Bob Clyde: We expect the second half to be better than the first half by a few percentage points. We anticipate that on June 25 ALICO Japan launched a new premium medical product called Returns, which has been well received by our agency force and also direct marketing. Direct marketing premiums will take some time to be realized, but the initial response rate to our TV advertising has been good. In addition, ALICO has launched a revitalization plan for agency with renewed emphasis on medical sales. Edison Life has seen increased interest in its cancer products. Star Life continues to produce strong medical sales, as it expands its agency and branch channels. Furthermore, while we continue to rationalize our marketing spend in ALICO Japan over this past year and that has had a dampening effect on sales. It is clearly improving our profitability, which will help drive the bottom line going forward.

Andrew Kligerman: You mentioned that you had strong commercial property, commercial liability rates or results. It was a little weaker in excess casualty and D&O. Could you give a sense of the rates, where they are going, and what is the range right now?

Martin Sullivan: As we mentioned on our first-quarter call, we saw an uptick in competition in April. That continued somewhat through the quarter. Rates domestically were down 7% to 10%; internationally it was in the 10% range. But, we saw a further uptick in competition in the month of July.

Overall, terms and conditions are still holding reasonably well, particularly outside of the US. But we are seeing some pressure on deductibles. It is not a significant change, but it is a little difference in scenario.

Kris Moor: Yes, further on the D&O rates, they were down for the quarter about 10% to 15% and on excess liability down about 8% to 10%. July was a little tougher month. It was the first time our overall portfolio in property went to negative rates, down a few points. The third quarter is heating up a little bit more than the second quarter.

Jay Gelb (Lehman Brothers): On an overall basis on the investment portfolio, can you walk us through the accounting treatment of when AIG may need to take mark-to-market adjustments in the investment portfolio because of the sub-prime issue?

Bob Lewis: We would take a mark-to-market if one of three things were true. One, obviously, if we sold the securities. Two, if we had an intention to sell the securities. Or three, there is a technical provision of the accounting rules called EITF 9920, which generally would apply to only the lower-rated tranches, but which might require a mark-to-market in effect if the anticipated cash flows on a given security were to change in a manner that was deemed to be adverse to the holder. At this point, it is either sale or intent to sell, and we don''t see either of those being a likelihood on this portfolio.

Jay Gelb: On the property casualty side, there continued to be some adverse development in the 2000 year and prior. Could you give a little more color on that and when perhaps you see that trend easing?

Frank Douglas: Yes, we highlighted that again this quarter. It was a little bit heavier than the first quarter, from years 2002 and prior. Excess casualty was about $140 million of that this quarter and about $110 million came from Transatlantic. Most of that, by the way, was also excess casualty. What it largely relates to are latent type of claims, a lot of which wouldn''t hit us today given the changes that have occurred since the soft market. Our current policy forms and underwriting guidelines would eliminate a lot of those claims. We do think the exposure we have for accident years after 2002 to those claims is going to be dramatically less.

As to when they may stop, these claims are not going to go away next quarter. They are latent. The nature of claims such as product aggregates are very hard to predict. They don''t follow a normal loss development pattern, because you don''t have any claim at all until the underlying aggregate is eroded. It''s hard to say exactly when they are going to disappear. But we are many years now removed from the soft cycle and we do expect them to diminish each year as we go forward. This was an adverse quarter. I don''t think this quarter should be regarded as the ongoing expectation.

Tom Cholnoky (Goldman Sachs): In your presentation, you describe some disaster scenarios for your mortgage portfolio. However, on the CDOs, you are wrapping in financial products. Can you go into a little bit more detail of what could cause losses to emerge on some of these CDOs? What economic conditions would we have to have?

Bob Lewis: AIGFP does a considerable amount of modeling on stress scenarios to first determine where the attachment point would be on the writing of a super senior cover. That modeling that is undertaken is intended to stress the underlying values of the collateral pool, which is a diversified portfolio of CDOs, and distress that under extreme economic conditions and after that, to determine that their attachment point would be above that of an extreme condition in the marketplace.

Joe Cassano: The way we model it is we''re looking at a continuous recessionary cycle that lasts for what we anticipate to be the life of the underlying CDO security that we are wrapping. There is a fairly extensive severe recession that needs to go on. But the other thing is the granularity and the diversity within the underlying CDOs; and then the collateralization that takes effect within those CDOs.

Tom Cholnoky: The BBBs has been an area that has been of concern, and maybe 60% coverage might not be enough on these. How should we look at that? Is there something there that we need to worry about? Or are you comfortable that you have handpicked through these as well?

Andy Foster: Absolutely, we handpick them. We are extremely comfortable. The diligence that we did in all of our portfolios was across all of them. If you look at the rash of downgrades that you have seen across all the different collateral in all the different sectors, of our existing CDOs, it is less than 0.5% of all the underlying collateral that is currently on review for a downgrade. You think how many of these have had that negative watch listing. Also, one of the key points to take away is definitely that we stopped this business at the end of 2005. Most of the stresses that people are concerned about are very heavily concentrated in 2006 and 2007. We have almost zero exposure to that. Again, there is almost zero exposure, net exposure after our subordination, to all of that collateral, assuming it was all wiped out tomorrow with zero recovery. We have an extremely small amount of that. Again, it is not just the portfolio construction; it is the structure of the CDOs; and then it is the vintage that we have decided to invest in.

Tom Cholnoky: ALICO recently won a partnership with the Japan Post. How should we look at on a go-forward basis on what that may do for Japan production?

Martin Sullivan: We are in ongoing dialogue with Japan Post on a number of opportunities. We would be in advance of ourselves in giving any color at this moment in time because, it is going to take a period of time for the post office to privatize in its current form. We are working with them in a number of initiatives. When something more concrete is available, we would be happy to disclose that.

William Wilt (Morgan Stanley): Looking at Foreign Life in Asia, operating income was down about 4%. It looked like it all came or most of that came from Life Insurance down about 8% operating income while deposits under considerations was moderately positive. Could you comment on that?

Edmund Tse: Those numbers are somewhat misleading, certainly based on the second quarter. Because this is comparing to last year the same quarter, last year there was a one-off item or adjustment of certain investment income, which was $144 million. If you normalize that, the current quarter''s operating income for Foreign Life is from 3.7% up to 14.3%. Same applies then if you take the Life itself because applying this income more applying just to the life insurance. If you normalize it, then we would have a double-digit operating income increase.

William Wilt: On the second lien mortgage insurance at United Guaranty, there was a reference to stop loss reinsurance. Can you comment on how that works? Is that $2.5 billion or $250 million aggregate stop loss? How close you were to hitting that aggregate stop loss?