Edgar Filing: AMERICAN INTERNATIONAL GROUP INC

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Table of Contents
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q


(Mark One)
þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2010
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from to

Commission File Number 1-8787

American International Group, Inc.
(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		13-2592361 (I.R.S. Employer Identification No.)
180 Maiden Lane, New York, New York (Address of principal executive offices)		10038 (Zip Code)

Registrant's telephone number, including area code: (212) 770-7000

Former name, former address and former fiscal year, if changed since last report:
70 Pine Street, New York, NY 10270

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

As of October 29, 2010, there were 135,143,176 shares outstanding of the registrant's common stock.

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American International Group, Inc. and Subsidiaries

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Description			Page Number



PART I – FINANCIAL INFORMATION
	Item 1.	Financial Statements (unaudited)	4
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	108
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	216
	Item 4.	Controls and Procedures	216
PART II – OTHER INFORMATION
	Item 1.	Legal Proceedings	217
	Item 1A.	Risk Factors	217
	Item 6.	Exhibits	217
Signatures			218

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American International Group, Inc. and Subsidiaries

Part I – FINANCIAL INFORMATION

ITEM 1. Financial Statements (unaudited)

Consolidated Balance Sheet

(in millions)				September 30, 2010		December 31, 2009



Assets:
	Investments:
		Fixed maturity securities:
			Bonds available for sale, at fair value (amortized cost: 2010 – $277,804; 2009 – $364,491)	$	296,198	$	365,551
			Bond trading securities, at fair value		28,849		31,243
		Equity securities:
			Common and preferred stock available for sale, at fair value (cost: 2010 – $7,389; 2009 – $6,464)		11,266		9,522
			Common and preferred stock trading, at fair value		5,486		8,318
		Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2010 – $178; 2009 – $119)			22,943		27,461
		Finance receivables, net of allowance			1,262		20,327
		Flight equipment primarily under operating leases, net of accumulated depreciation			39,875		44,091
		Other invested assets (portion measured at fair value: 2010 – $11,779; 2009 – $18,888)			36,006		45,235
		Securities purchased under agreements to resell, at fair value			905		2,154
		Short-term investments (portion measured at fair value: 2010 – $18,182; 2009 – $23,975)			34,462		47,263

			Total investments		477,252		601,165
	Cash				1,668		4,400
	Accrued investment income				4,161		5,152
	Premiums and other receivables, net of allowance				17,035		16,549
	Reinsurance assets, net of allowance				24,515		22,425
	Current and deferred income taxes				53		4,108
	Deferred policy acquisition costs				25,300		40,814
	Real estate and other fixed assets, net of accumulated depreciation				3,237		4,142
	Unrealized gain on swaps, options and forward transactions, at fair value				7,639		9,130
	Goodwill				1,447		6,195
	Other assets, including prepaid commitment asset of $4,718 in 2010 and $7,099 in 2009
		(portion measured at fair value: 2010 – $14; 2009 – $288)			16,607		18,976
	Separate account assets, at fair value				58,209		58,150
	Assets held for sale				234,842		56,379

Total assets				$	871,965	$	847,585

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

Consolidated Balance Sheet (Continued)

(in millions, except share data)			September 30, 2010			December 31, 2009



Liabilities:
	Liability for unpaid claims and claims adjustment expense		$	86,297		$	85,386
	Unearned premiums			24,633			21,363
	Future policy benefits for life and accident and health insurance contracts			78,655			116,001
	Policyholder contract deposits (portion measured at fair value: 2010 – $4,763; 2009 – $5,214)			135,545			220,128
	Other policyholder funds			13,375			13,252
	Commissions, expenses and taxes payable			3,455			4,950
	Insurance balances payable			3,380			4,393
	Funds held by companies under reinsurance treaties			701			774
	Securities sold under agreements to repurchase (portion measured at fair value: 2010 – $3,242; 2009 – $3,221)			3,901			3,505
	Securities and spot commodities sold but not yet purchased, at fair value			163			1,030
	Unrealized loss on swaps, options and forward transactions, at fair value			6,455			5,403
	Trust deposits and deposits due to banks and other depositors (portion measured at fair value: 2010 – $15; 2009 – $15)			936			1,641
	Other liabilities			22,308			22,503
	Federal Reserve Bank of New York Commercial Paper Funding Facility (portion measured at fair value: 2009 – $2,742)			-			4,739
	Federal Reserve Bank of New York credit facility			20,470			23,435
	Other long-term debt (portion measured at fair value: 2010 – $13,300; 2009 – $13,195)			93,419			113,298
	Separate account liabilities			58,209			58,150
	Liabilities held for sale			209,323			48,599

Total liabilities				761,225			748,550

	Commitments, contingencies and guarantees (see Note 9)
	Redeemable noncontrolling interests in partially owned consolidated subsidiaries (including $107 and $211 associated with businesses held for sale in 2010 and 2009, respectively)			2,027			959
AIG shareholders' equity:
	Preferred stock
		Series E; $5.00 par value; shares issued: 2010 and 2009 – 400,000, at aggregate liquidation value		41,605			41,605
		Series F; $5.00 par value; shares issued: 2010 and 2009 – 300,000, aggregate liquidation value: 2010 – 7,543; 2009 – 5,344		7,378			5,179
		Series C; $5.00 par value; shares issued: 2010 and 2009 – 100,000, aggregate liquidation value: 2010 and 2009 – $0.5		23,000			23,000
	Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2010 – 141,799,335; 2009 – 141,732,263			354			354
	Treasury stock, at cost; 2010 – 6,660,908; 2009 – 6,661,356 shares of common stock			(873	)		(874	)
	Additional paid-in capital			5,864			6,358
	Accumulated deficit			(14,486	)		(11,491	)
	Accumulated other comprehensive income			18,000			5,693

Total AIG shareholders' equity				80,842			69,824

Noncontrolling interests:
	Noncontrolling nonvoting, callable, junior and senior preferred interests held by Federal Reserve Bank of New York			25,955			24,540
	Other (including $403 and $2,234 associated with businesses held for sale in 2010 and 2009, respectively)			1,916			3,712

Total noncontrolling interests				27,871			28,252

Total equity				108,713			98,076

Total liabilities and equity			$	871,965		$	847,585

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

Consolidated Statement of Income (Loss)

				Three Months Ended September 30,						Nine Months Ended September 30,


(dollars in millions, except per share data)				2010			2009			2010			2009

Revenues:
	Premiums and other considerations			$	12,639		$	11,695		$	35,931		$	39,052
	Net investment income				5,231			6,409			15,469			14,044
	Net realized capital losses:
		Total other-than-temporary impairments on available for sale securities			(459	)		(901	)		(1,397	)		(5,200	)
		Portion of other-than-temporary impairments on available for sale fixed maturity securities recognized in Accumulated other comprehensive income			(345	)		(57	)		(595	)		304

		Net other-than-temporary impairments on available for sale securities recognized in net loss			(804	)		(958	)		(1,992	)		(4,896	)
		Other realized capital gains (losses)			143			(897	)		510			(77	)

			Total net realized capital losses		(661	)		(1,855	)		(1,482	)		(4,973	)
	Unrealized market valuation gains on Capital Markets super senior credit default swap portfolio				152			959			432			1,143
	Other income				1,730			2,396			5,264			7,520

Total revenues					19,091			19,604			55,614			56,786

Benefits, claims and expenses:
	Policyholder benefits and claims incurred				11,175			11,340			30,747			36,600
	Policy acquisition and other insurance expenses				3,898			3,533			11,168			11,765
	Interest expense				2,158			2,093			5,334			6,680
	Restructuring expenses and related asset impairment and other expenses				159			254			339			908
	Net loss (gain) on sale of divested businesses				(4	)		885			(126	)		1,192
	Other expenses				1,283			2,016			4,354			5,465

Total benefits, claims and expenses					18,669			20,121			51,816			62,610

Income (loss) from continuing operations before income tax expense
	(benefit)				422			(517	)		3,798			(5,824	)
Income tax expense (benefit)					469			(408	)		1,044			(1,510	)

Income (loss) from continuing operations					(47	)		(109	)		2,754			(4,314	)
Income (loss) from discontinued operations, net of income tax expense (benefit) (See Note 3)					(1,844	)		94			(4,329	)		1,011

Net loss					(1,891	)		(15	)		(1,575	)		(3,303	)

Less:
Net income (loss) from continuing operations attributable to noncontrolling interests:
		Noncontrolling nonvoting, callable, junior and senior preferred interests held by Federal Reserve Bank of New York			388			-			1,415			-
		Other			104			(496	)		243			(1,271	)

Total net income (loss) from continuing operations attributable to noncontrolling interests					492			(496	)		1,658			(1,271	)
Net income from discontinued operations attributable to noncontrolling interests					12			26			35			44

Total net income (loss) attributable to noncontrolling interests					504			(470	)		1,693			(1,227	)

Net income (loss) attributable to AIG				$	(2,395	)	$	455		$	(3,268	)	$	(2,076	)

Net income (loss) attributable to AIG common shareholders				$	(2,395	)	$	92		$	(661	)	$	(3,371	)

Income (loss) per common share attributable to AIG:
	Basic:
		Income (loss) from continuing operations		$	(3.97	)	$	0.58		$	1.63		$	(32.06	)
		Income (loss) from discontinued operations		$	(13.65	)	$	0.10		$	(6.51	)	$	7.14
	Diluted:
		Income (loss) from continuing operations		$	(3.97	)	$	0.58		$	1.63		$	(32.06	)
		Income (loss) from discontinued operations		$	(13.65	)	$	0.10		$	(6.51	)	$	7.14

Weighted average shares outstanding:
	Basic				135,879,125			135,293,841			135,788,053			135,276,345
	Diluted				135,879,125			135,456,372			135,855,328			135,276,345

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

Consolidated Statement of Comprehensive Income

			Three Months Ended September 30,						Nine Months Ended September 30,


(in millions)			2010			2009			2010			2009

Net loss			$	(1,891	)	$	(15	)	$	(1,575	)	$	(3,303	)

Other comprehensive income:
	Unrealized appreciation of fixed maturity investments on which other-than-temporary credit impairments were taken			781			758			2,011			1,870
		Income tax expense on above changes		(584	)		(221	)		(1,012	)		(671	)
	Unrealized appreciation of all other investments – net of reclassification adjustments			11,277			18,164			18,597			23,749
		Income tax expense on above changes		(3,446	)		(6,481	)		(6,441	)		(8,952	)
	Foreign currency translation adjustments			1,514			408			(266	)		1,403
		Income tax benefit (expense) on above changes		(638	)		(221	)		116			(630	)
	Net derivative gains (losses) arising from cash flow hedging activities – net of reclassification adjustments			46			(7	)		83			64
		Income tax benefit (expense) on above changes		(44	)		2			(20	)		(19	)
	Change in retirement plan liabilities adjustment			(514	)		127			(411	)		218
		Income tax benefit (expense) on above changes		110			(41	)		101			(71	)

Other comprehensive income				8,502			12,488			12,758			16,961

Comprehensive income				6,611			12,473			11,183			13,658
Comprehensive income (loss) attributable to noncontrolling interests				379			(193	)		385			(867	)
Comprehensive income (loss) attributable to noncontrolling nonvoting, callable, junior and senior preferred interests held by Federal Reserve Bank of New York				388			-			1,415			-

Comprehensive income attributable to AIG			$	5,844		$	12,666		$	9,383		$	14,525

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

Consolidated Statement of Cash Flows

			Nine Months Ended September 30,


(in millions)			2010			2009

Summary:
	Net cash provided by operating activities		$	15,115		$	11,974
	Net cash provided by (used in) investing activities			(7,527	)		9,149
	Net cash used in financing activities			(8,772	)		(25,003	)
	Effect of exchange rate changes on cash			(4	)		195

	Change in cash			(1,188	)		(3,685	)
	Cash at beginning of period			4,400			8,642
	Reclassification of assets held for sale			(1,544	)		-

	Cash at end of period			1,668			4,957

Cash flows from operating activities:
	Net loss		$	(1,575	)	$	(3,303	)
	(Income) loss from discontinued operations			4,329			(1,011	)

	Adjustments to reconcile net loss to net cash provided by operating activities:
	Noncash revenues, expenses, gains and losses included in loss:
		Net gains on sales of securities available for sale and other assets		(1,943	)		(689	)
		Net (gains) losses on sales of divested businesses		(126	)		1,192
		Unrealized (gains) losses in earnings – net		737			(4,305	)
		Equity in (income) loss from equity method investments, net of dividends or distributions		(592	)		1,831
		Depreciation and other amortization		9,104			9,129
		Provision for mortgage, other loans and finance receivables		376			1,065
		Impairments of assets		3,775			7,793
		Amortization of costs and accrued interest and fees related to FRBNY Credit Facility		2,762			3,557
	Changes in operating assets and liabilities:
		General and life insurance reserves		3,729			3,277
		Premiums and other receivables and payables – net		(606	)		1,204
		Reinsurance assets and funds held under reinsurance treaties		(2,124	)		317
		Capitalization of deferred policy acquisition costs		(7,940	)		(6,792	)
		Other policyholder funds		339			529
		Current and deferred income taxes – net		(90	)		(1,629	)
		Trading securities		542			965
		Securities sold under agreements to repurchase, net of securities purchased under agreements to resell		1,208			(233	)
		Securities and spot commodities sold but not yet purchased		(867	)		(1,657	)
		Finance receivables and other loans held for sale – originations and purchases		(15	)		(60	)
		Sales of finance receivables and other loans – held for sale		64			84
		Other, net		(2,118	)		(2,853	)

		Total adjustments		6,215			12,725

Net cash provided by operating activities – continuing operations				8,969			8,411
Net cash provided by operating activities – discontinued operations				6,146			3,563

Net cash provided by operating activities			$	15,115		$	11,974

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

Consolidated Statement of Cash Flows (Continued)

		Nine Months Ended September 30,


(in millions)		2010			2009

Cash flows from investing activities:
Proceeds from (payments for)
	Sales of available for sale investments	$	33,951		$	32,365
	Maturities of fixed maturity securities available for sale and hybrid investments		10,651			12,723
	Sales of trading securities		5,080			11,001
	Sales or distributions of other invested assets (including flight equipment)		7,609			8,794
	Sales of divested businesses, net		1,903			4,658
	Principal payments received on mortgage and other loans receivable		2,785			2,943
	Principal payments received on and sales of finance receivables held for investment		938			4,044
	Purchases of available for sale investments		(60,770	)		(39,907	)
	Purchases of trading securities		(2,285	)		(4,025	)
	Purchases of other invested assets (including flight equipment)		(6,126	)		(8,064	)
	Acquisition, net of cash acquired		(139	)		-
	Mortgage and other loans receivable issued		(1,622	)		(2,143	)
	Finance receivables held for investment – originations and purchases		(673	)		(2,923	)
	Net additions to real estate, fixed assets, and other assets		(234	)		(270	)
	Net change in short-term investments		4,649			(10,535	)
	Net change in derivative assets and liabilities other than Capital Markets		186			169
	Other, net		(166	)		31

Net cash provided by (used in) investing activities – continuing operations			(4,263	)		8,861
Net cash provided by (used in) investing activities – discontinued operations			(3,264	)		288

Net cash provided by (used in) investing activities		$	(7,527	)	$	9,149

Cash flows from financing activities:
Proceeds from (payments for)
	Policyholder contract deposits	$	14,719		$	15,555
	Policyholder contract withdrawals		(11,120	)		(20,589	)
	Change in commercial paper and other short-term debt		-			(425	)
	Change in Federal Reserve Bank of New York Commercial Paper Funding Facility borrowings		(5,855	)		(5,735	)
	Federal Reserve Bank of New York credit facility borrowings		14,900			20,000
	Federal Reserve Bank of New York credit facility repayments		(18,512	)		(21,000	)
	Issuance of other long-term debt		9,683			2,977
	Repayments on other long-term debt		(10,481	)		(12,959	)
	Drawdown on the Department of the Treasury Commitment		2,199			3,206
	Other, net		(376	)		(176	)

Net cash used in financing activities – continuing operations			(4,843	)		(19,146	)
Net cash used in financing activities – discontinued operations			(3,929	)		(5,857	)

Net cash used in financing activities		$	(8,772	)	$	(25,003	)

Supplementary disclosure of cash flow information:
Cash paid during the period for:
	Interest	$	(3,978	)	$	(4,337	)
	Taxes	$	(1,134	)	$	(19	)
Non-cash financing/investing activities:
	Interest credited to policyholder contract deposits included in financing activities	$	6,768		$	10,382
	Long-term debt reduction due to deconsolidations	$	1,092		$	1,248
	Debt assumed on consolidation of variable interest entities	$	2,591		$	-
	Debt assumed on acquisition	$	164		$	-

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

Consolidated Statement of Equity

Nine Months Ended September 30, 2010 (in millions)	Preferred Stock			Common Stock		Treasury Stock			Additional Paid-in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total AIG Share- holders' Equity			Non- controlling Interests			Total Equity



Balance, beginning of year	$	69,784		$	354	$	(874	)	$	6,358		$	(11,491	)	$	5,693		$	69,824		$	28,252		$	98,076

Series F drawdowns		2,199			-		-			-			-			-			2,199			-			2,199
Common stock issued under stock plans		-			-		-			(5	)		-			-			(5	)		-			(5	)
Cumulative effect of change in accounting principle, net of tax		-			-		-			-			238			(344	)		(106	)		-			(106	)
Net income (loss) attributable to AIG or other noncontrolling interests^(a)		-			-		-			-			(3,268	)		-			(3,268	)		188			(3,080	)
Net income attributable to noncontrolling nonvoting, callable, junior and senior preferred interests held by the Federal Reserve Bank of New York		-			-		-			-			-			-			-			1,415			1,415
Other comprehensive income^(b)		-			-		-			-			-			12,651			12,651			102			12,753
Net decrease due to deconsolidation		-			-		-			-			-			-			-			(2,261	)		(2,261	)
Contributions from noncontrolling interests		-			-		-			-			-			-			-			198			198
Distributions to noncontrolling interests		-			-		-			-			-			-			-			(124	)		(124	)
Deferred taxes		-			-		-			(543	)		-			-			(543	)		-			(543	)
Other		-			-		1			54			35			-			90			101			191

Balance, end of period	$	71,983		$	354	$	(873	)	$	5,864		$	(14,486	)	$	18,000		$	80,842		$	27,871		$	108,713

Nine Months Ended September 30, 2009

Balance, beginning of year	$	40,000		$	368	$	(8,450	)	$	39,488		$	(12,368	)	$	(6,328	)	$	52,710		$	8,095		$	60,805

Series C issuance		23,000			-		-			(23,000	)		-			-			-			-			-
Series D exchange for Series E		1,605			-		-			(1,605	)		-			-			-			-			-
Series F drawdowns		3,206			-		-			-			-			-			3,206			-			3,206
Series F commitment fee		(165	)		-		-			-			-			-			(165	)		-			(165	)
Common stock issued under stock plans		-			-		177			(177	)		-			-			-			-			-
Cumulative effect of change in accounting principle, net of tax		-			-		-			-			11,826			(9,348	)		2,478			-			2,478
Net loss attributable to AIG or other noncontrolling interests^(a)		-			-		-			-			(2,076	)		-			(2,076	)		(1,479	)		(3,555	)
Other comprehensive income		-			-		-			-			-			16,601			16,601			360			16,961
Net decrease due to deconsolidation		-			-		-			-			-			-			-			(3,332	)		(3,332	)
Contributions from noncontrolling interests		-			-		-			-			-			-			-			454			454
Distributions to noncontrolling interests		-			-		-			-			-			-			-			(344	)		(344	)
Other		-			-		-			(42	)		-			-			(42	)		71			29

Balance, end of period	$	67,646		$	368	$	(8,273	)	$	14,664		$	(2,618	)	$	925		$	72,712		$	3,825		$	76,537

(a): Excludes gains of $90 million and $252 million for the nine-month periods ended September 30, 2010 and 2009, respectively, attributable to redeemable noncontrolling interests. For the nine months ended September 30, 2010 excludes Net income attributable to noncontrolling nonvoting, callable, junior and senior preferred interests held by the Federal Reserve Bank of New York of $1.4 billion.
(b): Excludes $5 million attributable to redeemable noncontrolling interests.

See Accompanying Notes to Consolidated Financial Statements.

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1. Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed consolidated financial statements do not include all disclosures that are normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (GAAP) and should be read in conjunction with the audited consolidated financial statements and the related notes included in the Form 8-K filed on August 6, 2010 (the 2009 Financial Statements). The condensed consolidated financial information as of December 31, 2009 has been derived from audited consolidated financial statements not included herein.

In the opinion of management, these consolidated financial statements contain the normal recurring adjustments necessary for a fair statement of the results presented herein. Interim period operating results may not be indicative of the operating results for a full year. AIG evaluated the need to disclose events that occurred subsequent to the balance sheet date. All material intercompany accounts and transactions have been eliminated.

Certain reclassifications and disclosure changes have been made to prior period amounts to conform to the current period presentation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires the application of accounting policies that often involve a significant degree of judgment. AIG considers its accounting policies that are most dependent on the application of estimates and assumptions, and therefore viewed as critical accounting estimates, to be those relating to items considered by management in the determination of:

•: insurance liabilities, including general insurance unpaid claims and claims adjustment expenses and future policy benefits for life and accident and health contracts;
•: recoverability of assets, including deferred policy acquisition costs (DAC) and flight equipment;
•: estimated gross profits for investment-oriented products;
•: the allowance for finance receivable losses;
•: impairment charges, including other-than-temporary impairments and goodwill impairment;
•: liabilities for legal contingencies;
•: estimates with respect to income taxes, including recoverability of deferred tax assets;
•: fair value measurements of certain financial assets and liabilities, including credit default swaps (CDS) and AIG's economic interest in Maiden Lane II LLC (ML II) and equity interest in Maiden Lane III LLC (ML III) (together, the Maiden Lane Interests);
•: classification of entities as held for sale or as discontinued operations;
•: fair value of the assets and liabilities, including non-controlling interests, related to acquisitions; and
•: AIG's ability to continue as a going concern.

These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, AIG's consolidated financial condition, results of operations and cash flows would be materially affected.

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Out of Period Adjustments

For the three- and nine-month periods ended September 30, 2010, AIG recorded out of period adjustments relating to prior periods that decreased Net loss attributable to AIG by $166 million and increased Net loss attributable to AIG by $210 million, respectively, including certain tax adjustments for the three-month period and, for the nine-month period, the effect of recording impairments on certain consolidated investments held in the Institutional Asset Management operations, which affected the calculation of income taxes, and a foreign currency adjustment. While these adjustments were noteworthy for the periods, after evaluating the quantitative and qualitative aspects of these corrections, AIG concluded that its prior period financial statements were not materially misstated and, therefore, no restatement was required.

Had these and all previously reported out of period adjustments been recorded in their appropriate periods, Net loss attributable to AIG for the year ended December 31, 2009 would have increased by $578 million, from $10.9 billion to $11.5 billion.

Going Concern Considerations

In the audited financial statements included in the 2009 Financial Statements, management disclosed the conditions and events that led management to conclude that AIG would have adequate liquidity to finance and operate AIG's businesses, execute its asset disposition plan and repay its obligations for at least the next twelve months.

Progress on Management's Plans for Stabilization of AIG and Repayment of AIG's Obligations as They Come Due

AIG has been working to protect and enhance the value of its key businesses, execute an orderly asset disposition plan, and position itself for the future. AIG continually reassesses this plan to maximize value while maintaining flexibility in managing its liquidity and capital.

Recapitalization

On September 30, 2010, AIG entered into an agreement in principle (the Recapitalization Agreement in Principle) with the United States Department of the Treasury (Department of the Treasury), the FRBNY and the AIG Credit Facility Trust, a trust established for the sole benefit of the United States Treasury (together with its trustees, the Trust) for a recapitalization transaction (the Recapitalization). The Recapitalization Agreement in Principle contemplates the Recapitalization will be completed before the end of the first quarter of 2011. The principal terms of the Recapitalization will be as follows:

•: Repayment and Termination of the FRBNY Credit Facility: The transactions constituting the Recapitalization are to occur substantially simultaneously at the closing (Closing) of the Recapitalization. At the Closing, AIG will repay to the FRBNY in cash all amounts owing under the FRBNY Credit Facility and the FRBNY Credit Facility will be terminated. As of October 31, 2010, the total repayment amount under the FRBNY Credit Facility was approximately $20 billion. The funds for repayment are to come from the net cash proceeds from the sale in a public offering of approximately 67 percent of the ordinary shares of AIA Group Limited (AIA) and the sale of American Life Insurance Company (ALICO), which closed on October 29, 2010 and November 1, 2010, respectively, and from additional funds from operations, financings and asset sales. None of these funds are expected to come from regulated subsidiaries other than through ordinary-course dividends. The net cash proceeds from the initial public offering of AIA and the sale of ALICO will be loaned to AIG (for repayment of the FRBNY Credit Facility), in the form of intercompany secured non-recourse loans, from the special purpose vehicles that hold AIA and ALICO (SPVs, and such loans, SPV Intercompany Loans).

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

At the time of repayment and termination of the FRBNY Credit Facility, any remaining unamortized prepaid commitment fee asset, which approximated $4.3 billion at September 30, 2010, will be written off by AIG through a net charge to earnings.

•: Repurchase and Exchange of the SPV Preferred Interests: At the Closing, AIG will draw down an amount remaining available to be funded under the commitment of the Department of the Treasury (Department of the Treasury Commitment) pursuant to the Securities Purchase Agreement, dated as of April 17, 2009 (Series F SPA), between AIG and the Department of the Treasury relating to the Series F Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (Series F Preferred Stock), less any amount designated by AIG (Series G Drawdown Right) to be allocated to the Series G Cumulative Mandatory Convertible Preferred Stock, par value $5.00 per share (Series G Preferred Stock), as described below. As of October 31, 2010, the total available funding under the Department of the Treasury Commitment was approximately $22.3 billion. AIG will use the amount drawn down at closing (the Series F Closing Drawdown Amount) to repurchase all or a portion of the FRBNY's preferred interests in the SPVs (SPV Preferred Interests) corresponding to the Series F Closing Drawdown Amount (Transferred SPV Preferred Interests) and transfer the Transferred SPV Preferred Interests to the Department of the Treasury in partial consideration for shares of the Series F Preferred Stock with an equivalent liquidation value as described below.

Any SPV Preferred Interests not transferred to the Department of the Treasury at the Closing will continue to be held by the FRBNY and will be senior to the Transferred SPV Preferred Interests held by the Department of the Treasury. In addition to the proceeds from the monetization of the remaining ordinary shares of AIA held by AIG and the MetLife securities received from the sale of ALICO after the Closing, AIG will use the proceeds from any sales or dispositions of its equity interests in Nan Shan Life Insurance Company, Ltd. (Nan Shan), AIG Star Life Insurance Co. Ltd. (AIG Star), AIG Edison Life Insurance Company (AIG Edison), International Lease Finance Corporation (ILFC) and AIG's and its subsidiaries' interests in ML II and ML III to repay the SPV Intercompany Loans and thereby provide funds with which the SPVs may pay down the liquidation preference of the SPV Preferred Interests remaining outstanding after the Closing.

As a result of these transactions, the SPV Preferred Interests will no longer be considered permanent equity on AIG's balance sheet, and will be classified as redeemable noncontrolling interests in partially owned consolidated subsidiaries.

•: Issuance of AIG's Series G Preferred Stock: In connection with the Recapitalization, AIG and the Department of the Treasury will amend and restate the Series F SPA to provide for the issuance of the Series G Preferred Stock by AIG to the Department of the Treasury at the Closing. The right of AIG to draw on the Department of the Treasury Commitment will be terminated, and outstanding Series F Preferred Stock will be exchanged as described below.

The Series G Preferred Stock will initially have an aggregate liquidation preference equal to at least the amount of funds, if any, drawn down by AIG under the Series F SPA after September 30, 2010 but before the Closing. From the Closing until March 31, 2012, AIG may draw down funds under the Series G Drawdown Right to be used for general corporate purposes, which will increase the aggregate liquidation preference of the Series G Preferred Stock. AIG generally may draw down funds up to the $2 billion that may be designated by AIG prior to the Closing. This drawdown right will be subject to terms and conditions substantially similar to those in the current Series F SPA, except that there will be no condition that the Trust and the Department of the Treasury own over 50 percent of AIG's voting securities.

Dividends on the Series G Preferred Stock will be payable on a cumulative basis at a rate per annum of 5 percent, compounded quarterly, of the aggregate liquidation preference of the Series G Preferred Stock. Dividends not paid in cash will be paid in kind on a quarterly basis.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The available funding under the Series G Drawdown Right that may be used for general corporate purposes will generally be reduced by the amount of net proceeds of future AIG equity offerings. If the FRBNY continues to hold any SPV Preferred Interests at the time when any such net proceeds are realized, any amount by which the generally available funding under the Series G Drawdown Right is reduced in the manner described above will instead be drawn by AIG and used to repurchase a corresponding amount of SPV Preferred Interests from the FRBNY, which will then be transferred to the Department of the Treasury to repay the draw in the same manner as at the Closing. If the net proceeds of future AIG equity offerings exceed the available funding under the Series G Drawdown Right, AIG will be required to use such excess net proceeds to effect a repurchase and transfer of the SPV Preferred Interests from the FRBNY to the Department of the Treasury as described above or if the FRBNY does not then hold SPV Preferred Interests, to pay down the liquidation preference on the Series G Preferred Stock.

AIG may not directly redeem the Series G Preferred Stock or use cash to reduce its liquidation preference while the FRBNY continues to hold any SPV Preferred Interests, but AIG will have the right to use cash to repurchase a corresponding amount of SPV Preferred Interests from the FRBNY, which will then be transferred to the Department of the Treasury and will accordingly reduce the aggregate liquidation preference of the Series G Preferred Stock. If the FRBNY no longer holds SPV Preferred Interests, AIG may use cash to reduce the liquidation preference of the Series G Preferred Stock or the Series G Preferred Stock will be redeemable in cash at AIG's option, at the liquidation preference plus accrued and unpaid dividends.

If the FRBNY continues to hold any SPV Preferred Interests on March 31, 2012, AIG will draw down all remaining available funds under the Series G Drawdown Right to the extent of the remaining aggregate liquidation preference of those SPV Preferred Interests (or the full remaining available amount, if less). Such funds will also be used to repurchase SPV Preferred Interests to be transferred to the Department of the Treasury to repay the draw as described above. If, after giving effect to the foregoing, the Series G Preferred Stock has an outstanding aggregate liquidation preference on March 31, 2012, it will be converted into a number of shares of AIG common stock, par value $2.50 per share (AIG Common Stock), equal to the aggregate liquidation preference plus accrued and unpaid dividends divided by the lesser of 80 percent of the volume weighted average price of AIG Common Stock over the 20 trading days prior to the announcement date of the Recapitalization and 80 percent of the volume weighted average price of AIG Common Stock over a measurement period prior to the Closing.

•: Exchange of Series C, E and F Preferred Stock for AIG Common Stock: At the Closing, (i) the shares of the Series C Perpetual, Convertible, Participating Preferred Stock, par value $5.00 per share (Series C Preferred Stock), held by the Trust will be exchanged for approximately 562.9 million shares of AIG Common Stock, which will simultaneously be distributed to the Department of the Treasury; (ii) the shares of the Series E Fixed Rate Non-Cumulative Perpetual Preferred Stock, par value $5.00 per share (Series E Preferred Stock) held by the Department of the Treasury will be exchanged for approximately 924.5 million shares of AIG Common Stock; and (iii) the shares of the Series F Preferred Stock held by the Department of the Treasury will be exchanged for (a) the Transferred SPV Preferred Interests (as described above), (b) newly issued shares of the Series G Preferred Stock and (c) approximately 167.6 million shares of AIG Common Stock. After completing the Recapitalization, the Department of the Treasury will hold approximately 1.655 billion shares of newly issued AIG Common Stock, representing ownership of approximately 92.1 percent of the AIG Common Stock that will be outstanding as of the Closing.

AIG will agree to grant to the Department of the Treasury registration rights with respect to the shares of AIG Common Stock issued at the Closing on terms substantially consistent with those relating to the Series C Preferred Stock, subject to appropriate modifications relating to AIG's obligation to undertake an equity offering, including appropriate lock-up arrangements and restrictions on the exercise of registration rights by transferees.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The issuance of AIG Common Stock in connection with the exchange for the Series C Preferred Stock, the Series E Preferred Stock and the Series F Preferred Stock will significantly affect the determination of net income (loss) attributable to common shareholders and the weighted average shares outstanding, both of which are used to compute earnings (loss) per share.

•: Issuance to AIG's Shareholders of Warrants to Purchase AIG Common Stock: Immediately after the Closing, AIG will issue to the holders of AIG Common Stock prior to the Closing, by means of a dividend, 10-year warrants to purchase up to 75 million shares of AIG Common Stock in the aggregate at an exercise price of $45.00 per share.
•: Exchange of Equity Units: On October 8, 2010 AIG commenced a registered exchange offer in which it has offered shares of AIG Common Stock and cash for AIG's equity units mandatorily exchangeable for shares of AIG Common Stock that it previously issued in May 2008.
•: The Department of the Treasury's Outstanding Warrants: The outstanding warrants currently held by the Department of the Treasury will remain outstanding following the Recapitalization, but no adjustment will be made to the terms of the warrants as a result of the Recapitalization.

These transactions contemplated by the Recapitalization are subject to the negotiation and execution of definitive documentation, whose terms may differ from those described above, and include the following material conditions:

•: the Recapitalization transactions will generate aggregate proceeds sufficient to repay all amounts owing under the FRBNY Credit Facility;
•: the FRBNY will not hold SPV Preferred Interests having an aggregate liquidation preference in excess of $6 billion;
•: AIG and the primary insurance companies of Chartis and SunAmerica shall have rating profiles reasonably acceptable to the FRBNY, the Department of the Treasury, the Trust and AIG;
•: AIG shall have in place at the Closing available cash and third party financing commitments in amounts and on terms reasonably acceptable to the FRBNY, the Department of the Treasury and AIG;
•: AIG shall have achieved its year-end 2010 targets for the de-risking of AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries (AIGFP); and
•: shareholder, regulatory and other customary approvals.

Sales of Businesses and Specific Asset Dispositions

AIA Initial Public Offering

During the second quarter of 2010, AIG and Prudential plc terminated the AIA purchase agreement entered during the first quarter of 2010, and in accordance with the terms of the purchase agreement, Prudential plc paid AIG a termination fee of $228 million, which was included in Net loss (gain) on sale of divested businesses in the Consolidated Statement of Income (Loss) during the second quarter of 2010. As a result of the termination, AIA is presented as part of continuing operations in the Consolidated Financial Statements (AIA was previously presented as discontinued operations upon the entry into the purchase agreement in the first quarter of 2010). See Note 2 herein for discussion of segment reporting presentation.

On October 29, 2010, AIG completed an initial public offering of 8.08 billion ordinary shares of AIA for aggregate gross proceeds of approximately $20.51 billion. Upon completion of the initial public offering, AIG owned approximately 33 percent of AIA's outstanding shares. Accordingly in the fourth quarter of 2010, AIG will deconsolidate AIA and expects to record a material gain on the transaction. See Note 16 herein for additional information. Under the terms of an agreement with the underwriters, AIG is precluded from selling or hedging

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

any of its remaining shares of AIA until October 18, 2011 and more than half of its remaining shares of AIA until April 18, 2012. Based on AIG's significant continuing involvement, AIA is not being presented as a discontinued operation in the Consolidated Financial Statements at September 30, 2010. At October 29, 2010, the fair value of AIG's retained interest in AIA was approximately $11.8 billion.

Under the Recapitalization Agreement in Principle, net cash proceeds from the AIA public offering will be held in escrow pending the Closing of the transactions contemplated by the Recapitalization Agreement in Principle. Upon the Closing, these cash proceeds will be loaned by AIA SPV to AIG and will be used to repay amounts owing under the FRBNY Credit Facility. If the transactions contemplated by the Recapitalization Agreement in Principle are not completed, AIG expects that the net proceeds would instead be used to pay down the liquidation preference of the AIA SPV Preferred Interests held by the FRBNY, including preferred returns. AIG expects that, unless otherwise agreed with the FRBNY, any excess would then be used to repay any outstanding debt under the FRBNY Credit Facility.

ALICO Sale

On March 7, 2010, AIG and ALICO Holdings LLC (ALICO SPV), a special purpose vehicle formed by AIG, entered into a definitive agreement with MetLife, Inc. (MetLife) for the sale of American Life Insurance Company (ALICO) by ALICO SPV to MetLife, and the sale of Delaware American Life Insurance Company by AIG to MetLife, for consideration then valued at approximately $15.5 billion, consisting of $6.8 billion in cash and the remainder in equity securities of MetLife, subject to closing adjustments. The ALICO sale closed on November 1, 2010. The fair market value of the consideration at closing was approximately $16.2 billion.

On the closing date, as consideration for the ALICO sale, ALICO SPV received net cash consideration of $7.2 billion (which included an upward price adjustment of approximately $400 million pursuant to the terms of the ALICO stock purchase agreement), 78,239,712 shares of MetLife common stock, 6,857,000 shares of newly issued MetLife participating preferred stock convertible into 68,570,000 shares of MetLife common stock upon the approval of MetLife shareholders, and 40,000,000 equity units of MetLife with an aggregate stated value of $3.0 billion. AIG intends to monetize these MetLife securities over time, subject to market conditions, following the lapse of agreed-upon minimum holding periods. AIG expects to record a material gain on the transaction in the fourth quarter.

Under the Recapitalization Agreement in Principle, net cash proceeds from the ALICO sale will be held in escrow pending the Closing of the Recapitalization. Upon the Closing of the transactions contemplated by the Recapitalization Agreement in Principle, these cash proceeds will be loaned by ALICO SPV to AIG and will be used to repay amounts owing under the FRBNY Credit Facility. If the transactions contemplated by the Recapitalization Agreement in Principle are not completed, AIG expects that the cash proceeds would instead be paid to the FRBNY in its capacity as holder of preferred interests in ALICO SPV to reduce the aggregate outstanding liquidation preference of those preferred interests.

Prior to conversion into MetLife common stock, the MetLife participating preferred stock will be entitled to dividends equivalent, on an as-converted basis, to those that may be declared from time to time on MetLife common stock.

Each of the equity units of MetLife has an initial stated amount of $75 and consists of an ownership interest in three series of senior debt securities of MetLife and three stock purchase contracts with a weighted average life of approximately three years. The stock purchase contracts obligate the holder of an equity unit to purchase, and obligate MetLife to sell, a number of shares of MetLife common stock that will be determined based on the market price of MetLife common stock at the scheduled settlement dates under the stock purchase contracts (a minimum of 67,764,000 shares and a maximum of 84,696,000 shares in the aggregate for all equity units, subject to anti-dilution adjustments). The equity units provide for the remarketing of the senior debt securities to fund the purchase price of the MetLife common stock. They also entitle the holder to receive interest payments on the senior debt securities and deferrable contract payments at a combined rate equal to 5% of their stated amount.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The equity units have been placed in escrow as collateral to secure payments, if any, in respect of indemnity obligations owed by ALICO SPV to MetLife under the ALICO stock purchase agreement and other transaction agreements. The escrow collateral will be released to ALICO SPV over a 30-month period, to the extent not used to make indemnity payments or to secure pending indemnity claims submitted by MetLife.

AGF Sale

On August 10, 2010, AIG entered into a definitive agreement to sell 80 percent of American General Finance Inc. (AGF) for $125 million. AIG will retain economic interests of 20 percent in the remaining AGF business and 16 percent of the voting rights. Based on other provisions of the sale, including lack of voting board representation, AIG will not have significant influence and therefore will carry AGF as a cost method investment. AGF has been reclassified as a discontinued operation as AIG is expected to have limited continuing involvement with AGF's operations. As a result of this transaction, AIG recorded an estimated pre-tax loss of approximately $1.9 billion in the third quarter of 2010. The transaction is expected to close by the end of 2010, subject to regulatory approvals and customary closing conditions.

AIG Star and AIG Edison Sale

On September 29, 2010, AIG entered into a definitive agreement with Prudential Financial, Inc. for the sale of its Japan-based insurance subsidiaries, AIG Star and AIG Edison, for total consideration of $4.8 billion, less the principal balance of certain outstanding debt owed by AIG Star and AIG Edison as of the closing date. As of September 30, 2010, the outstanding principal balance of the debt approximated $0.6 billion. In connection with the sale, AIG recorded a goodwill impairment charge of $1.3 billion in the third quarter of 2010. The transaction is expected to close by the end of the first quarter of 2011, subject to regulatory approvals and customary closing conditions.

See Note 3 for discussion of discontinued operations and Note 9 for a discussion of guarantees and indemnifications associated with sales of businesses.

Liquidity of Parent and Subsidiaries

AIG manages liquidity at both the parent and subsidiary levels. AIG expects the parent's primary uses of available cash will be debt service and subsidiary funding.

AIG expects that dividends, distributions, and other payments from subsidiaries will support AIG Parent's liquidity needs. The FRBNY Credit Facility is also expected to continue to be a source of liquidity until the Closing of the Recapitalization transaction, described more fully above, whereby AIG intends to fully repay and terminate the FRBNY Credit Facility. In addition, although the Department of the Treasury Commitment may also be used as a source of funding, primarily to support the capital needs of AIG's insurance company subsidiaries, AIG does not expect to utilize this Commitment for this purpose. Instead, AIG expects to use the Commitment as described under Repurchase and Exchange of the SPV Preferred Interests under Recapitalization above.

In the event the Recapitalization does not close, AIG expects that the FRBNY Credit Facility and the Department of the Treasury Commitment will continue to be available under the existing terms and conditions to support AIG Parent's Liquidity needs.

During the first nine months of 2010, ILFC made substantial progress in addressing its liquidity needs through a combination of new secured and unsecured debt issuances of approximately $8.8 billion and an extension of the maturity date of $2.16 billion of its $2.5 billion revolving credit facility from October 2011 to October 2012. Approximately $4.0 billion of the $4.4 billion in debt issued in the third quarter of 2010 was used to repay loans from AIG. AIG used the $4.0 billion received from ILFC to reduce the principal amount outstanding under the FRBNY Credit Facility. Availability of $318 million of debt issuances is subject to the satisfaction of certain

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

collateralization milestones. In addition, during the nine-month period ended September 30, 2010, ILFC agreed to sell 64 aircraft to third parties, of which 59 aircraft, with an aggregate book value of approximately $2.6 billion, met the criteria to be classified as held for sale. These sales are expected to generate approximately $2.3 billion in gross proceeds during 2010. During the nine-month period ended September 30, 2010, 35 of the 64 aircraft were sold, of which 31 had been classified as held for sale. At September 30, 2010, 28 aircraft were recorded in Assets held for sale on the Consolidated Balance Sheet and the sales are expected to be completed for most of these aircraft during the remainder of 2010.

Certain subsidiaries also have been dependent on the FRBNY and the Department of the Treasury (through AIG) to meet collateral posting requirements, to make debt repayments as amounts come due, and to meet capital or liquidity requirements. AIG expects that collateral posting requirements for AIG's Capital Markets business will continue to be reduced as that business continues to wind down.

AIG Parent has not had access to its traditional sources of financing through the public debt markets since September 2008. AIG anticipates re-entering the long-term debt market in the fourth quarter of 2010.

Management's Assessment and Conclusion

In assessing AIG's current financial position and developing operating plans for the future, management has made significant judgments and estimates with respect to the potential financial and liquidity effects of AIG's risks and uncertainties, including but not limited to:

•: the ability of AIG to complete the transactions with the FRBNY, the Department of the Treasury and the Trust contemplated by the Recapitalization Agreement in Principle;
•: the commitment of the FRBNY and the Department of the Treasury to the orderly restructuring of AIG and their commitment to continuing to work with AIG to maintain its ability to meet its obligations as they come due;
•: the potential adverse effects on AIG's businesses that could result if there are further downgrades by rating agencies, including in particular, the uncertainty of estimates relating to the derivative transactions of Capital Markets, such as estimates of both the number of counterparties who may elect to terminate under contractual termination provisions and the amount that would be required to be paid in the event of a downgrade;
•: the potential for declines in bond and equity markets;
•: the pending sales of AGF, AIG Star and AIG Edison or the potential for delays in asset dispositions and reduction in the anticipated proceeds therefrom;
•: the potential effect on AIG if the capital levels of its regulated and unregulated subsidiaries prove inadequate to support current business plans;
•: the effect on AIG's businesses of continued compliance with the covenants of the FRBNY Credit Agreement and other agreements with the FRBNY and the Department of the Treasury;
•: AIG's highly leveraged capital structure;
•: the effect of the provisions of the Troubled Asset Relief Program (TARP) Standards for Compensation and Corporate Governance and the Determination Memoranda issued by the Office of the Special Master for TARP Executive Compensation with respect to AIG's compensation practices and structures on AIG's ability to retain and motivate key employees or hire new employees;
•: the potential that loss of key personnel could reduce the value of AIG's business and impair its ability to stabilize businesses and effect a successful asset disposition plan; and

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•: the potential for regulatory limitations on AIG's business in one or more countries, including as a result of the Recapitalization.

Based on the U.S. government's continuing commitment, the already completed transactions with the FRBNY, the closing of the AIA IPO and the sale of ALICO, management's plans and progress made to stabilize AIG's businesses and dispose of certain assets, and after consideration of the risks and uncertainties of such plans, management believes that it will have adequate liquidity to finance and operate AIG's businesses, execute its asset disposition plan and repay its obligations for at least the next twelve months.

In connection with making the going concern assessment and conclusion, management and the Board of Directors of AIG confirmed in connection with the filing in February 2010 of the 2009 Annual Report on Form 10-K that "As first stated by the U.S. Treasury and the Federal Reserve in connection with the announcement of the AIG Restructuring Plan on March 2, 2009, the U.S. Government remains committed to continuing to work with AIG to maintain its ability to meet its obligations as they come due."

AIG's consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or relating to the amounts and classification of liabilities that may be necessary should AIG be unable to continue as a going concern.

It is possible that the actual outcome of one or more of management's plans could be materially different, that one or more of management's significant judgments or estimates about the potential effects of these risks and uncertainties could prove to be materially incorrect and that AIG could fail to complete the Recapitalization. If one or more of these possible outcomes is realized and third party financing and existing liquidity sources, including those from the U.S. Government, are not sufficient, without continued support from the U.S. Government in the future there could exist substantial doubt about AIG's ability to continue as a going concern.

Accounting Policies

Transfers of Financial Assets

Securities purchased (sold) under agreements to resell (repurchase), at contract value: Securities purchased under agreements to resell and Securities sold under agreements to repurchase (other than those entered into by Asset Management's Direct Investment business) generally are accounted for as collateralized borrowing or lending transactions and are recorded at their contracted resale or repurchase amounts plus accrued interest. AIG's Direct Investment business carries such agreements at fair value based on market observable interest rates and credit spreads. AIG's policy is to take possession of or obtain a security interest in securities purchased under agreements to resell.

When AIG does not obtain cash collateral sufficient to fund substantially all of the cost of purchasing identical replacement securities during the term of the contract (generally less than 90 percent of the security value), AIG accounts for the transaction as a sale of the security and reports the obligation to repurchase the security as a derivative contract. Where securities are carried in the available for sale category, AIG records a gain or loss in income. Where changes in fair value of securities are recognized through income, no additional gain or loss is recognized. The fair value of securities transferred under repurchase agreements accounted for as sales was $2.5 billion and $2.3 billion at September 30, 2010 and December 31, 2009, respectively, and the related cash collateral obtained was $1.9 billion and $1.5 billion at September 30, 2010 and December 31, 2009, respectively.

AIG minimizes the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral value and generally requiring additional collateral to be deposited with AIG when necessary.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Securities lending invested collateral, at fair value and Securities lending payable: In 2008, AIG exited the domestic securities lending program, and during the first quarter of 2010, AIG exited its foreign securities lending activities.

Recent Accounting Standards

Accounting Changes

AIG adopted the following accounting standards during the first nine months of 2010:

Accounting for Transfers of Financial Assets

In June 2009, the Financial Accounting Standards Board (FASB) issued an accounting standard addressing transfers of financial assets that removes the concept of a qualifying special-purpose entity (QSPE) from the FASB Accounting Standards Codification and removes the exception that exempted transferors from applying the consolidation rules to QSPEs.

The new standard was effective for interim and annual periods beginning on January 1, 2010 for AIG. Earlier application was prohibited. The adoption of this standard increased both assets and liabilities by approximately $1.3 billion as a result of consolidating two previously unconsolidated QSPEs. The adoption of this new standard did not have a material effect on AIG's consolidated results of operations or cash flows.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued an accounting standard that amends the rules addressing consolidation of certain variable interest entities with an approach focused on identifying which enterprise has the power to direct the activities of a variable interest entity that most significantly affect the entity's economic performance and has (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. The new standard also requires enhanced financial reporting by enterprises involved with variable interest entities.

The following table summarizes the two methods applied by AIG and the amount and classification in the Consolidated Balance Sheet of the assets and liabilities consolidated as a result of the adoption of the new standard on January 1, 2010:

		Transition Methods


(in millions)		Fair Value Option		Carrying Value		Total

Assets:
	Bond trading securities, at fair value	$	1,239	$	1,262	$	2,501
	Mortgage and other loans receivable		-		1,980		1,980
	Other invested assets		-		480		480
	Other asset accounts		194		150		344
	Assets held for sale		4,630		-		4,630

Total Assets		$	6,063	$	3,872	$	9,935

Liabilities:
	FRBNY commercial paper funding facility	$	1,088	$	-	$	1,088
	Other long-term debt		-		1,533		1,533
	Other liability accounts		1		31		32
	Liabilities held for sale		4,525		-		4,525

Total Liabilities		$	5,614	$	1,564	$	7,178

The cumulative effect adjustment of electing the fair value option was not material to AIG's accumulated deficit.

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following table summarizes the excess of amounts previously recorded upon the consolidation of previously unconsolidated VIEs, as a result of the adoption of the new standard on January 1, 2010:

(in billions)



Assets		$	8.2

Liabilities			7.1
Redeemable noncontrolling interest			1.1
Equity:
	Accumulated deficit		0.2
	Accumulated other comprehensive income		(0.3	)
	Other noncontrolling interests		0.1

Total liabilities and equity		$	8.2

In February 2010, the FASB also issued an update to the aforementioned accounting standard that defers the revised consolidation rules for variable interest entities with attributes of, or similar to, an investment company or money market fund. The primary effect of this deferral for AIG is that AIG will continue to apply the consolidation rules in effect before the amended guidance discussed above for its interests in eligible entities, such as certain mutual funds.

Accounting for Embedded Credit Derivatives

In March 2010, the FASB issued an accounting standard that amends the accounting for embedded credit derivative features in structured securities that redistribute credit risk in the form of subordination of one financial instrument to another. The new standard clarifies how to determine whether embedded credit derivative features, including those in collateralized debt obligations (CDOs), credit-linked notes (CLNs), synthetic CDOs and CLNs and other synthetic securities (e.g., commercial and residential mortgage-backed securities issued by securitization entities that wrote credit derivatives), are considered to be embedded derivatives that should be analyzed for potential bifurcation and separate accounting or, alternatively, for fair value accounting in connection with the application of the fair value option to the entire hybrid instrument. AIG adopted the new standard on July 1, 2010 and recorded a reclassification of $256 million of synthetic securities from Bonds available for sale to Bond trading securities and also reclassified a gain of $68 million from Accumulated other comprehensive income to Accumulated deficit as of July 1, 2010. Upon adoption, AIG accounts for its investments in synthetic securities otherwise requiring bifurcation at fair value, with changes in fair value recognized in earnings. The adoption of this new standard did not have a material effect on AIG's consolidated financial condition, results of operations or cash flows.

Future Application of Accounting Standards

Consolidation of Investments in Separate Accounts

In April 2010, the FASB issued an accounting standard that clarifies that an insurance company should not combine any investments held in separate account interests with its interest in the same investment held in its general account when assessing the investment for consolidation. Separate accounts represent funds for which investment income and investment gains and losses accrue directly to the policyholders who bear the investment risk. The standard also provides guidance on how an insurer should consolidate an investment fund in situations in which the insurer concludes that consolidation of an investment is required and the insurer's interest is through its general account in addition to any separate accounts. The new standard is effective for interim and annual periods beginning on January 1, 2011 for AIG. Earlier application is permitted. AIG expects to adopt this new standard on January 1, 2011. AIG does not expect the adoption of this new standard to have a material effect on its consolidated financial condition, results of operations or cash flows.

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts

In October 2010, the FASB issued an accounting standard update that amends the accounting for costs incurred by insurance companies that can be capitalized in connection with acquiring or renewing insurance contracts. The new standard clarifies how to determine whether the costs incurred in connection with the acquisition of new or renewal insurance contracts qualify as deferred acquisition costs. The new standard is effective for interim and annual periods beginning on January 1, 2012 with early adoption permitted. Prospective or retrospective application is permitted. AIG has not determined whether it will adopt this new standard prospectively or retrospectively and is currently assessing the effect of adoption of this new standard on its consolidated financial condition, and results of operations and cash flows.

2. Segment Information

AIG reports the results of its operations through four reportable segments: General Insurance, Domestic Life Insurance & Retirement Services, Foreign Life Insurance & Retirement Services, and Financial Services. AIG evaluates performance based on pre-tax income (loss), excluding results from discontinued operations and net gains (losses) on sales of divested businesses, because AIG believes this provides more meaningful information on how its operations are performing.

In order to align financial reporting with changes made during the third quarter of 2010 to the manner in which AIG's chief operating decision makers review the businesses to make decisions about resources to be allocated and to assess performance, the following changes were made to AIG's segment information.

•: As a result of AIG's entering into an agreement to sell AGF discussed in Note 1 herein, AGF is presented in discontinued operations and is no longer reported as part of the Financial Services segment. Following this classification of AGF as discontinued operations, AIG's remaining consumer finance businesses are now reported in AIG's Other operations category as part of Noncore businesses.
•: As a result of AIG's entering into an agreement to sell AIG Star and AIG Edison, AIG Star and AIG Edison are presented in discontinued operations and are no longer reported as part of the Foreign Life Insurance & Retirement Services segment.
•: During the third quarter of 2010, AIG's Asset Management group undertook the management responsibilities for non-derivative assets and liabilities of the Capital Markets businesses of the Financial Services segment. These assets and liabilities are being managed on a spread basis, in concert with the Matched Investment Program. Accordingly, gains and losses related to these assets and liabilities, primarily consisting of credit valuation adjustment gains and losses are reported in AIG's Other operations category as part of Asset Management — Direct Investment Business.
•: Intercompany interest related to loans from AIG Funding Inc. (AIG Funding) to AIGFP is no longer being allocated to Capital Markets from Other operations.

The remaining Capital Markets derivatives business continues to be reported in the Financial Services segment as part of Capital Markets results.

Prior periods have been revised to conform with the current period presentation for the above changes.

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The following table presents AIG's operations by reportable segment:

		Three Months Ended September 30,						Nine Months Ended September 30,


(in millions)		2010			2009			2010			2009

Total revenues:
	General Insurance	$	9,397		$	9,032		$	27,482		$	25,986
	Domestic Life Insurance & Retirement Services		3,944			2,587			10,147			7,788
	Foreign Life Insurance & Retirement Services		4,021			3,651			10,691			10,803
	Financial Services		1,182			2,406			3,399			5,357
	Other		439			1,987			4,255			7,886
	Consolidation and eliminations		108			(59	)		(360	)		(1,034	)

Total revenues		$	19,091		$	19,604		$	55,614		$	56,786

Income (loss) from continuing operations before income tax expense (benefit):
	General Insurance	$	865		$	682		$	3,226		$	1,763
	Domestic Life Insurance & Retirement Services		998			(222	)		1,413			(1,849	)
	Foreign Life Insurance & Retirement Services		691			531			2,091			1,317
	Financial Services		(89	)		1,150			(267	)		1,532
	Other		(2,506	)		(3,064	)		(3,439	)		(9,025	)
	Consolidation and eliminations		463			406			774			438

Total income (loss) from continuing operations before income tax expense (benefit)		$	422		$	(517	)	$	3,798		$	(5,824	)

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American International Group, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

AIG's Foreign Life Insurance & Retirement Services operations consist of a single internal reporting unit.

As discussed in Note 1 herein, during the first quarter of 2010, AIG entered into an agreement to sell ALICO for approximately $15.5 billion and in the third quarter of 2010, AIG entered into agreements to sell 80 percent of AGF for $125 million and its entire interest in AIG Star and AIG Edison for $4.8 billion. AIG will retain economic interests of 20 percent in the remaining AGF business and 16 percent of the voting rights. Based on other provisions of the sale, including lack of voting board representation, AIG will not have significant influence and therefore will carry AGF as a cost method investment. AGF has been reclassified as a discontinued operation as AIG is expected to have limited continuing involvement with AGF's operations. AIG Star and AIG Edison have also been reclassified as discontinued operations.

In the fourth quarter of 2009, AIG entered into an agreement to sell its 97.57 percent share of Nan Shan for approximately $2.15 billion. On August 31, 2010, the Taiwan Financial Supervisory Commission did not approve the sale of Nan Shan to the purchasers. Although the sale was not approved by regulatory authorities in Taiwan, AIG is pursuing other opportunities to divest Nan Shan and believes the proceeds from the sale of this business will approximate the amount agreed to in the fourth quarter of 2009. In addition, AIG believes it will complete the sale of Nan Shan within 12 months with similar terms and conditions. Therefore, AIG continues to classify Nan Shan as held-for-sale and as a discontinued operation. This is based on management's expressed intent to exit the life insurance market in Taiwan.

The sale of ALICO closed on November 1, 2010 and AIG expects that the AGF sale will close by the end of 2010, and that the AIG Star and AIG Edison sales will close during the first quarter of 2011, in each case subject

to regulatory approvals and customary closing conditions. Similarly, a sale of Nan Shan is expected to close within 12 months. Accordingly, the results of operations for these companies are presented as discontinued operations in AIG's Consolidated Statement of Income (Loss) for all periods presented and the aggregated assets and liabilities are presented separately as single line items in the asset and liability sections of the Consolidated Balance Sheet at September 30, 2010 and at December 31, 2009 for Nan Shan and September 30, 2010 for ALICO, AGF, AIG Star and AIG Edison. ALICO, Nan Shan, AIG Star and AIG Edison previously had been components of the Foreign Life Insurance & Retirement Services reportable segment and AGF previously had been a component of the Financial Services reportable segment.

Certain other sales completed during 2010 and 2009 were not classified as discontinued operations because AIG continued to generate significant direct revenue-producing or cost-generating cash flows from the businesses sold or because associated assets, liabilities and results of operations were not material, individually or in the aggregate, to AIG's consolidated financial position or results of operations.

In accordance with the terms of the FRBNY Credit Facility, net proceeds from dispositions, after taking into account taxes and transaction expenses, to the extent such proceeds do not represent capital of AIG's insurance subsidiaries required for regulatory or ratings purposes, are contractually required to be applied toward the repayment of the FRBNY Credit Facility as mandatory prepayments unless otherwise agreed with the FRBNY. Mandatory prepayments reduce the amount available to be borrowed under the FRBNY Credit Facility by the same amount as the prepayment. In conjunction with anticipated prepayments, an allocation of interest expense, including periodic amortization of the prepaid commitment fee asset, is included in Income (loss) from discontinued operations in the table above.

Interest expense allocated to discontinued operations does not currently give effect to the provisions of the Recapitalization Agreement in Principle discussed in Note 1, as these transactions are subject to the negotiation and execution of definitive documentation. For this reason, no interest allocation to discontinued operations related to the ALICO proceeds was required as the original terms required that proceeds be used to reduce the liquidation preference of the SPV Preferred Interests owned by the FRBNY.

The interest expense allocated to discontinued operations was based on the anticipated net proceeds from the sales of AGF, AIG Star, AIG Edison and Nan Shan multiplied by the daily interest rate on the FRBNY Credit Facility for each respective period. The periodic amortization of the prepaid commitment fee allocated to discontinued operations was determined based on the ratio of funds committed to repay the FRBNY Credit Facility to the total available amount under the FRBNY Credit Facility.

If the Recapitalization is not completed, proceeds from the sale of ALICO will be used to reduce the liquidation preference of a portion of the preferred interests owned by the FRBNY in the special purpose vehicle holding ALICO.

In the third quarter of 2009, AIG entered into an agreement to sell its investment advisory and third party asset management business for $277 million cash at closing plus contingent consideration to be received over time. Prior to the closing of this transaction in the first quarter of 2010, this business was a component of the Asset Management business included within Other operations. This transaction met the criteria for held-for-sale accounting, and the assets and liabilities of this businesses were included as single line items in the asset and liability sections of the Consolidated Balance Sheet at December 31, 2009. This transaction did not meet the criteria for discontinued operations accounting because of a significant continuation of activities between AIG and the business sold.

In the third quarter of 2009, AIG entered into an agreement to combine its consumer finance business in Poland, conducted through AIG Bank Polska S.A., into the Polish consumer finance business of Santander Consumer Finance S.A. (SCB). The transaction closed on June 8, 2010. In exchange, AIG received an equity interest in SCB. Prior to the closing of the transaction, AIG Bank Polska S.A. was a component of the Financial Services reporting segment. This transaction met the criteria for held-for-sale accounting and, as a result, the assets and liabilities of these businesses were included as single line items in the asset and liability sections of the Consolidated Balance Sheet at December 31, 2009. This transaction did not meet the criteria for discontinued operations accounting because of the equity interest in SCB that AIG received in this transaction.

On March 31, 2010, AIG, through a Chartis International subsidiary, purchased additional voting shares in Fuji Fire & Marine Insurance Company Limited (Fuji), a publicly traded Japanese insurance company with property/casualty insurance operations and a life insurance subsidiary. The acquisition of the additional voting shares for $145 million increased Chartis International's total voting ownership interest in Fuji from 41.7 percent to 54.8 percent, which resulted in Chartis International obtaining control of Fuji. This acquisition was made to increase Chartis International's share in the substantial Japanese insurance market, which is undergoing significant consolidation, and to achieve cost savings from synergies.

The purchase was accounted for under the acquisition method. Because the acquisition was completed on March 31, 2010, the initial accounting for the acquisition was incomplete when AIG issued its unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2010. The initial purchase price allocation was based on financial information that was available at the time to identify and estimate certain of the fair values of assets acquired, liabilities assumed, and noncontrolling interests of Fuji as of the acquisition date. During the quarter ended June 30, 2010, Chartis International obtained additional information and revised the purchase price allocation, which included obtaining final appraisals of Fuji's insurance contracts, loans, certain real estate and intangible assets, and retrospectively adjusted the provisional amounts initially recorded. During the quarter ended September 30, 2010, adjustments to the previously reported purchase price allocation as of March 31, 2010 occurred as a result of new information that became known about market conditions in the life insurance industry in Japan that existed as of the acquisition date which, if known, would have reduced the amount recognized by Chartis International as of that date for the fair value of the business acquired (VOBA) of Fuji's life insurance subsidiary by approximately $132 million. Public announcements of

capital raising initiatives during this period in response to new regulatory solvency rules announced by the Japanese regulator prior to the acquisition date but not yet adopted indicated that market participants are managing to the target solvency margin ratios under the new solvency margin rules instead of the current solvency margin rules. As a result, Chartis International revised its target capital assumption in its VOBA calculation based on the new standard. In addition, Chartis International increased the previously reported purchase price allocation as of March 31, 2010 by approximately $11 million as a result of new information received during the quarter ended September 30, 2010 regarding certain assets and liabilities of Fuji.

Additional adjustments to the purchase price allocation as of March 31, 2010 may occur if new information becomes known about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognized as of that date.

The following table summarizes the estimated provisional fair values of major classes of identifiable assets acquired and liabilities assumed as of March 31, 2010 as previously reported and the revised amounts:

During the three months ended March 31, 2010, AIG reported that in accordance with the acquisition method of accounting, Chartis International remeasured its equity interest in Fuji held prior to the acquisition of the additional shares to fair value, which resulted in a $25 million loss in the first quarter of 2010. The loss was recorded in Other realized capital gains (losses) in the Consolidated Statement of Income (Loss). The fair values of AIG's previously-held equity interest and the noncontrolling interest were based on Fuji's publicly-traded share price on the Tokyo Stock Exchange as of the acquisition date. Also during the first quarter of 2010, AIG reported that an insignificant amount of acquisition-related costs, consisting primarily of legal and transaction fees, was recorded in Other expenses in the Consolidated Statement of Income (Loss).

During the quarter ended June 30, 2010, AIG reported that the acquisition resulted in a bargain purchase gain of approximately $406 million, which was included in the Consolidated Statement of Income (Loss). The adjustments to the revised purchase price allocation during the quarter ended September 30, 2010 reduced the bargain purchase gain by approximately $74 million ($121 million before deferred tax benefit of decrease in Fuji Life VOBA of $47 million) to $332 million. AIG will retrospectively revise its results of operations for the three months ended March 31, 2010 when presenting comparative financial information containing that period. Consequently, the bargain purchase gain is included in the Consolidated Statement of Income (Loss) for the nine months ended September 30, 2010, but no portion is included for the three months ended September 30, 2010. The bargain purchase gain is primarily attributable to the depressed market value of Fuji's common stock, which AIG believes is the result of macro-economic, capital market and regulatory factors in Japan coupled with Fuji's financial condition and results of operations. AIG anticipates that the bargain purchase gain will not be subject to U.S. or foreign income tax because the gain would only be recognized for tax purposes upon the sale of the Fuji shares.

The following table summarizes selected amounts from the Consolidated Statement of Income (Loss) for the three months ended March 31, 2010 (recast to present AIA as a continuing operation) revised to present the bargain purchase gain in that period:

Fuji's financial information is reported to Chartis International on a quarter lag. Because the acquisition occurred on March 31, 2010, only revenue and earnings of Fuji for the three months ended June 30, 2010 are included in the Consolidated Statement of Income (Loss) for the three- and nine-month periods ended September 30, 2010.

The following unaudited summarized pro forma consolidated income statement information assumes that the acquisition of Fuji occurred as of January 1, 2009. The pro forma amounts are for comparative purposes only and may not necessarily reflect the results of operations that would have resulted had the acquisition been

completed at the beginning of the applicable period and may not be indicative of the results that will be attained in the future.

AIG measures the following financial instruments at fair value on a recurring basis:

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing, able and knowledgeable market participants at the measurement date.

The degree of judgment used in measuring the fair value of financial instruments generally correlates with the level of pricing observability. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments traded in other-than-active markets or those that do not have quoted prices have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. An active market is one in which transactions for the asset or liability being valued occur with sufficient frequency and volume to provide

pricing information on an ongoing basis. An other-than-active market is one in which there are few transactions, the prices are not current, price quotations vary substantially either over time or among market makers, or in which little information is released publicly for the asset or liability being valued. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction and general market conditions.

Assets and liabilities recorded at fair value in the Consolidated Balance Sheet are measured and classified in a hierarchy for disclosure purposes consisting of three "levels" based on the observability of inputs available in the marketplace used to measure the fair values as discussed below:

The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the levels noted above, and it is the observability of the inputs used that determines the appropriate level in the fair value hierarchy for the respective asset or liability.

A CDS is a derivative contract that allows the transfer of third party credit risk from one party to the other. The buyer of the CDS pays an upfront and/or annual premium to the seller. The seller's payment obligation is triggered by the occurrence of a credit event under a specified reference security and is determined by the loss on that specified reference security. The present value of the amount of the annual and/or upfront premium therefore represents a market-based expectation of the likelihood that the specified reference party will fail to perform on the reference obligation, a key market observable indicator of non-performance risk (the CDS spread).

Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly incorporate counterparty credit risk. Fair values for fixed maturity securities based on internal models incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for similar instruments or other observable information.

The cost of credit protection is determined under a discounted present value approach considering the market levels for single name CDS spreads for each specific counterparty, the mid market value of the net exposure (reflecting the amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided to AIG by an independent third party. AIG utilizes an interest rate based on the benchmark London Interbank Offered Rate (LIBOR) curve to derive its discount rates.

While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential future changes in valuation inputs, AIG believes this approach provides a reasonable estimate of the fair value of the assets and liabilities, including consideration of the impact of non-performance risk.

AIG maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Whenever available, AIG obtains quoted prices in active markets for identical assets at the balance sheet date to measure fixed maturity securities at fair value in its trading and available for sale portfolios. Market price data is generally obtained from dealer markets.

Management is responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions. AIG employs independent third-party valuation service providers to

gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual instruments. When AIG's valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a quote, which is generally non-binding, or by employing widely accepted internal valuation models.

Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted internal valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested under the terms of service agreements. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, benchmark yields, interest rate yield curves, credit spreads, currency rates, and other market-observable information, as applicable. The valuation models take into account, among other things, market observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased.

AIG has processes designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. AIG assesses the reasonableness of individual security values received from valuation service providers through various analytical techniques. In addition, AIG may validate the reasonableness of fair values by comparing information obtained from AIG's valuation service providers to other third-party valuation sources for selected securities. AIG also validates prices for selected securities obtained from brokers through reviews by members of management who have relevant expertise and who are independent of those charged with executing investing transactions.

The methodology above is relevant for all fixed maturity securities; following are discussions of certain procedures unique to specific classes of securities.

For most debt securities issued by government entities, AIG obtains fair value information from independent third-party valuation service providers, as quoted prices are generally only available for limited debt securities issued by government entities. The fair values received from these valuation service providers may be based on a market approach using matrix pricing, which considers a security's relationship to other securities for which a quoted price in an active market may be available, or alternatively based on an income approach, which uses valuation techniques to convert future cash flows to a single present value amount.

For most debt securities issued by corporate entities, AIG obtains fair value information from third-party valuation service providers. For certain corporate debt instruments (for example, private placements) that are not traded in active markets or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability, and such adjustments generally are based on available market evidence. In the absence of such evidence, management's best estimate is used.

Third-party valuation service providers also provide fair value information for the majority of AIG investments in RMBS, CMBS, CDOs and other ABS. Where pricing is not available from valuation service providers, AIG obtains fair value information from brokers. Broker prices may be based on an income approach, which converts expected future cash flows to a single present value amount, with specific consideration of inputs relevant to

structured securities, including ratings, collateral types, geographic concentrations, underlying loan vintages, loan delinquencies, and weighted average coupons and maturities. Broker prices may also be based on a market approach that considers recent transactions involving identical or similar securities. When the volume or level of market activity for an investment in RMBS, CMBS, CDOs or other ABS is limited, certain inputs used to determine fair value may not be observable in the market.

At their inception, ML II and ML III were valued and recorded at the transaction prices of $1 billion and $5 billion, respectively. Subsequently, the Maiden Lane Interests are valued using a discounted cash flow methodology that uses the estimated future cash flows of the Maiden Lane assets. AIG applies model-determined market discount rates to its interests. These discount rates are calibrated to the changes in the estimated asset values for the underlying assets commensurate with AIG's interests in the capital structure of the respective entities. Estimated cash flows and discount rates used in the valuations are validated, to the extent possible, using market observable information for securities with similar asset pools, structure and terms.

The fair value methodology used assumes that the underlying collateral in the Maiden Lane Interests will continue to be held and generate cash flows into the foreseeable future and does not assume a current liquidation of the assets underlying the Maiden Lane Interests. Other methodologies employed or assumptions made in determining fair value for these investments could result in amounts that differ significantly from the amounts reported.

Adjustments to the fair value of AIG's interest in ML II are recorded on the Consolidated Statement of Income (Loss) in Net investment income for AIG's Domestic Life Insurance companies. Adjustments to the fair value of AIG's interest in ML III are recorded on the Consolidated Statement of Income (Loss) in Net investment income and, beginning in the second quarter of 2009, were included in Other operations results, reflecting the contribution to an AIG subsidiary. Prior to the second quarter of 2009, such amounts had been included in Other Parent company results. AIG's Maiden Lane Interests are included in Bond trading securities, at fair value, on the Consolidated Balance Sheet.

As of September 30, 2010, AIG expected to receive cash flows (undiscounted) in excess of AIG's initial investment, and any accrued interest, in the Maiden Lane Interests over the remaining life of the investments after repayment of the first priority obligations owed to the FRBNY. AIG's cash flow methodology considers the capital structure of the collateral securities and their expected credit losses from the underlying asset pools. The fair values of the Maiden Lane Interests are most affected by changes in the discount rates and changes in the underlying estimated future collateral cash flow assumptions used in the valuation model.

The LIBOR interest rate curve changes are determined based on observable prices, interpolated or extrapolated to derive a LIBOR for a specific maturity term as necessary. The spreads over LIBOR for the Maiden Lane Interests (including collateral-specific credit and liquidity spreads) can change as a result of changes in market expectations about the future performance of these investments as well as changes in the risk premium that market participants would demand at the time of the transactions.

Changes in estimated future cash flows would primarily be the result of changes in expectations for defaults, recoveries, and prepayments on underlying loans.

Changes in the discount rate or the estimated future cash flows used in the valuation would alter AIG's estimate of the fair value of the Maiden Lane Interests as shown in the table below.

AIG believes that the ranges of discount rates used in these analyses are reasonable based on implied spread volatilities of similar collateral securities and implied volatilities of LIBOR interest rates. The ranges of estimated future cash flows were determined based on variability in estimated future cash flows implied by cumulative loss estimates for similar instruments. Because of these factors, the fair values of the Maiden Lane Interests are likely to vary, perhaps materially, from the amount estimated.

Equity Securities Traded in Active Markets — Trading and Available for Sale

AIG maximizes the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Whenever available, AIG obtains quoted prices in active markets for identical assets at the balance sheet date to measure at fair value marketable equity securities in its trading and available for sale portfolios. Market price data is generally obtained from exchange or dealer markets.

AIG initially estimates the fair value of equity instruments not traded in active markets, which includes direct private equity investments, by reference to the transaction price. This valuation is adjusted for changes in inputs and assumptions which are corroborated by evidence such as transactions in similar instruments, completed or pending third-party transactions in the underlying investment or comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital structure, offerings in the equity capital markets, and/or changes in financial ratios or cash flows. For equity securities that are not traded in active markets or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or non-transferability and such adjustments generally are based on available market evidence. In the absence of such evidence, management's best estimate is used.

Hedge Funds, Private Equity Funds and Other Investment Partnerships — Other Invested Assets

AIG initially estimates the fair value of investments in certain hedge funds, private equity funds and other investment partnerships by reference to the transaction price. Subsequently, AIG generally obtains the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are generally audited annually. AIG considers observable market data and performs diligence procedures in validating the appropriateness of using the net asset value as a fair value measurement.

Separate account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and are measured at fair value in the manner discussed above for equity securities traded in active markets.

Securities Purchased (Sold) under Agreements to Resell (Repurchase) — AIG estimates the fair value of receivables (payables) arising from securities purchased (sold) under agreements to resell (repurchase) using dealer quotations, discounted cash flow analyses and/or internal valuation models. This methodology considers such factors as the coupon rate, yield curves, prepayment rates and other relevant factors.

Short-term Investments — For short-term investments that are measured at fair value, AIG obtains fair value information from independent third-party valuation service providers. The determination of fair value for these instruments is consistent with the process for fixed maturity securities, as discussed above.

Loans Receivable — AIG estimates the fair value of mortgage and other loans receivable by using dealer quotations, discounted cash flow analyses and/or internal valuation models. The determination of fair value considers inputs such as interest rate, maturity, the borrower's creditworthiness, collateral, subordination, guarantees, past-due status, yield curves, credit curves, prepayment rates, market pricing for comparable loans and other relevant factors.

Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). AIG generally values exchange-traded derivatives using quoted prices in active markets for identical derivatives at the balance sheet date.

OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. AIG generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment.

Certain OTC derivatives trade in less liquid markets with limited pricing information, and the determination of fair value for these derivatives is inherently more difficult. When AIG does not have corroborating market evidence to support significant model inputs and cannot verify the model to market transactions, the transaction price is initially used as the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model value at inception equals the transaction price. Subsequent to initial recognition, AIG updates valuation inputs when corroborated by evidence such as similar market transactions, third party pricing services and/or broker or dealer quotations, or other empirical market data. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used.

The fair value of embedded policy derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts. These cash flow estimates primarily include benefits and related fees assessed, when applicable, and incorporate expectations about policyholder behavior. Estimates of future policyholder behavior are subjective and based primarily on AIG's historical experience. With respect to embedded policy derivatives in AIG's variable annuity contracts, because of the dynamic and complex nature of the expected cash flows, risk neutral valuations are used. Estimating the underlying cash flows for these products involves many estimates and judgments, including those regarding expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and policyholder behavior. With respect to embedded policy derivatives in AIG's equity-indexed annuity and life contracts, option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and determinations on adjusting the participation rate and the cap on equity indexed credited rates in light of market conditions and policyholder behavior assumptions. These methodologies incorporate an explicit risk margin to take into consideration market participant estimates of projected cash flows and policyholder behavior.

AIGFP values AIGFP's CDS transactions written on the super senior risk layers of designated pools of debt securities or loans using internal valuation models, third-party price estimates and market indices. The principal market was determined to be the market in which super senior credit default swaps of this type and size would be transacted, or have been transacted, with the greatest volume or level of activity. AIG has determined that the principal market participants, therefore, would consist of other large financial institutions who participate in sophisticated over-the-counter derivatives markets. The specific valuation methodologies vary based on the nature of the referenced obligations and availability of market prices.

The valuation of the super senior credit derivatives is challenging given the limitation on the availability of market observable information due to the lack of trading and price transparency in the structured finance market. These market conditions have increased the reliance on management estimates and judgments in arriving at an estimate of fair value for financial reporting purposes. Further, disparities in the valuation methodologies employed by market participants and the varying judgments reached by such participants when assessing volatile markets have increased the likelihood that the various parties to these instruments may arrive at significantly different estimates as to their fair values.

AIG's valuation methodologies for the super senior credit default swap portfolio have evolved over time in response to market conditions and the availability of market observable information. AIG has sought to calibrate the methodologies to available market information and to review the assumptions of the methodologies on a regular basis.

Regulatory capital portfolio: In the case of credit default swaps written to facilitate regulatory capital relief, AIG estimates the fair value of these derivatives by considering observable market transactions. The transactions with the most observability are the early terminations of these transactions by counterparties. AIG continues to reassess the expected maturity of the portfolio. AIGFP has not been required to make any payments as part of terminations initiated by counterparties. The regulatory benefit of these transactions for AIGFP's financial institution counterparties is generally derived from the terms of the Capital Accord of the Basel Committee on Banking Supervision (Basel I) that existed through the end of 2007 and which is in the process of being replaced by the Revised Framework for the International Convergence of Capital Measurement and Capital Standards issued by the Basel Committee on Banking Supervision (Basel II). It was expected that financial institution counterparties would have transitioned from Basel I to Basel II by the end of the two-year adoption period on December 31, 2009, after which they would have received little or no additional regulatory benefit from these

CDS transactions, except in a small number of specific instances. However, the Basel Committee announced that it had agreed to keep in place the Basel I capital floors beyond the end of 2009, although it remains to be seen how this extension will be implemented by the various European Central Banking districts. Should certain counterparties continue to receive favorable regulatory capital benefits from these transactions, those counterparties may not exercise their options to terminate the transactions in the expected time frame. In assessing the fair value of the regulatory capital CDS transactions, AIG also considers other market data, to the extent relevant and available. For further discussion, see Note 8 herein.

Multi-sector CDO portfolios: AIG uses a modified version of the Binomial Expansion Technique (BET) model to value AIGFP's credit default swap portfolio written on super senior tranches of multi-sector collateralized debt obligations (CDOs) of ABS, including maturity-shortening puts that allow the holders of the securities issued by certain CDOs to treat the securities as short-term 2a-7 eligible investments under the Investment Company Act of 1940 (2a-7 Puts). The BET model was developed in 1996 by a major rating agency to generate expected loss estimates for CDO tranches and derive a credit rating for those tranches, and remains widely used.

AIG has adapted the BET model to estimate the price of the super senior risk layer or tranche of the CDO. AIG modified the BET model to imply default probabilities from market prices for the underlying securities and not from rating agency assumptions. To generate the estimate, the model uses the price estimates for the securities comprising the portfolio of a CDO as an input and converts those estimates to credit spreads over current LIBOR-based interest rates. These credit spreads are used to determine implied probabilities of default and expected losses on the underlying securities. This data is then aggregated and used to estimate the expected cash flows of the super senior tranche of the CDO.

Prices for the individual securities held by a CDO are obtained in most cases from the CDO collateral managers, to the extent available. CDO collateral managers provided market prices for 62.7 percent of the underlying securities used in the valuation at September 30, 2010. When a price for an individual security is not provided by a CDO collateral manager, AIG derives the price through a pricing matrix using prices from CDO collateral managers for similar securities. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the relationship of the security to other benchmark quoted securities. Substantially all of the CDO collateral managers who provided prices used dealer prices for all or part of the underlying securities, in some cases supplemented by third-party pricing services.

The BET model also uses diversity scores, weighted average lives, recovery rates and discount rates. AIG employs a Monte Carlo simulation to assist in quantifying the effect on the valuation of the CDO of the unique aspects of the CDO's structure such as triggers that divert cash flows to the most senior part of the capital structure. The Monte Carlo simulation is used to determine whether an underlying security defaults in a given simulation scenario and, if it does, the security's implied random default time and expected loss. This information is used to project cash flow streams and to determine the expected losses of the portfolio.

In addition to calculating an estimate of the fair value of the super senior CDO security referenced in the credit default swaps using its internal model, AIG also considers the price estimates for the super senior CDO securities provided by third parties, including counterparties to these transactions, to validate the results of the model and to determine the best available estimate of fair value. In determining the fair value of the super senior CDO security referenced in the credit default swaps, AIG uses a consistent process which considers all available pricing data points and eliminates the use of outlying data points. When pricing data points are within a reasonable range an averaging technique is applied.

Corporate debt/Collateralized loan obligation (CLO) portfolios: In the case of credit default swaps written on portfolios of investment-grade corporate debt, AIG uses a mathematical model that produces results that are closely aligned with prices received from third parties. This methodology is widely used by other market participants and uses the current market credit spreads of the names in the portfolios along with the base correlations implied by the current market prices of comparable tranches of the relevant market traded credit

indices as inputs. One transaction, representing two percent of the total notional amount of the corporate arbitrage transactions, is valued using third party quotes given its unique attributes.

AIG estimates the fair value of its obligations resulting from credit default swaps written on CLOs to be equivalent to the par value less the current market value of the referenced obligation. Accordingly, the value is determined by obtaining third-party quotes on the underlying super senior tranches referenced under the credit default swap contract.

Policyholder contract deposits accounted for at fair value are measured using an earnings approach by taking into consideration the following factors:

The change in fair value of these policyholder contract deposits is recorded as Policyholder benefits and claims incurred in the Consolidated Statement of Income (Loss).

Fair values for securities sold but not yet purchased are based on current market prices. Fair values of spot commodities sold but not yet purchased are based on current market prices of reference spot futures contracts traded on exchanges.

When fair value accounting has been elected, the fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer markets, when available, or discounting expected cash flows using the appropriate discount rate for the applicable maturity. Such instruments are generally classified in Level 2 of the fair value hierarchy as substantially all inputs are readily observable. AIG determines the fair value of structured liabilities and hybrid financial instruments (where performance is linked to structured interest rates, inflation or currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk profile. Such instruments are classified in Level 2 or Level 3 depending on the observability of significant inputs to the model. In addition, adjustments are made to the valuations of both non-structured and structured liabilities to reflect AIG's own credit worthiness based on observable credit spreads of AIG.

The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the levels of the inputs used:

Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. During the three- and nine-month periods ended September 30, 2010, AIG transferred certain assets from Level 1 to Level 2, including approximately $193 million and $264 million, respectively, of investments in U.S. government and government sponsored entities. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. AIG had no significant transfers from Level 2 to Level 1 during the three- and nine-month periods ended September 30, 2010.

The following tables present changes during the three- and nine-month periods ended September 30, 2010 and 2009 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) recorded in the Consolidated Statement of Income (Loss) during those periods related to the Level 3 assets and liabilities that remained on the Consolidated Balance Sheet at September 30, 2010 and 2009:

		Three Months Ended September 30,						Nine Months Ended September 30,


(in millions)		2010			2009			2010			2009

General Insurance
Total revenues:
	Commercial Insurance	$	5,237		$	5,706		$	16,049		$	16,241
	Foreign General Insurance		4,160			3,326			11,433			9,745

Total revenues		$	9,397		$	9,032		$	27,482		$	25,986

Pre-tax income:
	Commercial Insurance	$	517		$	593		$	1,778		$	941
	Foreign General Insurance		348			89			1,448			822

Total pre-tax income		$	865		$	682		$	3,226		$	1,763

Domestic Life Insurance & Retirement Services
Total revenues:
	Domestic Life Insurance	$	2,077		$	1,854		$	5,989		$	5,296
	Domestic Retirement Services		1,867			733			4,158			2,492

Total revenues		$	3,944		$	2,587		$	10,147		$	7,788

Pre-tax income (loss):
	Domestic Life Insurance	$	343		$	230		$	854		$	202
	Domestic Retirement Services		655			(452	)		559			(2,051	)

Total pre-tax income (loss)		$	998		$	(222	)	$	1,413		$	(1,849	)

Financial Services
Total revenues:
	Aircraft Leasing	$	861		$	1,284		$	2,975		$	3,949
	Capital Markets		234			1,027			149			941
	Other, including intercompany adjustments		87			95			275			467

Total revenues		$	1,182		$	2,406		$	3,399		$	5,357

Pre-tax income (loss):
	Aircraft Leasing	$	(214	)	$	307		$	(122	)	$	1,033
	Capital Markets		148			888			(83	)		530
	Other, including intercompany adjustments		(23	)		(45	)		(62	)		(31	)

Total pre-tax income (loss)		$	(89	)	$	1,150		$	(267	)	$	1,532

			Three Months Ended September 30,						Nine Months Ended September 30,


(in millions)			2010			2009			2010			2009

Other
Total revenues:
	Parent & Other		$	(189	)	$	29		$	1,239		$	526
	Mortgage Guaranty			252			292			832			905
	Asset Management:
		Direct Investment Business		66			313			333			202
		Institutional Asset Management		49			(19	)		328			659
	Noncore businesses			11			241			332			4,074
	Change in fair value of ML III			301			1,162			1,410			1,624
	Consolidation and eliminations			(51	)		(31	)		(219	)		(104	)

Total revenues			$	439		$	1,987		$	4,255		$	7,886

Pre-tax loss:
	Parent & Other		$	(2,550	)	$	(2,996	)	$	(4,887	)	$	(7,824	)
	Mortgage Guaranty			(127	)		(465	)		214			(1,433	)
	Asset Management:
		Direct Investment Business		(85	)		136			(114	)		(361	)
		Institutional Asset Management		(36	)		(917	)		(110	)		(1,148	)
	Noncore businesses			(9	)		16			48			117
	Change in fair value of ML III			301			1,162			1,410			1,624

Total pre-tax loss			$	(2,506	)	$	(3,064	)	$	(3,439	)	$	(9,025	)

		Three Months Ended September 30,						Nine Months Ended September 30,


(in millions)		2010			2009			2010			2009

Revenues:
	Premiums and other considerations	$	4,651		$	4,393		$	14,573		$	13,719
	Net investment income		1,515			2,537			5,163			6,151
	Net realized capital gains (losses)		364			(197	)		(63	)		(1,173	)
	Other income		228			599			1,246			1,741

Total revenues			6,758			7,332			20,919			20,438

Benefits, claims and expenses^*			7,151			6,877			23,437			19,383
Interest expense allocation			135			143			407			487

Income (loss) from discontinued operations			(528	)		312			(2,925	)		568

Income (loss) on sales			(1,970	)		-			(2,371	)		-

Income (loss) from discontinued operations, before income tax expense (benefit)			(2,498	)		312			(5,296	)		568

Income tax expense (benefit)			(654	)		218			(967	)		(443	)

Income (loss) from discontinued operations, net of tax		$	(1,844	)	$	94		$	(4,329	)	$	1,011

(in millions)		September 30, 2010		December 31, 2009



Assets:
	Fixed maturity securities	$	157,807	$	34,495
	Deferred policy acquisition costs		17,533		3,322
	Equity securities		8,163		2,947
	Other invested assets		11,224		4,256
	Short-term investments		10,442		3,501
	Separate account assets		3,733		3,467
	Mortgage and other loans receivable, net		8,329		3,997
	Finance receivables, net		15,964		-
	Goodwill		9		25
	Other assets		664		369

Total assets of businesses held for sale			233,868		56,379

Flight equipment^*			974		-

Assets held for sale		$	234,842	$	56,379

Liabilities:
	Future policy benefits for life and accident and health insurance contracts	$	85,865	$	38,023
	Policyholder contract deposits		91,571		3,133
	Separate account liabilities		3,733		3,467
	Other long-term debt		17,464		-
	Other liabilities		10,690		3,976

Total liabilities of businesses held for sale		$	209,323	$	48,599

			At March 31, 2010


(in millions)			As Previously Reported			As Revised

Identifiable net assets:
	Investments		$	10,355		$	10,355
	Cash			14			14
	Premiums and other receivables			752			752
	Reinsurance assets			533			533
	Value of business acquired			173			41
	Real estate and other fixed assets			365			365
	Other assets			89			88
	Liability for unpaid claims and claims adjustment expense			(1,526	)		(1,515	)
	Unearned premiums			(3,128	)		(3,089	)
	Future policy benefits for life and accident and health insurance contracts			(1,968	)		(1,968	)
	Policyholder contract deposits			(24	)		(24	)
	Other policyholder funds			(3,483	)		(3,483	)
	Other liabilities			(811	)		(802	)

Total preliminary identifiable net assets acquired				1,341			1,267
	Less:
		Cash consideration transferred		145			145
		Fair value of the noncontrolling interest		498			498
		Fair value of AIG's previous equity interest in Fuji		292			292

Bargain purchase gain			$	406		$	332

			Three Months Ended March 31, 2010


(dollars in millions, except per share data)			Before Revision^*		As Revised

Total revenues			$	17,852	$	18,184
Income from continuing operations				1,878		2,210
Net income				2,099		2,431
Net income attributable to AIG				1,451		1,783
Net income attributable to AIG common shareholders				294		361
Income per common share attributable to AIG:
	Basic:
		Income from continuing operations	$	1.85	$	2.35
	Diluted:
		Income from continuing operations	$	1.85	$	2.35

		Fair Value Change


Nine Months Ended September 30, 2010 (in millions)		Fair Value Change
Nine Months Ended September 30, 2010 (in millions)		Maiden Lane II			Maiden Lane III

Discount Rates:
	200 basis point increase	$	(131	)	$	(667	)
	200 basis point decrease		150			767
	400 basis point increase		(246	)		(1,248	)
	400 basis point decrease		323			1,653

Estimated Future Cash Flows:
	10% increase		304			850
	10% decrease		(313	)		(852	)
	20% increase		602			1,692
	20% decrease		(637	)		(1,690	)

At September 30, 2010 (in millions)			Level 1		Level 2		Level 3		Counterparty Netting^(a)			Cash Collateral^(b)			Total



Assets:
	Bonds available for sale:
		U.S. government and government sponsored entities	$	334	$	7,304	$	-	$	-		$	-		$	7,638
		Obligations of states, municipalities and Political subdivisions		-		48,468		888		-			-			49,356
		Non-U.S. governments		560		42,360		50		-			-			42,970
		Corporate debt		7		149,137		2,888		-			-			152,032
		Residential mortgage-backed securities (RMBS)		-		22,991		8,035		-			-			31,026
		Commercial mortgage-backed securities (CMBS)		-		3,065		3,541		-			-			6,606
		Collateralized Debt Obligations/Asset Backed Securities (CDO/ABS)		-		2,607		3,963		-			-			6,570

Total bonds available for sale				901		275,932		19,365		-			-			296,198

	Bond trading securities:
		U.S. government and government sponsored entities		93		6,956		-		-			-			7,049
		Obligations of states, municipalities and Political subdivisions		-		316		-		-			-			316
		Non-U.S. governments		-		855		17		-			-			872
		Corporate debt		-		2,824		106		-			-			2,930
		RMBS		-		1,987		98		-			-			2,085
		CMBS		-		2,473		265		-			-			2,738
		CDO/ABS		-		3,725		9,134		-			-			12,859

Total bond trading securities				93		19,136		9,620		-			-			28,849

	Equity securities available for sale:
		Common stock		8,917		29		55		-			-			9,001
		Preferred stock		-		539		56		-			-			595
		Mutual funds		1,298		370		2		-			-			1,670

Total equity securities available for sale				10,215		938		113		-			-			11,266

	Equity securities trading:
		Common stock		941		108		1		-			-			1,050
		Preferred stock		-		1		-		-			-			1
		Mutual funds		4,301		134		-		-			-			4,435

Total equity securities trading				5,242		243		1		-			-			5,486

	Mortgage and other loans receivable			-		178		-		-			-			178
	Other invested assets^(c)			2,267		1,438		8,074		-			-			11,779
	Unrealized gain on swaps, options and forward transactions:
		Interest rate contracts		1		24,896		1,131		-			-			26,028
		Foreign exchange contracts		-		221		14		-			-			235
		Equity contracts		57		387		61		-			-			505
		Commodity contracts		-		123		20		-			-			143
		Credit contracts		-		2		423		-			-			425
		Other contracts		10		702		81		-			-			793
		Counterparty netting and cash collateral		-		-		-		(15,448	)		(5,042	)		(20,490	)

Total unrealized gain on swaps, options and forward transactions				68		26,331		1,730		(15,448	)		(5,042	)		7,639

	Securities purchased under agreements to resell			-		905		-		-			-			905
	Short-term investments			4,408		13,774		-		-			-			18,182
	Separate account assets			55,384		2,825		-		-			-			58,209
	Other assets			-		14		-		-			-			14

Total			$	78,578	$	341,714	$	38,903	$	(15,448	)	$	(5,042	)	$	438,705

Liabilities:
	Policyholder contract deposits		$	-	$	-	$	4,763	$	-		$	-		$	4,763
	Securities sold under agreements to repurchase			-		3,242		-		-			-			3,242
	Securities and spot commodities sold but not yet purchased			75		88		-		-			-			163
	Unrealized loss on swaps, options and forward transactions:
		Interest rate contracts		-		19,243		498		-			-			19,741
		Foreign exchange contracts		-		446		1		-			-			447
		Equity contracts		1		393		56		-			-			450
		Commodity contracts		-		126		-		-			-			126
		Credit contracts^(d)		-		32		4,701		-			-			4,733
		Other contracts		-		163		185		-			-			348
		Counterparty netting and cash collateral		-		-		-		(15,448	)		(3,942	)		(19,390	)

Total unrealized loss on swaps, options and forward transactions				1		20,403		5,441		(15,448	)		(3,942	)		6,455

	Trust deposits and deposits due to banks and other depositors			-		15		-		-			-			15
	Other long-term debt			-		12,296		1,004		-			-			13,300

Total			$	76	$	36,044	$	11,208	$	(15,448	)	$	(3,942	)	$	27,938

At December 31, 2009 (in millions)			Level 1		Level 2		Level 3		Counterparty Netting^(a)			Cash Collateral^(b)			Total



Assets:
	Bonds available for sale:
		U.S. government and government sponsored entities	$	146	$	5,077	$	-	$	-		$	-		$	5,223
		Obligations of states, municipalities and Political subdivisions		219		53,270		613		-			-			54,102
		Non-U.S. governments		312		64,519		753		-			-			65,584
		Corporate debt		10		187,337		4,791		-			-			192,138
		Residential mortgage-backed securities (RMBS)		-		21,670		6,654		-			-			28,324
		Commercial mortgage-backed securities (CMBS)		-		8,350		4,939		-			-			13,289
		Collateralized Debt Obligations/Asset Backed Securities (CDO/ABS)		-		2,167		4,724		-			-			6,891

Total bonds available for sale				687		342,390		22,474		-			-			365,551

	Bond trading securities:
		U.S. government and government sponsored entities		394		6,317		16		-			-			6,727
		Obligations of states, municipalities and Political subdivisions		-		371		-		-			-			371
		Non-U.S. governments		2		1,363		56		-			-			1,421
		Corporate debt		-		5,205		121		-			-			5,326
		RMBS		-		3,671		4		-			-			3,675
		CMBS		-		2,152		325		-			-			2,477
		CDO/ABS		-		4,381		6,865		-			-			11,246

Total bond trading securities				396		23,460		7,387		-			-			31,243

	Equity securities available for sale:
		Common stock		7,254		9		35		-			-			7,298
		Preferred stock		-		760		54		-			-			814
		Mutual funds		1,348		56		6		-			-			1,410

Total equity securities available for sale				8,602		825		95		-			-			9,522

	Equity securities trading:
		Common stock		1,254		104		1		-			-			1,359
		Mutual funds		6,460		492		7		-			-			6,959

Total equity securities trading				7,714		596		8		-			-			8,318

	Mortgage and other loans receivable			-		119		-		-			-			119
	Other invested assets^(c)			3,322		8,656		6,910		-			-			18,888
	Unrealized gain on swaps, options and forward transactions			123		32,617		1,761		(19,054	)		(6,317	)		9,130
	Securities purchased under agreements to resell			-		2,154		-		-			-			2,154
	Short-term investments			1,898		22,077		-		-			-			23,975
	Separate account assets			56,165		1,984		1		-			-			58,150
	Other assets			-		18		270		-			-			288

Total			$	78,907	$	434,896	$	38,906	$	(19,054	)	$	(6,317	)	$	527,338

Liabilities:
	Policyholder contract deposits		$	-	$	-	$	5,214	$	-		$	-		$	5,214
	Securities sold under agreements to repurchase			-		3,221		-		-			-			3,221
	Securities and spot commodities sold but not yet purchased			159		871		-		-			-			1,030
	Unrealized loss on swaps, options and forward transactions^(d)			8		24,789		7,826		(19,054	)		(8,166	)		5,403
	Trust deposits and deposits due to banks and other depositors			-		15		-		-			-			15
	Federal Reserve Bank of New York Commercial Paper Funding Facility			-		2,742		-		-			-			2,742
	Other long-term debt			-		12,314		881		-			-			13,195

Total			$	167	$	43,952	$	13,921	$	(19,054	)	$	(8,166	)	$	30,820

(in millions)				Balance Beginning of Period^(a)			Net Realized and Unrealized Gains (Losses) Included in Income^(b)			Accumulated Other Comprehensive Income			Purchases, Sales, Issuances and Settlements-Net^(c)			Transfers^(d)			Activity of Discontinued Operations			Reclassified to Assets of Businesses Held for Sale			Balance End of Period			Changes in Unrealized Gains (Losses) on Instruments Held at End of Period



Three Months Ended September 30, 2010
Assets:
	Bonds available for sale:
		Obligations of states, municipalities and political subdivisions		$	1,086		$	(10	)	$	37		$	(94	)	$	(131	)	$	-		$	-		$	888		$	-
			Non-U.S. governments		42			-			3			4			1			-			-			50			-
			Corporate debt		3,167			(23	)		35			(58	)		(117	)		(66	)		(50	)		2,888			-
			RMBS		7,114			(285	)		609			(223	)		828			46			(54	)		8,035			-
			CMBS		4,576			(185	)		612			(153	)		(391	)		(37	)		(881	)		3,541			-
			CDO/ABS		4,837			14			126			(354	)		(449	)		(64	)		(147	)		3,963			-

Total bonds available for sale					20,822			(489	)		1,422			(878	)		(259	)		(121	)		(1,132	)		19,365			-

	Bond trading securities:
		Non-U.S. governments			7			-			-			16			(6	)		-			-			17			-
		Corporate debt			103			7			-			(4	)		-			-			-			106			3
		RMBS			5			(25	)		-			-			118			-			-			98			(31	)
		CMBS			226			36			-			3			-			-			-			265			29
		CDO/ABS			8,523			496			-			114			1			-			-			9,134			215

Total bond trading securities					8,864			514			-			129			113			-			-			9,620			216

	Equity securities available for sale:
		Common stock			32			(1	)		9			7			7			1			-			55			-
		Preferred stock			53			-			1			2			-			-			-			56			-
		Mutual funds			20			-			1			(11	)		(8	)		-			-			2			-

Total equity securities available for sale					105			(1	)		11			(2	)		(1	)		1			-			113			-

	Equity securities trading:
		Common stock			1			-			-			-			-			-			-			1			-

Total equity securities trading					1			-			-			-			-			-			-			1			-

	Other invested assets				6,780			77			114			(6	)		1,390			153			(434	)		8,074			(67	)
	Separate account assets				1			-			-			-			(1	)		-			-			-			-

Total				$	36,573		$	101		$	1,547		$	(757	)	$	1,242		$	33		$	(1,566	)	$	37,173		$	149

Liabilities:
	Policyholder contract deposits			$	(4,510	)	$	(60	)	$	-		$	(193	)	$	-		$	-		$	-		$	(4,763	)	$	222
	Unrealized loss on swaps, options and forward transactions, net:
		Interest rate contracts			151			(520	)		1			903			98			-			-			633			185
		Foreign exchange contracts			24			5			(2	)		2			-			2			(18	)		13			(4	)
		Equity contracts			-			34			-			(29	)		-			-			-			5			1
		Commodity contracts			17			5			-			(2	)		-			-			-			20			(4	)
		Credit contracts			(4,583	)		208			-			98			(1	)		-			-			(4,278	)		(237	)
		Other contracts			(107	)		11			-			(16	)		8			-			-			(104	)		13

Total unrealized loss on swaps, options and forward transactions, net					(4,498	)		(257	)		(1	)		956			105			2			(18	)		(3,711	)		(46	)

	Other long-term debt				(954	)		(139	)		-			68			21			-			-			(1,004	)		177

Total				$	(9,962	)	$	(456	)	$	(1	)	$	831		$	126		$	2		$	(18	)	$	(9,478	)	$	353