support.[Footnote 23] Over this 
same period, AM Best and Standard and Poor's (S&P) also maintained 
their same ratings for the financial strength of AIG's property/ 
casualty and life insurance companies, while Moody's lowered their 
life insurer ratings from "A1/developing" to "A1/negative." Also, 
Fitch placed AIG's U.S. property/casualty companies on "rating watch 
negative." This occurred in February 2010 because of its concerns 
about AIG's reserve adequacy and the underlying profitability of its 
casualty businesses. The downgrade followed AIG's disclosure of the 
company's fourth quarter 2009 results, which included a $2.3 billion 
pretax increase in reserves in its domestic property/casualty 
companies for prior accident years. However, in early July 2010, Fitch 
reviewed all of AIG's ratings, affirmed those ratings; revised the 
rating outlook to "stable" from "evolving," removed the 
property/casualty companies from "rating watch negative;" and 
reassigned them as "stable outlook." Fitch's ratings of AIG have 
remained unchanged since then. In April 2010, S&P affirmed its ratings 
of AIG and maintained their negative outlook, reflecting its view of 
the challenges AIG faces in sustaining the performance of its 
insurance operations and capitalizing its life insurance businesses. 
S&P's ratings also have remained unchanged. Moody's, however, as of 
September 2010, placed AIG's short-term ratings on review for possible 
downgrade. While contributing to stable ratings thus far, the level of 
the federal assistance eventually may raise questions about AIG's 
future prospects if the company is not able to raise capital from 
private sources. The importance of AIG's forthcoming credit ratings is 
underscored by the recent recapitalization and restructuring plan; one 
of the conditions for recapitalization is that the financial condition 
of AIG; the primary insurance companies of Chartis, Inc.; and the 
primary insurance companies of SunAmerica Financial Group, taking into 
account the recapitalization and the ratings profile of these 
companies, are to be reasonably acceptable to FRBNY, Treasury, the AIG 
Credit Facility Trust, and AIG. But there are no assurances that AIG 
and its subsidiaries will meet this condition. 

The general stability of AIG's long-term debt ratings has allowed the 
company to avoid collateral and termination payments that could result 
from a ratings downgrade because counterparties might demand such 
payments at the sign of weakening financial strength. Similarly, 
generally stable life-insurer financial strength ratings have helped 
keep down both the surrender rate of domestic retirement services and 
any pressure on the company to exit businesses that serve high net- 
worth clients or businesses governed by trust contracts. Further, 
generally stable financial strength ratings for property/casualty have 
helped hold down any significant losses in net premiums written and 
operating losses. 

Federal Assistance Continues to Allow AIG to Maintain a Steady Level 
of Liquid Assets and Debt Projections Remain Stable: 

Since the fourth quarter of 2008, federal assistance has provided AIG 
with a stable source of liquidity, and projections of debt also 
remained fairly stable. Because a financially healthy business should 
have adequate holdings of liquid assets to cover maturing debt, we use 
three indicators to monitor AIG's corporate liquidity.[Footnote 24] 
One indicator monitors the timing of potential future demand on AIG's 
corporate liquidity posed by its maturing debt and AIG's ability to 
meet its cash payment needs. If working and short-term capital become 
less accessible or if the level of maturing debt increases, AIG could 
face a higher risk of another liquidity crisis. The second indicator 
monitors the amount of corporate liquidity available from specific 
sources. Sources of available liquidity provide an indication of how 
AIG obtains the funds needed to meet its obligations. The third 
indicator monitors the extent to which AIG has used commercial paper 
to strengthen its liquidity position. The greater the portion of 
current available liquidity provided by AIG's own operations, the less 
reliant AIG will be on federal assistance. 

As indicated in figure 1, by the third quarter of 2008, AIG's 
corporate-level liquid assets (corporate liquidity) were becoming 
insufficient to meet its companywide debt obligations, with much of 
that debt--attributable to the Federal Reserve's revolving credit 
facility--maturing in 2010. In the fourth quarter of 2008, AIG's 
remaining available corporate liquidity reached a low of $26.7 
billion, as AIG began utilizing its access to the commercial paper 
funding facility (CPFF) by issuing commercial paper.[Footnote 25] In 
that same quarter the Federal Reserve restructured the original 
payment date for the credit facility. This restructuring reduced the 
amount of maturing debt in the facility from $62.9 billion in the 
third quarter of 2008 to $40.4 billion in the fourth quarter of 2008, 
which occurred when proceeds from the issuance of the new Series D 
preferred stock (new with the restructuring) to Treasury were used to 
pay down a portion of the balance owed on the facility. The 
restructuring also gave AIG more time to repay its debt to the 
facility, moving the due date from 2010 to 2013.[Footnote 26] From the 
fourth quarter of 2008 to the third quarter of 2009, AIG nearly 
doubled its available corporate liquidity to about $50 billion because 
of its access to the restructured FRBNY revolving credit facility and 
CPFF. 

Figure 1: AIG Corporate Available Liquidity and Companywide Debt 
Projections, Third Quarter of 2008 through Third Quarter of 2010: 

[Refer to PDF for image: illustrated table] 

Dollars in millions. 

Date: Q3 - 2008: 
Corporate available liquidity (as of date): $33,420 (11/5/08); 
Companywide debt maturing in: 
2009: $28,057; 
2010: $21,690 ($62,960 Federal Reserve facility (FRF)); 
2011: $14,517; 
2012: $13,230; 
2013: $10,756; 
2014: [Empty]; 
Thereafter: $61,882. 

Date: Q4 - 2008: 
Corporate available liquidity (as of date): $26,653 (2/18/09); 
Companywide debt maturing in: 
2009: $21,581; 
2010: $17,492; 
2011: $15,212; 
2012: $9,865; 
2013: $8,861 ($40,431 FRF); 
2014: [Empty]; 
Thereafter: $58,193. 

Date: Q1 - 2009: 
Corporate available liquidity (as of date): $49,620 (4/29/09); 
Companywide debt maturing in: 
2009: $17,741; 
2010: $16,999; 
2011: $15,080; 
2012: $9,598; 
2013: $8,430 ($47,405 FRF); 
2014: $3,151; 
Thereafter: $50,559. 

Date: Q2 - 2009: 
Corporate available liquidity (as of date): $52,585 (7/29/09); 
Companywide debt maturing in: 
2009: $13,809; 
2010: $17,204; 
2011: $15,355; 
2012: $9,786; 
2013: $8,575 ($44,816 FRF); 
2014: $3,264; 
Thereafter: $50,519. 

Date: Q3 - 2009: 
Corporate available liquidity (as of date): $50,160 (10/28/09); 
Companywide debt maturing in: 
2009: $7,643; 
2010: $19,815; 
2011: $16,413; 
2012: $10,317; 
2013: $8,957 ($41,009 FRF0; 
2014: $3,461; 
Thereafter: $50,574. 

Date: Q4 - 2009: 
Corporate available liquidity (as of date): $36,679 (2/17/10); 
Companywide debt maturing in: 
2009: $0; 
2010: $19,432; 
2011: $16,310; 
2012: $10,289; 
2013: $8,870 ($23,435 FRF); 
2014: $3,370; 
Thereafter: $49,886. 

Date: Q1 - 2010: 
Corporate available liquidity (as of date): $33,674 (4/28/10); 
Companywide debt maturing in: 
2009: $0; 
2010: $13,495; 
2011: $15,910; 
2012: $10,029; 
2013: $9,089 ($27,400 FTF); 
2014: $3,464; 
Thereafter: $53,442. 

Date: Q2 - 2010: 
Corporate available liquidity (as of date): $37,081 (7/28/10); 
Companywide debt maturing in: 
2009: $0; 
2010: $8,720; 
2011: $13,180; 
2012: $12,029; 
2013: $8,861 ($26,457 FRF); 
2014: $3,379; 
Thereafter: $57,378. 

Date: Q3 - 2010: 
Corporate available liquidity (as of date): $37,394 (10/27/10); 
Companywide debt maturing in: 
2009: $0; 
2010: $4,283; 
2011: $10,336; 
2012: $9,808; 
2013: $6,446 ($20,470 FRF); 
2014: $4,208; 
Thereafter: $53,899. 

Source: GAO analysis of AIG SEC filings. 

Notes: Available liquidity is at the corporate level, and debt 
maturing is at the corporate and operating-division levels. Much of 
the debt of the operating divisions is associated with assets serving 
as collateral or funding sources; thus repayment of this debt is not 
likely to rely on corporate liquidity. The figures exclude borrowings 
on consolidated investments that were less than 3.5 percent of total 
long-term borrowings. 

[End of figure] 

By February 2010, the amount of corporate liquidity available to AIG 
had fallen to $36.6 billion, largely because the borrowing limit on 
the revolving credit facility was reduced in December 2009 by $25 
billion (from $60 billion to $35 billion) as part of the transfer of 
AIA and ALICO into two SPVs in which FRBNY received preferred 
interests.[Footnote 27] Over this same period, the amount of company- 
wide debt stabilized as well, due to restructuring and deleveraging 
activity. From February to October 2010, the amount of corporate 
available liquidity has remained relatively constant. These trends 
suggest that since late 2008, the Federal Reserve's actions have been 
critical for AIG's solvency. The amount of AIG debt to mature in 2014--
about $4.2 billion--will be about 35 percent lower than the $6.4 
billion of debt to mature in 2013, the year in which the FRBNY 
revolving credit facility expires.[Footnote 28] 

Data disclosed by AIG indicate that since November 2008 the corporate 
liquidity available to AIG essentially has been the undrawn portions 
of three federally provided sources--the FRBNY revolving credit 
facility, the CPFF, and Treasury's equity capital facility.[Footnote 
29] Beginning in October 2008, AIG's primary source of funds shifted 
from private sector sources to the FRBNY revolving credit facility and 
the CPFF. This changed beginning in 2009 when the CPFF and AIG's 
bilateral facilities and cash and short-term investments became 
secondary sources of liquidity and Treasury's equity capital facility 
became a primary source of funds for AIG. From February 2010 through 
the third quarter of 2010, the only nonfederal sources of corporate 
liquidity available to AIG have been cash and short-term investments, 
and as of October 27, 2010, that amount was $515 million, a fraction 
of the $36.9 billion available through the FRBNY and Treasury 
facilities. However, the need for corporate level liquidity has 
lessened as key AIG subsidiaries have stabilized or improved and 
accessed the capital markets. And on November 30, 2010, AIG re-entered 
the long-term debt market, issuing $2 billion in notes, the proceeds 
of which, according to AIG, will be used for general corporate 
purposes and to build liquidity for the AIG parent company in 
anticipation of the termination of the FRBNY revolving credit 
facility, which was terminated on January 14, 2011. Thus, federal 
sources have substantially improved AIG's liquidity position relative 
to what it would have been able to achieve on its own. See appendix 
III for further discussion of AIG's available corporate liquidity. 

Historically, AIG issued commercial paper to third parties to meet its 
liquidity needs, but between October 2008 and March 2010 the company 
relied on FRBNY's CPFF to purchase its commercial paper. Because 
commercial paper typically is unsecured and issued by companies with 
high credit ratings, AIG's ability to access the traditional 
commercial paper market (independent of Federal Reserve programs) 
would be a positive sign of its financial condition. As shown in table 
2, AIG's commercial paper programs, which reflect the amount of 
commercial paper AIG issued to third parties, were at a high of about 
$13 billion in December 2007. By September 30, 2008, the balance had 
dropped to $5.6 billion because of a general breakdown of the U.S. 
commercial paper market and reluctance from market participants to 
purchase or roll over AIG's commercial paper. Since September 2009, 
these programs have not issued any new commercial paper and after June 
30, 2010, no third parties held AIG's outstanding commercial paper. 
According to AIG, all of its third-party commercial paper has matured, 
and currently, neither the AIG parent company nor its subsidiaries 
have access to third-party commercial paper funding. This funding 
source had been replaced by commercial paper purchased by FRBNY's 
CPFF, which AIG utilized until the facility expired on February 1, 
2010. As a result of the facility closing, AIG's amount outstanding 
with CPFF had decreased to $4.7 billion from a high of $15 billion one 
year earlier, and as of September 30, 2010, AIG had no commercial 
paper outstanding with CPFF. In September 2010, the AIG parent company 
reported that it did not intend to access the commercial paper market. 
Instead, AIG told us that upon the closing of its planned 
recapitalization, it has access to at least $9.5 billion in liquidity, 
which includes a bank facility, the right to drawdown approximately $2 
billion on the Series G preferred stock, and other factors.[Footnote 
30] However, through the third quarter of 2010, AIG continued to 
depend on the FRBNY revolving credit facility and the Treasury equity 
facility as its primary sources of liquidity. 

Table 2: Amount of Outstanding Commercial Paper by Source, December 
31, 2007, through September 30, 2010: 

Dollars in millions: 

FRBNY CPFF program: 
Dec. 31, 2007: $0; 
Sept. 30, 2008: $0; 
Dec. 31, 2008: $15,105; 
Mar. 31, 2009: $12,242; 
June 30, 2009: $11,152; 
Sept. 30, 2009: $9,607; 
Dec. 31, 2009: $4,739; 
Mar. 31, 2010: $1,185; 
June 30, 2010: $0; 
Sept. 30, 2010: $0. 

AIG's commercial paper programs: 
Dec. 31, 2007: 13,114; 
Sept. 30, 2008: 5,600; 
Dec. 31, 2008: 613; 
Mar. 31, 2009: 196; 
June 30, 2009: 197; 
Sept. 30, 2009: 0; 
Dec. 31, 2009: 0; 
Mar. 31, 2010: 0; 
June 30, 2010: 0; 
Sept. 30, 2010: 0. 

Nightingale Finance LLC: 
Dec. 31, 2007: n/a; 
Sept. 30, 2008: n/a; 
Dec. 31, 2008: n/a; 
Mar. 31, 2009: n/a; 
June 30, 2009: n/a; 
Sept. 30, 2009: n/a; 
Dec. 31, 2009: n/a; 
Mar. 31, 2010: 1,100; 
June 30, 2010: 0; 
Sept. 30, 2010: 0. 

Total: 
Dec. 31, 2007: $13,114; 
Sept. 30, 2008: $5,600; 
Dec. 31, 2008: $15,718; 
Mar. 31, 2009: $12,438; 
June 30, 2009: $11,349; 
Sept. 30, 2009: $9,607; 
Dec. 31, 2009: $4,739; 
Mar. 31, 2010: $2,285; 
June 30, 2010: $0; 
Sept. 30, 2010: $0. 

Source: GAO analysis of AIG SEC filings. 

Note: According to AIG, Nightingale Finance LLC is a structured 
investment vehicle sponsored but not consolidated by AIGFP. Before 
March 31, 2010, AIG had not consolidated the $1.1 billion of 
outstanding commercial paper issued by its affiliate Nightingale 
Finance LLC. AIG repaid CPFF on April 26, 2010, and repaid commercial 
paper of Nightingale Finance LLC during the second quarter of 2010 
through an increase in borrowings under the FRBNY revolving credit 
facility. 

[End of table] 

Shareholders' Equity Improved in 2009 and Stabilized in the First Nine 
Months of 2010: 

In contrast to the downward trends in 2008, AIG's shareholders' equity 
increased over the first three quarters of 2009 and its negative 
retained earnings, also known as accumulated deficits, decreased by 
nearly 85 percent. But since September 2009, AIG's shareholders' 
equity has increased at a much slower rate and accumulated deficits 
have increased. Rising accumulated deficits generally indicate 
mounting losses, while decreasing accumulated deficits could indicate 
a return to profitability. Shareholders' equity generally is 
calculated by subtracting a company's total liabilities from its total 
assets, and represents the company's ability to absorb negative shocks 
and prevent failure due to insolvency. Capital raised by issuing and 
selling common and preferred stock to investors, also known as paid-in 
capital, is one source of shareholders' equity. Retained earnings, 
which the company accumulates over time through its operations, are 
another source.[Footnote 31] 

As figure 2 shows, AIG's shareholders' equity declined from the fourth 
quarter of 2007 through the first quarter of 2009, and more 
significantly, the composition of its shareholders' equity changed 
from mostly retained earnings in 2007 to completely paid-in capital by 
the end of 2008, reflecting the importance of federal assistance to 
its solvency. Over this period, AIG's shareholders' equity fell almost 
52 percent, from $95.8 billion at the end of 2007 to $45.8 billion by 
the end of the first quarter of 2009. However, shareholders' equity 
rose in the second and third quarter of 2009 and increased to nearly 
$81 billion at the end of the third quarter of 2010. From the last 
quarter of 2007 through the last quarter of 2008, retained earnings 
were the primary source of shareholders' equity ($89 billion of AIG's 
$95.8 billion in shareholders' equity). However, retained earnings 
declined throughout 2008, becoming cumulative deficits by the end of 
2008 because of a net loss for the year of about $99.3 billion. At its 
lowest point, in the first quarter of 2009, AIG reported a negative 
balance of $16.7 billion in accumulated deficits, and shareholders' 
equity fell to $45.8 billion. AIG's accumulated deficit improved to a 
negative balance of $3.1 billion and $2.6 billion in the second and 
third quarters of 2009, respectively, contributing to the increase in 
shareholders' equity. However, in the fourth quarter of 2009, the 
accumulated deficit increased to $11.5 billion, lowering shareholders' 
equity. AIG's accumulated deficits continued to grow throughout the 
first three quarters of 2010, amounting to negative $14.5 billion by 
the end of the third quarter, primarily because of losses from 
discontinued operations of $4.4 billion that more than offset $1.1 
billion of income from continuing operations. Also as shown in figure 
2, starting in the fourth quarter of 2008, paid-in capital became and 
has remained the primary source of shareholders' equity because of the 
federal assistance. 

Figure 5: AIG Trends in and Main Components of Consolidated 
Shareholders' Equity, Fourth Quarter of 2007 through Third Quarter of 
2010: 

[Refer to PDF for image: combined vertical bar and line graph] 

Dollars in millions: 

Date: 2007, Q4; 
Retained earnings and accumulated deficits: $89,029; 
Preferred and common stock and paid-in capital: $10,218; 
Total shareholders’ equity: $95,801. 

Date: 2008, Q1; 
Retained earnings and accumulated deficits: $79,732; 
Preferred and common stock and paid-in capital: $10,308; 
Total shareholders’ equity: $79,703. 

Date: 2008, Q2; 
Retained earnings and accumulated deficits: $73,743; 
Preferred and common stock and paid-in capital: $16,816; 
Total shareholders’ equity: $78,088. 

Date: 2008, Q3; 
Retained earnings and accumulated deficits: $49,291; 
Preferred and common stock and paid-in capital: $39,871; 
Total shareholders’ equity: $71,182. 

Date: 2008, Q4; 
Retained earnings and accumulated deficits: -$12,368; 
Preferred and common stock and paid-in capital: $79,836; 
Total shareholders’ equity: $52,710. 

Date: 2009, Q1; 
Retained earnings and accumulated deficits: -$16,706; 
Preferred and common stock and paid-in capital: $79,686; 
Total shareholders’ equity: $45,759. 

Date: 2009, Q2; 
Retained earnings and accumulated deficits: -$3,073; 
Preferred and common stock and paid-in capital: $80,627; 
Total shareholders’ equity: $57,958. 

Date: 2009, Q3; 
Retained earnings and accumulated deficits: -$2,618; 
Preferred and common stock and paid-in capital: $82,678; 
Total shareholders’ equity: $72,712. 

Date: 2009, Q4; 
Retained earnings and accumulated deficits: -$11,491; 
Preferred and common stock and paid-in capital: $76,496; 
Total shareholders’ equity: $69,824. 

Date: 2010, Q1; 
Retained earnings and accumulated deficits: -$9,871; 
Preferred and common stock and paid-in capital: $78,693; 
Total shareholders’ equity: $75,001. 

Date: 2010, Q2; 
Retained earnings and accumulated deficits: -$12,120; 
Preferred and common stock and paid-in capital: $78,634; 
Total shareholders’ equity: $75,470. 

Date: 2010, Q3; 
Retained earnings and accumulated deficits: -$14,486; 
Preferred and common stock and paid-in capital: $78,201; 
Total shareholders’ equity: $80,842. 

Source: GAO analysis of AIG SEC filings. 

Note: Other components of total shareholders' equity are preferred 
stock (Series C preferred stock and Series D cumulative preferred 
stock), with the Series D preferred stock exchanged in April 2009 for 
Series E noncumulative preferred stock, accumulated other 
comprehensive losses, and Treasury stock. Drawdowns from the 
approximately $30 billion committed under the Series F equity capital 
facility will increase paid-in capital in the future by an equal 
amount. 

[End of figure] 

Several federal actions caused fluctuations and changes in 
shareholders' equity in 2008 and 2009. Federal government actions 
significantly increased AIG's shareholders' equity. Between the third 
and fourth quarters of 2008, the adjusted value of common and 
preferred stock and paid-in capital increased from $39.9 billion to 
$79.9 billion, of which almost $73 billion was paid-in capital that 
could be attributed to two government actions: 

* In September 2008, AIG, through a noncash transaction, added $23 
billion to shareholders' equity as additional paid-in capital to 
record the fair value of preferred shares (Series C) that were later 
issued to obtain AIG's revolving credit facility established by FRBNY. 
[Footnote 32] 

* In November 2008, Treasury purchased $40 billion of cumulative 
preferred shares (Series D) and received a warrant from AIG. AIG 
recorded the transaction as additional paid-in capital repaid. 

The value of the federal government's common equity interests in AIG 
upon closing of the recapitalization and restructuring plan is tied to 
the market value of AIG's common stock, and growth in value of the 
government's equity stake depends on growth of the value of common 
shares. The market value of AIG's common shares outstanding peaked in 
December 2006 at $186.4 billion and by June 2008, as AIG's losses from 
its derivatives businesses continued to mount, the shares' market 
value declined to $71.1 billion (see appendix IV). During the last two 
quarters of 2008, when the federal government initially provided 
assistance to AIG, AIG shares further declined in value, falling to 
$4.2 billion by the end of 2008. Since March 1, 2009, when the AIG 
credit facility trust and AIG entered into the purchase agreement for 
Series C preferred stock, AIG's common shares outstanding have 
fluctuated between $2.7 billion and $5.9 billion, and as of September 
2010 were valued at $5.3 billion. Over that same period, the values of 
the government's preferred shares increased from $10.6 billion in 
March 2009 to a peak of $23.5 billion in September 2009, and as of 
September 2010 were valued at $20.8 billion.[Footnote 33] During the 
first quarter of 2009, AIG's common shares fell roughly 36 percent, 
underperforming the Thomson Reuters Insurance Index and the New York 
Stock Exchange (NYSE) Composite Index, pushing the value of its common 
stock below $3 billion.[Footnote 34] However, from the first quarter 
to the end of the fourth quarter of 2009, AIG's stock price increased 
by roughly 50 percent and outperformed both the NYSE Composite Index 
and the Insurance Index, resulting in a market capitalization of about 
$4.0 billion. AIG's common shares appreciated another 15 percent 
during first two quarters of 2010, compared with gains of 7 percent 
and losses of 10 percent for the Insurance Index and NYSE Composite 
Index, respectively. As of the end of the second quarter of 2010 the 
market capitalization of AIG's publicly traded common shares was $4.7 
billion, and by the end of the third quarter of 2010 was roughly $5 
billion. When the recapitalization plan closed on January 14, 2011, 
the market capitalization of AIG's publicly traded common shares was 
approximately $7.3 billion. 

Net Cash Flows from AIG's Operating, Investing, and Financing 
Activities Appear to be Stabilizing, but AIG Still Is Dependent on 
Federal Assistance for Liquidity: 

We have added a new indicator of cash flows and net changes in cash 
using data from AIG's quarterly Consolidated Statements of Cash Flows. 
This indicator tracks the cash flows and net changes in cash for AIG's 
operating, financing, and investing activities. 

* Operating activity cash flows indicate whether the company's core 
businesses are profitable. 

* Financing activity cash flows indicate the extent to which a company 
uses the capital markets for equity and debt financing such as issuing 
its stock, bonds, and commercial paper to investors and obtaining bank 
loans and other forms of bank credit. 

* Investing activity cash flows indicate the extent to which a company 
invests in its production capacity and efficiency (capital 
expenditures), acquires and divests businesses, and has financial 
investments such as stocks and bonds. 

Generally, a healthy and growing company can generate cash internally 
from operations, generate cash externally from financing activities, 
and use this cash for growth in its operations or investments in 
financial assets. This indicator shows that with the benefit of 
federal assistance, AIG has resumed positive operating cash flows and 
cash flows from investing and financing activities have improved, 
though not quite at pre crisis levels of 2007. 

As shown in figure 3, during the first three quarters of 2007, before 
receiving federal assistance, AIG generated cash from its operating 
activities indicating that it was profitable and generated cash 
through its financing activities, which in turn indicated that it had 
access to the capital markets. It also used cash in its investing 
activities; however, during the latter part of 2008, AIG's operating 
and financing cash flows deteriorated rapidly because of severe 
operating and investment losses and reduced access to the capital 
markets. Cash flows from investing activities moved from negative to 
positive as AIG shifted to selling investment assets and businesses to 
generate liquidity. However, cash generated from these activities was 
insufficient for AIG to meet near-term liquidity needs that spiked 
when rapidly deteriorating credit and capital markets and company 
credit ratings triggered certain obligations on which creditors 
demanded immediate payment. AIG obtained federal assistance to meet 
these creditor demands. 

Figure 3: Net Cash Flows and Changes in Cash from Operating, 
Investing, and Financing Activities, from First Quarter of 2007 
through Third Quarter of 2010: 

[Refer to PDF for image: illustrated vertical bar graph] 

Dollars in millions: 

Date: 2007, Q1; 
Net cash provided from financing activities: $8,216; 
Net cash provided from operating activities: $9,930; 
Net cash used from investing activities: -$18,024. 

Date: 2007, Q2; 
Net cash provided from financing activities: $14,731; 
Net cash provided from operating activities: $7,501; 
Net cash used from investing activities: -$22,290. 

Date: 2007, Q3; 
Net cash provided from financing activities: $16,017; 
Net cash provided from operating activities: $10,118; 
Net cash used from investing activities: -$25,548. 

Date: 2007, Q4; 
Net cash provided from operating activities: $7,622; 
Net cash used from investing activities: -$1,972; 
Net cash used from financing activities: -$5,657. 

Date: 2008, Q1; 
Net cash provided from investing activities: $3,637; 
Net cash provided from operating activities: $8,299; 
Net cash used from financing activities: -$11,789. 

Date: 2008, Q2; 
Net cash provided from financing activities: $17,701; 
Net cash provided from operating activities: $7,829; 
Net cash used from investing activities: -$25,777. 

Date: 2008, Q3; 
Net cash provided from investing activities: $14,194; 
Net cash provided from financing activities: $17,427; 
Net cash used from operating activities: -$15,240. 

Date: 2008, Q4; 
Net cash provided from investing activities: $55,430; 
Net cash used from financing activities: -$65,258. 

Date: 2009, Q1; 
Net cash provided from operating activities: $3,998; 
Net cash provided from operating activities: $558; 
Net cash used from financing activities: -$8,998. 

Date: 2009, Q2; 
Net cash provided from investing activities: $6,976; 
Net cash provided from operating activities: $4,038; 
Net cash used from financing activities: -$9,443. 

Date: 2009, Q3; 
Net cash provided from investing activities: $1,615; 
Net cash provided from operating activities: $3,938; 
Net cash used from financing activities: -$6,562. 

Date: 2009, Q4; 
Net cash provided from operating activities: $6,610; 
Net cash used from investing activities: -$3,371; 
Net cash used from financing activities: -$3,994. 

Date: 2010; Q1; 
Net cash provided from operating activities: $3,195; 
Net cash used from investing activities: -$4,516; 
Net cash used from financing activities: -$266. 

Date: 2010, Q2; 
Net cash provided from operating activities: $6,576; 
Net cash used from investing activities: -$4,261; 
Net cash used from financing activities: -$1,551. 

Date: 2010, Q3; 
Net cash provided from operating activities: $5,344; 
Net cash used from investing activities: -$1,460; 
Net cash used from financing activities: -$4,245. 

Source: GAO analysis of AIG SEC filings. 

[End of figure] 

Throughout 2009, AIG's cash flows began to stabilize. In particular, 
quarterly operating cash flows returned to net positive. Net cash 
flows from operating activities were around $4 billion for the first 
three quarters of 2009 and rose to $6.6 billion in the fourth quarter. 
Since the third quarter of 2008, quarterly financing cash flows have 
been negative, reflecting the company's still limited access to the 
private capital markets. Although the negative amounts have increased 
over the first three quarters of 2010, they are much smaller than the 
negative amounts recorded in the first three quarters of 2009. 
Throughout 2009 and the first three quarters of 2010 the company has 
had net cash inflows from operating activities and since the fourth 
quarter of 2009, has returned to a precrisis condition of net cash 
outflows from investing activities--the latter indicating that the 
company is once again purchasing or expanding its base of income to 
produce assets rather than selling them to raise cash. AIG reported in 
its second quarter 2010 10Q that it primarily used its cash flows to 
meet its debt obligations and the liquidity needs of its subsidiaries. 
Because of the improving operating and financing cash flows and access 
to federal assistance, AIG has not had to sell assets aggressively to 
generate cash. Taken collectively, while the three cash flows show 
signs of some stability through the third quarter of 2010, AIG 
continues to rely on federal assistance to ensure that it can meet its 
liquidity needs. 

Income from AIG's Operations Began to Stabilize in 2009 with Federal 
Assistance: 

With the benefit of federal assistance, several of AIG's operating 
segments continued to stabilize, producing income instead of losses. 
To the extent that AIG's operating entities are profitable, they will 
generate income that could improve AIG's ability to sell certain 
businesses, retain others, and repay its federal assistance. If the 
businesses operate at a loss, AIG could face greater risks in its 
ability to repay the federal assistance and its ability to remain 
viable. The following indicator tracks the operating income and losses 
(before taxes) for AIG's insurance businesses and its major segments, 
including asset management, financial services, and other services 
that it expects to sell as part of the restructuring. Because AIG 
realigned its operating segments in the first and second quarters of 
2010 but has not publicly issued restated segment information for all 
prior quarters covered in our indicator, we cannot update this 
indicator beyond the fourth quarter of 2009. Thus our reporting on 
this indicator will be limited. 

As shown in figure 4, all of AIG's operating segments had operating 
losses in the last two quarters of 2008, but by the first quarter of 
2009 some of the segments had considerably smaller operating losses, 
and other segments had operating income due in part to federal 
assistance such as Maiden Lane II and Maiden Lane III. AIG's general 
insurance segment (which includes AIG's domestic and foreign property/ 
casualty businesses) reported an operating loss in 2008, largely due 
to operating losses from insurance underwriting, large net realized 
capital losses, and reduced investment income in the second half of 
the year. After three quarters with operating income in 2009 and 
operating losses in the fourth quarter, this segment ended the year 
with a relatively small operating profit for 2009. The improvement in 
2009 relative to 2008 largely was due to reduced net realized capital 
losses and increased investment income that more than offset larger 
insurance underwriting losses. This is noteworthy because historically 
the general insurance segment has generated the largest operating 
income of all AIG segments. For example, operating income from this 
segment accounted for more than half of AIG's total operating income 
for 2006 and 2007 combined. Tracking the operating performance of this 
segment also is important because AIG plans to retain its 
property/casualty insurance businesses among its core operations after 
the restructuring and divestitures of other businesses. As a result, 
AIG's ability to redeem its preferred shares held by Treasury partly 
will be contingent on the health of this segment. 

Figure 4: Quarterly AIG Pretax Operating Income and Loss by Operating 
Segment, First Quarter of 2008 through Fourth Quarter of 2009: 

[Refer to PDF for image: vertical bar graph] 

2008, Q1; 	
General insurance: $1.5 billion; 
Life insurance and retirement services: -$2.0 billion; 
Financial services: -$8.8 billion; 
Other (net of consolidation and eliminations): -$1.9 billion; 
Total income: -$11.21 billion. 

2008, Q2; 	
General insurance: $1.2 billion; 
Life insurance and retirement services: -$2.6 billion; 
Financial services: -$5.9 billion; 
Other (net of consolidation and eliminations): -$1.4 billion; 
Total income: -$8.69 billion. 

2008, Q3; 	
General insurance: -$1.3 billion; 
Life insurance and retirement services: -$1.5 billion; 
Financial services: -$8.2 billion; 
Other (net of consolidation and eliminations): -$3.0 billion; 
Total income: -$27.51 billion. 

2008, Q4; 	
General insurance: -$3.9 billion; 
Life insurance and retirement services: -$18.6 billion; 
Financial services: -$17.9 billion; 
Other (net of consolidation and eliminations): -$18.6 billion; 
Total income: -$59.13 billion. 

2009, Q1;	
General insurance: $0.1 billion; 
Life insurance and retirement services: -$1.4 billion; 
Financial services: -$1.1 billion; 
Other (net of consolidation and eliminations): -$3.8 billion; 
Total income: -$6.21 billion. 

2009, Q2; 	
General insurance: $1.0 billion; 
Life insurance and retirement services: $0.7 billion; 
Financial services: $0.1 billion; 
Other (net of consolidation and eliminations): -$1.3 billion; 
Total income: $0.52 billion. 

2009, Q3; 
General insurance: $0.7 billion; 
Life insurance and retirement services: $0.7 billion; 
Financial services: $1.4 billion; 
Other (net of consolidation and eliminations): -$3.2 billion; 
Total income: -$0.36 billion. 

2009, Q4; 
General insurance: -$1.6 billion; 
Life insurance and retirement services: $2.0 billion; 
Financial services: $0.1 billion; 
Other (net of consolidation and eliminations): -$8.1 billion; 
Total income: -$7.60 billion. 

Source: GAO analysis of AIG SEC filings. 

Notes: The insurance data include both investment and underwriting 
performance. 

The "other operations and consolidating adjustments" include 
consolidations and eliminations, interest expense on the FRBNY 
facility, restructuring costs, expenses of corporate staff not 
attributable to specific reportable segments, corporate-level net 
realized capital gains and losses, net gains and losses on sale of 
divested businesses, results from noncore businesses that include 
certain mortgage guaranty and asset-management operations, and equity 
earnings in partly owned companies. 

Because AIG restated its operating segments in each quarter of 2010 
but has not publicly issued restated segment information for all prior 
quarters covered in our indicator, we cannot further update this 
indicator for analysis of levels and trends across multiple quarters 
and years. 

[End of figure] 

Figure 4 also shows that AIG's life insurance and retirement services 
segment incurred the largest operating losses of all of AIG's segments 
during the last half of 2008. Its losses largely could be attributed 
to net realized capital losses in the investment portfolios of 
domestic and foreign life insurance businesses due to severe market 
price declines in certain commercial mortgage-backed and other 
securities. In 2009 the life insurance and retirement services segment 
reported an operating profit compared to a loss in 2008, primarily 
because net realized capital losses declined and investment results 
improved. These improved investment results more than offset the 
decline in premium revenues, the increase in claims and benefits, and 
related expenses. 

The financial services segment reported losses in 2008 that primarily 
were attributed to unrealized market valuation losses from credit 
valuation adjustments in AIGFP's portfolio of super senior credit 
default swaps, and credit valuation adjustments on AIGFP assets and 
liabilities (see figure 4). In 2009 financial services reported an 
operating profit of $517 million, primarily because the combined 
operating profit for AIGFP and Aircraft Leasing were greater than the 
operating loss from consumer finance. 

Finally, AIG's other operations reported losses in the fourth quarter 
of 2008 that generally resulted from fees and interest expenses 
associated with the FRBNY revolving credit facility, net realized 
capital losses, and operating losses of asset management and mortgage 
guaranty activities that are in this category as noncore businesses, 
and the decline in the value of AIG's equity interest in Maiden Lane 
III. In 2009, most of these factors also contributed to the operating 
losses reported from AIG's other operations. 

AIG Credit Default Swap Premiums Appear to Be Trending Toward 
Precrisis Levels: 

Dropping from their recent peak in May 2009, AIG CDS premiums have 
decreased and appear to be trending toward precrisis levels. These 
premiums, which are the price insured parties pay to purchase CDS 
protection against AIG defaulting on senior unsecured debt, are 
another indicator of AIG's financial strength. This indicator measures 
what the market believes to be AIG's probability of default by 
tracking prices (premiums, expressed in basis points) paid by an 
insured party against a possible default on a senior unsecured bond 
and the spreads between the 3-year and 5-year premiums.[Footnote 35] 
This measure pertains to CDS prices on AIG and not AIGFP's CDS 
inventory that the company is winding down; it is a composite of what 
dealers would charge customers for CDS on AIG. Higher basis point 
levels indicate a higher premium for a CDS contract. The higher the 
CDS premiums, the greater the market's perception of credit risk 
associated with AIG. Conversely, the lower the CDS premiums, the 
greater its confidence in AIG's financial strength (the lower the 
market's expectation that AIG will default). 

AIG's CDS premiums have continued to decrease since May 2009 and as of 
November 30, 2010, were similar to their level in June and August 2008 
for the 3-year and 5-year CDS premiums (see figure 5). From May 2009 
through March 2010, the CDS index for the insurance sector declined, 
but not as much as the CDS premiums for AIG. From May through November 
2010, AIG's CDS premiums moderated slightly. While the overall trend 
is positive, whether this decline in the cost to protect against an 
AIG default reflects confidence in the standalone creditworthiness of 
AIG or whether the decline is due to the ongoing federal assistance to 
AIG is unclear. As the Federal Reserve has noted, the premium on AIG's 
CDS is based both on the market's assessment of the government's level 
of commitment to assist AIG and AIG's financial strength. 

Figure 5: AIG Credit Default Swap Premiums on AIG, January 2007 
through November 30, 2010: 

[Refer to PDF for image: multiple line graph] 

Basis points: 

January 2007: 
5-year CDS: 6; (1/2/07: 9.2); 
3-year CDS: 11. 

February 2007: 
5-year CDS: 6; 
3-year CDS: 10. 

March 2007: 
5-year CDS: 7; 
3-year CDS: 11. 

April 2007: 
5-year CDS: 9; 
3-year CDS: 14. 

May 2007: 
5-year CDS: 8; 
3-year CDS: 12. 

June 2007: 
5-year CDS: 7; 
3-year CDS: 11. 

July, 2007: 
5-year CDS: 13; 
3-year CDS: 14. 

August 2007: 
5-year CDS: 47; 
3-year CDS: 64. 

September 2007: 
5-year CDS: 42; 
3-year CDS: 52. 

October 2007:
5-year CDS: 27; 
3-year CDS: 35. 

November 2007: 
5-year CDS: 38; 
3-year CDS: 62. 

December 2007: 
5-year CDS: 68; 
3-year CDS: 76. 

January 2008: 
5-year CDS: 80; 
3-year CDS: 69. 

February 2008: 
5-year CDS: 137. 
3-year CDS: 118. 

March 2008: 
5-year CDS: 252; 
3-year CDS: 195. 

April 2008: 90; 
3-year CDS: 177. 

May 2008: 
5-year CDS: 98; 
3-year CDS: 88. 

June 2008: 
5-year CDS: 160; 
3-year CDS: 152. 

July 2008: 
5-year CDS: 243; 
3-year CDS: 230. 

August 2008: 
5-year CDS: 264; 
3-year CDS: 254. 

September 2008: 
5-year CDS: 419 (9/16/08: 3,922); 
3-year CDS: 373 (9/16/08: 3,500). 

September 22, 2008: AIG entered FED Revolving Credit Facility. 

October 2008: 
5-year CDS: 1,634; 
3-year CDS: 1,421. 

November 2008: 
5-year CDS: 2,799; 
3-year CDS: 2,461. 

November 2008: Treasury pays off $40 billion of Fed Facility for 
Series D shares. 

December 2008: 
5-year CDS: 702; 
3-year CDS: 666. 

January 2009: 
5-year CDS: 556; 
3-year CDS: 535. 

February 2009: 
5-year CDS: 542; 
3-year CDS: 499. 

March 2009: 
5-year CDS: 1,118; 
3-year CDS: 1,015. 

April 2009: 
5-year CDS: 2,560; 
3-year CDS: 2,136. 

April 2009: More Fed assistance through Series F. 

May 2009: 
5-year CDS: 4,254 (5/4/09: 4,534); 
3-year CDS: 3,648 (5/4/09: 3,683). 

June 2009: 
5-year CDS: 2,036; 
3-year CDS: 1,704. 

July 2009: 
5-year CDS: 1,577; 
3-year CDS: 1,411. 

August 2009: 
5-year CDS: 1,633; 
3-year CDS: 1,475. 

September 2009: 
5-year CDS: 992; 
3-year CDS: 940. 

October 2009: 
5-year CDS: 820; 
3-year CDS: 811. 

November 2009: 
5-year CDS: 767; 
3-year CDS: 757. 

December 2009: 
5-year CDS: 673; 
3-year CDS: 699; 

December 2009: Fed exchanges $25 billion of Fed Facility for equity in 
AIA and ALICO. 

January 2010: 
5-year CDS: 558; 
3-year CDS: 581. 

February 2010: 
5-year CDS: 542; 
3-year CDS: 582. 

March 2010: 
5-year CDS: 378; 
3-year CDS: 452. 

March 2010: M Agreement to sell ALICO for $15.5 billion. 

April 2010: 
5-year CDS: 214; 
3-year CDS: 279. 

May 2010: 
5-year CDS: 208; 
3-year CDS: 274. 

June 2010: 
5-year CDS: 423; 
3-year CDS: 479. 

July 2010: 
5-year CDS: 342; 
3-year CDS: 410. 

August 2010: 
5-year CDS: 250; 
3-year CDS: 309. 

September 2010: 
5-year CDS: 275; 
3-year CDS: 337. 

October 2010: 
5-year CDS: 175; 
3-year CDS: 247. 

November 2010: 
5-year CDS: 138 (11/30/10: 189). 
3-year CDS: 206 (11/30/10: 265). 

Source: GAO analysis of Thomson Reuters Datastream. 

Note: CDS provide protection to the buyer of the CDS contract if the 
assets covered by the contract go into default. 

[Refer to PDF for image] 

[End of figure] 

AIGFP Has Continued to Unwind Its CDS Portfolio Positions and Reduce 
Its Number of Full-Time Equivalent Employees: 

The significant losses that AIGFP experienced from its derivatives 
trading business and the strains these losses put on AIG's liquidity 
in 2008 were critical factors contributing to AIG's financial crisis. 
A key part of AIG's reorganization and divestiture strategy is closing 
out or eliminating--also known as "unwinding"--these derivatives and 
closing AIGFP, which according to AIG will not be done for a 
significant amount of time. Since the fall of 2008, AIGFP has been 
unwinding its derivatives portfolio by attempting to strike the most 
efficient balance between eliminating its positions quickly and 
mitigating portfolio losses. As discussed earlier, AIGFP had 
underwritten CDS protection on CDOs to a range of counterparties. Most 
of AIGFP's positions on its CDS contracts on multisector CDOs were 
eliminated when Maiden Lane III purchased CDOs from AIGFP's CDS 
counterparties late in 2008. With these purchases, the counterparties 
agreed to terminate the CDS contracts, which eliminated the need for 
AIG to post additional collateral as values of the CDOs continued to 
fall and eased the stress on its financial condition. Since then, 
AIGFP has been closing out the remainder of its derivatives portfolio. 
To analyze AIGFP's progress, we monitored several groups of indicators 
dating to at least September 2008. The four indicators we monitored-- 
number of outstanding derivatives trade positions, gross notional 
amount of outstanding derivatives contracts, number of risk books, and 
number of AIGFP employees--show different dimensions of the unwinding 
process. Their trends suggest AIGFP has continued to make progress. We 
also analyzed AIGFP's super senior CDS portfolio, in which the 
underlying collateral of CDOs was rated investment-grade, and their 
remaining multisector CDO portfolio, in which the underlying 
collateral of CDOs was rated less than BBB. We found that while AIGFP 
continues to make progress in unwinding its super senior portfolio, it 
has made less progress since the fourth quarter of 2008 in closing out 
CDOs with lower-rated underlying collateral. AIGFP asserts that this 
result is consistent with its strategy of maintaining positions that 
have potentially significant upside profit opportunity and very 
limited potential liquidity risk. The multisector CDO portfolio 
represents one such set of positions. This strategy, with respect to 
the multisector CDO portfolio, has resulted in market valuation gains 
of $940 million over the past five quarters. 

AIGFP Has Continued to Unwind Its Operations: 

Our indicators show that from September 2008 through September 2010, 
AIGFP made significant progress in winding down its operations. A key 
reason for AIG's financial problems was the strain on liquidity that 
resulted from the performance of AIGFP's derivatives portfolios. The 
values of the investment-grade CDOs protected by CDS contracts written 
by AIG declined in the summer of 2008. In response to the declining 
values, AIGFP had to make collateral payments to the CDS 
counterparties. As we previously discussed, the federal government 
created Maiden Lane III LLC to help eliminate the financial strain 
arising from collateral payments. Maiden Lane III purchased $29.3 
billion in CDOs from AIGFP's CDS counterparties. In turn, these 
counterparties agreed to terminate the CDS contracts, because for the 
counterparties, the risk of possible downgrades or defaults on the 
CDOs had been eliminated by selling them to Maiden Lane III. 
Therefore, the counterparties no longer needed the protection that 
AIGFP's CDS contracts had provided. The strains on liquidity have 
decreased as AIGFP has continued to eliminate its positions in CDS 
contracts. Figure 6 illustrates several dimensions along which AIGFP 
has reduced its size: 

* First, since September 2008, AIGFP has closed out 87 percent of its 
outstanding trade positions, which refers to 38,300 of AIGFP's 
outstanding long and short derivative contracts. At September 30, 
2008, it had 44,000 positions; by December 31, 2009, the number had 
declined to 16,100; and as of September 30, 2010, the number had 
declined to 10,200. The 10,200 trade positions include approximately 
4,500 nonderivative asset and liability positions whose management was 
transferred to AIG's asset management group and AIG's treasury. 
According to AIG, from September 2008 through September 2010, the 
number of counterparties has been reduced by about 74 percent, and the 
number of trades dated more than 50 years has been reduced by 96 
percent from 67 to 3. 

* Second, because of the positions that have been closed out, the 
gross notional value of derivatives positions outstanding--which is a 
measure of the size of AIGFP's inventory of derivatives outstanding--
was reduced, to $506 billion as of September 30, 2010, down from $940 
billion in December 2009, $1.2 trillion in the previous quarter, and 
$2 trillion in September 2008. 

* Third, the reduction in positions also has resulted in a marked 
decrease in the number of AIGFP's businesses or risk books. In its 
switch from a strategy of growth and profit maximization to risk 
mitigation and unwinding, AIGFP reorganized its business into 22 
separate risk books determined in part by the type of risk and placed 
them in the following five groupings: (1) credit books, (2) investment 
securities and liabilities books, (3) capital markets books, (4) 
principal guaranty products, and (5) private equity and strategic 
investment books. Initially, AIGFP focused on closing out its riskiest 
positions across all risk books. AIG officials said that in certain 
cases, some books were dominated by risky positions, so these entire 
books were targeted. According to AIGFP and Federal Reserve officials, 
this goal has been substantially accomplished. The number of books 
decreased from 22 in September 2008 to 15 at the end of the second 
quarter of 2009; to 13 by March 31, 2010; and to 12 as of September 
30, 2010. The 12 books include 5 risk books related to the transfer of 
the nonderivative asset and liability positions described above. AIG 
reports that AIGFP's priority in 2010 has been to unwind complete 
books. 

* Finally, the number of AIGFP employees dropped most significantly-- 
from 428 to 257--between September 2008 and September 2009. Since that 
time the pace has slowed and as of September 30, 2010, the number was 
212.[Footnote 36] The 212 positions include 17 employees responsible 
for managing AIGFP's cash assets that AIGFP transferred to AIG and 46 
employees who report to both AIG and AIGFP. According to AIG, AIGFP 
has closed its Tokyo and Hong Kong offices and its Banque AIG office 
in London is expected to be taken over by AIG Asset Management in the 
first quarter of 2011. 

Figure 6: Status of the Winding Down of AIG Financial Products Corp., 
Quarterly from September 30, 2008, through September 30, 2010: 

[Refer to PDF for image: illustrated vertical bar graph] 

Approximate number of outstanding trade positions: 
9/30/08: 44,000; 
12/31/08: 35,000; 
3/31/09: 28,000; 
6/30/09: 22,500; 
9/30/09: 19,200; 
12/31/09: 16,100; 
3/31/10: 14,300; 
6/30/10: 11,900; 
9/30/10: 10.200. 

Gross notional of long and short derivatives positions outstanding: 
9/30/08: $2.0 trillion; 
12/31/08: $1.8 trillion; 
3/31/09: $1.52 trillion; 
6/30/09: $1.33 trillion; 
9/30/09: $1.16 trillion; 
12/31/09: $0.94 trillion; 
3/31/10: $0.76 trillion; 
6/30/10: $0.60 trillion; 
9/30/10: $0.50 trillion. 

Number of businesses (risk books): 
9/30/08: 22; 
12/31/08: 21; 
3/31/09: 17; 
6/30/09: 15; 
9/30/09: 15; 
12/31/09: 15; 
3/31/10: 13; 
6/30/10: 13; 
9/30/10: 12. 

Number of employees: 
9/30/08: 428; 
12/31/08: 375; 
3/31/09: 362; 
6/30/09: 319; 
9/30/09: 257; 
12/31/09: 237; 
3/31/10: 233; 
6/30/10: 226; 
9/30/10: 212. 

Source: GAO presentation of AIG corporate information. 

Notes: Due to Financial Accounting Standard 161, AIGFP changed its 
methodology for computing the gross notional for March 2009 leading to 
a slight increase of previously reported values. September and 
December 2008 notionals were estimated and restated numbers were 2 and 
1.8, respectively. The March 2009 number was 1.5. 

[End of figure] 

AIGFP officials believed that most of the unwinding could be completed 
by the end of 2009, but they later indicated that the vast majority of 
the remaining positions would be unwound by the end of 2010. In 
February 2010, Federal Reserve and Treasury officials said that AIGFP 
was on track to close out its riskiest positions and that AIGFP no 
longer would be in business by the end of 2010, although the company's 
positions might not be entirely unwound by the end of the year. In 
August 2010, Federal Reserve and AIG officials confirmed that, 
according to the measures established by AIG, AIGFP had met their 
targets to date and generally expected AIGFP to meet or exceed its 
targets if current market conditions persisted. AIG reported in the 
third quarter of 2010 that of AIGFP's remaining approximately 10,200 
trade positions, the management of approximately 4,500 nonderivative 
asset and liability positions was transferred to AIG's direct 
investment business. AIG anticipates that the remaining derivatives 
positions will continue to be reported as AIGFP under capital markets, 
a component of AIG's financial services reporting segment.[Footnote 
37] However, Federal Reserve and AIG noted that the winding down of 
AIGFP and its portfolios remains linked to AIG's credit ratings and, 
as mentioned earlier, these efforts could be affected adversely if 
AIG's credit ratings were downgraded. In August 2010, the Federal 
Reserve noted that the successful execution of AIG's plan to reduce 
the size of its portfolios was subject to market conditions and 
counterparties' willingness to transact with AIGFP. AIG reported in 
September 2010, that it will take substantial time to wind-down AIGFP 
because of the long-term duration of AIGFP's derivative contracts and 
the complexity of AIGFP's portfolio. 

AIGFP Has Continued to Make Progress in Unwinding Its Portfolio of 
Investment-Grade, Super Senior Credit Default Swaps: 

Our indicators suggest that AIGFP continued to make progress in 
unwinding its portfolio of credit default swaps written on investment- 
grade CDOs (those having a rating of BBB or higher from rating 
agencies). This portfolio was written on the super senior tranche of 
CDOs and had a net notional amount of approximately $375 billion in 
the third quarter of 2008.[Footnote 38] The notional amount denotes 
the size of the portfolio on which AIGFP wrote credit protection. This 
is the maximum dollar-level exposure for the portfolio, taking into 
account offsetting positions, and it measures an underlying quantity 
upon which payment obligations are computed. A decrease in the net 
notional amount could indicate progress in unwinding AIGFP's 
obligations. To measure this progress, we analyzed the net notional 
amounts of AIGFP's super senior CDS portfolio, the fair value of 
AIGFP's derivative liability, and the unrealized market valuation loss 
or gain. The fair value of its derivative liability represents the 
fair market valuation of AIGFP's liabilities in each asset portfolio. 
The unrealized market valuation gain (or loss) tracks the increase (or 
decrease) in this valuation from quarter to quarter. As with the 
overall portfolio, a decrease in the net notional amount could 
indicate progress in unwinding AIGFP's obligations. A decrease in the 
fair value of derivative liability could result in a decrease in the 
cost to AIGFP to transfer the respective derivatives to other 
counterparties in an effort to reduce its liabilities (i.e., the risk 
associated with the liabilities is viewed more favorably in the 
marketplace and reflects increased willingness to hold the 
liabilities). Therefore, such a decrease would be accompanied by 
comparable unrealized market valuation gains. 

The indicators suggest that AIGFP has continued to liquidate its CDS 
portfolio. The net notional amount of the portfolio is being reduced; 
however, the portfolio has experienced a combination of unrealized 
gains and losses. According to Federal Reserve officials, AIGFP 
management has recognized that the size and risks of the remaining CDS 
portfolios need to be further reduced and that AIG and AIGFP have been 
developing an action plan to efficiently reduce these risks. AIG's 
progress is evident across several of its risk books (see figure 7): 

* AIGFP's regulatory capital CDS book. The regulatory capital book 
represents derivatives written for European banks that allowed them to 
reduce the amount of capital they needed to set aside to cover 
potential losses on certain asset portfolios of residential mortgages 
and corporate loans by buying protection against losses on underlying 
assets.[Footnote 39] The net notional amount of this book dropped from 
about $250 billion in the fall of 2008 to about $65.5 billion in the 
third quarter of 2010, and the fair value of the CDS liability fell 
over the same period from $397 million and shifted to an asset with a 
fair value of $186 million. These CDS contracts continue to have a 
high net notional amount relative to the other AIGFP products, and the 
company continues to believe that these contracts will expire or be 
called by counterparties with little to no cost to AIG. According to 
the Federal Reserve, this portfolio has been downsized significantly 
due to counterparties' willingness to exit trades at no cost to AIGFP. 
AIGFP does not plan to sell these contracts but plans to let them 
expire because management believes that, based on stress tests, trying 
to sell them would not be cost-effective.[Footnote 40] This book also 
has experienced minimal but mixed unrealized market gains and losses 
in the first three quarters of 2010. 

* AIGFP's CDS on multisector CDO book. These CDOs represent the CDS 
portfolio that, according to Federal Reserve officials, is a synthetic 
credit position and written on CDO transactions that generally had 
underlying collateral of residential mortgage-backed securities, 
commercial mortgage-backed securities, and CDO super senior tranche 
securities.[Footnote 41] Federal assistance provided through the 
purchase of the underlying assets in this category by Maiden Lane III 
and subsequent termination of the related CDS led to a drop of more 
than 80 percent in the net notional and fair values of the multisector 
CDOs from the third quarter of 2008 in the fourth quarter of 2008-- 
$12.6 billion and $5.9 billion, respectively. As of the third quarter 
of 2010, the net notional amount continued to show declines and had 
dropped to $6.9 billion and, similarly, the fair value of the 
derivative liability declined to $3.6 billion. Also, in the first 
three quarters of 2010, multisector CDOs continued to show unrealized 
market valuation gains. 

* Corporate collateralized loan obligations and mezzanine tranche 
books. This portfolio consists of CDS transactions primarily written 
on portfolios of senior unsecured loans and mezzanine tranches, a 
portfolio of CDS transactions written on obligations rated less than 
investment-grade (investment-grade is rated BBB or higher) at 
origination. The net notional amount of the corporate portfolio 
continued to drop throughout the first three quarters of 2010, while 
the amount for the mezzanine portfolio dropped in the first two 
quarters but increased slightly in the most recent quarter. The fair 
value of derivative liability for the corporate collateralized loan 
obligation book portfolio, which fell significantly from the fourth 
quarter of 2008 through the first quarter of 2010, has changed little 
since then. Also, this corporate collateralized loan book had 
unrealized market gains throughout 2009, followed by relatively small 
losses over the first two quarters of 2010, and a small gain in the 
third quarter of 2010. By comparison, the fair value of derivative 
liability and the unrealized market valuations of the mezzanine 
tranche book have changed little in 2010. AIG officials commented that 
the smaller movement is consistent with a decrease in the size of the 
portfolio (see figure 7). 

Figure 7: Net Notional Amount, Fair Value of Derivative Liability, and 
Unrealized Market Valuation Losses and Gains for AIGFP's Super Senior 
(rated BBB or better) CDS Portfolio, Third Quarter of 2008 through 
Third Quarter of 2010: 

[Refer to PDF for image: 12 vertical bar graphs] 

Regulatory capital[A]: 

2008, Q3; 
Net notional amount: $250 billion; 
Fair value of derivative liability: $0.40 billion; 
Unrealized market valuation gain or loss: -$272 million. 

2008; Q4; 
Net notional amount: $234.5 billion; 
Fair value of derivative liability: $0.38 billion; 
Unrealized market valuation gain or loss: -$18 million. 

2009; Q1; 
Net notional amount: $192.6 billion; 
Fair value of derivative liability: $0.39 billion; 
Unrealized market valuation gain or loss: -$14 million. 

2009; Q2; 
Net notional amount: $177.5 billion; 
Fair value of derivative liability: $0.05 billion; 
Unrealized market valuation gain or loss: $23 million. 

2009; Q3; 
Net notional amount: $171.7 billion; 
Fair value of derivative liability: $0.03 billion; 
Unrealized market valuation gain or loss: $16 million. 

2009; Q4; 
Net notional amount: $150.1 billion; 
Fair value of derivative liability: -$0.12 billion; 
Unrealized market valuation gain or loss: $147 million. 

2010; Q1; 
Net notional amount: $109.4 billion; 
Fair value of derivative liability: -$0.16 billion; 
Unrealized market valuation gain or loss: $39 million. 

2010; Q2; 
Net notional amount: $64.5 billion; 
Fair value of derivative liability: -$0.14 billion; 
Unrealized market valuation gain or loss: -$20 million. 

2010; Q3; 
Net notional amount: $65.5 billion; 
Fair value of derivative liability: -$0.19 billion; 
Unrealized market valuation gain or loss: $51 million. 

Multisector collateralized debt obligations[B]: 

2008, Q3; 
Net notional amount: $71.6 billion; 
Fair value of derivative liability: $30.21 billion; 
Unrealized market valuation gain or loss: -$6.26 billion. 

2008; Q4; 
Net notional amount: $12.6 billion; 
Fair value of derivative liability: $5.91 billion; 
Unrealized market valuation gain or loss: -$5.83 billion. 

2009; Q1; 
Net notional amount: $12.0 billion; 
Fair value of derivative liability: $6.72 billion; 
Unrealized market valuation gain or loss: -$809 million. 

2009; Q2; 
Net notional amount: $9.2 billion; 
Fair value of derivative liability: $5.27 billion; 
Unrealized market valuation gain or loss: -$284 million. 

2009; Q3; 
Net notional amount: $8.2 billion; 
Fair value of derivative liability: $4.51 billion; 
Unrealized market valuation gain or loss: $332 million. 

2009; Q4; 
Net notional amount: $7.9 billion; 
Fair value of derivative liability: $4.42 billion; 
Unrealized market valuation gain or loss: $92 million. 

2010; Q1; 
Net notional amount: $7.6 billion; 
Fair value of derivative liability: $4.25 billion; 
Unrealized market valuation gain or loss: $158 million. 

2010; Q2; 
Net notional amount: $6.8 billion; 
Fair value of derivative liability: $3.78 billion; 
Unrealized market valuation gain or loss: $241 million. 

2010; Q3; 
Net notional amount: $6.9 billion; 
Fair value of derivative liability: $3.64 billion; 
Unrealized market valuation gain or loss: $117 million. 

Corporate collateralized loan obligations[C]: 

2008, Q3; 
Net notional amount: $50.7 billion; 
Fair value of derivative liability: $1.53 billion; 
Unrealized market valuation gain or loss: -$538 million. 

2008; Q4; 
Net notional amount: $50.5 billion; 
Fair value of derivative liability: $2.55 billion; 
Unrealized market valuation gain or loss: $1.02 billion. 

2009; Q1; 
Net notional amount: $49.6 billion; 
Fair value of derivative liability: $2.20 billion; 
Unrealized market valuation gain or loss: $358 million. 

2009; Q2; 
Net notional amount: $40.9 billion; 
Fair value of derivative liability: $1.10 billion; 
Unrealized market valuation gain or loss: $792 million. 

2009; Q3; 
Net notional amount: $22.6 billion; 
Fair value of derivative liability: $0.46 billion; 
Unrealized market valuation gain or loss: $566 million. 

2009; Q4; 
Net notional amount: $22.1 billion; 
Fair value of derivative liability: $0.31 billion; 
Unrealized market valuation gain or loss: $147 million. 

2010; Q1; 
Net notional amount: $16.4 billion; 
Fair value of derivative liability: $0.31 billion; 
Unrealized market valuation gain or loss: -$7 million. 

2010; Q2; 
Net notional amount: $1.57 billion; 
Fair value of derivative liability: $0.39 billion; 
Unrealized market valuation gain or loss: -$83 million. 

2010; Q3; 
Net notional amount: $12.5 billion; 
Fair value of derivative liability: $0.31 billion; 
Unrealized market valuation gain or loss: $8 million. 

Mezzanine tranches[D]: 

2008, Q3; 
Net notional amount: $5.0 billion; 
Fair value of derivative liability: $0.15 billion; 
Unrealized market valuation gain or loss: $18 million. 

2008; Q4; 
Net notional amount: $4.7 billion; 
Fair value of derivative liability: $0.20 billion; 
Unrealized market valuation gain or loss: $42 million. 

2009; Q1; 
Net notional amount: $4.2 billion; 
Fair value of derivative liability: $0.18 billion; 
Unrealized market valuation gain or loss: $13 million. 

2009; Q2; 
Net notional amount: $3.5 billion; 
Fair value of derivative liability: $0.08 billion; 
Unrealized market valuation gain or loss: $105 million. 

2009; Q3; 
Net notional amount: $3.5 billion; 
Fair value of derivative liability: $0.03 billion; 
Unrealized market valuation gain or loss: $45 million. 

2009; Q4; 
Net notional amount: $3.5 billion; 
Fair value of derivative liability: $0.14 billion; 
Unrealized market valuation gain or loss: -$111 million. 

2010; Q1; 
Net notional amount: $3.1 billion; 
Fair value of derivative liability: $0.21 billion; 
Unrealized market valuation gain or loss: -$71 million. 

2010; Q2; 
Net notional amount: $2.6billion; 
Fair value of derivative liability: $0.19 billion; 
Unrealized market valuation gain or loss: $23 million. 

2010; Q3; 
Net notional amount: $2.9 billion; 
Fair value of derivative liability: $0.22 billion; 
Unrealized market valuation gain or loss: -$24 million. 

[End of figure] 

Figure 23: Note: The data for unrealized market valuation gains or 
losses correspond to the indicated 3-month quarter. The unrealized 
market valuation loss (gain) tracks the increase (decrease) in this 
valuation from quarter to quarter. 

Source: GAO analysis of AIG SEC filings. 

[A] Regulatory capital represents the CDS portfolio sold to provide 
regulatory capital relief to primarily European financial 
institutions. In exchange for a periodic fee, these institutions 
received credit protection for a portfolio of diversified loans, thus 
reducing minimum capital requirements set by their regulators. 

[B] Multisector CDO represent the CDS portfolio sold primarily for 
arbitrage purposes and written on CDO transactions that generally had 
underlying collateral of residential mortgage-backed securities, 
commercial mortgage-backed securities, and CDO tranche securities. 

[C] The corporate collateralized loan obligations portfolio consists 
of CDS transactions primarily written on portfolios of senior 
unsecured loans. 

[D] A tranche is a piece or portion of a structured deal, or one of 
several related securities that are issued together but offer 
different risk-reward characteristics. The mezzanine tranche is 
subordinated to the senior tranche, but is senior to the equity 
tranche. The senior tranche is the least-risky tranche, whereas the 
equity tranche is the first loss and riskiest tranche. 

[End of figure] 

AIG's Multisector CDO Portfolio has Changed Significantly Since the 
First Quarter 2009: 

The gross notional amount of AIGFP's multisector CDO portfolio was 
reduced significantly in the fourth quarter of 2008 with the purchase 
of CDOs by Maiden Lane III, and since then, AIG has continued slowly 
to reduce the gross notional amount. Our indicator uses the gross 
notional amount to track the size of AIGFP's multisector CDO portfolio 
and its composition with respect to the credit quality of the 
underlying assets. However, as the portfolio has been unwinding, its 
underlying credit rating has not improved while the longer-term trend 
is not yet clear. According to AIG officials, the SEC filings about 
the composition of the multisector CDOs on which it has written credit 
default protection summarizes the gross transaction notional amount, 
percentage of the total CDO collateral pools, ratings, and vintage 
breakdown of collateral securities in the multisector CDOs, by asset- 
backed securities category. However, the gross notional data does not 
account for the attachment points of the specific transactions. When 
taken into account, the gross notional of the underlying CDOs of $15.4 
billion is reduced to a net notional exposure of $6.9 billion. 

As shown in figure 8, the total gross notional amount of AIGFP's 
multisector CDOs and of CDOs that had underlying assets rated less 
than BBB were reduced considerably in the fourth quarter of 2008, but 
reductions since then have been much smaller. The total gross notional 
amount for the multisector CDOs was reduced from $108.5 billion to $25 
billion during the fourth quarter of 2008, primarily due to Maiden 
Lane III purchasing the CDOs underlying AIGFP's CDS contracts. The 
gross notional for these CDOs has continued to be reduced each quarter 
and as of the third quarter of 2010, had been reduced to about $15.4 
billion as AIGFP has continued to unwind this portfolio. In contrast, 
while the gross notional amount with underlying assets rated less than 
BBB decreased from $26.9 billion at the end of the third quarter of 
2008 to $8 billion in the following quarter, the amount increased 
about $3 billion throughout 2009 to just more than $11 billion by the 
end of 2009. However, in the first three quarters of 2010 the trend 
reversed, and the gross notional for this portion of the portfolio was 
reduced to $10.3 billion. Despite this drop, as of the end of the 
third quarter of 2010, the underlying credit rating of the portfolio 
has not improved, with more than 67 percent of the remaining CDO 
portfolio comprising CDOs with underlying assets rated lower than BBB. 
This change in portfolio composition largely resulted from the 
successful unwinding of portfolio holdings that have underlying assets 
rated at least BBB. According to AIG officials, the amount of future 
collateral posting requirements of this portfolio is a function of 
AIG's credit ratings, the ratings of the reference obligations, and 
any further decline in the market value of the relevant reference 
obligations, with the latter being the most significant factor. In 
addition, the amount of collateral posting requirements is a function 
of the collateral provisions in the specific credit support annexes, 
which are legal documents that detail the terms of collateral for 
derivative transactions. In the case of the multisector CDO portfolio, 
a significant portion of the remaining positions are not subject to 
additional collateral postings. AIGFP currently posts $3.1 billion 
against the $6.9 billion of net notional exposure in the multisector 
CDO portfolio. 

Figure 8: Total Gross and Net Notional Amounts of Multisector CDOs 
Compared to Portions of Gross National Portfolio That Have Underlying 
Assets That Were Rated Less than BBB, Third Quarter of 2008 through 
Third Quarter of 2010: 

[Refer to PDF for image: stacked vertical bar and line graph] 

2008, Q3	
Net notional of multisector CDOs (including investment grade CDOs): 
$71.6 billion; 
Subordination below the super senior risk layer: $36.8 billion; 
Subprime residential mortgage-backed securities: $17.7 billion; 
Alt-A residential mortgage-backed securities: $3.33 billion; 	
CDOs: $4.41 billion; 
Prime residential mortgage-backed securities: $716 million; 
Commercial mortgage-backed securities: $683 million; 
All other: $87 million; 
Percentage of CDO collateral rated less than BBB: 24.8%. 

2008, Q4
Net notional of multisector CDOs (including investment grade CDOs): 
$12.56 billion; 
Subordination below the super senior risk layer: $12.48 billion; 
Subprime residential mortgage-backed securities: $4.91 billion; 
Alt-A residential mortgage-backed securities: $651 million; 
CDOs: $1.55 billion; 
Prime residential mortgage-backed securities: $128 million; 
Commercial mortgage-backed securities: $666 million; 
All other: $100 million; 
Percentage of CDO collateral rated less than BBB: 32.0%. 

2009, Q1; 
Net notional of multisector CDOs (including investment grade CDOs): 
$11.98 billion; 
Subordination below the super senior risk layer: $12.02 billion; 
Subprime residential mortgage-backed securities: $4.40 billion; 
Alt-A residential mortgage-backed securities: $2.69 billion; 
CDOs: $1.80 billion; 
Prime residential mortgage-backed securities: $142 million; 
Commercial mortgage-backed securities: $1001 million; 
All other: $144 million; 
Percentage of CDO collateral rated less than BBB: 42.4%. 

2009, Q2; 
Net notional of multisector CDOs (including investment grade CDOs): 
$9.15 billion; 
Subordination below the super senior risk layer: $10.66 billion; 
Subprime residential mortgage-backed securities: $3.75 billion; 
Alt-A residential mortgage-backed securities: $2.66 billion; 
CDOs: $1.38 billion; 
Prime residential mortgage-backed securities: $1.18 billion; 
Commercial mortgage-backed securities: $1.22 billion; 
All other: $182 million; 
Percentage of CDO collateral rated less than BBB: 52.5%. 

2009, Q3; 
Net notional of multisector CDOs (including investment grade CDOs): 
$8.17 billion; 
Subordination below the super senior risk layer: $10.38 billion; 
Subprime residential mortgage-backed securities: $3.50 billion; 
Alt-A residential mortgage-backed securities: $2.70 billion; 
CDOs: $1.33 billion; 
Prime residential mortgage-backed securities: $1.73 billion; 	
Commercial mortgage-backed securities: $1.41 billion; 
All other: $219 million; 
Percentage of CDO collateral rated less than BBB: 58.7%. 

2009, Q4; 
Net notional of multisector CDOs (including investment grade CDOs): 
$7.93 billion; 
Subordination below the super senior risk layer: $9.98 billion; 
Subprime residential mortgage-backed securities: $3.41 billion; 
Alt-A residential mortgage-backed securities: $2.68 billion; 
CDOs: $1.28 billion; 
Prime residential mortgage-backed securities: $1.69 billion; 
Commercial mortgage-backed securities: $1.79 billion; 
All other: $217 million; 
Percentage of CDO collateral rated less than BBB: 61.8%. 

2010, Q1; 
Net notional of multisector CDOs (including investment grade CDOs): 
$7.57 billion; 
Subordination below the super senior risk layer: $9.19 billion; 
Subprime residential mortgage-backed securities: $3.12 billion; 
Alt-A residential mortgage-backed securities: $2.48 billion; 
CDOs: $1.30 billion; 
Prime residential mortgage-backed securities: $1.70 billion; 
Commercial mortgage-backed securities: $1.91 billion; 
All other: $273 million; 
Percentage of CDO collateral rated less than BBB: 64.3%. 

2010, Q2; 
Net notional of multisector CDOs (including investment grade CDOs): 
$6.8 billion; 
Subordination below the super senior risk layer: $8.62 billion; 
Subprime residential mortgage-backed securities: $2.90 billion; 
Alt-A residential mortgage-backed securities: $2.45 billion; 
CDOs: $1.22 billion; 
Prime residential mortgage-backed securities: $1.61 billion; 
Commercial mortgage-backed securities: $1.98 billion; 
All other: $248 million; 
Percentage of CDO collateral rated less than BBB: 67.4%. 

2010, Q3; 
Net notional of multisector CDOs (including investment grade CDOs): 
$6.93 billion; 
Subordination below the super senior risk layer: $8.43 billion; 
Subprime residential mortgage-backed securities: $2.80 billion; 
Alt-A residential mortgage-backed securities: $2.41 billion; 
CDOs: $1.24 billion; 
Prime residential mortgage-backed securities: $1.49 billion; 
Commercial mortgage-backed securities: $2.08 billion; 
All other: $332 million; 
Percentage of CDO collateral rated less than BBB: 67.3%. 

Source: GAO analysis of AIG SEC filings. 

Note: Gross notional is equal to the net notional plus the 
subordination amounts. 

[End of figure] 

AIG's Insurance Operations Have Continued to Show Signs of Recovery, 
but Federal Aid to Life Insurance Companies Has Been Critical to Their 
Progress: 

Given the importance of AIG's insurance operations to its long-term 
financial health, we analyzed AIG's insurance operations by tracking 
several indicators of both its property/casualty and life insurance 
companies. We tracked the annual regulatory capital of AIG's insurance 
subsidiaries. The most recent data show that from 2008 through the 
first half of 2010, AIG's insurers maintained capital above regulatory 
minimums, but the recent federal assistance was critical to the health 
of domestic life and retirement companies. In particular, our 
indicators show that for AIG's life and retirement services, additions 
to policyholder contracts exceeded withdrawals and operating income 
for the domestic and foreign life insurance and retirement services 
businesses declined in the first two quarters of 2010 compared to the 
fourth quarter of 2009, but remained positive. We also analyzed AIG's 
property/casualty companies by tracking their insurance premiums 
written. While the pattern has been somewhat cyclical, overall trends 
in volume of premiums written appear to have stabilized though not 
fully recovered to the levels of 2007. Finally, while the insurance 
companies generally showed some growth, our indicators show that the 
property/casualty companies' underwriting was not profitable in the 
first two quarters of 2010 although underwriting costs relative to 
premiums earned in the first two quarters 2010 declined considerably 
from the fourth quarter 2009. Underwriting costs relative to net 
premiums earned for the international companies declined in the second 
quarter of 2010 to the point where their underwriting again became 
profitable. 

AIG's Insurers Maintained Capital Levels Higher Than the Regulatory 
Minimum, but the Domestic Life and Retirement Companies Needed Federal 
Assistance to Maintain Capital Ratio: 

The most recent data show that capital maintained by AIG's insurers 
has exceeded National Association of Insurance Commissioners (NAIC) 
minimums, and several of AIG's life and retirement companies have 
benefited from federal assistance. This indicator of AIG's capital-- 
which we will update annually as newer NAIC data become available--is 
intended to monitor the capital of AIG insurers that, if depleted by 
losses, could require additional capital contributions through federal 
assistance (for instance, by AIG drawing on FRBNY's revolving credit 
facility or Treasury's equity capital facility). NAIC requires that 
insurance companies hold a minimum amount of capital, known as risk- 
based capital. According to NAIC, "a company reporting total adjusted 
capital of 200 percent or more of minimum risk-based capital is a 'no 
action' level company; nothing needs to be done by regulators." 
[Footnote 42] On the other hand, NAIC states that "total adjusted 
capital of less than 70 percent triggers a mandatory control that 
requires the regulator to take steps to place the insurer under 
control." Moreover, a company's credit ratings are influenced by, 
among other things, its ratio of total adjusted capital to its 
authorized control level risk-based capital.[Footnote 43] Adverse 
movements in the primary components of capital and shareholders' 
equity may indicate weak performance by the company. 

As previously reported, AIG's property/casualty insurers and domestic 
life insurance and retirement services companies have maintained 
levels of capital higher than the minimum requirement set by NAIC, as 
shown in figure 9. The property/casualty companies and domestic life 
companies had adjusted capital of at least 400 percent and 600 
percent, respectively, of risk-based capital at year end 2007, 2008, 
and 2009. However, the domestic life companies only were able to 
maintain their capital ratios with federal assistance. Specifically, 
according to Federal Reserve officials, Maiden Lane II's direct 
purchase of $39.3 billion of RMBS at fair value helped these companies 
reduce the risks that were created by their securities lending 
activities in 2008. Further, AIG used funds from the FRBNY revolving 
credit facility to contribute capital to these companies, primarily to 
make up for the losses in the securities lending portfolio.[Footnote 
44] In contrast, AIG's domestic property/casualty companies have 
maintained levels of adjusted capital in excess of requirements with 
virtually no direct federal assistance. Because AIG companies report 
adjusted capital no more than once annually in their year-end filings 
with NAIC, this indicator can be updated only once a year after the 
calendar year-end data become available. We determined that the 
capital and surplus that AIG reports in its quarterly filings with 
NAIC are proxy for quarterly tracking of the adjusted capital because 
the same activities would affect both measures. More information about 
this indicator and the results of a proxy indicator that we developed 
for the first nine months of 2010 are included in appendix V. 

Figure 9: Regulatory Capital for AIG Domestic Insurance Subsidiaries 
and Primary Activities That Affected Regulatory Capital during 2009: 

[Refer to PDF for image: illustrated vertical bar graph] 

AIG’s largest domestic property/casualty companies: 

Adjusted capital: 12/31/08: $24.09 billion; 
Adjusted capital: 12/31/09: $25.30 billion; 
Authorized control level risk-based capital: 12/31/08: $5.97 billion; 
Authorized control level risk-based capital: 12/31/09: $5.46 billion; 
2009 Net income or loss: $2.37 billion; 
2009 Investor capital contributions: $0; 
2009 Stockholder dividends[B]: $0; 
Other major activities that affected capital of AIG's largest domestic 
PC and life insurance retirement services companies: 
2009 Change in net realized cap gains and losses[A]: -$1.35 billion; 
2009 Change in net deferred income tax: $646 million; 
2009 Change in nonadmitted assets: -$1.01 billion; 
2009 Aggregate write-ins for gains and losses in surplus: $459 million; 
Adjusted capital: 12/31/07: $26.60 billion; 
Adjusted capital: 12/31/08: $24.09 billion; 
Authorized control level risk-based capital: 12/31/07: $6.06 billion; 
Authorized control level risk-based capital: 12/31/08: $5.97 billion; 
2008 Net income or loss: $2.33 billion; 
2008 Investor capital contributions: $3.08 billion; 
2008 Stockholder dividends[B]: -$4.62 billion; 
Other major activities that affected capital of AIG's largest domestic 
PC and life insurance retirement services companies: 
2008 Change in net realized cap gains and losses[A]: -$3.02 billion; 
2008 Change in net deferred income tax: n/a; 
2008 Change in nonadmitted assets: n/a; 
2008 Aggregate write-ins for gains and losses in surplus: n/a. 

AIG’s largest domestic life insurance and retirement services 
companies: 

Adjusted capital: 12/31/08: $15.66 billion; 
Adjusted capital: 12/31/09: $16.54 billion; 
Authorized control level risk-based capital: 12/31/08: $2.47 billion; 
Authorized control level risk-based capital: 12/31/09: $1.95 billion; 
2009 Net income or loss: $396 million; 
2009 Investor capital contributions: $0; 
2009 Stockholder dividends[B]: $0; 
Other major activities that affected capital of AIG's largest domestic 
PC and life insurance retirement services companies: 
2009 Change in net realized cap gains and losses[A]: -$1.30 billion; 
2009 Change in net deferred income tax: -$7.09 billion; 
2009 Change in nonadmitted assets: $6.77 billion; 
2009 Aggregate write-ins for gains and losses in surplus: $1.44 
billion; 
Adjusted capital: 12/31/07: $20.04 billion; 
Adjusted capital: 12/31/08: $15.66 billion; 
Authorized control level risk-based capital: 12/31/07: $2.90 billion; 
Authorized control level risk-based capital: 12/31/08: $2.47 billion; 
2008 Net income or loss: -$17.60 billion; 
2008 Investor capital contributions: $23.12 billion; 
2008 Stockholder dividends[B]: -$52 million; 
Other major activities that affected capital of AIG's largest domestic 
PC and life insurance retirement services companies: 
2008 Change in net realized cap gains and losses[A]: -$24.21 billion; 
2008 Change in net deferred income tax: n/a; 
2008 Change in nonadmitted assets: n/a; 
2008 Aggregate write-ins for gains and losses in surplus: n/a. 

Source: AIG and GAO analysis of AIG financial statements filed with 
NAIC. 

[A] NAIC financial statements show unrealized capital losses 
separately from net income. 

[B] Includes dividends paid within AIG. 

[End of figure] 

Business at AIG's Life Insurance and Retirement Services Companies Has 
Shown Deposits Recently Exceeding Withdrawals and Their Operating 
Income Has Remained Positive: 

Deposits at AIG's life and retirement service companies have been 
improving compared with withdrawals, and their operating income has 
remained positive. We use two indicators to monitor AIG's life 
insurance and retirement services companies. The first indicator 
tracks the additions to AIG life and retirement policyholder contract 
deposits and is intended to monitor for potential redemption "runs" by 
AIG annuitants and policyholders. Additions to policyholder contract 
deposits are amounts customers have paid to AIG to purchase a policy 
or contract. Withdrawals represent redemptions or cancellations of 
these instruments. Sharp increases in contract withdrawals or 
reductions in contract deposits could indicate sharply increased 
redemptions due to customer anxiety about AIG in particular or 
insurance companies more broadly. Sharp increases in redemptions could 
strain a company's liquidity position. The second indicator tracks the 
capital gains and operating income of these companies and is intended 
to monitor the profitability of AIG's life insurance and retirement 
services companies. Operating income before capital gains or losses 
provides an indication of the profitability of the company's 
underwriting operations, while capital gains and losses relate to 
investment activities and not directly to insurance underwriting. 
Increases in operating income or reductions in net realized capital 
losses could indicate improvements in the operations of AIG's life and 
retirement services companies, including improvement in market 
conditions, lower other-than-temporary impairments, and dissipating 
effects of lower credit ratings and negative publicity related to the 
AIG brand since September 2008. 

As shown in figure 10, in the fourth quarter of 2008 AIG life and 
retirement services saw a sharp decline in additions to policyholders' 
contract deposits and a large spike in withdrawals, resulting in a gap 
of more than $26 billion. Without more granular data, it is unclear 
whether the withdrawals were driven by concerns about the condition of 
AIG or by the overall economic downturn, which may have resulted in 
policyholders cashing in policies for financial reasons. The excess of 
withdrawals over deposits adversely affected the liquidity position of 
certain entities in this segment of AIG in late 2008. Conditions 
started to improve in the first quarter of 2009, with a 77 percent 
reduction in the gap between additions and withdrawals to about $6 
billion, and that improvement continued through the third and fourth 
quarters of 2009. The third quarter of 2009 was the first time since 
the second quarter of 2008 that additions to AIG life and retirement 
policyholder contract deposits exceeded withdrawals--by more than $700 
million--but withdrawals again exceeded deposits in the fourth quarter 
of 2009. In 2010, while the dollar volume of contract deposits and 
withdrawals reported are lower because of businesses slated for sale 
were shifted from continuing operations, contract deposits continued 
to exceed withdrawals, by $755 million, $1.2 billion, and $1.6 billion 
in the first, second, and third quarters, respectively. 

Figure 10: AIG Life and Retirement Services Additions and Withdrawals 
from Policyholder Contract Deposits for AIG Life and Retirement 
Services Including Annuities, Guaranteed Investment Contracts, and 
Life Products, First Quarter of 2007 through Third Quarter of 2010: 

[Refer to PDF for image: vertical bar graph] 

2007, Q1; 
Additions to policyholder contract deposits: $14.001 billion; 
Withdrawals from policyholder contract deposits: $15.309 billion. 

2007, Q2; 
Additions to policyholder contract deposits: $14.768 billion; 
Withdrawals from policyholder contract deposits: $14.070 billion. 

2007, Q3; 
Additions to policyholder contract deposits: $16.997 billion; 
Withdrawals from policyholder contract deposits: $14.195 billion. 

2007, Q4; 
Additions to policyholder contract deposits: $19.063 billion; 
Withdrawals from policyholder contract deposits: $15.101 billion. 

2008, Q1; 
Additions to policyholder contract deposits: $16.439 billion; 
Withdrawals from policyholder contract deposits: $15.600 billion. 

2008, Q2; 
Additions to policyholder contract deposits: $16.883 billion; 
Withdrawals from policyholder contract deposits: $12.326 billion. 

2008, Q3; 
Additions to policyholder contract deposits: $13.124 billion; 
Withdrawals from policyholder contract deposits: $14.455 billion. 

2008, Q4; 
Additions to policyholder contract deposits: $850 million; 
Withdrawals from policyholder contract deposits: $27.364 billion. 

2009, Q1; 
Additions to policyholder contract deposits: $6.988 billion; 
Withdrawals from policyholder contract deposits: $12.968 billion. 

2009, Q2; 
Additions to policyholder contract deposits: $10.546 billion; 
Withdrawals from policyholder contract deposits: $13.401 billion. 

2009, Q3; 
Additions to policyholder contract deposits: $8.601 billion; 
Withdrawals from policyholder contract deposits: $7.879 billion. 

2000, Q4; 
Additions to policyholder contract deposits: $8.189 billion; 
Withdrawals from policyholder contract deposits: $8.216 billion. 

2010, Q1; 
Additions to policyholder contract deposits: $4.394 billion; 
Withdrawals from policyholder contract deposits: $3.639 billion. 

2010, Q2; 
Additions to policyholder contract deposits: $6.412 billion; 
Withdrawals from policyholder contract deposits: $5.177 billion. 

2010, Q3; 
Additions to policyholder contract deposits: $3.913 billion; 
Withdrawals from policyholder contract deposits: $2.304 billion. 

Source: GAO analysis of AIG SEC filings. 

[End of figure] 

A closer look at the revenues and expenses of these companies shows 
that the companies suffered large operating losses in 2008 not because 
of their underwriting activities but because of losses from their 
investment activities (capital losses). Yet beginning in early 2009 
and continuing into the first three quarters of 2010, their investment 
losses have become smaller and thus their operating incomes have 
become positive. For example, in the fourth quarter of 2008, net 
realized capital losses of AIG's domestic life and retirement services 
business accounted for $14.4 billion of its $15.2 billion in operating 
losses. Similarly, in that same quarter, AIG's foreign life insurance 
companies had net realized capital losses of $4.6 billion, which more 
than offset their operating income of $1.2 billion, resulting in an 
operating loss of $3.4 billion.[Footnote 45] For the full year 2009, 
net realized capital losses were $3.2 billion for the domestic 
companies and $0.6 billion for the foreign companies, much lower than 
they were for 2008--$32.6 billion for the domestic companies and $11.8 
billion for foreign companies. In turn, in 2009 the reported operating 
income was $3.5 billion for domestic companies and $4.2 billion for 
foreign companies, compared with operating losses of $31.1 billion for 
domestic companies and $6.3 billion for the foreign companies in 2008. 
The reported net realized capital losses for the domestic companies 
were nearly $800 million in the first quarter of 2010 but the losses 
gave way to a reported $20 million gain in the third quarter 2010. The 
pretax operating net income increased over that same period, from $327 
million to $998 million. Foreign companies reported realized capital 
losses in the first quarter of 2010 of $61 million, but these were 
followed by gains the next two quarters. Pretax operating income for 
these companies in the first three quarters of 2010 fluctuated at 
about $700 million and in the third quarter of 2010 was about half of 
the amount of income in the last quarter of 2009 (see appendix VI). 

AIG's Property/Casualty Companies Premiums Written Appear to Have 
Remained Stable: 

For the property/casualty commercial companies, dollar volumes of 
premiums written trended downward throughout 2007 and 2008, but 
started to stabilize in the first quarter in 2009 and this trend has 
continued through the first three quarters of 2010. To monitor trends 
in business volume in a way that includes the impact of AIG's 
financial troubles on its ongoing ability to retain existing business 
and attract new business activity to AIG's property/casualty 
companies, we developed an indicator that tracks the trends in 
quarterly premiums written by these companies since the beginning of 
2007. "Premiums written" is the dollar volume of business in a 
particular period. This indicator is important because AIG's 
property/casualty insurance businesses are expected to remain among 
AIG's core businesses following its restructuring. Trends in premiums 
written also can provide some indication of the success of AIG's 
efforts to maintain business volume. For example, to retain and 
attract business, AIG formed Chartis, Inc. from several of AIG's 
property/casualty companies and rebranded (renamed) several other AIG 
companies.[Footnote 46] However, the indicator on volume of premiums 
written is limited because it only measures a business's dollar volume 
and does not break out dollar volume by new and existing business. 
Therefore, the indicator cannot capture unit volume or the mix of 
products that comprise the volume. Also, the indicator tracks only 
AIG's business and does not compare AIG's business with that of its 
peers in the property/casualty insurance industry. Such a comparison 
would be important because property/casualty insurers as a group are 
subject to market pressures that drive premium prices up and down 
according to an industry-wide cycle characterized by hardening and 
softening markets. For example, according to a fourth quarter 2009 
survey of the Council of Independent Agents and Brokers, commercial 
property/casualty premium rates were falling in the fourth quarter 
2009 at about the same rate as in the third quarter.[Footnote 47] 
According to the survey, low demand continued to put pressure on the 
rates. 

As illustrated in figure 11, quarterly dollar volumes of premiums 
written by AIG's general insurance companies followed an annual 
recurring pattern with highest volumes generally occurring in the 
second and third quarters. For these companies, this pattern recurred 
at declining levels in 2009 as premium volumes in each quarter were 
lower than levels in same quarters of 2008, which were lower than 
levels in the same quarters of 2007. Also, premium volumes in the 
first three quarters of 2010 were below levels in the same quarters of 
2009, but the rates at which they were declining moderated, indicating 
that the trends may have stabilized. As for foreign general insurance, 
such an annual recurring pattern and declines in premium volumes were 
not as consistent or pronounced. Premium volumes in the first three 
quarters of 2008 were higher than in the corresponding quarters of 
2007. Then from the fourth quarter of 2008 through the third quarter 
of 2009 premium volumes were lower than in the corresponding prior 
year quarters before rebounding in the fourth quarter of 2009 to 
slightly exceed the premium volume in the fourth quarter of 2008. This 
trend continued into 2010 as premium volumes in the first three 
quarters were higher than the same three quarters of 2009. 

Figure 11: AIG General Insurance Premiums Written by Division, First 
Quarter of 2007 through Third Quarter of 2010: 

[Refer to PDF for image: multiple line graph] 

2007, Q1; 
Commercial insurance: $5.971 billion; 
Foreign general: $3.618 billion; 
Personal lines: $1.229 billion; 
Transatlantic: $984 million; 
Mortgage guaranty: $266 million. 

2007, Q2; 
Commercial insurance: $6.449 billion; 
Foreign general: $3.242 billion; 
Personal lines: $1.203 billion; 
Transatlantic: $983 million; 
Mortgage guaranty: $272 million. 

2007, Q3; 
Commercial insurance: $5.986 billion; 
Foreign general: $3.270 billion; 
Personal lines: $1.253 billion; 
Transatlantic: $985 million; 
Mortgage guaranty: $303 million. 

2007, Q4; 
Commercial insurance: $5.650 billion; 
Foreign general: $2.921 billion; 
Personal lines: $1.123 billion; 
Transatlantic: $1.001 billion; 
Mortgage guaranty: $302 million. 

2008, Q1; 
Commercial insurance: $5.124 billion; 
Foreign general: $4.339 billion; 
Personal lines: $1.288 billion; 
Transatlantic: $1.036 billion; 
Mortgage guaranty: $304 million. 

2008, Q2; 
Commercial insurance: $6.079 billion; 
Foreign general: $3.726 billion; 
Personal lines: $1.230 billion; 
Transatlantic: $988 million; 
Mortgage guaranty: $288 million. 

2008, Q3; 
Commercial insurance: $5.630 billion; 
Foreign general: $3.647 billion; 
Personal lines: $1.108 billion; 
Transatlantic: $1.094 billion; 
Mortgage guaranty: $280 million. 

2008, Q4; 
Commercial insurance: $4.410 billion; 
Foreign general: $2.678 billion; 
Personal lines: $888 million; 
Transatlantic: $990 million; 
Mortgage guaranty: $251 million. 

2009, Q1; 
Commercial insurance: $4.184 billion; 
Foreign general: $3.552 billion; 
Personal lines: $924 million; 
Transatlantic: $1.047 billion; 
Mortgage guaranty: $269 million. 

2009, Q2; 
Commercial insurance: $4.968 billion; 
Foreign general: $2.954 billion. 

2009, Q3; 
Commercial insurance: $5.002 billion; 
Foreign general: $3.074 billion. 

2009, Q4; 
Commercial insurance: $4.219 billion; 
Foreign general: $2.711 billion. 

2010, Q1; 
Commercial insurance: $3.787 billion; 
Foreign general: $3.857 billion. 

2010, Q2; 
Commercial insurance: $3.054 billion; 
Foreign general: $4.738 billion. 

2010, Q3; 
Commercial insurance: $3.858 billion; 
Foreign general: $4.740 billion. 		 

[End of figure] 

Figure 36: Note: Common shares of Transatlantic were sold during the 
second quarter of 2009, reducing the aggregate ownership interest in 
Transatlantic to 14 percent, and additional shares were sold in the 
first quarter of 2010, leaving AIG owning 1 percent of the shares 
outstanding, which AIG also expects to sell. The personal lines 
companies were sold to a third party on July 1, 2009. Commercial 
insurance will retain the private client business historically written 
by the personal lines segment. 

Source: GAO analysis of AIG quarterly financial supplements. 

[End of figure] 

The health of AIG's insurance companies also can be viewed from the 
perspective of their underwriting profitability. For property/ 
casualty insurers, underwriting profitability can be measured using 
the combined ratio, which is the sum of the loss and the expense 
ratios. The loss ratio measures claims costs plus claims adjustment 
expenses relative to net earned premiums. A rising loss ratio 
indicates rising claims costs relative to the premiums earned, which 
may be due to increased claims losses, decreased premiums earned, or a 
combination of the two. For example, a loss ratio of 77.3 percent 
indicates that 77.3 cents of every dollar in premiums earned are used 
for claims and claims-related costs. The expense ratio measures the 
level of underwriting administrative expenses relative to net premiums 
earned and is a measure of underwriting efficiency. For example, an 
expense ratio of 22.4 percent indicates that 22.4 cents of every 
dollar in premiums earned are used for underwriting expenses. The 
combined ratio is an overall measure of a property-casualty insurer's 
underwriting profitability. Thus, a combined ratio of less than 100 
percent would indicate that an insurer's underwriting is profitable 
and a ratio of more than 100 percent would indicate an underwriting 
loss. 

AIG's combined ratios in both commercial and foreign general 
property/casualty insurance businesses were below 100 throughout 2007 
and the first half of 2008. These ratios rose and exceeded 100 in the 
second half of 2008 and repeated a similar pattern in 2009. However, 
the loss ratios for AIG's commercial insurance rose significantly in 
the third and fourth quarters of 2008. The combined ratio spiked in 
the fourth quarter of 2008, largely due to an administrative charge 
(that also spiked the expense ratio) to recognize permanent impairment 
of goodwill of previously acquired businesses.[Footnote 48] The higher 
combined ratio also was partly due to a higher loss ratio because of 
increased claims costs associated with Hurricane Ike and other major 
catastrophes in 2008. The combined ratio also rose in the fourth 
quarter of 2009, largely due to increased claims costs related to a 
reserve strengthening charge. The commercial insurance combined ratios 
dropped significantly in the first quarter of 2010 and since then have 
remained at just more than 100, indicating that its commercial 
insurance underwriting was not profitable during these quarters. The 
combined ratio for AIG's foreign general insurance fell in the second 
quarter of 2010 to its lowest level in a year to 95.6, indicating that 
for this segment of business, underwriting again became profitable. 
AIG officials said the foreign general loss ratio increased during 
2009 primarily because of higher claims generally related to directors 
and officers insurance as well as professional liability insurance 
(errors and omissions coverage) for financial institutions at the time 
of the worldwide credit crisis, particularly in Europe.[Footnote 49] 
They also said that the foreign general expense ratio increased 
because AIG sold its Brazil operations, which resulted in decreased 
net premiums earned in 2008, more competitive pricing in the insurance 
markets in 2009, and higher levels of general operating expenses 
primarily related to the remediation and audit of general insurance 
(Chartis, Inc.), pension costs, and post-retirement liability costs. 
[Footnote 50] 

We also developed a new indicator to quarterly track AIG's 
underwriting ratios compared with the average underwriting ratios of 
its property/casualty insurance peers or competitors and AIG's 
investment income and net income as percentages of premiums earned. 
The indicator shows that in nearly every quarter since the first 
quarter of 2008, AIG's property/casualty companies have not had 
profitable underwriting but generally they have had positive net 
income, largely because of their investment income. We analyzed the 
distributions of 2009 direct premiums written (DPW) by lines of 
business of 30 property/casualty companies that each had more than $1 
billion in DPW for 2009.[Footnote 51] From these companies we defined 
a "peer" of AIG as a company that generated more than 90 percent of 
its DPW in lines that accounted for more than 60 percent of AIG's DPW. 
We defined a nonpeer of AIG as a company that generated more than 80 
percent of its DPW in lines that accounted for less than 40 percent of 
AIG's DPW or more than 50 percent of its DPW in a single line that was 
less than 20 percent of AIG's DPW. 

The top panel of figure 12 compares AIG ratios to those of its peers. 
Its combined ratios were usually higher than the average of its peers. 
However, since the first quarter of 2008, the combined ratio for these 
AIG companies exceeded 100 in all but two quarters (indicating AIG's 
underwriting usually was not profitable), whereas the ratios for its 
peers averaged less than 100 in all but three quarters, indicating 
that their underwriting usually was profitable. The top panel of the 
figure also indicates that while AIG's expense ratios (which measure 
the level of underwriting administrative expenses relative to net 
premiums earned) have been lower than the average of its peers in 
every quarter, its loss ratios (which measure the level of claims 
costs and loss adjustment expenses relative to net premiums earned) 
have been higher than the average of its peers in every quarter. 
[Footnote 52] The lower panels of the figure show that despite the 
higher-than-peer average underwriting costs, AIG's property/casualty 
companies had positive net income in all but 2 of the 15 quarters 
presented and that the companies' investment income was a major factor. 

Figure 12: Quarterly Statutory Underwriting Ratios of AIG (Domestic 
and Foreign Property/Casualty Insurance Companies) Compared to 
Averages for 15 Peers and AIG's Property/Casualty Investment Income 
and Net Income as Percents of Premiums Earned, First Quarter 2007 
through Third Quarter of 2010: 

[Refer to PDF for image: 1 multiple line graph; 2 vertical bar graphs] 

Quarterly statutory underwriting ratios of AIG compared to averages 
for 15 property/casualty (PC) insurance peers: 

2007, Q1; 
Average combined ratio of 15 PC insurance peers: 89.5; 
AIG’s combined ratio: 85.5; 
Average loss ratio of 15 PC insurance peers: 60.1; 
AIG’s loss ratio: 65.9; 
Average expense ratio of 15 insurance peers: 29.5; 
AIG’s expense ratio: 19.6. 

2007, Q2; 
Average combined ratio of 15 PC insurance peers: 91.1; 
AIG’s combined ratio: 90; 
Average loss ratio of 15 PC insurance peers: 61.6; 
AIG’s loss ratio: 70.1; 
Average expense ratio of 15 insurance peers: 29.5; 
AIG’s expense ratio: 19.9. 

2007, Q3; 
Average combined ratio of 15 PC insurance peers: 93.4; 
AIG’s combined ratio: 90; 
Average loss ratio of 15 PC insurance peers: 65.3; 
AIG’s loss ratio: 67.8; 
Average expense ratio of 15 insurance peers: 28.1; 
AIG’s expense ratio: 22.2. 

2007, Q4; 
Average combined ratio of 15 PC insurance peers: 92.4; 
AIG’s combined ratio: 98.8; 
Average loss ratio of 15 PC insurance peers: 62.1; 
AIG’s loss ratio: 75.9; 
Average expense ratio of 15 insurance peers: 30.3; 
AIG’s expense ratio: 22.9. 

2008, Q1; 
Average combined ratio of 15 PC insurance peers: 96.3; 
AIG’s combined ratio: 100; 
Average loss ratio of 15 PC insurance peers: 64.4; 
AIG’s loss ratio: 76.1; 
Average expense ratio of 15 insurance peers: 31.9; 
AIG’s expense ratio: 23.9. 

2008, Q2; 
Average combined ratio of 15 PC insurance peers: 95.6; 
AIG’s combined ratio: 102.1; 
Average loss ratio of 15 PC insurance peers: 66.3; 
AIG’s loss ratio: 81.3; 
Average expense ratio of 15 insurance peers: 29.3; 
AIG’s expense ratio: 20.8. 

2008, Q3; 
Average combined ratio of 15 PC insurance peers: 109; 
AIG’s combined ratio: 113.4; 
Average loss ratio of 15 PC insurance peers: 81.2; 
AIG’s loss ratio: 91.1; 
Average expense ratio of 15 insurance peers: 27.8; 
AIG’s expense ratio: 22.3. 

2008, Q4; 
Average combined ratio of 15 PC insurance peers: 92.9; 
AIG’s combined ratio: 119.1; 
Average loss ratio of 15 PC insurance peers: 61.6; 
AIG’s loss ratio: 89.4; 
Average expense ratio of 15 insurance peers: 31.3; 
AIG’s expense ratio: 29.8. 

2009, Q1; 
Average combined ratio of 15 PC insurance peers: 96.8; 
AIG’s combined ratio: 104.2; 
Average loss ratio of 15 PC insurance peers: 65.7; 
AIG’s loss ratio: 79.2; 
Average expense ratio of 15 insurance peers: 31.2; 
AIG’s expense ratio: 25. 

2009, Q2; 
Average combined ratio of 15 PC insurance peers: 97.9; 
AIG’s combined ratio: 99; 
Average loss ratio of 15 PC insurance peers: 67.8; 
AIG’s loss ratio: 76.7; 
Average expense ratio of 15 insurance peers: 30.1; 
AIG’s expense ratio: 22.3. 

2009, Q3; 
Average combined ratio of 15 PC insurance peers: 99.1; 
AIG’s combined ratio: 105.8; 
Average loss ratio of 15 PC insurance peers: 67.5; 
AIG’s loss ratio: 81.4; 
Average expense ratio of 15 insurance peers: 31.6; 
AIG’s expense ratio: 24.4. 

2009, Q4; 
Average combined ratio of 15 PC insurance peers: 97.6; 
AIG’s combined ratio: 136.1; 
Average loss ratio of 15 PC insurance peers: 64.2; 
AIG’s loss ratio: 110.3; 
Average expense ratio of 15 insurance peers: 33.4; 
AIG’s expense ratio: 25.9. 

2010, Q1; 
Average combined ratio of 15 PC insurance peers: 100.5; 
AIG’s combined ratio: 113.1; 
Average loss ratio of 15 PC insurance peers: 66.9; 
AIG’s loss ratio: 83.7; 
Average expense ratio of 15 insurance peers: 33.6; 
AIG’s expense ratio: 29.4. 

2010, Q2; 
Average combined ratio of 15 PC insurance peers: 100.5; 
AIG’s combined ratio: 102.8; 
Average loss ratio of 15 PC insurance peers: 68.1; 
AIG’s loss ratio: 76.9; 
Average expense ratio of 15 insurance peers: 32.4; 
AIG’s expense ratio: 26. 

2010, Q3; 
Average combined ratio of 15 PC insurance peers: 99.7; 
AIG’s combined ratio: 107.8; 
Average loss ratio of 15 PC insurance peers: 68.8; 
AIG’s loss ratio: 78.4; 
Average expense ratio of 15 insurance peers: 30.9; 
AIG’s expense ratio: 29.4. 

AIG’s PC investment income as a percent of net premiums earned: 

2007 Q1: 12%. 

2007 Q2: 14.3%. 

2007 Q3: 13.8%. 

2007 Q4: 14.7%. 

2008 Q1: 13.1%. 

2008 Q2: 12.2%. 

2008 Q3: 13%. 

2008 Q4: 13.8%. 

2009 Q1: 11.9%. 

2009 Q2: 12.4%. 

2009 Q3: 25.2%. 

2009 Q4: 15%. 

2010 Q1: 15.2%. 

2010 Q2: 17.1%. 

2010 Q3: 15%. 

AIG’s PC net income as a percent of net premiums earned: 

2007 Q1: 18.4%. 

2007 Q2: 17.3%. 

2007 Q3: 18.7%. 

2007 Q4: 22.4%. 

2008 Q1: 6.9%. 

2008 Q2: 13.2%. 

2008 Q3: -19.7%. 

2008 Q4: 7.9%. 

2009 Q1: 10.5%. 

2009 Q2: 13%. 

2009 Q3: 22.6%. 

2009 Q4: -10.5%. 

2010 Q1: 12.2%. 

2010 Q2: 16.3%. 

2010 Q3: 2.4%. 

Sources: GAO analysis of AIG and peers data per SNL Financial. 

Note: We determined AIG's property/casualty peers for our analysis by 
comparing various property/casualty companies' distribution of 
premiums written in 2009 by their lines of business. Similar to AIG, 
its peers have several lines of business. The 15 peers are ACE, 
Alleghany, Allianz SE, American Financial, Arch Capital, Argo Group, 
Chubb, C.N.A., Fairfax Financial, Hartford, Liberty Mutual, Markel, 
Old Republic, Travelers, and WR Berkley. Other property/casualty 
companies were not included in the peer group for this analysis. Most 
of these companies either concentrated on the private auto insurance 
business or home/farm owners insurance, neither of which is among 
AIG's largest lines of business. These companies are Allstate; 
Assurant, Inc.; Bank of America; Berkshire Hathaway (GEICO); Erie 
Insurance Group; FM Global; Nationwide Mutual; Progressive; QBE 
Insurance Group; State Farm Fire and Casualty; State Farm Mutual Auto 
Insurance; Tokio Marine; United Services Automobile Association; White 
Mountains; and Zurich Financial Services. 

[End of figure] 

The panels of figure 12 also show that for AIG's domestic and foreign 
property/casualty insurance combined, underwriting for the segment was 
not profitable in 10 of the 15 quarters spanning 2007 through the 
third quarter of 2010, but returns from investments for these 
companies more than offset the underwriting losses, making the segment 
profitable overall.[Footnote 53] While our data cover just under 4 
years, they suggest a pattern of loss and expense ratios rising in the 
latter part of calendar years 2007, 2008, and 2009 for both commercial 
and foreign general insurance. However, investment returns were high 
enough for these general insurance divisions combined to remain 
profitable in 2007, 2009, and the first three quarters of 2010, but 
were not large enough to outweigh the nearly $4.4 billion in general 
insurance investment losses in 2008. 

The Federal Government's Exposure to AIG Has Declined and Its Ability 
to Fully Recoup Its Assistance Will Be Determined by AIG's Long-term 
Health and Market Conditions: 

Our analysis of the composition of the federal assistance, including 
the amount of direct and indirect assistance and the sources of that 
assistance, shows that the federal exposure to AIG has declined since 
we last reported, and while AIG, Treasury, FRBNY, the AIG Credit 
Facility Trust, and the AIA and ALICO SPVs have executed a plan to 
recapitalize AIG and restructure the federal assistance to AIG in the 
hope of repaying the government's assistance, whether the federal 
government, in particular Treasury, will fully recoup its assistance 
may not be known for some time. As of September 30, 2010, total 
authorized federal assistance was reduced from $182.3 billion as of 
December 2009 to $176.5 billion, primarily because of a reduction in 
the credit limit of the FRBNY revolving credit facility. For the same 
time period, largely due to fluctuations in asset values, outstanding 
federal assistance was reduced from $129.1 billion to $124.6 billion. 
Specifically, the debt related to Maiden Lanes II and III owed to 
FRBNY on behalf of AIG decreased from $33.9 billion to $28.3 billion 
as of September 30, 2010. The values of the Maiden Lane II and Maiden 
Lane III portfolios have continued to increase slightly from September 
2009 through September 30, 2010, while the principal and interest owed 
to FRBNY has declined. We also tracked AIG's book value (shareholders' 
equity) as an indicator on the prospect of AIG's repayment and found 
that it largely has stabilized through September 2010, due to the 
unprecedented actions the Federal Reserve and Treasury have taken to 
assist AIG. In addition, we tracked AIG's divestiture of businesses as 
another indicator on the prospect of AIG's repayment. AIG is using the 
net cash proceeds from the recent AIA initial public offering (IPO) 
and the sale of ALICO to MetLife to repay the FRBNY revolving credit 
facility. On January 14, 2011, AIG and relevant parties executed a 
recapitalization and restructuring plan through which AIG repaid the 
outstanding balance in FRBNY's revolving credit facility. 
Nevertheless, the extent to which the government can recoup the 
assistance to AIG depends on AIG's long-term health and is subject to 
uncertainty arising from the likelihood of future changes in general 
economic and market conditions. 

Over the First Three Quarters of 2010, Total Government Exposure Has 
Declined: 

The government's exposure has decreased by about $4.5 billion since 
December 2009 to $124.6 billion as of September 30, 2010 (see table 
3).[Footnote 54] As discussed, the federal government has provided 
various forms of direct and indirect assistance to AIG. 

* First, in the form of debt owed by AIG to the government, the 
government has loaned money to AIG directly through the FRBNY 
revolving credit facility. As of September 30, 2010, about $20.5 
billion of assistance was being provided directly to AIG via a secured 
loan through the facility. This is less than 30 percent of the peak 
balance of $72.3 billion reached in October 2008. According to AIG, 
the company has drawn on the facility to address its short-term 
liquidity needs as it has not been able to issue commercial paper at 
the corporate level (see table 2) and because certain of its regulated 
subsidiaries are restricted from making dividend payments, or 
advancing funds, to AIG. However, as discussed earlier, an IPO for AIA 
occurred in late October 2010 and ALICO was sold in November 2010 to 
MetLife, generating cash proceeds to repay the facility, on closing of 
the announced recapitalization plan, as discussed later. 

* Second, in the form of equity shares owned by the government, the 
government had a September 30, 2010, balance of $73.3 billion of AIG 
shares through (1) Treasury's Series E noncumulative preferred stock, 
(2) Treasury's equity capital facility that is associated with the 
fixed-rate Series F noncumulative perpetual preferred stock, and (3) 
FRBNY's preferred interests in the AIA and ALICO SPVs. This direct 
government investment, which as of September 30, 2010, has grown by 
more than $1.5 billion from $71.8 billion in December 2009, is the 
primary form of federal assistance to AIG. It resulted from the 
November 2008 and March and April 2009 restructurings and the December 
2009 transaction in which the Federal Reserve exchanged $25 billion of 
its debt for $25 billion in preferred interests in the AIA and ALICO 
SPVs. On April 1, 2010, AIG announced that pursuant to the terms of 
the Series E and F preferred stock agreements, which provide that 
Treasury has the right to elect directors to AIG's board in the event 
that AIG does not pay dividends on those series of preferred stock for 
a total of four quarterly periods, Treasury elected two directors to 
the AIG board of directors. 

* Third, in the form of debt owed to the government on behalf of AIG, 
FRBNY has provided loans to Maiden Lane II and III--the SPVs 
established by FRBNY--for the purpose of purchasing RMBS assets from 
AIG's life insurance companies and CDOs from AIGFP's CDS 
counterparties, respectively. As of September 30, 2010, the 
government's exposure (not including interest dividends and fees) on 
those loans was $28.3 billion, down from $33.9 billion as of December 
2009. 

FRBNY acquired its preferred interests in the AIA and ALICO SPVs in 
exchange for reducing a substantial portion of AIG's debt under the 
FRBNY revolving credit facility. Moreover, in February 2010 AIG said 
that it was not going to pursue a previously announced life insurance 
securitization transaction. Specifically, AIG and FRBNY announced in 
March 2009, when federal assistance to AIG was restructured for a 
second time, that FRBNY would loan SPVs up to $8.5 billion to acquire 
the rights to cash flows from insurance policies issued by certain AIG 
domestic life insurance subsidiaries. AIG had planned to use proceeds 
from the sale of insurance policy cash flows to the SPV to repay FRBNY 
debt. 

Table 3: Composition of U.S. Government Efforts to Assist AIG and the 
Government's Approximate Remaining Exposures, as of September 30, 2010: 

Federal Reserve: 

Revolving Credit Facility: 
Amount authorized: $29.175 billion; 
Direct AIG assistance: AIG debt owed to government: $14.288 billion[A]; 
Direct AIG assistance: Government equity: n/a; 
Indirect AIG assistance: Other debt owed to government: n/a; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $6.182 billion; 
Total government exposure: $20.47 billion[A]. 

Maiden Lane II:
Amount authorized: $22.5 billion; 
Direct AIG assistance: AIG debt owed to government: n/a; 
Direct AIG assistance: Government equity: n/a; 
Indirect AIG assistance: Other debt owed to government: $13.656 
billion[B]; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $0.408 billion; 
Total government exposure: $14.064 billion. 

Maiden Lane III: 
Amount authorized: $30 billion; 
Direct AIG assistance: AIG debt owed to government: n/a; 
Direct AIG assistance: Government equity: n/a; 
Indirect AIG assistance: Other debt owed to government: $14.638 
billion[B]; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $0.499 billion; 
Total government exposure: $15.137 billion. 

AIA and ALICO: 
Amount authorized: $25 billion; 
Direct AIG assistance: AIG debt owed to government: n/a; 
Direct AIG assistance: Government equity: $25.955 billion[C]; 
Indirect AIG assistance: Other debt owed to government: n/a; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: n/a; 
Total government exposure: $25.955 billion. 

Treasury: 

Series D and E: 
Amount authorized: $40 billion; 
Direct AIG assistance: AIG debt owed to government: n/a; 
Direct AIG assistance: Government equity: $40 billion[D]; 
Indirect AIG assistance: Other debt owed to government: n/a; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $1.605 billion; 
Total government exposure: $41.605 billion[D]. 

Series F: 
Amount authorized: $29.835 billion; 
Direct AIG assistance: AIG debt owed to government: n/a; 
Direct AIG assistance: Government equity: $7.378 billion[E]; 
Indirect AIG assistance: Other debt owed to government: n/a; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: n/a; 
Total government exposure: $7.378 billion[E]. 

Totals: 

Total direct assistance: 
Amount authorized: n/a; 
Direct AIG assistance: AIG debt owed to government: $14.288 billion; 
Direct AIG assistance: Government equity: $73.333 billion; 
Indirect AIG assistance: Other debt owed to government: n/a; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $7.787 billion; 
Total government exposure: $95.408 billion. 

Total indirect assistance: 
Amount authorized: n/a; 
Direct AIG assistance: AIG debt owed to government: n/a; 
Direct AIG assistance: Government equity: n/a; 
Indirect AIG assistance: Other debt owed to government: $28.294 
billion; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $0.907 billion; 
Total government exposure: $29.201 billion. 

Total direct and indirect assistance to benefit AIG: 
Amount authorized: $176.51 billion; 
Direct AIG assistance: AIG debt owed to government: $14.288 billion; 
Direct AIG assistance: Government equity: $73.333 billion; 
Indirect AIG assistance: Other debt owed to government: $28.294 
billion; 
Indirect AIG assistance: Government equity: n/a; 
Accrued interest dividends and fees: $8.694 billion; 
Total government exposure: $124.609 billion. 

Sources: GAO analysis of AIG SEC filings, and Federal Reserve 
Statistical Release H.4.1. 

Note: Data are as of September 30, 2010, or latest available. 

[A] FRBNY created a revolving credit facility to provide AIG a 
revolving loan that AIG and its subsidiaries could use to enhance 
their liquidity positions. In exchange for the facility and $0.5 
million, a trust received Series C preferred stock for the benefit of 
the Treasury, which gives the trust an approximately 79.75 percent 
voting interest in AIG. FRBNY reduced the amount of the commitment fee 
on the revolving credit facility by $500,000 to pay for the Series C 
stock. The AIG loan balance reported in the H.4.1 reflects the 
outstanding principal balance, capitalized interest, unamortized 
deferred commitment fees, and the allowance for the loan 
restructuring, which was initially recorded in July 2009. On January 
14, 2011, AIG announced that it executed the recapitalization action 
plan, which stated that AIG is using the net cash proceeds from the 
recent AIA IPO and sale of the ALICO to Metlife to repay the FRBNY 
revolving credit facility. 

[B] FRBNY created an SPV--Maiden Lane II LLC--to alleviate liquidity 
and capital pressures on AIG by purchasing RMBS from AIG U.S. 
insurance subsidiaries, and another SPV called Maiden Lane III LLC to 
alleviate liquidity and capital pressures on AIG by purchasing CDOs 
from AIGFP's counterparties in connection with the termination of CDS. 
Principal owed as of September 29, 2010, was $13.656 billion for 
Maiden Lane II LLC and $14.638 billion for Maiden Lane III LLC. 

[C] AIG created two SPVs to hold the shares of certain of its foreign 
life insurance businesses (AIA and ALICO). In November 2010, the 
company announced that it sold ALICO to MetLife for approximately 
$16.2 billion (including approximately $7.2 billion in cash and the 
remainder in MetLife securities) and in October 2010 it announced that 
it had raised more than $20.5 billion in gross proceeds in the initial 
public offering of two-thirds of the shares of AIA. On January 14, 
2011, AIG announced that it executed the signed recapitalization plan, 
which stated that the funds for repaying the FRBNY revolving credit 
facility were to come from the net cash proceeds from the IPO of 67 
percent of AIA and the sale of ALICO. 

[D] Treasury purchased Series D cumulative preferred stock of AIG. AIG 
used the proceeds to pay down part of the revolving credit facility. 
Series D stock was later exchanged for Series E noncumulative 
preferred stock. Unpaid dividends on the Series D shares were added to 
the liquidation preference amount of Series E stock that Treasury 
received. When the Series D preferred shares were exchanged for Series 
E preferred shares, $1.605 billion of accrued but unpaid dividends 
were included in the liquidation preference of the Series E preferred 
stock. On January 14, 2011, AIG announced that it executed the signed 
recapitalization plan, which stated that Treasury's shares of AIG's 
Series E preferred stock were to be exchanged for approximately 924.5 
million shares of AIG common stock. 

[E] Treasury purchased Series F noncumulative preferred stock of AIG. 
Treasury has committed to provide AIG with up to $29.835 billion 
through an equity capital facility to meet its liquidity and capital 
needs in exchange for an increase in the aggregate liquidation 
preference of the Series F shares. On January 14, 2011, AIG announced 
that it executed the signed recapitalization plan, which stated that 
AIG was to draw down amounts remaining on the Series F preferred stock 
and use them to repurchase all or a portion of FRBNY's preferred 
interests in the AIA and ALICO SPVs. According to this plan, AIG and 
Treasury were to amend and restate the Series F securities purchase 
agreement to provide for the issuance of Series G preferred stock by 
AIG to Treasury. According to the plan, AIG's right to draw on 
Treasury's equity capital facility was to terminate with the closing 
of the recapitalization. Treasury's shares of the Series F preferred 
stock have been exchanged for (1) preferred interests in the AIA and 
ALICO SPVs transferred to Treasury, (2) newly issued shares of Series 
G preferred stock, and (3) approximately 167.6 million shares of AIG 
common stock. 

[End of table] 

Due to restructuring and mandatory repayments from the sale of assets, 
the borrowing limit on the amount of direct assistance available to 
AIG through the FRBNY revolving credit facility has been lowered 
several times since the facility was created, and the amount AIG owes 
the facility also has been reduced (see appendix VIII). Initially, 
FRBNY made $85 billion in assistance available to AIG. Both the 
available assistance and, in turn, the outstanding balance were 
reduced in November 2008 when the government first restructured its 
assistance to the company from debt to preferred equity. On November 
25, 2008, AIG entered into an agreement with Treasury whereby Treasury 
agreed to purchase $40 billion of fixed-rate cumulative preferred 
stock of AIG (Series D) and received a warrant to purchase 
approximately 2 percent of the shares of AIG's common stock.[Footnote 
55] The proceeds of this sale were used to pay down AIG's outstanding 
balance on the revolving credit facility by the same amount. This 
transaction left the government's overall exposure unchanged, allowed 
AIG to reduce its outstanding debt, and increased the federal equity 
position by $40 billion. It also involved a reduction of the borrowing 
limit on the credit facility from $85 billion to $60 billion. 

The borrowing limit and outstanding balance were again reduced in 
December 2009 when FRBNY received preferred interests in the AIA and 
ALICO SPVs, which was part of the March 2009 restructuring. In this 
transaction, the amount AIG owed on the facility was reduced by $25 
billion and, in exchange, FRBNY acquired preferred interests in the 
SPVs of the same amount. In effect, the transactions exchanged debt 
for equity. Also, the borrowing limit on the credit facility was 
reduced from $60 billion to $35 billion. To accelerate its efforts to 
repay the revolving credit facility AIG announced in March 2009 that 
it would generate proceeds of about $51 billion once pending 
agreements to sell AIA and ALICO to Prudential PLC and MetLife, 
respectively, were finalized. Later, AIG announced that it had 
terminated its pending agreement to sell AIA to Prudential PLC. In 
late October 2010 an IPO of two-thirds of the shares of AIA generated 
$20.5 billion in cash, and in November 2010 ALICO was sold to MetLife 
for $16.2 billion, including approximately $7.2 billion in cash and 
the remainder in MetLife securities. According to the executed 
recapitalization plan, the net cash proceeds from both transactions 
were to be loaned by the SPVs to AIG to repay the revolving credit 
facility. 

The borrowing limit on the facility was reduced several more times in 
2010 because of mandatory repayments from proceeds from sales of 
assets and businesses. In addition, in August 2010 International Lease 
Finance Corporation raised $3.9 billion by issuing senior secured debt 
in the private market. Like an asset sale, this activity triggered a 
mandatory prepayment under the FRBNY credit agreement with AIG. The 
outstanding balance includes outstanding principal and capitalized 
interest net of unamortized deferred commitment fees and allowance for 
loan restructuring.[Footnote 56] Changes in amounts owed on the 
facility fluctuate weekly and could increase or decrease depending on 
liquidity needs related to ongoing operations and restructuring 
activities, such as more conversions of debt to preferred equity. 
[Footnote 57] 

We also are monitoring the status of the government's indirect 
assistance to AIG through the Maiden Lane II and Maiden Lane III 
facilities (see appendix VIII). FRBNY provided loans to the 
facilities, giving Maiden Lane II capital to purchase RMBS from AIG's 
domestic life insurance companies and Maiden Lane III capital to 
purchase multisector CDOs from AIGFP's CDS counterparties. The Maiden 
Lane II and Maiden Lane III portfolios were funded primarily by loans 
from FRBNY, which are not debt on AIG's books. The loans and related 
expenses are to be repaid from cash generated by investment yields, 
maturing assets, and sales of assets in the facilities. Such cash is 
to be used to pay, in this order, operating expenses of the LLC, 
principal due to FRBNY, interest due to FRBNY, principal due to AIG, 
and interest due to AIG. Any remaining funds are to be shared between 
FRBNY and AIG. In addition to the FRBNY investments in the facilities, 
AIG invested $1 billion in Maiden Lane II and $5 billion in Maiden 
Lane III. For Maiden Lanes II and III, FRBNY debt and portfolio values 
peaked at $43.9 billion and $48.2 billion, respectively, in December 
2008. At that time, the combined portfolio value was $4.3 billion 
higher than the combined FRBNY debt. Since then, and through September 
29, 2010, the debt was reduced by $14.7 billion and the portfolio 
value, which has fluctuated over time, by $9.3 billion. This indicated 
that during that 21-month period, market prices of portfolio assets 
overall had not deteriorated while the debt was being reduced by cash 
flows generated by the portfolio from investment yields and asset 
maturities. Thus, as of September 29, 2010, Maiden Lane II had a 
portfolio value of $15.9 billion and Maiden Lane III had a portfolio 
value of $23 billion against unpaid FRBNY debt of $14.1 billion and 
$15.1 billion, respectively. 

The Federal Reserve said that it plans to hold on to the Maiden Lane 
assets until they mature or increase in value to a point where the 
Federal Reserve can maximize the amount of money recovered through 
their sale but added that it has the authority to change its portfolio 
strategy at any time. Federal Reserve officials explained that the 
Maiden Lane assets are amortizing and that the long-term plan is for 
the Maiden Lanes to sell off the portfolios' assets, which will be 
used to repay the debt. Federal Reserve officials also said that they 
constantly evaluate opportunities to sell assets--while still meeting 
their objective of maximizing long-term cash flows--and have been able 
to sell a handful of assets across the two Maiden Lanes. They 
clarified that their decision to sell an asset depends on an asset's 
discounted expected future cash flows and weighting those cash flows 
across scenarios by how likely they are to occur. The value of these 
assets relative to the outstanding loan balance had improved since the 
latter part of 2008 and the Maiden Lanes have continued to receive 
payments of principal and interest on their portfolios. The officials 
added that the assets in the Maiden Lanes are high-quality bonds and 
thus they expect to continue receiving timely payments of interest and 
principal on most bonds in the portfolio regardless of the holding 
period. In their view, the risk is that these payments cease as the 
underlying portfolio has substantially matured or defaulted prior to 
the full repayment of outstanding principal.[Footnote 58] As assets 
mature, are sold, or pay interest, any portion remaining after paying 
operating expenses of the Maiden Lanes will go toward reducing the 
loan balance. These payments will reduce the amount of principal owed 
by the Maiden Lanes to FRBNY. As of September 30, 2010, proceeds from 
the Maiden Lanes had been used to pay down $15.5 billion of the 
outstanding principal.[Footnote 59] 

AIG and Relevant Parties Executed the Five Transactions Provided in 
the Master Transaction Agreement in the Closing of the 
Recapitalization Plan: 

In September 2010, AIG reached an agreement in principle for a 
recapitalization to begin to repay its federal assistance. Most of the 
plan hinged on the success of several transactions that involved a 
restructuring of the government's assistance to AIG. On December 8, 
2010, this agreement was superseded by a master transaction agreement 
signed by AIG, FRBNY, Treasury, the AIG Credit Facility Trust (the 
Trust), as well as the AIA and ALICO SPVs, and this plan was executed 
on January 14, 2011. First, AIG repaid FRBNY in cash all the amounts 
owed under the FRBNY revolving credit facility, which as of September 
30, 2010, was approximately $20.5 billion, and the credit facility was 
terminated. The funds for repayment came from loans to AIG from the 
SPVs that held the net cash proceeds from the IPO of AIA and the sale 
of ALICO. The net cash proceeds from the AIA IPO were approximately 
$20.1 billion and from the ALICO sale to MetLife were approximately 
$7.2 billion. 

Second, AIG drew down an amount available under Treasury's equity 
capital facility established pursuant to the Series F preferred stock 
securities purchase, less an amount up to $2 billion. AIG used the 
amount drawn down to repurchase all or a portion of FRBNY's preferred 
interests in the AIA and ALICO SPVs and then transferred the 
repurchased preferred interests to Treasury in partial consideration 
for the Series F shares.[Footnote 60] In addition to the value 
provided by the remaining equity stake in AIA and equity interests in 
MetLife received as part of the ALICO sale, AIG used the proceeds from 
the sales or dispositions of its interests in its Nan Shan Life 
Insurance Company, Ltd.; AIG Star Life Insurance Co. Ltd.; AIG Edison 
Life Insurance Company; International Lease Finance Corporation; and 
Maiden Lane II LLC and Maiden Lane III LLC to repay the proceeds 
loaned to AIG from the AIA and ALICO SPVs, providing funds that the 
SPVs used to redeem any of the preferred interests in the SPVs that 
remained outstanding after the closing.[Footnote 61] Any preferred 
interests in the SPVs not transferred to Treasury at closing continue 
to be held by FRBNY and would be senior to the preferred interests in 
the SPVs transferred to Treasury. AIG has the right to designate up to 
$2 billion of the remaining Series F preferred stock to a new Series G 
cumulative mandatory convertible preferred stock for general corporate 
purposes (this is discussed in more detail below). 

Third, AIG and Treasury amended and restated the securities purchase 
agreement related to the Series F preferred stock so that AIG could 
issue to Treasury Series G preferred stock at closing, and AIG's right 
to draw on the Series F preferred stock was terminated. AIG's right to 
draw on the Series G preferred stock is subject to terms and 
conditions substantially similar to those in the agreement. According 
to Treasury officials, the terms of the Series G stock would make it 
punitive for AIG to draw on the stock for financing. Indeed, according 
to the agreement, dividends on the Series G preferred stock would be 
payable on a cumulative basis at a rate per annum of 5 percent, 
compounded quarterly. In addition, Treasury and AIG officials said 
that if AIG did not repay its draw on this facility within a year, 
then Treasury's Series G preferred stock would be converted to common 
stock at the lesser of 29.29 percent and 80 percent of the average 
volume weighted average price over the 30 trading days commencing 
immediately after the date the common stock trades without the right 
to receive warrants in connection with the recapitalization.[Footnote 
62] 

Fourth, the various preferred stock held by the Trust and Treasury 
were exchanged for common stock. The exchanges included the following: 

1. The Trust's shares of AIG's Series C perpetual, convertible, 
participating preferred stock were exchanged for approximately 562.9 
million shares of AIG common stock, which are now held by Treasury; 

2. Treasury's shares of AIG's Series E fixed rate noncumulative 
preferred stock were exchanged for approximately 924.5 million shares 
of AIG common stock; and: 

3. Treasury's shares of the Series F preferred stock were exchanged 
for preferred interests in the AIA and ALICO SPVs transferred to 
Treasury, newly issued shares of Series G preferred stock, and 
approximately 167.6 million shares of AIG common stock. 

Treasury now holds approximately 1.655 billion shares of AIG common 
stock, representing approximately 92.1 percent of the AIG common stock 
that would be outstanding as of the closing. 

Fifth, AIG issued to holders of AIG common stock, by means of a 
dividend, 10-year warrants to purchase up to 75 million shares of AIG 
common stock at an exercise price of $45 per share.[Footnote 63] 
According to Treasury officials, the warrants were issued to address 
the AIG board of directors' desire to compensate existing shareholders 
for the dilutive effect of the recapitalization plan. 

Implementation of the recapitalization plan began on January 6, 2011, 
when AIG's Board of Directors conditionally declared a dividend in the 
form of warrants to purchase shares of AIG's common stock to the 
holders of AIG common stock subject to the condition that the parties 
to the recapitalization plan determined as of January 12 and closed on 
January 14. On January 12, AIG announced that this condition had been 
satisfied. It proceeded with the distribution of the warrants, which 
were 10-year warrants to purchase up to 75 million shares of AIG 
common stock. The warrants were issued on January 19, 2011, to AIG's 
common shareholders of record as of January 13, 2011. Each warrant 
entitles the holder to purchase one share of AIG common stock, par 
value $2.50 per share (AIG common stock), at $45 per share. With these 
exchanges completed, Treasury now owns approximately 92 percent of the 
common stock of AIG. Treasury also owns new Series G preferred shares, 
which AIG may draw for general corporate purposes, and preferred 
interests in the AIA and ALICO SPVs. AIG expects that over time, 
Treasury will sell its shares of AIG common stock. 

With Continued Federal Debt and Equity Assistance, AIG's Book Value 
Remained Generally Stable over the First Nine Months of 2010: 

To assess AIG's prospects of repaying federal assistance, we developed 
an indicator to track AIG's book value (shareholders' equity). A rise 
in book value could indicate improved prospects for repayment. 
Conversely, a decrease could indicate worsening prospects for 
repayment. The indicator monitors the amount of federal assistance 
provided in the form of debt and equity to AIG relative to AIG's book 
value. It tracks AIG's book value annually over several years before 
the financial deterioration that resulted in federal assistance, and 
from that point forward compares the book value with the level of 
federal debt and equity assistance provided but not yet repaid on a 
quarterly basis. 

Figure 13 shows that AIG's shareholders' equity peaked in December 
2006 at $101.7 billion and bottomed at $45.8 billion in March 2009. It 
climbed to $72.7 billion in September 2009, and has fluctuated more 
modestly since then. As of September 30, 2010, shareholders' equity 
was at $80.8 billion, compared to $95.4 billion of total federal 
assistance on AIG's books either as debt owed or as preferred equity. 
However, as discussed earlier, as of the third quarter 2010, AIG's 
shareholders' equity currently is positive, which is entirely the 
result of federal assistance. 

Figure 13: Debt and Equity Federal Assistance Provided to AIG Compared 
with AIG's Book Value, December 2004 through September 30, 2010: 

[Refer to PDF for image: stacked vertical bar graph] 

December 2004; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $79.7 billion. 
					
December 2005; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $8.6 billion. 
					
December 2006; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $101.7 billion. 
					
December 2007; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $95.8 billion. 
					
June 2008; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $78.1 billion. 
					
September 2008; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $71.2 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series F Preferred Shares: $63.0 
billion. 

December 2008; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $52.7 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $40.0 billion; 
Treasury liquidation preference in Series F Preferred Shares: $40.4 
billion; 
Federal Reserve Commercial Paper Funding Facility: $15.1 billion. 

March 2009; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $45.8 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Treasury liquidation preference in Series F Preferred Shares: $47.4 
billion; 
Federal Reserve Commercial Paper Funding Facility: $12.2 billion;.  

June 2009; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $58.0 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Principal and interest owed to FRBNY on credit facility: $1.2 billion; 	
Treasury liquidation preference in Series F Preferred Shares: $44.8 
billion; 
Federal Reserve Commercial Paper Funding Facility: $11.2 billion. 

September 2009; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $72.7 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Principal and interest owed to FRBNY on credit facility: $3.2 billion; 
Treasury liquidation preference in Series F Preferred Shares: $41.0 
billion; 
Federal Reserve Commercial Paper Funding Facility: $9.6 billion. 

December 2009; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $69.8 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Principal and interest owed to FRBNY on credit facility: $5.2 billion; 
FRBNY liquidation preferences in AIA and ALICO SPUs: $24.5 billion; 
Treasury liquidation preference in Series F Preferred Shares: $23.4 
billion; 
Federal Reserve Commercial Paper Funding Facility: $4.7 billion. 

March 2010; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $75.0 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Principal and interest owed to FRBNY on credit facility: $7.4 billion; 
FRBNY liquidation preferences in AIA and ALICO SPUs: $25.1 billion; 
Treasury liquidation preference in Series F Preferred Shares: $27.4 
billion; 
Federal Reserve Commercial Paper Funding Facility: $2.3 billion. 

June 2010; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $75.5 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Principal and interest owed to FRBNY on credit facility: $7.4 billion; 
FRBNY liquidation preferences in AIA and ALICO SPUs: $25.6 billion; 
Treasury liquidation preference in Series F Preferred Shares: $26.5 
billion. 

September 2010; 
Book value: AIG’s consolidated shareholders’ equity (assets minus 
liabilities or book values): $80.8 billion; 
Debt and federal assistance: 
Treasury liquidation preference in Series E Preferred Shares (replaced 
Series D shares): $41.6 billion; 
Principal and interest owed to FRBNY on credit facility: $7.4 billion; 
FRBNY liquidation preferences in AIA and ALICO SPUs: $26.0 billion; 
Treasury liquidation preference in Series F Preferred Shares: $20.5 
billion. 

Source: GAO analysis of AIG SEC filings. 

[End of figure] 

AIG Has Implemented Major Divestitures: 

Part of AIG's plan has been for the company to restructure itself into 
a smaller company by selling some of its businesses, and that has 
included major recent divestitures. In 2009 the company divested 
several of its businesses and in the Fall of 2010, AIG sold ALICO and 
completed an IPO of AIA, two insurance companies that were major 
subsidiaries of AIG. According to Federal Reserve officials, the 
proceeds from the AIA and ALICO transactions were to be held in an 
escrow-type account and would not be used to pay either the FRBNY 
credit facility or the preferred interests in the AIA and ALICO SPVs 
until all of the closing conditions of the restructuring plan were 
met. Cash proceeds from certain other asset sales will be available to 
fund operations and redeem preferred interests. To track the progress 
of this activity, we developed an indicator to chronologically track 
divestitures (or dispositions) by AIG and the terms of such 
transactions, including cash proceeds. Our indicator groups the 
divestitures and the related proceeds by the quarters in which the 
transactions closed. 

Figure 14 shows aggregate proceeds from dispositions closed by quarter 
from the third quarter of 2008 through the third quarter of 2010, and 
as of November 30, 2010, broken out by cash proceeds, noncash 
proceeds, and proceeds with the cash portion not disclosed (figure 
does not include the AIA IPO, which is not a disposition). AIG said 
that it has used the cash proceeds from these sales to meet its 
obligations, including the credit facility; to cover capital needs; 
and to provide loans to its subsidiaries. As of November 30, 2010, AIG 
disclosed that it had received about $27.2 billion in total proceeds 
from sales, $12.9 billion of which was cash. Figure 14 shows that 
proceeds were increasing each quarter through the third quarter of 
2009. In the last quarter of 2009, AIG closed on the sale of AIG 
Finance-Hong Kong for $627 million. AIG officials told us that in 
addition to this sale, AIG signed agreements on several other 
transactions during this period that had not yet closed. The slowdown 
in sales also may have reflected the asset-disposition strategy of 
AIG's current president and chief executive officer, which has been to 
hold assets in hopes for better terms at a later date rather than to 
sell them quickly.[Footnote 64] 

Figure 14: Proceeds from Dispositions by Quarter, September 30, 2008, 
through November 30, 2010: 

[Refer to PDF for image: stacked vertical bar graph] 

Date: 9/30/08; 
Proceeds not separated by cash and noncash in public disclosures: None; 
Cash proceeds: None; 
Noncash proceeds: None. 

Date: 12/31/08; 
Proceeds not separated by cash and noncash in public disclosures: $820 
million; 
Cash proceeds: None; 
Noncash proceeds: None. 

Date: 3/31/09; 
Proceeds not separated by cash and noncash in public disclosures: $43 
million; 
Cash proceeds: $739 million; 
Noncash proceeds: $76 million. 

Date: 6/30/09; 
Proceeds not separated by cash and noncash in public disclosures: 
$1.136 billion; 
Cash proceeds: $1.755 billion; 
Noncash proceeds: $550 million. 

Date: 9/30/09; 
Proceeds not separated by cash and noncash in public disclosures: $1.9 
billion; 
Cash proceeds: $2.441 billion; 
Noncash proceeds: $200 million. 

Date: 12/31/09; 
Proceeds not separated by cash and noncash in public disclosures: None; 
Cash proceeds: $70 million; 
Noncash proceeds: $557 million. 

Date: 3/31/10; 
Proceeds not separated by cash and noncash in public disclosures: None; 
Cash proceeds: $729 million; 
Noncash proceeds: None. 

Date: 6/30/10; 
Proceeds not separated by cash and noncash in public disclosures: None; 
Cash proceeds: None; 
Noncash proceeds: None; 

Date: 9/30/10; 
Proceeds not separated by cash and noncash in public disclosures: None; 
Cash proceeds: None; 
Noncash proceeds: None; 

Date: 11/30/10; 
Proceeds not separated by cash and noncash in public disclosures: None; 
Cash proceeds: $7.2 million; 
Noncash proceeds: $9.0 billion. 

Sources: AIG and GAO analysis of AIG press releases and SEC filings. 

[End of figure] 

Most recently, AIG has reported significant progress in disposing of 
two of its major assets. On March 8, 2010, AIG announced that its 
board had agreed to sell ALICO to MetLife, and the sale subsequently 
was closed in November 2010 for $16.2 billion, which is reflected in 
the figure above. In March 2010, AIG also announced that its board had 
approved the sale of AIA to Prudential PLC, but subsequently this sale 
was terminated and AIA was positioned for an IPO. The IPO occurred in 
late October 2010 and generated $20.5 billion, which is not reflected 
in the figure above since the transaction was not a sale. On the 
closing of the recapitalization plan, the net cash proceeds from the 
sale of ALICO and the AIA IPO were used to repay the FRBNY revolving 
credit facility.[Footnote 65] AIG, Treasury, FRBNY, and the AIG Credit 
Facility Trust see these transactions as critical for AIG to repay its 
federal assistance. 

The unprecedented steps the Federal Reserve and Treasury have taken to 
assist AIG as a result of their determination that the company posed 
systemic risk to the financial system have helped stabilize AIG's 
operations. The federal assistance, including the most recent 
recapitalization and restructuring plan, also appears to be 
facilitating a more orderly restructuring of the company. Our panel of 
indicators shows that, in general, the improvements AIG made in 2009 
continued into the first three quarters of 2010. However, the 
indicators also show that AIG has continued to rely heavily on federal 
assistance for its liquidity needs and equity capital structure. 

Since the beginning of our monitoring effort, federal assistance 
provided to AIG gradually has shifted from debt to equity, with a 
reduction in the authorized amount of the FRBNY revolving credit 
facility and an increase in the amount of preferred equity interests 
held in AIG and various SPVs for the government. With the January 14, 
2011, completion of the restructuring plan, all of the government's 
assistance to AIG is now in the form of common stock and preferred 
interests. Consequently, the government's, and thus the taxpayer's, 
exposure to AIG increasingly is expected to be tied to the success of 
AIG, its ongoing performance, and its value as seen by investors in 
AIG's stock. The sustainability of any positive trends in AIG's 
operations will depend on how well it manages its business in the 
current economic environment. Similarly, the government's ability to 
fully recoup its assistance will be determined by the long-term health 
of AIG and other market factors such as the performance of the 
insurance sectors and the credit derivatives markets that are beyond 
the control of AIG or the government. We will continue to monitor 
these issues in our future work. 

Agency Comments and Our Evaluation: 

We shared a copy of the draft of this report with the Federal Reserve, 
Treasury, and AIG. They provided technical comments, which we 
incorporated as appropriate. 

We are sending copies of this report to interested congressional 
committees and members, the Congressional Oversight Panel, Financial 
Stability Oversight Board, Special Inspector General for TARP, 
Treasury, the federal banking regulators, and others. The report also 
is available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staffs have any questions concerning this report please 
contact Orice Williams Brown at (202) 512-8678 or williamso@gao.gov. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. GAO staff who 
made major contributions to this report are listed in appendix X. 

Signed by: 

Orice Williams Brown: 
Director, Financial Markets and Community Investment: 

List of Congressional Addressees: 

The Honorable Max Baucus: 
The Honorable Thad Cochran: 
The Honorable Kent Conrad: 
The Honorable Orrin Hatch: 
The Honorable Daniel K. Inouye: 
The Honorable Tim Johnson: 
The Honorable Jeff Sessions: 
The Honorable Richard C. Shelby: 
United States Senate: 

The Honorable Hal Rogers: 
Chairman: 
The Honorable Norm Dicks: 
Ranking Member: 
Committee on Appropriations: 
House of Representatives: 

The Honorable Paul Ryan: 
Chairman: 
The Honorable Chris Van Hollen: 
Ranking Member: 
Committee on the Budget: 
House of Representatives: 

The Honorable Spencer Bachus: 
Chairman: 
The Honorable Barney Frank: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

The Honorable Dave Camp: 
Chairman: 
The Honorable Sander M. Levin: 
Ranking Member Committee on Ways and Means: 
House of Representative: 

[End of section] 

Appendix I: AIG Operations: 

American International Group, Inc. (AIG) is a holding company that, 
through its subsidiaries, is engaged in a broad range of insurance and 
insurance-related activities in the United States and abroad. These 
activities include general insurance, life insurance and retirement 
services, financial services, and asset management. Figure 15, which 
illustrates the AIG parent company and subsidiaries that it directly 
owns, conveys the complexity of the AIG organization. AIG's 
subsidiaries are Chartis International, LLC; AIG Life Holdings 
International, LLC; ALICO Holdings, LLC; Chartis Inc.; AIG Life 
Holdings (United States), Inc.; AIG Capital Corporation; AIG Financial 
Products Corp; and 10 other companies. AIG comprises approximately 400 
companies and has operations in more than 130 countries and 
jurisdictions worldwide. As of September 30, 2010, AIG had assets of 
$872 billion and revenues of $19.1 billion for the 3 preceding months. 
The AIG companies are among the largest domestic life insurers and 
domestic property/casualty insurers in the United States, and include 
large foreign general insurance and life insurance businesses. 
According to AIG, there have been no material changes in their 
organization chart as of September 1, 2010. 

Figure 15: AIG, Its Subsidiaries, and Percentage Ownership by Parent 
Company as of September 1, 2010: 

[Refer to PDF for image: organization chart] 

AIG Credit Facility Trust (Series C preferred Stock 100%
Approx. 79.8% of voting shares): 
Public shareholders (Common stock: Approx. 20.2% of voting shares). 
Together, form: 
American International Group, Inc. 

Companies forming American International Group, Inc. includes the 
following and their subsidiaries: 

Chartis International, LLC 100%: 
Chartis Overseas Limited 100%; 
AIG Life Holdings (International) LLC 100%; 
ALICO Holdings, LLC 100%; 
Chartis Inc. 100%; 
AIG Life Holdings (US), Inc. 100%; 
AIG Global Services, Inc. 100%; 
AIG Financial Products Corp. 100%; 
AIG Capital Corporation 100%. 

Chartis International, LLC 100%: 
* Chartis Central Europe & CIS Insurance Holdings Corporation 100%: 
- Chartis Ukraine Insurance Company CJSC 74.08%[A]; 
- UBB-AIG Insurance and Reinsurance Company JSC 40%; 
* Russian Reinsurance Company OAO 22.50%; 
* Chartis Africa Holdings, Inc. 100%: 
- Chartis Kenya Insurance Company Limited 66.67%; 
* Chartis MEMSA Holdings, Inc. 100%: 
- AIG Hayleys Investment Holdings (Private) Ltd. 100%: 
-- CHARTIS Insurance Limited 100%; 
- CHARTIS Greece Representation of Insurance Services S.A. 51%; 
- Chartis Iraq, Inc.; CHARTIS Lebanon S.A.L.; Chartis Libya, Inc.;
- CHARTIS Sigorta A.S. 100%; 
- Tata AIG General Insurance Company Limited 26%; 
* Chartis European Insurance Investments Inc. 100%: 
- Ascot Corporate Name Limited 100%; 
* AIU Insurance Company 100%: 
- Chartis Insurance Company China Limited; Chartis Taiwan Insurance Co., Ltd. 100%; 
* HPIS Limited 100%; 
* Travel Guard Worldwide, Inc. 100%: 
- Travel Guard Group Canada, Inc.; Livetravel, Inc. 100%; 
* AIG Egypt Insurance Company S.A.E. 95.02%; 
* AIG Global Trade & Political Risk Insurance Company; AIU Insurance Company 
(Trinidad & Tobago) Limited; Chartis Technology and Operations Management Corporation 100%; 
* Chartis Far East Holdings Kabushiki Kaisha 100%: 
- T-PEC Corporation 48.64%[B]; 
* Chartis Real Estate Investors Limited 100%; 
- Shanghai Partners 87.54%. 

Chartis Overseas Limited 100%: 
* American International Underwriters Pakistan (Private) Limited 100%; 
* American International Underwriters (Philippines), Inc. 100%; 
* American International Underwriters Kabushiki Kaisha 100%; 
* Arabian American Insurance Company (Bahrain) E.C. 100%; 
* Chartis Chile Compania de Seguros Generales S.A. 100%; 
* CHARTIS Cyprus Ltd 100%; 
* Chartis Insurance Hong Kong Limited 100%; 
* Chartis Insurance Company - Puerto Rico 100%; 
* Chartis, I.I. - Puerto Rico 100%; 
* Chartis Insurance Ireland Limited 100%; 
* Chartis Insurance Management Services (Ireland) Limited 100%; 
* Chartis Luxembourg Financing Limited 100%; 
* Chartis Insurance (Guernsey) PCC Limited 100%; 
* Chartis Insurance (Thailand) Company Limited 100%; 
* CHARTIS MEMSA Insurance Company Limited 100%; 
* Chartis Philippines Insurance Inc. 100%; 
* Chartis Regional Headquarters Southeast Asia Pte. Ltd. 100%; 
* Chartis Seguros Brasil S.A. 100%; 
* Chartis Seguros Colombia S.A. 100%; 
* Chartis Seguros Uruguay S.A. 100%; 
* CHARTIS Takaful-Enaya B.S.C. (c) 100%; 
* Chartis Uganda Insurance Company Limited 100%; 
* Chartis Vietnam Insurance Company Limited 100%; 
* International Adjustment Company, Ltd. 100%; 
* Kendall Holdings Limited 100%; 
* Underwriters Adjustment Company, Inc [Panama] 100%; 
* Universal Insurance Broker Company Limited 100%; 
* La Meridional Compania Argentina de Seguros S.A. 95%[C]; 
* Johannesburg Insurance Holdings (Proprietary) Limited 100%: 
- Chartis Life South Africa Limited; Chartis South Africa Limited 100%; 
* Hellas Insurance Co.S.A. 50%; 
* Uzbek American Insurance Company 51%; 
* PT Chartis Insurance Indonesia 61.01%; 
* Chartis Seguros Guatemala, S.A. 100%: 
- Chartis Fianzas Guatemala, S.A. 99.398%[D]; 
* Latin American Investment Guarantee Company, Ltd. 50%; 
* Chartis Seguros, El Salvador, Sociedad Anonima 99.99%[E]; 
* Chartis Vida Sociedad Anonima Seguros de Personas 99.99%; 
* American International Underwriters del Ecuador S.A. 100%[F]: 
- AIG Metropolitana Compania de Segurosy Reaseguros S.A. 32.06%; 
* Chartis Overseas Association 67%[G]: 
- Chartis North America, Inc. 100%; 
- Chartis Europe Holdings Limited 63.92%[H]: 
-- Chartis Europe, S.A. 91.32%[I]; 
-- Chartis Building Limited
Chartis Insurance Company CJSC; Chartis Malaysia Insurance Berhad; Chartis 
Reinsurance Services; Chartis Romania Insurance Company, SA 100%; 
-- Chartis UK Holdings Limited 100%: 
--- Chartis UK Financing Limited 100%; 
---- Chartis UK Sub Holdings Limited 100%; 
--- Chartis Insurance UK Limited 100%; 
--- AIG Germany Holding GmbH 100%; 
---- WYNONNA 1837 AG 100%; 
* Chartis Bermuda Limited 60%[J]; 
* Chartis Uzbekinvest Limited 51%; 
* Inversiones Segucasai, C.A. 50%; 
- C.A. de Seguros American International 93.72%; 
* Richmond Insurance Company Limited 100%; 
- Richmond Insurance Company (Barbados) Ltd. 100%; 

AIG Life Holdings (International) LLC 100%: 
* American International Reinsurance Company, Ltd. 100%; 
- AIG Life International Limited 100%; 
- AIG Mexico Seguros Interamericana, S.A. de C.V. 100%; 
- AIG Cuidandotu Salud, S.A. de C.V. 100%; 
- NanShan Life Insurance Company, Ltd. 97.57%; 
- AIA Aurora LLC 99%[k]; 
-- AIA Group Limited 100%; 
--- American International Assurance Company Limited 100%; 
---- AIA Shared Services Sdn. Bhd.; LC Ventura (Tampines) Pte. Ltd.; 
TH Central Holdings Limited; 
---- P.C.-AIA Co. Ltd. 49%[L]; 
---- American International Data Centre Limited 84%[M]; 
---- The Phillippine American Life & General Insurance Company 99.78%; 
------ Philam Equitable Life Assurance Company, Inc. 95%; 
------ Philam Asset Management, Inc.; Philam Insurance Agency and Call 
Center Services, Inc.; 
------ Philamlife Tower Management Corporation 47.01%[N]; 
------ BPI-Philam Life Assurance Corporation 51%; 
----- American International Assurance Bhd 100%; 
------ AIA Takaful International Bhd 100%; 
----- Quality Houses Public Co., Ltd. 10.81%; 
----- American International Assurance Company (Bermuda) Limited 100%; 
------ AIA (Vietnam) Life Insurance Company Limited; PineBridge Investments 
Asia Limited 100%; 
------ PT AIA Financial 80%[O]; 
------ Tata AIG Life Insurance Company Ltd. 26%; 
------ Grand Design Development Limited 100%; 
------- Bayshore Development Group Limited 100%; 
----- AIA Australia Limited 100%; 
------ AIA Financial Services Limited 100%; 
* AIG Star Life Insurance Co., Ltd. 100%; 
- CLIS K.K. 10%. 

ALICO Holdings, LLC 100%: 
* American Life Insurance Company 100%: 
- AIG Hayat Sigorta A.S. 100%: 
- ALICO (Bulgaria) ZZD, EAD 100%: 
- Alico Life International Limited 100%: 
- AHICO Elso Amerikai Magyar Biztosito Zrt. 100%: 
- AMSLICO AIG Life poist’ovnaa.s. 100%: 
- American Life Insurance Company Gestorade 100%: 
- Fondos y Planos de Pensiones S.A. 100%: 
- ALICO S.A. 100%: 
- ALICO Compania de Seguros de Vida S.A. 100%: 
- Alico Nagasaki Operation Yugen Kaisha 100%: 
- Communication One Kabushiki Kaisha 100%: 
- Financial Learning KK 100%: 
- First American Czech Insurance Company, A. S. 100%: 
- American Life Insurance Company (Pakistan) Limited 61.84%; 
- American Life and General Insurance Company (Trinidad and Tobago) Ltd. 80.92%; 
- Inversiones Inversegven, C.A. 50%; 
-- Seguros Venezuela, C.A. 92.7853%; 
-- Inversiones Interamericana S.A. 99.99%[Q]; 
-- La Interamericana Compania de Seguros de Vida S.A. 100%; 
- Alico Compania de Seguros de Retiros; ALICO Compania de Seguros S.A.[R];  
- First American Polish Life Insurance and Reinsurance Company S.A. 100%; 
-- AMPLICO Powszechne Towarzystwo Emerytalne S.A. 50%[S]; 
- Pharaonic American Life Insurance Company 74.875%[T]; 
- AIG Mexico, Compania de Seguros de Vida, S.A. de C.V. 99.99%[U]; 
- CJSC American Life Insurance Company AIG Life 99.99%[V]; 
- ALICO Asigurari Romania S.A. 98%[W]; 
- ALICO a.d.o 99.99%[X]; 
- Hellenic ALICO Life Insurance Company Ltd. 27.5%; 
- UBB-ALICO Life Insurance Company JSC 40%; 
- ALICO Italia S.p.A. 100%; 
-- Agenvita S.r.l 95%[Y]; 
- ALICO Properties, Inc. 51%; 
- AIG Financial Assurance Japan K.K. 100%[Z]; 
-- AIG Edison Life Insurance Company 10%; 
- El Pacifico-Peruano Suiza Compania de Seguros S.A. 20.1%[AA]; 
-- El Pacifico Compania y Reaseguros 61.99%[BB]; 
- ALICO European Holdings Limited (Ireland) 100%; 
-- “Master-D” ZAO 100%; 
-- ZAO ALICO Insurance Company 51%[CC]; 
- ALICO Colombia Seguros de Vida, S.A. 94.99%[DD]; 
- AIG Life International Ltd. 100%; 
- ALICO Akcioardslco Dnistvoza Zivotno Osiguranje 99.99%[EE]. 

Chartis Inc. 100%: 
* Chartis U.S., Inc. 100%; 
- American Home Assurance Company 100%; 
-- Chartis Non-Life Holding Company (Japan), Inc. 100%; 
-- Fuji Fire & Marine Insurance Company Limited 18.13%; 
-- American Fuji Fire & Marine Insurance Company; Fuji Life Insurance Company, 
Limited; Fuji International Insurance Company, Limited 100%; 
- New Hampshire Insurance Company 100%: 
-- Chartis Casualty Company; Granite State Insurance Company; Illinois National 
Insurance Co.; Morefar Marketing, Inc. 100%; 
- Quartz Holdings LLC 100%; 
-- Fieldstone Securitization I LLC 100%; 
-- Graphite Management LLC 100%; 
--- Lavastone Capital LLC 100%; 
- Audubon Insurance Company 100%; 
-- Audubon Indemnity Company 100%; 
- The Insurance Company of the State of Pennsylvania; Landmark Insurance Company; 
Chartis Property Casualty Company; Chartis Insurance Company of Canada 100%; 
- Commerce and Industry Insurance Company 100%; 
-- AIG Polska Towarzystwo Ubezpiecen S.A. 99.25%[GG]; 
- Risk Specialists Companies, Inc.100%
-- A.I. Risk Specialists Insurance 100%; 
--- Design Professionals Association Risk Purchasing Group, Inc.; 
- National Union Fire Insurance Company of Pittsburgh, PA 100%; 
-- National Union Fire Insurance; Company of Louisiana; National Union Fire Insurance; 
Company of Vermont; Chartis Claims, Inc. 100%; 
-- Chartis Specialty Insurance Company 70%[HH]; 
-- Lexington Insurance Company 70%[II]; 
--- JI Accident & Fire Insurance Company, Ltd. 50%; 
-- Chartis Select Insurance Company 100%; 
--- Chartis Excess Limited 100%; 
-- United Guaranty Corporation 45.88%[JJ]; 
--- AIG Centre Capital Group, Inc. 100%; 
--- AIG United Guaranty Agenzia di Assicurazione S.R.L. 100%; 
--- AIG United Guaranty Insurance (Asia) Limited 100%; 
--- AIG United Guaranty Mortgage Insurance Company Canada 100%; 
--- AIG United Guaranty Re, Ltd. 100%; 
--- AIG United Guaranty, Sociedad Limitada 100%; 
--- United Guaranty Direct Insurance Svcs, Inc. 100%; 
--- United Guaranty Services Inc. 100%; 
--- United Guaranty Insurance Company 100%; 
--- United Guaranty Mortgage Insurance Co. 100%; 
--- United Guaranty Mortgage Insurance 100%; 
--- Company of North Carolina 100%; 
--- United Guaranty Partners Insurance Co. 100%; 
--- United Guaranty Residential Insurance Company of North Carolina 100%; 
--- United Guaranty Residential Insurance Company 75.03%[KK]; 
---- First Mortgage Insurance Company 100%; 
---- United Guaranty Commercial Insurance Company of North Carolina 100%; 
---- United Guaranty Credit Insurance Company 100%; 
---- United Guaranty Mortgage Indemnity Company 100%; 
--- A.I.G. Mortgage Holdings Israel, Ltd. 100%; 
---- E.M.I. - Ezer Mortgage Insurance Company Ltd. 100%; 
--- AIG United Guaranty Mexico, S.A. 99.999%[LL}. 

AIG Life Holdings (US), Inc. 100%: 
* AGC Life Insurance Company 100%; 
- AIG Life of Bermuda, Ltd. 100%; 
-- American General Life Insurance Of Bermuda, Ltd. 100%; 
- American General Life and Accident Insurance Company 100%; 
-- American General Property Insurance Company 100%; 
- American General Life Insurance Company 100%; 
-- American General Annuity Service Corporation 100%; 
-- The Variable Annuity Life Insurance Company 100%; 
--- VALIC Financial Advisors,Inc. 100%; 
--- Iris Energy, LLC 44%[MM]; 
- Western National Life Insurance Co. 100%; 
- American General Life Insurance Co. Of Delaware 100%; 
- American International Life Assurance Company of New York 100%; 
- The United States Life Insurance Co. in the City of New York 100%; 
* AI Life Settlement, Inc. 100%; 
* American General Assurance Company 100%; 
- American General Indemnity Company 100%

AIG Capital Corporation 100%: 
* AIG Global Asset Mgmt Holdings Corp. 100%; 
- AIG Global Real Estate Investment Corp. 100%; 
-- AIG Realty, Inc. 100%; 
- AIG Securities Lending Corp. 100%; 
- PineBridge Gbbal Investment LLC 100%; 
-- PineBridge Investment LLC 100%; 
- AIG Ports America, Inc. 100%; 
-- Ports America Holdings, Inc. 100%; 
-- Ports Insurance Company, Inc. 100%; 
- AIG Consumer Finance Group, Inc. 100%; 
-- AIG Bank Polska S.A. 99.92%; 
- AIG Equipment Finance Holdings, Inc. 100%; 
- AIG Commercial Equipment Finance, Inc. 100%; 
- AIG Rail Services. Inc. 100%; 
- International Lease Finance Corporation 100%; 
-- Aircraft SPC-12, Inc. 100%; 
--- Whitney Leasing Limited 100%; 
-- Aircraft SPC-9, Inc. 100%; 
--- Sierra Leasing Ltd. 100%; 
- AIG Credit Corp. 100%; 
-- A.I. Credit Corp. 100%; 
- American General Finance, Inc. [IN] 100%; 
-- American Financial Services of Alabama, Inc. [DE] 100%; 
-- American General Finance Corp. [IN] 100%; 
--- American General Consumer Discount Co. 100%; 
--- American General Financial Services of Illinois, Inc. 100%; 
--- American General Financial Services, Inc. [DE] 100%; 
--- American General Financial Services, Inc. [IN] 100%; 
--- American General Financial Services, Inc. [NC] 100%; 
--- American General Financial Services, Inc. [OH] 100%; 
--- American General Financial Services, Inc. [SC] 100%; 
--- American General Financial Services, Inc. [TX] 100%; 
--- American General Financial Services, Inc. [WA] 100%; 
--- Merit Life Insurance Co. 100%; 
--- Ocean Finance and Mortgages Limited 100%; 
--- Third Street Funding LLC 100%; 
--- Yosemite Insurance Company  100%; 
--- MorEquity, Inc. [NV] 100%; 
---- Wilmington Finance, Inc. 100%; 
--- American General Financial Services of America, Inc. [DE] 100%; 
---- American General Home Equity, Inc. [DE] 100%. 

* AIG Global Services, Inc. 100%; 
- American International Group KK 100%; 
* Equitable Investment Co. (Hong Kong) Ltd. 100%; 
- Sea Insurance Co. Limited 100%; 
- Sea Insurance Sendirian Berhad 100%; 
* AIG Israel Insurance Company 50.01%; 
* Caravan Investment Inc. 100%; 
- AIG Caspian Insurance Company 51%[NN]; 
* AIG Federal Savings Bank 100%; 
* AIG Funding, Inc. 100%; 
* AIG BG Holdings, LLC 100%; 
* AIG Castle Holdings, LLC 100%; 
* AIG Castle Holdings, II LLC 100%; 
* AIG Life Insurance Company (Switzerland), Ltd. 100%; 
* American Security Life Insurance Company, Ltd. 100%; 
* MG Reinsurance Limited 100%; 
* AIG Trading Group, Inc. 100%;
- AIG International Inc. 100%; 
- AIG Clearing Corporation 100%;
* AIG Kazahltstan Insurance Co., SA. 60%;
* Delaware American Life Insurance Co. 100%;
- GBN, LLC 100%;
* AIG Retirement Services, Inc. 100%;
- SunAmerica Life Insurance Co. 100%;
-- SunAmerica Annuity and Life Assurance Company 100%; 
--- SunAmerica Asset Mangement Corp. 100%; 
--- SunAmerica Capital Services, Inc. 100%; 
-- First Sun America Life Insurance Co. 100%; 
-- SA Affordable Housing, LLC 100%; 
-- SunAmerica Investments, Inc. 100%; 
--- SunAmerica (Cayman) Co., Ltd. 100%; 
--- AIG Advisor Group, Inc. 100%; 
---- SagePoint Financial Advisors, Inc. 100%; 
- New California Life Holdings, Inc. 33%; 
-- Aurora National Life Assurance Co. 100%; 
* AIUH LLC 100%; 
- Charts Holdings, Inc. 100%. 

AIG Financial Products Corp. 100%: 
* AIG Matched Funding Corp. 100%: 
* AIG-FP Matched Funding Corp. 100%: 
* Bishopswood Corp. 100%: 
* Bluewood Investment LLC 100%: 
* DBY One, LLC 100%: 
* International Investment Company (Bermuda) Limited 100%: 
* NF One (Cayman) Limited 100%: 
* NF Seven (Cayman) Limited 100%: 
* Orangewood Investment LLC 100%: 
* Yellowwood Investment LLC 100%: 
* AIG Financial Products (Jersey) Limited 100%;  
* AIG-FP Investment Co. (Bermuda) Limited 100%; 
- AIG-FP Funding (Cayman) Limited
- AIG-FP Special Finance (Cayman) Limited} 100%; 
- NF Thirteen (Cayman) Limited 100%; 
* AIG-FP Pinestead Holdings Corp. 100%; 
- Alberti Holding Company 100%; 
- Cedarstead Investment Corp. 100%; 
- Pinestead Investment Corp. 100%; 
- Willogrove Finance Company Limited 100%; 
* Dukes Corp. 100%; 
- Cloudview (Cayman) Limited 100%; 
- Cloudview 3 (Cayman) Limited 100%; 
- Skyview (Cayman) Limited 100%; 
- Skyview 3 (Cayman) Limited 100%; 
* Lakevista Holdings Corp. 79%[OO]; 
- Lakevista Corp. 21%[PP]; 
-- Clarges Funding LLC 100%; 
* Banque AIG S.A. 90%[QQ]; 
* Cherrywood Investments LLC 99%[RR]; 
* Avon Holdings Corp. 100%; 
- Avon LLC 100%; 
-- Avon Financing Corp. 100%; 
* AIG Financial Products Hong Kong Limited 100%: 
- Elgibright Investment Limited 90%[SS]; 
* Bittern Investments Corp. 100%; 
- Blackbird Investments LLC 100%; 
* AIG-FP Capital Preservation Corp. 100%; 
- Flamebright Investment Limited 100%; 
- Bullfinch Investments (Cayman) Limited 91%; 
- AIGFP NZ Funding LLC 99%[TT]; 
- The AIV Limited Partnership 99%; 
* Pearwood Funding Corp. 100%; 
- Pearwood LLC 100%; 
* Peachwood Funding Corp. 100%; 
* NF One Hundred and Twenty-Three Corp. 100%; 
- Sorbier Holding Corp. 79%[UU]; 
- Sorbier Investment Corp. Malacees LLC	100%; 
* AIG-FP Holdings Corp. 100%; 
- TMS Investments LLC 100%; 
-- TMS Sub LLC 100%; 
* NF Fifty-Eight Corp. 79%; 
- Heathwood Holding Corp. 21%; 
- Heathwood Corp. 100%; 
* AIG-FP Struckffed Finance (Cayman) Limited 100%; 
* DBY Twenty-four Corp. 68%; 
- Brambling Investments LLC 100%; 
- Blackcap Investments LLC 100%[WW]; 
* Union Excess Reinsurance Company, Ltd 100%. 

Source: AIG. 

Notes from subsidiaries: 

[A] 5.73 percent Steppe Securities, L.L.C. and 20.18 percent American 
International Group, Inc. 

[B] 10 percent American Life Insurance Company, and 9.40 percent 
American Home Assurance Company. 

[C] 4.99 percent Chartis Global Management Company Limited. 

[D] 0.602 percent American International Underwriters (Guatemala), S.A. 

[E] 0.01 percent Chartis Latin America Investments, LLC. 

[F] 19.72 percent Chartis Overseas Association. 

[G] 10 percent American Home Assurance Company; 11 percent National 
Union Fire Insurance Company of Pittsburgh, PA.; and 12 percent New 
Hampshire Insurance Company. 

[H] 1.42 percent Chartis Luxembourg Financing Limited, 32.39 percent 
Chartis Overseas Limited, and 2.28 percent Chartis Bermuda Limited. 

[I] 8.68 percent Chartis Overseas Limited. 

[J] 40 percent American International Reinsurance Company, Ltd. 

[K] 1 percent AIG and the Federal Reserve Bank of New York has 100 
percent interest with certain rights not customary of preferred 
holders. 

[L] 51 percent Rich Development Limited. 

[M] 16 percent Chartis Insurance Hong Kong Limited. 

[N] 3.45 percent Kapatiran Realty Corporation, 11.24 percent Perf 
Realty Corporation, and 6.83 percent Philam Properties Corporation. 

[O] 20 percent PT Asta Indah Abadi. 

[P] Federal Reserve Bank of New York has 100 percent interest with 
certain rights not customary of preferred holders. 

[Q] 0.01 percent International Technical and Advisory Services Limited. 

[R] 10 percent International Technical and Advisory Services Limited. 

[S] 50 percent American Life Insurance Company. 

[T] 7.50 percent AIG Egypt Insurance Company S.A.E. 

[U] 0.00001 percent International Technical and Advisory Services 
Limited. 

[V] 0.0005 percent International Technical and Advisory Services 
Limited and 0.0005 percent Borderland Investments Limited. 

[W] 1 percent Societatea de Asigurari AIG Romania SA and 1 percent 
International Technical and Advisory Services Limited. 

[X] 0.01 percent International Technical and Advisory Services Limited. 

[Y] 5 percent American Life Insurance Company. 

[Z] 2.77 percent Chartis Overseas Limited. 

[AA] 90 American International Reinsurance Company, Limited. 

[BB] 38.01 percent American Life Insurance Company. 

[CC] 49 percent American Life Insurance Company. 

[DD] 5.01 percent International Technical and Advisory Services 
Limited. 

[EE] 0.01 percent International Technical and Advisory Services 
Limited. 

[FF] 10.36 percent AIU Insurance Company; 2.58 percent Chartis 
Overseas Limited; 7.73 percent Chartis Europe, S.A.; and 2.76 percent 
American Home Assurance Company. 

[GG] 75 percent American Life Insurance Company. 

[HH] 10 percent Chartis Property Casualty Company and 20 percent The 
Insurance Company of the State of Pennsylvania. 

[II] 10 percent Chartis Property Casualty Company and 20 percent The 
Insurance Company of the State of Pennsylvania. 

[JJ] 35.12 percent New Hampshire Insurance Company; and 19 percent The 
Insurance Company of the State of Pennsylvania. 

[KK] 24.97 percent United Guaranty Residential Insurance Company of 
North Carolina. 

[LL] 0.001 percent United Guaranty Services, Inc. 

[MM] 29 percent American General Life and Accident Insurance Company 
and 1 percent Iris Energy Holding, L.P. 

[NN] 49 percent American International Group, Inc. 

[OO] 21 percent NF Fifty-One (Cayman) Limited. 

[PP] 79 percent AIG Financial Products Corp. 

[QQ] 10 percent AIG Matched Funding Corp. 

[RR] 1 percent AIGFP Capital Preservation Corp. 

[SS] 10 percent AIG Financial Products Corp. 

[TT] 1 percent AIG Financial Products Corp. 

[UU] 21 percent NF Thirty-nine Corp. 

[VV] 79 percent AIG Financial Products Corp. 

[WW] 17 percent AIGFP Pinestead Holdings Corp. and 15 percent NF Seven 
(Cayman) Limited. 

[XX] Although no AIG company owns an equity interest in Union Excess, 
control over Union Excess may be implied through the timing and nature 
of certain reinsurance commutations. 

[End of figure] 

[End of section] 

Appendix II: AIG's Credit Ratings and an Overview of Definitions of 
Credit Ratings: 

Credit ratings measure a company's ability to repay its obligations 
and directly affect that company's cost of and ability to access 
unsecured financing. If a company's ratings are downgraded, its 
borrowing costs can increase, capital can be more difficult to raise, 
business partners may terminate contracts or transactions, 
counterparties can demand additional collateral, and operations can 
become more constrained generally. Rating agencies can downgrade the 
company's key credit ratings if they believe the company is unable to 
meet its obligations. In American International Group, Inc.'s (AIG) 
case, this could affect its ability to raise funds and increase the 
cost of financing its major insurance operations, and, in turn, impede 
AIG's restructuring efforts. Conversely, an upgrade in AIG's credit 
ratings would indicate an improvement in its condition and possibly 
lead to lower borrowing costs and facilitate corporate restructuring. 

As shown in table 4, AIG's key credit ratings remained largely 
unchanged since May 2009, primarily because federal assistance has 
provided AIG with needed liquidity. For example, from March 31, 2009, 
to December 15, 2009, AM Best, Moody's, and Standard & Poor's (S&P) 
maintained the same credit ratings for AIG's long-term debt and the 
financial strength of its property/casualty and life insurance 
companies due in large part to support that the Board of Governors of 
the Federal Reserve System (Federal Reserve) and the Department of the 
Treasury provided.[Footnote 66] While contributing to stable ratings 
thus far, the scale of this assistance eventually may raise questions 
about AIG's future prospects if the company is not able to raise 
capital from private sources. For example, because of the importance 
of the federal funds to AIG's solvency, Fitch's lowered its ratings of 
AIG in several categories in May 2009. Months later, in February 2010, 
Fitch placed AIG's U.S. property/casualty companies on "rating watch 
negative," but in early July 2010, Fitch reviewed all of AIG's 
ratings, affirmed those ratings, and revised the rating outlook to 
"stable" from "evolving." It removed the property/casualty companies 
from "rating watch negative" and reassigned them as "stable outlook." 
Fitch's ratings of AIG have remained unchanged since then. And in 
April 2010, S&P reported that AIG made solid progress in its overall 
restructuring plan and in stabilizing its insurance operations. S&P 
affirmed its ratings of AIG and maintained their negative outlook, 
reflecting S&P's view of the challenges AIG faces in sustaining 
performance of its insurance operations and capitalizing its life 
insurance businesses. S&P's ratings too have remained unchanged. 

Table 4: AIG's Key Credit Ratings, March 31, 2009, through September 
30, 2010: 

Debt: Long-term: 

Rating agency: S&P; 
Mar. 31, 2009: A-/negative[A]; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: AIG Financial Products 
Corp. would have to post collateral and termination payments. The 
total obligations depend on the market and other factors at the time 
of the downgrade. For example: 
* At September 30, 2010, a one-notch, two-notch, or three-notch 
downgrade from S&P and Moody's would have cost AIG up to $1.2 billion, 
$2.4 billion, and $2.6 billion, respectively, in cumulative additional 
collateral postings and termination payments; 
* At June 30, 2010, a one-notch, two-notch, or three-notch downgrade 
from S&P and Moody's would have cost AIG up to $1.7 billion, $3 
billion, and $3.2 billion, respectively, in cumulative additional 
collateral postings and termination payments. 

Rating agency: Moody's; 
Mar. 31, 2009: A3/negative[A]; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Rating agency: Fitch; 
Mar. 31, 2009: A; 
May 15, 2009: BBB/evolving; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: BBB/stable; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Debt: Short-term: 

Rating agency: S&P; 
Mar. 31, 2009: A-1 for AIG Funding, Curzon, and Nightingale[A]; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: AIG affiliates in 
commercial paper programs (AIG Funding, Curzon Funding LLC, and 
Nightingale LLC) could have been ineligible for participation in the 
Federal Reserve's Commercial Paper Funding Facility (CPFF).[B]. 

Rating agency: Moody's; 
Mar. 31, 2009: P-1 for AIG funding[A]; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: on review for possible downgrade; 
Potential consequences of future downgrade: see above. 

Rating agency: Fitch; 
Mar. 31, 2009: F1; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Financial strength: 
Potential consequences of future downgrade: Further downgrades of 
these ratings may prevent AIG's insurance companies from offering 
products and services or result in increased policy cancellations or 
termination of assumed reinsurance contracts. A downgrade in AIG's 
credit ratings may result in a downgrade of the financial strength 
ratings of AIG's insurance subsidiaries. 

Life insurer: 

Rating agency: AM Best; 
Mar. 31, 2009: A/negative[A]; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: Domestic retirement 
services would be severely affected by a high surrender rate and 
further suspension of sales in some firms, and would suffer a 
significant loss of wholesalers. Domestic life new business would be 
severely affected, in several instances forcing the company to exit 
businesses that serve either the high-net-worth marketplace or 
businesses that are governed by trust contracts. The company would 
need to continue to dedicate key resources to retention and management 
of existing relationships. A.M. Best commented on September 30, 2010, 
that its ratings of the AIG holding company and its subsidiaries were 
not changed by the announcement of a plan for AIG to exit government 
ownership. 

Rating agency: S&P; 
Mar. 31, 2009: A+/negative; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Rating agency: Moody's; 
Mar. 31, 2009: A1/developing; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: A1/negative; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Rating agency: Fitch; 
Mar. 31, 2009: AA-; 
May 15, 2009: A-/evolving; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: No change; 
July 31, 2010: A-/stable; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Property/casualty insurer: 

Rating agency: AM Best; 
Mar. 31, 2009: A/negative[A]; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: AIG commercial 
property/casualty businesses expect that a financial strength rating 
downgrade would result in a loss of approximately 50 percent of the 
net premiums written and operating losses for the domestic business. 
For the foreign businesses, a downgrade could cause regulators to 
further strengthen operational and capital requirements. Staff 
retention could become a key issue, and premiums would deteriorate 
significantly. A.M. Best commented on September 30, 2010, that its 
ratings of the AIG holding company and its subsidiaries were not 
changed by the announcement of a plan for AIG to exit government 
ownership. 

Rating agency: S&P; 
Mar. 31, 2009: A+/negative; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Rating agency: Moody's; 
Mar. 31, 2009: Aa3/negative; 
May 15, 2009: no change; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: no change; 
July 31, 2010: no change; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Rating agency: Fitch; 
Mar. 31, 2009: AA-; 
May 15, 2009: A+/evolving; 
Dec. 15, 2009: no change; 
Mar. 31, 2010: placed rating on rating watch - negative; 
July 31, 2010: A+/stable; 
Sep. 30, 2010: no change; 
Potential consequences of future downgrade: see above. 

Sources: AIG Securities and Exchange Commission filings; S&P, Fitch, 
Moody's, and AM Best; and AIG. 

[A] These are key ratings. 

[B] AIG's International Lease Finance Corporation lost access to CPFF 
funds after an S&P downgrade on Jan. 21, 2009. CPFF expired for new 
issuances on February 1, 2010, and as of June 30, 2010, AIG had no 
commercial paper outstanding with the CPFF. 

[End of table] 

Moody's, S&P, and Fitch are three of the credit rating agencies that 
assess the creditworthiness of AIG. Each of the rating agencies uses a 
unique rating to denote the grade and quality of the bonds being 
rated. Table 5 provides an overview of the ratings for Moody's, S&P, 
and Fitch. 

Table 5: Summary of Rating Agencies' Ratings: 

Grade and quality: Highest grade and quality; 
Definitions: There is an extremely strong capacity to meet financial 
commitments on the obligation and bonds have little investment risk; 
Moody's[A]: Aaa; 
S&P[B]: AAA; 
Fitch[B]: AAA. 

Grade and quality: High grade and quality; 
Definitions: There is a very strong capacity to meet financial 
commitment on the obligation and bonds have very little investment 
risk, but margins of protection may be lower than with the highest 
grade bonds; 
Moody's[A]: Aa; 
S&P[B]: AA; 
Fitch[B]: AA. 

Grade and quality: Upper-medium grade and quality; 
Definitions: There is a strong capacity to meet financial commitment 
on the obligation and the principal and interest are adequately 
secured, but the bonds are more vulnerable to a changing economy; 
Moody's[A]: A; 
S&P[B]: A; 
Fitch[B]: A. 

Grade and quality: Medium and lower-medium grade; 
Definitions: There are adequate protections for these obligations, but 
the bonds have investment and speculative characteristics. This group 
comprises the lowest level of investment grade bonds; 
Moody's[A]: Baa; 
S&P[B]: BBB; 
Fitch[B]: BBB. 

Grade and quality: Noninvestment and speculative grades; 
Definitions: There is little protection on these obligations and the 
interest and principle may be in danger, in cases in which default may 
be likely; 
Moody's[A]: Ba1 and below; 
S&P[B]: BB+ and below; 
Fitch[B]: BB+ and below. 

Sources: Moody's Investors Service, S&P's Ratings Services, and Fitch 
Ratings. 

[A] Moody's has numerical modifiers of 1, 2, and 3 in each rating 
classification from Aa to B: "1" indicates that the issue ranks in the 
higher end of the category, "2" indicates a midrange ranking, and "3" 
indicates that the issue ranks in the lower end of the category. 

[B] S&P's Ratings Services and Fitch Ratings: Ratings from 'AA' to 
'CCC' may be modified by the addition of a plus (+) or minus (-) sign 
to show relative standing within the major rating categories. 

[End of table] 

[End of section] 

Appendix III: Corporate Liquidity Available to AIG: 

This indicator monitors the timing of potential future demand on 
American International Group, Inc.'s (AIG) liquidity posed by its debt 
obligations. These liquidity measures reflect AIG's ability to meet 
its cash payment needs. A decrease in available liquidity, or an 
increase in debt, could increase the risk of insolvency. Sources of 
available liquidity provide an indication of how AIG obtains the funds 
needed to meet its obligations. The greater the portion of current 
available liquidity provided by AIG's own operations, the less reliant 
it is on federal assistance. 

As shown in table 6, in November 2008, the major source of AIG's 
corporate available liquidity was the Federal Reserve Bank of New 
York's (FRBNY) revolving credit facility, with lesser amounts 
available through the FRBNY commercial paper funding facility (CPFF) 
and AIG's bilateral facilities. Prior to October 2008, AIG's corporate 
liquidity was available through the private sector, but that month, 
AIG looked to other sources for its corporate liquidity, namely 
FRBNY's credit facility and the new CPFF. In November 2008, these two 
sources became AIG's primary sources of liquidity. Throughout 2009 and 
into 2010, FRBNY's credit facility remained a primary source of 
liquidity, but CPFF and AIG's bilateral facilities and cash and short-
term investments became secondary sources of liquidity. Starting in 
April 2009, AIG was obtaining the funds needed to meet its obligations 
primarily from the Department of the Treasury's equity capital 
facility, which remains its primary source of liquidity into 2010, as 
well as from FRBNY's credit facility. 

Table 6: Amounts of Available Corporate Liquidity, November 5, 2008, 
through and October 27, 2010: 

FRBNY revolving credit facility: 
Nov. 5, 2008: $24.0 billion; 
Feb. 18, 2009: $24.8 billion; 
Apr. 29, 2009: $17.4 billion; 
Jul. 29, 2009: 20.0 billion; 
Oct. 28, 2009: $18.3 billion; 
Feb. 17, 2010: $14.0 billion; 
Apr. 28, 2010: $11.0 billion; 
Jul. 28, 2010: $14.4 billion; 
Oct. 27,: 2010: $14.6 billion. 

Commercial paper under CPFF and syndicated and bilateral facilities: 
Nov. 5, 2008: $5.600 billion; 
Feb. 18, 2009: $753 million; 
Apr. 29, 2009: $1.940 billion; 
Jul. 29, 2009: $3.493 billion; 
Oct. 28, 2009: $4.872 billion; 
Feb. 17, 2010: 0; 
Apr. 28, 2010: 0; 
Jul. 28, 2010: 0; 
Oct. 27, 2010: 0. 

Unused bank syndicated and bilateral facilities: 
Nov. 5, 2008: $3.820 billion; 
Feb. 18, 2009: 0; 
Apr. 29, 2009: 0; 
Jul. 29, 2009: 0; 
Oct. 28, 2009: 0; 
Feb. 17, 2010: 0; 
Apr. 28, 2010: 0; 
Jul. 28, 2010: 0; 
Oct. 27, 2010: 0. 

AIG cash and short-term investments: 
Nov. 5, 2008: 0; 
Feb. 18, 2009: $1.100 billion; 
Apr. 29, 2009: $445 million; 
Jul. 29, 2009: $407 million; 
Oct. 28, 2009: $359 million; 
Feb. 17, 2010: $287 million; 
Apr. 28, 2010: $375 million; 
Jul. 28, 2010: $409 million; 
Oct. 27, 2010: $515 million. 

Treasury equity capital facility: 
Nov. 5, 2008: n/a; 
Feb. 18, 2009: n/a; 
Apr. 29, 2009: $29.835 billion; 
Jul. 29, 2009: $28.685 billion; 
Oct. 28, 2009: $26.629 billion; 
Feb. 17, 2010: $22.292 billion; 
Apr. 28, 2010: $22.292 billion; 
Jul. 28, 2010: $22.292 billion; 
Oct. 27, 2010: $22.292 billion. 

Total: 
Nov. 5, 2008: $33.420 billion; 
Feb. 18, 2009: $26.653 billion; 
Apr. 29, 2009: $49.620 billion; 
Jul. 29, 2009: $52.585 billion; 
Oct. 28, 2009: $50.160 billion; 
Feb. 17, 2010: $36.579 billion; 
Apr. 28, 2010: $33.674 billion; 
Jul. 28, 2010: $37.081 billion; 
Oct. 27, 2010: $37.394 billion. 

Source: GAO analysis of AIG Security and Exchange Commission filings. 

Note: CPFF, a Federal Reserve emergency facility that became 
operational in October 2008 and closed in February 2010, provided a 
liquidity backstop to U.S. issuers of commercial paper through a 
special purpose vehicles that purchased eligible 3-month unsecured and 
asset-backed commercial paper from eligible issuers using financing 
provided by FRBNY. Its purpose was to enhance the liquidity of the 
commercial paper market. 

[End of table] 

[End of section] 

Appendix IV: Value of Preferred and Common Shares of AIG: 

The value of the federal government's equity investments in American 
International Group, Inc. (AIG) is tied to the market value of AIG's 
common shares. As a result, growth in value of the government's common 
and preferred equity stakes depends on growth in the value of common 
shares. As shown in figure 16, the market value of AIG's common shares 
outstanding peaked in December 2006 at $186.4 billion and by June 
2008, the market value had declined to $71.1 billion. During the last 
two quarters of 2008, when federal assistance was initially provided 
to AIG, AIG shares further declined in value, to $4.2 billion by the 
end of 2008. 

From March 1, 2009, when the AIG credit facility trust and AIG entered 
into a purchase agreement for Series C preferred stock, through 
September 30, 2010, the value of AIG's common shares outstanding have 
fluctuated between $2.7 billion and $5.9 billion, and as of September 
2010 were valued at $5.3 billion. The value of the Series C preferred 
shares is part of the federal government's equity investment in AIG, 
and under the terms of the Series C preferred stock issuance, the 
preferred stock is convertible into AIG's common stock. The value of 
the federal government's Series C preferred shares is based on the 
value of common shares outstanding. The value of both increased 
between March and September 2009 when the share price of AIG common 
stock rose but fell in the fourth quarter of that year when the share 
price declined.[Footnote 67] Since the fourth quarter of 2009, the 
government's equity interest has increased from just under $16 billion 
to almost $20.8 billion. 

Figure 16: Market Capitalization of AIG Outstanding Common Shares, 
Including Trust-Owned Preferred C Shares That Are Convertible into 
Approximately 79.75 Percent of AIG's Outstanding Common Shares, 
December 2004 through September 2010: 

[Refer to PDF for image: vertical bar graph] 

December 2004: 
Market capitalization (value) of AIG’s common shares outstanding: 
$170.507 billion; 
NYSE closing share price of AIG common stock (restated for 1/20 
reverse split): $1,249.38. 

December 2005: 
Market capitalization (value) of AIG’s common shares outstanding: 
$177.169 billion; 
NYSE closing share price of AIG common stock (restated for 1/20 
reverse split): $1,309.66. 

December 2006: 
Market capitalization (value) of AIG’s common shares outstanding: 
$186.402 billion; 
NYSE closing share price of AIG common stock (restated for 1/20 
reverse split): $1,388.91. 

December 2007: 
Market capitalization (value) of AIG’s common shares outstanding: 
$147.475 billion; 
NYSE closing share price of AIG common stock (restated for 1/20 
reverse split): $1,142.90. 

June 2008: 
Market capitalization (value) of AIG’s common shares outstanding: 
$71.146 billion; 
NYSE closing share price of AIG common stock (restated for 1/20 
reverse split): $523.90. 

September 2008: 
Market capitalization (value) of AIG’s common shares outstanding: 
$8.957 billion; 
NYSE closing share price of AIG common stock: $66.60. 

December 2008: 
Market capitalization (value) of AIG’s common shares outstanding: 
$4.223 billion; 
NYSE closing share price of AIG common stock: $31.40. 

March 2009: 
Market capitalization (value) of AIG’s common shares outstanding: 
$2.691 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $10.642 billion; 
NYSE closing share price of AIG common stock: $20.00. 

June 2009: 
Market capitalization (value) of AIG’s common shares outstanding: 
$3.122 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $12.345 billion; 
NYSE closing share price of AIG common stock: $23.20. 

September 2009:	
Market capitalization (value) of AIG’s common shares outstanding: 
$5.937 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $23.472 billion; 
NYSE closing share price of AIG common stock: $44.11. 

December 2009: 
Market capitalization (value) of AIG’s common shares outstanding: 
$4.049 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $15.953 billion; 
NYSE closing share price of AIG common stock: $29.98. 

March 2010: 
Market capitalization (value) of AIG’s common shares outstanding: 
$4.607 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $18.166 billion; 
NYSE closing share price of AIG common stock: $34.14. 

June 2010: 
Market capitalization (value) of AIG’s common shares outstanding: 
$4.653 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $18.326 billion; 
NYSE closing share price of AIG common stock: $34.44. 

September 2010: 
Market capitalization (value) of AIG’s common shares outstanding: 
$5.283 billion; 
Value of preferred series C shares based on convertibility into AIG 
common shares: $20.806 billion; 
NYSE closing share price of AIG common stock: $39.10. 

Source: GAO analysis of AIG’s SEC filings and Treasury Financial 
Reporting Position Paper 09-07. 

Note: The preferred Series C shares are in a trust for the benefit of 
the Treasury and in this figure do not include a warrant held by 
Treasury that is convertible into 2 percent of common shares. See GAO-
09-975 for more details on the trust. 

[End of figure] 

[End of section] 

Appendix V: AIG Insurance Subsidiaries' Capital and Surplus: 

Because information on adjusted capital and related activities is only 
available annually in the year-end financial statements that American 
International Group, Inc. (AIG) companies file with the National 
Association of Insurance Commissioners (NAIC), we can only track it 
once a year. To track adjusted capital more frequently, we developed a 
proxy indicator that tracks capital and surplus as reported in AIG's 
quarterly filings with NAIC and major activities that could deplete 
capital and surplus, as well as adjusted capital. As illustrated in 
figure 17, capital and surplus for the first nine months of 2010 has 
changed little for AIG's largest domestic property/casualty companies 
and increased more than 12 percent for AIG's largest domestic life and 
retirement services companies, and no major activities had an adverse 
effect large enough to deplete capital and surplus. Similar to the 
findings in our previous update and in the results of the adjusted 
capital indicator discussed in the report, these proxy results showed 
that AIG's largest domestic property/casualty companies and largest 
domestic life and retirement services companies did not need federal 
assistance during the first nine months of 2010 to boost their 
regulatory capital. 

Figure 17: AIG Domestic Insurance Subsidiaries: Capital and Surplus at 
December 31, 2009, and September 30, 2010, and Primary Activities That 
Affected It During the First 9 Months of 2010: 

[Refer to PDF for image: illustrated vertical bar graph] 

AIG’s largest domestic property/casualty companies: 
Capital and surplus: 12/31/09: $26.973 billion; 
Capital and surplus: 9/30/10: $27.209 billion; 
Primary activities that affected capital and surplus in the first nine 
months of 2010: 
Net income: $1.398 billion; 
Change in unrealized capital gains[A]: $118 million; 
Deferred income taxes: -$73 million; 
Change in nonadmitted assets: $687 million; 
Change in asset valuation reserve: n/a[B]; 
Stockholder dividends: n/a[B]. 

AIG’s largest domestic life insurance and retirement services 
companies: 
Capital and surplus: 12/31/09: $15.595 billion; 
Capital and surplus: 9/30/10: $17.520 billion; 
Primary activities that affected capital and surplus in the first nine 
months of 2010: 
Net income: $83 million; 
Change in unrealized capital gains[A]: 1.490 billion; 
Deferred income taxes: -$1.660 billion; 
Change in nonadmitted assets: $2.581 billion. 
Change in asset valuation reserve: -$480 million. 
Stockholder dividends: -$75 million. 

Sources: AIG and GAO analysis of AIG financial statements filed with 
NAIC. 

[A] NAIC financial statements show unrealized capital gains separately 
from net income. 

[B] Dollar amount is either zero or too small to constitute a major 
activity. Also other categories were excluded that had larger, but 
minor dollars of activity. 

[End of figure] 

[End of section] 

Appendix VI: Revenues and Expense of AIG Life Insurance and Retirement 
Services: 

The losses or gains of life insurance and retirement services may 
occur for several reasons. For example, operating income before 
capital gains or losses provides an indication of the profitability of 
a company's underwriting operations, while capital gains and losses 
relate to investment activities not directly related to insurance 
underwriting. Increases in operating income or reductions in net 
realized capital losses could indicate improvements in the operations 
of American International Group, Inc.'s (AIG) life and retirement 
services companies, including improvement in market conditions, lower 
other-than-temporary impairments, and dissipating effects of lower 
credit ratings and negative publicity related to the AIG brand since 
September 2008. 

Figures 18 and 19 provide an indicator that can be used to track the 
profitability of AIG's life insurance and retirement services. In 
2008, the vast majority of losses incurred by AIG were not the result 
of their underwriting activities, but instead were caused by losses in 
the investment portfolios of domestic and foreign life insurance 
businesses. As we have previously discussed, this was due to severe 
market price declines in certain commercial mortgage-backed securities 
and other securities. In subsequent quarters in 2009, AIG's domestic 
life and retirement services business realized income gains from 
operations. This was partly because of Maiden Lane II's purchase of 
residential mortgage-backed securities from these companies, which 
helped prevent continued liquidity strains on AIG. Most recently, as 
shown in figure 18, the reported net realized capital losses for the 
domestic companies were nearly $800 million in the first quarter of 
2010 but AIG reported a $20 million gain in the third quarter 2010. 
Pretax operating net income increased over that same period, from $327 
million to $998 million. 

Figure 18: Key Quarterly Revenues and Expenses for AIG Domestic Life 
Insurance and Retirement Services Companies for First Quarter of 2007 
through Third Quarter of 2010: 

[Refer to PDF for image: vertical bar graph] 

Key components of operating income: 

Premium income and other considerations and fee income: 

2007 Q1: $1.812 billion; 

2007 Q2: $1.667 billion; 

2007 Q3: $1.795 billion; 

2007 Q4: $1.752 billion; 

2008 Q1: $1.871 billion; 

2008 Q2: $1.894 billion; 

2008 Q3: $1.995 billion; 

2008 Q4: $1.616 billion; 

2009 Q1: $1.395 billion; 

2009 Q2: $1.282 billion; 

2009 Q3: $1.230 billion; 

2009 Q4: $.1279 billion; 

2010 Q1: $1.315 billion; 

2010 Q2: $1.315 billion; 

2010 Q3: $1.268 billion. 

Interest and dividend income: 

2007 Q1: $2.534 billion; 

2007 Q2: $2.490 billion; 

2007 Q3: $2.441 billion; 

2007 Q4: $2.421 billion; 

2008 Q1: $2.355 billion; 

2008 Q2: $2.268 billion; 

2008 Q3: $2.394 billion; 

2008 Q4: $2.110 billion; 

2009 Q1: $2.106 billion; 

2009 Q2: $2.057 billion; 

2009 Q3: $2.341 billion; 

2009 Q4: $2.353 billion; 

2010 Q1: $2.476 billion; 

2010 Q2: $2.408 billion; 

2010 Q3: $2.517 billion. 

Policyholder benefits and claims incurred: 

2007 Q1: -$2.583 billion; 

2007 Q2: -$2.420 billion; 

2007 Q3: -$2.548 billion; 

2007 Q4: -$2.511 billion; 

2008 Q1: -$2.591 billion; 

2008 Q2: -$2.714 billion; 

2008 Q3: -$2.869 billion; 

2008 Q4: -$2.543 billion; 

2009 Q1: -$2.502 billion; 

2009 Q2: -$2.152 billion; 

2009 Q3: -$2.026 billion; 

2009 Q4: -$2.154 billion; 

2010 Q1: -$2.203 billion; 

2010 Q2: -$2.297 billion; 

2010 Q3: -$2.132 billion. 

Operating income before net realized capital gains or losses: 

2007 Q1: $1.018 billion; 

2007 Q2: $1.263 billion; 

2007 Q3: $892 million; 

2007 Q4: $1.027 billion; 

2008 Q1: $1.081 billion; 

2008 Q2: $927 million; 

2008 Q3: $50 million; 

2008 Q4: -$605 million; 

2009 Q1: -$128 million; 

2009 Q2: $268 million; 

2009 Q3: $1.077 billion; 

2009 Q4: $1.086 billion; 

2010 Q1: $1.123 billion; 

2010 Q2: $1.054 billion; 

2010 Q3: $978 million. 

Net realized capital losses or gains: 

2007 Q1: -$21 million; 

2007 Q2: -$297 million; 

2007 Q3: -$629 million; 

2007 Q4: -$1.264 billion; 

2008 Q1: -$3.647 billion; 

2008 Q2: -$4.101 billion; 

2008 Q3: -$12.886 billion; 

2008 Q4: -$11.928 billion; 

2009 Q1: -$2.079 billion; 

2009 Q2: $189 million; 

2009 Q3: -$950 million; 

2009 Q4: -$364 million; 

2010 Q1: -$796 million; 

2010 Q2: -$966 million; 

2010 Q3: $20 million. 

Pretax operating income or loss: 

2007 Q1: $997 million; 

2007 Q2: $966 million; 

2007 Q3: $263 million; 

2007 Q4: -$237 million; 

2008 Q1: -$2.566 billion; 

2008 Q2: -$3.174 billion; 

2008 Q3: -$12.836 billion; 

2008 Q4: -$12.533v; 

2009 Q1: -$2.207 billion; 

2009 Q2: $457 million; 

2009 Q3: $127 million; 

2009 Q4: $670 million; 

2010 Q1: $327 million; 

2010 Q2: $88 million; 

2010 Q3: $998 million. 

Source: GAO analysis of AIG’s quarterly financial supplements. 

Note: As reported, the data do not reflect prior period restatements 
after December 31, 2009. 

[End of figure] 

As shown in figure 19, foreign companies reported realized capital 
losses in the first quarter of 2010 of $61 million, but these were 
followed by gains the next two quarters. Pretax operating income for 
these companies in the first three quarters of 2010, while 
fluctuating, at about $700 million is about half of what it was at the 
end of 2009. Overall, after accounting for policyholder operating 
income and a mix of realized capital gains and losses both the 
domestic and foreign life companies reported positive pretax operating 
income for the first three quarters of 2010. Whether these positive 
results can continue is unclear. 

Figure 19: Key Quarterly Revenues and Expenses for AIG, Life Insurance 
and Retirement Services Companies for AIG Foreign Life Insurance and 
Retirement Services Companies First Quarter of 2007 through Third 
Quarter of 2010: 

[Refer to PDF for image: vertical bar graph] 

Key components of operating income: 

Premium income and other considerations and fee income: 

2007 Q1: $6.613 billion; 

2007 Q2: $6.503 billion; 

2007 Q3: $6.505 billion; 

2007 Q4: $6.980 billion; 

2008 Q1: $7.447 billion; 

2008 Q2: $7.691 billion; 

2008 Q3: $7.359 billion; 

2008 Q4: $7.422 billion; 

2009 Q1: $6.940 billion; 

2009 Q2: $6.837 billion; 

2009 Q3: $6.622 billion; 

2009 Q4: $6.201 billion; 

2010 Q1: $3.234 billion; 

2010 Q2: $3.377 billion; 

2010 Q3: $2.559 billion. 

Interest and dividend income: 
	
2007 Q1: $2.009 billion; 

2007 Q2: $2.180 billion; 

2007 Q3: $2.342 billion; 

2007 Q4: $2.306 billion; 

2008 Q1: $2.379 billion; 

2008 Q2: $2.556 billion; 

2008 Q3: $2.777 billion; 

2008 Q4: $2.371 billion; 

2009 Q1: $2.206 billion; 

2009 Q2: $2.234 billion; 

2009 Q3: $2.317 billion; 

2009 Q4: $1.861 billion; 

2010 Q1: $1.115 billion; 

2010 Q2: $1.221 billion; 

2010 Q3: $836 million. 

Policyholder benefits and claims incurred: 
	
2007 Q1: -$5.580 billion; 

2007 Q2: -$5.494 billion; 

2007 Q3: -$5.506 billion; 

2007 Q4: -$6.643 billion; 

2008 Q1: -$6.119 billion; 

2008 Q2: -$6.345 billion; 

2008 Q3: -$6.174 billion; 

2008 Q4: -$5.223 billion; 

2009 Q1: -$5.781 billion; 

2009 Q2: -$5.763 billion; 

2009 Q3: -$5.750 billion; 

2009 Q4: -$4.679 billion; 

2010 Q1: -$2.647 billion; 

2010 Q2: -$2.808 billion; 

2010 Q3: -$2.629 billion. 

Operating income before net realized capital gains or losses: 
	
2007 Q1: $1.519 billion; 

2007 Q2: $1.636 billion; 

2007 Q3: $1.598 billion; 

2007 Q4: $1.631 billion; 

2008 Q1: $1.457 billion; 

2008 Q2: $1.682 billion; 

2008 Q3: $962 million; 

2008 Q4: $1.347 billion; 

2009 Q1: $1.363 billion; 

2009 Q2: $1.253 billion; 

2009 Q3: $1.136 billion; 

2009 Q4: $1.054 billion; 

2010 Q1: $782 million; 

2010 Q2: $820 million; 

2010 Q3: $534 million. 

Net realized capital losses or gains: 
	
2007 Q1: -$235 million; 

2007 Q2: $18 million; 

2007 Q3: $138 million; 

2007 Q4: -$108 million; 

2008 Q1: -$722 million; 

2008 Q2: -$909 million; 

2008 Q3: -$3.455 billion; 

2008 Q4: -$6.699 billion; 

2009 Q1: -$1.029 billion; 

2009 Q2: $108 million; 

2009 Q3: $18 million; 

2009 Q4: $291 million; 

2010 Q1: -$61 million; 

2010 Q2: $20 million; 

2010 Q3: $157 million. 

Pretax operating income or loss: 
	
2007 Q1: $1.284 billion; 

2007 Q2: $1.654 billion; 

2007 Q3: $1.736 billion; 

2007 Q4: $1.523 billion; 

2008 Q1: $735 million; 

2008 Q2: $773 million; 

2008 Q3: -$2.493 billion; 

2008 Q4: -$5.352 billion; 

2009 Q1: $334 million; 

2009 Q2: $1.361 billion; 

2009 Q3: $1.154 billion; 

2009 Q4: $1.345 billion; 

2010 Q1: $721 million; 

2010 Q2: $840 million; 

2010 Q3: $691 million. 

Source: GAO analysis of AIG’s quarterly financial supplements. 

Note: As reported, the data do not reflect prior period restatements 
after December 31, 2009. 

[End of figure] 

[End of section] 

Appendix VII: Underwriting Ratios for AIG's Property/Casualty 
Companies: 

The underwriting profitability of property/casualty insurers can be 
measured using the combined ratio, which is the sum of the loss and 
the expense ratios. The loss ratio measures claims costs plus claims 
adjustment expenses relative to net earned premiums. A rising loss 
ratio indicates rising claims costs relative to the premiums, which 
may be due to increased claims losses, decreased premiums revenue, or 
a combination of the two. The expense ratio measures the level of 
underwriting administrative expenses relative to net premiums earned 
and is a measure of underwriting efficiency. The combined ratio is an 
overall measure of a property/casualty insurer's underwriting 
profitability. Thus, a combined ratio of less than 100 percent would 
indicate that an insurer's underwriting is profitable, and a ratio of 
more than 100 percent would reflect an underwriting loss. 

As shown in figure 20, the combined ratio for American International 
Group, Inc.'s (AIG) commercial property/casualty insurance business 
spiked in the fourth quarter of 2008, largely due to an administrative 
charge to recognize impairment of goodwill of previously acquired 
businesses. The higher combined ratio also was partly due to a higher 
loss ratio because of increased claims costs associated with Hurricane 
Ike and other major catastrophes in 2008. The combined ratio rose to 
more than 100 percent in the last two quarters of 2009, indicating 
that claims and administrative costs were higher and rising faster 
than premium revenues and thus AIG's insurance underwriting was not 
profitable. The combined ratio's rise in the fourth quarter of 2009 
also largely was due to increased claims costs that arose because of a 
reserve strengthening charge AIG made to address unexpected losses in 
excess casualty and excess workers' compensation, two "long-tail" 
lines of business (that is, claims arose years after premiums were 
collected and were higher than reserve estimates). In the first 
quarter of 2010 the ratio dropped significantly to just more than 102, 
and has changed little in the two subsequent quarters. 

Figure 20: AIG Commercial Insurance Operating Ratios, First Quarter of 
2007 through Third Quarter of 2010: 

[Refer to PDF for image: multiple line graph] 

2007 Q1; 
Combined ratio: 86.74; 
Loss ratio: 68.56; 
Expense ratio: 18.18. 

2007 Q2; 
Combined ratio: 83.57; 
Loss ratio: 66.29; 
Expense ratio: 17.28. 

2007 Q3; 
Combined ratio: 82.84; 
Loss ratio: 64.16; 
Expense ratio: 18.68. 

2007 Q4; 
Combined ratio: 91.23; 
Loss ratio: 73.47; 
Expense ratio: 17.76. 

2008 Q1; 
Combined ratio: 96.32; 
Loss ratio: 74.38; 
Expense ratio: 21.94. 

2008 Q2; 
Combined ratio: 93.94; 
Loss ratio: 74.63; 
Expense ratio: 19.31. 

2008 Q3; 
Combined ratio: 108.96; 
Loss ratio: 87.04; 
Expense ratio: 21.92. 

2008 Q4; 
Combined ratio: 133.33; 
Loss ratio: 90.2; 
Expense ratio: 43.13. 

2009 Q1; 
Combined ratio: 100.4; 
Loss ratio: 78.32; 
Expense ratio: 22.08. 

2009 Q2; 
Combined ratio: 99.82; 
Loss ratio: 79.83; 
Expense ratio: 19.99. 

2009 Q3; 
Combined ratio: 106.36; 
Loss ratio: 84.81; 
Expense ratio: 21.55. 

2009 Q4; 
Combined ratio: 146.87; 
Loss ratio: 121.39; 
Expense ratio: 25.48. 

2010 Q1; 
Combined ratio: 102.43; 
Loss ratio: 76.15; 
Expense ratio: 26.28. 

2010 Q2; 
Combined ratio: 106.5; 
Loss ratio: 82.2; 
Expense ratio: 24.3. 

2010 Q3; 
Combined ratio: 101.7; 
Loss ratio: 79.7; 
Expense ratio: 22.0. 

Sources: GAO analysis of AIG’s financial statements filed with SEC and 
quarterly financial supplements. 

Note: Historical operating ratios for commercial insurance have been 
revised to include Private Client Group and exclude HSB Group, Inc. 
The loss ratio for the fourth quarter of 2009 includes a $2.3 billion 
increase in the reserve for prior years' adverse loss development. The 
underwriting expense for the fourth quarter of 2008 includes a $1.2 
billion charge for impairment to goodwill, increasing the expense 
ratio by 22.5 points. Claims related to major catastrophes were $1.4 
billion in 2008, including hurricane claims of $1.1 billion in the 
third quarter of 2008. Conversely, claims related to major 
catastrophes were $100 million in 2007. 

[End of figure] 

Combined ratios for foreign general insurance were lower in the first 
three quarters of 2007 and 2008 than in comparable quarters of 2009, 
and the ratios dropped to less than 100 in the second and third 
quarters of 2010 (see figure 21). AIG officials attributed the higher 
2009 numbers to several factors, including increased loss ratios due 
to higher claim losses, particularly in Europe, and increased expense 
ratios because of lower net premiums earned that resulted from the 
sale of their Brazilian operations. In addition, insurance markets 
becoming more competitive, and higher levels of general operating 
expenses primarily related to remediation/audit of general insurance 
(Chartis, Inc.), pension costs, and postretirement liability costs 
contributed to the higher combined ratios in 2009. As with AIG's 
commercial insurance, the combined ratio in its foreign general 
property/casualty insurance business rose to more than 100 percent in 
the last two quarters of 2009. In the first quarter of 2010 the ratio 
dropped to 102.6, and as of the second quarter 2010, the ratio had 
fallen to its lowest level in a year to 95.6, indicating that for this 
line of business, underwriting again became profitable, and changed 
little in the third quarter of 2010. 

Figure 21: AIG Foreign General Insurance Operating Ratios, First 
Quarter of 2007 through Third Quarter of 2010: 

[Refer to PDF for image: multiple line graph] 

2007 Q1; 
Combined ratio: 79.22; 
Loss ratio: 50.64; 
Expense ratio: 28.58. 

2007 Q2; 
Combined ratio: 86.05; 
Loss ratio: 52.13; 
Expense ratio: 39.92. 

2007 Q3; 
Combined ratio: 90.17; 
Loss ratio: 52.4; 
Expense ratio: 37.77. 

2007 Q4; 
Combined ratio: 85.23; 
Loss ratio: 47.31; 
Expense ratio: 37.92. 

2008 Q1; 
Combined ratio: 83.41; 
Loss ratio: 51.78; 
Expense ratio: 31.63. 

2008 Q2; 
Combined ratio: 89.36; 
Loss ratio: 53.65; 
Expense ratio: 25.71. 

2008 Q3; 
Combined ratio: 97.19; 
Loss ratio: 59.31; 
Expense ratio: 37.88. 

2008 Q4; 
Combined ratio: 100.74; 
Loss ratio: 57.99; 
Expense ratio: 42.75. 

2009 Q1; 
Combined ratio: 90.25; 
Loss ratio: 55.57; 
Expense ratio: 34.68. 

2009 Q2; 
Combined ratio: 95.48; 
Loss ratio: 54.91; 
Expense ratio: 40.57. 

2009 Q3; 
Combined ratio: 103.38; 
Loss ratio: 61.27; 
Expense ratio: 42.11. 

2009 Q4; 
Combined ratio: 111.16; 
Loss ratio: 65.52; 
Expense ratio: 45.64. 

2010 Q1; 
Combined ratio: 102.63; 
Loss ratio: 64.47; 
Expense ratio: 38.16. 

2010 Q2; 
Combined ratio: 95.6; 
Loss ratio: 57.5; 
Expense ratio: 38.1. 

2010 Q3; 
Combined ratio: 96.3; 
Loss ratio: 60.9; 
Expense ratio: 35.4. 

Sources: GAO analysis of AIG’s financial statements filed with SEC and 
quarterly financial supplements. 

[End of figure] 

[End of section] 

Appendix VIII: Detail on AIG's Federal Assistance and the Repayment of 
That Assistance: 

The initial federal assistance to American International Group, Inc. 
(AIG) was provided in October 2008 through the Federal Reserve Bank of 
New York's (FRBNY) revolving credit facility. This facility was fully 
repaid and closed as part of the recapitalization plan that was 
executed on January 14, 2011, as discussed above. This indicator 
tracks the borrowing limit and the amount owed on the facility since 
the initial borrowing. As shown in figure 22, as of December 30, 2009, 
the amount of direct assistance available to AIG through the facility 
was reduced to $35 billion and the amount AIG owed the facility was 
reduced to $23.4 billion. The decreases in available assistance and 
outstanding balance were attributable to the November 2008 and 
December 2009 restructuring of the government's assistance to the 
company from debt to preferred equity. The amount available again was 
reduced in March 2010 to $34.2 billion and several times thereafter 
because of AIG repayments from proceeds obtained from sales of various 
assets. By December 1, 2010, the amount available had been reduced to 
$28.8 billion, because of mandatory repayments that reduced the amount 
available under the facility. The amount available was determined by 
reference to principal outstanding, excluding capitalized interest and 
fees.[Footnote 68] As of December 1, 2010, the amount of assistance to 
AIG through the FRBNY credit facility had been reduced to $21.3 
billion. Changes in amounts owed on the facility fluctuated weekly and 
could have been related to increased or decreased liquidity needs of 
AIG's operations or payments by AIG on the facility, or could have 
resulted from restructuring decisions such as the conversion of a 
portion of the facility to preferred equity stakes in AIG. 

Figure 22: FRBNY Revolving Credit Facility Balance Owed and Total 
Amount Available, October 2008 through December 1, 2010: 

[Refer to PDF for image: multiple line graph] 

October 2008: 
Borrowing limit (until 11/26/08): $85.0 billion; 
Amount owed: $62.000 billion; 
Amount owed: $70.299 billion; 
Amount owed: $69.816 billion; 
Amount owed: $72.332 billion (10/22/08); 
Amount owed: $65.848 billion. 

November 2008: 
Borrowing limit (until 11/26/08): $85.0 billion; 
Revolving credit ceiling (after 11/26/08): 60.0 billion; 
Amount owed: $61.365 billion; 
Amount owed: $63.381 billion; 
Amount owed: $66.897 billion; 
Amount owed: $35.430 billion. 

December 2008: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $35.437 billion; 
Amount owed: $36.643 billion; 
Amount owed: $44.347 billion; 
Amount owed: $40.018 billion; 
Amount owed: $38.924 billion. 

January 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $39.003 billion; 
Amount owed: $39.124 billion; 
Amount owed: $38.445 billion; 
Amount owed: $38.336 billion. 

February 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $39.013 billion; 
Amount owed: $37.677 billion; 
Amount owed: $37.355 billion; 
Amount owed: $38.046 billion. 

March 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $41.652 billion; 
Amount owed: $42.344 billion; 
Amount owed: $43.579 billion; 
Amount owed: $43.614 billion. 

April 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $44.712 billion; 
Amount owed: $45.571 billion; 
Amount owed: $45.106 billion; 
Amount owed: $44.983 billion; 
Amount owed: $44.489 billion. 

May 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $45.496 billion; 
Amount owed: $45.702 billion; 
Amount owed: $45.708 billion; 
Amount owed: $44.157 billion. 

June 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $43.578 billion; 
Amount owed: $43.498 billion; 
Amount owed: $42.904 billion; 
Amount owed: $42.596 billion. 

July 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $42.834 billion; 
Amount owed: $43.762 billion; 
Amount owed: $42.871 billion; 
Amount owed: $43.277 billion; 
Amount owed: $42.196 billion. 

August 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $41.335 billion; 
Amount owed: $40.675 billion; 
Amount owed: $39.214 billion; 
Amount owed: $39.153 billion. 

September 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $38.792 billion; 
Amount owed: $39.132 billion; 
Amount owed: $39.171 billion; 
Amount owed: $38.810 billion; 
Amount owed: $38.743 billion. 

October 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $39.882 billion; 
Amount owed: $40.921 billion; 
Amount owed: $41.161 billion; 
Amount owed: $44.800 billion. 

November 2009: 
Revolving credit ceiling: $60.0 billion; 
Amount owed: $44.539 billion; 
Amount owed: $43.979 billion; 
Amount owed: $44.918 billion; 
Amount owed: $45.063 billion. 

December 2009: 
Revolving credit ceiling: $35.0 billion; 
Amount owed: $20.660 billion; 
Amount owed: $21.097 billion; 
Amount owed: $19.933 billion; 
Amount owed: $20.470 billion; 
Amount owed: $22.033 billion. 

January 2010: 
Revolving credit ceiling: $35.0 billion; 
Amount owed: $22.215 billion; 
Amount owed: $22.252 billion; 
Amount owed: $23.389 billion; 
Amount owed: $25.825 billion. 

February 2010: 
Revolving credit ceiling: $35.0 billion; 
Amount owed: $25.662 billion; 
Amount owed: $25.499 billion; 
Amount owed: $25.535 billion; 
Amount owed: $25.272 billion. 

March 2010: 
Revolving credit ceiling: $35.0 billion; 
Amount owed: $25.109 billion; 
Amount owed: $24.845 billion; 
Amount owed: $24.982 billion; 
Amount owed: $25.259 billion; 
Amount owed: $25.377 billion. 

April 2010: 
Revolving credit ceiling: $34.156 billion; 
Amount owed: $25.388 billion; 
Amount owed: $25.299 billion; 
Amount owed: $24.811 billion; 
Amount owed: $26.983 billion. 

May 2010: 
Revolving credit ceiling: $34.156 billion; 
Amount owed: $27.097 billion; 
Amount owed: $26.382 billion; 
Amount owed: $26.296 billion; 
Amount owed: $26.110 billion. 

June 2010: 
Revolving credit ceiling: $34.156 billion; 
Amount owed: $26.624 billion; 
Amount owed: $26.619 billion; 
Amount owed: $26.033 billion; 
Amount owed: $25.147 billion; 
Revolving credit ceiling: $33.728 billion; 
Amount owed: $24.676 billion. 

July 2010: 
Revolving credit ceiling: $33.728 billion; 
Amount owed: $24.560 billion; 
Amount owed: $24.674 billion; 
Amount owed: $23.888 billion; 
Amount owed: $23.449 billion. 

August 2010: 
Revolving credit ceiling: $33.728 billion; 
Amount owed: $23.661 billion; 
Amount owed: $23.674 billion; 
Revolving credit ceiling: $33.627 billion; 
Amount owed: $23.487 billion; 
Revolving credit ceiling: $29.672 billion; 
Amount owed: $19.444 billion. 

September 2010: 
Revolving credit ceiling: $29.672 billion; 
Amount owed: $20.057 billion; 
Amount owed: $19.869 billion; 
Amount owed: $19.882 billion; 
Amount owed: $19.665 billion; 
Amount owed: $18.904 billion. 

October 2010: 
Revolving credit ceiling: $29.175 billion; 
Amount owed: $20.001 billion; 
Amount owed: $20.014 billion; 
Amount owed: $19.326 billion; 
Amount owed: $19.220 billion. 

November 2010: 
Revolving credit ceiling: v29.175 billion; 
Amount owed: $19.530 billion; 
Amount owed: $19.685 billion; 
Amount owed: $20.014 billion; 
Amount owed: $19.916 billion. 

December 2010: 
Revolving credit ceiling: $29.175 billion; 
Amount owed: $21.326 billion. 

Sources: GAO analysis of Federal Reserve Statistical Release H.4.1 and 
Federal Reserve data. 
		
Note: The Federal Reserve H.4.1 data that we used does not breakout 
principal from accrued interest and fees. Thus the available credit is 
actually larger by the amount of accrued interest and fees. Interest 
and fee data are found in AIG's 10Q and 10K reports. 

[End of figure] 

We also developed two indicators to monitor the status of the 
government's indirect assistance to AIG through Maiden Lane II and 
Maiden Lane III. By monitoring the principal and interest owed on 
these facilities, we can track FRBNY's ongoing exposure that is 
related to financial assistance provided to AIG. The Maiden Lane II 
and Maiden Lane III portfolios are funded primarily by loans from 
FRBNY, which are not debt on AIG's books. The loans and related 
expenses are to be repaid from cash generated by investment yields, 
maturing assets, and sales of assets in the facilities. In addition to 
the FRBNY investments in the facilities, AIG invested $1 billion in 
Maiden Lane II and $5 billion in Maiden Lane III. 

FRBNY provided a loan to Maiden Lane II to purchase residential 
mortgage-backed securities from AIG's domestic life insurance 
companies. As shown in figure 23, the portfolio value of Maiden Lane 
II peaked at $20 billion in December 2008 and was $14.8 billion at its 
lowest point at the end of September 2009. As of December 1, 2010, the 
portfolio value had risen to $16.3 billion. As the assets of Maiden 
Lane II have matured, proceeds have been used to reduce debt 
(principal and interest) of the facility from a maximum of $19.5 
billion in December 2008 to $13.7 billion on December 1, 2010, which 
is about $2.6 billion less than the facility's portfolio value as of 
that same date. 

Figure 23: Amounts Owed and Portfolio Value of Maiden Lane II through 
December 1, 2010: 

[Refer to PDF for image: vertical bar graph] 

Date: 12/17/08; 
Principal and interest owed to FRBNY: $19.5 billion; 
Portfolio value: $20.0 billion; 
Principal and interest owed to AIG: $1.0 billion. 

Date: 12/24/08; 
Principal and interest owed to FRBNY: $19.5 billion; 
Portfolio value: $20.0 billion; 
Principal and interest owed to AIG: $1.0 billion. 

Date: 3/25/09; 
Principal and interest owed to FRBNY: $18.6 billion; 
Portfolio value: $18.4 billion; 
Principal and interest owed to AIG: $1.0 billion. 

Date: 7/1/09; 
Principal and interest owed to FRBNY: $17.7 billion; 
Portfolio value: $16.0 billion; 
Principal and interest owed to AIG: $1.0 billion. 

Date: 9/2/09; 
Principal and interest owed to FRBNY: $17.1 billion; 
Portfolio value: $14.9 billion; 
Principal and interest owed to AIG: $1.0 billion. 

Date: 9/30/09; 
Principal and interest owed to FRBNY: $16.8 billion; 
Portfolio value: $14.8 billion; 
Principal and interest owed to AIG: $1 billion. 

Date: 12/30/09; 
Principal and interest owed to FRBNY: $16 billion; 
Portfolio value: $15.7 billion; 
Principal and interest owed to AIG: $1 billion. 

Date: 3/31/10; 
Principal and interest owed to FRBNY: $15.3 billion; 
Portfolio value: $15.4 billion; 
Principal and interest owed to AIG: $1 billion. 

Date: 6/30/10; 
Principal and interest owed to FRBNY: $14.7 billion; 
Portfolio value: $15.8 billion; 
Principal and interest owed to AIG: $1.1 billion. 

Date: 9/29/10; 
Principal and interest owed to FRBNY: $14.1 billion; 
Portfolio value: $15.9 billion; 	
Principal and interest owed to AIG: $1.1 billion. 

Date: 12/1/10; 
Principal and interest owed to FRBNY: $13.7 billion; 
Portfolio value: $16.3 billion; 
Principal and interest owed to AIG: $1.1 billion. 

Source: GAO analysis of weekly Federal Reserve Statistical Release 
H.4.1. 

[End of figure] 

FRBNY also provided loans to Maiden Lane III so it could purchase 
multisector collateralized debt obligations from counterparties to AIG 
Financial Product Corporation's credit default swaps. As shown in 
figure 24, the portfolio value of Maiden Lane III was $28.2 billion in 
December 2008, dropped to $22.7 billion one year later, and has 
remained fairly stable since, amounting to $23.4 billion as of 
December 1, 2010. By contrast, the level of debt has continued to be 
reduced since December 2008, and as of December 1, 2010, stood at 
$14.5 billion, an average quarterly reduction of about $1.1 billion 
dollars since September 30, 2009. Also since September 30, 2009, the 
excess in value of the remaining portfolio over the remaining FRBNY 
debt increased from about $0.7 billion to about $8.9 billion. 

Figure 24: Amounts Owed and Portfolio Value of Maiden Lane III through 
December 1, 2010: 

[Refer to PDF for image: vertical bar graph] 

Date: 12/17/08; 
Principal and interest owed to FRBNY: $15.2 billion; 
Portfolio value: $19.7 billion; 
Principal and interest owed to AIG: $5 billion. 

Date: 12/24/08; 
Principal and interest owed to FRBNY: $24.4 billion; 
Portfolio value: $28.2 billion; 
Principal and interest owed to AIG: $5 billion. 

Date: 3/25/09; 
Principal and interest owed to FRBNY: $24.2 billion; 
Portfolio value: $27.6 billion; 
Principal and interest owed to AIG: $5.1 billion. 

Date: 7/1/09; 
Principal and interest owed to FRBNY: $22.6 billion; 
Portfolio value: $20.2 billion; 
Principal and interest owed to AIG: $5.1 billion. 

Date: 9/2/09; 
Principal and interest owed to FRBNY: $20.5 billion; 
Portfolio value: $20 billion; 
Principal and interest owed to AIG: $5.1 billion. 

Date: 9/30/09; 
Principal and interest owed to FRBNY: $19.9 billion; 
Portfolio value: $20.6 billion; 
Principal and interest owed to AIG: $5.2 billion. 

Date: 12/30/09; 
Principal and interest owed to FRBNY: $18.5 billion; 
Portfolio value: $22.7 billion; 
Principal and interest owed to AIG: $5.2 billion. 

Date: 3/31/10; 
Principal and interest owed to FRBNY: $17.3 billion; 
Portfolio value: $22.2 billion; 
Principal and interest owed to AIG: $5.2 billion. 

Date: 6/30/10; 
Principal and interest owed to FRBNY: $16.3 billion; 
Portfolio value: $23.2 billion; 
Principal and interest owed to AIG: $5.3 billion. 

Date: 9/29/10; 
Principal and interest owed to FRBNY: $15.1 billion; 
Portfolio value: $23 billion; 
Principal and interest owed to AIG: $5.3 billion. 

Date: 12/1/10; 
Principal and interest owed to FRBNY: $14.5 billion; 
Portfolio value: $23.4 billion; 
Principal and interest owed to AIG: $5.4 billion. 

Source: GAO analysis of weekly Federal Reserve Statistical Release 
H.4.1. 

[End of figure] 

[End of section] 

Appendix IX: Disposition of AIG Assets: 

Part of American International Group, Inc.'s (AIG) strategy to raise 
money for repaying the federal government has been to sell some of its 
assets. This indicator tracks sales or dispositions that have been 
closed and agreements of pending dispositions that have been publicly 
announced but not yet closed. As table 7 shows, AIG sold increasingly 
more of its assets each quarter, from the last quarter of 2008 when it 
sold one asset for $820 million, to the third quarter of 2009 when it 
sold 12 assets for a disclosed value of more than $4.5 billion (the 
proceeds for most of the sales that quarter were not publicly 
disclosed). In the last quarter of 2009, AIG sold only one asset--AIG 
Finance-Hong Kong--for $627 million. As of November 30, 2010, AIG 
disclosed that it had received $27.2 billion in total proceeds from 
sales, $16.2 billion of which was from the sale of American Life 
Insurance Company (ALICO) to MetLife. Also, of the total proceeds, 
$12.9 billion was cash, including $7.2 billion from the sale of ALICO. 
In the first quarter of 2010, AIG announced that it sold three assets, 
two of which had combined reported cash proceeds of $729 million, and 
one had proceeds that were not disclosed. The company also announced 
two new sales in the second quarter of 2010 of undisclosed amounts and 
no new sales the following quarter. However, in November 2010 AIG 
reported selling a portion of its American General Finance business. 
It also sold ALICO to MetLife. In addition, in October 2010, there was 
an initial public offering for AIA that generated $20.5 billion (this 
transaction is not listed in the following table since it is not an 
asset sale). On closing of the recapitalization plan, AIG expected the 
net cash proceeds from the ALICO sale and the AIA IPO to be sufficient 
to repay the FRBNY revolving credit facility. 

Table 7: Dispositions Closed and Agreements Announced but Not Yet 
Closed, September 30, 2008, through November 30, 2010: 

Dollars in millions: 

Dispositions closed in quarter ending: September 30, 2008: 
n/a; 

Dispositions closed in quarter ending: December 31, 2008: 

Unibanco JV: 
Total proceeds: $820 million. 

Dispositions closed in quarter ending: March 31, 2009: 

AIG Financial Products Energy Commodity Hedges (all cash) (part of 
investment assets disposition below): 
Total proceeds: [Empty]. 

Philam Savings Bank: 
Total proceeds: $43 million. 

Hartford Steam Boiler ($739 million cash): 
Total proceeds: $815 million. 

Spanish Solar Park (part of investment assets disposition below): 
Total proceeds: [Empty]. 

Dispositions closed in quarter ending: June 30, 2009: 

AIG Life Insurance Company of Canada (all cash); 
Total proceeds: $263 million. 

Commodity Business (all cash); 
Total proceeds: $15 million. 

AIG Retail Bank and AIG Card (Thailand) ($45 million cash); 
Total proceeds: $540 million. 

AIG Private Bank ($253 million cash); 
Total proceeds: $308 million. 

Darag; 
Total proceeds: n/d. 

Real estate in Tokyo (all cash); 
Total proceeds: $1.179 billion. 

Transatlantic Holdings; 
Total proceeds: $1.136 billion. 

Dispositions closed in quarter ending: September 30, 2009: 

21st Century Insurance Group ($1.7 billion cash); 
Total proceeds: $1.900 billion. 

CFG China; 
Total proceeds: n/d. 

Consumer finance operations in Mexico; 
Total proceeds: n/d. 

A.I. Credit Life (all cash); 
Total proceeds: $741 million. 

Investment assets--energy and infrastructure; 
Total proceeds: $1.900 billion. 

AIG Credit Card Co (Taiwan); 
Total proceeds: n/d. 

CFG Thailand; 
Total proceeds: n/d. 

AIG Systems Solution; 
Total proceeds: n/d. 

Philam Plans; 
Total proceeds: n/d. 

Philam Care; 
Total proceeds: n/d. 

72 Wall Street (Manhattan office tower); 
Total proceeds: n/d. 

Consumer finance operations in Russia; 
Total proceeds: n/d. 

Dispositions closed in quarter ending: December 31, 2009: 

AIG Finance-Hong Kong ($70 million cash); 
Total proceeds: $627 million. 

Dispositions closed in quarter ending: March 31, 2010: 

Transatlantic Holdings, Inc. (secondary stock offering for cash); 
Total proceeds: $452 million. 

Portion of its asset management business (all cash); 
Total proceeds: $277 million. 

Consumer finance operations in Colombia; 
Total proceeds: n/d. 

Dispositions closed in quarter ending: June 30, 2010: 

Consumer finance operations in Argentina; 
Total proceeds: n/d. 

Consumer finance business in Poland; 
Total proceeds: n/d. 

Dispositions closed in quarter ending: September 30, 2010: 

No dispositions closed. 

Dispositions closed in quarter ending: October 1-November 30, 2010: 

ALICO ($7.2 billion cash, $9 billion stock in MetLife); 
Total proceeds: $16.200 billion. 

80 percent of American General Finance Inc.; 
Total proceeds: n/d. 

Total proceeds on dispositions closed; 
Total proceeds: $27.216 billion. 

Total disclosed cash proceeds terms disclosed; 
Total proceeds: $12.934 billion. 

Disposition agreements announced but not yet closed as of November 30, 
2010: 

UGC International Canada; 
Total proceeds: n/d. 

UGC International Israel; 
Total proceeds: n/d. 

ILFC portfolio of 53 aircraft; 
Total proceeds: $1.987 billion. 

AIG Star and AIG Edison Life Insurance Companies ($4.2 billion cash); 
Total proceeds: $4.80 billion. 

Sources: AIG and GAO analysis of AIG press releases and Securities and 
Exchange Commission filings. 

Notes: N/d means not disclosed. 

On January 12, 2011, AIG announced an agreement to sell its 97.57 
percent interest in Nan Shan Life Insurance Company, Ltd. to Ruen Chen 
Investment Co., Ltd. of Taiwan for $2.16 billion in cash. 

[End of table] 

[End of section] 

Appendix X: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Orice Williams Brown, (202) 512-8678 or williamso@gao.gov: 

Staff Acknowledgments: 

In addition to the contacts named above, Karen Tremba (Assistant 
Director); Tania Calhoun, Rachel DeMarcus, Lawrance Evans, John 
Forrester, Marc Molino, Barbara Roesmann, Jennifer Schwartz, and 
Melvin Thomas made important contributions to this report. 

[End of section] 

Glossary of Terms: 

Adjusted Basis: 

The net cost of an asset or security that is used to compute the gains 
or loss on that asset or security. It is calculated by starting with 
the original cost of an asset or security, then adding the value of 
any improvements, legal fees, and assessments and subtracting the 
value of any accumulated depreciation, amortization, and other losses. 

Asset: 

An item owned by an individual, corporation, or government that 
provides a benefit, has economic value, and could be converted into 
cash. For businesses, an asset generates cash flow and may include, 
for example, accounts receivable and inventory. Assets are listed on a 
company's balance sheet. 

Book: 

A trader's record or inventory of long (buy) and short (sell) 
positions on securities it holds and orders placed. A book may hold 
few or several positions and a trader may have several books, which 
are variously organized, such as by types of product or risk. 

Capital: 

The value of cash, goods, and other financial resources a business 
uses to generate income or make an investment. Companies can raise 
capital from investors by selling stocks and bonds. Capital is often 
used to measure the financial strength of a company. 

Capital Market: 

The market for long-term funds in which securities such as common 
stock, preferred stock, and bonds are traded. Both the primary market 
for new issues and the secondary market for existing securities are 
part of the capital market. 

Claims (Adjustment) Expenses: 

Costs of adjusting a claim that include attorneys' fees and 
investigation expenses. 

Collateral: 

Properties or other assets pledged by a borrower to secure credit from 
a lender. If the borrower does not pay back or defaults on the loan, 
the lender may seize the collateral. 

Collateralized Debt Obligation: 

Securities backed by a pool of bonds, loans, or other assets. In a 
basic collateralized debt obligation, a pool of bonds, loans, or other 
assets are pooled and securities then are issued in different tranches 
(see "tranche" and "mezzanine tranche") that vary in risk and return. 

Combined Ratio: 

This ratio is a common measure of the performance of the daily 
operations of an insurance company. It is calculated by adding the 
amount of incurred losses and the amount of expenses incurred by the 
company and dividing that combined amount by the earned premium 
generated during the same period. The ratio describes the related cost 
of losses and expenses for every $100 of earned premiums. A ratio of 
less than 100 percent generally indicates that the company is making 
underwriting profit while a ratio of more than 100 percent generally 
means that it is paying out more money in claims that it is receiving 
from premiums. 

Commercial Paper: 

An unsecured obligation with maturities ranging from 2 to 270 days 
issued by banks, corporations, and other borrowers with high credit 
ratings to finance short-term credit needs, such as operating expenses 
and account receivables. Commercial paper is a low-cost alternative to 
bank loans. Issuing commercial paper allows a company to raise large 
amounts of funds quickly without the need to register with the 
Securities and Exchange Commission, either by selling them directly to 
an investor or to a dealer who then sells them to a large and varied 
pool of institutional buyers. 

Credit Default Swap: 

Bilateral contracts that are sold over the counter and transfer credit 
risks from one party to another. In return for a periodic fee, the 
seller (who is offering credit protection) agrees to compensate the 
buyer (who is buying credit protection) if a specified credit event, 
such as default, occurs. 

Derivative: 

A financial instrument, traded on-or off-exchange, the price of which 
directly depends on the value of one or more underlying commodities. 
Derivatives involve the trading of rights or obligations on the basis 
of the underlying product, but they do not directly transfer property. 

Directors and Officer Liability Insurance: 

Provides coverage when a director or officer of a company commits a 
negligent act or misleading statement that results in the company 
being sued. 

Equity: 

Ownership interest in a business in the form of common stock or 
preferred stock. 

Errors and Omissions Liability Insurance (or Coverage): 

Insurance protection to various professions for negligent acts or 
omissions resulting in bodily injury, property damage, or liability to 
a client. 

Expense Ratio: 

The ratio of underwriting expenses to net premiums earned. It is a 
measure of underwriting efficiency, in which an increase in the ratio 
represents increased expenses relative to premiums. The underwriting 
expenses include the amortization of deferred policy acquisition costs 
(commissions, taxes, licenses and fees, and other underwriting 
expenses amortized over the policy term), and insurance operating 
costs and expenses. For example, a 22.4 expense ratio indicates that 
22.4 cents out of every dollar in premiums earned are used for 
underwriting expenses. 

Fair Value: 

An estimated value of an asset or liability that is reasonable to all 
willing parties involved in a transaction taking into account market 
conditions other than liquidation. For example, the fair value of 
derivative liability represents the fair market valuation of the 
liabilities in a portfolio of derivatives. In this example, the fair 
value provides an indicator of the dollar amount the market thinks the 
trader of the portfolio would need to pay to eliminate its liabilities. 

Goodwill (and Goodwill Impairment): 

Goodwill occurs when a company buys another entity and pays more than 
the market value of all assets on the entity's books. A company will 
pay more because of intangibles--such trademarks and copyrights--on 
the books at historical cost and other factors--such as human capital, 
brand name, and client base--that accounting conventions do not 
capture on the books. If the company later determines that the entity 
has lost value and recovery is not a realistic expectation it might 
decide record the lost value as an impairment. 

Liability: 

A business's financial obligation that must be made to satisfy the 
contractual terms of such an obligation. Current liabilities, such as 
accounts payable or wages, are debts payable within 1 year, while long-
term liabilities, such as leases and bond repayments, are payable over 
a longer period. 

Liquidity: 

Measure of the extent to which a business has cash to meet its 
immediate and short-term obligations. Liquidity also is measured in 
terms of a company's ability to borrow money to meet short-term 
demands for funds. 

Loss Ratio: 

The ratio of claims and claims adjustment expenses incurred to net 
earned premiums. For example, a 77.3 loss ratio indicates that 77.3 
cents out of every dollar in premiums earned are used to adjust and 
pay claims. 

Mezzanine Tranche: 

A tranche is a piece or portion of a structured deal, or one of 
several related securities that are issued together but offer 
different risk-reward characteristics. The mezzanine tranche is 
subordinated to the senior tranche, but is senior to the equity 
tranche. The senior tranche is the least-risky tranche whereas the 
equity tranche is the first loss and riskiest tranche. 

Mortgage-Backed Securities: 

Securities or debt obligations that represent claims to the cash flows 
from pools of mortgage loans, such as mortgages on residential 
property. These securities are issued by Ginnie Mae, Fannie Mae, and 
Freddie Mac, as well as private institutions, such as brokerage firms 
and banks. 

Notional Amount (Gross and Net): 

The amount upon which payments between parties to certain types of 
derivatives contracts are based. The gross notional amount is not 
exchanged between the parties, but instead represents the underlying 
quantity upon which payment obligations are computed. The net notional 
amount represents the maximum dollar level exposure for the portfolio. 

Paid-in Capital: 

Funds provided by investors in exchange for common or preferred stock. 
Paid-in capital represents the funds raised by the business from 
equity, and not from ongoing operations. 

Preferred Stock (Cumulative, Noncumulative, etc.): 

A class of ownership in a corporation or stock that has 
characteristics of both common stock and debt. Preferred shareholders 
receive their dividends before common stockholders, but they generally 
do not have the voting rights available to common stockholders. 

Retained Earnings: 

A calculation of the accumulated earnings of a corporation minus cash 
dividends since inception. 

Reverse Stock Split: 

A proportionate decrease in the number of shares held by stockholders 
that a company generally institutes to increase the market price per 
share of its stock. In a 1-for-10 stock split stockholders would own 1 
share for every 10 shares that they owned before the reverse split. 

Risk-based Capital (Insurance): 

The amount of required capital that an insurance company must maintain 
based on the inherent risks in the insurer's operations. Authorized 
control level risk-based capital is the level at which an insurance 
commissioner can first take control of an insurance company. 

Secured: 

Secured debt is backed or secured by a pledge of collateral. 

Securitization: 

The process of pooling debt obligations and dividing that pool into 
portions (called tranches) that can be sold as securities in the 
secondary market--a market in which investors purchase securities or 
assets from other investors. Financial institutions use securitization 
to transfer the credit risk of the assets they originate from their 
balance sheets to those of the investors who purchased the securities. 

Shareholders' Equity: 

Total assets minus total liabilities of a company, as found on a 
company's balance sheet. Shareholders' equity is also known as owner's 
equity, net worth, or book value. The two sources for shareholders' 
equity are money that originally was invested in the company, along 
with additional investments made thereafter, and retained earnings. 

Soft Market: 

A market in which supply exceeds demand resulting in a lowering of 
prices in that market. Also refers to a buyer's market, as buyers hold 
much of the power in negotiating prices. 

Solvency: 

Minimum standard of financial health for an insurance company, in 
which assets exceed liabilities. In general, a solvent company is able 
to pay its debt obligations as they come due. 

Special Purpose Vehicle: 

A legal entity, such as a limited partnership that a company creates 
to carry out some specific financial purpose or activity. Special 
purpose vehicles can be used for purposes such as securitizing loans 
to help spread the credit and interest rate risk of their portfolios 
over a number of investors. 

Trading Position: 

The amount of a security or commodity owned by an investor or a dealer. 

Tranche: 

A tranche is a portion or class of a security. A security may have 
several tranches, each with different risks and rates of return, among 
other differences. 

Treasury Stock: 

Previously issued shares of a company that the company has repurchased 
from investors. 

Unrealized Gains and Losses: 

A profit or loss on an investment that has not been sold. That is, an 
unrealized profit or loss occurs when the current price of a security 
that still is owned by the holder is higher or lower than the price 
the holder paid for it. 

Unsecured Debt: 

Unsecured debt is not backed by any pledge of collateral. 

Warrant: 

An options contract on an underlying asset that is in the form of a 
transferable security. A warrant gives the holder the right to 
purchase a specified amount of the issuer's securities in the future 
at a specific price. 

[End of section] 

Footnotes: 

[1] EESA, Pub. L. No. 110-343, 122 Stat. 3765 (2008), codified at 12 
U.S.C. §§ 5201 et seq. The act originally authorized Treasury to 
purchase or guarantee up to $700 billion in troubled assets. The 
Helping Families Save Their Homes Act of 2009, Pub. L. No. 111-22, 
Div. A, 123 Stat. 1632 (2009), amended EESA to reduce the maximum 
allowable amount of outstanding troubled assets under the act by 
almost $1.3 billion, from $700 billion to $698.741 billion. While the 
Secretary of the Treasury extended the authority provided under EESA 
through October 3, 2010, the Dodd-Frank Wall Street Reform and 
Consumer Protection Act (Dodd-Frank Act), Pub. L. No. 111-203, 124 
Stat. 1376 (2010), enacted on July 21, 2010, (1) reduced Treasury's 
authority to purchase or insure troubled assets to $475 billion and 
(2) prohibited Treasury from using its authority, under EESA to incur 
any additional obligations for a program or initiative unless the 
program or initiative already had begun before June 25, 2010. 

[2] For the signed agreement, see AIG's 8K filing dated December 8, 
2010. 

[3] We must report at least every 60 days on findings resulting from 
oversight of TARP's performance in meeting the purposes of EESA, the 
financial condition and internal controls of TARP, the characteristics 
of both asset purchases and the disposition of assets acquired, TARP's 
efficiency in using the funds appropriated for the program's 
operation, TARP's compliance with applicable laws and regulations, and 
other matters. 12 U.S.C. § 5226(a). 

[4] Our ability to review the Federal Reserve's assistance was 
clarified by the Helping Families Save Their Homes Act of 2009, 
enacted on May 20, 2009, which provided us authority to audit Federal 
Reserve actions taken under section 13(3) of the Federal Reserve Act 
"with respect to a single and specific partnership or corporation." 
Among other things, this amendment provides us with authority to audit 
Federal Reserve actions taken with respect to three entities also 
assisted under TARP--Citigroup, Inc.; AIG; and the Bank of America 
Corporation. It also gives us the authority to access information from 
entities participating in TARP programs, such as AIG, for purposes of 
reviewing the performance of TARP. Section 1109 of the Dodd-Frank Act 
provided us authority to review various aspects of Federal Reserve 
facilities initiated in response to the financial crisis. This related 
work is underway and we will issue a future report on the results. 

[5] See GAO, Troubled Asset Relief Program: Status of Government 
Assistance to AIG, [hyperlink, http://www.gao.gov/products/GAO-09-975] 
(Washington, D.C.: Sep. 21, 2009). For our previous testimony on the 
assistance provided to AIG, see Troubled Asset Relief Program: Update 
of Government Assistance Provided to AIG, [hyperlink, 
http://www.gao.gov/products/GAO-10-475] (Washington, D.C.: Apr. 27, 
2010) and Federal Financial Assistance: Preliminary Observations on 
Assistance Provided to AIG, [hyperlink, 
http://www.gao.gov/products/GAO-09-490T] (Washington, D.C.: Mar. 18, 
2009). 

[6] Representatives Towns and Cummings, House Committee on Oversight 
and Government Reform, and Representative Bachus, House Committee on 
Financial Services, asked us to review certain Federal Reserve actions 
relating to its assistance to AIG. We will address questions raised by 
these requests in a future report. 

[7] CDS are bilateral contracts that are sold over the counter and 
transfer credit risks from one party to another. The seller, who is 
offering credit protection, agrees to compensate the buyer in return 
for a periodic fee if a specified credit event, such as default, 
occurs. 

[8] FRBNY created Maiden Lane II as an SPV to provide AIG liquidity 
through its purchase of residential mortgage-backed securities from 
AIG life insurance companies. FRBNY provided a loan to the SPV for the 
purchases. It also terminated a previously established securities 
lending program with AIG. FRBNY also created Maiden Lane III as an SPV 
to provide AIG liquidity through its purchase of collateralized debt 
obligations from AIGFP's counterparties in connection with termination 
of CDS. FRBNY again provided a loan to the SPV for the purchases. See 
[hyperlink, http://www.gao.gov/products/GAO-09-975] (starting on page 
30) for more discussion on FRBNY's creation of these SPVs. 

[9] Commercial paper refers to short-term promissory notes that are 
issued primarily by corporations to finance their short-term credit 
needs. 

[10] For more information on the role of consolidated supervisors, see 
GAO, Financial Market Regulation: Agencies Engaged in Consolidated 
Supervision Can Strengthen Performance Measurement and Collaboration, 
[hyperlink, http://www.gao.gov/products/GAO-07-154] (Washington, D.C.: 
Mar. 15, 2007). 

[11] The primary state insurance regulators include New York, 
Pennsylvania, and Texas. 

[12] SIGTARP: Office of the Special Inspector General for the Troubled 
Asset Relief Program: Quarterly Report to Congress (Oct. 26, 2010); 
Quarterly Report to Congress (July 21, 2010); Quarterly Report to 
Congress (Apr. 20, 2010); Quarterly Report to Congress (Jan. 30, 
2010); Quarterly Report to Congress (Oct. 21, 2009); Quarterly Report 
to Congress (July 21, 2009); Quarterly Report to Congress (Apr. 21, 
2009); and Initial Report to the Congress (Feb. 6, 2009). 

[13] SIGTARP: Office of the Inspector General for the Troubled Asset 
Relief Program, Extent of Federal Agencies' Oversight of AIG 
Compensation Varied, and Important Challenges Remain (Oct. 14, 2009); 
and Factors Affecting Efforts to Limit Payments to AIG Counterparties 
(Nov. 17, 2009). 

[14] Congressional Oversight Panel, June Oversight Report: The AIG 
Rescue, Its Impact on Markets, and the Government's Exit Strategy 
(Washington, D.C., June 10, 2010). Specifically, the panel was 
concerned that (1) the government did not exhaust its options before 
committing $85 billion in assistance to AIG; (2) the assistance 
distorted the marketplace; (3) some banks displayed a conflict in 
interest by acting at various times as advisors to, potential rescuers 
of, and counterparties with AIG; (4) AIG may not repay taxpayers for 
the assistance they provided; and (5) the AIG bailout may be seen as 
setting a precedent by implicitly guaranteeing "too big to fail" firms. 

[15] In our March 2009 testimony on credit default swaps, we noted 
that no single definition for systemic risk exists. Traditionally, 
systemic risk was viewed as the risk that the failure of one large 
institution would cause other institutions to fail. This micro-level 
definition is one way to think about systemic risk. Recent events have 
illustrated a more macro-level definition: the risk that an event 
could broadly affect the financial system rather than just one or a 
few institutions. See GAO, Systemic Risk: Regulatory Oversight and 
Recent Initiatives to Address Risk Posed by Credit Default Swaps, 
[hyperlink, http://www.gao.gov/products/GAO-09-397T] (Washington, 
D.C.: Mar. 5, 2009). 

[16] CDOs are securities backed by a pool of bonds, loans, or other 
assets. 

[17] The Federal Reserve announced that, as a condition of 
establishing the initial $85 billion credit facility, a trust 
established for the sole benefit of the U.S. Treasury would become the 
majority equity investor in AIG. The independent trust would manage 
the Treasury's beneficial interest in preferred shares (Series C) of 
AIG. The Series C stock is convertible into approximately 79.75 
percent of the issued and outstanding shares of common stock of AIG. 

[18] A multisector CDO is a CDO backed by a combination of corporate 
bonds, loans, asset-backed securities, or mortgage-backed securities. 

[19] AIGFP sold CDS on multisector CDOs. As a result, to unwind these 
contracts, Maiden Lane III was created to purchase the CDOs from AIG's 
CDS counterparties. In exchange for purchasing the underlying assets, 
the counterparties agreed to terminate the CDS contracts, thereby 
eliminating the need for AIG to post additional collateral as the 
value of the CDOs fell. 

[20] Cumulative preferred stock is a form of capital stock in which 
holders of preferred stock receive dividends before holders of common 
stock, and dividends that have been omitted in the past must be paid 
to preferred shareholders before common shareholders can receive 
dividends. 

[21] The securities purchase agreement indicates that the amount of 
$29.835 billion is equal to $30 billion minus $165 million in 
retention payments made by AIGFP; AIG Trading Group, Inc.; and their 
respective subsidiaries to their employees in March 2009. 

[22] See appendix II for a detailed listing of AIG's historical and 
current credit ratings and an explanation of the meaning of the 
various credit ratings. 

[23] AIG's long-term debt was rated at A-/Negative (S&P) and A3/ 
Negative (Moody's), and its short-term debt was rated at A-1 (S&P) and 
P-1 (Moody's). While these ratings are described using slightly 
different terminology, they tend to show relative consistency in the 
strength of AIG's debt. 

[24] Liquid assets--such as accounts receivable, cash on hand, 
treasury bills, and certificates of deposits--are assets that can be 
converted easily and quickly to cash. 

[25] CPFF, a Federal Reserve emergency facility that became 
operational in October 2008 and closed in February 2010, provided a 
liquidity backstop to U.S. issuers of commercial paper through an SPV 
that purchased eligible 3-month unsecured and asset-backed commercial 
paper from eligible issuers using financing provided by FRBNY. Its 
purpose was to enhance the liquidity of the commercial paper market. 

[26] The amount of maturing debt was reduced when the amount 
authorized on the facility was reduced from the original $85 billion 
to $60 billion. 

[27] In this transaction, FRBNY received preferred interests valued at 
$25 billion, and in exchange the debt AIG owed to the FRBNY revolving 
credit facility was lowered by an equivalent amount. 

[28] On September 30, 2010, AIG, Treasury, FRBNY, and the AIG Credit 
Facility Trust agreed in principle to a plan that would recapitalize 
AIG and in the process require that AIG repay the FRBNY revolving 
credit facility. 

[29] On April 17, 2009, Treasury provided a $29.835 billion equity 
capital facility to AIG whereby AIG issued to Treasury 300,000 shares 
of fixed-rate noncumulative perpetual preferred stock (Series F) and a 
warrant to purchase up to 3,000 shares of AIG common stock. The 
facility was intended to strengthen AIG's capital levels and improve 
its leverage. 

[30] Series G preferred stock is discussed in more detail later in 
this report. 

[31] Other capital included payments advanced to purchase shares, the 
cost of Treasury stock, and accumulated other comprehensive income or 
loss as originally reported. Our computations adjusted the value of 
AIG's common stock and paid-in capital for the retroactive effect of 
the July 2009 reverse stock split. 

[32] This amount was based on the fair value of common shares into 
which the preferred Series C would be convertible on September 16, 
2008; the date AIG received FRBNY's commitment. AIG also recorded this 
amount as a prepaid commitment fee for the $85 billion credit facility 
to be treated as an asset to be amortized as interest expense over the 
5-year term of the FRBNY facility. The only cash involved in this 
transaction was $500,000 that FRBNY paid to AIG for issuing the Series 
C preferred shares by reducing the commitment fee FRBNY charged AIG 
for the facility by an equivalent amount. Through June 30, 2009, $10.2 
billion of this asset was amortized through the accumulated deficit 
and thus reduced shareholders equity. For more information on Series C 
preferred shares, see [hyperlink, 
http://www.gao.gov/products/GAO-09-975]. 

[33] As previously discussed, the federal equity investment includes 
Series C preferred shares that are convertible into approximately 
79.75 percent of total outstanding common shares. Under the terms of 
the Series C preferred stock issuance, AIG agreed to issue preferred 
stock convertible into AIG's common stock to a trust created on behalf 
of the U.S. Treasury (the AIG Credit Facility Trust). This independent 
trust was established to manage the U.S. Treasury's beneficial 
interest in Series C preferred shares. The conversion formula provides 
that the trust will receive approximately 79.75 percent of AIG's 
common stock less the percentage of common stock that may be acquired 
by or for the benefit of Treasury as a result of warrants or other 
convertible preferred stock held by Treasury. Treasury received a 
warrant to purchase 2,690,088 shares of AIG common stock in connection 
with its purchase of Series D preferred stock, and an additional 
warrant to purchase AIG common stock in connection with its purchase 
of Series F preferred stock. Proceeds from the sale of the trust stock 
will be deposited in the U.S. Treasury general fund. 

[34] Thomson Reuters maintains the Insurance Index, a stock price 
index comprising of insurance companies that conduct a variety of 
insurance activities. As a result the index is a good proxy for the 
stock market performance for the insurance sector. The NYSE Composite 
Index is designed to measure the performance of all common stocks 
listed on NYSE and, therefore, provides a measure of overall stock 
market performance. 

[35] A basis point is a common measure used in quoting yield on bills, 
notes, and bonds and represents 1/100 of a percent of yield. 

[36] AIGFP staff may leave for several reasons, such as the sale of 
businesses, closure of offices, or resignation. 

[37] Through the third quarter of 2010, AIG has reported on its 
operations through four reporting segments--general insurance, 
domestic life insurance and retirement services, foreign life 
insurance and retirement services, and financial services. The 
financial services segment includes commercial aircraft and equipment 
leasing, capital markets operations, consumer finance and insurance 
premium financing, both in the United States and abroad. 

[38] A tranche is a portion or class of a security. A security may 
have several tranches, each with different risks and rates of return, 
among other differences. 

[39] In exchange for a periodic fee, these institutions received 
credit protection for a portfolio of diversified loans, thus reducing 
minimum capital requirements set by their regulators. 

[40] According to AIG, AIGFP has not been required to make any 
payments as part of terminations initiated by counterparties. The 
regulatory benefit of these transactions for the counterparties is 
generally derived from the terms of Basel I that existed through the 
end of 2007, which was replaced by Basel II. As financial institution 
counterparties transitioned to Basel II, AIG expects them to receive 
little or no additional regulatory benefit from these CDS 
transactions, except in a small number of specific instances. 
According to AIG, the schedule by which these positions are called or 
terminated has slowed. This development likely has been impacted by 
changes in capital standards that have been recently proposed by the 
Basel Committee, which when implemented are expected to have various 
degrees of impact on global financial institutions, including the 
AIGFP counterparties. 

[41] According to AIG, the outstanding multisector CDO portfolio at 
June 30, 2010, was written on CDO transactions, including synthetic 
CDOs. Synthetic CDOs are backed by credit derivatives such as CDS or 
options contracts instead of assets such as bonds or mortgage backed 
securities. 

[42] "Total adjusted capital" is a company's actual amount of capital 
and surplus; it refers to a company's capital base. 

[43] The authorized control level risk-based capital is the level at 
which an insurance commissioner can seize or first take control of an 
insurance company. 

[44] As discussed earlier, FRBNY created Maiden Lane II, an SPV, to 
provide AIG liquidity through its purchase of RMBS from AIG life 
insurance companies. FRBNY provided a loan to the SPV for the 
purchases. It also terminated a previously established securities 
lending program with AIG. 

[45] The life insurance and retirement services segment losses 
associated with investment activity through the segment's securities 
lending program accounted for a significant portion of AIG's losses in 
the fourth quarter of 2008. Appendix VI describes the revenues and 
expenses of AIG's life and retirement services programs in more detail. 

[46] In July 2009, AIG announced that it had formed an SPV into which 
it would contribute the equity of AIU Holdings--which included AIG's 
commercial insurance, foreign general insurance, and private client 
group operations--and would be called Chartis, Inc. 

[47] The Council of Insurance Agents and Brokers' Quarterly Commercial 
P/C Market Index Survey, fourth quarter 2009 (Jan. 22, 2010). 

[48] A company records goodwill on its books when it buys another 
entity and pays more than the market value of all assets on the 
entity's books. A company will pay more because of intangibles such 
trademarks and copyrights on the books at historical cost and other 
factors--such as human capital, brand name, and client base--that 
accounting conventions do not capture on the books. If the company 
later determines that the entity has lost value and recovery is not a 
realistic expectation it might write-down that lost value as an 
impairment. 

[49] Errors and omissions insurance is a liability insurance that 
protects professionals and companies against claims by clients for 
actual or alleged negligent actions and other errors and omissions in 
the performance of contracted services. Directors and officers 
insurance protects a company's directors and officers from liability 
arising from actions relating to the duties they perform as it relates 
to the company. 

[50] For a more detailed discussion of the condition of AIG's 
insurance operations, see appendix VII. 

[51] We reviewed 30 property/casualty companies and identified 15 of 
these companies as AIG's property/casualty insurance peers based on 
the similarities we found in the distributions of their premiums 
written in 2009 by lines of business. As did AIG, these companies 
wrote premiums in several property/casualty lines of insurance. The 
companies are ACE, Alleghany, Allianz SE, American Financial, Arch 
Capital, Argo Group, Chubb, C.N.A., Fairfax Financial, Hartford 
Financial Services, Liberty Mutual, Markel, Old Republic, Travelers, 
and WR Berkley. Other property/casualty insurers not identified as 
peers were mostly companies concentrated in private auto insurance or 
home or farm owners insurance and other lines of insurance that were 
not major lines for AIG. These companies are Allstate; Assurant, Inc.; 
Bank of America; Berkshire Hathaway (GEICO); Erie Insurance Group; FM 
Global; Nationwide Mutual; Progressive; QBE Insurance Group; State 
Farm Fire and Casualty; State Farm Mutual Auto Insurance; Tokio 
Marine; United Services Automobile Association; White Mountains; and 
Zurich Financial Services. 

[52] Historical operating ratios for commercial insurance have been 
revised to include Private Client Group and exclude HSB Group, Inc. 
The loss ratio for the fourth quarter of 2009 includes a $2.3 billion 
increase in the reserve for prior years' adverse loss development. The 
underwriting expense for the fourth quarter of 2008 includes a $1.2 
billion charge for impairment to goodwill, increasing the expense 
ratio by 22.5 points. Claims related to major catastrophes were $1.4 
billion in 2008, including hurricane claims of $1.1 billion in the 
third quarter of 2008. Conversely, claims related to major 
catastrophes were $100 million in 2007. 

[53] Investment returns are not considered part of underwriting and 
thus are not included in the ratios. 

[54] See table 5 in [hyperlink, 
http://www.gao.gov/products/GAO-09-975]. 

[55] On April 17, 2009, AIG and Treasury entered into an agreement in 
which Treasury agreed to exchange its $40 billion of Series D 
cumulative preferred stock for $41.6 billion of Series E fixed-rate 
noncumulative preferred stock in AIG. The $1.6 billion difference 
between the initial aggregate liquidation preference of the Series D 
stock and the aggregate liquidation preference of the Series E stock 
represents a compounding of accumulated but unpaid dividends owed by 
AIG to Treasury on the Series D stock. 

[56] Balance includes accrued interest and fees of $6.182 billion as 
of September 30, 2010. 

[57] See appendix VIII for additional details about amounts owed under 
FRBNY's revolving credit facility. 

[58] Federal Reserve officials added that BlackRock, its investment 
manager for the Maiden Lanes, currently produces moderate and extreme 
stress case scenarios to evaluate the potential risk to their 
outstanding loans if either significant downside shock were to occur. 
As of June 30, 2010, they said that BlackRock projected full repayment 
of interest and principal on the FRBNY loans to Maiden Lane II and III 
under the moderate and extreme stress scenarios. 

[59] For additional trends information on Maiden Lane II, see appendix 
VIII. 

[60] In connection with the issuance of the Series E and F preferred 
stocks and as a participant in TARP, AIG had agreed to a number of 
covenants with Treasury related to corporate governance, executive 
compensation, political activity, and other matters. These covenants 
will continue to apply after the closing. Also, AIG will agree to 
provide Treasury and FRBNY with certain control and information rights. 

[61] On January 12, 2011, AIG announced an agreement to sell its 97.57 
percent interest in Nan Shan Life Insurance Company, Ltd. to Ruen Chen 
Investment Co., Ltd. of Taiwan for $2.16 billion in cash. 

[62] AIG may not directly redeem the Series G preferred stock while 
FRBNY continues to hold any preferred interests in the AIA and ALICO 
SPVs, but AIG will have the right to use cash to repurchase a 
corresponding amount of the preferred interests in the SPVs from 
FRBNY, which will then be transferred to Treasury to reduce the 
aggregate liquidation preference of the Series G preferred stock. If 
FRBNY no longer holds preferred interests in the AIA and ALICO SPVs, 
AIG may redeem in cash the Series G preferred stock, at the 
liquidation preference plus accrued and unpaid dividends. 

[63] Exercise price is the price at which the option holder may buy or 
sell the underlying asset. 

[64] For a list of dispositions, see appendix IX. 

[65] The cash proceeds will be lent by the SPVs to the parent company 
in the form of secured nonrecourse loans and the loan proceeds will 
then be used to repay the facility. Also, at the time of repayment and 
termination of the credit agreement, any remaining unamortized prepaid 
commitment fee asset, which approximated $4.3 billion at September 30, 
2010, will be written off through a charge to earnings. 

[66] AIG's long-term debt was rated at A-/Negative (S&P) and A3/ 
Negative (Moody's), and its short-term debt was rated at A-1 (S&P) and 
P-1 (Moody's). While these ratings are described using slightly 
different terminology, they tend to show relative consistency in the 
strength of AIG's debt. 

[67] While not currently convertible because of the pending 
implementation of the AIG recapitalization plan, the federal equity 
investment includes Series C preferred shares owned by the Trust that 
are convertible into approximately 79.75 percent of total outstanding 
common shares. The conversion formula provides that the trust will 
receive 79.9 percent of AIG's common stock less the percentage of 
common stock that may be acquired by or for the benefit of the 
Treasury as a result of warrants or other convertible preferred stock 
held by Treasury. Treasury received a warrant to purchase 2,690,088 
shares of AIG Common Stock in connection with its purchase of Series D 
preferred stock (now Series E), and an additional warrant to purchase 
AIG common stock in connection with its purchase of Series F preferred 
stock. Proceeds from the sale of the trust stock will be deposited in 
the U.S. Treasury general fund. 

[68] Balance outstanding includes accrued interest and fees of $6.182 
billion through September 30, 2010. 

[End of section] 

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