8-KOther Events

AMERICAN INTERNATIONAL GROUP, INC. 8-K Report, Corporate Update (Dec 7, 2007)

Filed December 7, 2007For Securities:AIG

Summary

This Form 8-K filing from American International Group (AIG) on December 7, 2007, provides an update on the company's exposure to the U.S. residential mortgage market, a critical disclosure given the extreme market conditions at the time. AIG held an investor meeting to discuss these exposures in greater detail, anticipating ongoing market volatility and fluctuations in the fair value of its positions. The key takeaway for investors is AIG's preliminary assessment of losses related to its super senior credit default swap (CDS) portfolio and its Residential Mortgage-Backed Securities (RMBS) investment portfolio. The company signaled potential further declines in the fair value of its super senior CDS, estimating an additional $500 million to $600 million decline as of November 30, 2007, bringing the total estimated decline since September 30, 2007, to approximately $1.05 billion to $1.15 billion. While AIG believes it's highly unlikely to be required to make payments on these derivatives, the valuation remains sensitive to market conditions. Furthermore, AIG's RMBS portfolio faced an estimated additional gross unrealized loss of approximately $1.9 billion in November, with an aggregate change of approximately $2.6 billion for the first two months of the fourth quarter. Investors should note that these figures are preliminary and subject to significant fluctuations.

Key Highlights

  • 1AIG held an investor meeting on December 5, 2007, to address its exposures to the U.S. residential mortgage market amidst severe market conditions.
  • 2The company provided updated valuations for its super senior credit default swap (CDS) portfolio, estimating an additional fair value decline of $500 million to $600 million as of November 30, 2007.
  • 3Total estimated fair value decline for the super senior CDS portfolio since September 30, 2007, was approximately $1.05 billion to $1.15 billion.
  • 4AIG stated it remains highly unlikely that AIG Financial Products Corp. (AIGFP) will be required to make payments on these super senior credit derivatives.
  • 5A preliminary estimate of additional gross unrealized losses for AIG's RMBS portfolio in November 2007 was approximately 2 percent, translating to an estimated $1.9 billion.
  • 6The aggregate change in unrealized losses for the RMBS portfolio for the first two months of the fourth quarter (October-November) was estimated at approximately $2.6 billion.
  • 7Two shareholder derivative actions were filed in the Southern District of New York on November 20, 2007, concerning AIG's disclosures related to the sub-prime market crisis.

Frequently Asked Questions

This 8-K filing provides an update on American International Group's (AIG) exposure to the U.S. residential mortgage market and related financial instruments, specifically its super senior credit default swap (CDS) portfolio and Residential Mortgage-Backed Securities (RMBS) investment portfolio, due to extreme market conditions experienced in late 2007.

AIG estimated an additional fair value decline of $500 million to $600 million for its super senior CDS portfolio as of November 30, 2007. Additionally, its RMBS portfolio faced an estimated $1.9 billion in additional gross unrealized losses during November 2007, with a cumulative estimated change in unrealized losses of $2.6 billion for October and November 2007.

Despite the estimated declines in fair value, AIG continues to believe that it is highly unlikely that AIG Financial Products Corp. (AIGFP) will be required to make payments with respect to these super senior credit derivatives.

No, the financial information provided is preliminary and subject to significant fluctuations. AIG emphasized that fair value estimates are difficult to ascertain due to market conditions and limited data, and these figures could change materially. AIG does not intend to provide further updates until its fourth quarter 2007 earnings announcement.