- At March 31, 2007, General Insurance net loss and loss adjustment reserves totaled $64.03 billion, a $1.40 billion increase from December 31, 2006.
- Net loss development from prior accident years, excluding accretion of discount, was favorable by approximately $131 million. The overall favorable development consisted of approximately $265 million of favorable development from accident years 2003 through 2006, partially offset by approximately $134 million of adverse development from accident years 2002 and prior.

Life Insurance & Retirement Services operating income before realized capital gains (losses) increased 5.1% to $2.54 billion, with Domestic Life Insurance & Retirement Services declining 5.7% and Foreign Life Insurance & Retirement Services increasing 13.9% when compared to the first quarter of 2006.

- Life Insurance & Retirement Services operating income included a charge of $32 million in connection with the adoption of SOP 05-1.
- Foreign Life Insurance & Retirement Services operating income included a $50 million charge related to balance sheet reconciliation remediation activity and a $37 million provision for additional claim expense resulting from the continuing industry-wide regulatory review of claims in Japan. First quarter 2006 results included a $40 million loss on Foreign life insurance''s share of the results of AIG''s consumer finance operation in Taiwan, primarily related to the increase in credit card loan loss reserves.

- Growth in Domestic life insurance operating income was driven by increased partnership income and in-force business growth, partially offset by higher policyholder benefits.
- As expected, retail periodic premium sales of life insurance declined compared to the first quarter of 2006, following pricing and underwriting actions taken to limit investor owned life insurance sales.
- Payout annuities results reflect growth in in-force business and higher call and tender income, while sales of structured settlements and terminal pension funding increased compared to the first quarter of 2006.

- In Domestic Retirement Services, individual fixed annuities operating income declined compared to the prior year''s first quarter, largely due to higher deferred acquisition cost (DAC) amortization as a result of lower realized capital losses and increased early duration surrenders
- Fixed annuity net flows declined compared to the same period of 2006, reflecting both lower deposits and increased surrenders, caused by interest rate conditions and competition from bank and money market fund products.
- Group retirement products operating income was lower due to spread compression and higher DAC amortization related to increased surrenders and internal replacements of existing contracts upon the successful retention of client assets.

- Results in Foreign life insurance reflect the continued strong sales of U.S. dollar life insurance products in Japan, investment-linked products in Asia, demand for Guaranteed Income Bond products in the U.K. and growth in net investment income from partnerships and unit investment trusts. Personal accident & health premium growth in Asia helped offset increased competition and lower sales of tax-related products in Japan.
- Foreign individual fixed and variable annuity operating income increased compared to the prior year''s first quarter due to higher assets under management, net surrender charge income and lower DAC amortization related to realized capital losses.
- Annuity production in Japan and Korea reflects the continued challenging sales environment, due to increased competition and a weak yen. Product development initiatives include a new guaranteed minimum withdrawal benefit feature introduced to the Japan market last month.

Financial Services operating income before realized capital gains (losses) and the effect of economically effective hedging activities that did not qualify for hedge accounting treatment under FAS 133 or for which hedge accounting was not applied, was $444 million, a decline of 14.3% compared to the first quarter of 2006.

- AIG began applying hedge accounting for certain transactions, primarily in its Capital Markets operations.
- Aircraft Leasing operating income increased 49.6%, as strong lease rates, increased utilization and growth in the ILFC lease portfolio offset the increase in interest expense compared to the first quarter of 2006. First quarter 2006 ILFC operating income included $37 million in charges relating to increased tax and credit reserves and overhaul accruals.
- Transaction volume at AIG Financial Products in equity, commodity and interest rate products slowed compared to a stronger first quarter of 2006, which benefited from a number of sizable realizations. In a transaction-oriented business like Capital Markets, such variability in results is not unusual.

- Consumer Finance operating income declined 57.7% to $74 million compared to the first quarter of 2006. First quarter 2006 results included an $88 million increase in loan loss reserve for the Taiwan credit card business, half of which was allocated to Foreign life insurance.
- In light of evolving market and regulatory developments affecting non-prime mortgage lending, AIG''s domestic consumer finance operations are in ongoing discussions with the Office of Thrift Supervision relating to loans originated in the name of AIG Federal Savings Bank during the period from July 2003 to May 2006.
- Management expects that the application of underwriting criteria developed in consideration of regulatory guidance issued by the banking agencies will result in costs to the domestic consumer finance operations. At this time, management''s best estimate of these costs is $128 million pre-tax, and a charge for this amount has been included in consumer finance operating income for the three months ended March 31, 2007.

- AGF operating income was affected by lower real estate production volumes and margin compression compared to the prior year.
- While delinquency ratios increased compared to the prior year, they remained at historically low levels. These results were partially offset by growth in non-real estate and retail sales receivables.
- Higher revenues from the foreign consumer finance operations, primarily in Poland and Argentina, were offset by increased expenses related to product and branch expansion.

Asset Management operating income, before the effect of consolidated investments that are offset in minority interest expense and realized capital gains (losses), was $786 million compared to $348 million in the first quarter of 2006.

The increase in Guaranteed Investment Contracts operating income was due to a increase in partnership income, largely from a single partnership distribution in the first quarter of 2007.

- Institutional Asset Management results benefited from an increase in carried interest and realized capital gains related to hedge funds as well as private equity and real estate investments.

Operating income from Other Operations, including other realized capital gains (losses) and inter-company eliminations, amounted to a loss of $491 million compared to a loss of $509 million in the first quarter of 2006.

The first quarter 2006 loss included a $61 million out of period charge related to the SICO plans and a one-time $54 million charge related to the C.V. Starr tender offer. Increased earnings from unconsolidated entities and lower unallocated corporate expenses were offset by higher interest expense resulting from increased parent company borrowings.

Second Quarter 2007 Outlook

The unfavorable comparison to 2006 will continue through the second quarter’s results. The company is taking action to drive sales growth by introducing market leading products such as an index universal life policy that offers a diversity of three external globally indices and a term-life product with flexible period options.

Key questions from the first quarter earnings call conducted by American International Group, Inc. on May 11, 2007.

Jimmy Bhullar (J.P. Morgan): Could you talk about lien businesses and how those are developing?

Frank Douglas: The developments were spread across DBG for January aligns. They are mostly short tail lines of business but the favorable development did include some long tail classes as well. Not so significant that the company felt it to be disclosed. Healthcare, for example, had a favorable development, about $30 million, D&O about $20 million, other E&S classes about $15 million, and the rest is spread around in relatively small amounts, $5 to $10 million across many different classes. It was a well-balanced emergence across the recent accident years.

Jimmy Bhullar (J.P. Morgan): In April you expected sales of the new term life policies to increase in Japan because of the tax rule change. How much these policies have contributed to sales in Japan in the past and what do you expect the impact to be going forward?