Table of Contents

UNITED STATES

---

FORM 10-Q

[ X ]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OR

[   ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

For the Transition Period From                     to                     

For Quarter Ended March 31, 2002 Commission File Number 1-8787

---

AMERICAN INTERNATIONAL GROUP, INC.

Delaware (State or other jurisdiction of incorporation or organization)		13-2592361 (I.R.S. Employer Identification Number)
70 Pine Street, New York, New York (Address of principal executive offices)		10270 (Zip Code)
Registrant’s telephone number, including area code (212) 770-7000
NONE Former name, former address and former fiscal year, if changed since last report.

---

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  [ X ]	NO  [     ]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of March 31, 2002: 2,612,901,858.

---

---

CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF INCOME
CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
NOTES TO FINANCIAL STATEMENTS
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II -- OTHER INFORMATION
SIGNATURES
EXHIBIT INDEX
EX-12: STATEMENT RE. COMPUTATION OF RATIOS

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC.

						March 31,				December 31,
						2002				2001
ASSETS:
	Investments, financial services assets and cash:
		Fixed maturities:
			Bonds available for sale, at market value (amortized cost: 2002 — $203,306; 2001 — $196,111)			$	205,260			$	199,774
			Bond trading securities, at market value (cost: 2002 — $868; 2001 — $844)				867				842
		Equity securities:
			Common stocks (cost: 2002 — $7,256; 2001 — $6,963)				6,713				6,188
			Non-redeemable preferred stocks (cost: 2002 — $1,854; 2001 — $1,840)				1,690				1,749
		Mortgage loans on real estate, net of allowance (2002 — $115; 2001 — $114)					10,842				10,774
		Policy Loans					5,337				5,786
		Collateral and guaranteed loans, net of allowance (2002 — $23; 2001 — $23)					1,489				1,532
		Financial services assets:
			Flight equipment primarily under operating leases, net of accumulated depreciation (2002 — $3,709; 2001 — $3,492)				24,196				22,710
			Securities available for sale, at market value (cost: 2002 — $18,114; 2001 — $17,793)				18,121				17,801
			Trading securities, at market value				4,767				5,733
			Spot commodities, at market value				346				352
			Unrealized gain on interest rate and currency swaps, options and forward transactions				10,190				11,493
			Trading assets				4,339				6,234
			Securities purchased under agreements to resell, at contract value				22,103				21,681
			Finance receivables, net of allowance (2002 — $488; 2001 — $532)				13,685				13,955
		Other invested assets					24,142				22,704
		Short-term investments, at cost (approximates market value)					13,221				7,392
		Cash					1,148				698
				Total investments, financial services assets and cash			368,456				357,398
	Investment income due and accrued						3,855				3,682
	Premiums and insurance balances receivable, net of allowance (2002 — $224; 2001 — $208)						12,722				11,647
	Reinsurance assets, net of allowance						29,181				28,758
	Deferred policy acquisition costs						18,453				17,443
	Investments in partially-owned companies						922				902
	Real estate and other fixed assets, net of accumulated depreciation (2002 — $3,668; 2001 — $3,532)						4,737				4,833
	Separate and variable accounts						52,981				51,954
	Goodwill						6,093				6,102
	Other assets						10,156				10,263
				Total assets		$	507,556			$	492,982

See Accompanying Notes to Financial Statements.

1

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC.

CONSOLIDATED BALANCE SHEET — (continued)

					March 31,				December 31,
					2002				2001
LIABILITIES:
	Reserve for losses and loss expenses				$	45,012			$	44,792
	Reserve for unearned premiums					14,160				13,148
	Future policy benefits for life and accident and health insurance contracts					64,681				64,998
	Policyholders’ contract deposits					126,421				119,402
	Other policyholders’ funds					6,778				7,611
	Reserve for commissions, expenses and taxes					3,249				3,381
	Insurance balances payable					3,680				3,207
	Funds held by companies under reinsurance treaties					2,813				2,685
	Income taxes payable:
		Current				752				405
		Deferred				2,648				2,881
	Financial services liabilities:
		Borrowings under obligations of guaranteed investment agreements				15,309				16,392
		Securities sold under agreements to repurchase, at contract value				11,587				11,818
		Trading liabilities				3,501				4,372
		Securities and spot commodities sold but not yet purchased, at market value				8,189				8,331
		Unrealized loss on interest rate and currency swaps, options and forward transactions				6,882				8,813
		Trust deposits and deposits due to banks and other depositors				2,250				2,290
		Commercial paper				7,889				8,416
		Notes, bonds and loans payable				35,369				33,643
	Commercial paper					3,954				3,476
	Notes, bonds, loans and mortgages payable					3,982				3,804
	Separate and variable accounts					52,981				51,954
	Minority interest					1,554				1,509
	Other liabilities					29,077				21,302
			Total liabilities			452,718				438,630
	Preferred shareholders’ equity in subsidiary companies					2,163				2,202
CAPITAL FUNDS:
	Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2002 — 2,751,327,476; 2001 — 2,750,237,554					6,878				6,876
	Additional paid-in capital					691				669
	Retained earnings					49,088				47,218
	Accumulated other comprehensive income (loss)					(2,828	)			(1,725	)
	Treasury stock, at cost; 2002 — 138,425,618; 2001 — 134,805,555 shares of common stock					(1,154	)			(888	)
			Total capital funds			52,675				52,150
			Total liabilities, preferred shareholders’ equity in subsidiary companies and capital funds		$	507,556			$	492,982

See Accompanying Notes to Financial Statements.

2

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC.

				Three Months
				Ended March 31,
				2002				2001
General insurance operations:
	Net premiums written			$	6,334			$	4,865
	Change in unearned premium reserve				(827	)			(143	)
	Net premiums earned				5,507				4,722
	Net investment income				745				716
	Realized capital gains (losses)				(122	)			(21	)
					6,130				5,417
	Losses and loss expenses incurred				4,143				3,572
	Underwriting expenses				1,054				894
					5,197				4,466
	Operating income				933				951
Life insurance operations:
	Premium income				4,783				4,369
	Net investment income				2,903				2,689
	Realized capital gains (losses)				(29	)			(18	)
					7,657				7,040
	Death and other benefits				2,525				2,061
	Increase in future policy benefits				2,499				2,549
	Acquisition and insurance expenses				1,306				1,293
					6,330				5,903
	Operating income				1,327				1,137
Financial services operating income					474				430
Retirement savings & asset management operating income					300				270
Other realized capital gains (losses)					(81	)			(47	)
Other income (deductions) — net					6				59
Income before income taxes, minority interest and cumulative effect of an accounting change					2,959				2,800
Income taxes — Current					628				471
— Deferred					264				355
					892				826
Income before minority interest and cumulative effect of an accounting change					2,067				1,974
Minority interest					(87	)			(113	)
Income before cumulative effect of an accounting change					1,980				1,861
Cumulative effect of an accounting change, net of tax					0				(6	)
Net income				$	1,980			$	1,855
Earnings per common share:
	Basic
		Income before cumulative effect of an accounting change		$	0.76			$	0.71
		Net income		$	0.76			$	0.71
	Diluted
		Income before cumulative effect of an accounting change		$	0.75			$	0.70
		Net income		$	0.75			$	0.70
Cash dividends per common share				$	0.042			$	0.037
Average shares outstanding:
	Basic				2,615				2,623
	Diluted				2,641				2,651

See Accompanying Notes to Financial Statements.

3

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC.

			Three Months
			Ended March 31,
			2002				2001
Cash Flows From Operating Activities:
Net Income			$	1,980			$	1,855
Adjustments to reconcile net income to net cash provided by operating activities:
	Non-cash revenues, expenses, gains and losses included in income:
	Change in:
	General and life insurance reserves			843				2,009
	Premiums and insurance balances receivable and payable — net			(602	)			191
	Reinsurance assets			(423	)			(889	)
	Deferred policy acquisition costs			(1,010	)			(26	)
	Investment income due and accrued			(173	)			162
	Funds held under reinsurance treaties			129				(23	)
	Other policyholders’ funds			(833	)			95
	Current and deferred income taxes — net			611				533
	Reserve for commissions, expenses and taxes			(132	)			161
	Other assets and liabilities — net			2,724				773
	Trading assets and liabilities — net			1,024				460
	Trading securities, at market value			966				583
	Spot commodities, at market value			6				(120	)
	Net unrealized gain on interest rate and currency swaps, options and forward transactions			(628	)			(861	)
	Securities purchased under agreements to resell			(422	)			(664	)
	Securities sold under agreements to repurchase			(231	)			288
	Securities and spot commodities sold but not yet purchased, at market value			(142	)			(409	)
Realized capital (gains) losses				232				86
Equity in income of partially-owned companies and other invested assets				(26	)			(92	)
Depreciation expenses, principally flight equipment				388				293
Change in cumulative translation adjustments				(270	)			(62	)
Provision for finance receivable losses				85				18
Other — net				433				(545	)
Total Adjustments				2,549				1,961
Net cash provided by operating activities			$	4,529			$	3,816

See Accompanying Notes to Financial Statements.

4

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS — (Continued)

			Three Months Ended
			March 31,
			2002				2001
Cash Flows From Investing Activities:
	Cost of bonds, at market sold		$	22,356			$	15,560
	Cost of bonds, at market matured or redeemed			2,921				1,766
	Cost of equity securities sold			1,454				1,473
	Realized capital gains (losses)			(232	)			(86	)
	Purchases of fixed maturities			(32,538	)			(22,653	)
	Purchases of equity securities			(1,766	)			(1,396	)
	Mortgage, policy and collateral loans granted			(618	)			(477	)
	Repayments of mortgage, policy and collateral loans			1,043				264
	Sales of securities available for sale			830				1,298
	Maturities of securities available for sale			299				237
	Purchases of securities available for sale			(1,435	)			(3,044	)
	Sales of flight equipment			37				1
	Purchases of flight equipment			(1,741	)			(1,256	)
	Net additions to real estate and other fixed assets			(74	)			(94	)
	Sales or distributions of other invested assets			1,243				986
	Investments in other invested assets			(1,746	)			(1,492	)
	Change in short-term investments			(1,674	)			(3,527	)
	Investments in partially-owned companies			20				(46	)
	Finance receivable originations and purchases			(2,216	)			(2,123	)
	Finance receivable principal payments received			2,402				1,969
	Other — net			—				(59	)
Net cash used in investing activities				(11,435	)			(12,699	)
Cash Flows From Financing Activities:
	Change in policyholders’ contract deposits			7,019				2,288
	Change in trust deposits and deposits due to banks and other depositors			(40	)			337
	Change in commercial paper			(49	)			4,853
	Proceeds from notes, bonds, loans and mortgages payable			4,673				5,768
	Repayments on notes, bonds, loans and mortgages payable			(2,775	)			(4,034	)
	Proceeds from guaranteed investment agreements			1,338				1,914
	Maturities of guaranteed investment agreements			(2,421	)			(1,690	)
	Redemption of subsidiary company preferred stock			(34	)			(185	)
	Proceeds from common stock issued			65				25
	Cash dividends to shareholders			(110	)			(206	)
	Acquisition of treasury stock			(314	)			(265	)
	Other — net			4				30
Net cash provided by financing activities				7,356				8,835
Change in cash				450				(48	)
Cash at beginning of period				698				522
Cash at end of period			$	1,148			$	474

See Accompanying Notes to Financial Statements.

5

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC.

				Three Months
				Ended March 31,
				2002				2001
Net income				$	1,980			$	1,855
Other comprehensive income:
	Unrealized (depreciation) appreciation of investments — net of reclassification adjustments				(1,405	)			1,776
		Deferred income tax benefit (expense) on changes			521				(548	)
	Foreign currency translation adjustments(a)				(276	)			(98	)
		Applicable income tax benefit on changes			29				22
	Net derivative gains (losses) arising from cash flow hedging activities				96				(180	)
		Deferred income tax (expense) benefit on changes			(38	)			8
	Retirement plan liability adjustment, net of tax				(30	)			—
	Cumulative effect of an accounting change, net of tax (b)				—				150
	Cumulative effect of an accounting change, net of tax (c)				—				339
Other comprehensive income					(1,103	)			1,469
Comprehensive income				$	877			$	3,324

(a)	Includes insignificant derivative gains and losses arising from hedges of net investments in foreign operations.
(b)	Consists of derivative gains and losses qualifying for cash flow hedging arising from the adoption of FASB 133.

(c)	Represents the unrealized appreciation arising from the transfer of the bonds held to maturity portfolio to the bonds available for sale portfolio in connection with the implementation of FASB 133.

See Accompanying Notes to Financial Statements.

6

---

Table of Contents

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

March 31, 2002

a)	These statements are unaudited. In the opinion of management, all adjustments consisting of normal recurring accruals have been made for a fair statement of the results presented herein. All material intercompany accounts and transactions have been eliminated. Certain accounts have been reclassified in the 2001 financial statements to conform to their 2002 presentation. For further information, refer to the Annual Report on Form 10-K of American International Group, Inc. for the year ended December 31, 2001.
b)	On August 29, 2001, American General Corporation (AGC) was acquired by AIG. In connection with the acquisition, AIG issued approximately 290 million shares of its common stock in exchange for all the outstanding common stock of AGC based on an exchange ratio of 0.5790 of a share of AIG common stock for each share of AGC common stock. The acquisition was accounted for as a pooling of interests and all prior historical financial information presented herein has been restated to include AGC.

	All of the share information included herein reflects the application of the exchange ratio to the number of shares of AGC common stock outstanding at the relevant times rather than the number of shares of AIG common stock actually issued and outstanding at such times.
	The following is a reconciliation of the individual companies combined results for the three months ended March 31, 2001:

		Three Months
		Ended March 31, 2001
		AIG				AGC				Total
		(in millions)
Revenues		$	12,003			$	2,790			$	14,793
Net income		$	1,532			$	323			$	1,855

c)	Earnings per share of AIG are based on the weighted average number of common shares outstanding during the period, retroactively adjusted to reflect all stock splits.

	The quarterly dividend rate per common share, commencing with the dividend paid September 14, 2001 is $0.042.

d)	Cash flow information for the three month periods ended March 31, 2002 and 2001 is as follows:

		2002				2001
		(in millions)
Income taxes paid		$	199			$	216
Interest paid		$	845			$	982

e)	Segment Information:

	The following table summarizes the operations by major operating segment for the three month periods ended March 31, 2002 and 2001 (in millions):

			Operating Segments
			Three Months
			Ended March 31,
			2002				2001
Revenues(1):
	General Insurance		$	6,130			$	5,417
	Life Insurance			7,657				7,040
	Financial Services			1,566				1,515
	Retirement Savings & Asset Management			865				868
	Other			(81	)			(47	)
Total			$	16,137			$	14,793

7

---

Table of Contents

			Operating Segments
			Three Months
			Ended March 31,
			2002				2001
Operating income:
	General Insurance		$	933			$	951
	Life Insurance			1,327				1,137
	Financial Services			474				430
	Retirement Savings & Asset Management			300				270
	Other			(75	)			12
Total			$	2,959			$	2,800

	(1)	Represents the sum of general net premiums earned, life premium income, net investment income, financial services commissions, transaction and other fees, retirement savings & asset management commissions and other fees, and realized capital gains (losses).

	The following table summarizes AIG’s general insurance operations by major reporting group for the three month periods ended March 31, 2002 and 2001 (in millions):

			General Insurance
			Three Months
			Ended March 31,
			2002				2001
Revenues:
	Domestic Brokerage Group		$	3,345			$	2,762
	Transatlantic			600				487
	Personal Lines			688				658
	Mortgage Guaranty			165				146
	Foreign General			1,326				1,358
	Intercompany adjustments and eliminations — net			6				6
Total			$	6,130			$	5,417
Operating income before realized capital gains (losses)(1):
	Domestic Brokerage Group		$	531			$	491
	Transatlantic			72				60
	Personal Lines			23				12
	Mortgage Guaranty			112				102
	Foreign General			311				301
	Intercompany adjustments and eliminations — net			6				6
Total			$	1,055			$	972

	(1)	Realized capital gains (losses) are not deemed to be an integral part of AIG’s general insurance operations’ internal reporting groups.

	The following table summarizes AIG’s life insurance operations by major reporting group for the three month periods ended March 31, 2002 and 2001 (in millions):

			Life Insurance
			Three Months
			Ended March 31,
			2002				2001
Revenues:
	American International Assurance Company Ltd. and Nan Shan Life Insurance Company, Ltd.		$	2,762			$	2,463
	American Life Insurance Company and AIG Star Life			1,758				1,386
	Domestic Life			3,015				3,053
	Other			122				138
Total			$	7,657			$	7,040

8

---

Table of Contents

			Life Insurance
			Three Months
			Ended March 31,
			2002				2001
Operating income before realized capital gains (losses)(1):
	American International Assurance Company Ltd. and Nan Shan Life Insurance Company, Ltd.		$	392			$	363
	American Life Insurance Company and AIG Star Life			313				210
	Domestic Life			632				561
	Other			19				21
Total			$	1,356			$	1,155

	(1)	Realized capital gains (losses) are not deemed to be an integral part of AIG’s life insurance operations’ internal reporting groups.

	The following table summarizes AIG’s financial services operations by major reporting group for the three month periods ended March 31, 2002 and 2001 (in millions):

			Financial Services
			Three Months
			Ended March 31,
			2002				2001
Revenues:
	International Lease Finance Corporation		$	641			$	621
	AIG Financial Products Corp.			272				248
	Consumer Finance			613				616
	Other(*)			40				30
Total			$	1,566			$	1,515
Operating income:
	International Lease Finance Corporation		$	173			$	160
	AIG Financial Products Corp.			176				165
	Consumer Finance			124				106
	Other(*)			1				(1	)
Total			$	474			$	430

	(*)	Including AIG Trading Group Inc.

f)	Computation of Earnings Per Share:

			Three Months
			Ended March 31,
			2002				2001
			(in millions, except
			per share amounts)
Numerator:
Income before cumulative effect of an accounting change			$	1,980			$	1,861
Cumulative effect of an accounting change, net of tax				—				(6	)
Net income (applicable to common stock)			$	1,980			$	1,855
Denominator:
Basic:
Average outstanding shares used in the computation of per share earnings:
	Common stock			2,752				2,789
	Common stock in treasury			(137	)			(166	)
Average outstanding shares — basic				2,615				2,623
Diluted:
Average outstanding shares used in the computation of per share earnings:
	Common stock			2,752				2,789
	Common stock in treasury			(137	)			(166	)
Stock options and stock purchase plan (treasury stock method)				26				28
Average outstanding shares — diluted				2,641				2,651

9

---

Table of Contents

				Three Months
				Ended March 31,
				2002				2001
				(in millions, except
				per share amounts)
Net income per share:
	Basic
		Income before cumulative effect of an accounting change		$	0.76			$	0.71
		Net income		$	0.76			$	0.71
	Diluted
		Income before cumulative effect of an accounting change		$	0.75			$	0.70
		Net income		$	0.75			$	0.70

g)	Acquisition, Restructuring and Related Charges

     During the third quarter of 2001, AGC was consolidated into AIG and charges in connection with this acquisition totaled $1.36 billion for that quarter, including approximately $512 million of direct costs. Of the $512 million, approximately $305 million has been paid as of December 31, 2001 and an additional $52 million has been paid for the three months ended March 31, 2002. The balance is included in Other liabilities.

      Less significant, ongoing costs with respect to the integration of operations will continue to be expensed in future periods as incurred. AIG expects that these ongoing costs will include costs for the integration of computer systems, the training and relocation of certain employees and the consolidation of facilities.

h)	Information Provided in Connection with Outstanding Debt of AGC

     AGC is a wholly-owned subsidiary of AIG. At March 31, 2002, AGC had commercial paper outstanding as well as notes issued. AIG has provided a full and unconditional guarantee of all outstanding debt of AGC.

      At March 31, 2002, the assets of AIG (parent company) approximated $57 billion and the assets of AGC approximated $15 billion. For the three months ended March 31, 2002 and 2001, the net income of AIG, excluding AGC, was approximately $1.5 billion in each period and the net income of AGC was approximately $400 million and $300 million, respectively. See also Note 22 of Notes to Financial Statements in AIG’s Annual Report on Form 10-K for the year ended December 31, 2001, “Information Provided in Connection with Outstanding Debt by AGC”.

      AIG’s liquidity is primarily derived from the operating cash flows of its general and life insurance operations. See also the discussion under “Liquidity” in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

i)	Accounting Standards:

     In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (FASB 142). As of January 1, 2002, AIG adopted FASB 142. FASB 142 requires AIG to discontinue the amortization of goodwill in its consolidated income statement. Amortization expense recorded in AIG’s consolidated statement of income for the three months ended March 31, 2001 amounted to $36 million pre-tax.

      FASB 142 requires goodwill to be subject to an assessment of impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred. FASB 142 also requires the completion of a transitional impairment test in the year of adoption, with any identified impairments recognized as a cumulative effect of a change in accounting principles. AIG believes that the results of its impairment testing will not have any significant impact on its results of operations and financial condition.

      Changes in the carrying amount of goodwill relate primarily to changes in foreign exchange rates affecting goodwill.

10

---

Table of Contents

Cautionary Statement Regarding Forward-Looking Information

      This Quarterly Report on Form 10-Q and other publicly available documents may include, and AIG’s officers and representatives may from time to time make, statements which may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not historical facts but instead represent only AIG’s belief regarding future events, many of which, by their nature, are inherently uncertain and outside of AIG’s control. These statements may address, among other things, AIG’s strategy for growth, product development, regulatory approvals, market position, financial results and reserves. It is possible that AIG’s actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. Important factors that could cause AIG’s actual results to differ, possibly materially, from those in the specific forward-looking statements are discussed throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations. AIG is not under any obligation to (and expressly disclaims any such obligations to) update or alter any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future events or otherwise.

11

---

Table of Contents

Management’s Discussion and Analysis of

      “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is designed to provide the reader with a narrative with respect to AIG’s operations, financial condition and liquidity and certain other significant matters.

Index

		Page
Overview			12
Operational Review			13
Capital Resources			25
Liquidity			29
Insurance Invested Assets			31
Financial Services Invested Assets			33
Derivatives			38
Important Accounting Policies			43
Accounting Standards			43

Overview

Operations

      AIG’s net income in the first three months of 2002 increased 6.7 percent to $1.98 billion when compared to $1.86 billion in the same period of 2001.

      AIG’s operations are conducted principally through four business segments: general insurance, life insurance, financial services and retirement savings & asset management. The following table summarizes the operations of each principal segment for the three month periods ending March 31, 2002 and 2001:

(in millions)

			2002				2001
Revenues:
	General insurance(a)		$	6,130			$	5,417
	Life insurance(b)			7,657				7,040
	Financial services(c)			1,566				1,515
	Retirement savings & asset management(d)			865				868
	Other			(81	)			(47	)
Total			$	16,137			$	14,793
Operating income:
	General insurance		$	933			$	951
	Life insurance			1,327				1,137
	Financial services			474				430
	Retirement savings & asset management			300				270
	Other			(75	)			12
Total			$	2,959			$	2,800

(a)	Represents the sum of net premiums earned, net investment income and realized capital gains (losses).
(b)	Represents the sum of life premium income, net investment income and realized capital gains (losses).
(c)	Represents financial services commissions, transactions and other fees.
(d)	Represents retirement savings & asset management commissions and other fees.

     General Insurance: General insurance operating income declined 1.9 percent as a result of realized capital losses increasing from $21 million for the first three months of 2001 to $122 million in the same period of 2002. Excluding realized capital losses, general insurance operating income increased 8.5 percent, reflecting strong growth in adjusted underwriting profit and continued growth in investment income.

      Life Insurance: Life insurance operating income increased 16.7 percent in the first three months of 2002 compared to the same period in 2001, reflecting operating income growth in each of AIG’s principal life insurance businesses. Excluding realized capital gains (losses), life insurance operating income increased 17.4 percent.

      Financial Services: Financial services operating income increased 10.2 percent for the first three months of 2002 compared to the same period in 2001, reflecting the continued growth of each of its principal operations.

12

---

Table of Contents

      Retirement Savings & Asset Management: Retirement savings & asset management operating income increased 11.1 percent for the first three months of 2002 when compared to the same period in 2001. This growth was principally a result of the operations of The Variable Annuity Life Insurance Company (VALIC).

Capital Resources

      At March 31, 2002, AIG had total capital funds of $52.68 billion and total borrowings of $66.50 billion. At that date, $56.87 billion of such borrowings were either not guaranteed by AIG or were matched borrowings under obligations of guaranteed investment agreements (GIAs) or matched notes and bonds payable.

      During the period from January 1, 2002 through May 10, 2002, AIG repurchased in the open market 6,670,000 shares of its common stock.

Liquidity

      At March 31, 2002, consolidated invested assets were $374.9 billion including $14.4 billion in cash and short-term investments. Consolidated net cash provided from operating activities in the first three months of 2002 amounted to $4.53 billion.

Outlook for the Remainder of 2002

      Premium rates in the General Insurance business are continuing to strengthen both domestically and in key international markets along with policy coverage improvements. In the Life Insurance segment, the integration of AGC and its operations is proceeding well, and AIG expects that many initiatives underway will increase the growth rate of the domestic life insurance operations to complement the growth in the foreign life operations.

Operational Review

General Insurance Operations

      AIG’s general insurance subsidiaries are multiple line companies writing substantially all lines of property and casualty insurance.

      Domestic general insurance operations are comprised of the Domestic Brokerage Group (DBG), which includes The Hartford Steam Boiler Inspection and Insurance Company (HSB); Transatlantic Holdings, Inc. (Transatlantic); Personal Lines, including 21st Century Insurance Group (21st Century); and Mortgage Guaranty.

      DBG is AIG’s primary domestic general division. DBG writes substantially all classes of business insurance, accepting such business mainly from insurance brokers. This provides DBG the opportunity to select specialized markets and retain underwriting control. Any licensed broker is able to submit business to DBG without the traditional agent-company contractual relationship, but such broker usually has no authority to commit DBG to accept a risk.

      Transatlantic offers reinsurance capacity, both domestically and overseas, on treaty and facultative bases. Transatlantic structures traditional and non-traditional programs for a full range of property and casualty products with an emphasis on specialty risk.

      Personal Lines engages in the mass marketing of personal lines insurance, primarily private passenger auto and homeowners and personal umbrella coverages.

      Mortgage Guaranty provides guaranty insurance on conventional first mortgage loans on single family dwellings and condominiums.

      AIG’s Foreign General insurance group accepts risks primarily underwritten through American International Underwriters (AIU), a marketing unit consisting of wholly owned agencies and insurance entities. The Foreign General insurance group also includes business written by AIG’s foreign-based insurance subsidiaries for their own accounts. The Foreign General insurance group uses various marketing methods to write both business and personal lines insurance with certain refinements for local laws, customs and needs. AIU operates in over 70 countries in Asia, the Pacific Rim, Europe, Africa, Middle East and Latin America. (See also Note (e) of Notes to Financial Statements.)

13

---

Table of Contents

      General insurance operations for the three month periods ending March 31, 2002 and 2001 were as follows:

(in millions)

			2002				2001
Net premiums written:
	DBG(*)		$	3,446			$	2,407
	Transatlantic			564				446
	Personal Lines			726				634
	Mortgage Guaranty			122				119
	Foreign General			1,476				1,259
Total			$	6,334			$	4,865
Net premiums earned:
	DBG(*)		$	3,001			$	2,346
	Transatlantic			556				424
	Personal Lines			665				630
	Mortgage Guaranty			122				120
	Foreign General			1,163				1,202
Total			$	5,507			$	4,722
Adjusted underwriting profit (loss):
	DBG(*)		$	113			$	58
	Transatlantic			10				—
	Personal Lines			(6	)			(17	)
	Mortgage Guaranty			70				77
	Foreign General			123				138
Total			$	310			$	256
Net investment income
	DBG		$	418			$	433
	Transatlantic			62				60
	Personal Lines			29				29
	Mortgage Guaranty			42				25
	Intercompany adjustments and eliminations — net			6				6
	Foreign General			188				163
Total			$	745			$	716
Operating income before realized capital gains (losses)
	DBG(*)		$	531			$	491
	Transatlantic			72				60
	Personal Lines			23				12
	Mortgage Guaranty			112				102
	Intercompany adjustments and eliminations — net			6				6
	Foreign General			311				301
Total				1,055				972
Realized capital gains (losses)				(122	)			(21	)
Operating income			$	933			$	951

(*)	Reflects the realignment of certain internal divisions in each year.

     During the first three months of 2002, net premiums written and net premiums earned increased 30.2 percent and 16.6 percent, respectively, from those of 2001. During the first three months of 2002, AIG cancelled or non-renewed approximately $182 million of business worldwide that did not meet AIG’s underwriting standards.

      Commencing in the latter part of 1999 and continuing through 2002, the commercial property-casualty market place has experienced rate increases. Virtually all areas of DBG have experienced rate increases. Overall, DBG’s net premiums written increased $1.04 billion or 43.2 percent in the first three months of 2002 over 2001.

      Personal Lines’ net premiums written increased 14.4 percent or $92 million in the first three months of 2002 from 2001.

      Foreign General insurance net premiums written increased 17.2 percent and net premiums earned decreased 3.2 percent in the first three months of 2002 when compared to the same period of 2001. Foreign General insurance operations produced 23.3 percent of the general insurance net premiums written in the first three months of 2002 and 25.9 percent in 2001.

      In comparing the foreign currency exchange rates used to translate the results of AIG’s foreign general operations during the first three months of 2002 to those foreign currency exchange rates used to translate AIG’s foreign general results during the same period of 2001, the U.S. dollar strengthened in value in relation to most major foreign currencies in which AIG transacts business. Accordingly, when foreign net premiums written were translated into U.S. dollars for the purposes of the preparation of the consolidated financial statements, total general insurance net premiums written were approximately 3.3 percentage points less than they would have been if translated utilizing those foreign currency exchange rates which prevailed during that same period of 2001.

      Net premiums written are initially deferred and earned based upon the terms of the underlying policies. The net unearned premium reserve constitutes deferred revenues which are generally earned ratably over the policy period. Thus, the net unearned premium reserve is not fully recognized as net premiums earned until the end of the policy period.

      AIG, along with most general insurance entities, uses the loss ratio, the expense ratio and the combined ratio as measures of performance. The loss ratio is the sum of losses and loss expenses incurred divided by net premiums earned. The expense ratio is statutory underwriting expenses divided by net premiums written. The combined ratio is the sum of the loss ratio and the expense ratio. These ratios are relative measurements that describe for every $100 of net premiums earned or

14

---

Table of Contents

			2002				2001
Domestic General:
	Loss Ratio			78.42				80.99
	Expense Ratio			18.07				16.50
Combined Ratio				96.49				97.49
Foreign General:
	Loss Ratio			63.36				59.98
	Expense Ratio			28.59				31.00
Combined Ratio				91.95				90.98
Consolidated:
	Loss Ratio			75.24				75.64
	Expense Ratio			20.52				20.25
Combined Ratio				95.76				95.89

      AIG believes that underwriting profit is the true measure of the performance of the core business of a general insurance company.

      Underwriting profit is measured in two ways: statutory underwriting profit and Generally Accepted Accounting Principles (GAAP) underwriting profit.

      Statutory underwriting profit is arrived at by reducing net premiums earned by net losses and loss expenses incurred and net expenses incurred. Statutory accounting differs from GAAP, as statutory accounting requires immediate expense recognition and ignores the matching of revenues and expenses as required by GAAP. That is, for statutory purposes, all expenses, most specifically acquisition expenses, are recognized immediately, not consistent with the revenues earned.

      A basic premise of GAAP accounting is the recognition of expenses at the same time revenues are earned, the principle of matching. Therefore, to convert underwriting results to a GAAP basis, acquisition expenses are deferred and recognized together with the related revenues. Accordingly, the statutory underwriting profit has been adjusted as a result of acquisition expenses being deferred as required by GAAP. Thus, “adjusted underwriting profit” is a GAAP measurement which can be viewed as gross margin or an intermediate subtotal in calculating operating income and net income.

      A major part of the discipline of a successful general insurance company is to produce an underwriting profit, exclusive of investment income. If underwriting is not profitable, losses incurred are a major factor. The result is that the premiums are inadequate to pay for losses and expenses and produce a profit; therefore, investment income must be used to cover underwriting losses. If assets and the income therefrom are insufficient to pay claims and expenses over extended periods, an insurance company cannot survive. For these reasons, AIG views and manages its underwriting operations separately from its investment operations. (See also the discussion under “Liquidity” herein.)

      The adjusted underwriting profit was $310 million for the first three months of 2002 and $256 million for the same period of 2001. This increase was primarily due to the domestic adjusted underwriting profit resulting from the disciplined underwriting of DBG. The underwriting environment varies from country to country, as does the degree of litigation activity. Regulation, product type and competition have a direct impact on pricing and consequently profitability as reflected by adjusted underwriting profit and statutory general insurance ratios.

      AIG did not incur any catastrophe losses in the first three months of 2002. AIG incurred net losses from catastrophes approximating $18 million in the first quarter of 2001. AIG’s gross incurred losses from catastrophes approximated $58 million in the first quarter of 2001. While AIG believes that it has taken appropriate steps to reduce the magnitude of possible future losses, the occurrence of one or more catastrophic events of unanticipated frequency or severity, such as a terrorist attack, earthquake, or hurricane, that causes insured losses could have a material adverse effect on AIG’s results of operations, liquidity or financial condition. Current techniques and models may not accurately predict in the future the probability of catastrophic events and the extent of the resulting losses. Moreover, one or more catastrophe losses could impact negatively AIG’s reinsurers and result in an inability of AIG to collect reinsurance recoverables. The impact of losses caused by catastrophes can fluctuate widely from period to period, making comparisons of recurring type business more difficult. The pro forma table below excludes catastrophe losses in order to present comparable results of AIG’s recurring core underwriting operations. The pro forma consoli-

15

---

Table of Contents

		2002				2001
Loss Ratio			75.24				75.26
Expense Ratio			20.52				20.25
Combined Ratio			95.76				95.51

      AIG’s historic ability to maintain its combined ratio below 100 is primarily attributable to the profitability of AIG’s foreign general insurance operations and AIG’s emphasis on maintaining its disciplined underwriting, especially in the domestic specialty markets. In addition, AIG does not seek net premium growth where rates do not adequately reflect its assessment of exposures.

      General insurance net investment income in the first three months of 2002 increased 4.1 percent when compared to the same period of 2001. The growth in net investment income in 2002 was primarily attributable to new cash flow for investment. The new cash flow was generated from net general insurance operating cash flow and included the compounding of previously earned and reinvested net investment income. (See also the discussion under “Liquidity” herein.)

      General insurance realized capital losses were $122 million and $21 million in the first three months of 2002 and 2001, respectively. These realized capital losses resulted from the ongoing management of the general insurance investment portfolios within the overall objectives of the general insurance operations and arose primarily from the disposition of equity securities and available for sale fixed maturities as well as redemptions of fixed maturities.

      General insurance operating income for the first three months of 2002 decreased 1.9 percent to $933 million. The contribution of general insurance operating income to income before income taxes, minority interest and cumulative effect of an accounting change was 31.5 percent during the first three months of 2002 compared to 34.0 percent in the same period of 2001.

      AIG is a major purchaser of reinsurance for its general insurance operations. AIG is cognizant of the need to exercise good judgment in the selection and approval of both domestic and foreign companies participating in its reinsurance programs. AIG insures general risks in over 70 countries and its reinsurance programs must be coordinated in order to provide AIG the level of reinsurance protection that AIG desires. These reinsurance arrangements do not relieve AIG from its direct obligations to its insureds.

      AIG held general reinsurance assets of $28.13 billion at March 31, 2002 as a result of its reinsurance arrangements. Thus, a credit exposure existed at March 31, 2002 with respect to reinsurance recoverable to the extent that any reinsurer may not be able to reimburse AIG under the terms of these reinsurance arrangements. AIG manages its credit risk in its reinsurance relationships by transacting with reinsurers that it considers financially sound, and when necessary AIG holds substantial collateral in the form of funds, securities and/or irrevocable letters of credit. This collateral can be drawn on for amounts that remain unpaid beyond specified time periods on an individual reinsurer basis. At December 31, 2001, approximately 43 percent of the general reinsurance assets were from unauthorized reinsurers. In order to obtain statutory recognition, nearly all of these balances were collateralized. The remaining 57 percent of the general reinsurance assets were from authorized reinsurers and over 97 percent of such balances are from reinsurers rated A-(excellent) or better, as rated by A.M. Best. This rating is a measure of financial strength. The terms authorized and unauthorized pertain to regulatory categories, not creditworthiness. Through March 31, 2002, these distribution percentages have not changed significantly.

      AIG’s allowance for estimated unrecoverable reinsurance has not changed significantly from December 31, 2001 when AIG had allowances for unrecoverable reinsurance approximating $75 million. At March 31, 2002, AIG had no significant reinsurance recoverables from any individual reinsurer which is financially troubled (e.g., liquidated, insolvent, in receivership or otherwise subject to formal or informal regulatory restriction).

      AIG’s Reinsurance Security Department conducts ongoing detailed assessments of the reinsurance markets and current and potential reinsurers, both foreign and domestic. Such assessments include, but are not limited to, identifying if a reinsurer is appropriately licensed, and has sufficient financial capacity, and the local economic environment in which a foreign reinsurer operates. This department also reviews the nature of the risks ceded and the need for collateral. In addition, AIG’s Credit Risk Committee reviews the credit limits for and concentrations with any one reinsurer.

      AIG enters into certain intercompany reinsurance transactions for its general and life operations.

16

---

Table of Contents

      At March 31, 2002, the consolidated general reinsurance assets of $28.13 billion include reinsurance recoverables for paid losses and loss expenses of $3.90 billion and $18.99 billion with respect to the ceded reserve for losses and loss expenses, including ceded losses incurred but not reported (IBNR) (ceded reserves). The ceded reserves represent the accumulation of estimates of ultimate ceded losses including provisions for ceded IBNR and loss expenses. The methods used to determine such estimates and to establish the resulting ceded reserves are continually reviewed and updated. Any adjustments therefrom are reflected in income currently. It is AIG’s belief that the ceded reserves at March 31, 2002 were representative of the ultimate losses recoverable. In the future, as the ceded reserves continue to develop to ultimate amounts, the ultimate loss recoverable may be greater or less than the reserves currently ceded.

      At March 31, 2002, general insurance reserves for losses and loss expenses (loss reserves) amounted to $45.01 billion. These loss reserves represent the accumulation of estimates of ultimate losses, including IBNR, and loss expenses and amounts of discounting related to certain workers’ compensation claims. At March 31, 2002, general insurance net loss reserves increased $127 million from prior year end to $26.02 billion. The net loss reserves represent loss reserves reduced by reinsurance recoverables, net of an allowance for unrecoverable reinsurance. The methods used to determine such estimates and to establish the resulting reserves are continually reviewed and updated. Any adjustments resulting therefrom are reflected in operating income currently. It is management’s belief that the general insurance net loss reserves are adequate to cover all general insurance net losses and loss expenses at March 31, 2002. In the future, if the general insurance net loss reserves develop deficiently, such deficiency would have an adverse impact on future results of operations.

      In a very broad sense, the general loss reserves can be categorized into two distinct groups: one group being long tail casualty lines of business. Such lines include excess and umbrella liability, directors and officers’ liability, professional liability, medical malpractice, general liability, products’ liability, and related classes. These lines account for approximately one-half of net losses and loss expenses. The other group is short tail lines of business consisting principally of property lines, personal lines and certain classes of casualty lines.

      Estimation of ultimate net losses and loss expenses (net losses) for long tail casualty lines of business is a complex process and depends on a number of factors, including the line and volume of the business involved. In the more recent accident years of long tail casualty lines there is limited statistical credibility in reported net losses. That is, a relatively low proportion of net losses would be reported claims and expenses and an even smaller proportion would be net losses paid. A relatively high proportion of net losses would therefore be IBNR.

      A variety of actuarial methods and assumptions are normally employed to estimate net losses for long tail casualty lines. These methods ordinarily involve the use of loss trend factors intended to reflect the estimated annual growth in loss costs from one accident year to the next. For the majority of long tail casualty lines, net loss trend factors approximated four percent. Loss trend factors reflect many items including changes in claims handling, exposure and policy forms and current and future estimates of monetary inflation and social inflation. Thus, many factors are implicitly considered in estimating the year to year growth in loss costs. Therefore, AIG’s carried net long tail loss reserves are judgmentally set as well as tested for reasonableness using the most appropriate loss trend factors for each class of business. In the evaluation of AIG’s net loss reserves, loss trend factors vary slightly, depending on the particular class and nature of the business involved. These factors are periodically reviewed and subsequently adjusted, as appropriate, to reflect emerging trends which are based upon past loss experience.

      Estimation of net losses for short tail business is less complex than for long tail casualty lines. Loss cost trends for many property lines can generally be assumed to be similar to the growth in exposure of such lines. For example, if the fire insurance coverage remained proportional to the actual value of the property, the growth in the property’s exposure to

17

---

Table of Contents

      For other property and short tail casualty lines, the loss trend is implicitly assumed to grow at the rate that reported net losses grow from one year to the next. The concerns noted above for longer tail casualty lines with respect to the limited statistical credibility of reported net losses generally do not apply to shorter tail lines.

      AIG continues to receive claims asserting injuries from toxic waste, hazardous substances, and other environmental pollutants and alleged damages to cover the cleanup costs of hazardous waste dump sites (hereinafter referred to collectively as environmental claims) and indemnity claims asserting injuries from asbestos. The vast majority of these asbestos and environmental claims emanate from policies written in 1984 and prior years. AIG has established a specialized claims unit which investigates and adjusts all such asbestos and environmental claims. Commencing in 1985, standard policies contained an absolute exclusion for pollution related damage. However, AIG currently underwrites environmental impairment liability insurance on a claims made basis and excluded such claims from the analyses included herein.

      Estimation of asbestos and environmental claims loss reserves is a difficult process. These asbestos and environmental claims cannot be estimated by conventional reserving techniques as previously described. Quantitative techniques frequently have to be supplemented by subjective considerations including managerial judgment. Significant factors which affect the trends which influence the development of asbestos and environmental claims are the inconsistent court resolutions and judicial interpretations which broaden the intent of the policies and scope of coverage. The current case law can be characterized as still evolving and there is little likelihood that any firm direction will develop in the near future. Additionally, the exposure for cleanup costs of hazardous waste dump sites involves issues such as allocation of responsibility among potentially responsible parties and the government’s refusal to release parties.

      In the interim, AIG and other industry members have and will continue to litigate the broadening judicial interpretation of the policy coverage and the liability issues. At the current time, it is not possible to determine the future development of asbestos and environmental claims with the same degree of reliability as is the case for other types of claims. Such development will be affected by the extent to which courts continue to expand the intent of the policies and the scope of the coverage, as they have in the past, as well as by the changes in Superfund and waste dump site coverage issues. Although the estimated liabilities for these claims are subject to a significantly greater margin of error than for other claims, the reserves carried for these claims at March 31, 2002 are believed to be adequate as these reserves are based on the known facts and current law. Furthermore, as AIG’s net exposure retained relative to the gross exposure written was lower in 1984 and prior years, the potential impact of these claims is much smaller on the net loss reserves than on the gross loss reserves. In the future, if the environmental claims develop deficiently, such deficiency would have an adverse impact on future results of operations. (See the previous discussion on reinsurance collectibility herein.)

      The majority of AIG’s exposures for asbestos and environmental claims are excess casualty coverages, not primary coverages. Thus, the litigation costs are treated in the same manner as indemnity reserves. That is, litigation expenses are included within the limits of the liability AIG incurs. Individual significant claim liabilities, where future litigation costs are reasonably determinable, are established on a case basis.

      A summary of reserve activity, including estimates for applicable IBNR, relating to asbestos and environmental claims separately and combined at March 31, 2002 and 2001 was as follows:

(in millions)
		2002								2001
		Gross				Net				Gross				Net
Asbestos:
Reserve for losses and loss expenses at beginning of year		$	1,114			$	312			$	1,100			$	338
Losses and loss expenses incurred			44				27				108				22
Losses and loss expenses paid			(33	)			(15	)			(110	)			(39	)
Reserve for losses and loss expenses at end of period		$	1,125			$	324			$	1,098			$	321
Environmental:
Reserve for losses and loss expenses at beginning of year		$	1,115			$	407			$	1,345			$	517
Losses and loss expenses incurred			(19	)			—				(28	)			(18	)
Losses and loss expenses paid			(35	)			(21	)			(76	)			(27	)
Reserve for losses and loss expenses at end of period		$	1,061			$	386			$	1,241			$	472

18

---

Table of Contents

(in millions)
		2002								2001
		Gross				Net				Gross				Net
Combined:
Reserve for losses and loss expenses at beginning of year		$	2,229			$	719			$	2,445			$	855
Losses and loss expenses incurred			25				27				80				4
Losses and loss expenses paid			(68	)			(36	)			(186	)			(66	)
Reserve for losses and loss expenses at end of period		$	2,186			$	710			$	2,339			$	793

      The gross and net IBNR included in the aforementioned reserve for losses and loss expenses at March 31, 2002 and December 31, 2001 were estimated as follows:

(in millions)

		2002								2001
		Gross				Net				Gross				Net
Combined		$	1,042			$	283			$	1,038			$	278

      A summary of asbestos and environmental claims count activity for the three month periods ended March 31, 2002 and 2001 was as follows:

			2002												2001
			Asbestos				Environmental				Combined				Asbestos				Environmental				Combined
Claims at beginning of year				6,670				9,364				16,034				6,796				11,323				18,119
Claims during year:
	Opened			202				484				686				178				467				645
	Settled			(49	)			(206	)			(255	)			(19	)			(529	)			(548	)
	Dismissed or otherwise resolved			(134	)			(313	)			(447	)			(144	)			(949	)			(1,093	)
Claims at end of period				6,689				9,329				16,018				6,811				10,312				17,123

      The average cost per claim settled, dismissed or otherwise resolved for the three month periods ended March 31, 2002 and 2001 was as follows:

---

		2002								2001
		Gross				Net				Gross				Net
Asbestos		$	180,300			$	82,000			$	674,800			$	239,300
Environmental			67,400				40,500				51,400				18,300
Combined			96,900				51,300				113,300				40,200

      A.M. Best, an insurance rating agency, has developed a survival ratio to measure the number of years it would take a company to exhaust both its asbestos and environmental reserves for losses and loss expenses based on that company’s current level of asbestos and environmental claims payments. This is a ratio derived by taking the current ending losses and loss expense reserves and dividing by the average annual payments for the prior three years. Therefore, the ratio derived is a simplistic measure of an estimate of the number of years it would be before the current ending losses and loss expense reserves would be paid off using recent average payments. The higher the ratio, the more years the reserves for losses and loss expenses cover these claims payments. These ratios are computed based on the ending reserves for losses and loss expenses over the respective claims settlements during the fiscal year. Such payments include indemnity payments and legal and loss adjustment payments. It should be noted, however, that this is an extremely simplistic approach to measuring asbestos and environmental reserve levels. Many factors, such as aggressive settlement procedures, mix of business and level of coverage provided, have significant impact on the amount of asbestos and environmental losses and loss expense reserves, ultimate payments thereof and the resultant ratio.

      The developed survival ratios include both involuntary and voluntary indemnity payments. Involuntary payments are primarily attributable to court judgments, court orders, covered claims with no coverage defenses, state mandated cleanup costs, claims where AIG’s coverage defenses are minimal, and settlements made less than six months before the first trial setting. Also, AIG considers all legal and loss adjustment payments as involuntary.

      AIG believes voluntary indemnity payments should be excluded from the survival ratio. The special asbestos and environmental claims unit actively manages AIG’s asbestos and environmental claims and proactively pursues early settlement of environmental claims for all known and unknown sites. As a result, AIG reduces its exposure to future environmental loss contingencies.

      AIG’s survival ratios for involuntary asbestos and environmental claims, separately and combined, were based upon a three year average pay-

19

---

Table of Contents

---

			2002								2001
			Gross				Net				Gross				Net
Involuntary survival ratios:
	Asbestos			3.1				2.9				1.6				2.3
	Environmental			18.0				13.9				10.3				9.7
	Combined			6.4				6.2				3.4				5.0

      AIG’s operations are negatively impacted under guarantee fund assessment laws which exist in most states. As a result of operating in a state which has guarantee fund assessment laws, a solvent insurance company may be assessed for certain obligations arising from the insolvencies of other insurance companies which operated in that state. AIG generally records these assessments upon notice. Additionally, certain states permit at least a portion of the assessed amount to be used as a credit against a company’s future premium tax liabilities. Therefore, the ultimate net assessment cannot reasonably be estimated. The guarantee fund assessments net of credits for 2001 were $24 million. Based upon current information, AIG does not anticipate that its net assessment will be significantly different in 2002.

      AIG is also required to participate in various involuntary pools (principally workers’ compensation business) which provide insurance coverage for those not able to obtain such coverage in the voluntary markets. This participation is also recorded upon notification, as these amounts cannot reasonably be estimated.

Life Insurance Operations

      AIG’s life insurance subsidiaries offer a wide range of traditional insurance and financial and investment products. Traditional products consist of individual and group life, annuity, endowment and accident and health policies. Financial and investment products consist of single premium annuity, variable annuities, guaranteed investment contracts, universal life and pensions.

      AIG’s three principal overseas life operations are American Life Insurance Company (ALICO), American International Assurance Company, Limited together with American International Assurance Company (Bermuda) Limited (AIA) and Nan Shan Life Insurance Company, Ltd. (Nan Shan). ALICO is incorporated in Delaware and all of its business is written outside of the United States. ALICO has operations either directly or through subsidiaries in approximately 50 countries located in Europe, Africa, Latin America, the Caribbean, the Middle East, and the Far East, with Japan being the largest territory. In 2001, AIG added significantly to its presence in Japan with the acquisition of AIG Star Life Insurance Co., Ltd., (AIG Star Life) as a result of the reorganization of Chiyoda Mutual Life Insurance Company. AIA operates primarily in Hong Kong, Singapore, Malaysia and Thailand. Nan Shan operates in Taiwan. AIG’s principal domestic life insurance subsidiaries include American General Life, AIG Annuity and SunAmerica Life. These companies utilize multiple distribution channels including brokerage and career and general agents to offer traditional life products as well as financial investment products. (See also Note (e) of Notes to Financial Statements.)

      Life insurance premium income presented in accordance with GAAP for the three month periods ending March 31, 2002 and 2001 was as follows:

(in millions)

			2002				2001
Premium income:
	Domestic		$	1,081			$	1,238
	Foreign			3,702				3,131
Total			$	4,783			$	4,369

      Life insurance operations presented on a major product basis for the three month periods ending March 31, 2002 and 2001 were as follows:

(in millions)

				2002				2001
Premium income, deposits and other considerations:
	Domestic:
		Life		$	1,117			$	1,065
		Fixed Annuities, Pension and Investment Products			6,155				5,298
		Accident & Health(a)			—				78
	Total Domestic				7,272				6,441
	Foreign:
		Life			4,453				3,773
		Personal Accident			563				479
		Group Life/Medical			289				247
		Fixed Annuity/Pension			240				170
	Total Foreign				5,545				4,669
Total premium income, deposits and other considerations				$	12,817			$	11,110

20

---

Table of Contents

				2002				2001
Net investment income:
	Domestic:
		Life		$	527			$	525
		Fixed Annuities, Pension and Investment Products			1,425				1,308
		Accident & Health(a)			—				2
	Total Domestic				1,952				1,835
	Foreign:
		Life			845				753
		Personal Accident			33				33
		Group Life/Medical			11				11
		Fixed Annuity/Pension			65				59
		Intercompany Adjustments			(3	)			(2	)
	Total Foreign				951				854
Total net investment income				$	2,903			$	2,689
Operating income before realized capital gains (losses):
	Domestic:
		Life		$	276			$	250
		Fixed Annuities, Pension and Investment Products			356				307
		Accident & Health(a)			—				4
	Total Domestic				632				561
	Foreign:
		Life			534				424
		Personal Accident			154				139
		Group Life/Medical			30				24
		Fixed Annuity/Pension			8				10
		Intercompany Adjustments			(2	)			(3	)
	Total Foreign				724				594
Total operating income before realized capital gains (losses)					1,356				1,155
Realized capital gains (losses)					(29	)			(18	)
Total operating income				$	1,327			$	1,137
Life insurance in-force:(b)
		Domestic		$	535,992			$	517,067
		Foreign			692,845				711,434
Total				$	1,228,837			$	1,228,501

(a)	Beginning 2001, certain Accident & Health operations are part of DBG.
(b)	Amounts presented were as at March 31, 2002 and December 31, 2001.

     AIG’s GAAP life premium income during the first three months of 2002 represented a 9.5 percent increase from the same period in 2001. Foreign life operations produced 77.4 percent and 71.7 percent of the GAAP life premium income in 2002 and 2001, respectively.

      The traditional life products, particularly individual life products, were major contributors to the growth in foreign premium income. These traditional life products, coupled with the increased distribution of financial and investment products contributed to the growth in foreign investment income. A mixture of traditional, accident and health and financial products are being sold in Japan through ALICO and AIG Star Life.

      As previously discussed, the U.S. dollar strengthened in value in relation to most major foreign currencies in which AIG transacts business. Accordingly, for the first three months of 2002, when foreign life premium income was translated into U.S. dollars for purposes of the preparation of the consolidated financial statements, total life premium income was approximately 5.7 percentage points less than it would have been if translated utilizing exchange rates prevailing in 2001.

      Life insurance net investment income increased 8.0 percent during the first three months of 2002. The growth in net investment income was primarily attributable to both foreign and domestic new cash flow for investment. The new cash flow was generated from life insurance operations and included the compounding of previously earned and reinvested net investment income. (See also the discussion under “Liquidity” herein.)

      Life insurance realized capital losses for the first three months were $29 million in 2002 and $18 million in 2001. These realized capital losses resulted from the ongoing management of the life insurance investment portfolios within the overall objectives of the life insurance operations and arose primarily from the disposition of equity securities and available for sale fixed maturities as well as redemptions of fixed maturities.

      Life insurance operating income increased 16.7 percent to $1.33 billion during the first three months of 2002 when compared to the same period last year. The contribution of life insurance operating income to income before income taxes, minority interest and cumulative effect of an accounting change amounted to 44.8 percent during the first three months of 2002 compared to 40.6 percent in the same period of 2001.

      The risks associated with the traditional life and accident and health products are underwriting risk and investment risk. The risk associated with the financial and investment contract products is investment risk.

      Underwriting risk represents the exposure to loss resulting from the actual policy experience adversely emerging in comparison to the assumptions made in the product pricing associated with mortality, morbidity, termination and expenses. AIG’s foreign life companies limit their maximum

21

---

Table of Contents

      The investment risk represents the exposure to loss resulting from the cash flows from the invested assets, primarily long-term fixed rate investments, being less than the cash flows required to meet the obligations of the expected policy and contract liabilities and the necessary return on investments.

      To minimize its exposure to investment risk, AIG tests the cash flows from the invested assets and the policy and contract liabilities using various interest rate scenarios to assess whether there is a liquidity excess or deficit. If a rebalancing of the invested assets to the policy and contract claims became necessary and did not occur, a demand could be placed upon liquidity. (See also the discussion under “Liquidity” herein.)

      The asset-liability relationship is appropriately managed in AIG’s foreign operations, as it has been throughout AIG’s history, even though certain territories lack qualified long-term investments or there are investment restrictions imposed by the local regulatory authorities. For example, in Japan and several Southeast Asia territories, the duration of the investments is often for a shorter period than the effective maturity of the related policy liabilities. Therefore, there is a risk that the reinvestment of the proceeds at the maturity of the initial investments may be at a yield below that of the interest required for the accretion of the policy liabilities. At December 31, 2001, the average duration of the investment portfolio with respect to ALICO Japan’s operations was 5.4 years.

      Additionally, there exists a future investment risk associated with certain policies currently in force which will have premium receipts in the future. That is, the investment of these future premium receipts may be at a yield below that required to meet future policy liabilities. The anticipated average period for the receipt and investment of these future premium receipts with respect to ALICO Japan’s operations is 6.4 years. These durations compare with an estimated average duration with respect to ALICO Japan’s operations of 10.5 years for the corresponding policy liabilities. These durations have not changed significantly during 2002. To maintain an adequate yield to match the interest necessary to support future policy liabilities, constant management focus is required to reinvest the proceeds of the maturing securities and to invest the future premium receipts without sacrificing investment quality. To the extent permitted under local regulation, AIG may invest in qualified longer-term securities outside Japan to achieve a closer matching in both duration and the required yield. AIG is able to manage any asset-liability duration difference through maintenance of sufficient global liquidity and to support any operational shortfall through its international financial network. (See also the discussion under “Liquidity” herein.)

      The asset-liability relationship is appropriately managed in AIG’s domestic operations, as there is ample supply of qualified long-term investments.

      AIG uses asset-liability matching as a management tool worldwide to determine the composition of the invested assets and marketing strategies. As a part of these strategies, AIG may determine that it is economically advantageous to be temporarily in an unmatched position due to anticipated interest rate or other economic changes.

Financial Services Operations

      AIG’s financial services subsidiaries engage in diversified financial products and services including premium financing, banking services and consumer finance services.

      International Lease Finance Corporation (ILFC) engages primarily in the acquisition of commercial jet aircraft and the leasing and remarketing of such aircraft to airlines around the world. Also, ILFC provides, for a fee, fleet management services to certain third-party operators. (See also Note (e) of Notes to Financial Statements.)

      AIG Financial Products Corp. and its subsidiaries (AIGFP) structure financial transactions, including long-dated interest rate and currency swaps and structured borrowings through notes, bonds and guaranteed investment agreements. AIGFP does not engage in trading activities with respect to commodity contracts. AIG Trading Group Inc. and its subsidiaries (AIGTG) engage in various commodity trading, foreign exchange trading, interest rate swaps and market making activities. (See also Note (e) of Notes to Financial Statements.)

      AIG’s Consumer Finance operations include American General Finance, Inc. and its subsidiaries

22

---

Table of Contents

      Financial services operations for the three month periods ending March 31, 2002, and 2001 were as follows:

(in millions)

		2002				2001
Revenues:
ILFC(a)		$	641			$	621
AIGFP(b)			272				248
Consumer Finance(c)			613				616
Other			40				30
Total		$	1,566			$	1,515
Operating income:
ILFC			173				160
AIGFP			176				165
Consumer Finance			124				106
Other, including intercompany adjustments			1				(1	)
Total		$	474			$	430

(a)	Revenues were primarily from aircraft lease rentals.
(b)	Revenues were primarily fees from proprietary positions entered into in connection with counterparty transactions.
(c)	Revenues were primarily finance charges.

     Financial services operating income increased 10.2 percent in the first three months of 2002 over 2001.

      Financial services operating income represented 16.0 percent of AIG’s income before income taxes and minority interest in the first three months of 2002. This compares to 15.4 percent in the same period of 2001.

      ILFC generates its revenues primarily from leasing new and used commercial jet aircraft to domestic and foreign airlines. Revenues also result from the remarketing of commercial jets for its own account, for airlines and for financial institutions. Revenues in the first three months of 2002 increased 3.1 percent from the same period of 2001. The revenue growth resulted primarily from the increase in flight equipment under operating lease and the increase in the relative cost of the leased fleet. Approximately 20 percent of ILFC’s operating lease revenues are derived from U.S. and Canadian airlines. During the first three months of 2002, operating income increased 7.8 percent from the same period of 2001. ILFC finances its purchases of aircraft primarily through the issuance of a variety of debt instruments. The composite borrowing rates at the end of the first three months of 2002 and 2001 were 4.93 percent and 5.92 percent, respectively. (See also the discussions under “Capital Resources” and “Liquidity” herein and Note (e) of Notes to Financial Statements.)

      ILFC is exposed to loss through non-performance of aircraft lessees, through owning aircraft which it would be unable to sell or re-lease at acceptable rates at lease expiration and through committing to purchase aircraft which it would be unable to lease. ILFC manages its lessee non-performance exposure through credit reviews and security deposit requirements. As a result of these measures and its own contingency planning, ILFC did not suffer any material losses from airline shutdowns in the aftermath of the September 11 terrorist attacks, but there can be no assurance that ILFC will successfully manage the risks relating to the impact of possible future deterioration in the airline industry. Approximately 80 percent of ILFC’s fleet is leased to non-U.S. and Canadian carriers, and this fleet, the most efficient in the airline industry, continues to be in high demand from such carriers. (See also the discussions under “Capital Resources” and “Liquidity” herein.)

      AIGFP participates in the derivatives dealer market conducting, primarily as principal, an interest rate, currency, equity and credit derivative products business. AIGFP also enters into structured transactions including long-dated forward foreign exchange contracts, option transactions, liquidity facilities and investment agreements and invests in a diversified portfolio of securities. AIGFP derives substantially all its revenues from proprietary positions entered in connection with counterparty transactions rather than from speculative transactions. Revenues in the first three months of 2002 increased 9.9 percent from the same period of 2001. During the first three months of 2002, operating income increased 6.6 percent from the same period of 2001. As AIGFP is a transaction-oriented operation, current and past revenues and operating results may not provide a basis for predicting future performance. (See also the discussions under “Capital Resources,” “Liquidity” and “Derivatives” herein and Note (e) of Notes to Financial Statements.)

      AGF derives a substantial portion of its revenues from finance charges assessed on outstanding mortgages and finance receivables from the sub-

23

---

Table of Contents

      AGF is exposed to loss when contractual payments are not received. AGF manages its collection exposure through the mix of types of loans and security thereon. (See also the discussions under “Capital Resources” and “Liquidity” herein and Note (e) of Notes to Financial Statements.)

Retirement Savings & Asset Management Operations

AIG’s retirement savings & asset management operations offer a wide variety of investment products, including variable annuities and mutual funds, as well as investment services, including investment asset management. Such products and services are offered to individuals and institutions both domestically and overseas.

      AIG’s principal retirement savings & asset management operations are conducted through SunAmerica Asset Management Corp. (SAAMCo), VALIC, AIG Global Investment Group, Inc. and its subsidiaries (Global Investment) and AIG Capital Partners, Inc. (Cap Partners). SAAMCo develops and sells variable annuities and other investment products, sells and manages mutual funds and provides financial services. VALIC provides tax qualified annuities to the employees of educational, healthcare and governmental entities. Global Investment manages third-party institutional, retail and private equity funds invested assets on a global basis, and provides custodial services. Cap Partners organizes, and manages the invested assets of institutional investment funds and may also invest in such funds. Each of these subsidiary operations receives fees for investment products and services provided.

      Retirement savings & asset management operations for the three month periods ending March 31, 2002 and 2001 were as follows:

(in millions)

		2002				2001
Revenues:
VALIC		$	534			$	527
SAAMCo			154				173
Other*			177				168
Total		$	865			$	868
Operating Income:
VALIC		$	192			$	163
SAAMCo			39				63
Other*			69				44
Total		$	300			$	270

*	Includes Global Investment, AIG Private Bank, John McStay Investment Counsel and certain overseas variable annuity operations.

     Retirement savings & asset management operating income in the first three months of 2002 increased 11.1 percent when compared to the same period of 2001.

      Retirement savings & asset management operating income represented 10.1 percent of AIG’s income before income taxes and minority interest in the first three months of 2002. This compares to 9.6 percent in the same period of 2001.

      At March 31, 2002, AIG’s third party assets under management, including both retail mutual funds and institutional accounts, approximated $41 billion.

Other Operations

Other realized capital losses amounted to $81 million, and $47 million in the first three months of 2002 and 2001, respectively.

      Other income (deductions)-net includes income generated by the investment of capital held by SunAmerica Inc. outside of its life insurance subsidiaries, AIG’s equity in certain minor majority-owned subsidiaries and certain partially-owned companies, realized foreign exchange transaction gains and losses in substantially all currencies and unrealized gains and losses in hyperinflationary currencies, as well as the income and expenses of the parent holding company and other miscellaneous income and expenses. In the first three months of 2002, other income (deductions) — net amounted to $6 million. In the

24

---

Table of Contents

      Income before income taxes, minority interest and cumulative effect of an accounting change amounted to $2.96 billion in the first three months of 2002 compared to $2.80 billion in the same period of 2001.

      In the first three months of 2002, AIG recorded a provision for income taxes of $892 million compared to the provision of $826 million in the same period of 2001. These provisions represent effective tax rates of 30.1 percent in the first three months of 2002, and 29.5 percent in the same period of 2001.

      Minority interest represents minority shareholders’ equity in income of certain majority-owned consolidated subsidiaries. Minority interest amounted to $87 million and $113 million in the first three months of 2002 and 2001, respectively.

      Income before the cumulative effect of an accounting change amounted to $1.98 billion in the first three months of 2002 and $1.86 billion in the same period of 2001.

      Net income amounted to $1.98 billion in the first three months of 2002 and $1.86 billion in the same period of 2001. The increases in net income over the periods resulted from those factors described above.

Capital Resources

At March 31, 2002, AIG had total capital funds of $52.68 billion and total borrowings of $66.50 billion. At that date, $56.87 billion of such borrowings were either not guaranteed by AIG or were matched borrowings under obligations of guaranteed investment agreements (GIAs) or matched notes and bonds payable.

      Total borrowings and borrowings not guaranteed or matched at March 31, 2002 and December 31, 2001 were as follows:

(in millions)
			2002				2001
GIAs — AIGFP			$	15,309			$	16,392
Commercial Paper:
	AGC			2,162				2,468
	AGF(a)			4,338				4,853
	AIG Funding, Inc. (Funding)			1,694				902
	ILFC(a)			3,475				3,494
	AIG Finance (Taiwan) Limited(a)			98				107
	AIG Credit Card Company (Taiwan)(a)			76				68
	Total			11,843				11,892
Medium Term Notes:
	AGF(a)			4,704				4,100
	ILFC(a)			5,063				4,809
	AIG			498				542
	Total			10,265				9,451
Notes and Bonds Payable:
	ILFC(a)			8,151				7,073
	AIGFP			13,992				13,920
	AIG			1,585				1,577
	AGC			1,540				1,340
	AGF(a)			1,997				2,201
	Total			27,265				26,111
Loans and Mortgages Payable:
	ILFC(a)(b)			348				365
	AIG Finance (Hong Kong) Limited(a)			301				290
	CFG(a)			813				885
	AIG			359				345
	Total			1,821				1,885
	Total Borrowings			66,503				65,731
Borrowings not guaranteed by AIG				29,364				28,245
Matched GIA borrowings				15,309				16,392
Matched notes and bonds payable — AIGFP				12,195				12,185
				56,868				56,822
Remaining borrowings of AIG			$	9,635			$	8,909

(a)	AIG does not guarantee these borrowings.
(b)	Capital lease obligations.

25

---

Table of Contents

     At March 31, 2002, the commercial paper issued and outstanding was as follows:

(dollars in millions)
						Unamortized								Weighted				Weighted
		Net				Discount								Average				Average
		Book				and accrued				Face				Interest				Maturity
		Value				interest				Amount				Rate				In Days
Funding		$	1,694			$	2			$	1,696				1.84	%			26
ILFC			3,475				6				3,481				1.91				33
AGF			4,338				6				4,344				1.86				33
AGC			2,162				2				2,164				1.82				18
AIGF — Taiwan*			98				1				99				4.53				68
AIGCCC — Taiwan*			76				—				76				3.11				88
Total		$	11,843			$	17			$	11,860				—				—

*	Issued in Taiwan N.T. dollars at prevailing local interest rates.

     The maturity distributions of total borrowings at March 31, 2002 and December 31, 2001 were as follows:

(in millions)

		2002				2001
Short-term borrowings		$	17,685			$	19,336
Long-term borrowings(a)			48,818				46,395
Total borrowings		$	66,503			$	65,731

(a)	Including commercial paper and excluding that portion of long-term debt maturing in less than one year.

     During the first three months of 2002, AIGFP increased the aggregate principal amount outstanding of its notes and bonds payable to $13.99 billion. AIGFP uses the proceeds from the issuance of notes and bonds and GIA borrowings to invest in a diversified portfolio of securities and derivative transactions. The funds may also be temporarily invested in securities purchased under agreements to resell. (See also the discussions under “Operational Review”, “Liquidity” and “Derivatives” herein.)

      AIG Funding, Inc. (Funding), through the issuance of commercial paper, fulfills the short-term cash requirements of AIG and its non-insurance subsidiaries. Funding intends to continue to meet AIG’s funding requirements through the issuance of commercial paper guaranteed by AIG. This issuance of Funding’s commercial paper is subject to the approval of AIG’s Board of Directors. ILFC and A.I. Credit Corp. (AICCO) as well as AIG Credit Card Company (Taiwan) — (AIGCCC-Taiwan) and AIG Finance (Taiwan) Limited — (AIGF-Taiwan), both consumer finance subsidiaries in Taiwan, AGC and AGF have issued commercial paper for the funding of their own operations. At March 31, 2002, AIG did not guarantee or support the commercial paper of any of its subsidiaries other than Funding and AGC. In early 2001, AICCO ceased issuing commercial paper under its program and the agreement which AIG had provided supporting the commercial paper was terminated; AICCO’s funding requirements are now met through Funding’s program. (See also the discussion under “Derivatives” herein.)

      AIG and Funding have entered into syndicated revolving credit facilities (collectively, the Facility) aggregating $1.5 billion. The Facility consists of $1.0 billion in short-term revolving credit facilities and a $500 million five year revolving credit facility. The Facility can be used for general corporate purposes and also to provide backup for AIG’s commercial paper programs administered by Funding. There are currently no borrowings outstanding under the Facility, nor were any borrowings outstanding as of March 31, 2002.

      AGC and AGF have entered into unsecured committed bank credit facilities aggregating $5.2 billion to support their commercial paper borrowings. There were no borrowings under this facility as of March 31, 2002. AGF had $2.5 billion in aggregate principal amount of debt securities registered and available for issuance at March 31, 2002. AGC uses the proceeds from the issuance of notes and bonds for general corporate purposes. AGF uses the proceeds from the issuance of notes and bonds for the funding of its finance receivables. As of November 2001, AIG guaranteed the notes and bonds of AGC.

      ILFC has entered into committed revolving loans and lines of credit with commercial banks aggregating $2.8 billion to support its commercial paper program. At March 31, 2002, there were no borrowings under these facilities.

      At March 31, 2002, ILFC had increased the aggregate principal amount outstanding of its medium term and term notes to $13.21 billion, a net increase of $1.33 billion, and recorded a net decline in its capital lease obligations of $17 million and a net decrease in its commercial paper of $19 million. On January 28, 2002, ILFC registered $4.0 billion principal amount of debt securities for issuance from time to time. At March 31, 2002, $1.7 billion had been issued. In addition, ILFC has a Euro Medium Term Note Program for $2.0 billion, under which $771 million in notes were sold through March 31, 2002. Subsequent to March 31, 2002, ILFC expanded its Euro Medium Term Note Program from approximately $2.0 billion to approxi-

26

---

Table of Contents

      ILFC had a $4.3 billion Export Credit Facility for use in connection with the purchase of approximately 75 aircraft delivered through 2001. This facility was guaranteed by various European Export Credit Agencies. The interest rate varied from 5.75 percent to 5.90 percent on these aircraft depending on the delivery date of the aircraft. At March 31, 2002, ILFC had $2.37 billion outstanding under this facility. Borrowings with respect to this facility are included in Notes and Bonds Payable in the accompanying table of borrowings.

      The proceeds of ILFC’s debt financing are primarily used to purchase flight equipment, including progress payments during the construction phase. The primary sources for the repayment of this debt and the interest expense thereon are the cash flow from operations, proceeds from the sale of flight equipment and the rollover and refinancing of the prior debt. (See also the discussions under “Operational Review” and “Liquidity” herein.)

      During the first three months of 2002, AIG issued $4 million principal amount of medium term notes and $48 million of previously issued notes matured. At March 31, 2002, AIG had $640 million in aggregate principal amount of debt securities registered for issuance from time to time.

      On November 9, 2001, AIG received proceeds of approximately $1 billion from the issuance of Zero Coupon Convertible Senior Debentures Due 2031 with an aggregate principal amount at maturity of approximately $1.52 billion. Commencing January 1, 2002, the debentures are convertible into shares of AIG common stock at a conversion rate of 6.0627 shares per $1,000 principal amount of debentures if AIG common stock trades at certain levels for certain time periods. The debentures are callable by AIG on or after November 9, 2006. Also, holders can require AIG to repurchase these debentures once every five years. The proceeds from the offering have been used for general corporate purposes.

      AIG’s capital funds increased $525 million during the first three months of 2002. Unrealized appreciation of investments, net of taxes decreased $884 million. During the first three months of 2002, the cumulative translation adjustment loss, net of taxes, increased $247 million. The change from period to period with respect to the unrealized appreciation of investments, net of taxes was primarily impacted by the increase in domestic interest rates. The 2001 transfer of bonds in the held to maturity, at amortized cost category to the bonds available for sale, at market value category in accordance with the transition provisions of FASB 133 resulted in a gain of $339 million recorded in the statement of comprehensive income as a cumulative effect of an accounting change adjustment. (See also the discussion under “Operational Review” and “Liquidity” herein.) The 2001 capital funds included a cumulative effect of an accounting change adjustment gain of $150 million. During the first three months of 2002, there was a gain of $58 million, net of taxes, relating to derivative contracts designated as cash flow hedging instruments. (See also the discussion under Notes to Financial Statements and the Consolidated Statement of Comprehensive Income.) During the first three months of 2002, retained earnings increased $1.87 billion, resulting from net income less dividends.

      During the period from January 2002 through May 10, 2002, AIG repurchased in the open market 6,670,000 shares of its common stock. AIG intends to continue to buy its common shares in the open market for general corporate purposes, including to satisfy its obligations under various employee benefit plans.

      Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by statutory authorities. AIG has in the past reinvested most of its unrestricted earnings in its operations and believes such continued reinvestment in the future will be adequate to meet any foreseeable capital needs. However, AIG may choose from time to time to raise additional funds through the issuance of additional securities. At March 31, 2002, there were no significant statutory or regulatory issues which would impair AIG’s financial condition, results of operations or liquidity. To AIG’s knowledge, no AIG company is on any regulatory or similar “watch list”. (See also the discussion under “Liquidity” herein.)

      AIG’s insurance subsidiaries, in common with other insurers, are subject to regulation and supervision by the states and jurisdictions in which they do business. The National Association of Insurance Commissioners (NAIC) has developed Risk-Based Capital (RBC) requirements. RBC relates an individual insurance company’s statutory surplus to the risk inherent in its overall operations. At March 31, 2002, the adjusted capital of each of AIG’s domes-

27

---

Table of Contents

      A substantial portion of AIG’s general insurance business and a majority of its life insurance business are conducted in foreign countries. The degree of regulation and supervision in foreign jurisdictions varies from minimal in some to stringent in others. Generally, AIG, as well as the underwriting companies operating in such jurisdictions, must satisfy local regulatory requirements. Licenses issued by foreign authorities to AIG subsidiaries are subject to modification and revocation. Thus, AIG’s insurance subsidiaries could be prevented from conducting future business in certain of the jurisdictions where they currently operate. AIG’s international operations include operations in various developing nations. Both current and future foreign operations could be adversely affected by unfavorable political developments up to and including nationalization of AIG’s operations without compensation. Adverse effects resulting from any one country may impact AIG’s results of operations, liquidity and financial condition depending on the magnitude of the event and AIG’s net financial exposure at that time in that country.

The maturity schedule of AIG’s most significant contractual obligations at March 31, 2002 is presented in the following table:

(in millions)

			Payments due by Period
											2003				2005				Remaining
											through				through				years after
March 31, 2002			Total				2002				2004				2006				2006
Borrowings*			$	54,660			$	17,685			$	15,010			$	6,673			$	15,292
Unconditional Obligations to Purchase Aircraft				30,755				3,203				7,735				9,868				9,949
Other Long-Term Obligations:
	ILFC			1,144				291				853				—				—
Total			$	86,559			$	21,179			$	23,598			$	16,541			$	25,241

*	Excludes commercial paper and includes ILFC’s capital lease obligations.

The maturity schedule of AIG’s most significant Other Commercial Commitments at March 31, 2002 is presented in the following table:

(in millions)

			Amount of Commitment Expiration
			Total				Less
			Amounts				than 1				1-3				4-5				After 5
March 31, 2002			Committed				year				years				years				years
Letters of Credit:
	AIGFP		$	762			$	2			$	35			$	102			$	623
Guarantees:
	SunAmerica			3,920				45				1,447				—				2,428
Other Commercial Commitments:
	AIGFP(a)			4,410				8				18				42				4,342
	ILFC(b)			3,524				—				1,184				1,434				906
	SunAmerica			1,440				265				761				414				—
Total			$	14,056			$	320			$	3,445			$	1,992			$	8,299

(a)	Primarily liquidity facilities provided in connection with certain municipal swap transactions.
(b)	Primarily in connection with aircraft acquisitions.

AIG uses special purposes vehicles (SPVs) primarily in connection with certain guaranteed investment contract programs (GIC Programs) written by its life insurance subsidiaries, certain products provided by AIGFP, and certain invested asset and asset management activities.

In the GIC Programs, AIG’s life insurance subsidiaries (principally SunAmerica Life Insurance Company) provide guaranteed investment contracts (GICs) to SPVs which are not controlled by AIG. The SPVs issue notes or bonds which are sold to third party institutional investors. Neither AIG nor the insurance company issuing the GICs has any

28

---

Table of Contents

AIGFP uses SPVs as an integral part of its ongoing operations with respect to specific structured transactions with independent third parties. In most instances, AIGFP controls and manages the assets and liabilities with respect to these SPVs, subject to certain transaction specific limitations. These SPVs are fully consolidated by AIG (see the discussions of AIGFP under “Operations Review: Financial Services Operations”). AIGFP also sponsors an SPV that issues commercial paper and secured liquidity notes to third-party institutional investors. This SPV uses the proceeds of these offerings to obtain beneficial interests in certain financial assets (total assets of approximately $1 billion), which serve as collateral for the securities issued by the SPV. AIGFP provides credit and liquidity support to this SPV, which is not consolidated by AIG.

AIG’s insurance operations also invest in assets of SPVs. These SPVs are established by unrelated third parties. Investments include collateralized mortgage backed securities and similar securities backed by pools of mortgages, consumer receivables or other assets. The investment in an SPV allows AIG’s insurance entities to purchase assets permitted by insurance regulations while maximizing the return on these assets.

AIG provides investment management services to certain SPVs. AIG receives management fees for these services and may take a minority ownership interest in these SPVs. AIG services may be terminated with or without cause.

To facilitate and expand certain retirement savings & asset management activities, AIG establishes SPVs. AIG receives fees for management of the assets held in the SPV which support the issuance of securities such as collateralized bond obligations sold by the SPV to independent third party investors. These SPVs serve a variety of business purposes, including financing, liquidity, or to facilitate independent third party management participation.

AIG has established stringent guidelines with respect to the formation of and investment in SPVs.

Liquidity

AIG’s liquidity is primarily derived from the operating cash flows of its general and life insurance operations.

      At March 31, 2002, AIG’s consolidated invested assets included $14.37 billion of cash and short-term investments. Consolidated net cash provided from operating activities in the first three months of 2002 amounted to $4.53 billion.

      Sources of funds considered in meeting the objectives of AIG’s financial services operations include guaranteed investment agreements, issuance of long and short-term debt, maturities and sales of securities available for sale, securities sold under repurchase agreements, trading liabilities, securities and spot commodities sold but not yet purchased, issuance of equity, and cash provided from such operations. AIG’s strong capital position is integral to managing this liquidity, as it enables AIG to raise funds in diverse markets worldwide. (See also the discussions under “Capital Resources” herein.)

      Management believes that AIG’s liquid assets, its net cash provided by operations, and access to the capital markets will enable it to meet any foreseeable cash requirements.

      The liquidity of the combined insurance operations is derived both domestically and abroad. The combined insurance operating cash flow is derived from two sources, underwriting operations and investment operations. In the aggregate, AIG’s insurance operations generated approximately $7.3 billion in pre-tax cash flow during the first three months of 2002. Cash flow includes periodic premium collections, including policyholders’ contract deposits, paid loss recoveries less reinsurance premiums, losses, benefits, acquisition and operating expenses. Generally, there is a time lag from when premiums are collected and, when as a result of the occurrence of events specified in the policy, the losses and benefits are paid. AIG’s insurance investment operations generated approximately $3.3 billion in investment income cash flow during the first three months of 2002. Investment income cash flow is primarily derived from interest and dividends

29

---

Table of Contents

      With respect to general insurance operations, if paid losses accelerated beyond AIG’s ability to fund such paid losses from current operating cash flows, AIG would need to liquidate a portion of its general insurance investment portfolio and/or arrange for financing. Potential events causing such a liquidity strain could be the result of several catastrophic events occurring in a relatively short period of time. Additional strain on liquidity could occur if the investments sold to fund such paid losses were sold into a depressed market place and/or reinsurance recoverable on such paid losses became uncollectible or collateral supporting such reinsurance recoverable decreased significantly in value. (See also the discussions under “Operational Review: General Insurance Operations” herein.)

      With respect to life insurance operations, if a substantial portion of the life insurance operations bond portfolio diminished significantly in value and/or defaulted, AIG would need to liquidate other portions of its life insurance investment portfolio and/or arrange financing. Potential events causing such a liquidity strain could be the result of economic collapse of a nation or region in which AIG life insurance operations exist, nationalization, terrorist acts or other such economic or political upheaval. (See also the discussions under “Operational Review: Life Insurance Operations” herein.)

      In addition to the combined insurance pre-tax operating cash flow, AIG’s insurance operations held $13.39 billion in cash and short-term investments at March 31, 2002. The aforementioned operating cash flow and the cash and short-term balances held provided AIG’s insurance operations with a significant amount of liquidity.

      This liquidity is available, among other things, to purchase high quality and diversified fixed income securities and to a lesser extent marketable equity securities and to provide mortgage loans on real estate, policy loans and collateral loans. This cash flow coupled with proceeds of approximately $27 billion from the maturities, sales and redemptions of fixed income securities and from the sale of equity securities was used to purchase approximately $34 billion of fixed income securities and marketable equity securities during the first three months of 2002.

      The following table is a summary of AIG’s invested assets by significant segment, including investment income due and accrued of $3.85 billion and $3.68 billion and real estate of $2.62 billion and $2.65 billion, respectively, at March 31, 2002 and December 31, 2001:

(dollars in millions)

		March 31, 2002								December 31, 2001
		Invested				Percent				Invested				Percent
		Assets				of Total				Assets				of Total
General insurance		$	44,604				11.9	%		$	43,159				11.9	%
Life insurance			227,951				60.8				215,658				59.3
Financial services			101,375				27.0				103,944				28.6
Other			1,002				0.3				967				0.2
Total		$	374,932				100.0	%		$	363,728				100.0	%

30

---

Table of Contents

Insurance Invested Assets

      The following tables summarize the composition of AIG’s insurance invested assets by insurance segment, including investment income due and accrued and real estate, at March 31, 2002 and December 31, 2001:

(dollars in millions)

																			Percent Distribution
			General				Life								Percent
March 31, 2002			Insurance				Insurance				Total				of Total				Domestic				Foreign
Fixed maturities:
	Available for sale, at market value(a)		$	29,767			$	175,096			$	204,863				75.2	%			69.2	%			30.8	%
Equity securities, at market value(b)				4,818				3,350				8,168				3.0				52.4				47.6
Mortgage loans on real estate, policy and collateral loans				51				16,645				16,696				6.1				73.5				26.5
Short-term investments, including time deposits, and cash				1,995				11,395				13,390				4.9				71.9				28.1
Real estate				420				2,082				2,502				0.9				21.7				78.3
Investment income due and accrued				654				3,086				3,740				1.4				65.9				34.1
Other invested assets				6,899				16,297				23,196				8.5				79.7				20.3
Total			$	44,604			$	227,951			$	272,555				100.0	%			69.5	%			30.5	%

(a)	Includes $867 million of bond trading securities, at market value.
(b)	Includes $1.66 billion of non-redeemable preferred stocks, at market value.

(dollars in millions)

																			Percent Distribution
			General				Life								Percent
December 31, 2001			Insurance				Insurance				Total				of Total				Domestic				Foreign
Fixed maturities:
	Available for sale, at market value(a)		$	29,602			$	169,750			$	199,352				77.0	%			68.8	%			31.2	%
Equity securities, at market value(b)				4,568				3,139				7,707				3.0				53.9				46.1
Mortgage loans on real estate, policy and collateral loans				58				17,101				17,159				6.6				71.4				28.6
Short-term investments, including time deposits, and cash				1,652				5,520				7,172				2.8				49.6				50.4
Real estate				410				2,106				2,516				1.0				21.5				78.5
Investment income due and accrued				573				3,002				3,575				1.4				63.9				36.1
Other invested assets				6,296				15,040				21,336				8.2				81.2				18.8
Total			$	43,159			$	215,658			$	258,817				100.0	%			68.5	%			31.5	%

(a)	Includes $842 million of bond trading securities, at market value.
(b)	Includes $1.72 billion of non-redeemable preferred stocks, at market value.

     Generally, insurance regulations restrict the types of assets in which an insurance company may invest.

      With respect to fixed maturities, AIG’s general strategy is to invest in high quality securities while maintaining diversification to avoid significant exposure to issuer, industry and/or country concentrations. With respect to general insurance, AIG’s strategy is to invest in longer duration fixed maturities to maximize the yields at the date of purchase. With respect to life insurance, AIG’s strategy is to produce cash flows required to meet maturing insurance liabilities. (See also the discussion under “Operational Review: Life Insurance Operations” herein.)

      The fair value of the fixed maturity available for sale portfolio is subject to decline as interest rates rise and is subject to increase as interest rates decline. Such changes in fair value are presented as a component of comprehensive income in unrealized appreciation of investments, net of taxes.

      At March 31, 2002, approximately 69 percent of the fixed maturities investments were domestic securities. Approximately 30 percent of such domestic securities were rated AAA. Approximately 8 percent were below investment grade or not rated.

      A significant portion of the foreign insurance fixed income portfolio is rated by Moody’s, Standard & Poor’s (S&P) or similar foreign services. Similar credit quality rating services are not available in all overseas locations. AIG annually reviews the credit quality of the foreign portfolio nonrated fixed income investments, including mortgages. At March 31, 2002, approximately 11 percent of the foreign fixed income investments were either rated AAA or, on the basis of AIG’s internal analysis, were equivalent from a credit standpoint to securities so rated. Approximately 18 percent were below investment grade or not rated at that date. A large

31

---

Table of Contents

      Any fixed income security may be subject to downgrade for a variety of reasons subsequent to any balance sheet date.

      AIG invests in equities for various reasons, including diversifying its overall exposure to interest rate risk. Equity securities are subject to declines in fair value. Such declines in fair value are presented in unrealized appreciation of investments, net of taxes as a component of comprehensive income.

      Where declines in value of fixed income and equity securities below amortized cost or cost are considered to be other than temporary, a charge is reflected in income for the difference between amortized cost or cost and estimated net realizable value.

      Mortgage loans on real estate, policy and collateral loans comprised 6.1 percent of AIG’s insurance invested assets at March 31, 2002. AIG’s insurance operations’ holdings of real estate mortgages amounted to $10.78 billion of which 85.4 percent was domestic. At March 31, 2002, only a nominal amount were in default. It is AIG’s practice to maintain a maximum loan to value ratio of 75 percent at loan origination. At March 31, 2002, AIG’s insurance holdings of collateral loans amounted to $586 million, all of which were foreign. It is AIG’s strategy to enter into mortgage and collateral loans as an adjunct primarily to life insurance fixed maturity investments. AIG’s policy loans decreased from $5.79 billion at December 31, 2001 to $5.34 billion at March 31, 2002.

      Short-term investments represent amounts invested in various internal and external money market funds, time deposits and cash held.

      AIG’s real estate investment properties are primarily occupied by AIG’s various operations. The current market value of these properties considerably exceeds their carrying value.

      Other invested assets were primarily comprised of both foreign and domestic private placements, limited partnerships and outside managed funds.

      When permitted by regulatory authorities and when deemed necessary to protect insurance assets, including invested assets, from adverse movements in foreign currency exchange rates, interest rates and equity prices, AIG and its insurance subsidiaries may enter into derivative transactions as end users. (See also the discussion under “Derivatives” herein.)

      In certain jurisdictions, significant regulatory and/or foreign governmental barriers exist which may not permit the immediate free flow of funds between insurance subsidiaries or from the insurance subsidiaries to AIG parent. These barriers generally cause only minor delays in the outward remittance of the funds.

      AIG’s insurance operations are exposed to market risk. Market risk is the risk of loss of fair value resulting from adverse fluctuations in interest and foreign currency exchange rates and equity prices.

      Measuring potential losses in fair values has recently become the focus of risk management efforts by many companies. Such measurements are performed through the application of various statistical techniques. One such technique is Value at Risk (VaR). VaR is a summary statistical measure that uses historical interest and foreign currency exchange rates and equity prices and estimates the volatility and correlation of each of these rates and prices to calculate the maximum loss that could occur over a defined period of time given a certain probability.

      AIG believes that statistical models alone do not provide a reliable method of monitoring and controlling market risk. While VaR models are relatively sophisticated, the quantitative market risk information generated is limited by the assumptions and parameters established in creating the related models. Therefore, such models are tools and do not substitute for the experience or judgment of senior management.

      AIG has performed a VaR analysis to estimate the maximum potential loss of fair value for each of AIG’s insurance segments and for each market risk within each insurance segment. In this analysis, financial instrument assets include the domestic and foreign invested assets excluding real estate and investment income due and accrued. Financial instrument liabilities include reserve for losses and loss expenses, reserve for unearned premiums, future policy benefits for life and accident and health insurance contracts and policyholders’ funds.

      Due to the nature of each insurance segment, AIG manages the general and life insurance operations separately. As a result, AIG manages sepa-

32

---

Table of Contents

      AIG calculated the VaR with respect to the net fair value of each of AIG’s insurance segments as of March 31, 2002 and December 31, 2001. AIG uses the historical simulation methodology which entails re-pricing all assets and liabilities under explicit changes in market rates within a specific historical time period. In this case, the most recent three years of historical market information for interest rates, foreign exchange rates, and equity index prices were used to construct the historical scenarios. For each scenario, each transaction was re-priced. Portfolio, business unit and finally AIG-wide scenario values were then calculated by netting the values of all the underlying assets and liabilities. The final VaR number represents the maximum potential loss incurred by these scenarios with 95% confidence (i.e., only 5% of historical scenarios show losses greater than the VaR figure). A one month holding period was assumed in computing the VaR figure.

      The following table presents the VaR on a combined basis and of each component of market risk for each of AIG’s insurance segments as of March 31, 2002 and December 31, 2001. VaR with respect to combined operations cannot be derived by aggregating the individual risk or segment amounts presented herein.

(in millions)

		General Insurance								Life Insurance
Market Risk		2002				2001				2002				2001
Combined		$	863			$	779			$	1,843			$	1,804
Interest rate			399				425				1,714				1,631
Currency			38				34				108				134
Equity			822				710				667				627

      The following table presents the average, high and low VaRs on a combined basis and of each component of market risk for each of AIG’s insurance segments as of March 31, 2002 and December 31, 2001.

(in millions)

			2002												2001
			Average				High				Low				Average				High				Low
General Insurance
Market Risk
	Combined		$	821			$	863			$	779			$	797			$	837			$	744
	Interest rate			412				425				399				449				464				425
	Currency			36				38				34				46				59				34
	Equity			766				822				710				741				812				603
Life Insurance
Market Risk
	Combined		$	1,823			$	1,843			$	1,804			$	1,572			$	1,804			$	1,354
	Interest rate			1,673				1,714				1,631				1,512				1,631				1,364
	Currency			121				134				108				216				373				134
	Equity			647				667				627				430				627				332

Financial Services Invested Assets

      The following table is a summary of the composition of AIG’s financial services invested assets at March 31, 2002 and December 31, 2001. (See also the discussions under “Operational Review: Financial Services Operations”, “Operational Review: Retirement Savings & Asset Management Operations”, “Capital Resources” and “Derivatives” herein.)

33

---

Table of Contents

(dollars in millions)

		2002								2001
		Invested				Percent				Invested				Percent
		Assets				of Total				Assets				of Total
Flight equipment primarily under operating leases, net of accumulated depreciation		$	24,196				23.9	%		$	22,710				21.9	%
Finance receivables, net of allowance			13,685				13.5				13,955				13.4
Unrealized gain on interest rate and currency swaps, options and forward transactions			10,190				10.1				11,493				11.1
Securities available for sale, at market value			18,121				17.9				17,801				17.1
Trading securities, at market value			4,767				4.7				5,733				5.5
Securities purchased under agreements to resell, at contract value			21,628				21.3				21,638				20.8
Trading assets			4,339				4.3				6,234				6.0
Spot commodities, at market value			346				0.3				352				0.3
Other, including short-term investments			4,103				4.0				4,028				3.9
Total		$	101,375				100.0	%		$	103,944				100.0	%

      As previously discussed, the cash used for the purchase of flight equipment is derived primarily from the proceeds of ILFC’s debt financings. The primary sources for the repayment of this debt and the interest expense thereon are the cash flow from operations, proceeds from the sale of flight equipment and the rollover and refinancing of the prior debt. During the first three months of 2002, ILFC acquired flight equipment costing $1.74 billion. (See also the discussion under “Operational Review: Financial Services Operations” and “Capital Resources” herein.)

      ILFC is exposed to market risk and the risk of loss of fair value resulting from adverse fluctuations in interest rates. As of March 31, 2002 and December 31, 2001, AIG statistically measured the aforementioned loss of fair value through the application of a VaR model. In this analysis, the net fair value of ILFC was determined using the financial instrument assets which included the tax adjusted future flight equipment lease revenue and the financial instrument liabilities which included the future servicing of the current debt. The estimated impact of the current derivative positions was also taken into account.

      AIG calculated the VaR with respect to the net fair value of ILFC using the historical simulation methodology, as previously described. As of March 31, 2002 and December 31, 2001, the VaR with respect to the aforementioned net fair value of ILFC was approximately $22 million and $10 million, respectively.

      AIG’s Consumer Finance operations provide a wide variety of consumer finance products both domestically and overseas. Such products include mortgages, consumer loans, and retail sales finance. These products are funded through various borrowings including commercial paper and medium term notes. AIG’s Consumer Finance operations are exposed to credit risk and risk of loss resulting from adverse fluctuations in interest rates. Over half of the loan balance is related to real estate loans which are substantially collateralized by the related properties.

      With respect to credit losses, the allowance for finance receivable losses is maintained at a level considered adequate to absorb anticipated credit losses existing in that portfolio.

      AIGFP’s derivative transactions are carried at market value or at estimated fair value when market prices are not readily available. AIGFP reduces its economic risk exposure through similarly valued offsetting transactions including swaps, trading securities, options, forwards and futures. The estimated fair values of these transactions represent assessments of the present value of expected future cash flows. These transactions are exposed to liquidity risk if AIGFP were to sell or close out the transactions prior to maturity. AIG believes that the impact of any such limited liquidity would not be significant to AIG’s financial condition or its overall liquidity. (See also the discussion under “Operational Review: Financial Services Operations” and “Derivatives” herein.)

      AIGFP uses the proceeds from the issuance of notes and bonds and GIA borrowings to invest in a diversified portfolio of securities, including securities available for sale, at market, and derivative transactions. The funds may also be temporarily invested in securities purchased under agreements to resell. The proceeds from the disposal of the aforementioned securities available for sale and securities purchased under agreements to resell have been used to fund the maturing GIAs or other

34

---

Table of Contents

      Securities available for sale is mainly a portfolio of debt securities, where the individual securities have varying degrees of credit risk. At March 31, 2002, the average credit rating of this portfolio was AA or the equivalent thereto as determined through rating agencies or internal review. AIGFP has also entered into credit derivative transactions to hedge its credit risk associated with $182 million of these securities. There were no securities deemed below investment grade at March 31, 2002. There have been no significant downgrades through May 1, 2002. Securities purchased under agreements to resell are treated as collateralized transactions. AIGFP takes possession of or obtains a security interest in securities purchased under agreements to resell. AIGFP further minimizes its credit risk by monitoring counterparty credit exposure and, when AIGFP deems necessary, it requires additional collateral to be deposited. Trading securities, at market value are marked to market daily and are held to meet the short-term risk management objectives of AIGFP.

      AIGFP is exposed to credit risk. If its securities available for sale portfolio were to suffer significant default and the collateral held declined significantly in value with no replacement, AIGFP could have a liquidity strain. AIG guarantees AIGFP’s debt and, as a result, is responsible for all of AIGFP’s obligations.

      AIG Trading Group Inc. and its subsidiaries (AIGTG) conduct, as principal, market making and trading activities in foreign exchange and commodities, primarily precious and base metals. AIGTG owns inventories in the commodities in which it trades and may reduce the exposure to market risk through the use of swaps, forwards, futures and option contracts. AIGTG uses derivatives to manage the economic exposure of its various trading positions and transactions from adverse movements of interest rates, foreign currency exchange rates and commodity prices. AIGTG supports its trading activities largely through trading liabilities, unrealized losses on swaps, short-term borrowings, securities sold under agreements to repurchase and securities and commodities sold but not yet purchased. (See also the discussions under “Capital Resources” and “Derivatives” herein.)

      The gross unrealized gains and gross unrealized losses of AIGFP and AIGTG included in the financial services assets and liabilities at March 31, 2002 were as follows:

(in millions)

		Gross				Gross
		Unrealized				Unrealized
		Gains				Losses
Securities available for sale, at market value		$	1,126			$	1,119
Unrealized gain/loss on interest rate and currency swaps, options and forward transactions(a)(b)			10,190				6,882
Trading assets			8,506				7,397
Spot commodities, at market value			—				16
Trading liabilities			—				1,230
Securities and spot commodities sold but not yet purchased, at market value			232				—

^(a)These amounts are also presented as the respective balance sheet amounts.

     AIGFP’s interest rate and currency risks on securities available for sale, at market, are managed by taking offsetting positions on a security by security basis, thereby offsetting a significant portion of the unrealized appreciation or depreciation. At March 31, 2002 the unrealized gains and losses remaining after the benefit of the offsets were $58 million and $51 million, respectively.

      Trading securities, at market value, and securities and spot commodities sold but not yet purchased, at market value are marked to market daily with the unrealized gain or loss being recognized in income at that time. These securities and positions are held to meet the short-term risk management objectives of AIGFP and AIGTG.

      The senior management of AIG defines the policies and establishes general operating parameters for AIGFP and AIGTG. AIG’s senior management has established various oversight committees to review the various financial market, operational and credit issues of AIGFP and AIGTG. The senior managements of AIGFP and AIGTG report the results of their respective operations to and review future strategies with AIG’s senior management.

      AIG actively manages the exposures to limit potential losses, while maximizing the rewards af-

35

---

Table of Contents

      Market risk arises principally from the uncertainty that future earnings are exposed to potential changes in volatility, interest rates, foreign currency exchange rates, and equity and commodity prices. AIG generally controls its exposure to market risk by taking offsetting positions. AIG’s philosophy with respect to its financial services operations is to minimize or set limits for open or uncovered positions that are to be carried. Credit risk exposure is separately managed. (See the discussion on the management of credit risk below.)

      AIG’s Market Risk Management Department provides detailed independent review of AIG’s market exposures, particularly those market exposures of AIGFP and AIGTG. This department determines whether AIG’s market risks, as well as those market risks of individual subsidiaries, are within the parameters established by AIG’s senior management. Well established market risk management techniques such as sensitivity analysis are used. Additionally, this department verifies that specific market risks of each of certain subsidiaries are managed and hedged by that subsidiary.

      AIGFP is exposed to market risk due to changes in the level and volatility of interest rates and the shape and slope of the yield curve. AIGFP hedges its exposure to interest rate risk by entering into transactions such as interest rate swaps and options and purchasing U.S. and foreign government obligations.

      AIGFP is exposed to market risk due to changes in and volatility of foreign currency exchange rates. AIGFP hedges its foreign currency exchange risk primarily through the use of currency swaps, options, forwards and futures.

      AIGFP is exposed to market risk due to changes in the level and volatility of equity prices which affect the value of securities or instruments that derive their value from a particular stock, a basket of stocks or a stock index. AIGFP reduces the risk of loss inherent in its inventory in equity securities by entering into hedging transactions, including equity swaps and options and purchasing U.S. and foreign government obligations.

      AIGFP does not seek to manage the market risk of each of its transactions through an individual offsetting transaction. Rather, AIGFP takes a portfolio approach to the management of its market risk exposure. AIGFP values its portfolio, including interest rate swaps, currency swaps, equity swaps, swaptions, options and forwards, at market value or estimated fair value when market values are not readily available. Unrealized gains and losses, with respect to this portfolio are reflected in income currently. These valuations represent an assessment of the present values of expected future cash flows of AIGFP’s transactions and may include reserves for such risks as are deemed appropriate by AIGFP’s and AIG’s management. AIGFP evaluates the portfolio’s discounted cash flows with reference to current market conditions, maturities within the portfolio and other relevant factors. The aforementioned estimated fair values are based upon the use of valuation models. These models utilize, among other things, market liquidity and current interest, foreign exchange and volatility rates. AIGFP attempts to secure reliable and independent current market prices, such as published exchange prices, external subscription services such as from Bloomberg or Reuters or third party broker quotes for use in this model. When such prices are not available, AIGFP uses an internal methodology which includes interpolation or extrapolation from verifiable prices nearest to the dates of the transactions. These valuation models are integrated into the evaluation of the portfolio, as described above, in order to provide timely information for the market risk management of the portfolio. Based upon this evaluation, AIGFP determines what, if any, offsetting transactions are necessary to reduce the market risk exposure of the portfolio. AIG manages its market risk with a variety of transactions, including swaps, trading securities, futures and forward contracts and other transactions as appropriate. The recorded values of these transactions may be different than the values that might be realized if AIGFP were required to sell or close out the transactions prior to maturity. AIG believes that such differences are not significant to the results of operations, financial condition or liquidity. Such differences would be immediately recognized when the transactions are sold or closed out prior to maturity.

      Additionally, depending upon the changes in interest rates and other market movements during the day, the system will produce reports for management’s consideration for intra-day offsetting positions. Overnight, the system generates reports which recommend the types of offsets management

36

---

Table of Contents

      As part of its monitoring and controlling of its exposure to market risk, AIGFP applies various testing techniques which reflect potential market movements. These techniques vary by currency and are regularly changed to reflect factors affecting the derivatives portfolio. In addition to the daily monitoring, AIGFP’s senior management and local risk managers conduct a weekly review of the derivatives portfolio and existing hedges. This review includes an examination of the portfolio’s risk measures, such as aggregate option sensitivity to movements in market variables. AIGFP’s management may change these measures to reflect their judgment and evaluation of the dynamics of the markets. This management group will also determine whether additional or alternative action is required in order to manage the portfolio.

      All of AIGTG’s market risk sensitive instruments are entered into for trading purposes. The fair values of AIGTG’s financial instruments are exposed to market risk as a result of adverse market changes in interest rates, foreign currency exchange rates, commodity prices and adverse changes in the liquidity of the markets in which AIGTG trades.

      AIGTG’s approach to managing market risk is to establish an appropriate offsetting position to a particular transaction or group of transactions depending upon the extent of market risk AIGTG expects to reduce.

      AIGTG’s senior management has established positions and stop-loss limits for each line of business. AIGTG’s traders are required to maintain positions within these limits. These positions are monitored during the day either manually and/or through on-line computer systems. In addition, these positions are reviewed by AIGTG’s management. Reports which present each trading books position and the prior day’s profit and loss are reviewed by traders, head traders and AIGTG’s senior management. Based upon these and other reports, AIGTG’s senior management may determine to adjust AIGTG’s risk profile.

      AIGTG attempts to secure reliable current market prices, such as published prices or third party quotes, to value its derivatives. Where such prices are not available, AIGTG uses an internal methodology which includes interpolation or extrapolation from verifiable prices nearest to the dates of the transactions. The methodology may reflect interest and exchange rates, commodity prices, volatility rates and other relevant factors. Unrealized gains and losses with respect to AIGTG’s positions are reflected in income currently.

      A significant portion of AIGTG’s business is transacted in liquid markets. Certain of AIGTG’s derivative product exposures are evaluated using simulation techniques which consider such factors as changes in currency and commodity prices, interest rates, volatility levels, market liquidity and the effect of time.

      AIGFP and AIGTG are both exposed to the risk of loss of fair value from adverse fluctuations in interest rate and foreign currency exchange rates and equity and commodity prices. AIG statistically measured the losses of fair value through the application of a VaR model. AIG separately calculated the VaR with respect to AIGFP and AIGTG, as AIG manages these operations separately.

      AIGFP’s and AIGTG’s asset and liability portfolios for which the VaR analyses were performed included over the counter and exchange traded investments, derivative instruments and commodities. Since the market risk with respect to securities available for sale, at market is substantially hedged, segregation of market sensitive instruments into trading and other than trading was not deemed necessary.

      AIG calculated the VaR with respect to AIGFP and AIGTG as of March 31, 2002 and December 31, 2001. AIG uses the historical simulation methodology which entails re-pricing all assets and liabilities under explicit changes in market rates within a specific historical time period. In this case, the most recent three years of historical market information for interest rates, foreign exchange rates, and equity index prices were used to construct the historical scenarios. For each scenario, each transaction was re-priced. Portfolio, business unit and finally AIG-wide scenario values were then calculated by netting the values of all the underlying assets and liabilities. The final VaR number represents the maximum potential loss incurred by these scenarios with 95% confidence (i.e., only 5% of

37

---

Table of Contents

      The following table presents the VaR on a combined basis and of each component of AIGFP’s and AIGTG’s market risk as of March 31, 2002 and December 31, 2001. VaR with respect to combined operations cannot be derived by aggregating the individual risk presented herein.

(in millions)

		AIGFP(a)								AIGTG(b)
Market Risk		2002				2001				2002				2001
Combined		$	8			$	12			$	3			$	2
Interest rate			8				12				3				2
Currency			—				—				—				1
Equity			1				1				—				—

     The following table presents the average, high and low VaRs on a combined basis and of each component of AIGFP’s and AIGTG’s market risk as of March 31, 2002 and December 31, 2001.

(in millions)

			2002												2001
			Average				High				Low				Average				High				Low
AIGFP Market Risk:
	Combined		$	10			$	12			$	8			$	12			$	15			$	9
	Interest rate			10				12				8				11				15				8
	Currency			—				—				—				—				1				—
	Equity			1				1				1				1				2				—
AIGTG Market Risk:
	Combined		$	3			$	3			$	2			$	3			$	6			$	2
	Interest Rate			3				3				2				3				4				2
	Currency			1				1				—				2				3				1

Derivatives

      Derivatives are financial arrangements among two or more parties. The returns of the derivatives are linked to or “derived” from some underlying equity, debt, commodity or other asset, liability, or index. Derivatives payments may be based on interest rates and exchange rates and/or prices of certain securities, certain commodities, or financial or commodity indices. The more significant types of derivative arrangements in which AIG transacts are swaps, forwards, futures and options. In the normal course of business, with the agreement of the original counterparty, these contracts may be terminated early or assigned to another counterparty.

      The overwhelming majority of AIG’s derivatives activities are conducted through AIGFP and AIGTG, thus permitting AIG to participate in the derivatives dealer market acting primarily as principal. In these derivative operations, AIG structures agreements which generally allow its counterparties to enter into transactions with respect to changes in interest and exchange rates, securities’ prices and certain commodities and financial or commodity indices. AIG’s customers such as corporations, financial institutions, multinational organizations, sovereign entities, government agencies and municipalities use derivatives to hedge their own market exposures. For example, a futures, forward or option contract can be used to protect the customers’ assets or liabilities against price fluctuations.

      A counterparty may default on any obligation to AIG, including a derivative contract. Credit risk is a consequence of extending credit and/or carrying trading and investment positions. Credit risk exists for a derivative contract when that contract has a positive fair value to AIG. To help manage this risk, the credit departments of AIGFP and AIGTG operate within the guidelines set by the AIG Credit Risk Committee. This committee establishes the credit policy, sets limits for counterparties and provides limits for derivative transactions with counterparties having different credit ratings. In addition to credit ratings, this committee takes into account other factors, including the industry and country of the counterparty. Transactions which fall outside these pre-established guidelines require the approval of the AIG Credit Risk Committee. It is also AIG’s policy to establish reserves for potential credit impairment when necessary.

38

---

Table of Contents

      AIGFP and AIGTG determine the credit quality of each of their counterparties taking into account credit ratings assigned by recognized statistical rating organizations. If it is determined that a counterparty requires credit enhancement, then one or more enhancement techniques will be used. Examples of such enhancement techniques include letters of credit, guarantees, collateral credit triggers and credit derivatives and margin agreements.

      A significant majority of AIGFP’s transactions are contracted and documented under ISDA Master Agreements. Management believes that such agreements provide for legally enforceable set-off in the event of default. Also, under such agreements, in connection with a counterparty desiring to terminate a contract prior to maturity, AIGFP may be permitted to set-off its receivables from that counterparty against AIGFP’s payables to that same counterparty arising out of all included transactions. Excluding regulated exchange transactions, AIGTG, whenever possible, enters into netting agreements with its counterparties which are similar in effect to those discussed above.

      Discussions with respect to AIGFP’s and AIGTG’s counterpart credit quality, fair value source and notional amounts follow.

Counterparty Credit Quality:

      The following tables provide the counterparty credit quality amounts of AIGFP’s and AIGTG’s derivatives transactions at March 31, 2002 and December 31, 2001.

      The net replacement value most closely represents the net credit risk to AIGFP or the maximum amount exposed to potential loss after the application of the aforementioned strategies, netting under ISDA Master Agreements and applying collateral held. Subsequent to the application of such credit enhancements, the net exposure to credit risk or the net replacement value of all interest rate, currency and equity swaps, swaptions and forward commitments approximated $9.78 billion at March 31, 2002 and $10.84 billion at December 31, 2001. The net replacement value for futures and forward contracts approximated $11 million at March 31, 2002 and $64 million at December 31, 2001. The net replacement value most closely represents the net credit risk to AIGFP or the maximum amount exposed to potential loss and is used for financial reporting purposes.

      AIGFP determines counterparty credit quality by reference to ratings from independent rating agencies or, where such ratings are not available, by internal analysis. At March 31, 2002 and December 31, 2001, the concentration of credit exposure with respect to counterparties judged A or higher by AIGFP was 92 percent and 93 percent, respectively. The counterparty credit quality determined by AIGFP by derivative product with respect to the net replacement value of AIGFP’s derivatives portfolio was as follows:

(in millions)

			Net Replacement Value
			Swaps and				Futures and				Total				Total
			Swaptions				Forward Contracts				2002				2001
Counterparty credit quality:
	AAA		$	3,961			$	—			$	3,961			$	4,388
	AA			2,728				10				2,738				3,214
	A			2,281				1				2,282				2,498
	BBB			801				—				801				784
	Below investment grade			11				—				11				23
Total			$	9,782			$	11			$	9,793			$	10,907

      At March 31, 2002 and December 31, 2001, the counterparty breakdown by industry with re-

39

---

Table of Contents

(in millions)

		Net Replacement Value
		Swaps and				Futures and				Total				Total
		Swaptions				Forward Contracts				2002				2001
Non-U.S. banks		$	2,004			$	11			$	2,015			$	2,464
Insured municipalities			586				—				586				638
U.S. industrials			1,892				—				1,892				2,113
Governmental			529				—				529				563
Non-U.S. financial service companies			406				—				406				428
Non-U.S. industrials			1,195				—				1,195				1,289
Special purpose			1,753				—				1,753				1,851
U.S. banks			52				—				52				72
U.S. financial service companies			1,104				—				1,104				1,211
Supranationals			261				—				261				278
Total		$	9,782			$	11			$	9,793			$	10,907

      With respect to AIGTG’s derivatives contracts at March 31, 2002 and December 31, 2001, the net replacement values represent the net sum of estimated positive fair values after the application of legally enforceable master netting agreements and collateral held. The net replacement values most closely represent the net credit risk to AIGTG or the maximum amount exposed to potential loss.

      Subsequent to the application of such credit enhancements, the net exposure to credit risk or the net replacement value of all futures, forwards, swaptions and purchased options contracts and interest rate and currency swaps was $2.40 billion and $3.05 billion at March 31, 2002 and December 31, 2001, respectively.

      AIGTG’s net replacement value at March 31, 2002 and December 31, 2001 was as follows:

(in millions)

				Remaining Life
				One				Two Through				Six Through				After Ten				Total				Total
				Year				Five Years				Ten Years				Years				2002				2001
Credit exposure:
	Futures, forwards, swaptions and purchased options contracts and interest rate and currency swaps:
		Gross replacement value		$	4,597			$	2,356			$	1,741			$	987			$	9,681			$	10,074
		Master netting arrangements			(2,848	)			(1,722	)			(1,456	)			(964	)			(6,990	)			(6,691	)
		Collateral			(23	)			(63	)			(186	)			(23	)			(295	)			(330	)
Net replacement value*				$	1,726			$	571			$	99			$	—			$	2,396			$	3,053

*

The net replacement values with respect to exchange traded futures and options, forward contracts and purchased over the counter options are presented as a component of trading assets in the accompanying balance sheet. The net replacement values with respect to interest rate and currency swaps are presented as a component of unrealized gain on interest rate and currency swaps, options and forward transactions in the accompanying balance sheet.

     AIGTG determines counterparty credit quality by reference to ratings from independent rating agencies or, where such ratings are not available, internal analysis. At March 31, 2002 and December 31, 2001, the concentration of credit exposure with respect to counterparties judged A or higher by AIGTG was 76 percent and 78 percent, respectively. Also, as of March 31, 2002 and December 31, 2001, the counterparty credit quality and counterparty breakdown by industry with respect to

40

---

Table of Contents

(in millions)

			Net Replacement Value
			2002				2001
Counterparty credit quality:
	AAA		$	230			$	391
	AA			1,007				1,117
	A			586				863
	BBB			251				330
	Below investment grade			129				130
	Not externally rated, including exchange traded futures and options*			193				222
Total			$	2,396			$	3,053
Counterparty breakdown by industry:
	Non-U.S. banks		$	857			$	1,151
	U.S. industrials			380				503
	Governmental			69				71
	Non-U.S. financial service companies			119				187
	Non-U.S. industrials			201				190
	U.S. banks			314				353
	U.S. financial service companies			263				376
	Exchanges*			193				222
Total			$	2,396			$	3,053

*	Exchange traded futures and options are not deemed to have significant credit exposure as the exchanges guarantee that every contract will be properly settled on a daily basis.

Fair Value Source:

      The fair value sources of the net replacement values of AIGFP’s derivatives portfolio were based on valuation models. Although these models are proprietary, the inputs were obtained from independently published exchange prices, external subscription services’ prices such as Bloomberg or Reuters or third party broker quotes for use in these models. When such prices are not available, AIGFP uses an internal methodology which includes interpolation or extrapolation from verifiable prices nearest to the dates of the transactions.

      At March 31, 2002 and December 31, 2001, the fair value source of the net replacement value of AIGTG’s derivatives portfolio was as follows:

(in millions)

		Maturity of Fair Value of Contracts
						Two Through				Six Through				After				Total				Total
Source of Fair Value		One Year				Five Years				Ten Years				Ten Years				2002				2001
Prices actively quoted		$	1,726			$	—			$	—			$	—			$	1,726			$	2,412
Prices provided by other external sources			—				507				—				—				507				530
Prices based on models and other valuation methods			—				64				99				—				163				111
Total		$	1,726			$	571			$	99			$	—			$	2,396			$	3,053

Notional Amounts:

      The notional amounts used to express the extent of AIGFP’s and AIGTG’s involvement in swap transactions represent a standard of measurement of the volume of AIGFP’s and AIGTG’s swaps business. Notional amount is not a quantification of market risk or credit risk and it may not necessarily be recorded on the balance sheet. Notional amounts represent those amounts used to calculate contractual cash flows to be exchanged and are not paid or received, except for certain contracts such as currency swaps.

      The timing and the amount of cash flows relating to AIGFP’s and AIGTG’s foreign exchange forwards and exchange traded futures and options contracts are determined by each of the respective

41

---

Table of Contents

(in millions)

			Remaining Life of Notional Amount*
			One				Two Through				Six Through				After Ten				Total				Total
			Year				Five Years				Ten Years				Years				2002				2001
AIGFP interest rate, currency and equity/commodity swaps and swaptions:
Notional amount:
	Interest rate swaps		$	115,888			$	244,490			$	108,505			$	15,053			$	483,936			$	436,669
	Currency swaps			32,806				70,809				37,220				6,060				146,895				139,174
	Swaptions and equity swaps			19,484				27,905				10,289				4,206				61,884				58,491
Total			$	168,178			$	343,204			$	156,014			$	25,319			$	692,715			$	634,334
Futures and forward contracts:
Exchange traded futures contracts contractual amount			$	7,628			$	—			$	—			$	—			$	7,628			$	10,036
Over the counter forward contracts contractual amount			$	50,203			$	484			$	199			$	—			$	50,886			$	58,003

*	Notional amount is not representative of either market risk or credit risk.

     The following table provides the contractual and notional amounts by maturity and type of derivative of AIGTG’s derivatives portfolio at March 31, 2002 and December 31, 2001.

(in millions)

			Remaining Life
			One				Two Through				Six Through				After Ten				Total				Total
			Year				Five Years				Ten Years				Years				2002				2001
Contractual amount of futures, forwards and options:
	Exchange traded futures and options		$	15,528			$	2,148			$	31			$	—			$	17,707			$	14,977
	Forwards		$	182,269			$	13,751			$	1,317			$	36			$	197,373			$	184,102
	Over the counter purchased options		$	86,775			$	12,037			$	28,046			$	243			$	127,101			$	138,655
	Over the counter sold options(a)		$	85,195			$	11,968			$	28,356			$	294			$	125,813			$	137,661
Notional amount(b):
	Interest rate swaps and forward rate agreements		$	12,895			$	36,559			$	7,413			$	2			$	56,869			$	59,683
	Currency swaps			3,580				5,190				983				—				9,753				11,092
	Swaptions		$	1,963			$	10,035			$	1,550				—			$	13,548				7,280
Total			$	18,438			$	51,784			$	9,946			$	2			$	80,170			$	78,055

(a)	Sold options obligate AIGTG to buy or sell the underlying item if the option purchaser chooses to exercise. The amounts do not represent credit exposure.
(b)	Notional amount is not representative of either market risk or credit risk.

     In addition to its role as derivatives dealer through AIGFP and AIGTG, AIG and its subsidiaries, including its insurance subsidiaries, use derivatives primarily to minimize AIG’s asset-liability exposure and foreign currency and interest rate exposures. These transactions are generally executed with AIGFP and AIGTG as counterparty, who in turn hedge these transactions in the market place. Thus, AIGFP and AIGTG assume the credit risk exposure.

      AIG also uses derivatives to help match assets and liabilities in several of its businesses, including its insurance operations. For example, AIG can use currency and interest rate swaps to convert foreign-currency investment contract liabilities into US dollar-based exposures. Thus, these liabilities are more properly matched with US dollar assets. In life insurance, AIG uses swaps to reduce the mismatch between long dated life insurance liabilities and shorter dated local currency assets. Swaps also en-

42

---

Table of Contents

      AIG’s Derivatives Review Committee provides an independent review of any proposed derivative transaction. The committee examines, among other things, the nature and purpose of the derivative transaction, its potential credit exposure, if any, and the estimated benefits. This committee does not review those derivative transactions entered into by AIGFP and AIGTG for their own accounts.

      Generally, AIG conducts its businesses in the currencies of the local operating environment. Thus, exchange gains or losses occur when AIG’s foreign currency net investment is affected by changes in the foreign exchange rates relative to the U.S. dollar from one reporting period to the next.

      Legal risk arises from the uncertainty of the enforceability, through legal or judicial processes, of the obligations of AIG’s clients and counterparties, including contractual provisions intended to reduce credit exposure by providing for the netting of mutual obligations. (See also the discussion on master netting agreements above.)

Important Accounting Policies

      AIG considers among its most important accounting policies those policies with respect to reserves for losses and loss expenses, future policy benefits for life and accident and health insurance contracts, deferred policy acquisition costs, and fair value with respect to certain assets and liabilities of certain of the subsidiaries of AIG’s financial services operations. These are the policies that require management’s most significant exercise of judgment on both a quantitative and qualitative basis. Further explanation of how management exercises that judgment is included throughout this Management’s Discussion and Analysis, and in the notes to the consolidated financial statements at December 31, 2001.

Accounting Standards

      In June 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard No. 142 “Goodwill and Other Intangible Assets” (FASB 142). As of January 1, 2002, AIG adopted FASB 142. FASB 142 requires AIG to discontinue the amortization of goodwill in its consolidated income statement. Amortization expense recorded in AIG’s consolidated statement of income for the three months ended March 31, 2001 amounted to $36 million pre-tax.

      FASB 142 requires goodwill to be subject to an assessment of impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred. FASB 142 also requires the completion of a transitional impairment test in the year of adoption, with any identified impairments recognized as a cumulative effect of a change in accounting principles. AIG believes that the results of its impairment testing will not have any significant impact on its results of operations and financial condition.

      Changes in the carrying amount of goodwill relates primarily to changes in foreign exchange rates affecting goodwill.

43

---

Table of Contents

PART II — OTHER INFORMATION

ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K

	(a)	Exhibits See accompanying Exhibit Index.
	(b)	There have been no reports on Form 8-K filed during the quarter ended March 31, 2002.

44

---

Table of Contents

SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	AMERICAN INTERNATIONAL GROUP, INC.
	(Registrant)
	/s/ HOWARD I. SMITH
	Howard I. Smith
	Vice Chairman,
	Chief Financial Officer and
	Chief Administrative Officer

Dated: May 14, 2002

45

---

Table of Contents

EXHIBIT INDEX

Exhibit
Number				Description		Location
	2			Plan of acquisition, reorganization, arrangement, liquidation or succession		None
	4			Instruments defining the rights of security holders, including indentures		Not required to be filed.
	10			Material contracts		None
	11			Statement re computation of per share earnings		Included in Note (f) of Notes to Financial Statements.
	12			Statement re computation of ratios		Filed herewith.
	15			Letter re unaudited interim financial information		None
	18			Letter re change in accounting principles		None
	19			Report furnished to security holders		None
	22			Published report regarding matters submitted to vote of security holders		None
	23			Consents of experts and counsel		None
	24			Power of attorney		None
	99			Additional exhibits		None

46