- Other accomplishments include obtaining permissions from the Qatar Financial Center to conduct individual and group life as well non-life businesses and setting up a private pension fund administrator in Romania.
- The firm made progress on streamlining the portfolio of businesses, including selling its stake in Allied World Assurance and completing the acquisition of the remainder of 21st Century.

Performance of Business Segments:

- DBG reported operating income of $7.4 billion with a combined ratio of 85.52 and nearly 5 point improvement from the prior year.
- Throughout the year, DBG posted improved underwriting results due to favorable loss trends and a higher net investment income.
- Despite increased competition DBG remained disciplined, taking advantage of opportunities offered by an expensive product set and expanding distribution platform and an innovative culture responsible for an average of one new products of service launched per week in 2007.
- These competitive advantages will enable DBG to identify attractive opportunities that meet our underwriting criteria in a softening property-casualty marketplace.
- Net premiums written declined 4.3% to $5.65 billion compared to the fourth quarter of 2006, primarily due to rate declines in property and most casualty lines, partially offset by premium growth in risk management, environmental and accident & health.

- Foreign General operating income increased 2.2% to $805 million as improved underwriting results were partially offset by a 22.5% decline in net investment income, principally the result of lower partnership income.
- The combined ratio increased to 89.56 from 87.74 in 2006, due to increases in the expense ratio, which included costs for realigning certain entities, principally in the U.K. - Net premiums written increased 5.8% in original currency as primary and excess casualty lines in the corporate sector and accident & health in multiple regions contributed to the increase.
- In 2008 and beyond, Foreign General is particularly well positioned for growth as it continues to shift Personal Lines products mix to a higher margin, non-auto business and to expand private client group operations into new growth markets.

- Personal Lines reported a $184 million operating loss compared to operating income of $79 million in 2006, due to increased loss frequency, California wildfire losses and upfront costs related to the integration of 21st Century.
- The 21st Century integration is progressing well and is on-track to deliver significant cost savings.
- Strong Private Client Group premium growth was offset by declines in the direct and agency auto segments.

- Life Insurance & Retirement Services operating income before net realized capital gains (losses) increased 9.2% to $2.66 billion.
- Sales of universal life picked up due to enhanced unwitting methods at the older ages and continued success from indexed universal life products offerings.
- In addition, the domestic life team is committed to building a presence in the variable life product area, with plans to expand distribution in this markets segment.
- With the addition of Matrix Direct, the firm is aggressively pursuing a direct-response approach, as part of its multi-distribution strategy.

In domestic Retirement Services, individual variable annuity operating income was adversely affected by a change in actuarial estimates related to a system conversion and to a lesser extent of back on lock-in.

- Sales growth should improve in 2008, due to AIG SunAmerica''s competitive living benefit features and initiatives to expand the wholesale organization and warehouse distribution.
- The fixed annuity businesses experienced continued outflows, as a large volume of five-year business came out of that this surrender charge period.
- Surrenders from business written during record sales periods are expected to continue at a higher level in 2008.
- However, the current rate environment should provide for improved deposit and net flows through AIG annuities continued leadership in bank distribution.

Market conditions in Japan are expected to remain challenging, however, on the strength of their multi-products, multi-distribution platform; they are expected to exceed industry growth in the long term.

- The planned integration of AIG Star and AIG Edison anticipated to be completed in 2009 will provide enhanced distribution opportunities and operating efficiencies.
- Going into forward, the firm expects to take advantage of the full deregulation of insurance product sales in banks and privatization of the Japan Post.

- Aircraft Leasing operating income was $248 million, a 51.2% increase compared to 2006, reflecting revenue growth from ILFC’s larger aircraft fleet, higher lease rates and utilization, moderate increases in interest and depreciation expenses.
- Despite the potential for an economic slowdown, the outlook for ILFC remains favorable, as demand for top modern fuel efficient fleet remain strong and all 73 of its 2008 new aircraft deliveries have been placed.
- ILFC also concentrates on placing leases in strengthening regions such as Asia and Asia and the Pacific region has grown to account for 27% of ILFC''s revenues.

- Asset Management operating income before net realized capital gains (losses) was $458 million, an 11.8% decrease compared to the prior year.
- The decrease in operating income was primarily due to the continued run off of the Guaranteed Investment Contract (GIC) business and lower partnership income.
- Institutional Asset Management operating income increased 75.4% due to higher income from gains on real estate sales, increased carried interest and increased fees associated with the growth inclient assets under management.
- These items were partially offset by expenses related to expansion of marketing and distribution capabilities and infrastructure enhancements.
- Total assets under management have grown to more than $750 billion and non-affiliated client assets under management have grown 26% to $94 billion primarily as a result of a diverse robust product line up across all asset classes.

Exposure to Mortgages:

- Market dislocation had an impact on investment valuations, which resulted in realized capital losses in 2007 of $3.6 billion.
- The firm also reported an unrealized depreciation on investments of $8 billion, reducing accumulated other comprehensive income to a still positive $4.4 billion net of tax.
- Of the OTTI loss, $3.1 billion is expected to recover in value and is associated with either an inability to reasonably assert that certain severe declines in valuations are temporary, a lack of intent to hold to recovery or an adverse change in the timing.
- Another $500 million is associated with other than temporary changes in currency valuations and that leaves the remaining $500 million which is associated with credit and structured securities impairments.

The firm had declines in valuation of monoline insurers, commercial mortgage-backed securities and CDOs.

- Sub-prime RMBS holdings totaled $24.1 billion down from $28.6 billion at the end of June and $29.9 billion at the end of September.
- Although the market''s loss expectation has increased, the portfolio has delevered significantly, with an average credit enhancement of 29.6% for the AAA holding.
- The major rating agencies have been downgrading and placing many securities on negative watch during the past six months.
- About $443 million of RMBS securities were downgraded and an additional $3.6 billion were downgraded through February, 25th.
- Of these downgraded securities, $2.7 billion were sub-prime exposures and represented 11% of the total sub-prime holdings.

Commercial Mortgage-Backed Securities or CMBS, holdings are $23.9 billion with close to 89% rated AAA or AA and only 0.2% below investment grade.

- Of the 9% of the CMBS exposure that come from resecuritizations of CMBS and Commercial Real Estate or CRE CDOs two-thirds of the loan underlying these securities are seasoned 25 months or more.
- The CDO portfolio amounts to $4.6 billion, most of which are CDOs of corporate bank loans.
- After write-downs, the portfolio has only $58 million of remaining ABS CDOs with sub-prime exposure and only 1.6% of the holdings in the total portfolio were downgraded.

Update on United Guaranty (UGC):

- As the broad market participates in the cyclical business, UGC''s performance is highly correlated to the fortunes of the housing market.
- The current housing downturn has affected performance in asset quality, but UGC continues to outperform the industry on average.
- Several underwriting and eligibility adjustments being implemented by UGC and their lender customers are improving the quality of new business production.