Annual Report AMERICAN INTERNATIONAL GROUP, INC. ABOUT AIG American International Group, Inc. (AIG), a world leader in insurance and financial services, is the leading international insurance organization, with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through the most extensive worldwide property-casualty and life insurance networks of any insurer. In addition, AIG companies are leading providers of retirement services, financial services and asset management around the world. AIG’s common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo. CONTENTS Financial Highlights 1 Letter to Shareholders 2 AIG: What We See 11 AIG at a Glance 24 Review of Operations 26 Reconciliation in Accordance with Regulation G 42 Five Year Summary of Consolidated Operations 43 Five Year Summary of Selected Financial Information 44 Supplemental Financial Information 46 Board of Directors 50 Corporate Directory 51 Annual Report on Form 10-K Inside Shareholder Information Back Cover ABOUT THE COVER AIG headquarters at 70 Pine Street is an Art Deco landmark and the tallest skyscraper in Lower Manhattan. In 1976, AIG purchased the 66-story building, which is crowned with a glass-enclosed observatory that offers a panoramic view of New York City and its surroundings. Today, it is an icon of AIG’s global stature in the insurance and financial services businesses. FINANCIAL HIGHLIGHTS (in millions, except per share data and ratios) 2007 2006 % Change Net income(a) $ 6,200 $ 14,048 (55.9) Net realized capital gains (losses), net of tax (2,386) 33 — Capital Markets other-than-temporary impairments, net of tax(b) (418) —— FAS 133 gains (losses), net of tax (304) (1,424) — Cumulative effect of an accounting change, net of tax — 34 — Adjusted net income(c) 9,308 15,405 (39.6) Net income, per common share—diluted 2.39 5.36 (55.4) Adjusted net income, per common share—diluted(c) 3.58 5.88 (39.1) Book value per common share 37.87 39.09 (3.1) Revenues(d)(e)(f) $ 110,064 $ 113,387 (2.9) Assets 1,060,505 979,410 8.3 Shareholders’ equity 95,801 101,677 (5.8) General Insurance combined loss and expense ratio 90.33 89.06 General Insurance combined loss and expense ratio, excluding catastrophe losses 89.73 89.06 Net Income (a) Net Income per Book Value per Common Share (billions of dollars) Common Share—Diluted (dollars) (dollars) 39.09 14.0 37.87 5.36 33.24 30.69 10.5 9.8 3.99 26.54 3.73 8.1 3.07 6.2 2.39 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Revenues (d)(e)(f) A s sets Shareholders’ Equity ( b illions of dollars) (billions of dollars) ( b illions of dollars) 113.4 1,060.5 108.8 110.1 101.7 979.4 95.8 97.8 853.0 86.3 801.0 79.7 79.6 69.2 675.6 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Certain reclassifications have been made to prior period amounts to conform to the current period presentation. (a) In 2007 and 2006, includes out of period increases (decreases) of $(399) million and $65 million, respectively. (b) Represents Capital Markets other-than-temporary impairments on securities available for sale. (c) In 2007 and 2006, includes out of period increases (decreases) of $(261) million and $85 million, respectively. (d) In 2007 and 2006, includes other-than-temporary impairment charges of $4.7 billion and $944 million, respectively. Also in 2007 and 2006, includes gains (losses) of $(1.44) billion and $(1.87) billion, respectively, from hedging activities that did not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. (e) In 2006, includes a $730 million increase in revenue for out of period adjustments related to the accounting for UCITS. (f) In 2007, includes an unrealized market valuation loss of $11.5 billion on AIGFP's super senior credit default swap portfolio. AIG 2007 Annual Report 1 DEAR FELLOW SHAREHOLDERS: fter a promising start, 2007 had a 2007 Results disappointing conclusion, both in AIG reported net income of $6.20 bil- Martin J. Sullivan terms of our results and share lion, or $2.39 per diluted share for President and A Chief Executive Officer price performance. The U.S. credit crisis, 2007, compared to $14.05 billion, or recession fears and record-high oil prices $5.36 per diluted share for 2006. caused economic disruption and uncer- Full year 2007 adjusted net income, tainty. In addition, some of our businesses excluding the effect of economically did not meet expectations. Nevertheless, effective hedging activities that did not We remain confident the fundamental strength of our core qualify for hedge accounting treatment operations is intact, and we made impor- under FAS 133, and the related in our strategy to tant advances in key markets. We remain foreign exchange gains and losses, was leverage our financial confident in our strategy to leverage our $9.31 billion, or $3.58 per diluted financial strength and global franchise share, compared to $15.41 billion, or strength and global to continue our growth in both emerging $5.88 per diluted share for 2006. franchise to continue and developed markets. Although it Included in 2007 net income and our growth in both appears economic conditions will not be adjusted net income was a charge of any better in 2008, we continue to see $11.47 billion pretax ($7.46 billion after emerging and many opportunities to deliver quality tax) for unrealized market valuation developed markets. insurance and financial products and losses related to the AIG Financial services to customers around the world. Products Corp. (AIGFP) super senior credit default swap portfolio. Based upon its most current analysis, AIG believes any losses that are realized over time on the super senior credit default swap portfolio of AIGFP will not be material to AIG’s 2 AIG 2007 Annual Report overall financial condition, although it is received approval to set up a representative possible that realized losses could be mate- office in Tianjin, our first operation in rial to AIG’s consolidated results of oper- China’s third-largest city. ations for an individual reporting period. In Korea, we obtained preliminary Full year results also include pretax net approval from the Financial Supervisory realized capital losses of $3.59 billion. Service to offer mortgage reinsurance Consolidated assets increased in 2007 through AIG United Guaranty Insurance to $1.061 trillion, up from $979.41 billion (Asia) Limited. We signed a memoran- in 2006. At year end, book value per share dum of understanding with the Bank BusinessWeek named AIG one stood at $37.87, down from $39.09 of Investment and Development of of the 100 Best Global Brands, at the end of 2006. Shareholders’ equity Vietnam for the expansion of our business a testament to the brand’s growing value in markets all over the world. also declined to $95.80 billion from cooperation agreement in that rapidly $101.68 billion at the end of 2006. AIG growing country. The agreement will recorded total revenues during the year of allow us to expand beyond our existing $110.06 billion, 2.9 percent below 2006 relationship in life insurance to include revenues. Revenues, shareholders’ equity a wide range of areas such as general and book value per share were adversely insurance, consumer finance, asset affected by realized capital losses and management and banking services. the net unrealized market valuation loss We are rapidly building a consumer recorded by AIGFP. finance franchise in India to complement our Tata AIG Life and General Insurance 2007 Highlights partnership. In 2007, we established a We overcame the challenges of 2007 to presence in housing finance and consumer make progress on several fronts. We were durable finance. In addition, we are In 2007, AIG received approval from pleased when the China Insurance strengthening our presence in asset man- the China Insurance Regulatory Commission to establish a wholly Regulatory Commission approved our agement and real estate development. owned general insurance subsidiary application to establish a Wholly Owned In the Middle East, American Life in China(pictured, Shanghai skyline). Foreign Enterprise (WOFE) under the Insurance Company (ALICO) received name AIG General Insurance Company a license to operate a retail life insurance China Limited (AIG General). Soon business in the Qatar Financial Centre. after, we opened a new AIG General ALICO is the first life insurance company headquarters in Shanghai and consoli- to receive an expanded license, which is dated our Chinese general insurance in addition to a wholesale life insurance operations there to capture efficiencies license first obtained in February 2007. and provide a platform to establish new Our acquisition of the German branches in other areas of China. AIA insurer Württembergische und Badische China continued to expand on the Versicherungs-AG (WüBa) reaffirmed our provincial licenses granted in 2006, commitment to growth in the German opening 29 new sales and service centers marketplace, and greatly enhanced in 2007, for a total of 104 centers in 19 our insurance offerings to small and The AIG Private Client Group’s cities. In addition, AIG InvestmentsSM midsize companies. Wildfire Protection Unit® uses the We advanced our strategy in the auto latest fire-mitigation technology to help protect policyholders’ proper- insurance sector when we acquired the out- ties in the western United States. standing shares of 21st Century Insurance Group that we did not already own.