UNITED STATES

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Form 10-K

(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2004
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                 to

Commission file number 1-8787

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American International Group, Inc.

Delaware		13-2592361
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
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

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Securities registered pursuant to Section 12(b) of the Act:

		Name of each exchange
Title of each class		on which registered
Common Stock, Par Value $2.50 Per Share		New York Stock Exchange, Inc.

Securities registered pursuant to Section 12(g) of the Act:

Title of each class
None

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    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 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 o         No þ

    Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

    Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 
Yes þ         No o

    The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant computed by reference to the price at which the common equity was last sold as of June 30, 2004 (the last business day of the registrant’s most recently completed second fiscal quarter), was approximately $148,570,190,000.

    As of March 31, 2005, there were outstanding 2,594,907,032 shares of Common Stock, $2.50 par value per share, of the registrant.

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TABLE OF CONTENTS

Page
PART I
	Item 1.		Business			3
	Item 2.		Properties			16
	Item 3.		Legal Proceedings			16
	Item 4.		Submission of Matters to a Vote of Security Holders			19
PART II
	Item 5.		Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
	Item 6.		Selected Financial Data			21
	Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
	Item 7A.		Quantitative and Qualitative Disclosures About Market Risk			97
	Item 8.		Financial Statements and Supplementary Data			97
	Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			193
	Item 9A.		Controls and Procedures			193
	Item 9B.		Other Information			196
PART III
	Item 10.		Directors and Executive Officers of the Registrant			197
	Item 11.		Executive Compensation			199
	Item 12.		Security Ownership of Certain Beneficial Owners and Management			209
	Item 13.		Certain Relationships and Related Transactions			211
	Item 14.		Principal Accounting Fees and Services			211
PART IV
	Item 15.		Exhibits and Financial Statement Schedules			212
SIGNATURES						213

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PART I

ITEM 1.	Business

American International Group, Inc. (AIG), a Delaware corporation, is a holding company which, through its subsidiaries, is engaged in a broad range of insurance and insurance-related activities in the United States and abroad. AIG’s primary activities include both General Insurance and Life Insurance & Retirement Services operations. Other significant activities include Financial Services and Asset Management. The principal General Insurance company subsidiaries are American Home Assurance Company (American Home), National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), New Hampshire Insurance Company (New Hampshire), Lexington Insurance Company (Lexington), The Hartford Steam Boiler Inspection and Insurance Company (HSB), Transatlantic Reinsurance Company, American International Underwriters Overseas, Ltd. (AIUO) and United Guaranty Residential Insurance Company. Significant Life Insurance & Retirement Services operations include those conducted through American Life Insurance Company (ALICO), American International Reinsurance Company, Ltd. (AIRCO), American International Assurance Company, Limited together with American International Assurance Company (Bermuda) Limited (AIA), Nan Shan Life Insurance Company, Ltd. (Nan Shan), The Philippine American Life and General Insurance Company (Philamlife), AIG Star Life Insurance Co., Ltd. (AIG Star Life), AIG Edison Life Insurance Company (AIG Edison Life), AIG Annuity Insurance Company (AIG Annuity), the AIG American General Life Companies (AIG American General), American General Life and Accident Insurance Company (AGLA), The United States Life Insurance Company in the City of New York (USLIFE), The Variable Annuity Life Insurance Company (VALIC), SunAmerica Life Insurance Company (SunAmerica Life) and AIG SunAmerica Life Assurance Company. AIG’s Financial Services operations are conducted primarily through International Lease Finance Corporation (ILFC), AIG Financial Products Corp. and AIG Trading Group Inc. (AIGTG) and their respective subsidiaries (collectively referred to as AIGFP), and American General Finance, Inc. and its subsidiaries (AGF). AIG’s Asset Management operations include AIG SunAmerica Asset Management Corp. (SAAMCo) and AIG Global Asset Management Holdings Corp. (formerly known as AIG Global Investment Group, Inc.) and its subsidiaries and affiliated companies (AIG Global Investment Group). For information on AIG’s business segments, see Note 3 of Notes to Financial Statements.

     All financial information herein gives effect to the restatement and adjustments for changes in estimates described in Management’s Discussion and Analysis of Financial Condition and Results of Operations. As of March 31, 2005, beneficial ownership of approximately 12.0 percent, 2.0 percent and 1.8 percent of AIG common stock, was held by Starr International Company, Inc. (SICO), The Starr Foundation and C.V. Starr & Co., Inc. (Starr), respectively. For a discussion of AIG’s current relationship with Starr and SICO, see Items 11, 12 and 13 of Part III of this Annual Report on Form 10-K and “Certain Factors Affecting AIG’s Business — The Relationships Between AIG and Starr and SICO.”

     At December 31, 2004, AIG and its subsidiaries had approximately 92,000 employees.

     AIG’s Internet address for its corporate website is www.aigcorporate.com. AIG makes available free of charge, through the Investor Information section of AIG’s corporate website, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such materials are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). AIG also makes available on its corporate website copies of its charters for its Audit, Nominating and Corporate Governance and Compensation Committees, as well as its Corporate Governance Guidelines and Director Independence Standards.

     Throughout this Annual Report on Form 10-K, AIG presents its operations in the way it believes will be most meaningful, as well as most transparent. Certain of the measurements used by AIG management are “non-GAAP financial measures” under SEC rules and regulations. Gross premiums written, statutory underwriting profit (loss) and combined ratios are determined in accordance with accounting principles prescribed by insurance regulatory authorities. For an explanation of why AIG management considers these “non-GAAP measures” useful to investors, see Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The following table shows the general development of the business of AIG on a consolidated basis, the contributions made to AIG’s consolidated revenues and operating income and the assets held, in the periods indicated, by its General Insurance, Life Insurance & Retirement Services, Financial Services and Asset Management operations and other realized capital gains (losses). For additional information, see Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 1, 2 and 3 of Notes to Financial Statements. AIG has restated its financial statements for 2003, 2002, 2001 and 2000. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Restatement of Previously Issued Financial Statements” for a description of the adjustments included in the restatement and Selected Financial Data and Note 2 of Notes to Financial Statements for a reconciliation of previously reported amounts to the restated amounts.

Years Ended December 31,							2003				2002				2001				2000
(in millions)			2004				(Restated)				(Restated)				(Restated)				(Restated)
General Insurance operations:
	Gross premiums written		$	52,030			$	46,929			$	36,670			$	28,334			$	24,403
	Net premiums written			40,607				35,022				26,710				19,786				17,581
	Net premiums earned			38,511				31,387				23,572				18,932				16,338
	Underwriting profit (loss)(a)			(149	)(c)			2,074				(1,017	)(d)			(660	)(e)			(454	)
	Net investment income			3,166				2,527				2,423				2,552				2,696
	Realized capital gains (losses)			220				(62	)			(368	)			(194	)			(5	)
	Operating income			3,237	(c)			4,539				1,038	(d)			1,698	(e)			2,237
	Identifiable assets			131,513				117,156				105,929				88,847				81,370
	Loss ratio			78.8				73.2				83.2				79.5				79.2
	Expense ratio			21.3				19.3				21.5				23.8				23.3
	Combined ratio(b)			100.1	(c)			92.5				104.7	(d)			103.3	(e)			102.5
Life Insurance & Retirement Services operations:
	GAAP premiums			28,082				23,493				20,687				19,600				17,689
	Net investment income			15,268				12,941				11,298				10,463				10,027
	Realized capital gains (losses)			36				(181	)			(421	)			(221	)			(118	)
	Operating income			7,924				6,353				5,183				4,811	(f)			4,498
	Identifiable assets			447,896				372,175				289,966				256,731				217,873
	Insurance in-force at end of year			1,858,094				1,583,031				1,298,592				1,228,501				971,892
Financial Services operations:
	Interest, lease and finance charges(g)			7,982				6,341				6,604				6,278				7,220
	Operating income(g)			2,613				1,234				1,870				1,696				2,922
	Identifiable assets			163,287				140,078				127,615				108,638				93,919
Asset Management operations:
	Advisory and management fees and net investment income from GICs			4,692				3,643				3,485				3,562				3,120
	Operating income			1,790				1,078				1,006				990				923
	Identifiable assets			80,075				64,047				53,732				42,961				33,792
Other realized capital gains (losses)				(280	)			(377	)			(509	)			(504	)			(116	)
Revenues(h)				97,987				79,446				66,460				60,170				56,851
Total operating income(i)				14,950				11,655				7,982				5,914				9,175
Total assets				798,660				674,153				561,556				492,447				423,851

(a)	Underwriting profit (loss), a GAAP measure, is statutory underwriting profit (loss) adjusted primarily for changes in the deferral of policy acquisition costs. This adjustment is necessary to present the financial statements in accordance with GAAP.
(b)	Calculated on a statutory basis, includes catastrophe losses of $1.05 billion, $83 million, $61 million, $867 million and $44 million in 2004, 2003, 2002, 2001 and 2000, respectively.
(c)	Includes fourth quarter 2004 increase of $850 million to net loss reserves reflecting the change in estimate for asbestos and environmental reserves.
(d)	In the fourth quarter of 2002, after completion of its annual review of General Insurance loss and loss adjustment expense reserves, AIG increased its net loss reserves relating to accident years 1997 through 2001 by $2.1 billion.
(e)	Includes $769 million in World Trade Center and related losses (WTC losses).
(f)	Includes $100 million in WTC losses.
(g)	Includes the unrealized gain (loss) attributable to economic hedges not qualifying for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. For 2004, 2003, 2002, 2001 and 2000, respectively, the amounts included in interest, lease and finance charges are $215 million, $(1.09) billion, $(192) million, $(74) million and $1.27 billion, and the amounts included in Financial Services operating income are $188 million, $(1.04) billion, $(172) million, $(55) million and $1.27 billion. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Restatement of Previously Issued Financial Statements” — Other GAAP Corrections — Accounting for Derivatives (FAS 133 Hedge Accounting).”
(h)	Represents the sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income with respect to Guaranteed Investment Contracts (GICs), and realized capital gains (losses).
(i)	Represents income before income taxes, minority interest and cumulative effect of accounting changes. Includes segment operating income and other realized capital gains (losses) presented above, as well as AIG Parent and other operations of $(334) million, $(1.17) billion, $(606) million, $(760) million and $(974) million in 2004, 2003, 2002, 2001 and 2000, respectively, and acquisition, restructuring and related charges of $(2.02) billion in 2001 and $(315) million in 2000.

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	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 operations of HSB; Transatlantic Holdings, Inc. (Transatlantic); Personal Lines, including 21st Century Insurance Group (21st Century); and United Guaranty Corporation (UGC).

     AIG’s primary domestic division is DBG. DBG’s business is derived from brokers in the United States and Canada and is conducted through its General Insurance subsidiaries including American Home, National Union, Lexington and certain other General Insurance company subsidiaries of AIG.

     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. AIG uses managing general agents owned by Starr to produce business in certain lines. See Item 13. Certain Relationships and Related Transactions.

     In addition to writing substantially all classes of business insurance, including large commercial or industrial property insurance, excess liability, inland marine, environmental, workers compensation and excess and umbrella coverages, DBG offers many specialized forms of insurance such as aviation, accident and health, equipment breakdown, directors and officers liability (D&O), difference-in-conditions, kidnap-ransom, export credit and political risk, and various types of professional errors and omissions coverages. The AIG Risk Management operation provides insurance and risk management programs for large corporate customers. The AIG Risk Finance operation is a leading provider of customized structured insurance products. Also included in DBG are the operations of AIG Environmental, which focuses specifically on providing specialty products to clients with environmental exposures. Lexington writes surplus lines, those risks for which conventional insurance companies do not readily provide insurance coverage, either because of complexity or because the coverage does not lend itself to conventional contracts.

     Certain of the products of the DBG companies include funding components or have been structured in a manner such that little or no insurance risk is actually transferred. Funds received in connection with these products are recorded as deposits, included in other liabilities, rather than premiums and incurred losses.

     The AIG Worldsource Division introduces and coordinates AIG’s products and services to U.S.-based multinational clients and foreign corporations doing business in the U.S. Transatlantic subsidiaries offer reinsurance capacity on both a treaty and facultative basis both in the U.S. and abroad. Transatlantic structures programs for a full range of property and casualty products with an emphasis on specialty risk.

     AIG’s personal lines operations engage in mass marketing of personal lines coverages, primarily private passenger auto and personal umbrella coverages, principally through American International Insurance Company and 21st Century. In 2003, AIG acquired the U.S.-based auto and home insurance business of General Electric Company (GE).

     The business of UGC and its subsidiaries is also included in the domestic operations of AIG. The principal business of the UGC subsidiaries is the writing of residential mortgage loan insurance, which is guaranty insurance on conventional first mortgage loans on single-family dwellings and condominiums. This type of insurance protects lenders against loss if borrowers default. UGC subsidiaries also write home equity and property improvement loan insurance on loans to finance residential property improvements, alterations and repairs and for other purposes not necessarily related to real estate. During 2003, UGC commenced providing guaranty insurance to providers of student loans. UGC had approximately $22 billion of guaranty risk in force at December 31, 2004.

     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 companies. The Foreign General Insurance group also includes business written by AIG’s foreign-based insurance subsidiaries. The Foreign General group uses various marketing methods and multiple distribution channels to write both business and personal lines insurance with certain refinements for local laws, customs and needs. AIU operates in Asia, the Pacific Rim, the United Kingdom, Europe, Africa, the Middle East and Latin America. See also Note 3 of Notes to Financial Statements.

     During 2004, DBG and the Foreign General Insurance group accounted for 55.4 percent and 23.1 percent, respectively, of AIG’s General Insurance net premiums written.

     AIG’s General Insurance company subsidiaries worldwide operate primarily by underwriting and accepting risks for their direct account and securing reinsurance on that portion of the risk in excess of the limit which they wish to retain. This operating policy differs from that of many insurance

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companies that will underwrite only up to their net retention limit, thereby requiring the broker or agent to secure commitments from other underwriters for the remainder of the gross risk amount.

     Certain of DBG’s commercial insurance is reinsured on a quota share basis by AIRCO. Various AIG profit centers, including AIU, AIG Reinsurance Advisors, Inc. and AIG Risk Finance, use AIRCO as a reinsurer for certain of their businesses, and AIRCO also receives premiums from offshore fronting arrangements for clients of AIG subsidiaries. In accordance with permitted accounting practices in Bermuda, AIRCO discounts reserves attributable to certain classes of business assumed from other AIG subsidiaries. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Operating Review – Reserve for Losses and Loss Expenses.”

     The utilization of reinsurance is closely monitored by senior management and AIG’s Credit Risk Committee. AIG believes that no exposure to a single reinsurer represents an inappropriate concentration of risk to AIG, nor is AIG’s business substantially dependent upon any reinsurance contract. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 5 of Notes to Financial Statements.

     AIG is diversified both in terms of classes of business and geographic locations. In General Insurance, approximately 13 percent of net premiums written for the year ended December 31, 2004 represented workers compensation business. During 2004, of the direct General Insurance premiums written (gross premiums less return premiums and cancellations, excluding reinsurance assumed and before deducting reinsurance ceded), 12.0 percent and 6.7 percent were written in California and New York, respectively. No other state accounted for more than five percent of such premiums.

     The majority of AIG’s General Insurance business is in the casualty classes, which tend to involve longer periods of time for the reporting and settling of claims. This may increase the risk and uncertainty with respect to AIG’s loss reserve development. See also the Discussion and Analysis of Consolidated Net Losses and Loss Expense Reserve Development and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Discussion and Analysis of Consolidated Net Losses and Loss Expense Reserve Development

The reserve for net losses and loss expenses represents the accumulation of estimates for reported losses (“case basis reserves”) and provisions for losses incurred but not reported (IBNR), both reduced by applicable reinsurance recoverable and the discount for future investment income. Losses and loss expenses are charged to income as incurred.

     Loss reserves established with respect to foreign business are set and monitored in terms of the respective local or functional currency. Therefore, no assumption is included for changes in currency rates. See also Note 1(w) of Notes to Financial Statements.

     Management reviews the adequacy of established loss reserves through the utilization of a number of analytical reserve development techniques. Through the use of these techniques, management is able to monitor the adequacy of its established reserves and determine appropriate assumptions for inflation. Also, analysis of emerging specific development patterns, such as case reserve redundancies or deficiencies and IBNR emergence, allows management to determine any required adjustments. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     As a result of its internal review, AIG has determined that its carried reserves for net losses and loss expenses are required to be restated and adjusted. The tables below present those amounts as so restated and adjusted. In addition, AIG has increased the reserves for asbestos and environmental exposures included within the reserve for net losses and loss expenses by $850 million in the fourth quarter of 2004 to reflect a change in estimate. See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Restatement of Previously Issued Financial Statements,” “Fourth Quarter 2004 Changes in Estimates” and “Asbestos and Environmental Reserves.” See also Notes 1(cc) and 2 of Notes to Financial Statements.

     The “Analysis of Consolidated Net Losses and Loss Expense Reserve Development” table presents the development of net losses and loss expense reserves for calendar years 1994 through 2004. Immediately following this table is a second table that presents all data on a basis that excludes asbestos and environmental net losses and loss expense reserve development. The opening reserves held are shown at the top of the table for each year end date. The amount of loss reserve discount included in the opening reserve at each date is shown immediately below the reserves held for each year. The undiscounted reserve at each date is thus the sum of the discount and the reserve held. The upper half of the table shows the cumulative amounts paid during successive years related to the undiscounted opening loss reserves. For example, in the table that excludes asbestos and environmental losses, with respect to the net losses and loss expense reserve of $20.87 billion as of December 31, 1997, by the end of 2004 (seven years later) $18.97 billion had actually been paid in settlement of these net loss reserves. In addition, as

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     The bottom of each table below shows the remaining undiscounted and discounted net loss reserve for each year. For example, in the table that excludes asbestos and environmental losses, for the 2000 year-end, the remaining undiscounted reserves held as of December 31, 2004 are $8.80 billion, with a corresponding discounted net reserve of $8.21 billion.

     The reserves for net losses and loss expenses with respect to Transatlantic and 21st Century are included only in consolidated net losses and loss expenses commencing with the year ended December 31, 1998. Reserve development for these operations is included only for 1998 and subsequent periods. Thus, the presentation for 1997 and prior year ends is not fully comparable to that for 1998 and subsequent years in the tables below.

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	Analysis of Consolidated Losses and Loss Expense Reserve Development

The following table presents for each calendar year the losses and loss expense reserves and the development thereof including those with respect to asbestos and environmental claims. As a result of the internal review discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the amounts of carried reserves and the liabilities reestimated have been restated or adjusted for all periods presented. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(in millions)			1994				1995				1996				1997				1998				1999				2000				2001				2002				2003				2004
Reserves Held			$	18,888			$	19,890			$	20,632			$	21,038			$	25,559			$	25,807			$	25,860			$	26,437			$	29,768			$	36,738			$	47,747
Discount (in Reserves Held)				157				217				393				619				897				1,075				1,287				1,423				1,499				1,516				1,553
Reserves Held (Undiscounted)				19,045				20,107				21,025				21,657				26,456				26,882				27,147				27,860				31,267				38,254				49,300
Paid (Cumulative) as of:
	One year later			4,922				5,416				5,712				5,607				7,205				8,266				9,709				11,007				10,775				12,163
	Two years later			8,338				8,982				9,244				9,754				12,382				14,640				17,149				18,091				18,589
	Three years later			10,702				11,363				11,943				12,939				16,599				19,901				21,930				23,881
	Four years later			12,541				13,108				14,152				15,484				20,263				23,074				26,090
	Five years later			13,868				14,667				16,077				17,637				22,303				25,829
	Six years later			15,036				16,120				17,551				18,806				24,114
	Seven years later			16,079				17,212				18,415				19,919
	Eight years later			16,947				17,792				19,200
	Nine years later			17,359				18,379
	Ten years later			17,806

(in millions)			1994				1995				1996				1997				1998				1999				2000				2001				2002				2003				2004
Reserves Held (undiscounted)			$	19,045			$	20,107			$	21,025			$	21,657			$	26,456			$	26,882			$	27,147			$	27,860			$	31,267			$	38,254			$	49,300
Undiscounted Liability Restated as of:
	One year later			18,657				19,918				20,930				21,699				26,038				26,502				27,234				31,456				33,266				41,081
	Two years later			18,806				20,002				21,013				21,637				25,780				27,229				30,913				33,639				37,733
	Three years later			19,034				20,001				21,130				21,401				26,329				30,176				32,923				38,110
	Four years later			19,112				20,278				20,912				21,628				28,171				31,368				36,355
	Five years later			19,308				20,126				21,057				22,545				28,757				34,051
	Six years later			19,296				20,087				21,607				22,858				30,773
	Seven years later			19,253				20,471				21,806				24,346
	Eight years later			19,579				20,694				23,122
	Nine years later			19,756				21,871
	Ten years later			20,898
Redundancy/(Deficiency)				(1,852	)			(1,764	)			(2,097	)			(2,689	)			(4,317	)			(7,169	)			(9,209	)			(10,250	)			(6,466	)			(2,827	)
Remaining Reserves (Undiscounted)				3,091				3,493				3,922				4,426				6,659				8,221				10,266				14,229				19,144				28,918
Remaining Discount				205				240				281				332				404				490				596				789				915				1,139
Remaining Reserves				2,886				3,253				3,641				4,094				6,255				7,731				9,670				13,440				18,229				27,779

The table below shows the gross liability (before discount), reinsurance recoverable and net liability recorded at each year-end and the reestimation of these amounts as of December 31, 2004.

(in millions)		1994				1995				1996				1997				1998				1999				2000				2001				2002				2003				2004
Gross Liability, End of Year		$	31,116			$	32,434			$	32,741			$	32,186			$	37,114			$	37,449			$	39,398			$	43,061			$	48,594			$	53,897			$	63,924
Reinsurance Recoverable, End of Year			12,071				12,327				11,716				10,530				10,658				10,567				12,251				15,201				17,327				15,644				14,624
Net Liability, End of Year			19,045				20,107				21,025				21,657				26,456				26,882				27,147				27,860				31,267				38,254				49,300
Reestimated Gross Liability			34,630				36,688				37,361				39,225				47,370				51,478				55,386				57,447				56,861				57,516
Reestimated Reinsurance Recoverable			13,732				14,817				14,239				14,880				16,597				17,427				19,031				19,337				19,128				16,436
Reestimated Net Liability			20,898				21,871				23,122				24,346				30,773				34,051				36,355				38,110				37,733				41,081
Cumulative Gross Redundancy/(Deficiency)			(3,514	)			(4,254	)			(4,620	)			(7,039	)			(10,256	)			(14,029	)			(15,988	)			(14,386	)			(8,267	)			(3,619	)

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	Analysis of Consolidated Losses and Loss Expense Reserve Development Excluding Asbestos and Environmental Losses and Loss Expense Reserve Development

The following table presents for each calendar year the losses and loss expense reserves and the development thereof excluding those with respect to asbestos and environmental claims. As a result of the internal review discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations, the amounts of carried reserves and the liabilities reestimated have been restated or adjusted for all periods presented. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

(in millions)			1994				1995				1996				1997				1998				1999				2000				2001				2002				2003				2004
Reserves Held			$	18,558			$	19,383			$	19,889			$	20,250			$	24,695			$	24,916			$	25,005			$	25,718			$	29,071			$	36,068			$	46,236
Discount (in Reserves Held)				157				217				393				619				897				1,075				1,287				1,423				1,499				1,516				1,553
Reserves Held (Undiscounted)				18,715				19,600				20,282				20,869				25,592				25,991				26,292				27,141				30,570				37,584				47,789
Paid (Cumulative) as of:
	One year later			4,847				5,309				5,603				5,467				7,084				8,195				9,515				10,861				10,632				11,999
	Two years later			8,156				8,771				8,996				9,500				12,190				14,376				16,808				17,801				18,283
	Three years later			10,417				11,013				11,582				12,618				16,214				19,490				21,447				23,430
	Four years later			12,117				12,645				13,724				14,972				19,732				22,521				25,445
	Five years later			13,332				14,139				15,460				16,983				21,630				25,116
	Six years later			14,435				15,404				16,792				18,014				23,282
	Seven years later			15,291				16,355				17,519				18,972
	Eight years later			16,018				16,798				18,149
	Nine years later			16,294				17,230
	Ten years later			16,588

(in millions)			1994				1995				1996				1997				1998				1999				2000				2001				2002				2003				2004
Reserves Held (undiscounted)			$	18,715			$	19,600			$	20,282			$	20,869			$	25,592			$	25,991			$	26,292			$	27,141			$	30,570			$	37,584			$	47,789
Undiscounted Liability Restated as of:
	One year later			18,074				19,072				20,040				20,713				25,031				25,581				26,326				30,618				32,482				39,411
	Two years later			17,893				19,019				19,923				20,521				24,743				26,259				29,886				32,714				35,952
	Three years later			17,983				18,815				19,912				20,257				25,244				29,084				31,810				36,189
	Four years later			17,858				18,965				19,666				20,445				26,964				30,190				34,247
	Five years later			17,927				18,787				19,773				21,244				27,464				31,878
	Six years later			17,889				18,710				20,208				21,474				28,486
	Seven years later			17,810				18,980				20,324				21,972
	Eight years later			18,022				19,119				20,651
	Nine years later			18,117				19,308
	Ten years later			18,270
Redundancy/(Deficiency)				445				292				(369	)			(1,103	)			(2,894	)			(5,887	)			(7,955	)			(9,049	)			(5,382	)			(1,827	)
Remaining Reserves (undiscounted)				1,682				2,078				2,502				3,001				5,204				6,762				8,801				12,759				17,669				27,413
Remaining Discount				205				240				281				332				404				490				596				789				915				1,139
Remaining Reserves				1,477				1,838				2,221				2,669				4,800				6,272				8,205				11,970				16,754				26,274

The table below shows the gross liability (before discount), reinsurance recoverable and net liability recorded at each year-end and the reestimation of these amounts as of December 31, 2004.

(in millions)		1994				1995				1996				1997				1998				1999				2000				2001				2002				2003				2004
Gross Liability, End of Year		$	29,702			$	30,491			$	30,437			$	29,877			$	34,615			$	34,837			$	36,953			$	40,832			$	46,457			$	51,873			$	60,391
Reinsurance Recoverable, End of Year			10,987				10,891				10,156				9,008				9,023				8,846				10,661				13,692				15,887				14,288				12,602
Net Liability, End of Year			18,715				19,600				20,282				20,869				25,592				25,991				26,292				27,141				30,570				37,584				47,789
Reestimated Gross Liability			26,984				29,386				30,461				32,768				41,241				45,754				50,183				52,771				52,527				53,589
Reestimated Reinsurance Recoverable			8,714				10,078				9,810				10,795				12,755				13,876				15,936				16,581				16,574				14,177
Reestimated Net Liability			18,270				19,308				20,651				21,972				28,486				31,878				34,247				36,189				35,952				39,411
Cumulative Gross Redundancy/(Deficiency)			2,718				1,105				(24	)			(2,891	)			(6,626	)			(10,917	)			(13,230	)			(11,939	)			(6,070	)			(1,716	)

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	Reconciliation of Net Reserves for Losses and Loss Expenses

			2004				2003				2002
(in millions)							(Restated)				(Restated)
Net reserve for losses and loss expenses at beginning of year			$	36,738			$	29,768			$	26,437
Acquisition				–				391	(a)			–
Losses and loss expenses incurred:
	Current year			27,129				20,663				15,723
	Prior years(b)			3,204	(c)			2,295				3,876
				30,333				22,958				19,599
Losses and loss expenses paid:
	Current year			7,161				5,604				5,261
	Prior years			12,163				10,775				11,007
				19,324				16,379				16,268
Net reserve for losses and loss expenses at end of year(d)			$	47,747			$	36,738			$	29,768

(a)	Reflects the opening balances with respect to the GE U.S.-based auto and home insurance business acquired in 2003.
(b)	Includes accretion of discount of $377 million in 2004, $296 million in 2003 and $280 million in 2002.

(c)	Includes fourth quarter charge of $850 million attributable to the change in estimate for asbestos and environmental reserves.

(d)	See also Note 6(a) of Notes to Financial Statements.

     For further discussion regarding net reserves for losses and loss expenses, see Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The adjustments made to the reserve for losses and loss expenses resulting from the internal review, including the fourth quarter charge attributable to a change in estimate for asbestos and environmental exposures, will be restated or adjusted as reported in the Annual Statements filed with state insurance departments and, where appropriate, with foreign regulatory authorities. In addition, because not all of AIG’s General Insurance operations are subject to regulatory filing requirements by the states, there are differences between the sum of reserves for losses and loss expenses as filed with the states and the reserves for losses and loss expenses as reported in AIG’s Consolidated Balance Sheet at December 31, 2004. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 of Notes to Financial Statements.

	Life Insurance & Retirement Services Operations

AIG’s Life Insurance & Retirement Services subsidiaries offer a wide range of insurance and investment-oriented products both domestically and abroad. Insurance-oriented products consist of individual and group life, payout annuities, endowment and accident and health policies. Investment-oriented products consist generally of fixed and variable annuities. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Life Insurance & Retirement Services operations in foreign countries comprised 78.0 percent of Life Insurance & Retirement Services GAAP premiums and 62.4 percent of Life Insurance & Retirement Services operating income in 2004. AIG operates overseas principally through ALICO, AIA, Nan Shan, Philamlife, AIG Star Life, and AIG Edison Life. 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 Europe, Latin America, the Caribbean, the Middle East, South Asia and the Far East, with Japan being the largest territory. AIG added significantly to its presence in Japan with the acquisition of GE Edison Life Insurance Company (now AIG Edison Life), which was consolidated beginning with the fourth quarter of 2003. AIA operates primarily in China (including Hong Kong), Singapore, Malaysia, Thailand, Korea, Australia, New Zealand, Vietnam, and India. The operations in India are conducted through a joint venture, Tata AIG Life Insurance Company Limited. Nan Shan operates in Taiwan. Philamlife is the largest life insurer in the Philippines. AIG Star Life operates in Japan. See also Note 3 of Notes to Financial Statements.

     AIRCO acts primarily as an internal reinsurance company for AIG’s foreign life operations. This facilitates insurance risk management (retention, volatility, concentrations) and capital planning locally (branch and subsidiary). It also allows AIG to pool its insurance risks and purchase reinsurance more efficiently at a consolidated level and manage global counterparty risk and relationships.

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     AIG’s principal domestic Life Insurance & Retirement Services operations include AGLA, AIG American General, AIG Annuity, USLIFE, VALIC and SunAmerica Life. These companies utilize multiple distribution channels including independent producers, brokerage, career agents and banks to offer life insurance, annuity and accident and health products and services as well as financial and investment products. The domestic Life Insurance & Retirement Services operations comprised 22.0 percent of total Life Insurance & Retirement Services GAAP premiums and 37.6 percent of Life Insurance & Retirement Services operating income in 2004.

     There was no significant adverse effect on AIG’s Life Insurance & Retirement Services results of operations from economic environments in any one state, country or geographic region for the year ended December 31, 2004. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     Life insurance products such as whole life and endowment continue to be significant in the overseas companies, especially in Southeast Asia, while a mixture of life insurance, accident and health and retirement services products are sold in Japan.

     In addition to the above, AIG also has subsidiary operations in Canada, Egypt, Mexico, Poland, Switzerland and Puerto Rico, and conducts life insurance business through a joint venture in Brazil and through an AIUO subsidiary company in Russia, and in certain countries in Central and South America.

     The Foreign Life Insurance & Retirement Services companies have over 250,000 full and part-time agents, as well as independent producers, and sell their products largely to indigenous persons in local and foreign currencies. In addition to the agency outlets, these companies also distribute their products through direct marketing channels, such as mass marketing, and through brokers and other distribution outlets, such as financial institutions.

	Insurance Investment Operations

A significant portion of AIG’s General Insurance and Life Insurance & Retirement Services operating revenues are derived from AIG’s insurance investment operations. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 1, 3 and 8 of Notes to Financial Statements.

The following table summarizes the investment results of the General Insurance operations. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 8 of Notes to Financial Statements.

		Annual Average Cash and Invested Assets
		Cash
		(including												Return on				Return on
Years Ended December 31,		short-term				Invested								Average Cash				Average
(in millions)		invetments)				Assets(a)				Total				and Assets				Assets
2004			$2,012			$	73,361			$	75,373				4.2	%(b)			4.3	%(c)
2003 (Restated)			1,818				59,871				61,689				4.1	(b)			4.2	(c)
2002 (Restated)			1,537				47,481				49,018				4.9	(b)			5.1	(c)
2001 (Restated)			1,338				41,478				42,816				6.0	(b)			6.2	(c)
2000 (Restated)			1,152				39,686				40,838				6.6	(b)			6.8	(c)

(a)	Including investment income due and accrued, and real estate.
(b)	Net investment income divided by the annual average sum of cash and invested assets.
(c)	Net investment income divided by the annual average invested assets.

The following table summarizes the investment results of the Life Insurance & Retirement Services operations. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 8 of Notes to Financial Statements.

		Annual Average Cash and Invested Assets
		Cash
		(including												Return on				Return on
Years Ended December 31,		short-term				Invested								Average Cash				Average
(in millions)		invetments)				Assets(a)				Total				and Assets				Assets
2004		$	5,089			$	308,538			$	313,627				4.9	%(b)			4.9	%(c)
2003 (Restated)			4,680				248,249				252,929				5.1	(b)			5.2	(c)
2002 (Restated)			3,919				200,130				204,049				5.5	(b)			5.6	(c)
2001 (Restated)			3,615				162,879				166,494				6.3	(b)			6.4	(c)
2000 (Restated)			4,644				137,944				142,588				7.0	(b)			7.3	(c)

(a)	Including investment income due and accrued, and real estate.
(b)	Net investment income divided by the annual average sum of cash and invested assets.
(c)	Net investment income divided by the annual average invested assets.

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     AIG’s worldwide insurance investment policy places primary emphasis on investments in government and other high quality, fixed income securities in all of its portfolios and, to a lesser extent, investments in high yield bonds, common stocks and partnerships, in order to preserve policyholders’ surplus and generate net investment income. The ability to implement this policy is somewhat limited in certain territories as there may be a lack of adequate long-term investments or investment restrictions may be imposed by the local regulatory authorities. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

	Financial Services Operations

AIG’s Financial Services subsidiaries engage in diversified financial products and services including aircraft leasing, capital market transactions, and consumer and insurance premium financing.

     Aircraft Finance operations represent the operations of ILFC, which engages primarily in the acquisition of commercial jet aircraft and the leasing and remarketing of such aircraft to airlines around the world. ILFC also provides, for a fee, fleet management services to certain third-party operators. See also Note 3 of Notes to Financial Statements.

     During the third quarter of 2003, AIG integrated the operations of AIG Trading Group Inc. with AIG Financial Products Corp., establishing the Capital Markets reporting unit. AIGFP engages as principal in standard and customized interest rate, currency, equity, commodity, and credit products with top-tier corporations, financial institutions, governments, agencies, institutional investors, and high-net-worth individuals throughout the world. AIGFP also raises funds through municipal reinvestment contracts and other private and public security offerings, investing the proceeds in a diversified portfolio of high grade securities and derivative transactions. AIGFP engages in various commodity and foreign exchange trading and market-making activities. See also Note 3 of Notes to Financial Statements.

     Consumer Finance operations include AGF as well as AIG Consumer Finance Group, Inc. (AIGCFG). See also Note 3 of Notes to Financial Statements.

     AGF provides a wide variety of consumer finance products, including real estate mortgages, consumer loans, retail sales finance and credit-related insurance to customers in the United States.

     AIGCFG, through its subsidiaries, is engaged in developing a multi-product consumer finance business with an emphasis on emerging markets.

     Together, the Aircraft Finance, Capital Markets and Consumer Finance operations generate the vast majority of the revenues produced by AIG’s consolidated Financial Services operations.

     Imperial A.I. Credit Companies also contribute to Financial Services income. This operation engages principally in insurance premium financing for both AIG’s customers and those of other insurers. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes 1 and 12 of Notes to Financial Statements.

	Asset Management Operations

AIG’s Asset Management operations comprise a wide variety of investment-related services and investment products, including institutional and retail asset management, broker dealer services and spread-based investment business from the sale of guaranteed investment contracts, also known as funding agreements (GICs). Such products and services are offered to individuals and institutions both domestically and overseas.

     AIG’s principal Asset Management operations are conducted through certain subsidiaries of AIG Retirement Services, Inc. (AIG SunAmerica), including SAAMCo and the AIG Advisor Group broker dealers and AIG Global Investment Group. AIG SunAmerica sells and manages mutual funds and provides financial advisory services through independent-contractor registered representatives. AIG Global Investment Group manages invested assets on a global basis for third-party institutional, retail, private equity and real estate investment funds, provides securities lending and custodial services and organizes and manages the invested assets of institutional private equity investment funds. Each of these subsidiary operations receives fees for investment products and services provided. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 3 of Notes to Financial Statements.

	Other Operations

Certain other AIG subsidiaries provide insurance-related services such as adjusting claims and marketing specialized products. Several wholly owned foreign subsidiaries of AIG operating in countries such as Ireland, Bermuda, Barbados and Gibraltar provide insurance and related administrative and back office services to a variety of insurance and reinsurance companies. These companies include captive insurance companies unaffiliated with AIG, subsidiaries of AIG and the subsidiaries of holding companies in which AIG holds an interest, such as IPC Holdings, Ltd (IPC) and Allied World Assurance Holdings, Ltd. (AWAC). AIG also has several other subsidiaries which engage in various businesses. For example, American

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	Additional Investments

AIG holds a 24.3 percent interest in IPC, a reinsurance holding company, a 23.4 percent interest in AWAC, a property-casualty insurance holding company, and a 24.5 percent interest in The Fuji Fire and Marine Insurance Co., Ltd., a general insurance company. See also Note 1(q) of Notes to Financial Statements.

	Locations of Certain Assets

As of December 31, 2004, approximately 31 percent of the consolidated assets of AIG were located in foreign countries (other than Canada), including $4.1 billion of cash and securities on deposit with foreign regulatory authorities. Foreign operations and assets held abroad may be adversely affected by political developments in foreign countries, including such possibilities as tax changes, nationalization, and changes in regulatory policy, as well as by consequence of hostilities and unrest. The risks of such occurrences and their overall effect upon AIG vary from country to country and cannot easily be predicted. If expropriation or nationalization does occur, AIG’s policy is to take all appropriate measures to seek recovery of such assets. Certain of the countries in which AIG’s business is conducted have currency restrictions which generally cause a delay in a company’s ability to repatriate assets and profits. See also Notes 1 and 3 of Notes to Financial Statements.

	Regulation

AIG’s operations around the world are subject to regulation by many different types of regulatory authorities, including insurance, securities, investment advisory, banking and thrift regulators in the United States and abroad. The regulatory environment can have a significant effect on AIG and its business. AIG’s operations have become more diverse and consumer-oriented, increasing the scope of regulatory supervision and the possibility of intervention. In addition, the recent investigations into financial accounting practices that led to the restatement of AIG’s financial statements have heightened regulatory scrutiny of AIG worldwide. See “Certain Factors Affecting AIG’s Business – Regulatory Investigations” and Note 2 of Notes to Financial Statements.

     Certain states require registration and periodic reporting by insurance companies that are licensed in such states and are controlled by other corporations. Applicable legislation typically requires periodic disclosure concerning the corporation that controls the registered insurer and the other companies in the holding company system and prior approval of intercorporate services and transfers of assets (including in some instances payment of dividends by the insurance subsidiary) within the holding company system. AIG’s subsidiaries are registered under such legislation in those states that have such requirements. See also Note 11 of Notes to Financial Statements.

     AIG’s insurance subsidiaries, in common with other insurers, are subject to regulation and supervision by the states and by other jurisdictions in which they do business. Within the United States, the method of such regulation varies but generally has its source in statutes that delegate regulatory and supervisory powers to an insurance official. The regulation and supervision relate primarily to approval of policy forms and rates, the standards of solvency that must be met and maintained, including risk-based capital measurements, the licensing of insurers and their agents, the nature of and limitations on investments, restrictions on the size of risks that may be insured under a single policy, deposits of securities for the benefit of policyholders, requirements for acceptability of reinsurers, periodic examinations of the affairs of insurance companies, the form and content of reports of financial condition required to be filed, and reserves for unearned premiums, losses and other purposes. In general, such regulation is for the protection of policyholders rather than the equity owners of these companies. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     AIG has not yet determined the effect of the restatement on the statutory income, net reserves or surplus of its insurance company subsidiaries. The adjustments that AIG will be required to make to the statutory financial statements may negatively affect certain ratios and other measurements applicable to insurance companies.

     AIG’s insurance operations are currently under review by various state regulatory agencies, and certain agencies have communicated to AIG concerns in various areas, including allocation of state workers compensation premiums and possible misrepresentations by and sales practices of AIG subsidiaries, including relationships with insurance brokers. AIG cannot at this time determine the effect that these investigations may have on the conduct of its insurance business. See Item 3. Legal Proceedings for a further description of these investigations and see “Certain Factors Affecting AIG’s Business – Regulatory Investigations” for more information on their application to AIG’s insurance businesses.

     Risk-Based Capital (RBC) is designed to measure the adequacy of an insurer’s statutory surplus in relation to the risks

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inherent in its business. Thus, inadequately capitalized general and life insurance companies may be identified.

     The RBC formula develops a risk adjusted target level of statutory surplus by applying certain factors to various asset, premium and reserve items. Higher factors are applied to more risky items and lower factors are applied to less risky items. Thus, the target level of statutory surplus varies not only as a result of the insurer’s size, but also on the risk profile of the insurer’s operations.

     The RBC Model Law provides for four incremental levels of regulatory attention for insurers whose surplus is below the calculated RBC target. These levels of attention range in severity from requiring the insurer to submit a plan for corrective action to placing the insurer under regulatory control.

     To the extent that any of AIG’s insurance entities would fall below prescribed levels of surplus, it would be AIG’s intention to infuse necessary capital to support that entity.

     A substantial portion of AIG’s General Insurance business and a majority of its Life Insurance business is carried on in foreign countries. The degree of regulation and supervision in foreign jurisdictions varies. 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 or revocation by such authorities, and AIU or other AIG subsidiaries could be prevented from conducting business in certain of the jurisdictions where they currently operate. In the past, AIU has been allowed to modify its operations to conform with new licensing requirements in most jurisdictions.

     In addition to licensing requirements, AIG’s foreign operations are also regulated in various jurisdictions with respect to currency, policy language and terms, amount and type of security deposits, amount and type of reserves, amount and type of local investment and the share of profits to be returned to policyholders on participating policies. Some foreign countries regulate rates on various types of policies. Certain countries have established reinsurance institutions, wholly or partially owned by the state, to which admitted insurers are obligated to cede a portion of their business on terms which may not always allow foreign insurers, including AIG, full compensation. In some countries, regulations governing constitution of technical reserves and remittance balances may hinder remittance of profits and repatriation of assets.

     In 1999, AIG became a unitary thrift holding company when the Office of Thrift Supervision (OTS) granted AIG approval to organize AIG Federal Savings Bank. Annually, the OTS conducts an examination of AIG. The OTS examination involves assessing the organization’s overall risk profile.

	Competition

     AIG’s Insurance, Financial Services and Asset Management businesses operate in a highly competitive environment, both domestically and overseas. Principal sources of competition are insurance companies, banks, investment banks and other non-bank financial institutions.

     The insurance industry in particular is highly competitive. Within the United States, AIG’s General Insurance subsidiaries compete with approximately 3,100 other stock companies, specialty insurance organizations, mutual companies and other underwriting organizations. AIG’s subsidiaries offering Life Insurance and Retirement Services compete in the United States with approximately 2,100 life insurance companies and other participants in related financial services fields. Overseas, AIG subsidiaries compete for business with foreign insurance operations of the larger U.S. insurers, global insurance groups, and local companies in particular areas in which they are active.

     AIG’s strong ratings have historically provided a competitive advantage. The effect on the business of AIG of recent regulatory investigations, the restatement, and subsequent ratings actions is currently unknown, but these developments may adversely affect the competitive position of AIG and its subsidiaries.

	Certain Factors Affecting AIG’s Business

AIG’s Credit Ratings

     The recent downgrades in AIG’s credit ratings will increase AIG’s borrowing costs, may lessen AIG’s ability to compete in certain businesses and will require AIG to post additional collateral.

     From March through May of 2005, the major rating agencies downgraded AIG’s ratings in a series of actions. Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. (S&P), lowered the long-term senior debt and counterparty ratings of AIG from ‘AAA’ to ‘AA+’ and placed the ratings on Credit Watch Negative. Moody’s Investors Service (Moody’s) lowered AIG’s long-term senior debt rating from ‘Aaa’ to ‘Aa2’ and placed the ratings on review for possible downgrade. Fitch Ratings (Fitch) downgraded the long-term senior debt ratings of AIG from ‘AAA’ to ‘AA’ and placed the ratings on Ratings Watch Negative.

     The agencies also took rating actions on AIG’s insurance subsidiaries. S&P and Fitch lowered to ‘AA+’ the insurance financial strength ratings of most of AIG’s insurance companies. Moody’s lowered the insurance financial strength ratings generally to either ‘Aa1’ or ‘Aa2’. A.M. Best downgraded the

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     In addition, S&P placed ILFC’s ‘AA-’ long-term senior debt rating and ‘A-1+’ short-term rating on Credit Watch Negative. Fitch downgraded ILFC’s long-term senior debt rating from ‘AA-’ to ‘A+’ and placed the rating on Rating Watch Negative and downgraded ILFC’s short-term debt rating from ‘F1+’ to ‘F1’. Fitch also placed the ‘A+’ long-term senior debt ratings of American General Finance Corporation and American General Finance, Inc. on Rating Watch Negative.

     These debt and financial strength ratings are current opinions of the rating agencies. As such, they may be changed, suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be withdrawn at AIG management’s request. This discussion of ratings is not a complete list of ratings of AIG and its subsidiaries.

     These ratings actions have affected and will continue to affect AIG’s business and results of operations in a number of ways.

•	Downgrades in AIG’s debt ratings will adversely affect AIG’s results of operations. AIG relies on external sources of financing to fund several of its operations. The cost and availability of unsecured financing are generally dependent on the issuer’s long-term and short-term debt ratings. The recent downgrades and any future downgrades in AIG’s debt ratings will increase AIG’s borrowing costs and therefore adversely affect AIG’s results of operations.
•	The downgrade in AIG’s long-term senior debt ratings will adversely affect AIGFP’s ability to compete for certain businesses. Credit ratings are very important to the ability of financial institutions to compete in the derivative and structured transaction marketplaces. Historically, AIG’s triple-A ratings provided AIGFP a competitive advantage. The downgrades will reduce this advantage and, for specialized financial transactions that generally are conducted only by triple-A rated financial institutions, counterparties may be unwilling to transact business with AIGFP except on a secured basis. This could require AIGFP to post more collateral to counterparties in the future. See below for a further discussion of the effect that posting collateral may have on AIG’s liquidity.
•	Although the financial strength ratings of AIG’s insurance company subsidiaries remain high compared to many of their competitors, the downgrades have reduced the previous ratings differential. The competitive advantage of the ratings to AIG’s insurance company subsidiaries may be lessened accordingly. The recent regulatory inquiries, internal investigations, and delay in this Annual Report on Form 10-K, as well as negative publicity, have caused independent producers and distributors of AIG’s domestic life and retirement services products to be more cautious in placing business with AIG subsidiaries. AIG is unable to predict the effect of these issues on AIG’s business, including any increase in associated surrender or replacement activity.
•	As a result of the downgrades of AIG’s long-term senior debt ratings, AIG has been required to post approximately $1.16 billion of collateral with counterparties to municipal guaranteed investment contracts and financial derivatives transactions. In the event of a further downgrade, AIG will be required to post additional collateral. It is estimated that, as of the close of business on May 18, 2005, based on AIG’s outstanding municipal guaranteed investment contracts and financial derivatives transactions as of such date, a further downgrade of AIG’s long-term senior debt ratings to ‘Aa3’ by Moody’s or ‘AA-’ by S&P would permit counterparties to call for approximately $2.33 billion of additional collateral. Further, additional downgrades could result in requirements for substantial additional collateral, which could have a material effect on how AIG manages its liquidity. The actual amount of additional collateral that AIG would be required to post to counterparties in the event of such downgrades depends on market conditions, the market value of the outstanding affected transactions and other factors prevailing at the time of the downgrade. The requirement to post additional collateral may increase if additional counterparties begin to require credit support from AIG through collateralization agreements. Additional obligations to post collateral will increase the demand on AIG’s liquidity.

Regulatory Investigations

     AIG’s ability to engage in certain businesses may be impaired by the regulatory investigations. The regulatory investigations and civil actions pending against AIG may reduce the willingness of counterparties to engage in business with AIG. Uncertainty concerning the ultimate outcome of these actions and proceedings may also make AIG products and services less attractive in the marketplace. Further, these matters may affect the manner in which certain AIG subsidiaries conduct business and AIG’s ability to obtain regulatory approvals for new lines of business or for further acquisitions.

     Significant legal proceedings could adversely effect AIG’s results of operations. AIG is party to numerous legal and regulatory proceedings, including matters relating to insur-

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ance brokerage practices and non-traditional insurance products. See also Item 3. Legal Proceedings.

     Significant investigations into AIG’s business are continuing and the commencement of additional investigations is possible. Broad-ranging investigations into AIG’s business practices continue in respect of structured transactions, transactions involving insurance brokers, non-traditional insurance products, workers compensation lines and other matters. These investigations are being conducted by a large number of regulators and governmental authorities, and related actions by regulators both within and outside the United States may be undertaken in response. The review of large amounts of information by various regulatory authorities may result in the commencement of new areas of inquiry and, possibly, new legal proceedings. Gathering, reviewing and supplying such large amounts of information and documents to so many regulatory authorities imposes significant demands upon management and may involve significant expense.

The Relationships Between AIG and Starr and SICO

     The relationships between AIG and Starr and SICO may take an extended period of time to unwind and/or resolve. Although AIG is currently working on unwinding and resolving its relationships with Starr and SICO, AIG cannot predict what its future relationship with Starr and SICO will be.

     As discussed under Item 11. Executive Compensation, AIG will need to provide compensation programs that recognize the plans and programs previously provided to AIG executives by Starr and SICO. In addition, AIG has agreed, subject to certain conditions, to assure AIG’s current employees that all payments under the SICO Plans and redemption payments under the Starr stockholders’ agreement are made when required. See Note 12(f) of Notes to Financial Statements.

Certain Material Weaknesses

     Management has identified a number of material weaknesses in AIG’s internal control over financial reporting. A discussion of these material weaknesses can be found in Item 9A of Part II of this Annual Report on Form 10-K. Although remediation of these weaknesses has begun, the process is not yet complete. Delay in the implementation of remedial actions could affect the accuracy or timing of future filings with the SEC and other regulatory authorities.

Access to Capital Markets

     AIG does not expect to be able to access the public capital markets until all of its filings with the SEC are up to date, including any amendments to previously filed reports. When AIG is current in its filings with the SEC, AIG anticipates that it will be able to access the Rule 144A and Euro-markets. However, AIG will be unable to access the U.S. public securities markets until it has filed and the SEC has declared effective a new registration statement or post-effective amendments to its existing registration statements under the Securities Act of 1933. Depending upon the SEC’s review of these filings, this process may take several months or more.

ITEM 2.	Properties

AIG and its subsidiaries operate from approximately 2,200 offices in the United States, 8 offices in Canada and numerous offices in approximately 100 foreign countries. The offices in Springfield, Illinois; Amarillo, Ft. Worth and Houston, Texas; Wilmington, Delaware; Hato Rey and San Juan, Puerto Rico; Tampa, Florida; Livingston, New Jersey; Evansville, Indiana; Nashville, Tennessee; 70 Pine Street, 72 Wall Street and 175 Water Street in New York City; and offices in more than 30 foreign countries including Bermuda, Chile, Hong Kong, the Philippines, Japan, United Kingdom, Singapore, Switzerland, Taiwan and Thailand are located in buildings owned by AIG and its subsidiaries. The remainder of the office space utilized by AIG subsidiaries is leased.

ITEM 3.	Legal Proceedings

General

AIG and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims for punitive damages, in the normal course of their business. See Notes 12(d), 12(g), 12(h) and 12(i) of Notes to Financial Statements, as well as the Discussion and Analysis of Consolidated Net Losses and Loss Expense Reserve Development and Management’s Discussion and Analysis of Financial Condition and Results of Operations.

PNC Settlement

     In November 2004, AIG and AIGFP reached a final settlement with the Securities and Exchange Commission (SEC), the Fraud Section of the United States Department of Justice (DOJ) and the United States Attorney for the Southern District of Indiana with respect to issues arising from certain structured transactions entered into with Brightpoint, Inc. and The PNC Financial Services Group, Inc. (PNC), the marketing of transactions similar to the PNC transactions and related matters.

     As part of the settlement, the SEC filed a civil complaint against AIG, alleging violations of certain antifraud provisions of the federal securities laws and for aiding and abetting violations of reporting and record keeping provisions of those laws. The SEC’s complaint was based on the conduct of AIG, primarily through AIGFP (i) in developing, marketing and entering into three transactions during 2001 that were intended to en-

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     AIG, without admitting or denying the allegations in the SEC complaint, consented to the issuance of a final judgment: (a) permanently enjoining it and its employees and related persons from violating section 10(b) of the Securities Exchange Act of 1934 (Exchange Act), Exchange Act Rule 10b-5, and section 17(a) of the Securities Act of 1933 (Securities Act) and from aiding and abetting violations of sections 13(a) and 13(b)(2)(A) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, and 13a-13; (b) ordering it to disgorge the $39,821,000 in fees that it received from the PNC transactions, plus prejudgment interest of $6,545,000; and (c) providing for AIG to establish a transaction review committee to review the appropriateness of certain future transactions and to retain an independent consultant to examine certain transactions entered into between 2000 and 2004 and review the policies and procedures of the transaction review committee. The independent consultant has a broad mandate to review transactions entered into by AIG during this period. The review of the independent consultant is now ongoing and AIG cannot at this time predict the outcome of this review.

     The DOJ filed a criminal complaint against AIGFP PAGIC Equity Holding Corp. (AIGFP PAGIC), a wholly-owned subsidiary of AIGFP. The complaint alleged that AIGFP PAGIC violated federal securities laws by aiding and abetting securities law violations by PNC, in connection with a transaction entered into in 2001 with PNC that was intended to enable PNC to remove certain assets from its balance sheet. The complaint alleges that AIGFP PAGIC knew, or was deliberately ignorant in not knowing, that the PNC transaction did not satisfy the requirements of GAAP for non-consolidation of special purpose entities. The AIGFP PAGIC transaction was the last of three similar transactions developed, marketed and entered into by AIGFP and its subsidiaries with PNC during 2001. The DOJ had notified AIGFP that, in its view, AIGFP acting through certain of its employees may have violated federal criminal law in connection with the PNC transactions and the marketing of similar transaction structures to other potential counterparties.

     The settlement with the DOJ consists of separate agreements with AIG and AIGFP and a complaint filed against, and deferred prosecution agreement with, AIGFP PAGIC. Under the terms of the settlement, AIGFP paid a monetary penalty of $80 million and, provided that AIG, AIGFP and AIGFP PAGIC satisfy their obligations under the DOJ agreements, the DOJ will seek a dismissal with prejudice of the AIGFP PAGIC complaint after 13 months and will not prosecute AIG or AIGFP in connection with the PNC transactions or the Brightpoint transaction that was settled by AIG with the SEC in 2003. The obligations of AIG, AIGFP and AIGFP PAGIC under the DOJ agreements relate principally to cooperating with the DOJ and other federal agencies in connection with their related investigations.

Investigations of Insurance Brokerage Practices

     On October 14, 2004, the Office of the New York State Attorney General (NYAG) brought a lawsuit challenging certain insurance brokerage practices related to contingent commissions. Neither AIG nor any of its subsidiaries is a defendant in that action, although two employees of an AIG subsidiary pleaded guilty in connection with the Attorney General’s investigation in October 2004 and two additional employees of the same subsidiary pleaded guilty in February 2005. AIG has cooperated, and will continue to cooperate, in the investigation. Regulators from several additional states have commenced investigations into the same matters, and AIG expects there will be additional investigations as well. Various parties, including insureds and shareholders, have also asserted putative class action and other claims against AIG or its subsidiaries alleging, among other things, violations of the antitrust and federal securities laws, and AIG expects that additional claims may be made.

     Various federal and state regulatory agencies are reviewing certain other transactions and practices of AIG and its subsidiaries in connection with industry-wide and other inquiries.

Investigation and Civil Complaint Concerning Non-Traditional Insurance Products and Other Transactions

     In February 2005, AIG received subpoenas from the NYAG and the SEC relating to investigations into the use of non-traditional insurance products and certain assumed reinsurance transactions and AIG’s accounting for such transactions. In March and April 2005, the SEC and NYAG issued additional subpoenas relating to certain transactions and entities discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations, including, among others, SICO, Union Excess, Capco and certain Life Settlements (as such transactions and entities are defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations). In April 2005, AIG received a subpoena from the NYAG relating to AIG’s opera-

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tions in Bermuda. The United States Department of Justice and state regulators, including the New York Department of Insurance (NY DOI), are also investigating these issues. Regulators from several additional states have commenced investigations into some of these matters, and AIG expects there will be additional investigations. In addition, the SEC, the U.S. Attorney’s Office for the Southern District of New York and the NYAG are investigating certain transactions involving the purchase of AIG stock. The NYAG and insurance regulators are investigating issues relating to workers compensation insurance written by AIG subsidiaries. Various former and current employees of AIG have also received subpoenas from the SEC and NYAG seeking documents and testimony concerning some of these matters. AIG has cooperated, and will continue to cooperate, with all these investigations, including by producing documents and other information in response to the subpoenas. As more fully described in Management’s Discussion and Analysis of Financial Condition and Results of Operations, AIG has concluded that the accounting for certain transactions and certain relationships needs to be restated or adjusted. See Note 2 of Notes to Financial Statements.

     On May 26, 2005, the NYAG and the New York Superintendent of Insurance filed a civil complaint against AIG as well as its former Chairman and Chief Executive Officer M.R. Greenberg, and former Vice Chairman and Chief Financial Officer Howard Smith, in the Supreme Court of the State of New York. The complaint asserts claims under New York’s Martin Act and Insurance Law, among others, and makes allegations concerning certain of the transactions discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations, including, among others, Gen Re, Capco, AIRCO Reinsurance, Life Settlements, Richmond and Union Excess. The complaint seeks disgorgement, injunctive relief, punitive damages and costs, among other things. The NYAG has also stated that it fully expects that all issues with AIG concerning these matters can be resolved civilly, as opposed to by means of criminal indictment of AIG.

Other Actions

     A number of lawsuits have been filed regarding the subject matter of the investigations of insurance brokerage practices, including derivative actions, individual actions and class actions under the federal securities laws, ERISA and state common and corporate laws in both federal and state courts, including the federal district court in the Southern District of New York, in the Commonwealth of Massachusetts Superior Court and in Delaware Chancery Court. All of these actions generally allege that AIG and its subsidiaries violated the law by allegedly concealing a scheme to “rig bids” and “steer” business between insurance companies and insurance brokers as described in “Investigation of Insurance Brokerage Practices” above.

     Between October 19, 2004 and May 23, 2005, AIG was named as a defendant in twelve complaints that were filed in federal court and one that was originally filed in Florida state court and removed to federal court. These cases generally allege that AIG and its subsidiaries violated federal and various state antitrust laws, as well as federal RICO laws, various state deceptive and unfair practice laws and certain state laws governing fiduciary duties. The alleged basis of these claims is that there was a conspiracy between insurance companies and insurance brokers with regard to the bidding practices for insurance coverage in certain sectors of the insurance industry. The Judicial Panel on Multidistrict Litigation entered an order consolidating most of these cases and transferring them to the United States District Court for the District of New Jersey. The remainder of these cases are in the process of being transferred to the District of New Jersey. In addition, two complaints were filed in Massachusetts state court making claims similar to those in the federal cases above.

     In April and May, amended complaints were filed in the consolidated derivative and securities cases, as well as in one of the ERISA lawsuits, pending in the federal district court in the Southern District of New York adding allegations concerning AIG’s accounting treatment for non-traditional insurance products that have been the subject of AIG’s press releases and are described more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations. Also in April, new actions were filed in the Delaware Chancery Court asserting claims premised on the same allegations concerning AIG’s accounting treatment for non-traditional insurance products.

     In late 2002, an unrelated derivative action was filed in Delaware Chancery Court in connection with AIG’s transactions with certain entities affiliated with Starr. AIG’s Board of Directors appointed a special committee of independent directors to review the complaint; the special committee has issued a report concluding that it was not in the best interest of AIG or its shareholders to pursue the litigation and moved the Delaware Chancery Court to terminate the litigation. In May 2005, the plaintiff filed an amended complaint which adds additional claims premised on allegations relating to insurance brokerage practices and AIG’s non-traditional insurance products.

Effect on AIG

     AIG cannot at this time predict the outcome of the matters described above or estimate the potential costs related to these

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ITEM 4.	Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of 2004.

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PART II

ITEM 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

     (a) AIG’s common stock is listed in the U.S. on the New York Stock Exchange and ArcaEx, as well as the stock exchanges in London, Paris, Switzerland and Tokyo.

The table below shows the high and low closing sales prices per share of AIG’s common stock on the New York Stock Exchange Composite Tape, for each quarter of 2004 and 2003.

		2004								2003
		High				Low				High				Low
First quarter		$	75.12			$	66.79			$	63.50			$	44.47
Second quarter			76.77				69.39				60.20				50.60
Third quarter			72.66				66.48				64.70				55.54
Fourth quarter			68.72				54.70				66.28				56.59

     (b) In 2004, AIG paid a quarterly dividend of 6.5 cents in March and June and 7.5 cents in September and December for a total cash payment of 28.0 cents per share of common stock. In 2003, AIG paid a quarterly dividend of 4.7 cents in March and June and 6.5 cents in September and December for a total cash payment of 22.4 cents per share of common stock. Subject to the dividend preference of any of AIG’s serial preferred stock which may be outstanding, the holders of shares of common stock are entitled to receive such dividends as may be declared by the Board of Directors from funds legally available therefor.

     See Note 11(a) of Notes to Financial Statements for a discussion of certain restrictions on the payment of dividends to AIG by some of its insurance subsidiaries.

     (c) The approximate number of holders of common stock as of March 31, 2005, based upon the number of record holders, was 60,000.

     (d) The following table summarizes AIG’s stock repurchases for the three month period ended December 31, 2004:

    

														Maximum Number
										Total Number of				of Shares that May
										Shares Purchased				Yet Be Purchased
		Total				Average				as Part of Publicly				Under the Plans
		Number of				Price Paid				Announced Plans				or Programs
Period		Shares Purchased(a)(b)				per Share				or Programs				at End of Month(c)
October 1 - 31, 2004			5,324,000				62.01				5,324,000				42,841,400
November 1 - 30, 2004			1,684,500				60.92				1,684,500				41,156,900
December 1 - 31, 2004			2,137,100				65.03				2,137,100				39,019,800
Total			9,145,600			$	62.52				9,145,600

(a)	Does not include 28,045 shares delivered or attested to in satisfaction of the exercise price by holders of AIG employee stock options exercised during the three months ended December 31, 2004.

(b)	Does not include 14,000 shares purchased by International Lease Finance Corporation at a price of $55.95 per share to satisfy obligations under a deferred compensation plan.

(c)	On July 19, 2002, AIG announced that its Board of Directors had authorized the open market purchase of up to 10 million shares of common stock. On February 13, 2003, AIG announced that the Board had expanded the existing program through the authorization of an additional 50 million shares. The purchase program has no set expiration or termination date.

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ITEM 6.	Selected Financial Data

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

AIG has restated its financial statements for each of 2003, 2002, 2001 and 2000. The restated financial statements reflect corrections of errors, misapplications of GAAP and changes to conform to the current presentation. The Selected Consolidated Financial Data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements and accompanying notes included elsewhere herein. A reconciliation of previously reported financial statements to the restated financial statements follows the table below.

Years Ended December 31,			2004				2003				2002				2001				2000
(in millions, except per share amounts)							(Restated)				(Restated)				(Restated)				(Restated)
Revenues(a):
	Premiums and other considerations		$	66,593			$	54,880			$	44,259			$	38,532			$	34,027
	Net investment income			18,434				15,468				13,721				13,015				12,723
	Realized capital gains (losses)			(24	)			(620	)			(1,298	)			(919	)			(239	)
	Other revenues(b)			12,984				9,718				9,778				9,542				10,340
Total revenues				97,987				79,446				66,460				60,170				56,851
Benefits and expenses:
	Incurred policy losses and benefits(c)			58,313				46,145				39,987				34,249				30,609
	Insurance acquisition and other operating expenses			24,724				21,646				18,491				17,990				16,752
	Acquisition, restructuring and related charges			–				–				–				2,017				315
Total benefits and expenses				83,037				67,791				58,478				54,256				47,676
Income before income taxes, minority interest and cumulative effect of accounting changes(d)				14,950				11,655				7,982				5,914				9,175
Income taxes				4,620				3,403				1,956				1,505				2,839
Income before minority interest and cumulative effect of accounting changes				10,330				8,252				6,026				4,409				6,336
Minority interest				(455	)			(252	)			(160	)			(101	)			(195	)
Income before cumulative effect of accounting changes				9,875				8,000				5,866				4,308				6,141
Cumulative effect of accounting changes, net of tax				(144	)			9				–				(136	)			–
Net income				9,731				8,009				5,866				4,172				6,141
Earnings per common share(e):
	Basic
	Income before cumulative effect of accounting changes			3.79				3.07				2.25				1.64				2.36
	Cumulative effect of accounting changes, net of tax			(0.06	)			–				–				(0.05	)			–
	Net income			3.73				3.07				2.25				1.59				2.36
	Diluted(f)
	Income before cumulative effect of accounting changes			3.75				3.04				2.22				1.62				2.33
	Cumulative effect of accounting changes, net of tax			(0.06	)			–				–				(0.05	)			–
	Net income			3.69				3.04				2.22				1.57				2.33
Cash dividends per common share(g)				.28				.22				.18				.16				.14
Total assets				798,660				674,153				561,556				492,447				423,851
Long-term debt and commercial paper(h)
	Guaranteed by AIG			8,498				7,469				7,144				8,141				3,855
	Liabilities connected to trust preferred stock			1,489				1,682				–				–				–
	Matched/not guaranteed by AIG			85,276				71,058				64,941				56,976				49,865
Total Liabilities(i)				717,854				603,931				500,598				439,717				374,413
Shareholders’ equity			$	80,607			$	70,030			$	58,805			$	50,528			$	46,024

(a)	Represents the sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income with respect to guaranteed investment contracts, and realized capital gains (losses).
(b)	Includes the unrealized gain (loss) attributable to economic hedges not qualifying for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. For 2004, 2003, 2002, 2001 and 2000, respectively, the amounts included are $215 million, $(1.09) billion, $(192) million, $(74) million and $1.27 billion. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Restatement of Previously Issued Financial Statements — Other GAAP Corrections – Accounting for Derivatives (FAS 133 Hedge Accounting).”
(c)	Includes fourth quarter 2004 charge of $850 million attributable to change in estimate for asbestos and environmental reserves.
(d)	Includes catastrophe losses of $1.16 billion in 2004, net loss reserve charge of $2.1 billion in 2002 and World Trade Center losses of $900 million in 2001.
(e)	Per share amounts for all periods presented reflect the adoption of Statement of Financial Accounting Standards No. 128, “Earnings per Share.”
(f)	Assumes conversion of contingently convertible bonds due to the adoption of EITF Issue No. 04-8 “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share.”
(g)	Cash dividends have not been restated to reflect dividends paid by AGC which was acquired by AIG on August 29, 2001.
(h)	Including that portion of long-term debt maturing in less than one year. See also Note 9 of Notes to Financial Statements.

(i)	Includes $2.1 billion, $2.2 billion and $1.4 billion for the years ended 2002, 2001 and 2000, respectively, of other liabilities connected to the consolidation of the Muni Tender Option Bond Program trusts. See also Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Restatement of Previously Issued Financial Statements”.

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    The following tables present the effect of the adjustments resulting from the restatement and the fourth quarter 2004 changes in estimates on AIG’s previously announced 2004 results and on the Condensed Consolidated Balance Sheets and the Consolidated Statements of Income as of and for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, including the percentage increase or decrease. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — “Restatement of Previously Issued Financial Statements” and “Fourth Quarter 2004 Changes in Estimates” on pages 31 through 52 for a description of each transaction, accounting entry or entity category resulting in the adjustments and for analyses of the effect of the adjustments on the principal consolidated balance sheet and statement of income accounts affected. See also Note 2 of Notes to Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2004				Previously*												Percent
(in millions)				Announced				Adjustments				As Revised				Change
Assets:
	Total investments, financial services assets and cash			$	635,865			$	2,973			$	638,838				0.5	%
	Investment income due and accrued				5,970				(382	)			5,588				(6.4	)
	Premiums and insurance balances receivable, net of allowance of $225				17,202				(2,065	)			15,137				(12.0	)
	Reinsurance assets				26,171				(6,213	)			19,958				(23.7	)
	Deferred policy acquisition costs				30,310				(574	)			29,736				(1.9	)
	Other assets				15,062				260				15,322				1.7
	All other assets				74,027				54				74,081				0.1
Total assets					804,607				(5,947	)			798,660				(0.7	)
Liabilities:
	Reserve for losses and loss expenses				64,641				(2,270	)			62,371				(3.5	)
	Reserve for unearned premiums				23,072				22				23,094				0.1
	Future policy benefits for life and accident and health insurance contracts				105,385				(648	)			104,737				(0.6	)
	Policyholders’ contract deposits				216,477				178				216,655				0.1
	Funds held by companies under reinsurance treaties				5,386				(1,982	)			3,404				(36.8	)
	Income taxes payable:
		Current			1,883				(1,883	)			–				(100.0	)
		Deferred			8,255				(1,213	)			7,042				(14.7	)
	Financial services securities sold under agreements to repurchase, at contract value				19,203				2,061				21,264				10.7
	Financial services unrealized loss on swaps, options and forward transactions				20,479				(2,347	)			18,132				(11.5	)
	Notes, bonds, loans and mortgages payable				63,557				1,605				65,162				2.5
	Other liabilities				21,101				2,510				23,611				11.9
	All other liabilities				172,098				284				172,382				0.2
Total liabilities					721,537				(3,683	)			717,854				(0.5	)
Preferred shareholders’ equity in subsidiary companies					199				–				199				–
Total shareholders’ equity					82,871				(2,264	)			80,607				(2.7	)
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	804,607			$	(5,947	)		$	798,660				(0.7	)%

*	Announced by AIG on February 9, 2005 in its earnings release.

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CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2003				Previously												Percent
(in millions)				Reported				Adjustments				As Restated				Change
Assets:
	Total investments, financial services assets and cash			$	516,438			$	3,270			$	519,708				0.6	%
	Investment income due and accrued				4,959				(347	)			4,612				(7.0	)
	Premiums and insurance balances receivable, net of allowance of $235				14,166				(977	)			13,189				(6.9	)
	Reinsurance assets				27,962				(7,014	)			20,948				(25.1	)
	Deferred policy acquisition costs				26,398				(478	)			25,920				(1.8	)
	Other assets				12,820				1,370				14,190				10.7
	All other assets				75,603				(17	)			75,586				–
Total assets					678,346				(4,193	)			674,153				(0.6	)
Liabilities:
	Reserve for losses and loss expenses				56,118				(3,737	)			52,381				(6.7	)
	Reserve for unearned premiums				20,762				148				20,910				0.7
	Future policy benefits for life and accident and health insurance contracts				92,970				(58	)			92,912				(0.1	)
	Policyholders’ contract deposits				171,989				(72	)			171,917				–
	Funds held by companies under reinsurance treaties				4,664				(1,621	)			3,043				(34.8	)
	Income taxes payable:
		Current			1,977				(1,611	)			366				(81.5	)
		Deferred			5,778				(1,145	)			4,633				(19.8	)
	Financial services securities sold under agreements to repurchase, at contract value				14,810				1,003				15,813				6.8
	Financial services unrealized loss on swaps, options and forward transactions				15,268				(610	)			14,658				(4.0	)
	Notes, bonds, loans and mortgages payable				56,003				1,249				57,252				2.2
	Other liabilities				18,282				2,909				21,191				15.9
	All other liabilities				148,280				575				148,855				0.4
Total liabilities					606,901				(2,970	)			603,931				(0.5	)
Preferred shareholders’ equity in subsidiary companies					192				–				192				–
Total shareholders’ equity					71,253				(1,223	)			70,030				(1.7	)
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	678,346			$	(4,193	)		$	674,153				(0.6	)%

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CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2002				Previously												Percent
(in millions)				Reported				Adjustments				As Restated				Change
Assets:
	Total investments, financial services assets and cash			$	424,761			$	3,617			$	428,378				0.9	%
	Investment income due and accrued				4,297				(283	)			4,014				(6.6	)
	Premiums and insurance balances receivable, net of allowance of $153				13,088				(1,230	)			11,858				(9.4	)
	Reinsurance assets				29,882				(6,831	)			23,051				(22.9	)
	Deferred policy acquisition costs				22,256				(411	)			21,845				(1.8	)
	Other assets				7,661				5,035				12,696				65.7
	All other assets				59,284				430				59,714				0.7
Total assets					561,229				327				561,556				0.1
Liabilities:
	Reserve for losses and loss expenses				51,539				(4,444	)			47,095				(8.6	)
	Reserve for unearned premiums				16,336				(37	)			16,299				(0.2	)
	Future policy benefits for life and accident and health insurance contracts				72,547				(263	)			72,284				(0.4	)
	Policyholders’ contract deposits				142,160				(49	)			142,111				–
	Funds held by companies under reinsurance treaties				3,425				(1,214	)			2,211				(35.4	)
	Income taxes payable:
		Current			793				(793	)			–				(100.0	)
		Deferred			4,289				(383	)			3,906				(8.9	)
	Financial services securities sold under agreements to repurchase, at contract value				9,162				197				9,359				2.2
	Financial services unrealized loss on swaps, options and forward transactions				11,265				393				11,658				3.5
	Notes, bonds, loans and mortgages payable				47,923				200				48,123				0.4
	Other liabilities				12,189				6,689				18,878				54.9
	All other liabilities				128,345				329				128,674				0.3
Total liabilities					499,973				625				500,598				0.1
Preferred shareholders’ equity in subsidiary companies					2,153				–				2,153				–
Total shareholders’ equity					59,103				(298	)			58,805				(0.5	)
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	561,229			$	327			$	561,556				0.1	%

See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Restatement of Previously Issued Financial Statements” and “Fourth Quarter 2004 Changes in Estimates.” See also Note 2 of Notes to Financial Statements.

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CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2001				Previously												Percent
(in millions)				Reported				Adjustments				As Restated				Change
Assets:
	Total investments, financial services assets and cash			$	358,622			$	1,861			$	360,483				0.5	%
	Investment income due and accrued				3,681				(159	)			3,522				(4.3	)
	Premiums and insurance balances receivable, net of allowance of $127				12,412				(1,416	)			10,996				(11.4	)
	Reinsurance assets				27,199				(6,381	)			20,818				(23.5	)
	Deferred policy acquisition costs				19,357				(327	)			19,030				(1.7	)
	Other assets				8,000				4,965				12,965				62.1
	All other assets				63,790				843				64,633				1.3
Total assets					493,061				(614	)			492,447				(0.1	)
Liabilities:
	Reserve for losses and loss expenses				44,792				(3,154	)			41,638				(7.0	)
	Reserve for unearned premiums				13,148				(211	)			12,937				(1.6	)
	Future policy benefits for life and accident and health insurance contracts				64,998				(145	)			64,853				(0.2	)
	Policyholders’ contract deposits				119,402				(22	)			119,380				–
	Funds held by companies under reinsurance treaties				2,685				(1,103	)			1,582				(41.1	)
	Income taxes payable:
		Current			405				(405	)			–				(100.0	)
		Deferred			2,881				(706	)			2,175				(24.5	)
	Financial services securities sold under agreements to repurchase, at contract value				11,818				(340	)			11,478				(2.9	)
	Financial services unrealized loss on swaps, options and forward transactions				8,813				1,566				10,379				17.8
	Notes, bonds, loans and mortgages payable				37,447				(614	)			36,833				(1.6	)
	Other liabilities				10,807				5,936				16,743				54.9
	All other liabilities				121,513				206				121,719				0.2
Total liabilities					438,709				1,008				439,717				0.2
Preferred shareholders’ equity in subsidiary companies					2,202				–				2,202				–
Total shareholders’ equity					52,150				(1,622	)			50,528				(3.1	)
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	493,061			$	(614	)		$	492,447				(0.1	)%

See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Restatement of Previously Issued Financial Statements” and “Fourth Quarter 2004 Changes in Estimates.” See also Note 2 of Notes to Financial Statements.

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CONDENSED CONSOLIDATED BALANCE SHEET

December 31, 2000				Previously												Percent
(in millions)				Reported				Adjustments				As Restated				Change
Assets:
	Total investments, financial services assets and cash			$	299,809			$	876			$	300,685				0.3	%
	Investment income due and accrued				3,522				(109	)			3,413				(3.1	)
	Premiums and insurance balances receivable, net of allowance of $88				11,215				(2,600	)			8,615				(23.2	)
	Reinsurance assets				23,386				(5,807	)			17,579				(24.8	)
	Deferred policy acquisition costs				16,647				(103	)			16,544				(0.6	)
	Other assets				9,806				4,175				13,981				42.6
	All other assets				62,286				748				63,034				1.2
Total assets					426,671				(2,820	)			423,851				(0.7	)
Liabilities:
	Reserve for losses and loss expenses				40,613				(2,502	)			38,111				(6.2	)
	Reserve for unearned premiums				12,510				(473	)			12,037				(3.8	)
	Future policy benefits for life and accident and health insurance contracts				51,532				(127	)			51,405				(0.2	)
	Policyholders’ contract deposits				99,327				–				99,327				–
	Funds held by companies under reinsurance treaties				1,435				(1,040	)			395				(72.5	)
	Income taxes payable:
		Current			189				(189	)			–				(100.0	)
		Deferred			3,032				(523	)			2,509				(17.2	)
	Financial services securities sold under agreements to repurchase, at contract value				11,308				(216	)			11,092				(1.9	)
	Financial services unrealized loss on swaps, options and forward transactions				8,581				333				8,914				3.9
	Notes, bonds, loans and mortgages payable				27,681				(700	)			26,981				(2.5	)
	Other liabilities				8,645				4,128				12,773				47.8
	All other liabilities				110,965				(96	)			110,869				(0.1	)
Total liabilities					375,818				(1,405	)			374,413				(0.4	)
Preferred shareholders’ equity in subsidiary companies					3,414				–				3,414				–
Total shareholders’ equity					47,439				(1,415	)			46,024				(3.0	)
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	426,671			$	(2,820	)		$	423,851				(0.7	)%

See Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Restatement of Previously Issued Financial Statements” and “Fourth Quarter 2004 Changes in Estimates.” See also Note 2 of Notes to Financial Statements.

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CONSOLIDATED STATEMENT OF INCOME

				Year Ended December 31, 2004
				Previously								As				Percent
(in millions, except per share amounts)				Announced*				Adjustments				Revised				Change
Revenues:
	Premiums and other considerations			$	67,852			$	(1,259	)		$	66,593				(1.9	)%
	Net investment income				19,127				(693	)			18,434				(3.6	)
	Realized capital gains (losses)				(92	)			68				(24	)			–
	Other revenues				11,728				1,256				12,984				10.7	%
	Total revenues				98,615				(628	)			97,987				(0.6	)
Benefits and expenses:
	Incurred policy losses and benefits				57,697				616				58,313				1.1
	Insurance acquisition and other operating expenses				23,668				1,056				24,724				4.5
	Total benefits and expenses				81,365				1,672				83,037				2.1
Income before income taxes, minority interest and cumulative effect of accounting changes					17,250				(2,300	)			14,950				(13.3	)
Income Taxes:
	Current				3,575				(899	)			2,676				(25.1	)
	Deferred				1,898				46				1,944				2.4
					5,473				(853	)			4,620				(15.6	)
Income before minority interest and cumulative effect of accounting changes					11,777				(1,447	)			10,330				(12.3	)
Minority interest					(548	)			93				(455	)			–
Income before cumulative effect of accounting changes					11,229				(1,354	)			9,875				(12.1	)
Cumulative effect of accounting changes, net of tax					(181	)			37				(144	)			–
Net Income				$	11,048			$	(1,317	)		$	9,731				(11.9	)%
Earnings per common share:
	Basic
		Income before cumulative effect of accounting changes		$	4.31			$	(0.52	)		$	3.79				(12.1	)%
		Cumulative effect of accounting changes, net of tax			(0.07	)			0.01				(0.06	)			–
		Net Income			4.24				(0.51	)			3.73				(12.0	)
	Diluted
		Income before cumulative effect of accounting changes		$	4.26			$	(0.51	)		$	3.75				(12.0	)%
		Cumulative effect of accounting changes, net of tax			(0.07	)			0.01				(0.06	)			–
		Net Income			4.19				(0.50	)			3.69				(11.9	)
	Average shares outstanding:
		Basic			2,606								2,606
		Diluted			2,637								2,637

*	Announced by AIG on February 9, 2005 in its earnings release.

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				Years Ended December 31,
				2003																2002
				Previously								As				Percent				Previously								As				Percent
(in millions, except per share amounts)				Reported				Adjustments				Restated				Change				Reported				Adjustments				Restated				Change
Revenues:
	Premiums and other considerations			$	55,226			$	(346	)		$	54,880				(0.6	)%		$	45,135			$	(876	)		$	44,259				(1.9	)%
	Net investment income				16,596				(1,128	)			15,468				(6.8	)			14,714				(993	)			13,721				(6.7	)
	Realized capital gains (losses)				(1,433	)			813				(620	)			–				(2,441	)			1,143				(1,298	)			–
	Other revenues				10,914				(1,196	)			9,718				(11.0	)			10,074				(296	)			9,778				(2.9	)
	Total revenues				81,303				(1,857	)			79,446				(2.3	)			67,482				(1,022	)			66,460				(1.5	)
Benefits and expenses:
	Incurred policy losses and benefits				46,390				(245	)			46,145				(0.5	)			41,402				(1,415	)			39,987				(3.4	)
	Insurance acquisition and other operating expenses				21,005				641				21,646				3.1				17,938				553				18,491				3.1
	Total benefits and expenses				67,395				396				67,791				0.6				59,340				(862	)			58,478				(1.5	)
Income before income taxes, minority interest and cumulative effect of accounting changes					13,908				(2,253	)			11,655				(16.2	)			8,142				(160	)			7,982				(2.0	)
Income Taxes:
	Current				3,407				(621	)			2,786				(18.2	)			1,972				(290	)			1,682				(14.7	)
	Deferred				857				(240	)			617				(28.0	)			356				(82	)			274				(23.0	)
					4,264				(861	)			3,403				(20.2	)			2,328				(372	)			1,956				(16.0	)
Income before minority interest and cumulative effect of accounting changes					9,644				(1,392	)			8,252				(14.4	)			5,814				212				6,026				3.6
Minority interest					(379	)			127				(252	)			–				(295	)			135				(160	)			–
Income before cumulative effect of accounting changes					9,265				(1,265	)			8,000				(13.7	)			5,519				347				5,866				6.3
Cumulative effect of accounting changes, net of tax					9				–				9				–				–				–				–				–
Net Income				$	9,274			$	(1,265	)		$	8,009				(13.6	)%		$	5,519			$	347			$	5,866				6.3	%
Earnings per common share:
	Basic
		Income before cumulative effect of accounting changes		$	3.55			$	(0.48	)		$	3.07				(13.5	)%		$	2.11			$	0.14			$	2.25				6.6	%
		Cumulative effect of accounting changes, net of tax			–				–				–				–				–				–				–				–
		Net Income			3.55				(0.48	)			3.07				(13.5	)			2.11				0.14				2.25				6.6
	Diluted
		Income before cumulative effect of accounting changes		$	3.52			$	(0.48	)		$	3.04				(13.6	)%		$	2.09			$	0.13			$	2.22				6.2	%
		Cumulative effect of accounting changes, net of tax			–				–				–				–				–				–				–				–
		Net Income			3.52				(0.48	)			3.04				(13.6	)			2.09				0.13				2.22				6.2
	Average shares outstanding:
		Basic			2,610								2,610								2,612								2,612
		Diluted			2,637								2,637								2,643								2,643

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				Years Ended December 31,
				2001																2000
				Previously								As				Percent				Previously								As				Percent
(in millions, except per share amounts)				Reported				Adjustments				Restated				Change				Reported				Adjustments				Restated				Change
Revenues:
	Premiums and other considerations			$	39,194			$	(662	)		$	38,532				(1.7	)%		$	35,298				$(1,271	)		$	34,027				(3.6	)%
	Net investment income				13,698				(683	)			13,015				(5.0	)			12,831				(108	)			12,723				(0.8	)
	Realized capital gains (losses)				(836	)			(83	)			(919	)			–				(314	)			75				(239	)			–
	Other revenues				9,710				(168	)			9,542				(1.7	)			8,523				1,817				10,340				21.3
	Total revenues				61,766				(1,596	)			60,170				(2.6	)			56,338				513				56,851				0.9
Benefits and expenses:
	Incurred policy losses and benefits				34,864				(615	)			34,249				(1.8	)			30,776				(167	)			30,609				(0.5	)
	Insurance acquisition and other operating expenses				16,746				1,244				17,990				7.4				15,224				1,528				16,752				10.0
	Acquisition restructuring and related charges				2,017				–				2,017				–				315				–				315				–
	Total benefits and expenses				53,627				629				54,256				1.2				46,315				1,361				47,676				2.9
Income before income taxes, minority interest and cumulative effect of accounting changes					8,139				(2,225	)			5,914				(27.3	)			10,023				(848	)			9,175				(8.5	)
Income Taxes:
	Current				1,919				(379	)			1,540				(19.7	)			1,697				(168	)			1,529				(9.9	)
	Deferred				420				(455	)			(35	)			(108.3	)			1,274				36				1,310				2.8
					2,339				(834	)			1,505				(35.7	)			2,971				(132	)			2,839				(4.4	)
Income before minority interest and cumulative effect of accounting changes					5,800				(1,391	)			4,409				(24.0	)			7,052				(716	)			6,336				(10.2	)
Minority interest					(301	)			200				(101	)			–				(413	)			218				(195	)			–
Income before cumulative effect of accounting changes					5,499				(1,191	)			4,308				(21.7	)			6,639				(498	)			6,141				(7.5	)
Cumulative effect of accounting changes, net of tax					(136	)			–				(136	)			–				–				–				–				–
Net Income				$	5,363			$	(1,191	)		$	4,172				(22.2	)%		$	6,639			$	(498	)		$	6,141				(7.5	)%
Earnings per common share:
	Basic
		Income before cumulative effect of accounting changes		$	2.10			$	(0.46	)		$	1.64				(21.9	)%		$	2.55			$	(0.19	)		$	2.36				(7.5	)%
		Cumulative effect of accounting changes, net of tax			(0.05	)			–				(0.05	)			–				–				–				–				–
		Net Income			2.05				(0.46	)			1.59				(22.4	)			2.55				(0.19	)			2.36				(7.5	)
	Diluted
		Income before cumulative effect of accounting changes		$	2.07			$	(0.45	)		$	1.62				(21.7	)%		$	2.52			$	(0.19	)		$	2.33				(7.5	)%
		Cumulative effect of accounting changes, net of tax			(0.05	)			–				(0.05	)			–				–				–				–				–
		Net Income			2.02				(0.45	)			1.57				(22.3	)			2.52				(0.19	)			2.33				(7.5	)
	Average shares outstanding:
		Basic			2,621								2,621								2,607								2,607
		Diluted			2,659								2,659								2,638								2,638

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ITEM 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, AIG presents its operations in the way it believes will be most meaningful. Gross premiums written, statutory underwriting profit (loss) and combined ratios are presented in accordance with accounting principles prescribed by insurance regulatory authorities because these are standard measures of performance used in the insurance industry and thus allow more meaningful comparisons with AIG’s insurance competitors. AIG has also incorporated into this discussion a number of cross-references to additional information included throughout this Form 10-K to assist readers seeking related information on a particular subject.

INDEX TO FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

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

INDEX

				Page
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION					30
RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS					31
FOURTH QUARTER 2004 CHANGES IN ESTIMATES					42
OVERVIEW OF OPERATIONS AND BUSINESS RESULTS					53
	Consolidated Results				54
CRITICAL ACCOUNTING ESTIMATES					57
OPERATING REVIEW					57
	General Insurance Operations				57
		General Insurance Results			59
		Reinsurance			60
		Reserve for Losses and Loss Expenses			62
		Asbestos and Environmental Reserves			67
	Life Insurance & Retirement Services Operations				71
		Life Insurance & Retirement Services Results			72
		Underwriting and Investment Risk			73
	Insurance and Asset Management Invested Assets				75
		Credit Quality			76
		Valuation of Invested Assets			76
	Financial Services Operations				79
		Financial Services Results			81
		Financial Services Invested Assets			82
	Asset Management Operations				84
		Asset Management Results			84
	Other Operations				85
CAPITAL RESOURCES					85
		Borrowings			85
		Contractual Obligations and Other Commercial Commitments			89
		Shareholders’ Equity			90
		Stock Purchase			90
		Dividends from Insurance Subsidiaries			90
		Regulation and Supervision			91
LIQUIDITY					91
SPECIAL PURPOSE VEHICLES AND OFF BALANCE SHEET ARRANGEMENTS					92
DERIVATIVES					93
MANAGING MARKET RISK					94
		Insurance			94
		Financial Services			95
RECENT ACCOUNTING STANDARDS					96

	Cautionary Statement Regarding Forward-Looking Information

This Annual Report 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 AIG’s control. These statements may address, among other things, the status and potential future outcome of the current regulatory and civil proceedings against AIG and their potential effect on AIG’s businesses, financial position, results of operations, cash flows and liquidity, the effect of the credit rating downgrades on AIG’s businesses and competitive position, the effect of the severing of ties between AIG and Starr and SICO, AIG’s strategy for growth, product development, 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 under “Certain Factors Affecting AIG’s Business” in Item 1 of Part I and throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations. AIG is not under any obligation (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.

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	Restatement of Previously Issued Financial Statements

     Subpoenas. In February 2005, AIG received subpoenas from the Office of the Attorney General for the State of New York (NYAG) and the Securities and Exchange Commission (SEC) relating to investigations into the use of non-traditional insurance products and certain assumed reinsurance transactions and AIG’s accounting for such transactions. The United States Department of Justice and various state regulators are also investigating related issues. During these investigations, in March 2005, AIG’s then Chairman and Chief Executive Officer retired. In addition, AIG’s then Chief Financial Officer was terminated for failure to cooperate in the investigations. Subsequently, certain other AIG executives, including its former comptroller, were terminated for similar reasons. On May 26, 2005, the NYAG and the New York Superintendent of Insurance filed a civil complaint against AIG relating to these investigations. For more information on these investigations, see Item 3. Legal Proceedings.

     Internal Review. In connection with the preparation of AIG’s consolidated financial statements included in this Annual Report on Form 10-K, AIG’s current management initiated an internal review of AIG’s books and records, which was substantially expanded in mid-March. The internal review, conducted under the direction of current senior management with the oversight of the Audit Committee of the Board of Directors, spanned AIG’s major business units globally, and included a review of information and a number of transactions from 2000 to the present. In certain cases, items in periods prior to 2000 were examined due to the nature of the transactions under review. The business units subject to review were Domestic General Insurance, Foreign General Insurance, Reinsurance, Financial Services, Domestic and Foreign Life Insurance & Retirement Services and Asset Management. The internal review encompassed AIG’s books and records, thousands of files and e-mails and interviews with current and former employees and members of management. Management believes that the scope and process of its internal review was sufficient to identify issues of a material nature that could affect AIG’s financial statements.

     AIG’s internal review was complemented by investigations by outside counsel for AIG and for the Audit Committee of the Board of Directors. PricewaterhouseCoopers LLP, an independent registered public accounting firm (PwC or independent auditors), was consulted on the scope of the internal review for certain matters and reviewed the results of the internal review.

     As a result of the findings of the internal review, together with the results of investigations conducted by outside counsel at the request of AIG’s Audit Committee and in consultation with AIG’s independent auditors, AIG has concluded that the accounting for certain transactions and certain relationships needs to be restated or adjusted.

     Restatement. AIG has restated its financial statements for the years ended December 31, 2003, 2002, 2001 and 2000, the quarters ended March 31, June 30 and September 30, 2004 and 2003 and the quarter ended December 31, 2003. AIG’s previously issued financial statements for these and prior periods should no longer be relied upon. See Selected Financial Data and Note 2 of Notes to Financial Statements for a reconciliation of previously reported amounts to the restated amounts.

     As part of its internal review, AIG evaluated the financial reporting consolidation process and the resulting financial statements as well as the appropriateness of AIG’s prior accounting and reporting decisions. Based on this evaluation, the restatement includes corrections of errors in current or prior accounting periods for improper or inappropriate transactions or entries identified by the review. In many cases these transactions or entries appear to have had the purpose of achieving an accounting result that would enhance measures believed to be important to the financial community and may have involved documentation that did not accurately reflect the true nature of the arrangements. In certain instances, these transactions or entries may also have involved misrepresentations to members of management, regulators and AIG’s independent auditors. The restatement includes adjustments, some of which had been previously identified but considered not to be sufficiently material to require correction. In addition, AIG has determined that certain accounts should be adjusted for the year ended December 31, 2004 to reflect changes in estimates made in the fourth quarter of 2004. The aggregate effect of these changes in estimates resulted in an after tax charge of approximately $1.19 billion. See “Fourth Quarter 2004 Changes in Estimates” herein and Note 1(cc) of Notes to Financial Statements.

     Details of Accounting Adjustments included in the Restatement. The accounting adjustments relate primarily to the categories described below. Many of the adjustments that do not affect previously reported net income or consolidated shareholders’ equity do, however, change both the consolidated and business segment reporting of premiums, underwriting results, net investment income, realized capital gains and losses and operating income, as well as other items. Adjustments that affect reported net income and consolidated shareholders’ equity relate to both the timing and recognition of revenues and expenses and affect the comparison of period-to-period results. Following the description of each transaction, accounting entry or entity category is a summary of the principal consolidated

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statement of income and balance sheet accounts affected by the adjustments relating to that category.

•	Risk Transfer. To recognize the cash flows under an insurance contract as premium and losses, GAAP requires the transfer of risk. If risk transfer requirements are not met, an insurance contract is accounted for as a deposit, resulting in the recognition of cash flows under the contract as deposit assets or liabilities and not as revenues or expense. AIG has concluded, based upon its internal review, that there was insufficient risk transfer to qualify for insurance accounting for certain transactions where AIG subsidiaries either wrote direct insurance or assumed or ceded reinsurance. These transactions are now recorded using deposit accounting. The changes resulting from the change to deposit accounting affect both the consolidated balance sheet and statement of income. Detailed discussions of the principal accounts affected are provided below for each of the categories included.
–	Union Excess: AIG has concluded, based on documents and information identified during the course of the internal review, that reinsurance ceded to Union Excess Reinsurance Company, Ltd., a Barbados-domiciled reinsurer (Union Excess), did not result in risk transfer because of AIG’s control over certain transactions undertaken directly or indirectly with Union Excess, including the timing and nature of certain commutations. Eliminating the cessions reduces reinsurance assets, effectively eliminates the inherent discount related to the loss reserves ceded under the contracts, and increases net premiums and losses. It should be noted that any income earned on the deposit assets in future periods would increase net investment income in those periods.
	In addition, as a result of certain facts and circumstances related to the formation of Union Excess, as well as certain relationships with Starr International Company, Inc. (SICO), Union Excess is now included in AIG’s consolidated financial statements. The facts and circumstances surrounding SICO’s involvement with Union Excess were not properly reflected in AIG’s books and records, were not known to all relevant AIG financial reporting personnel and, AIG now believes, were not known to AIG’s independent auditors. For example, a significant portion of the ownership interests of Union Excess shareholders are protected against loss under financial arrangements with SICO. Additionally, from its formation in 1991, Union Excess has reinsured risks emanating primarily or solely from AIG subsidiaries, both directly and indirectly. Further, it appears that the employees responsible for the reinsurance related to Union Excess managed that relationship to prevent significant losses or gains to Union Excess so that substantially all of the risks and rewards of the underlying reinsurance inured to AIG. This relationship allowed AIG to absorb substantially all the economic returns, which in turn caused Union Excess to be deemed a variable interest entity (VIE). The effect of the adjustments and restatement relating to Union Excess on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	386			$	439			$	673			$	726			$	251
	Net investment income			259				304				233				179				140
	Realized capital gains (losses)			(48	)			(17	)			105				39				61
	Incurred policy losses and benefits			671				433				683				638				955
	Insurance acquisition and other operating expenses			48				48				52				111				63
	Net income			(78	)			160				180				127				(368	)
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			2,417				1,923				1,477				956				119
	Reinsurance assets			(5,511	)			(5,815	)			(5,856	)			(5,382	)			(4,763	)
	Other assets			1,607				2,549				2,760				2,561				2,327
	Total shareholders’ equity			(951	)			(873	)			(1,033	)			(1,213	)			(1,340	)

–

Gen Re: In December 2000 and March 2001, an AIG subsidiary entered into an assumed reinsurance transaction with a subsidiary of General Re Corporation (Gen Re) involving two tranches of $250 million each. In connection with each tranche, consolidated net premiums written and consolidated incurred policy losses and benefits increased by $250 million in the fourth quarter of 2000 (with respect to the first tranche) and the first quarter of 2001 (with respect to the second tranche). The first tranche of the transaction was commuted in November 2004, reducing premiums and reserves for losses and loss expenses by approximately $250 million in the fourth quarter 2004. AIG has concluded that the transaction was done to accomplish a desired accounting result and did not entail sufficient qualifying risk transfer. As a result, AIG has determined that the transaction should not have been recorded as insurance. AIG’s restated financial statements recharacterize the transaction as a deposit rather than as insurance. This adjustment also includes the effects of a related commutation in 2001. Such recharacterization had virtually no effect on net income or consolidated shareholders’ equity but had the

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	following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	245			$	–			$	–			$	(258	)		$	(250	)
	Incurred policy losses and benefits			250				–				–				(258	)			(250	)
Consolidated Balance Sheet:
	Reserve for losses and loss expenses			(250	)			(500	)			(500	)			(500	)			(250	)
	Other liabilities			250				500				500				500				250

–	Other Risk Transfer: AIG has concluded that Richmond Insurance Company, Ltd., a Bermuda-based reinsurance holding company (Richmond) in which AIG currently holds a 19.9 percent ownership interest, should be treated as a consolidated entity in AIG’s financial statements due to AIG’s ability to exert control over that entity. Such determination was based, in part, on arrangements and documents, including put agreements requiring an AIG subsidiary to purchase the Richmond shares, that appear not to have been previously disclosed to appropriate AIG financial personnel or AIG’s independent auditors. Although AIG currently owns only a minority ownership interest in Richmond, a review of the operations of Richmond and its subsidiaries has shown significant previously undisclosed evidence of AIG control causing Richmond to be deemed a VIE. The consolidation of Richmond had virtually no effect on net income or consolidated shareholders’ equity. AIG has received notice of exercise of a put with respect to 49.9 percent of the Richmond shares and expects to acquire the shares by June 30, 2005.
	As a result of its internal review of AIG Re, AIG Risk Finance and AIG Risk Management and certain transactions, AIG determined that adjustments were required because certain transactions lacked sufficient risk transfer to qualify for insurance accounting under GAAP.
	The effect of the adjustments and restatement for Richmond, AIG Re, AIG Risk Finance, AIG Risk Management and certain other transactions on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	(287	)		$	33			$	(856	)		$	(924	)		$	(815	)
	Incurred policy losses and benefits			(159	)			53				(862	)			(561	)			(739	)
	Insurance acquisition and other operating expenses			(112	)			(62	)			(35	)			(242	)			(65	)
	Net income			(26	)			–				22				(66	)			(4	)
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			(362	)			(389	)			(537	)			(752	)			(932	)
	Reinsurance assets			(529	)			(1,185	)			(912	)			(937	)			(1,032	)
	Other assets			947				1,126				634				807				989
	Reserve for losses and loss expenses			(1,154	)			(1,609	)			(1,609	)			(995	)			(748	)
	Reserve for unearned premiums			82				112				(31	)			(131	)			(347	)
	Funds held by companies under reinsurance treaties			(740	)			(1,019	)			(1,021	)			(1,103	)			(1,040	)
	Other liabilities			1,910				2,114				1,850				1,392				1,120
	Total shareholders’ equity			(77	)			(51	)			(52	)			(73	)			(7	)

•

Loss Reserves: Estimation of ultimate net losses and loss expenses is a complex process requiring the use of assumptions which may be highly uncertain at the time of estimation. As a result of its internal review, AIG has determined that the IBNR included in the General Insurance reserve for losses and loss expenses was adjusted on a regular basis without appropriate support for the changes requested to be made. Although AIG does not believe that any change materially affected the integrity of AIG’s loss reserve position because in each instance IBNR as adjusted was determined to be within an appropriate tolerance of the applicable actuarial point estimate, AIG has determined that the unsupported decreases in reserves generated independently from the actuarial process constituted errors which should be corrected

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and has restated the amounts of carried reserves accordingly. As a result, the fourth quarter 2002 charge relating to the increase in the General Insurance reserve for losses and loss expenses, previously reported as $2.8 billion, has been restated to $2.1 billion to reduce the original charge by the cumulative effect of the correction of the unsupported adjustments to reserves through that date (approximately $700 million). Therefore, the charge to pretax earnings is approximately $700 million less than previously reported, reflecting the removal of the unsupported adjustments to reserves in periods prior to and including the fourth quarter of 2002. The effect of the adjustments and restatement of the loss reserves on certain of AIG’s consolidated statement of income and balance sheet accounts is set forth as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Incurred policy losses and benefits		$	302			$	342			$	(351	)		$	137			$	223
	Net income			(196	)			(222	)			228				(89	)			(145	)
Consolidated Balance Sheet:
	Reserve for losses and loss expenses			880				578				236				587				450
	Total shareholders’ equity			(572	)			(375	)			(153	)			(381	)			(292	)

•	Net Investment Income. As a result of the internal review, AIG determined that the accounting for certain transactions had the effect of improperly converting capital gains into net investment income and was not consistent with GAAP. The most significant of these transactions are:
–	Covered Calls: From 2001 through 2003, certain AIG subsidiaries entered into a series of transactions with third parties whereby these subsidiaries sold in-the-money calls, principally on municipal bonds in their investment portfolios that had unrealized appreciation associated with them. Upon exercise of a call, the related bonds were delivered to the purchaser of the call and subsequently reacquired by the subsidiaries pursuant to contingent forward agreements which permitted the AIG subsidiaries to repurchase the bonds at the prevailing market value. In connection with selling the calls, the AIG subsidiaries also entered into interest rate swaps to protect them against the effects of changes in value of the applicable bonds as a result of movements in interest rates during the transaction period. These transactions were accounted for as sales and subsequent purchases and appear to have been initiated to increase net investment income. AIG has determined that, because AIG was able to cause the bonds to be returned from the third parties even after the third parties exercised the call options, AIG did not cede control over the bonds and therefore the transactions should not have been accounted for as sales and subsequent purchases but rather as financings. The adjustments required to correct this error reduce previously reported amounts of net investment income and correspondingly increase realized capital gains from these transactions over the three-year period. The adjustments and restatement had no net effect on consolidated shareholders’ equity for any period and the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Net investment income		$	35			$	(179	)		$	(7	)		$	(146	)		$	–
	Realized capital gains (losses)			57				118				61				55				–
	Net income			59				(40	)			35				(59	)			–

–

Synthetic Fuel Investment: AIG subsidiaries invest in certain limited liability companies that invest in synthetic fuel production facilities as a means of generating income tax credits. As a result of a misapplication of GAAP, AIG recorded net investment income or, in some cases, other revenues, on a pretax basis rather than reflecting the tax credit as a reduction of income tax expense, thereby increasing net investment income for AIG’s life insurance and retirement services segment and other revenues for the financial services segment. Certain of these entries were previously identified but not corrected as the amounts were viewed as not sufficiently material to require correction. In the fourth quarter of 2004, AIG changed its accounting to present these tax credits as a component of income taxes. AIG has now determined that it is necessary to record these adjustments for the periods prior to the fourth quarter of 2004. These adjustments had no effect on consolidated net income or shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Net investment income		$	(203	)		$	(238	)		$	(259	)		$	(31	)		$	–
	Other revenues			(143	)			(200	)			(165	)			(212	)			(79	)
	Income taxes			(346	)			(438	)			(424	)			(243	)			(79	)

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–

Hedge Fund Accounting: AIG subsidiaries invest in a variety of alternative asset classes, including hedge fund limited partnerships, that are accounted for as available for sale securities. As part of the underlying partnership agreements, such AIG subsidiaries have the right to redeem their interests at defined times. A redemption allows AIG to record net investment income to the extent there are gains in the underlying funds at the time. However, as a result of its internal review, AIG has determined that, in certain cases, the redemption resulted in inappropriate gain recognition because the proceeds were required to be immediately reinvested in the funds. In addition, the cost bases of certain funds were misallocated in determining gains. The restated consolidated financial statements correct these errors. These corrections had virtually no effect on consolidated shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts.

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Net investment income		$	11			$	29			$	159			$	(177	)		$	(101	)
	Other revenues			(9	)			–				26				(27	)			(87	)
	Net income			2				19				120				(133	)			(122	)

–	Muni Tender Option Bond Program: From 2000 through early 2003, AIG subsidiaries participated in a program in which they transferred highly rated municipal bonds at market value to a third-party broker, which in turn transferred these securities to a trust that the broker had established. The trust then issued two sets of beneficial interests. Half of the beneficial interests were floating interest rate certificates. The remaining beneficial interests were “inverse” floating interest rate certificates. Third parties invested in the floating interest rate certificates, and AIG subsidiaries invested in the inverse floating interest rate certificates. AIG did not consolidate the trust into AIG’s balance sheet.
	The AIG subsidiaries, as the holders of the residual interest inverse floating rate certificates, had the right to unilaterally liquidate the trust and cause the municipal bonds to be returned to AIG on short notice. Accordingly, the AIG subsidiaries did not cede control over the bonds. As a result, AIG now believes that the conclusion not to consolidate was an error in the application of GAAP. Therefore, AIG has now consolidated the trusts into its balance sheets at December 31, 2002, 2001 and 2000. The consolidations had no effect on consolidated shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Net investment income		$	65			$	60			$	44			$	11			$	–
	Realized capital gains (losses)			27				(148	)			(47	)			(194	)			22
	Net income			60				(57	)			(2	)			(119	)			14
Consolidated Balance Sheet:
	Other assets			–				–				2,075				2,199				1,449
	Other liabilities			–				–				2,075				2,199				1,449

–

DBG/AIG Capital Corporation Intercompany Dividend: In 2002, AIG Capital Corporation issued shares of its preferred stock to National Union in exchange for shares of ILFC’s common stock. AIG did not eliminate the preferred stock investment in consolidation, instead recording the dividend as income in net investment income and as corresponding expense in other operating expenses. AIG has now determined that this accounting is a misapplication of GAAP. Accordingly, AIG has eliminated this intercompany investment and reversed the accounting entries in its consolidated statement of income. The adjustments and restatement had no effect on consolidated net income or shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Net investment income		$	(100	)		$	(100	)		$	–			$	–			$	–
	Insurance acquisition and other operating expenses			(100	)			(100	)			–				–				–

•

“Top Level” Adjustments and Other Directed Entries (other than loss reserves). Certain accounting entries originated at the parent company level had the effect of reclassifying realized capital gains to net investment income, as well as adjusting other line item reclassifications and other segment financial information. In some cases, expense deferrals were increased or reserves decreased, both having the effect of increasing reported earnings. In other

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cases, the adjustments affected revenue and expense recognition between reporting periods or among business segments. Certain of these entries were previously identified but considered not to be sufficiently material to require correction. As part of its internal review, AIG analyzed and assessed “top level” adjustments since 2000 and determined that certain entries appear to have been made at the direction of certain former members of senior management without appropriate documentation or support.

–

Foreign Life Insurance Net Investment Income Reclassification: In addition to the matters described above, certain accounting entries, now determined to be errors, had the effect of reclassifying capital gains realized from investments made to match liabilities relating to policies in Japan and Southeast Asia. Due to the limited availability of long-duration bonds or bonds with sufficient yield to meet the policyholder liability requirements in Japan and Southeast Asia, AIG subsidiaries made alternative investments, including investments in equities. Until the fourth quarter of 2003, a portion of the capital gains realized on these alternative investments, including substantial amounts related to the sale of fixed income securities, was reclassified to net investment income in the consolidated statement of income to match these revenues against the incurred policy benefit expense of the underlying policies. Amounts so reflected, which were previously identified but not corrected as they were viewed as immaterial, are treated as corrections of errors in the restated financial statements, and are as follows: $57 million, $448 million, $278 million, $129 million, and $87 million for 2004, 2003, 2002, 2001 and 2000, respectively.

Beginning in the first quarter of 2004, a process was implemented to identify only certain equity-related gains in Southeast Asia and a limited amount of fixed income and equity gains in Japan and to segregate and treat such realized capital gains separately for segment reporting purposes only. The new process and limits were applied retroactively for 2003, 2002, 2001 and 2000 as part of the restatement.

The restatement reverses all such unsupported “top level” and other directed entries, including the Foreign Life Insurance Net Investment Income Reclassification, with the following effect on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	130			$	250			$	(199	)		$	(272	)		$	(184	)
	Net investment income			(384	)			(783	)			(733	)			(514	)			(155	)
	Realized capital gains (losses)			108				559				374				223				126
	Other revenues			267				89				92				70				80
	Incurred policy losses and benefits			57				195				(337	)			(417	)			(97	)
	Insurance acquisition and other operating expenses			(229	)			(115	)			47				272				95
	Net income			213				26				(112	)			(241	)			(112	)
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			(15	)			(265	)			(456	)			(398	)			(306	)
	Reserve for losses and loss expenses			–				(30	)			(306	)			(246	)			(95	)
	Other liabilities			252				231				251				155				(10	)
	Total shareholders’ equity			(206	)			(401	)			(454	)			(342	)			(105	)

•

Conversion of Underwriting Losses to Capital Losses. This category includes transactions and entries that had the principal effect of improperly recharacterizing underwriting losses as capital losses. Although these errors have a minimal effect on consolidated shareholders’ equity at December 31, 2004, they have an effect on underwriting results in each year. This category also includes insurance and reinsurance transactions where AIG’s accounting resulted in errors relating to the timing and classification of income recognition as well as errors relating to the timing of premium recognition. The most significant transactions in this category are the following:

–

Capco: AIG has determined that a series of transactions with Capco Reinsurance Company, Ltd. (Capco), a Barbados-domiciled reinsurer, involved an improper structure created to recharacterize underwriting losses relating to auto warranty business as capital losses. That structure, which appears to have not been properly disclosed to appropriate AIG personnel or its independent auditors, consisted primarily of arrangements between subsidiaries of AIG and Capco that require Capco to be treated as a consolidated entity in AIG’s financial statements. The result of such consolidation is to reverse capital losses for the years

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	2000 through 2003 and recognize a corresponding amount of underwriting losses in 2000.

–	The Robert Plan: AIG has restated the accounting for surplus notes purchased as part of a litigation settlement in 2002 with The Robert Plan Corporation (The Robert Plan). Pursuant to the settlement agreement, the surplus notes were to be repaid through profits received from a managing general agency relationship with The Robert Plan. When AIG deemed that repayment under the surplus notes was unlikely, AIG recorded the impairment charge as realized capital losses rather than underwriting losses. AIG now believes that this accounting treatment was an error and has restated the impairment charges as underwriting losses.
–	AIRCO Reinsurance: In each of 1999 and 2000, AIRCO entered into stop loss reinsurance agreements with Union Excess relating to accident and health business of Nan Shan. Concurrently with each reinsurance agreement, AIRCO entered into a swap agreement with Union Excess, under which the payments were linked to payments under the reinsurance agreement. The transaction had the effect of converting incurred policy losses into capital losses. AIG has determined that its prior accounting was a misapplication of GAAP and has reversed both the cessions under the reinsurance agreement and the corresponding swaps.

The effect of these adjustments and restatement on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	–			$	–			$	(43	)		$	–			$	1
	Realized capital gains (losses)			116				19				48				66				58
	Incurred policy losses and benefits			–				–				130				–				192
	Insurance acquisition and other operating expenses			(6	)			(2	)			1				–				–
	Net income			79				20				(65	)			66				(133	)
Consolidated Balance Sheet:
	Collateral and guaranteed loans, net of allowance			(116	)			(55	)			–				–				–
	Short-term investments, at cost			–				–				(100	)			(120	)			(120	)
	Other assets			(5	)			(7	)			(22	)			(67	)			(133	)
	Total shareholders’ equity			(30	)			(109	)			(129	)			(64	)			(130	)

•	Asset Realization. As a result of the internal review, AIG concluded that adjustments should be made to the value of certain assets included in its consolidated balance sheet. The most significant of these items are:
–	Domestic Brokerage Group (DBG) Issues: A review of allowances for doubtful accounts and other accruals recorded by certain DBG member companies has led AIG to conclude that the allowances related to certain premiums receivable, reinsurance recoverables and other assets were not properly analyzed in prior periods and that appropriate allowances were not properly recorded in AIG’s consolidated financial statements. Certain relevant information was known by certain members of senior management but, AIG now understands, not previously disclosed to the independent auditors. In addition, various accounts were not properly reconciled. AIG’s restated financial statements reflect the recording of appropriate amounts for these reserves and allowances for doubtful accounts for the appropriate time period, resulting in an after-tax reduction in consolidated shareholders’ equity at December 31, 1999 of $514 million. Because all of the reporting periods affected by these adjustments were prior to 2000, the restatement results in decreases in insurance acquisition and other operating expenses in 2004, 2003, 2002, 2001 and 2000. The effect of the adjustments and restatement resulting from DBG issues on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Insurance acquisition and other operating expenses		$	(52	)		$	(224	)		$	(23	)		$	(22	)		$	(27	)
	Net income			34				146				15				13				17
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			(864	)			(918	)			(1,142	)			(1,166	)			(1,249	)
	Reserve for losses and loss expenses			(509	)			(509	)			(509	)			(509	)			(509	)
	Reserve for unearned premiums			(81	)			(81	)			(81	)			(81	)			(107	)
	Total shareholders’ equity			(290	)			(324	)			(470	)			(484	)			(497	)

–

Other Than Temporary Declines: AIG’s investment accounting policies require that an investment that has been identified as impaired should be written down in the period in which such impairment is determined, and recorded as a realized capital loss. AIG has determined that realized capital losses with respect to certain impaired investments were not recorded in the appropriate periods, and the restate-

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	ment will thus affect the timing of previously reported realized capital losses. The adjustments and restatement resulting from other than temporary declines had only a minor effect on consolidated shareholders’ equity but affected certain of AIG’s consolidated statement of income accounts as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Realized capital gains (losses)		$	4			$	463			$	307			$	(209	)		$	(202	)
	Net income			2				301				200				(136	)			(132	)

•	Other GAAP Corrections. As part of its internal review, AIG has considered the application of certain accounting principles to specific businesses and transactions, and has determined that certain misapplications of GAAP are errors that require restatement of its financial statements. These adjustments include the following:
–	Accounting for Derivatives (FAS 133 Hedge Accounting): AIG and its subsidiaries, including AIGFP, engage in hedging activities for their own accounts, which AIG believes have been and remain economically effective. AIG and its subsidiaries enter into derivative contracts principally to hedge interest rate risk and foreign currency risk associated with their assets, liabilities and forecasted cash flows. Such derivative transactions include interest rate swaps, cross currency swaps and forwards, which are generally executed through AIGFP. Statement of Financial Accounting Standards No. 133 — “Accounting for Derivative Instruments and Hedging Activities” (FAS 133) requires that third-party derivatives used for hedging must be specifically matched with the underlying exposures to an outside third party and documented contemporaneously to qualify for hedge accounting treatment. The internal review determined that in many cases AIG did not meet these hedging requirements with respect to certain hedging transactions. See the discussion under “Derivatives” herein.
	AIG has historically reported the changes in the fair value of certain derivatives used for hedging activities through other comprehensive income in consolidated shareholders’ equity or in net income with a corresponding adjustment to the hedged item, depending on the nature of the hedging relationship. In order to comply with FAS 133, the restated consolidated financial statements include the changes in fair value for certain derivatives, previously recorded through other comprehensive income, in current period income and reverse the previous adjustments on certain assets and liabilities recorded in income in connection with hedge accounting. Because these activities did not qualify for hedge accounting, Statement of Financial Accounting Standards No. 115 — “Accounting for Certain Investments in Debt and Equity Securities” requires AIG to recognize the corresponding changes in fair value, including foreign exchange gains and losses resulting from exchange rate fluctuations, relating to available-for-sale investments through accumulated other comprehensive income. These restatement adjustments with respect to FAS 133 do not result in any changes in AIG’s liquidity or its overall financial condition even though inter-period volatility of earnings increases.

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AIG is assessing the cost and benefits of modifying its hedging activities to obtain hedge accounting under the requirements of FAS 133. The adjustments and restatement to reflect appropriate GAAP accounting for these derivatives, which also included reclassifications between the accounts securities available for sale, at market value and securities purchased under agreements to resell, at contract value, had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Realized capital gains (losses)		$	(109	)		$	104			$	(14	)		$	(36	)		$	–
	Other revenues			524				(1,357	)			(503	)			(370	)			1,265
	Net income			252				(783	)			(323	)			(252	)			822
Consolidated Balance Sheet:
Financial services assets:
	Securities available for sale, at market value			8,021				8,328				9,263				6,264				(156	)
	Securities purchased under agreements to resell, at contract value			(7,325	)			(7,325	)			(7,825	)			(6,325	)			–
Financial services liabilities:
	Securities sold under agreements to repurchase, at contract value			2,061				1,003				197				(340	)			(216	)
	Unrealized loss on swaps, options and forward transactions			(2,199	)			(610	)			394				1,566				333
	Retained earnings			(394	)			(646	)			136				459				711
	Accumulated other comprehensive income			1,412				1,439				1,424				121				(134	)
	Total shareholders’ equity			1,018				792				1,561				581				577

–	Accounting for Deferred Taxes: AIG identified certain misapplications of GAAP in its provision for deferred income taxes as follows:

	For certain foreign subsidiaries for which AIG has plans to permanently reinvest undistributed earnings, AIG incorrectly provided U.S. deferred taxes on the unrealized appreciation associated with investment securities in accumulated other comprehensive income.

	For certain foreign subsidiaries for which AIG does not have plans for permanent reinvestment of undistributed earnings, U.S. deferred taxes were incorrectly omitted on certain components of other comprehensive income.

	These adjustments and restatement had the following effects on consolidated net income and shareholders’ equity:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Net income		$	(5	)		$	(23	)		$	(22	)		$	–			$	–
Consolidated Balance Sheet:
	Total shareholders’ equity			889				761				490				324				166

–	Foreign Currency Translation (FAS 52): FAS 52 is used to determine the timing of the recognition of income or expense resulting from foreign exchange rate changes for transactions denominated in other than a functional currency.

AIG has determined that, in certain cases, its application of FAS 52 in its consolidated financial statements did not comply with the functional currency determination requirements of the standard. As a result, AIG has recorded accounting adjustments to reclassify currency transaction gains and losses from accumulated other comprehensive income to net income. These corrections affected consolidated net income in certain periods but had no effect on consolidated shareholders’ equity at December 31, 2004 or for prior periods.

AIG adopted a practice in the 1990s of recording adjustments to general insurance reserves to offset increases or decreases in such reserves through other comprehensive income, net of tax, resulting from translation of reserves denominated in foreign currencies. AIG now believes that this accounting practice was a misapplication of GAAP. As a result of this adjustment, general insurance reserves denominated in foreign currencies have been restated to restore the translation effect to reserve for losses and loss expenses.

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Together, these adjustments had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Realized capital gains (losses)		$	(127	)		$	(193	)		$	(52	)		$	44			$	—
	Net income			(124	)			(193	)			(53	)			75				119
Consolidated Balance Sheet:
	Other assets			163				143				31				(6	)			(15	)
	Reserve for losses and loss expenses			(25	)			(407	)			(882	)			(902	)			(747	)
	Total shareholders’ equity			131				358				594				583				476

–	Life Settlements. Life settlements are designed to assist life insurance policyholders to monetize the existing value of life insurance policies. AIG, through an insurance subsidiary and non-consolidated trusts, which are deemed to be a qualifying special purpose entity and a VIE, engages in this business. The non-consolidated trusts purchase life insurance policies from policyholders at an initial price and pay additional premiums to keep the policies in force until the insured dies. AIG’s proportionate share of the net death benefits from the purchased contracts, net of reinsurance to a third party reinsurer, was recorded as premium. The costs incurred by the trusts to acquire the contracts and keep them in force were recorded as paid losses by AIG, net of reinsurance. AIG’s accounting resulted in upfront gain recognition of expected profits and premium recognition for amounts loaned to the trusts by other AIG subsidiaries.
	AIG has determined, in light of new information which was not available to management or AIG’s independent auditors at the time the initial accounting determination was made, that the accounting for these transactions as insurance and reinsurance is a misapplication of GAAP that should be corrected through restatement. This restatement results in life settlements being accounted for using an investment method of accounting under FASB Technical Bulletin (FTB) 85-4 “Accounting for Purchases of Life Insurance.” Under FTB 85-4, the carrying value of each contract at purchase and at the end of each reporting period is equal to the cash surrender value of the contract. Cash paid to purchase these contracts that is in excess of the cash surrender value at the date of purchase is recognized as a loss immediately, and periodic maintenance costs, such as premiums necessary to keep the underlying contract in force, are charged to earnings immediately. The life insurance benefits at the insured’s death are payable to the AIG subsidiary and reflected in income at that time. The effect of the adjustments and restatement on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows.

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	(915	)		$	(809	)		$	(603	)		$	(147	)		$	–
	Net investment income			(134	)			(143	)			(114	)			(20	)			–
	Incurred policy losses and benefits			(850	)			(743	)			(552	)			(134	)			–
	Net income			(129	)			(136	)			(107	)			(22	)			–
Consolidated Balance Sheet:
	Other invested assets			(486	)			(253	)			(142	)			(28	)			–
	Premiums and insurance balances receivable, net of allowance			(3,075	)			(1,842	)			(774	)			–				–
	Other assets			341				219				111				29				–
	Reserve for losses and loss adjustment expenses			(1,734	)			(1,026	)			(527	)			(134	)			–
	Funds held by companies under reinsurance treaties			(1,242	)			(601	)			(193	)			–				–
	Total shareholders’ equity			(396	)			(270	)			(129	)			(22	)			–

	Recently, the FASB tentatively concluded that life settlement contracts should be accounted for as an investment, held at cost, with no loss recognized at inception, and revenue recognized when the death benefit is received. In its discussions, the FASB tentatively concluded that retroactive application will be required. AIG expects that approximately $250 million of the restatement adjustment to shareholders’ equity at December 31, 2004 would be eliminated if the FASB’s tentative conclusion is adopted.
–	Deferred Acquisition Costs (DAC): The internal review identified a misapplication of GAAP with respect to General Insurance DAC. As a result of “top level” entries, substantially all costs associated with underwriting and marketing operations were deferred. The internal review determined that certain of these costs did not vary sufficiently with the production of business and should not have been deferred. These costs have been allocated to the periods in which they were incurred and the corresponding DAC asset has been adjusted accordingly. In addition, AIG determined that the amortization period for certain DAC was longer than the typical life of the underlying policies and needed to be shortened, and that certain deferrals associated with an inter-company reinsurance treaty were in error and required correction. This adjustment includes the recharacterization of certain incurred policy losses and benefits to Insurance acquisition and other operating expenses. The effect of

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	these adjustments on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Incurred policy losses and benefits		$	(265	)		$	(231	)		$	(188	)		$	(133	)		$	(134	)
	Insurance acquisition and other operating expenses			321				287				285				450				310
	Net income			(33	)			2				(12	)			(138	)			(40	)
Consolidated Balance Sheet:
	Deferred policy acquisition costs			(485	)			(432	)			(383	)			(307	)			(85	)
	Other assets			(92	)			(94	)			(146	)			(204	)			(214	)
	Total shareholders’ equity			(344	)			(311	)			(313	)			(301	)			(163	)

–

SICO Deferred Compensation: AIG has included in this restatement, expense amounts attributable to deferred compensation granted to certain AIG employees by SICO (pursuant to the SICO Plan described under Item 11. Executive Compensation), a private holding company that owns approximately 12 percent of AIG’s common stock. The amount of deferred compensation granted by SICO has previously been disclosed in the notes to AIG’s consolidated financial statements but was not included as an expense in the calculation of AIG’s consolidated net income because the amounts had been determined not to be material to AIG’s consolidated results of operations in any individual period. The expense related to SICO deferred compensation is recorded as a charge to reported earnings in the periods restated, with an offsetting entry to additional paid-in capital reflecting amounts deemed contributed by SICO. For prior periods, AIG has recorded a reduction of $905 million in retained earnings on its December 31, 1999 consolidated balance sheet and a corresponding increase to additional paid-in capital. The volatility in the expense is attributable to the variable accounting as well as the fact that shares are allocated only in alternate years. The inclusion of the expense attributable to the SICO Plans in AIG’s consolidated financial statements had no effect on consolidated shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Insurance acquisition and other operating expenses		$	56			$	275			$	(173	)		$	45			$	293
	Net income			(56	)			(275	)			173				(45	)			(293	)

–

Commutations: Certain direct insurance, and ceded and assumed reinsurance contracts, were commuted prior to their natural expiration. For certain commutations, the cash received was recorded through negative paid losses in accordance with statutory guidance, while for others it was recorded as written premiums. Despite the lack of guidance under GAAP with respect to this issue, AIG has determined that the accounting for certain commutations was in error due to the inconsistency in AIG’s accounting for commutations and the fact that certain commutations were recorded through the written premium line when there was no unearned premium balance outstanding. As part of this restatement any commutations that were originally recorded through written premium are reclassified to paid losses in the period in which they occurred. The adjustments and restatement have no effect on consolidated net income or shareholders’ equity but affected certain of AIG’s consolidated statement of income and balance sheet accounts as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Premiums and other considerations		$	(370	)		$	(405	)		$	(79	)		$	4			$	(312	)
	Incurred policy losses and benefits			(370	)			(405	)			(79	)			4				(312	)
Consolidated Balance Sheet:
	Reserves for losses and loss expenses			151				58				51				51				–
	Insurance balances payable			(93	)			(51	)			(51	)			(51	)			–

–

Dollar Roll Transactions: Certain AIG subsidiaries entered into dollar roll transactions with third parties designed to enhance the return on AIG’s mortgage backed securities (MBS) portfolio. In a dollar roll transaction, AIG subsidiaries agree to sell a pool of MBSs and simultaneously agree to repurchase substantially the same securities at a later date, typically in one month. AIG accounted for these transactions as collateralized financings under SFAS 140. Even though it had received collateral sufficient to fund substantially all of the cost of purchasing identical replacement securities at the time of transfer, AIG was not fully protected during the term of the contract to replace the asset in the event that the transferee defaulted. Accordingly, AIG should not have accounted for these transactions as financings, but rather as derivatives with mark-to-market changes reflected in earnings. The effect of the adjustments and re-

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	statement on certain of AIG’s consolidated statement of income accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Realized capital gains (losses)		$	16			$	(98	)		$	157			$	(46	)		$	26
	Net income			16				(98	)			157				(46	)			26

–

Affordable Housing: Through an investment limited partnership, an AIG subsidiary, as the general partner, syndicates the tax benefits (including both tax credits and tax losses) generated by affordable housing real estate properties. AIG guarantees the return of the tax benefits to the limited partner investors. Prior to the second quarter of 2003, these syndication transactions were accounted for as sales and the gain was recorded on a straight-line basis over ten years. Beginning in the third quarter of 2003, because of the guarantees, AIG changed its accounting for these partnerships to record all new syndications as financings, rather than sales. At the same time, AIG adjusted its consolidated balance sheet to reflect previous syndications as financings, but did not record the cumulative impact to earnings because the amounts were viewed as immaterial. AIG has now determined that it is necessary to record these adjustments for the periods prior to the third quarter of 2003, and the adjustments and restatement had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Other revenues		$	(39	)		$	(44	)		$	(43	)		$	(71	)		$	(126	)
	Net income			(25	)			(28	)			(28	)			(46	)			(82	)
Consolidated Balance Sheet:
	Other invested assets			1,452				1,652				1,585				1,427				1,172
	Investment income due and accrued			(289	)			(254	)			(222	)			(149	)			(109	)
	Other assets			(1,688	)			(2,009	)			(7	)			(5	)			(2	)
	Other liabilities			(30	)			(154	)			1,770				1,644				1,360
	Total shareholders’ equity			(322	)			(297	)			(269	)			(241	)			(195	)

–

SunAmerica Partnerships: As part of the restatement, management has reclassified the earnings of the SunAmerica partnerships out of other operations, where previously reported, into the Asset Management segment. This revised presentation characterizes the partnership earnings as revenues rather than as a component of insurance acquisition and operating expenses in AIG’s consolidated statement of income. Within the Asset Management segment, this presentation divides the partnership earnings into those of SunAmerica Life, whose equity supports the GIC business, and those of AIG SunAmerica, which are now classified as other asset management revenues. The adjustments and restatement have no effect on consolidated net income or shareholders’ equity but affected certain of AIG’s consolidated statement of income accounts as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2004				2003				2002				2001				2000
Consolidated Statement of Income:
	Other revenues		$	661			$	323			$	243			$	475			$	764
	Insurance acquisition and other operating expenses			661				353				247				475				764

	Fourth Quarter 2004 Changes in Estimates

Adjustments affecting the 2004 consolidated statement of income include changes in estimates relating to the reserve for losses and loss expenses, certain expenses and certain allowances. See “Critical Accounting Estimates” herein. Losses and loss expenses incurred for the fourth quarter includes $850 million relating to changes in estimates attributable to asbestos and environmental exposures, see “Asbestos and Environmental Reserve” herein, $232 million relating to changes in estimates attributable to the accruals for salvage and subrogation recoveries (see Note 1(cc) of Notes to Financial Statements) and $178 million attributable to an arbitration decision with Superior National Insurance Company over the rescission of a quota share reinsurance agreement, which increases the reserves for the matter to $370 million at December 31, 2004. See Note 12(h) of Notes to Financial Statements. The changes in estimates also includes an adjustment of $56 million to deferred acquisition costs, principally relating to a refinement of costs eligible for deferral in accordance with AIG policy. The change in estimate for DBG asset realization includes an increase in the allowance for uncollectible receivables. With respect to income taxes, the change in estimate relates primarily from the determination that the earnings of certain foreign subsidiaries are expected to be repatriated to the U.S. Accordingly, AIG can no longer assert that the undistributed earnings are permanently reinvested.

See Note 1(cc) of Notes to Financial Statements for further details on fourth quarter changes in estimates.

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The following table summarizes the more significant of the fourth quarter changes in estimates:

			For the Three Months and
			Twelve Months Ended
(in millions)			December 31, 2004
Fourth Quarter 2004 Changes in Estimates:
	Increase in reserve for asbestos and environmental losses and loss expenses		$	(850	)
	Deferred acquisition costs adjustments			(56	)
	Accrual for salvage and subrogation recoveries			(232	)
	Subsequent events related to reinsurance arbitration			(178	)
	DBG asset realization			(150	)
	Other changes in estimates			(136	)
	Total pretax changes in estimates			(1,602	)
	Income tax adjustments			(146	)
	Less: tax effect related to changes in estimates			561
	Total changes in estimates		$	(1,187	)

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The following tables summarize the effect on major balance sheet and statement of income accounts of the adjustments included in the restatement and the fourth quarter 2004 changes in estimates by transaction, accounting entry or entity category.

CONSOLIDATED BALANCE SHEET ACCOUNTS

Total Assets

December 31,
(in millions)					2004				2003				2002				2001				2000
Total Assets, as Previously Announced or Reported					$	804,607			$	678,346			$	561,229			$	493,061			$	426,671
Adjustments:
	Risk Transfer:
		Union Excess				(1,487	)			(1,343	)			(1,619	)			(1,865	)			(2,317	)
		Other Risk Transfer				47				(456	)			(822	)			(888	)			(981	)
	Net Investment Income:
		Muni Tender Option Bond Program				–				–				2,075				2,199				1,449
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(108	)			(413	)			(735	)			(626	)			(405	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(837	)			(872	)			(1,017	)			(1,032	)			(1,105	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				2,297				1,985				2,347				742				(206	)
		Accounting for Deferred Taxes				(848	)			(603	)			(427	)			(580	)			(484	)
		Life Settlements				(3,241	)			(1,895	)			(817	)			(147	)			–
		Deferred Acquisition Costs (DAC)				(546	)			(495	)			(498	)			(480	)			(268	)
		Affordable Housing				(525	)			(611	)			1,356				1,273				1,061
	All Other — Net					(699	)			510				484				790				436
			Total Adjustments			(5,947	)			(4,193	)			327				(614	)			(2,820	)
Total Assets, as Adjusted or Restated					$	798,660			$	674,153			$	561,556			$	492,447			$	423,851

Other Invested Assets

December 31,
(in millions)					2004				2003				2002				2001				2000
Other Invested Assets, as Previously Announced or Reported					$	21,316			$	16,787			$	12,680			$	12,704			$	10,623
Adjustments:
	Other GAAP Corrections:
		Life Settlements				(486	)			(253	)			(142	)			(28	)			–
		Affordable Housing				1,452				1,652				1,585				1,427				1,172
	All Other — Net					245				298				253				245				(1	)
			Total Adjustments			1,211				1,697				1,696				1,644				1,171
Other Invested Assets, as Adjusted or Restated					$	22,527			$	18,484			$	14,376			$	14,348			$	11,794

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Premiums and Insurance Balances Receivable, Net of Allowance

December 31,
(in millions)					2004				2003				2002				2001				2000
Premium and Insurance Balances Receivable, Net of Allowance, as Previously Announced or Reported					$	17,202			$	14,166			$	13,088			$	12,412			$	11,215
Adjustments:
	Risk Transfer:
		Union Excess				2,417				1,923				1,477				956				119
		Other Risk Transfer				(362	)			(389	)			(537	)			(752	)			(932	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(15	)			(265	)			(456	)			(398	)			(306	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(864	)			(918	)			(1,142	)			(1,166	)			(1,249	)
	Other GAAP Corrections:
		Life Settlements				(3,075	)			(1,842	)			(774	)			–				–
	All Other — Net					(166	)			514				202				(56	)			(232	)
			Total Adjustments			(2,065	)			(977	)			(1,230	)			(1,416	)			(2,600	)
Premium and Insurance Balances Receivable, Net of Allowance, as Adjusted or Restated					$	15,137			$	13,189			$	11,858			$	10,996			$	8,615

Reinsurance Assets

December 31,
(in millions)					2004				2003				2002				2001				2000
Reinsurance Assets, as Previously Announced or Reported					$	26,171			$	27,962			$	29,882			$	27,199			$	23,386
Adjustments:
	Risk Transfer:
		Union Excess				(5,511	)			(5,815	)			(5,856	)			(5,382	)			(4,763	)
		Other Risk Transfer				(529	)			(1,185	)			(912	)			(937	)			(1,032	)
	Fourth Quarter Changes in Estimates:
		Accruals for salvage and subrogation recoveries				(201	)			–				–				–				–
	All Other — Net					28				(14	)			(63	)			(62	)			(12	)
			Total Adjustments			(6,213	)			(7,014	)			(6,831	)			(6,381	)			(5,807	)
Reinsurance Assets, as Adjusted or Restated					$	19,958			$	20,948			$	23,051			$	20,818			$	17,579

Other Assets

December 31,
(in millions)					2004				2003				2002				2001				2000
Other Assets, as Previously Announced or Reported					$	15,062			$	12,820			$	7,661			$	8,000			$	9,806
Adjustments:
	Risk Transfer:
		Union Excess				1,607				2,549				2,760				2,561				2,327
		Other Risk Transfer				947				1,126				634				807				989
	Net Investment Income:
		Muni Tender Option Bond Program				–				–				2,075				2,199				1,449
	Conversion of Underwriting Losses to Capital Losses					(5	)			(7	)			(22	)			(67	)			(133	)
	Other GAAP Corrections:
		Life Settlements				341				219				111				29				–
		Deferred Acquisition Costs (DAC)				(92	)			(94	)			(146	)			(204	)			(214	)
		Affordable Housing				(1,688	)			(2,009	)			(7	)			(5	)			(2	)
	All Other – Net					(850	)			(414	)			(370	)			(355	)			(241	)
			Total Adjustments			260				1,370				5,035				4,965				4,175
Other Assets, as Adjusted or Restated					$	15,322			$	14,190			$	12,696			$	12,965			$	13,981

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Total Liabilities

December 31,
(in millions)					2004				2003				2002				2001				2000
Total Liabilities, as Previously Announced or Reported					$	721,537			$	606,901			$	499,973			$	438,709			$	375,818
Adjustments:
	Risk Transfer:
		Other Risk Transfer				123				(406	)			(770	)			(815	)			(972	)
	Net Investment Income:
		Muni Tender Option Bond Program				–				–				2,075				2,199				1,449
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(548	)			(548	)			(548	)			(548	)			(609	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				1,280				1,195				787				162				(783	)
		Accounting for Deferred Taxes				(1,738	)			(1,364	)			(917	)			(904	)			(650	)
		Life Settlements				(2,847	)			(1,626	)			(688	)			(126	)			–
		Affordable Housing				(204	)			(314	)			1,625				1,514				1,255
	All Other — Net					251				93				(939	)			(474	)			(1,095	)
			Total Adjustments			(3,683	)			(2,970	)			625				1,008				(1,405	)
Total Liabilities, as Adjusted or Restated					$	717,854			$	603,931			$	500,598			$	439,717			$	374,413

Reserve for Losses and Loss Expenses

December 31,
(in millions)					2004				2003				2002				2001				2000
Reserve for Losses and Loss Expenses, as Previously Announced or Reported					$	64,641			$	56,118			$	51,539			$	44,792			$	40,613
Adjustments:
	Risk Transfer:
		Gen Re				(250	)			(500	)			(500	)			(500	)			(250	)
		Other Risk Transfer				(1,154	)			(1,609	)			(1,609	)			(995	)			(748	)
	Loss Reserves					880				578				236				587				450
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					–				(30	)			(306	)			(246	)			(95	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(509	)			(509	)			(509	)			(509	)			(509	)
	Other GAAP Corrections:
		Foreign Currency Translation (FAS 52)				(25	)			(407	)			(882	)			(902	)			(747	)
		Life Settlements				(1,734	)			(1,026	)			(527	)			(134	)			–
	Fourth Quarter 2004 Changes in Accounting Estimates:
		Increase in asbestos and environmental loss and loss adjustment expense reserves				850				–				–				–				–
		Accruals for salvage and subrogation recoveries				31				–				–				–				–
	All Other — Net					(359	)			(234	)			(347	)			(455	)			(603	)
			Total Adjustments			(2,270	)			(3,737	)			(4,444	)			(3,154	)			(2,502	)
Reserve for Losses and Loss Expenses, as Adjusted or Restated					$	62,371			$	52,381			$	47,095			$	41,638			$	38,111

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Reserve for Unearned Premiums

December 31,
(in millions)					2004				2003				2002				2001				2000
Reserve for Unearned Premiums, as Previously Announced or Reported					$	23,072			$	20,762			$	16,336			$	13,148			$	12,510
Adjustments:
	Risk Transfer:
		Other Risk Transfer				82				112				(31	)			(131	)			(347	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(81	)			(81	)			(81	)			(81	)			(107	)
	All Other — Net					21				117				75				1				(19	)
			Total Adjustments			22				148				(37	)			(211	)			(473	)
Reserve for Unearned Premiums, as Adjusted or Restated					$	23,094			$	20,910			$	16,299			$	12,937			$	12,037

Funds Held by Companies Under Reinsurance Treaties

December 31,
(in millions)					2004				2003				2002				2001				2000
Funds Held by Companies Under Reinsurance Treaties, as Previously Announced or Reported					$	5,386			$	4,664			$	3,425			$	2,685			$	1,435
Adjustments:
	Risk Transfer:
		Other Risk Transfer				(740	)			(1,019	)			(1,021	)			(1,103	)			(1,040	)
	Other GAAP Corrections:
		Life Settlements				(1,242	)			(601	)			(193	)			–				–
	All Other — Net					–				(1	)			–				–				–
			Total Adjustments			(1,982	)			(1,621	)			(1,214	)			(1,103	)			(1,040	)
Funds Held by Companies Under Reinsurance Treaties, as Adjusted or Restated					$	3,404			$	3,043			$	2,211			$	1,582			$	395

Other Liabilities

December 31,
(in millions)					2004				2003				2002				2001				2000
Other Liabilities, as Previously Announced or Reported					$	21,101			$	18,282			$	12,189			$	10,807			$	8,645
Adjustments:
	Risk Transfer:
		Gen Re				250				500				500				500				250
		Other Risk Transfer				1,910				2,114				1,850				1,392				1,120
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					252				231				251				155				(10	)
	Net Investment Income:
		Muni Tender Option Bond Program				–				–				2,075				2,199				1,449
	Other GAAP Corrections:
		Affordable Housing				(30	)			(154	)			1,770				1,644				1,360
	All Other — Net					128				218				243				46				(41	)
			Total Adjustments			2,510				2,909				6,689				5,936				4,128
Other Liabilities, as Adjusted or Restated					$	23,611			$	21,191			$	18,878			$	16,743			$	12,773

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Total Shareholders’ Equity

December 31,
(in millions)					2004				2003				2002				2001				2000
Total Shareholders’ Equity, as Previously Announced or Reported					$	82,871			$	71,253			$	59,103			$	52,150			$	47,439
Adjustments:
	Risk Transfer:
		Union Excess				(951	)			(873	)			(1,033	)			(1,213	)			(1,340	)
	Loss Reserves					(572	)			(375	)			(153	)			(381	)			(292	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(206	)			(401	)			(454	)			(342	)			(105	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(290	)			(324	)			(470	)			(484	)			(497	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				1,018				792				1,561				581				577
		Accounting for Deferred Taxes				889				761				490				324				166
		Life Settlements				(396	)			(270	)			(129	)			(22	)			–
		Affordable Housing				(322	)			(297	)			(269	)			(241	)			(195	)
	Fourth Quarter 2004 Changes in Estimates Effect on Statement of Income					(1,187	)			–				–				–				–
	All Other — Net					(247	)			(236	)			159				156				271
			Total Adjustments			(2,264	)			(1,223	)			(298	)			(1,622	)			(1,415	)
Total Shareholders’ Equity, as Adjusted or Restated					$	80,607			$	70,030			$	58,805			$	50,528			$	46,024

Accumulated Other Comprehensive Income (Loss)

December 31,
(in millions)					2004				2003				2002				2001				2000
Accumulated Other Comprehensive Income (Loss), as Previously Announced or Reported					$	6,373			$	4,244			$	691			$	(1,724	)		$	(2,440	)
Adjustments:
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				1,412				1,439				1,424				121				(134	)
		Accounting for Deferred Taxes				938				805				511				324				166
		Foreign Currency Translation (FAS 52)				305				408				451				387				355
	All Other – Net					565				348				549				953				465
			Total Adjustments			3,220				3,000				2,935				1,785				852
Accumulated Other Comprehensive Income (Loss), as Adjusted or Restated					$	9,593			$	7,244			$	3,626			$	61			$	(1,588	)

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CONSOLIDATED STATEMENT OF INCOME ACCOUNTS

Net Income

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Net Income, as Previously Announced or Reported					$	11,048			$	9,274			$	5,519			$	5,363			$	6,639
Adjustments:
	Risk Transfer:
		Union Excess				(78	)			160				180				127				(368	)
	Loss Reserves					(196	)			(222	)			228				(89	)			(145	)
	Net Investment Income:
		Covered Calls				59				(40	)			35				(59	)			–
		Hedge Fund Accounting				2				19				120				(133	)			(122	)
		Muni Tender Option Bond Program				60				(57	)			(2	)			(119	)			14
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					213				26				(112	)			(241	)			(112	)
	Conversion of Underwriting Losses to Capital Losses					79				20				(65	)			66				(133	)
	Asset Realization:
		Other Than Temporary Declines				2				301				200				(136	)			(132	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				252				(783	)			(323	)			(252	)			822
		Accounting for Deferred Taxes				(5	)			(23	)			(22	)			–				–
		Foreign Currency Translation (FAS 52)				(124	)			(193	)			(53	)			75				119
		Life Settlements				(129	)			(136	)			(107	)			(22	)			–
		SICO Deferred Compensation				(56	)			(275	)			173				(45	)			(293	)
	Fourth Quarter 2004 Changes in Estimates					(1,187	)			–				–				–				–
	All Other — Net					(209	)			(62	)			95				(363	)			(148	)
			Total Adjustments			(1,317	)			(1,265	)			347				(1,191	)			(498	)
Net Income, as Adjusted or Restated					$	9,731			$	8,009			$	5,866			$	4,172			$	6,141

Premiums and Other Considerations

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Premiums and Other Considerations, as Previously Announced or Reported					$	67,852			$	55,226			$	45,135			$	39,194			$	35,298
Adjustments:
	Risk Transfer:
		Union Excess				386				439				673				726				251
		Gen Re				245				–				–				(258	)			(250	)
		Other Risk Transfer				(287	)			33				(856	)			(924	)			(815	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					130				250				(199	)			(272	)			(184	)
	Other GAAP Corrections:
		Life Settlements				(915	)			(809	)			(603	)			(147	)			–
		Commutations				(370	)			(405	)			(79	)			4				(312	)
	All Other – Net					(448	)			146				188				209				39
			Total Adjustments			(1,259	)			(346	)			(876	)			(662	)			(1,271	)
Premiums and Other Considerations, as Adjusted or Restated					$	66,593			$	54,880			$	44,259			$	38,532			$	34,027

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Net Investment Income

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Net Investment Income, as Previously Announced or Reported					$	19,127			$	16,596			$	14,714			$	13,698			$	12,831
Adjustments:
	Risk Transfer:
		Union Excess				259				304				233				179				140
	Net Investment Income:
		Covered Calls				35				(179	)			(7	)			(146	)			–
		Synthetic Fuel Investment				(203	)			(238	)			(259	)			(31	)			–
		Hedge Fund Accounting				11				29				159				(177	)			(101	)
		Muni Tender Option Bond Program				65				60				44				11				–
		DBG/AIG Capital Corporation Intercompany Dividend				(100	)			(100	)			–				–				–
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(384	)			(783	)			(733	)			(514	)			(155	)
	Other GAAP Corrections:
		Life Settlements				(134	)			(143	)			(114	)			(20	)			–
	All Other — Net					(242	)			(78	)			(316	)			15				8
			Total Adjustments			(693	)			(1,128	)			(993	)			(683	)			(108	)
Net Investment Income, as Adjusted or Restated					$	18,434			$	15,468			$	13,721			$	13,015			$	12,723

Realized Capital Gains (Losses)

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Realized Capital Gains (Losses), as Previously Announced or Reported					$	(92	)		$	(1,433	)		$	(2,441	)		$	(836	)		$	(314	)
Adjustments:
	Risk Transfer:
		Union Excess				(48	)			(17	)			105				39				61
	Net Investment Income:
		Covered Calls				57				118				61				55				–
		Muni Tender Option Bond Program				27				(148	)			(47	)			(194	)			22
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					108				559				374				223				126
	Conversion of Underwriting Losses to Capital Losses					116				19				48				66				58
	Asset Realization:
		Other Than Temporary Declines				4				463				307				(209	)			(202	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				(109	)			104				(14	)			(36	)			–
		Foreign Currency Translation (FAS 52)				(127	)			(193	)			(52	)			44				–
		Dollar Roll Transactions				16				(98	)			157				(46	)			26
	All Other — Net					24				6				204				(25	)			(16	)
			Total Adjustments			68				813				1,143				(83	)			75
Realized Capital Gains (Losses), as Adjusted or Restated					$	(24	)		$	(620	)		$	(1,298	)		$	(919	)		$	(239	)

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Other Revenues

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Other Revenues, as Previously Announced or Reported					$	11,728			$	10,914			$	10,074			$	9,710			$	8,523
Adjustments:
	Net Investment Income:
		Synthetic Fuel Investment				(143	)			(200	)			(165	)			(212	)			(79	)
		Hedge Fund Accounting				(9	)			–				26				(27	)			(87	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					267				89				92				70				80
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				524				(1,357	)			(503	)			(370	)			1,265
		SunAmerica Partnerships				661				323				243				475				764
	All Other — Net					(44	)			(51	)			11				(104	)			(126	)
			Total Adjustments			1,256				(1,196	)			(296	)			(168	)			1,817
Other Revenues, as Adjusted or Restated					$	12,984			$	9,718			$	9,778			$	9,542			$	10,340

Incurred Policy Losses and Benefits

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Incurred Policy Losses and Benefits, as Previously Announced or Reported					$	57,697			$	46,390			$	41,402			$	34,864			$	30,776
Adjustments:
	Risk Transfer:
		Union Excess				671				433				683				638				955
		Gen Re				250				–				–				(258	)			(250	)
		Other Risk Transfer				(159	)			53				(862	)			(561	)			(739	)
	Loss Reserves					302				342				(351	)			137				223
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					57				195				(337	)			(417	)			(97	)
	Other GAAP Corrections:
		Life Settlements				(850	)			(743	)			(552	)			(134	)			–
		Deferred Acquisition Costs (DAC)				(265	)			(231	)			(188	)			(133	)			(134	)
		Commutations				(370	)			(405	)			(79	)			4				(312	)
	Fourth Quarter 2004 Changes in Accounting Estimates:
		Increase in asbestos and environmental loss and loss adjustment expense reserves				850				–				–				–				–
		Accrual for salvage and subrogation recoveries				232				–				–				–				–
	All Other — Net					(102	)			111				271				109				187
			Total Adjustments			616				(245	)			(1,415	)			(615	)			(167	)
Incurred Policy Losses and Benefits, as Adjusted or Restated					$	58,313			$	46,145			$	39,987			$	34,249			$	30,609

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Insurance Acquisition and Other Operating Expenses

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Insurance Acquisition and Other Operating Expenses, as Previously Announced or Reported					$	23,668			$	21,005			$	17,938			$	16,746			$	15,224
Adjustments:
	Risk Transfer:
		Union Excess				48				48				52				111				63
		Other Risk Transfer				(112	)			(62	)			(35	)			(242	)			(65	)
	Net Investment Income:
		DBG/AIG Capital Corporation Intercompany Dividend				(100	)			(100	)			–				–				–
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(229	)			(115	)			47				272				95
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(52	)			(224	)			(23	)			(22	)			(27	)
	Other GAAP Corrections:
		Deferred Acquisition Costs (DAC)				321				287				285				450				310
		SICO Deferred Compensation				56				275				(173	)			45				293
		SunAmerica Partnerships				661				353				247				475				764
	All Other — Net					463				179				153				155				95
			Total Adjustments			1,056				641				553				1,244				1,528
Insurance Acquisition and Other Operating Expenses, as Adjusted or Restated					$	24,724			$	21,646			$	18,491			$	17,990			$	16,752

Income Taxes (Current and Deferred)

Years Ended December 31,
(in millions)					2004				2003				2002				2001				2000
Income Taxes (Current and Deferred), as Previously Announced or Reported					$	5,473			$	4,264			$	2,328			$	2,339			$	2,971
Adjustments:
	Net Investment Income:
		Synthetic Fuel Investment				(346	)			(438	)			(424	)			(243	)			(79	)
	All Other — Net					(507	)			(423	)			52				(591	)			(53	)
			Total Adjustments			(853	)			(861	)			(372	)			(834	)			(132	)
Income Taxes (Current and Deferred), as Adjusted or Restated					$	4,620			$	3,403			$	1,956			$	1,505			$	2,839

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	Overview of Operations and Business Results

In 2003 and prior years, AIG’s operations were conducted by its subsidiaries principally through four operating segments: General Insurance, Life Insurance, Financial Services and Retirement Services & Asset Management. Beginning with the first quarter of 2004, AIG reports Retirement Services results in the same segment as Life Insurance, reflecting the convergence of protective financial and retirement products and AIG’s current management of these operations. All financial information herein gives effect to the restatement and adjustments for changes in estimates described in “Restatement of Previously Issued Financial Statements” and “Fourth Quarter 2004 Changes in Estimates” herein. Information for years prior to 2004 included herein has been reclassified to show AIG’s results of operations and financial position on a comparable basis with the 2004 presentation.

     Through these segments, AIG provides insurance and investment products and services to both businesses and individuals in more than 130 countries and jurisdictions. This geographic, product and service diversification is one of AIG’s major strengths and sets it apart from its competitors. The importance of this diversification was especially evident in 2004, when record catastrophe losses in certain insurance operations were more than offset by profitability in those operations as well as in other segments and product lines. Although regional economic downturns or political upheaval could negatively affect parts of AIG’s operations, AIG believes that its diversification makes it unlikely that regional difficulties would have a material effect on its operating results, financial condition or liquidity.

     AIG’s subsidiaries serve commercial, institutional and individual customers through an extensive property-casualty and life insurance and retirement services network. In the United States, AIG companies are the largest underwriters of commercial and industrial insurance and one of the largest life insurance and retirement services operations as well. AIG’s Financial Services businesses include commercial aircraft and equipment leasing, capital markets operations and consumer finance, both in the United States and abroad. AIG also provides asset management services and offers guaranteed investment contracts (GICs) to institutions and individuals.

     AIG’s 2004 operating performance reflects implementation of various long-term strategies and defined goals in its various operating segments.

     A primary goal of AIG in managing its General Insurance operations is to achieve an underwriting profit. To achieve this goal, AIG is disciplined in its risk selection and premiums must be adequate and terms and conditions appropriate to cover the risk accepted. AIG believes in strict control of expenses.

     Another central focus of AIG operations in current years is the development and expansion of new distribution channels. In 2004, AIG expanded its distribution channels in many Asian countries, which now include banks, credit card companies and television-media home shopping. In late 2003, AIG entered into an agreement with PICC Property and Casualty Company, Limited (PICC), which will enable the marketing of accident and health products throughout China through PICC’s branch networks and agency system. AIG participates in the underwriting results through a reinsurance agreement and also holds a 9.9 percent ownership interest in PICC. Other examples of new distribution channels used both domestically and overseas include banks, affinity groups, direct response and e-commerce.

     AIG patiently builds relationships in markets around the world where it sees long-term growth opportunities. For example, the fact that AIG has the only wholly-owned foreign life insurance operations in eight cities in China is the result of relationships developed over nearly 30 years. AIG’s more recent extensions of operations into India, Vietnam, Russia and other emerging markets reflect the same growth strategy. Moreover, AIG believes in investing in the economies and infrastructures of these countries and growing with them. When AIG companies enter a new jurisdiction, they typically offer both basic protection and savings products. As the economies evolve, AIG’s products evolve with them, to more complex and investment-oriented models.

     Growth for AIG may be generated both internally and through acquisitions which both fulfill strategic goals and offer adequate return on investment. In recent years, the acquisitions of AIG Star Life and AIG Edison Life have broadened AIG’s penetration of the Japanese market through new distribution channels and will result in operating efficiencies as they are integrated into AIG’s previously existing companies operating in Japan.

     AIG provides leadership on issues of concern to the global and local economies as well as the insurance and financial services industries. In recent years, efforts to reform the tort system and class action litigation procedures, legislation to deal with the asbestos problem and the renewal of the Terrorism Risk Insurance Act have been key issues, while in prior years trade legislation and Superfund had been issues of concern.

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The following table summarizes AIG’s revenues, income before income taxes, minority interest and cumulative effect of accounting changes and net income for the twelve months ended December 31, 2004, 2003 and 2002:

Years Ended December 31,						2003				2002
(in millions)		2004				(Restated)				(Restated)
Total revenues		$	97,987			$	79,446			$	66,460
Income before income taxes, minority interest and cumulative effect of accounting changes			14,950				11,655				7,982
Net income		$	9,731			$	8,009			$	5,866

Consolidated Results

The 23.3 percent growth in revenues in 2004 was primarily attributable to the growth in net premiums earned from global General Insurance operations as well as growth in both General Insurance and Life Insurance & Retirement Services net investment income and Life Insurance & Retirement Services GAAP premiums. An additional factor was the decline in aggregate realized capital losses in 2004 compared to 2003.

     The decline in realized capital losses in 2004 reflects an improved economy, stronger corporate balance sheets and a significantly lower level of impairment loss provisions. The realized capital losses in 2003 reflect primarily impairment loss provisions. Upon the ultimate disposition of these holdings, a portion of these losses may be recovered depending on future market conditions.

     AIG’s income before income taxes, minority interest and cumulative effect of accounting changes increased 28.3 percent in 2004 when compared to 2003. Life Insurance & Retirement Services, Financial Services and Asset Management operating income gains, together with the decrease in realized capital losses, generated the increase over 2003 in both pretax income and net income.

The following table summarizes the net effect of catastrophe losses for December 31, 2004, 2003 and 2002.

(in millions)		2004				2003				2002
Pretax		$	1,155	*		$	83			$	61
Net of tax and minority interest			729				53				36

*	Includes $96 million in catastrophe losses from partially owned companies.

The following table summarizes the operations of each principal segment for the twelve months ended December 31, 2004, 2003 and 2002. See also Note 3 of Notes to Financial Statements.

							2003				2002
(in millions)			2004				(Restated)				(Restated)
Revenues(a):
	General Insurance(b)		$	41,897			$	33,852			$	25,627
	Life Insurance & Retirement Services(c)			43,386				36,253				31,564
	Financial Services(d)			7,982				6,341				6,604
	Asset Management(e)			4,692				3,643				3,485
	Other			30				(643	)			(820	)
Total			$	97,987			$	79,446			$	66,460
Operating Income(a)(f)(g):
	General Insurance		$	3,237	(h)		$	4,539			$	1,038	(i)
	Life Insurance & Retirement Services			7,924				6,353				5,183
	Financial Services			2,613				1,234				1,870
	Asset Management			1,790				1,078				1,006
	Other(j)			(614	)			(1,549	)			(1,115	)
Total			$	14,950			$	11,655			$	7,982

(a)	Revenues and operating income reflect the adjustments necessary pursuant to FAS 133. See Restatement of Previously Issued Financial Statements – Accounting for Derivatives (FAS 133 Hedge Accounting).
(b)	Represents the sum of General Insurance net premiums earned, net investment income and realized capital gains (losses).

(c)	Represents the sum of Life Insurance & Retirement Services GAAP premiums, net investment income and realized capital gains (losses).

(d)	Represents interest, lease and finance charges.

(e)	Represents management and advisory fees, and net investment income with respect to GICs.
(f)	Represents income before income taxes, minority interest, and cumulative effect of accounting changes.

(g)	Catastrophe losses were $1.16 billion, $83 million and $61 million in 2004, 2003 and 2002, respectively.

(h)	Includes $850 million charge reflecting the change in estimates for asbestos and environmental reserves and $232 million charge reflecting change in estimate for salvage and subrogation recoveries in 2004.

(i)	Includes loss reserve charge of $2.1 billion.
(j)	Represents other income (deductions)-net and other realized capital gains (losses).

General Insurance

AIG’s General Insurance operations provide property and casualty products and services throughout the world. General Insurance operating income includes catastrophe losses of $1.05 billion, $83 million and $61 million in 2004, 2003 and 2002, respectively. In addition, General Insurance operations generated realized capital gains of $220 million in 2004 compared to realized capital losses of $62 million in 2003. General Insurance operating income in 2003 was substantially higher than 2002 due to the $2.1 billion reserve charge in 2002.

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Life Insurance & Retirement Services

AIG’s Life Insurance & Retirement Services operations provide insurance, financial and investment products throughout the world. Foreign operations provide over 60 percent of AIG’s Life Insurance & Retirement Services operating income.

     Life Insurance & Retirement Services operating income increased by 24.7 percent in 2004. This increase resulted from growth in each of AIG’s principal Life Insurance & Retirement Services businesses, and the capital gains realized in 2004 rather than the capital losses realized in 2003. Life Insurance & Retirement Services operating income also grew in 2003 relative to 2002 by 22.6 percent.

Financial Services

AIG’s Financial Services subsidiaries engage in diversified financial products and services including aircraft leasing, capital market transactions, consumer finance and insurance premium financing.

     Financial Services operating income increased in 2004 compared to 2003 primarily due to the fluctuation in earnings resulting from derivative activities that did not quality for hedge accounting under FAS 133. Offsetting this increase is the reduced income from Capital Markets operations and the effect of ILFC’s disposition of approximately $2 billion in aircraft through securitizations in the third quarter of 2003 and first quarter of 2004. Fluctuations in revenues and operating income from quarter to quarter are not unusual because of the transaction-oriented nature of Capital Markets operations and the effect of the FAS 133 adjustments. The charge relating to the PNC settlement, see Item 3. Legal Proceedings, also had a significant negative effect on results. Consumer Finance operations increased revenues and operating income, both domestically and internationally.

Asset Management

AIG’s Asset Management operations include institutional and retail asset management and broker dealer services and spread-based investment business from the sale of GICs. These products and services are offered to individuals and institutions, both domestically and overseas.

     Asset Management operating income increased 66.0 percent in 2004 when compared to 2003 as a result of the upturn in worldwide financial markets and a strong global product portfolio; operating income also increased in 2003 when compared to 2002.

Capital Resources

At December 31, 2004, AIG had total consolidated shareholders’ equity of $80.61 billion and total borrowings of $95.26 billion. At that date, $85.28 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 2004, AIG repurchased in the open market 16,299,300 shares of its common stock.

Liquidity

At December 31, 2004, AIG’s consolidated invested assets included $18.11 billion in cash and short-term investments. Consolidated net cash provided from operating activities in 2004 amounted to $35.58 billion. AIG believes that its liquid assets, cash provided by operations and access to short term funding through commercial paper and bank credit facilities will enable it to meet any anticipated cash requirements.

Outlook

From March through May of 2005, the major rating agencies downgraded AIG’s ratings in a series of actions. S&P lowered the long-term senior debt and counterparty ratings of AIG from ‘AAA’ to ‘AA+’ and placed the ratings on Credit Watch Negative. Moody’s lowered AIG’s long-term senior debt rating from ‘Aaa’ to ‘Aa2’ and placed the ratings on review for possible downgrade. Fitch downgraded the long-term senior debt ratings of AIG from ‘AAA’ to ‘AA’ and placed the ratings on Ratings Watch Negative.

     The agencies also took rating actions on AIG’s insurance subsidiaries. S&P and Fitch lowered to ‘AA+’ the insurance financial strength ratings of most of AIG’s insurance companies. Moody’s lowered the insurance financial strength ratings generally to either ‘Aa1’ or ‘Aa2’. A.M. Best downgraded the financial strength ratings for most of AIG’s insurance subsidiaries from ‘A++’ to ‘A+’ and the issuer credit ratings from ‘aa+’ to ‘aa-’. The insurance companies’ ratings remain on a negative watch.

     In addition, S&P placed ILFC’s ‘AA-’ long-term senior debt rating and ‘A-1+’ short-term rating on Credit Watch Negative. Moody’s affirmed ILFC’s long-term and short-term senior debt ratings (‘A1’/‘P-1’). Fitch downgraded ILFC’s long-term senior debt rating from ‘AA-’ to ‘A+’ and placed the rating on Rating Watch Negative and downgraded ILFC’s short-term debt rating from ‘F1+’ to ‘F1’. Fitch also placed the ‘A+’ long-term senior debt ratings of American General Finance Corporation and American General Finance, Inc. on Rating Watch Negative. S&P and Moody’s affirmed the long-term and short-term senior debt ratings of American General Finance Corporation at ‘A+’/‘A-1’ and ‘A1’/‘P-1’, respectively.

     These debt and financial strength ratings are current opinions of the rating agencies. As such, they may be changed,

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suspended or withdrawn at any time by the rating agencies as a result of changes in, or unavailability of, information or based on other circumstances. Ratings may also be withdrawn at AIG management’s request. This discussion of ratings is not a complete list of ratings of AIG and its subsidiaries. For a discussion of the effect of these ratings downgrades on AIG’s businesses, see “Certain Factors Affecting AIG’s Business — AIG’s Credit Ratings” in Item 1. Business.

     Despite industry price erosion in some classes of general insurance, AIG expects to continue to identify profitable opportunities and build attractive new General Insurance businesses as a result of AIG’s broad product line and extensive distribution networks. AIG expects total General Insurance premiums to increase for 2005 and expects cash flow for investments to remain strong. Thus, General Insurance net investment income is expected to rise in future quarters even in a continued low interest rate environment.

     In China, AIG has wholly-owned life insurance operations in eight cities. These operations should benefit from China’s rapid rate of economic growth and growing middle class, a segment that is a prime market for life insurance. AIG believes that it may also have opportunities in the future to grow by entering the group insurance business. However, in March 2005 it withdrew its application to serve the group insurance market until certain regulatory issues are resolved. Among the regulatory issues to be addressed is the response to AIG’s acknowledgment that certain of its Hong Kong based agents sold life insurance to customers on the Chinese mainland in contravention of applicable regulations.

     AIG Edison Life, acquired in August 2003, adds to the current agency force in Japan, and provides alternative distribution channels including banks, financial advisers, and corporate and government employee relationships. AIG Edison Life’s integration into AIG’s existing Japanese operations will provide future operating efficiencies. In January 2005, AIG Star Life entered into an agreement with the Bank of Tokyo Mitsubishi, one of Japan’s largest banks, to market a multi-currency fixed annuity. Through ALICO, AIG Star Life and AIG Edison, AIG has developed a leadership position in the distribution of annuities through banks. AIG is also a leader in the direct marketing of insurance products through sponsors and in the broad market. AIG also expects continued growth in India, Korea and Vietnam.

     Domestically, AIG anticipates continued operating growth in 2005 as distribution channels are expanded and new products are introduced. The home service operation has not met business objectives, although its cash flow has been strong, and domestic group life/health was also weak in 2004. AIG expects restructuring efforts in these businesses to show positive results by early 2006. AIG American General’s current ratings remain equal to or higher than many of its principal competitors. In addition, recent events have caused independent producers and distributors of AIG American General’s products to be more cautious in placing business with AIG. Therefore, AIG is unable to predict the effect of these issues on AIG’s business, including any increase in associated surrender or replacement activity.

     In the airline industry, changes in market conditions are not immediately apparent in operating results. Lease rates have firmed considerably, as a result of strong demand spurred by the recovering global commercial aviation market, especially in Asia. Sales have begun to increase, and AIG expects an increasing level of interest from a variety of purchasers. Therefore, AIG believes that the improvements in that market which commenced in 2003 will be gradually reflected in ILFC’s results in 2005. In the Capital Markets operations, the integration of AIG Trading Group Inc. and its subsidiaries into the operations of AIG Financial Products Corp. and its subsidiaries created operating efficiencies that will continue to be realized and product synergies that should enhance 2005 results, although quarter to quarter variations are to be expected in this transaction-oriented business. AIG also expects increased contributions to Financial Services revenues and income from its consumer finance operations both domestically and overseas. However, the downgrades of AIG’s credit ratings may adversely affect funding costs for AIG and its subsidiaries and AIGFP’s ability to engage in derivative transactions and certain structured products. See “Certain Factors Affecting AIG’s Business – AIG’s Credit Ratings” in Item 1. Business.

     GICs, which are sold domestically and abroad to both institutions and individuals, are written on an opportunistic basis when market conditions are favorable. AIG expects to launch a matched investment program utilizing issuances of AIG debt securities, which will become AIG’s principal spread-based investment activity. However, in light of recent developments, the timing of the launch of this program is uncertain. Because AIG’s credit spreads in the capital markets have widened following the ratings declines, there may be a reduction in the earnings on new business in AIG’s spread based funding businesses.

     AIG has many promising growth initiatives underway around the world in its insurance and other operations. Cooperative agreements such as those with PICC and various banks in the U.S., Japan and Korea are expected to expand distribution networks for AIG’s products and provide models for future growth.

     For a description of “Certain Factors Affecting AIG’s Business” see Item 1. Business.

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	Critical Accounting Estimates

AIG considers its most critical accounting estimates those with respect to reserves for losses and loss expenses, future policy benefits for life and accident and health contracts, deferred policy acquisition costs, estimated gross profits for investment-oriented products, fair value determinations for certain Capital Markets assets and liabilities and other than temporary declines in value — investments. These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the time of estimation. To the extent actual experience differs from the assumptions used, AIG’s results of operations would be directly affected.

     Throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations, AIG’s critical accounting estimates are discussed in detail. The major categories for which assumptions are developed and used to establish each critical accounting estimate are highlighted below.

Reserves for Losses and Loss Expenses (General Insurance):

•	Loss trend factors: used to establish expected loss ratios for subsequent accident years based on premium rate adequacy and the projected loss ratio with respect to prior accident years.
•	Expected loss ratios for the latest accident year: in this case, accident year 2004 for the year end 2004 loss reserve analysis. For low-frequency, high-severity classes such as excess casualty and directors and officers liability (D&O), expected loss ratios generally are utilized for at least the three most recent accident years.
•	Loss development factors: used to project the reported losses for each accident year to an ultimate amount.

Future Policy Benefits for Life and Accident and Health Contracts (Life Insurance & Retirement Services):

•	Interest rates: which vary by geographical region, year of issuance and products.
•	Mortality, morbidity and surrender rates: based upon actual experience by geographical region modified to allow for variation in policy form.

Deferred Policy Acquisition Costs (General Insurance):

•	Recoverability and eligibility based upon the current terms and profitability of the underlying insurance contracts.

Estimated Gross Profits (Life Insurance & Retirement Services):

•	Estimated gross profits to be realized over the estimated duration of the contracts (investment-oriented products) affects the carrying value of deferred policy acquisition costs under FAS 97. Estimated gross profits include investment income and gains and losses on investments less required interest, actual mortality and other expenses.

Fair Value Determinations of Certain Assets and Liabilities (Financial Services — Capital Markets):

•	Valuation models: utilizing factors, such as market liquidity and current interest, foreign exchange and volatility rates.
•	AIG attempts to secure reliable and independent current market price data, such as published exchange rates from external subscription services such as Bloomberg or Reuters or third-party broker quotes for use in this model. When such prices are not available, AIG uses an internal methodology, which includes interpolation from verifiable prices from trades occurring on dates nearest to the dates of the transactions.

Other Than Temporary Declines in Value — Investments:

•	Trading at a significant (25 percent or more) discount to par, amortized cost (if lower) or cost for an extended period of time (nine months or longer).
•	The occurrence of a discrete credit event resulting in the debtor default, seeking bankruptcy or insolvency protection or voluntary reorganization.
•	The possibility of non-realization of a full recovery on its investment, irrespective of the occurrence of one of the foregoing events.

	Operating Review

General Insurance Operations

AIG’s General Insurance subsidiaries are multiple line companies writing substantially all lines of property and casualty insurance both domestically and abroad. See “General Insurance Operations” in Item 1. Business for more information relating to General Insurance subsidiaries.

     As previously noted, AIG believes it should present and discuss its financial information in a manner most meaningful to its investors. Accordingly, in its General Insurance business, AIG uses certain non-GAAP measures, where AIG has determined these measurements to be useful and meaningful.

     A critical discipline of a successful general insurance business is the objective to produce operating income from underwriting exclusive of investment-related income. When underwriting is not profitable, premiums are inadequate to pay for insured losses and underwriting related expenses. In these situations, the addition of general insurance related investment income and realized capital gains may, however,

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enable a general insurance business to produce operating income. For these reasons, AIG views underwriting profit to be critical in the overall evaluation of performance. Although in and of itself not a GAAP measurement, AIG believes that underwriting profit is a useful and meaningful disclosure. See also the discussion under “Liquidity” herein.

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

     Statutory underwriting profit is derived by reducing net premiums earned by net losses and loss expenses incurred and net expenses incurred. Statutory accounting generally requires immediate expense recognition and ignores the matching of revenues and expenses as required by GAAP. That is, for statutory purposes, expenses are recognized immediately, not over the same period that the revenues are earned.

     A basic premise of GAAP accounting is the recognition of expenses at the same time revenues are earned, the accounting principle of matching. Therefore, to convert underwriting results to a GAAP basis, acquisition expenses are deferred (deferred policy acquisition costs (DAC)) and amortized over the period the related net premiums written are earned. Accordingly, the statutory underwriting profit has been adjusted as a result of acquisition expenses being deferred as required by GAAP. DAC is reviewed for recoverability, and such review requires management judgment. See also “Critical Accounting Estimates” herein and Notes 1, 2 and 4 of Notes to Financial Statements.

     AIG, along with most General Insurance companies, uses the loss ratio, the expense ratio and the combined ratio as measures of underwriting 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 written, the cost of losses and statutory expenses, respectively. The combined ratio presents the total cost per $100 of premium production. A combined ratio below 100 demonstrates underwriting profit; a combined ratio above 100 demonstrates underwriting loss.

     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 in income as net premiums earned until the end of the policy period.

     The underwriting environment varies from country to country, as does the degree of litigation activity. Regulation, product type and competition have a direct effect on pricing and consequently on profitability as reflected in underwriting profit and statutory general insurance ratios.

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General Insurance operating income is comprised of underwriting profit (loss), net investment income and realized capital gains and losses. These components, as well as net premiums written, net premiums earned and statutory ratios for 2004, 2003 and 2002 were as follows:

								2003				2002
(in millions, except ratios)				2004				(Restated)				(Restated)
Net premiums written:
	Domestic General
		DBG		$	22,504			$	19,563			$	14,474
		Transatlantic			3,749				3,341				2,500
		Personal Lines			4,354				3,732				3,060
		Mortgage Guaranty			607				531				508
	Foreign General				9,393				7,855				6,168
Total				$	40,607			$	35,022			$	26,710
Net premiums earned:
	Domestic General
		DBG		$	21,202			$	16,794			$	12,333
		Transatlantic			3,661				3,171				2,370
		Personal Lines			4,291				3,678				2,791
		Mortgage Guaranty			539				496				502
	Foreign General				8,818				7,248				5,576
Total				$	38,511			$	31,387			$	23,572
Underwriting profit (loss)(a):
	Domestic General
		DBG		$	(1,192	)(b)		$	504			$	(1,556	)(c)
		Transatlantic			(47	)			109				(57	)(c)
		Personal Lines			109				162				(148	)(d)
		Mortgage Guaranty			278				264				247
	Foreign General(e)				703	(f)			1,035				497
Total				$	(149	)		$	2,074			$	(1,017	)
Net investment income:
	Domestic General
		DBG		$	1,927			$	1,387			$	1,452
		Transatlantic			307				271				252
		Personal Lines			193				158				184
		Mortgage Guaranty			120				142				139
		Intercompany adjustments and eliminations – net			—				7				23
	Foreign General				619				562				373
Total				$	3,166			$	2,527			$	2,423
Realized capital gains (losses)					220				(62	)			(368	)
Operating income(a)				$	3,237	(b)		$	4,539			$	1,038	(c)
Domestic General:
	Loss ratio				83.83				78.42				90.06
	Expense ratio				18.94				16.91				18.98
Combined ratio					102.77				95.33				109.04
Foreign General:
	Loss ratio				61.70				55.59				60.83
	Expense ratio(e)				29.08				27.70				30.03
Combined ratio(e)					90.78				83.29				90.86
Consolidated:
	Loss ratio(g)				78.76				73.14				83.15
	Expense ratio				21.29				19.33				21.53
Combined ratio					100.05				92.47				104.68

(a)	Catastrophe losses for 2004 by reporting unit were: DBG $582 million, Personal Lines $25 million, Transatlantic $215 million and Foreign General $232 million. Catastrophe losses for 2003 by reporting unit were: DBG $48 million, Personal Lines $5 million, Transatlantic $4 million and Foreign General $26 million. Catastrophe losses in 2002 by reporting unit were: DBG $20 million and Foreign General $41 million.
(b)	Includes fourth quarter charge of $700 million attributable to the change in estimate for asbestos and environmental reserves.
(c)	Includes loss reserve charge of $2.1 billion in the aggregate.
(d)	Includes 21st Century’s loss adjustment expense pretax provision of $43 million for SB1899 Northridge earthquake claims.
(e)	Includes the results of wholly owned AIU agencies.

(f)	Includes fourth quarter charge of $150 million attributable to the change in estimate for asbestos and environmental reserves.

(g)	The effect of the asbestos and environmental charge on the loss ratio was an increase of 2.21 in 2004. The effect of catastrophe losses on the loss ratio was an increase of 2.74 in 2004 and 0.26 in both 2003 and 2002. The effect of the loss reserve charge on the loss ratio was an increase of an additional 8.91 in 2002.

General Insurance Results

General Insurance operating income in 2004 showed positive results, even after accounting for catastrophe losses and the charge for asbestos and environmental exposures. Net investment income and the capital gains realized in 2004 rather than the capital losses realized in 2003 and 2002 also benefitted General Insurance results.

     Like most AIG units, DBG benefited in 2004 from the flight to quality, a strong profit center focus and growing distribution channels. Overall, DBG’s net premiums written increased in 2004 and 2003. Domestic property-casualty rates are generally satisfactory at this time, although in some classes of business, including property, D&O and energy, rates should be firmer. The underwriting loss in 2004 resulted from the fourth quarter charge attributable to the change in estimate for asbestos and environmental reserves and catastrophe losses. Lexington, the largest excess and surplus lines carrier and a major underwriter of property insurance, was also significantly affected by catastrophe losses.

     Transatlantic’s net premiums written and net premiums earned increased as a result of growth in its international business. However, Transatlantic’s results were substantially affected by record catastrophes in the U.S. and around the world.

     Net premiums written in personal lines operations for 2004 and 2003 include $359 million and $159 million, respectively, from the domestic insurance operations of GE that were acquired in August 2003. The increase in net premiums written apart from this acquisition resulted from increased marketing efforts as well as rate increases in several states. The underwriting profit in 2003 resulted from premium rate increases and growth in net premiums written and earned. Underwriting profits are expected to continue to improve in 2005 as a result of continued marketing efforts and loss cost stabilization.

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     Net premiums written by Mortgage Guaranty operations increased 14.2 percent in 2004 over 2003. UGC achieved record premiums in 2004, excellent underwriting results that are substantially better than the overall mortgage guaranty insurance industry, and continued expansion of its international operations.

     Foreign General Insurance had excellent results in 2004, achieving a combined ratio of 90.78 even after sustaining $232 million in catastrophe losses. Growth in net premiums written was due to premium rate increases as well as new business and new distribution channels. Every major region of the worldwide network contributed to this performance. The Far East region had good results despite several typhoon losses. In Japan, corporate and personal accident business expanded. Commercial lines in Europe continue to exhibit strong growth, as did personal lines operations in Brazil and Latin America. Additionally, AIG’s joint venture in India has expanded its commercial lines leadership among the private sector companies.

AIG transacts business in most major foreign currencies. The following table summarizes the effect of changes in foreign currency exchange rates on the growth of General Insurance net premiums written.

		2004
Growth in original currency			13.8	%
Foreign exchange effect			2.1
Growth as reported in U.S. dollars			15.9	%

     AIG’s General Insurance results reflect the net effect on incurred losses from catastrophes of $1.05 billion, $83 million and $61 million in 2004, 2003 and 2002, respectively. The effect on losses caused by catastrophes can fluctuate widely from year to year, making comparisons of recurring type business more difficult. With respect to catastrophe losses, AIG believes that it has taken appropriate steps, such as careful exposure selection and obtaining reinsurance coverage, to reduce the effect of 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, however, could have a material adverse effect on AIG’s results of operations, liquidity or financial condition.

     General Insurance net investment income grew in 2004 when compared to 2003. AIG is benefiting from strong cash flow as well as increased partnership income. In 2003, net investment income increased slightly when compared to 2002. As AIG believes that net premiums written will continue to increase in 2005, AIG expects that cash flow for investment will continue to be strong, resulting in growth in net investment income in 2005. See also the discussion under “Liquidity” herein and Note 8 of Notes to Financial Statements.

     Realized capital gains and losses resulted from the ongoing investment management of the General Insurance portfolios within the overall objectives of the General Insurance operations. The realized capital gains in 2004 reflect an improved economy and stronger corporate balance sheets with significantly fewer impairments. Realized capital losses in 2003 and 2002 were reflective of weakness in the equity markets in early 2003 and prior periods and impairment loss provisions for both equity and fixed income holdings in all three years. See the discussion on “Valuation of Invested Assets” herein.

     The contribution of General Insurance operating income to AIG’s consolidated income before income taxes, minority interest and cumulative effect of accounting changes was 21.7 percent in 2004, compared to 38.9 percent in 2003 and 13.0 percent in 2002. The decrease in contribution percentage in 2004 was largely the result of the effects of catastrophe losses and the fourth quarter charge for asbestos and environmental exposures, while the increase of 2003 over 2002 reflected the $2.1 billion loss reserve charge in 2002.

     In 2002, AIG’s General Insurance results reflect the net effect of the loss reserve charge of $2.1 billion with respect to accident years 1997 through 2001. Such charge was the result of AIG’s annual year-end review of General Insurance loss reserves. On a gross basis, incurred losses included $2.8 billion attributable to the loss reserve charge.

Reinsurance

AIG is a major purchaser of reinsurance for its General Insurance operations. AIG insures risks globally, and its reinsurance programs must be coordinated in order to provide AIG the level of reinsurance protection that AIG desires. Reinsurance is an important risk management tool to manage transaction and insurance line risk retention at prudent levels set by management. AIG also purchases reinsurance to mitigate its catastrophic exposure. 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 because one or more catastrophe losses could negatively affect AIG’s reinsurers and result in an inability of AIG to collect reinsurance recoverables. AIG’s reinsurance department evaluates catastrophic events and assesses the probability of occurrence and magnitude of catastrophic events through the use of state-of-the-art industry recognized program models among other techniques. AIG supplements these models through continually monitoring the risk exposure of AIG’s worldwide General Insurance operations and adjusting such models accordingly. While reinsurance arrangements

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     AIG’s consolidated general reinsurance assets amounted to $18.57 billion at December 31, 2004 and resulted from AIG’s reinsurance arrangements. Thus, a credit exposure existed at December 31, 2004 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, 2004, approximately 43 percent of the general reinsurance assets were from unauthorized reinsurers. In order to obtain statutory recognition, the majority of these balances were collateralized. The remaining 57 percent of the general reinsurance assets were from authorized reinsurers. The terms authorized and unauthorized pertain to regulatory categories, not creditworthiness. Approximately 90 percent of the balances with respect to authorized reinsurers are from reinsurers rated A (excellent) or better, as rated by A.M. Best, or A (strong) or better, as rated by Standard & Poor’s. These ratings are measures of financial strength.

     AIG maintains a reserve for estimated unrecoverable reinsurance, but it has been largely successful in its previous recovery efforts. At December 31, 2004, AIG had allowances for unrecoverable reinsurance approximating $400 million. At that date, AIG had no significant reinsurance recoverables due from any individual reinsurer that was 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 evaluating the local economic environment in which a foreign reinsurer operates. This department also reviews the nature of the risks ceded and the requirements for credit risk mitigants. For example, in AIG’s treaty reinsurance contracts, AIG includes provisions that frequently require a reinsurer to post collateral when a referenced event occurs. Furthermore, AIG limits its unsecured exposure to reinsurers through the use of credit triggers, which include, but are not limited to, insurer financial strength rating downgrades, policyholder surplus declines at or below a certain predetermined level or a certain predetermined level of a reinsurance recoverable being reached. In addition, AIG’s Credit Risk Committee reviews the credit limits for and concentrations with any one reinsurer.

     AIG enters into intercompany reinsurance transactions, primarily through AIRCO, for its General Insurance and Life Insurance operations. AIG enters into these transactions as a sound and prudent business practice in order to maintain underwriting control and spread insurance risk among AIG’s various legal entities. These reinsurance agreements have been approved by the appropriate regulatory authorities. All material intercompany transactions have been eliminated in consolidation. AIG generally obtains letters of credit in order to obtain statutory recognition of these intercompany reinsurance transactions. At December 31, 2004, approximately $3.3 billion of letters of credit were outstanding to cover intercompany reinsurance transactions with AIRCO or other General Insurance subsidiaries.

     At December 31, 2004, the consolidated general reinsurance assets of $18.57 billion include reinsurance recoverables for paid losses and loss expenses of $819 million and $14.62 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 by management. Any adjustments thereto are reflected in income currently. It is AIG’s belief that the ceded reserves at December 31, 2004 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.

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Reserve for Losses and Loss Expenses

The table below classifies as of December 31, 2004 the components of the General Insurance reserve for losses and loss expenses (loss reserves) with respect to major lines of business on a statutory basis*:

(in millions)
Other liability occurrence		$	16,223
Other liability claims made			10,358
Workers compensation			9,208
Auto liability			5,548
Property			4,098
International			3,490
Reinsurance			2,415
Medical malpractice			2,145
Aircraft			1,663
Products liability			1,384
Commercial multiple peril			1,137
Accident and health			1,090
Fidelity/ surety			960
Other			2,652
Total		$	62,371

*	Presented pursuant to statutory reporting requirements as prescribed by the National Association of Insurance Commissioners.

     These loss reserves represent the accumulation of estimates of ultimate losses, including IBNR and loss expenses on a statutory accounting basis.

    

     At December 31, 2004, General Insurance net loss reserves increased $11.01 billion from the prior year end to $47.7 billion. The net loss reserves represent loss reserves reduced by reinsurance recoverables, net of an allowance for unrecoverable reinsurance and the discount for future investment income. The table below classifies the components of the General Insurance net loss reserves by business unit as of December 31, 2004.

(in millions)
DBG(a)		$	32,849
Personal Lines(b)			2,310
Transatlantic			4,981
Mortgage Guaranty			352
Foreign General(c)			7,255
Total Net Loss Reserve		$	47,747

(a)

DBG loss reserves include approximately $3.26 billion ($3.91 billion before discount) related to business written by DBG but ceded to AIRCO and reported in AIRCO’s statutory filings. DBG loss reserves also include approximately $3.02 billion and $263 million related to business ceded to Union Excess and Richmond, respectively, and are now included in AIG’s results as a result of insufficient risk transfer and the consolidation of these entities.

(b)	Personal Lines loss reserves include $668 million related to business ceded to DBG and reported in DBG’s statutory filings.

(c)	Foreign General loss reserves include approximately $1.77 billion related to business reported in DBG’s statutory filings. Foreign General loss reserves also include approximately $218 million and $19 million related to business ceded to Union Excess and Richmond, respectively, but now included in AIG’s results as a result of insufficient risk transfer and the consolidation of these entities.

     The DBG net loss reserve of $32.85 billion is comprised principally of the business of AIG subsidiaries participating in the American Home/ National Union pool (11 companies) and the surplus lines pool (Lexington, Starr Excess Liability Insurance Company and Landmark Insurance Company).

     Beginning in 1998, DBG ceded a quota share percentage of its other liability occurrence and products liability occurrence business to AIRCO. The quota share percentage ceded was 40 percent in 1998, 65 percent in 1999, 75 percent in 2000 and 2001, 50 percent in 2002 and 2003 and 40 percent in 2004 and covered all business written in these years for these lines by participants in the American Home/National Union pool. In 1998 the cession reflected only the other liability occurrence business, but in 1999 and subsequent years included products liability occurrence. AIRCO’s loss reserves relating to these quota share cessions from DBG are recorded on a discounted basis. As of year-end 2004, AIRCO carried a discount of approximately $651 million applicable to the $3.91 billion in undiscounted reserves it assumed from the American Home/National Union pool via this quota share cession. AIRCO also carries approximately $368 million in net loss reserves relating to Foreign General insurance business. These reserves are carried on an undiscounted basis.

     Beginning in 1997, the Personal Lines division ceded a percentage of all business written by the companies participating in the personal lines pool to the American Home/National Union pool. As noted above, the total reserves carried by participants in the American Home/National Union pool relating to this cession amounted to $668 million as of year-end 2004.

     The companies participating in the American Home/ National Union pool have maintained a participation in the business written by AIU for decades. As of year-end 2004, these AIU reserves carried by participants in the American Home/ National Union pool amounted to approximately $1.77 billion. The remaining Foreign General reserves are carried by AIUO, AIRCO, and other smaller AIG subsidiaries domiciled outside the United States. Statutory filings in the U.S. by AIG companies reflect all the business written by U.S. domiciled entities only, and therefore exclude business written by AIUO, AIRCO, and all other internationally domiciled subsidiaries. The total reserves carried at year-end 2004 by AIUO and AIRCO were approximately $3.21 billion and $3.65 billion, respectively. AIRCO’s $3.65 billion in total general insurance reserves consist of approximately $3.26 billion from business assumed from the American Home/National Union pool and an additional $368 million relating to Foreign General Insurance business.

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     At December 31, 2004, AIG’s overall general insurance net loss reserves reflects a loss reserve discount of $1.55 billion, including tabular and non-tabular calculations. The tabular workers compensation discount is calculated using a 3.5 percent interest rate and the 1979-81 Decennial Mortality Table. The non-tabular workers compensation discount is calculated separately for companies domiciled in New York and Pennsylvania, and follows the statutory regulations for each state. For New York companies, the discount is based on a five percent interest rate and the companies’ own payout patterns. For Pennsylvania companies, the statute has specified discount factors for accident years 2001 and prior, which are based on a six percent interest rate and an industry payout pattern. For accident years 2002 and subsequent, the discount is based on the yield of U.S. Treasury securities ranging from one to twenty years and the company’s own payout pattern, with the future expected payment for each year using the interest rate associated with the corresponding Treasury security yield for that time period. The discount is comprised of the following: $399 million – tabular discount for workers compensation in DBG; $503 million – non-tabular discount for workers compensation in DBG; and, $651 million – non-tabular discount for other liability occurrence and products liability occurrence in AIRCO. The total undiscounted workers compensation loss reserve carried by DBG is approximately $6.4 billion as of year-end 2004. The other liability occurrence and products liability occurrence business in AIRCO that is assumed from DBG is discounted using a 5.5 percent interest rate and the DBG payout pattern for this business. The undiscounted reserves assumed by AIRCO from DBG totaled approximately $3.91 billion at December 31, 2004.

     The methods used to determine loss reserve estimates and to establish the resulting reserves are continually reviewed and updated by management. 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 as at December 31, 2004. While AIG annually reviews the adequacy of established loss reserves, there can be no assurance that AIG’s ultimate loss reserves will not adversely develop and materially exceed AIG’s loss reserves as of December 31, 2004. In the opinion of management, such adverse development and resulting increase in reserves is not likely to have a material adverse effect on AIG’s consolidated financial position, although it could have a material adverse effect on AIG’s consolidated results of operations for an individual reporting period.

     In a very broad sense, the General Insurance loss reserves can be categorized into two distinct groups. One group is long-tail casualty lines of business which include excess and umbrella liability, D&O, professional liability, medical malpractice, workers compensation, general liability, products liability, and related classes. The other group is short-tail lines of business consisting principally of property lines, personal lines and certain classes of casualty lines.

     For operations writing short-tail coverages, such as property coverages, the process of recording quarterly loss reserve changes is geared toward maintaining an appropriate reserve level for the outstanding exposure, rather than determining an expected loss ratio for current business. For example, the IBNR reserve required for a class of property business might be expected to approximate 20 percent of the latest year’s earned premiums, and this level of reserve would be maintained regardless of the loss ratio emerging in the current quarter. The 20 percent factor is adjusted to reflect changes in rate levels, loss reporting patterns, known exposures to large unreported losses, or other factors affecting the particular class of business.

     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. Experience in the more recent accident years of long-tail casualty lines shows limited statistical credibility in reported net losses because a relatively low proportion of net losses would be reported claims and expenses and an even smaller proportion would be net losses paid. Therefore, IBNR would constitute a relatively high proportion of net losses.

     AIG’s carried net long-tail loss reserves are tested using loss trend factors that AIG considers most appropriate for each class of business. A variety of actuarial methods and assumptions is 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 five percent. Loss trend factors reflect many items including changes in claims handling, exposure and policy forms; current and future estimates of monetary inflation and social inflation and increases in litigation and awards. These factors are periodically reviewed and subsequently adjusted, as appropriate, to reflect emerging trends which are based upon past loss experience. Thus, many factors are implicitly considered in estimating the year to year growth in loss costs recognized.

     A number of actuarial assumptions are made in the review of reserves for each line of business. For longer tail lines

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of business, actuarial assumptions generally are made with respect to the following:

•	Loss trend factors which are used to establish expected loss ratios for subsequent accident years based on the projected loss ratio for prior accident years.
•	Expected loss ratios for the latest accident year (i.e., accident year 2004 for the year end 2004 loss reserve analysis) and, in some cases, for accident years prior to the latest accident year. The expected loss ratio generally reflects the projected loss ratio from prior accident years, adjusted for the loss trend (see above) and the effect of rate changes and other quantifiable factors. For low-frequency, high-severity classes such as excess casualty and D&O, expected loss ratios generally are utilized for at least the three most recent accident years.
•	Loss development factors which are used to project the reported losses for each accident year to an ultimate basis.

     AIG records quarterly changes in loss reserves for each of its many General Insurance profit centers. The overall change in AIG’s loss reserves is based on the sum of these profit center level changes. For most profit centers which write longer tail classes of casualty coverage, the process of recording quarterly loss reserve changes involves determining the estimated current loss ratio for each class of coverage. This loss ratio is multiplied by the current quarter’s net earned premium for that class of coverage to determine the quarter’s total estimated net incurred loss and loss expense. The change in loss reserves for the quarter for each class is thus the difference between the net incurred loss and loss expense, estimated as described above, and the net paid losses and loss expenses in the quarter.

     The process of determining the current loss ratio for each class or business segment begins in the profit centers in the latter part of the previous year. The loss ratios determined for each profit center are based on a variety of factors. These include, but are not limited to, the following considerations: prior accident year and policy year loss ratios; actual and anticipated rate changes; actual and anticipated changes in coverage, reinsurance, or mix of business; actual and anticipated changes in external factors affecting results, such as trends in loss costs or in the legal and claims environment. Each profit center’s loss ratio for the following year is subject to review by the profit center’s management, by actuarial and accounting staffs, and ultimately by senior management. At the close of each quarter, the assumptions underlying the loss ratios are reviewed to determine if the loss ratios based thereon remain appropriate. This process includes a review of the actual claims experience in the quarter, actual rate changes achieved, actual changes in coverage, reinsurance or mix of business, and changes in certain other factors that may affect the loss ratio. When this review suggests that the initially determined loss ratio is no longer appropriate, the loss ratio for current business would be changed to reflect the revised assumptions.

     A comprehensive annual loss reserve review is conducted in the fourth quarter of each year for each AIG General Insurance subsidiary. These reviews are conducted in full detail for each class or line of business for each subsidiary, and thus consist of literally hundreds of individual analyses. The purpose of these reviews is to confirm the reasonableness of the reserves carried by each of the individual subsidiaries, and thereby of AIG’s overall carried reserves. The reserve analysis for each business class is performed by the actuarial personnel who are most familiar with that class of business. In completing these detailed actuarial reserve analyses, the actuaries are required to make numerous assumptions, including for example the selection of loss development factors and loss cost trend factors. They are also required to determine and select the most appropriate actuarial method(s) to employ for each business class. Additionally, they must determine the appropriate segmentation of data or segments from which the adequacy of the reserves can be most accurately tested. In the course of these detailed reserve reviews for each business segment, a point estimate of the loss reserve is generally determined. The sum of these point estimates for each of the individual business classes for each subsidiary provides an overall actuarial point estimate of the loss reserve for that subsidiary. The overall actuarial point estimate is compared to the subsidiary’s carried loss reserve. If the carried reserve can be supported by actuarial methods and assumptions which are also believed to be reasonable, then the carried reserve would generally be considered reasonable and no adjustment would be considered. The ultimate process by which the actual carried reserves are determined considers not only the actuarial point estimate but a myriad of other factors. Other crucial internal and external factors considered include a qualitative assessment of inflation and other economic conditions in the United States and abroad, changes in the legal, regulatory, judicial and social environments, underlying policy pricing, terms and conditions, and claims handling. Loss reserve development can also be affected by commutations of assumed and ceded reinsurance agreements.

     With respect to the 2004 year-end actuarial loss reserve analysis for DBG, the actuaries continued to utilize the modified assumptions which gave additional weight to actual loss development from the more recent years, as identified during the 2002 and 2003 analysis, with appropriate adjustments to account for the additional year of loss experience which emerged in 2004. Although the actuaries continued to use actuarial assumptions that rely on expected loss ratios based on the

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     AIG’s annual loss reserve review does not calculate a range of loss reserve estimates. Because a large portion of the loss reserves from AIG’s General Insurance business relates to long-tail casualty lines driven by severity rather than frequency of claims, such as excess casualty and D&O, developing a range around loss reserve estimates would not be meaningful. An estimate is calculated which AIG’s actuaries believe provides a reasonable estimate of the required reserve. This amount is then evaluated against actual carried reserves.

     There is potential for significant variation in the development of loss reserves, particularly for long-tail casualty classes of business such as excess casualty, when actual costs differ from the assumptions used to test the reserves. Such assumptions include those made for loss trend factors and loss development factors, as described earlier. Set forth below is a sensitivity analysis demonstrating the estimated effect on the loss reserve position of alternative loss trend or loss development factor assumptions as compared to those actually used to test the carried reserves.

     For the excess casualty class of business the assumed loss cost trend was five percent. Thus, in establishing the expected loss ratios for accident years 2002 through 2004, the loss costs from accident years 1998 through 2001 were trended by this five percent factor per annum. A five percent change in the assumed loss cost trend from each accident year to the next would cause approximately a $600 million change (either positively or negatively) to the net loss and loss expense reserve for this business. For the D&O and related management liability classes of business the assumed loss cost trend was four percent. Thus, in establishing the expected loss ratios for accident years 2002 through 2004, the loss costs from accident years 1997 through 2001 were trended by this four percent factor per annum. A five percent change in this assumed loss cost trend would cause approximately a $500 million change (either positively or negatively) to the net loss and loss expense reserve for such business. For healthcare liability business, including hospitals and other healthcare exposures, a five percent change in the assumed loss cost trend would cause approximately a $150 million change (either positively or negatively) to the loss and loss expense reserve for this business. Actual loss cost trends in the early 1990’s were negative for these classes, whereas in the late 1990’s loss costs trends ran well into the double digits for each of these three classes. The sharp increase in loss costs in the late 1990’s was thus much greater than the five percent changes cited above, and caused significant increases in the overall loss reserve needs for these classes. While changes in the loss cost trend assumptions can have a significant effect on the reserve needs for other smaller classes of liability business, the potential effect of these changes on AIG’s overall carried reserves would be much less than for the classes noted above.

     For the excess casualty class, if future loss development factors differed by five percent from those utilized in the year-end 2004 loss reserve review, there would be approximately a $450 million change (either positively or negatively) to the overall AIG loss reserve position. The comparable effect on the D&O and related management liability classes would be approximately $200 million (either positive or negative) if future loss development factors differed by five percent from those utilized in the year-end 2004 loss reserve review. For healthcare liability classes, the effect would be approximately $125 million (either positive or negative). For workers compensation reserves, the effect of a five percent deviation from the loss development factors utilized in the year-end 2004 reserve reviews would be approximately $750 million (either positive or negative). Because loss development factors for this class have shown less volatility than higher severity classes such as excess casualty, however, actual changes in loss development factors are expected to be less than five percent. There is some degree of volatility in loss development patterns for other longer tail liability classes as well. However, the potential effect on AIG’s reserves would be much less than for the classes cited above.

     The calculations of the effect of the five percent change in loss development factors are made by selecting the stage of accident year development where it is believed reasonable for such a deviation to occur. For example, for workers compensation, the $750 million amount is calculated by assuming that each of the most recent eight accident years develop five percent higher than estimated by the current loss development factors utilized in the reserve study, i.e. the factor 1.05 is multiplied by the incurred losses (including IBNR and loss expenses) for these accident years.

     AIG management believes that using a five percent change in the assumptions for loss cost trends and loss development factors provides a reasonable benchmark for a sensitivity analysis of the reserves of AIG’s most significant lines of general insurance business. For excess casualty business, both the loss cost trend and the loss development factor assumptions are critical. Generally, actual historical loss development factors are used to project future loss development. However, there can be no assurance that future loss development pat-

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terns will be the same as in the past. Moreover, as excess casualty is a long-tail class of business, any deviation in loss cost trends or in loss development factors might not be discernible for an extended period of time subsequent to the recording of the initial loss reserve estimates for any accident year. Thus, there is the potential for the reserves with respect to a number of accident years to be significantly affected by changes in the loss cost trends or loss development factors that were initially relied upon in setting the reserves. These changes in loss trends or loss development factors could be attributable to changes in inflation or in the judicial environment, or in other social or economic phenomena affecting claims. For example, during the lengthy periods during which losses develop for excess casualty, actual changes in loss costs from one accident year to the next have ranged from negative values to double-digit amounts. Thus, there is the potential for significant volatility in loss costs for excess casualty and, although five percent is considered a reasonable benchmark for sensitivity analysis for this business, there is the potential for variations far greater than this amount (either positive or negative). Likewise, in the judgment of AIG’s actuaries, five percent is considered an appropriate benchmark for sensitivity analysis with respect to the loss development factor assumptions used to test the reserves. It should be noted that the loss cost trend factor for excess casualty was reduced to five percent in the year-end 2004 loss reserve review compared to the 7.5 percent loss trend factor used in the 2003 review for excess casualty. This reduction was made by AIG’s actuaries in response to a significant favorable loss trend that had emerged from accident year 2000 to 2001. This favorable trend appears to be continuing in accident years 2002 and 2003, although these accident years are still immature.

     For D&O and related management liability classes of business, the loss cost trend assumption is critical. The loss development factor assumption is important but less critical than for excess casualty. As this coverage is written on a claims-made basis, claims for a given accident year are all reported within that year. Actual changes in loss costs from one accident year to the next in the 1990s ranged from double digit negative values for several accident years in the early 1990s to nearly 50 percent per year for the period from accident year 1996 to accident year 1999. Thus, there is the potential for extreme volatility in loss costs for this business and, although five percent is considered a reasonable benchmark for sensitivity analysis, there is the potential for variations far greater than this amount (either positive or negative). Five percent is also considered an appropriate benchmark for sensitivity analysis with respect to the loss development factor assumptions used to test the reserves for these classes. However, as noted above, the effect of such a deviation is less than that of a similar deviation in loss cost trends. It should be noted that the loss cost trend factor for D&O and related management liability classes was reduced to four percent in the year end 2004 loss reserve reviews compared to six percent in the 2003 review. This reduction was made by AIG’s actuaries in response to a relative stabilization in loss costs from accident year 1999 to 2001 following the period of sharp increases in loss costs through 1999. The stabilization in loss costs appears to be continuing in accident years 2002 and 2003, although these accident years are still immature.

     For healthcare liability classes, both the loss cost trend and the loss development factor assumptions are critical. The nature of the potential volatility would be analogous to that described above for the excess casualty business. However, AIG’s volume of business in the healthcare classes is much smaller than for excess casualty, hence the potential effect on AIG’s overall reserves is smaller for these classes than for excess casualty. AIG’s healthcare liability business includes both primary and excess exposures.

     For workers compensation, the loss development factor assumptions are important. Generally, AIG’s actual historical workers compensation loss development would be expected to provide a reasonably accurate predictor of future loss development. A five percent sensitivity indicator for workers compensation would thus be considered to be toward the high end of potential deviations for this class of business. AIG’s workers compensation reserves include a small portion relating to excess workers compensation coverage. The analysis applicable to excess casualty would apply to these reserves. However, the volume of such business is de minimis compared to the volume of excess casualty. The loss cost trend assumption for workers compensation is not believed to be material with respect to AIG’s loss reserves other than for that portion representing excess workers compensation. This is primarily because AIG’s actuaries are generally able to use loss development projections for all but the most recent accident year’s reserves, so there is limited need to rely on loss cost trend assumptions for workers’ compensation business.

     For casualty business other than the classes noted above, there is generally some potential for deviation in both the loss cost trend and loss development factor selections. However, the effect of such deviations would not be material when compared to the effect cited above for excess casualty and D&O.

     The comprehensive annual loss reserve review process results in an accumulation of point estimates for AIG’s General Insurance business. The loss reserve carried at year-end 2004 for AIG’s General Insurance business was approximately equal to the aggregate reserve indicated by the actuarial point estimates. This represents a relative improvement of approximately two percent from AIG’s position as of December 31,

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Asbestos and Environmental Reserves

The estimation of loss reserves relating to asbestos and environmental claims on insurance policies written many years ago is subject to greater uncertainty than other types of claims due to inconsistent court decisions as well as judicial interpretations and legislative actions that in some cases have tended to broaden coverage beyond the original intent of such policies and in others have expanded theories of liability. The insurance industry as a whole is engaged in extensive litigation over these coverage and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these exposures.

     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, 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. Commencing in 1985, standard policies contained an absolute exclusion for pollution related damage and an absolute asbestos exclusion was also implemented. However, AIG currently underwrites environmental impairment liability insurance on a claims-made basis and has excluded such claims from the analysis 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.

     Estimation of asbestos and environmental claims loss reserves is a subjective process and reserves for asbestos and environmental claims cannot be estimated using conventional reserving techniques such as those that rely on historical accident year loss development factors.

     Significant factors which affect the trends that influence the asbestos and environmental claims estimation process 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 exposures for cleanup costs of hazardous waste dump sites involve issues such as allocation of responsibility among potentially responsible parties and the government’s refusal to release parties.

     Due to this uncertainty, it is not possible to determine the future development of asbestos and environmental claims with the same degree of reliability as with other types of claims. Such future 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. If the asbestos and environmental reserves develop deficiently, such deficiency would have an adverse effect on AIG’s future results of operations. AIG does not discount asbestos and environmental reserves.

     With respect to known asbestos and environmental claims, AIG established over a decade ago specialized toxic tort and environmental claims units, which investigate and adjust all such asbestos and environmental claims. These units evaluate these asbestos and environmental claims utilizing a claim-by-claim approach that involves a detailed review of individual policy terms and exposures. Because each policyholder presents different liability and coverage issues, AIG generally evaluates exposure on a policy-by-policy basis, considering a variety of factors such as known facts, current law, jurisdiction, policy language and other factors that are unique to each policy. Quantitative techniques have to be supplemented by subjective considerations including management judgment. Each claim is reviewed at least semi-annually utilizing the aforementioned approach and adjusted as necessary to reflect the current information.

     In both the specialized and dedicated asbestos and environmental claims units, AIG actively manages and pursues early settlement with respect to these claims in an attempt to mitigate its exposure to the unpredictable development of these claims. AIG attempts to mitigate its known long-tail environmental exposures by utilizing a combination of proactive claim-handling techniques including policy buybacks, complete environmental releases, compromise settlements, and, where indicated, litigation.

     With respect to asbestos claims handling, AIG’s specialized claims staff operates to mitigate losses through proactive handling, supervision and resolution of asbestos cases. Thus, while AIG has resolved all claims with respect to miners and major manufacturers (Tier One), its claims staff continues to operate under the same proactive philosophy to resolve claims involving accounts with products containing asbestos (Tier Two), products containing small amounts of asbestos, companies in the distribution process, and parties with re-

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mote, ill defined involvement in asbestos (Tiers Three and Four). Through its commitment to appropriate staffing, training, and management oversight of asbestos cases, AIG mitigates to the extent possible its exposure to these claims.

     In order to evaluate the overall reasonableness of the asbestos and environmental reserves established using the claim-by-claim approach as described above, AIG uses two methods, the market share method and the frequency/ severity or report year method.

     The market share method produces indicated asbestos and environmental reserve needs by applying the appropriate AIG market share to estimated potential industry ultimate loss and loss expenses based on the latest estimates from A.M. Best and Tillinghast. The market share method is a series of tests. Six estimates of potential industry ultimate losses for asbestos and environmental claims are tested. Additionally, a second series of tests are performed, using estimated industry unpaid losses, instead of industry ultimate losses. The market share tests are also performed using estimates of AIG’s market share. The reason AIG’s market share is an estimate is that there are assumptions as to which years and classes of business the asbestos and environmental exposure applies. For example, commercial multiple peril business is included in the market share calculation in some, but not all, of the scenarios.

     AIG’s estimate of the carried net asbestos and environmental reserves were approximately $50 million greater than the mean indication of the outcomes of market share testing. However, the market share method does not give weight to AIG’s actual asbestos and environmental loss experience.

     The frequency/severity or report year approach, is also a series of tests which are performed separately for asbestos and for environmental exposures. For asbestos, these tests project the expected losses to be reported over the next twenty years, i.e. from 2005 through 2024, based on the actual losses reported through 2004 and the expected future loss emergence for these claims. Three scenarios are tested, with a series of assumptions ranging from more optimistic to more conservative. In the first scenario, all carried asbestos case reserves, as determined above using the claim-by-claim approach, are assumed to be within ten percent of their ultimate settlement value.

     The second scenario relies on an actuarial projection of report year developments for asbestos claims reported from 1993 to the present to estimate case reserve adequacy as of year-end 2004. The third scenario also relies on an actuarial projection of report year claims for asbestos, but reflects claims reported from 1989 to the present to estimate case reserve adequacy as of year-end 2004. As of year-end 2004, the results of the second and third scenarios varied significantly. In the second scenario, case reserves were indicated to be at slightly less than 60 percent of the ultimate settlement value at year-end 2004, whereas in the third scenario they were indicated to be at less than 25 percent of ultimate settlement value.

     Based on the results of the prior report years for each of the three scenarios described above, the report year approach then projects forward to the year 2024 the expected future report year losses, based on AIG’s estimate of reasonable loss trend assumptions.

     These calculations are performed on losses gross of reinsurance. The IBNR (including a provision for development of reported claims) on a net basis is based on applying a factor reflecting the expected ratio of net losses to gross losses for future loss emergence.

     For environmental claims, an analogous series of frequency/severity tests are produced. In general, the case reserve adequacy assumptions are narrower, as case reserve adequacy is indicated within approximately 25 percent of adequacy in all scenarios tested. Environmental claims from future report years (i.e. IBNR) are projected out ten years, i.e. through the year 2014.

     As of year-end 2004, the range of outcomes from the scenarios tested for environmental ranged from $20 million below AIG’s carried reserve to approximately $200 million greater than AIG’s carried reserve. The range of outcomes for asbestos was greater. The indication from the first scenario, as described above, was approximately $140 million below AIG’s carried reserve. The indication from the second scenario was approximately $10 million below AIG’s carried reserves. The indication from the third scenario was approximately $650 million greater than AIG’s carried reserve.

     At year-end 2004, AIG considered a number of factors and recent experience to determine the appropriate reserve that should be carried for these claims, including the following:

     1. Actual calendar experience for past ten years, five years, three years, and one year. AIG has experienced consistent adverse development on its carried asbestos and environmental reserves over the years. The net carried reserves from ten years ago have run off $1.45 billion deficient; from five years ago $430 million deficient; from three years ago $350 million deficient; and from one year ago $150 million deficient. Thus the reserves have consistently produced adverse development per year, with no evidence of recent improvement. These figures are prior to the year-end 2004 reserve increase.

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     On a gross of reinsurance basis, the adverse developments have been analogous, with approximately $450 million in the latest year and $4.8 billion over the past ten years.

     2. Input from claims officers on latest year events. DBG’s claims officers have observed an increasing trend toward adverse claims experience in the layers underlying its excess attachment points for a number of Tier Two claims, increasing the probability of further adverse loss developments going forward. They also noted the emergence of several asbestos non-products cases recently, raising a concern that asbestos non-products cases could become a more serious problem in the future.

     3. Deterioration in Report Year claims experience. As noted above, the Scenario Two and Scenario Three indications for case reserve adequacy in AIG’s 2004 year-end actuarial report indicated an increasing deficiency in carried case reserves for asbestos. This was the result of continued adverse development on prior year case reserves and suggests future loss development will be at higher levels than previously indicated. As a result, the Scenario Three indicated reserve deficiency increased from approximately $480 million in the 2003 year-end reserve review to a deficiency of approximately $650 million in the year-end 2004 review. Furthermore, the year-end 2004 review utilized data evaluated as of June 30, 2004. An update to this data was recently produced (for all large claims) with claims evaluated as of March 31, 2005, i.e., an additional nine months of data beyond the year-end 2004 reserve study. This update showed that report year losses in the nine months from June 2004 to March 2005 have produced additional adverse loss development. In fact, more loss development was observed during these nine months than for the twelve months from the June 2003 through June 2004 period. Thus, both the latest year’s data used in the year-end 2004 actuarial study and the nine months of additional data subsequent to that study indicate the experience is deteriorating beyond what was expected at year-end 2003.

     4. Survival Ratios. AIG’s year-end 2004 survival ratio for asbestos was 5.7 and 5.2 on a gross and a net basis, respectively, prior to the year-end 2004 reserve increase. AIG’s year-end 2004 survival ratio for environmental was 4.8 and 3.8 on a gross and a net basis, respectively, prior to the year-end 2004 reserve increase. These survival ratios indicate AIG’s carried reserves are sufficient to fund four to five years of payments for these claims, assuming payment levels remain stable. Based on the latest two years of actual paid losses, AIG does not expect its losses to decline as quickly as these ratios imply.

     5. Industry experience. The industry has experienced a significant wave of adverse development for asbestos since 2001, with little, if any, signs of recent improvement. Furthermore, the litigation environment has become increasingly adverse.

     6. Reinsurance Recoverable. Although AIG has been successful in collecting the vast majority of its reinsurance on asbestos and environmental claims, the greater the future losses and the longer the exposure persists, the greater the likelihood of increased problems in collecting reinsurance. Thus, the continued adverse developments and lack of any signs that loss experience is beginning to diminish increases the risk of uncollectible reinsurance.

     After considering all of these factors, particularly its recent experience, AIG determined that its carried reserve for asbestos and environmental claims would be best estimated by scenario three described above. This resulted in a $650 million increase in net asbestos reserves, and a $200 million increase in net environmental reserves. The corresponding increases in gross reserves were $1.2 billion for asbestos and $250 million for environmental reserves.

Significant uncertainty remains as to AIG’s ultimate liability relating to asbestos and environmental claims. This uncertainty is due to several factors including:

•	The long latency period between asbestos exposure and disease manifestation and the resulting potential for involvement of multiple policy periods for individual claims;
•	The increase in the volume of claims by currently unimpaired plaintiffs;
•	Claims filed under the non-aggregate premises or operations section of general liability policies;
•	The number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
•	Diverging legal interpretations;
•	With respect to environmental claims, the difficulty in estimating the allocation of remediation cost among various parties; and
•	The possibility of federal legislation that would address the asbestos and environmental issue.

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A summary of reserve activity, including estimates for applicable IBNR, relating to asbestos and environmental claims separately and combined at December 31, 2004, 2003 and 2002 follows:

			2004								2003								2002
(in millions)			Gross				Net				Gross				Net				Gross				Net
Asbestos:
	Reserve for losses and loss expenses at beginning of year		$	1,235			$	386			$	1,304			$	400			$	1,114			$	312
	Losses and loss expenses incurred*			1,595	(a)			772	(a)			175				43				395				168
	Losses and loss expenses paid*			(271	)			(98	)			(244	)			(57	)			(205	)			(80	)
Reserve for losses and loss expenses at end of year			$	2,559			$	1,060			$	1,235			$	386			$	1,304			$	400
Environmental:
	Reserve for losses and loss expenses at beginning of year		$	789			$	283			$	832			$	296			$	1,115			$	407
	Losses and loss expenses incurred*			314	(b)			234	(b)			133				52				(140	)			(44	)
	Losses and loss expenses paid*			(129	)			(66	)			(176	)			(65	)			(143	)			(67	)
Reserve for losses and loss expenses at end of year			$	974			$	451			$	789			$	283			$	832			$	296
Combined:
	Reserve for losses and loss expenses at beginning of year		$	2,024			$	669			$	2,136			$	696			$	2,229			$	719
	Losses and loss expenses incurred*			1,909	(c)			1,006	(c)			308				95				255				124
	Losses and loss expenses paid*			(400	)			(164	)			(420	)			(122	)			(348	)			(147	)
Reserve for losses and loss expenses at end of year			$	3,533			$	1,511			$	2,024			$	669			$	2,136			$	696

*	All amounts pertain to policies underwritten in prior years.
(a)	Includes increases of $1.2 billion and $650 million for the fourth quarter relating to gross and net losses and loss expenses incurred, respectively, attributable to the change in estimate.
(b)	Includes increases of $250 million and $200 million for the fourth quarter relating to gross and net losses and loss expenses incurred, respectively, attributable to the change in estimate.
(c)	Includes increases of $1.45 billion and $850 million for the fourth quarter relating to gross and net losses incurred, respectively, attributable to the change in estimate.

The gross and net IBNR included in the reserve for losses and loss expenses, relating to asbestos and environmental claims separately and combined, at December 31, 2004, 2003 and 2002, including the fourth quarter 2004 charge, were estimated as follows:

		2004								2003								2002
(in millions)		Gross				Net				Gross				Net				Gross				Net
Asbestos		$	2,033			$	876			$	695			$	200			$	709			$	211
Environmental			606				284				347				80				313				72
Combined		$	2,639			$	1,160			$	1,042			$	280			$	1,022			$	283

A summary of asbestos and environmental claims count activity for the years ended December 31, 2004, 2003 and 2002 was as follows:

			2004												2003												2002
			Asbestos				Environmental				Combined				Asbestos				Environmental				Combined				Asbestos				Environmental				Combined
Claims at beginning of year				7,474				8,852				16,326				7,085				8,995				16,080				6,672				9,364				16,036
Claims during year:
	Opened			909				2,592				3,501				669				2,106				2,775				959				1,657				2,616
	Settled			(100	)			(279	)			(379	)			(86	)			(244	)			(330	)			(154	)			(546	)			(700	)
	Dismissed or otherwise resolved			(708	)			(2,949	)			(3,657	)			(194	)			(2,005	)			(2,199	)			(392	)			(1,480	)			(1,872	)
Claims at end of year				7,575				8,216				15,791				7,474				8,852				16,326				7,085				8,995				16,080

     The table below presents AIG’s survival ratios for asbestos and environmental claims for year end 2004, 2003 and 2002. The survival ratio is derived by dividing the year end carried loss reserve by the average payments for the three most recent calendar years for these claims. Therefore the survival ratio is a simplistic measure estimating the number of years it would be before the current ending loss reserves for these claims would be paid off using recent year average payments. Many factors, such as aggressive settlement procedures, mix of business and level of coverage provided, have a significant effect on the amount of asbestos and environmental reserves and payments and the resultant survival ratio. Thus, caution should be exercised in attempting to determine reserve adequacy for these claims based simply on this survival ratio.

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AIG’s survival ratios for asbestos and environmental claims, separately and combined were based upon a three-year average payment. These ratios for the years ended December 31, 2004, 2003 and 2002 were as follows:

			Gross				Net
2004
Survival ratios:
	Asbestos			10.7				13.5
	Environmental			6.5				6.8
	Combined			9.1				10.5
2003
Survival ratios:
	Asbestos			4.7				4.5
	Environmental			4.7				4.1
	Combined			4.7				4.3
2002
Survival ratios:
	Asbestos			4.1				4.9
	Environmental			5.4				5.3
	Combined			4.5				5.1

Life Insurance & Retirement Services Operations

AIG’s Life Insurance & Retirement Services subsidiaries offer a wide range of insurance and retirement savings products both domestically and abroad. Insurance-oriented products consist of individual and group life, payout annuities, endowment and accident and health policies. Retirement savings products consist generally of fixed and variable annuities. See also Note 3 of Notes to Financial Statements.

     Domestically, AIG’s Life Insurance & Retirement Services operations offer a broad range of protection products, including life insurance, group life and health products, including disability income products and payout annuities, which include single premium immediate annuities, structured settlements and terminal funding annuities. Home service operations include an array of life insurance, accident and health, and annuity products sold through career agents. In addition, home service includes a small block of run-off property and casualty coverage. Retirement services include group retirement products, individual fixed and variable annuities sold through banks, broker dealers and exclusive sales representatives, and annuity runoff operations which include previously-acquired “closed blocks” and other fixed and variable annuities largely sold through distribution relationships that have been discontinued.

     Overseas, AIG’s Life Insurance & Retirement Services operations include insurance and investment-oriented products such as whole and term life investment linked, universal life and endowments, personal accident and health products, group products including pension, life and health, and fixed and variable annuities.

Life Insurance & Retirement Services operations presented on a major product basis for 2004, 2003 and 2002 were as follows:

			2004				2003(a)				2002(a)
(in millions)							(Restated)				(Restated)
GAAP Premiums:
Domestic Life:
	Life insurance		$	1,881			$	1,748			$	1,604
	Home service			812				834				854
	Group life/health			1,128				1,046				967
	Payout annuities(b)			1,484				1,272				1,044
	Total			5,305				4,900				4,469
Domestic Retirement Services:
	Group retirement products			313				250				243
	Individual fixed annuities			59				53				35
	Individual variable annuities			408				331				333
	Individual fixed annuities – runoff(c)			80				86				93
	Total			860				720				704
Total Domestic				6,165				5,620				5,173
Foreign Life:
	Life insurance			14,938				13,204				11,708
	Personal accident & health			4,301				3,126				2,491
	Group products(d)			2,215				1,267				1,094
	Total			21,454				17,597				15,293
Foreign Retirement Services:
	Individual fixed annuities			395				255				216
	Individual variable annuities			68				21				5
	Total			463				276				221
Total Foreign				21,917				17,873				15,514
Total GAAP Premiums			$	28,082			$	23,493			$	20,687
Net investment income:
Domestic Life:
	Life insurance		$	1,289			$	1,183			$	1,003
	Home service			605				614				591
	Group life/health			123				121				108
	Payout annuities			801				699				615
	Total			2,818				2,617				2,317
Domestic Retirement Services:
	Group retirement products			2,201				2,055				1,891
	Individual fixed annuities			3,100				2,567				2,001
	Individual variable annuities			239				239				174
	Individual fixed annuities – runoff(c)			1,076				1,266				1,416
	Total			6,616				6,127				5,482
Total Domestic				9,434				8,744				7,799
Foreign Life:
	Life insurance			4,065				3,353				2,881
	Personal accident & health			179				161				140
	Group products			431				326				249
	Intercompany adjustments			(18	)			(15	)			(12	)
	Total			4,657				3,825				3,258

2004

2003(a)

2002(a)

(in millions)

(Restated)

(Restated)

(continued)

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			2004				2003(a)				2002(a)
(in millions)							(Restated)				(Restated)
Foreign Retirement Services:
	Individual fixed annuities			1,034				368				240
	Individual variable annuities			143				4				1
	Total			1,177				372				241
	Total Foreign			5,834				4,197				3,499
Total net investment income				15,268				12,941				11,298
Pricing net investment gains(e)				225				156				88
Realized capital gains (losses)				(189	)			(337	)			(509	)
Total realized gains (losses)(e)				36				(181	)			(421	)
Total operating income			$	7,924			$	6,353			$	5,183
Life insurance in–force:
	Domestic		$	772,251			$	645,606			$	577,686
	Foreign			1,085,843				937,425	(f)			720,906
Total			$	1,858,094			$	1,583,031			$	1,298,592

(a)	Adjusted to conform to 2004 presentation.
(b)	Includes structured settlements, single premium immediate annuities and terminal funding annuities.
(c)	Represents runoff annuity business sold through discontinued distribution relationships.

(d)	2004 includes approximately $640 million of premium from a reinsurance transaction involving terminal funding business. This single premium amount is offset by a similar increase of benefit reserves.

(e)	For purposes of this presentation, pricing net investment gains are segregated as a component of total realized gains (losses). They represent certain amounts of realized capital gains where gains are an inherent element in pricing certain life products in some foreign countries.

(f)	Approximately $124 billion relates to the acquisition of AIG Edison Life in August 2003.

     AIG’s Life Insurance & Retirement Services subsidiaries report their operations through the following operating units: Domestic Life — AIG American General, including American General Life Insurance Company (AG Life), USLIFE and AGLA; Domestic Retirement Services — VALIC, AIG Annuity and AIG SunAmerica; Foreign Life — ALICO, AIG Edison Life, AIG Star Life, AIA, Nan Shan and Philamlife.

Life Insurance & Retirement Services Results

The increase in operating income in 2004 compared to 2003 and 2003 compared to 2002 was caused in part by strong growth, particularly overseas, fewer capital losses realized in 2004 compared to 2003, and the decline in realized capital losses in 2003 compared to 2002.

     Life Insurance & Retirement Services GAAP premiums grew in 2004 when compared with 2003. AIG’s Domestic Life operations had record universal and term life sales and good performance from the independent distribution channels. Payout annuities also had strong growth. The domestic group business is below AIG’s growth standards, largely because several accounts where pricing was unacceptable were not renewed and loss experience was higher than anticipated. Restructuring efforts in this business are focused on new product introductions, cross selling and other growth strategies. AGLA, the home service business, is diversifying product offerings, enhancing the capabilities and quality of the sales force, and broadening the markets served beyond those historically serviced in an effort to accelerate growth.

     The Domestic Retirement Services businesses most correlated to the equity markets performed well, with the strongest sales growth in the individual variable annuity segment. VALIC, the group retirement services business, also benefited from improved equity market performance and has had continued success cross-selling individual variable annuities, fixed annuities and mutual funds. AIG Annuity, the individual fixed annuity business, showed growth in operating income. AIG expects to remain disciplined in pricing and return requirements even though rising short-term interest rates and aggressive competitor pricing have created a more difficult environment.

     AIG SunAmerica Retirement Markets, the individual variable annuity business, reported record operating income and sales in 2004. Equity market gains, along with the strong increase in sales and net flows, resulted in a significant improvement in variable annuity fee income when compared to 2003. The decrease in fourth quarter sales followed declining equity markets in the third quarter and the first half of the fourth quarter. AIG is continuing to increase the size of the wholesaler organization as a measure to improve sales.

     The majority of the growth in Life Insurance & Retirement Services GAAP premiums in Foreign Life operations was attributable to the life insurance, personal accident & health, and group products lines of business. Globally, AIG’s deep and diverse distribution, which includes bancassurance, worksite marketing, direct marketing, and strong agency organizations, provides a powerful platform for growth. This growth was most significant in Southeast Asia where AIG maintains significant market share established by its strong agency force, and in Japan, where AIG has benefited from a flight to quality and development of multiple distribution channels. In light of AIG’s recent credit rating downgrades, it is unclear whether this flight to quality will continue to benefit AIG. See “Certain Factors Affecting AIG’s Business — AIG’s Credit Ratings”, for a further discussion of the potential effect of the rating downgrades on AIG’s businesses. Also in Japan, AIG Edison Life is being integrated successfully into AIG’s life operations. AIG Star Life is growing first year premiums as a result of new product introductions and an expanded agency force, and is benefiting from more successful conservation of in-force business. The Foreign Retirement Services business continues its

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     In China, where AIG has a 57 percent market share of the total 2004 premiums written by foreign life insurers, first year life insurance premiums increased 36.6 percent in 2004 over the prior year. In addition, AIG had very good results in Greece, Central Europe and Russia. Foreign Life Insurance & Retirement Services operations produced 78.0 percent, 76.1 percent and 75.0 percent of Life Insurance & Retirement Services GAAP premiums in 2004, 2003 and 2002, respectively.

AIG transacts business in most major foreign currencies. The following table summarizes the effect of changes in foreign currency exchange rates on the growth of Life Insurance & Retirement Services GAAP premiums.

		2004
Growth in original currency			15.9	%
Foreign exchange effect			3.6
Growth as reported in U.S. dollars			19.5	%

     Under U.S. GAAP, deposits and certain other considerations received under deferred annuity (variable and fixed) and universal life contracts are not included as GAAP premiums. If such amounts were to be included, the overall growth from 2004 over 2003 would be greater, due in part to large increases in foreign individual fixed annuities.

     The growth in net investment income in 2004 was attributable to both foreign and domestic invested new cash flow for investment. Additionally, net investment income was positively affected by the compounding of previously earned and reinvested net investment income. Lastly, AIG’s adoption of Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1), increased net investment income in 2004 over prior years. See also the discussion under “Liquidity” herein and Note 1 of Notes to Financial Statements.

     Life Insurance & Retirement Services investment portfolios are managed within the overall objectives of the Life Insurance & Retirement Services operations. The decline in realized capital losses in 2004 reflects an improved economy, stronger corporate balance sheets and a significantly lower level of impairments. The realized capital losses in 2003 reflect impairment loss provisions for certain equity and fixed income holdings. See also the discussion on “Valuation of Invested Assets” herein.

     The contribution of Life Insurance & Retirement Services operating income to AIG’s consolidated income before income taxes, minority interest and cumulative effect of accounting changes amounted to 53.0 percent in 2004, compared to 54.5 percent in 2003 and 64.9 percent in 2002. The relative contribution percentage remained constant between years. The decrease in 2003 over 2002 was a result of the $2.1 billion loss reserve charge for General Insurance in 2002.

Underwriting and Investment Risk

The risks associated with the life and accident and health products are underwriting risk and investment risk. The risk associated with the financial and investment contract products is primarily 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. The emergence of significant adverse experience would require an adjustment to DAC and benefit reserves that could have a substantial effect on AIG’s results of operations.

     AIG’s Foreign Life companies generally limit their maximum underwriting exposure on life insurance of a single life to approximately $1.7 million of coverage, and AIG’s Domestic Life companies generally limit their maximum underwriting exposure on life insurance of a single life to $5 million of coverage by using yearly renewable term reinsurance. See the discussion under “Liquidity” herein and Note 6 of Notes to Financial Statements.

     AIRCO acts primarily as an internal reinsurance company for AIG’s foreign life operations. This facilitates insurance risk management (retention, volatility, concentrations) and capital planning locally (branch and subsidiary). It also allows AIG to pool its insurance risks and purchase reinsurance more efficiently at a consolidated level and manage global counterparty risk and relationships.

     AIG’s domestic Life Insurance and Retirement Services operations utilize internal and third-party reinsurance relationships to manage insurance risks and to facilitate capital management strategies. Pools of highly-rated third-party reinsurers are utilized to manage net amounts at risk in excess of retention limits. AIG’s domestic life insurance companies also cede excess, non-economic reserves carried on a statutory-basis only on certain term and universal life insurance policies and certain fixed annuities to AIG Life of Bermuda Ltd., a wholly owned Bermuda reinsurer.

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     AIG generally obtains letters of credit in order to obtain statutory recognition of these intercompany reinsurance transactions. For this purpose, AIG entered into a $2.5 billion syndicated letter of credit facility in December 2004. Letters of credit totaling $2.17 billion were outstanding as of December 31, 2004, and letters of credit for all $2.5 billion were outstanding as of March 31, 2005. The letter of credit facility has a ten-year term, but the facility can be reduced or terminated by the lenders beginning after seven years.

     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. See also the discussion under “Liquidity” herein.

     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 necessary rebalancing of the invested assets to the policy and contract claims does not occur, a demand could be placed upon liquidity. See also the discussion under “Liquidity” herein.

     AIG actively manages the asset-liability relationship in its foreign operations, as it has been doing throughout AIG’s history, even though certain territories lack qualified long-term investments or certain local regulatory authorities may impose investment restrictions. For example, in Japan and several Southeast Asian countries, 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. 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.

     To maintain an adequate yield to match the interest necessary to support future policy liabilities, management focus is required to reinvest the proceeds of the maturing securities and to invest the future premium receipts while continuing to maintain satisfactory investment quality.

     Certain foreign jurisdictions, including Japan, have limited long-dated bond markets, and AIG may use alternative investments, including equities, real estate and foreign currency denominated fixed income instruments to extend the effective duration and increase the yield of the investment portfolio to more closely match the requirements of the policyholder liabilities and DAC recoverability, particularly in Taiwan, where Nan Shan has approximately 30 percent of invested assets in foreign currencies. Using foreign currency denominated investments to support policyholder liabilities could increase the risk to and volatility of cash flows and income. AIG actively manages this risk through regular monitoring and selected hedging strategies.

     AIG actively manages the asset-liability relationship in its domestic operations. This relationship is more easily managed through the 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 appropriate 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. In addition, the absence of long-dated fixed income instruments in certain markets may preclude a matched asset-liability position in those markets.

     A number of guaranteed benefits are offered on certain variable life and variable annuity products. See Note 21 of Notes to Financial Statements for a discussion of new accounting guidance for these benefits.

     DAC for life insurance and retirement services products arises from the deferral of those costs that vary with, and are directly related to, the acquisition of new or renewal business. Policy acquisition costs for life insurance products are generally deferred and amortized over the premium paying period of the policy. Policy acquisition costs which relate to universal life and investment-type products, including variable and fixed annuities (investment-oriented products) are deferred and amortized, with interest, as appropriate, in relation to the historical and future incidence of estimated gross profits to be realized over the estimated lives of the contracts. With respect to universal life and investment-oriented products, AIG’s policy, as appropriate, has been to adjust amortization assumptions for DAC when estimates of current or future gross profits to be realized from these contracts are revised. With respect to variable annuities sold domestically (representing the vast majority of AIG’s variable annuity business), the assumption for the long-term annual net growth rate of the equity markets used in the determination of DAC amortization is approximately ten percent. A methodology referred to as “reversion to the mean” is used to maintain this long-term net growth rate assumption, while giving consideration to short-term variations in equity markets. Estimated gross profits include investment income and gains and losses on investments less interest required as well as other charges in the contract less actual mortality and expenses. Current experience and changes in the expected future gross profits are analyzed to determine the effect on the amortization of

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     AIG’s variable annuity earnings will be affected by changes in market returns because separate account revenues, primarily composed of mortality and expense charges and asset management fees, are a function of asset values.

     DAC for both insurance-oriented and investment-oriented products as well as retirement services products are subject to review for recoverability, which involve estimating the future profitability of current business. This review also involves significant management judgment. If the actual emergence of future profitability were to be substantially different than that estimated, AIG’s results of operations could be significantly affected in future periods. See also Note 4 of Notes to Financial Statements.

Insurance and Asset Management Invested Assets

AIG’s investment strategy is to invest primarily 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 maturity investments to maximize the yields at the date of purchase. With respect to Life Insurance & Retirement Services, AIG’s strategy is to produce cash flows required to meet maturing insurance liabilities. See also the discussion under “Operating Review — Life Insurance & Retirement Services Operations” herein. AIG invests in equities for various reasons, including diversifying its overall exposure to interest rate risk. Available for sale bonds and equity securities are subject to declines in fair value. Such declines in fair value are presented in unrealized appreciation or depreciation of investments, net of taxes as a component of accumulated other comprehensive income. Generally, insurance regulations restrict the types of assets in which an insurance company may invest. 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.

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The following tables summarize the composition of AIG’s insurance and asset management invested assets by segment, at December 31, 2004 and 2003:

							Life
							Insurance &																Percent Distribution
			General				Retirement				Asset								Percent
(dollars in millions)			Insurance				Services				Management				Total				of Total				Domestic				Foreign
2004
Fixed maturities:
	Available for sale, at market value		$	44,376			$	259,602			$	39,077			$	343,055				68.4	%			61.2	%			38.8	%
	Held to maturity, at amortized cost			18,294				–				–				18,294				3.6				100.0				–
	Trading securities, at market value			–				600				2,384				2,984				0.6				1.2				98.8
Equity securities:
	Common stocks, at market value			4,165				11,280				177				15,622				3.1				21.9				78.1
	Preferred stocks, at market value			1,466				565				–				2,031				0.4				91.9				8.1
Mortgage loans on real estate, policy and collateral loans				22				16,858				5,093				21,973				4.4				65.6				34.4
Short-term investments, including time deposits, and cash				2,113				5,515				9,679				17,307				3.4				37.1				62.9
Real estate				592				3,007				326				3,925				0.8				22.8				77.2
Investment income due and accrued				1,023				4,041				461				5,525				1.1				57.5				42.5
Securities lending collateral				4,889				35,726				9,357				49,972				10.0				85.3				14.7
Other invested assets				5,604				7,154				8,316				21,074				4.2				86.8				13.2
Total			$	82,544			$	344,348			$	74,870			$	501,762				100.0	%			63.7	%			36.3	%

2003 (Restated)
Fixed maturities:
	Available for sale, at market value		$	41,610			$	225,404			$	32,453			$	299,467				74.4	%			64.0	%			36.0	%
	Held to maturity, at amortized cost			8,037				–				–				8,037				2.0				100.0				–
	Trading securities, at market value			–				282				–				282				0.1				100.0				–
Equity securities:
	Common stocks, at market value			3,759				3,649				60				7,468				1.9				44.0				56.0
	Preferred stocks, at market value			1,371				525				–				1,896				0.5				91.7				8.3
Mortgage loans on real estate, policy and collateral loans				25				15,546				5,228				20,799				5.2				68.5				31.5
Short-term investments, including time deposits, and cash				1,912				4,662				2,343				8,917				2.2				53.1				46.9
Real estate				569				2,903				285				3,757				0.9				28.6				71.4
Investment income due and accrued				797				3,343				410				4,550				1.1				60.1				39.9
Securities lending collateral				5,225				20,537				4,433				30,195				7.5				76.0				24.0
Other invested assets				4,898				6,056				5,965				16,919				4.2				88.8				11.2
Total			$	68,203			$	282,907			$	51,177			$	402,287				100.0	%			66.1	%			33.9	%

Credit Quality

At December 31, 2004, approximately 63 percent of the fixed maturities investments were domestic securities. Approximately 32 percent of such domestic securities were rated AAA by one or more of the principal rating agencies. Approximately six percent were below investment grade or not rated.

     A significant portion of the foreign 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 reviews the credit quality of the foreign portfolio nonrated fixed income investments, including mortgages. At December 31, 2004, approximately 20 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 four percent were below investment grade or not rated at that date. A large portion of the foreign fixed income portfolio are sovereign fixed maturity securities supporting the policy liabilities in the country of issuance.

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

Valuation of Invested Assets

AIG has the ability to hold any fixed maturity security to its stated maturity, including those fixed maturity securities classified as available for sale. Therefore, the decision to sell any such fixed maturity security classified as available for sale reflects the judgment of AIG’s management that the security sold is unlikely to provide, on a relative value basis, as attractive a return in the future as alternative securities entailing comparable risks. With respect to distressed securities, the sale decision reflects management’s judgment that the risk-discounted anticipated ultimate recovery is less than the value achievable on sale.

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     The valuation of invested assets involves obtaining a market value for each security. The source for the market value is generally from market exchanges or dealer quotations, with the exception of nontraded securities.

     If AIG chooses to hold a security, it evaluates the security for an impairment in valuation. As a matter of policy, the determination that a security has incurred an other-than-temporary decline in value and the amount of any loss recognition requires the judgment of AIG’s management and a continual review of its investments.

     In general, a security is considered a candidate for impairment if it meets any of the following criteria:

•	Trading at a significant (25 percent or more) discount to par, amortized cost (if lower) or cost for an extended period of time (nine months or longer);
•	The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding obligation; or (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws intended for the court supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value of their claims; or
•	In the opinion of AIG’s management, it is possible that AIG may not realize a full recovery on its investment, irrespective of the occurrence of one of the foregoing events.

     Once a security has been identified as impaired, the amount of such impairment is determined by reference to that security’s contemporaneous market price and recorded as a charge to earnings.

     As a result of these policies, AIG recorded impairment losses net of taxes of approximately $369 million, $1.0 billion and $595 million in 2004, 2003 and 2002, respectively. The recovery in global equity and credit markets and reasonably steady domestic interest rates were the primary reasons for the decline in impairment loss recognition from 2003 to 2004.

     No impairment charge with respect to any one single credit was significant to AIG’s consolidated financial condition or results of operations, and no individual impairment loss exceeded 0.7 percent of consolidated net income for 2004.

     Excluding the impairments noted above, the changes in market value for AIG’s available for sale portfolio, which constitutes the vast majority of AIG’s investments, were recorded in accumulated other comprehensive income as unrealized gains or losses, net of tax.

     At December 31, 2004, the fair value of AIG’s fixed maturities and equity securities aggregated to $384.0 billion. At December 31, 2004, aggregate unrealized gains after taxes for fixed maturity and equity securities were $11.5 billion. At December 31, 2004, the aggregate unrealized losses after taxes of fixed maturity and equity securities were approximately $1.2 billion.

     The effect on net income of unrealized losses after taxes will be further mitigated upon realization, because certain realized losses will be charged to participating policyholder accounts, and realization will result in current decreases in the amortization of certain deferred policy acquisition costs.

     At December 31, 2004, unrealized losses for fixed maturity securities and equity securities did not reflect any significant industry concentrations.

The amortized cost of fixed maturities available for sale in an unrealized loss position at December 31, 2004, by contractual maturity, is shown below:

(in millions)		Amortized Cost
Due in one year or less		$	1,637
Due after one year through five years			13,310
Due after five years through ten years			22,334
Due after ten years			28,824
Total		$	66,105

     In the twelve months ended December 31, 2004, the pretax realized losses incurred with respect to the sale of fixed maturities and equity securities were $1.8 billion. The aggregate fair value of securities sold was $31.7 billion, which was approximately 95 percent of amortized cost. The average period of time that securities sold at a loss during the twelve months ended December 31, 2004 were trading continuously at a price below book value was approximately four months.

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At December 31, 2004, aggregate pretax unrealized gains were $17.8 billion, while the pretax unrealized losses with respect to investment grade bonds, below investment grade bonds and equity securities were $1.3 billion, $284 million and $256 million, respectively. Aging of the pretax unrealized losses with respect to these securities, distributed as a percentage of cost relative to unrealized loss (the extent by which the market value is less than amortized cost or cost), including the number of respective items, was as follows:

			Less than or equal to												Greater than 20% to												Greater than 50%
			20% of Cost(a)												50% of Cost(a)												of Cost(a)												Total
Aging			Unrealized												Unrealized												Unrealized												Unrealized
(dollars in millions)			Cost(a)				Loss				Items				Cost(a)				Loss				Items				Cost(a)				Loss				Items				Cost(a)				Loss(b)				Items
Investment grade bonds
	0-6 months		$	29,918			$	265				2,736			$	11			$	4				1			$	2			$	2				9			$	29,931			$	271				2,746
	7-12 months			18,614				348				1,765				65				16				1				–				–				–				18,679				364				1,766
	>12 months			12,561				604				1,158				203				50				32				2				1				1				12,766				655				1,191
Total			$	61,093			$	1,217				5,659			$	279			$	70				34			$	4			$	3				10			$	61,376			$	1,290				5,703
Below investment grade bonds
	0-6 months		$	2,190			$	58				249			$	15			$	4				11			$	4			$	3				20			$	2,209			$	65				280
	7-12 months			1,058				47				174				15				5				7				9				6				14				1,082				58				195
	>12 months			1,220				101				217				204				51				63				14				9				4				1,438				161				284
Total			$	4,468			$	206				640			$	234			$	60				81			$	27			$	18				38			$	4,729			$	284				759
Total bonds
	0-6 months		$	32,108			$	323				2,985			$	26			$	8				12			$	6			$	5				29			$	32,140			$	336				3,026
	7-12 months			19,672				395				1,939				80				21				8				9				6				14				19,761				422				1,961
	>12 months			13,781				705				1,375				407				101				95				16				10				5				14,204				816				1,475
Total			$	65,561			$	1,423				6,299			$	513			$	130				115			$	31			$	21				48			$	66,105			$	1,574				6,462
Equity securities
	0-6 months		$	1,563			$	78				570			$	87			$	25				54			$	13			$	13				48			$	1,663			$	116				672
	7-12 months			446				38				223				311				93				80				15				9				42				772				140				345
	>12 months			–				–				–				–				–				–				–				–				–				–				–				–
Total			$	2,009			$	116				793			$	398			$	118				134			$	28			$	22				90			$	2,435			$	256				1,017

(a)	For bonds, represents amortized cost.
(b)	As more fully described above, upon realization, certain realized losses will be charged to participating policyholder accounts, or realization will result in a current decrease in the amortization of certain deferred policy acquisition costs.

     As stated previously, the valuation for AIG’s investment portfolio comes from market exchanges or dealer quotations, with the exception of nontraded securities. AIG considers nontraded securities to mean certain fixed income investments, certain structured securities, direct private equities, limited partnerships, and hedge funds. The aggregate carrying value of these securities at December 31, 2004 was approximately $65.0 billion, or approximately 13 percent of the portfolio.

     The methodology used to estimate fair value of nontraded fixed income investments is by reference to traded securities with similar attributes and using a matrix pricing methodology. This technique takes into account such factors as the industry, the security’s rating and tenor, its coupon rate, its position in the capital structure of the issuer, and other relevant factors. The change in fair value is recognized as a component of accumulated other comprehensive income, net of tax.

     For certain structured securities, the carrying value is based on an estimate of the security’s future cash flows pursuant to the requirements of Emerging Issues Task Force Issue No. 99-20, “Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interests in Securitized Financial Assets.” The change in carrying value is recognized in income.

     Hedge funds and limited partnerships in which AIG holds in the aggregate less than a five percent interest are carried at fair value. The change in fair value is recognized as a component of accumulated other comprehensive income, net of tax.

     With respect to hedge funds and limited partnerships in which AIG holds in the aggregate a five percent or greater interest, AIG uses the equity method to record these investments. Changes in value are recorded in earnings.

     AIG obtains the fair value of its investments in limited partnerships and hedge funds from information provided by the general partner or manager of each of these investments, the accounts of which are generally audited on an annual basis.

     Each of these investment categories is regularly tested to determine if impairment in value exists. Various valuation techniques are used with respect to each category in this determination.

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Financial Services Operations

AIG’s Financial Services subsidiaries engage in diversified activities including aircraft leasing, capital market transactions, and consumer and insurance premium financing. See also Note 3 of Notes to Financial Statements.

Aircraft Finance

AIG’s Aircraft Finance operations represent the operations of ILFC, which 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.

     ILFC finances its purchases of aircraft primarily through the issuance of a variety of debt instruments. The composite borrowing rates at December 31, 2004, 2003 and 2002 were 4.34 percent, 4.53 percent and 4.73 percent, respectively. See also the discussions under “Capital Resources” and “Liquidity” herein and Notes 3 and 9 of Notes to Financial Statements.

     ILFC is exposed to operating loss and liquidity strain through nonperformance of aircraft lessees, through owning aircraft which it would be unable to sell or re-lease at acceptable rates at lease expiration and, in part, through committing to purchase aircraft which it would be unable to lease.

     ILFC manages its lessee nonperformance 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 effect of possible future deterioration in the airline industry. Over 80 percent of ILFC’s fleet is leased to non-U.S. carriers, and this fleet, comprised of the most efficient aircraft in the airline industry, continues to be in high demand from such carriers.

     ILFC typically contracts to re-lease aircraft before the end of the existing lease term. For aircraft returned before the end of the lease term, ILFC has generally been able to re-lease such aircraft within two to six months of its return. While some of the lease rates for aircraft that have been redeployed are lower, the effect of these reduced revenues is partially offset by low interest rates, which reduces ILFC’s financing costs. As a lessor, ILFC considers an aircraft “idle” or “off lease” when the aircraft is not subject to a signed lease agreement or signed letter of intent. ILFC had one aircraft off lease at December 31, 2004. As of March 31, 2005, all new aircraft deliveries in 2005 have been leased, and 92 percent of 2006 new aircraft deliveries have been leased. See also the discussions under “Capital Resources” and “Liquidity” herein.

     ILFC sold two portfolios consisting of 34 and 37 aircraft in 2004 and 2003, respectively, to two trusts connected to securitization transactions. Certain of AIG’s Life Insurance & Retirement Services businesses purchased a large share of the securities issued in connection with these securitizations, which included both debt and equity securities.

     Management formally reviews regularly, and no less frequently than quarterly, issues affecting ILFC’s fleet, including events and circumstances that may cause impairment of aircraft values. Management evaluates aircraft in the fleet as necessary, based on these events and circumstances in accordance with Statement of Financial Accounting Standards No. 144 – “Accounting for the Impairment or Disposal of Long-Lived Assets” (FAS 144). ILFC has not recognized any impairment related to its fleet, as the existing service potential of the aircraft in ILFC’s portfolio has not been diminished. Further, ILFC has been able to re-lease the aircraft without diminution in lease rates to an extent that would require an impairment write-down. See also the discussions under “Liquidity” herein.

Capital Markets

AIG’s Capital Markets operations represents the integrated operations of AIGFP and AIGTG. The integration of its Capital Markets operations has produced and will continue to produce greater efficiencies and product synergies as well as growth opportunities. As Capital Markets is a transaction-oriented operation, current and past revenues and operating results may not provide a basis for predicting future performance. Also, AIG’s Capital Markets operations may be adversely affected by the downgrades in AIG’s credit ratings. See “Certain Factors Affecting AIG’s Business – AIG’s Credit Ratings,” for a further discussion of the potential effect of the rating downgrades on AIG’s Capital Markets businesses.

     AIG’s Capital Markets operations derive substantially all their revenues from proprietary positions entered in connection with counterparty transactions rather than from speculative transactions. These subsidiaries participate in the derivatives dealer market conducting, primarily as principal, an interest rate, currency, equity, commodity, and credit products business.

     As a dealer, AIGFP marks all derivative and trading transactions to fair value daily. Thus, a gain or loss on each transaction is recognized daily. Under GAAP, certain gains and losses are required to be recorded immediately in earnings, whereas in other instances, they are required to be recognized over the life of the underlying contracts. AIGFP hedges the market risks arising from its transactions. Therefore, revenues and operating income are not significantly exposed to or af-

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fected by market fluctuations and volatility except for the volatility resulting from FAS 133 adjustments on positions that did not qualify for hedge accounting. See the discussion of the effect of FAS 133 under “Restatement of Previously Issued Financial Statements” herein. Revenues of the Capital Markets operations and the percentage change in revenues for any given period are significantly affected by the number and size of transactions entered into by these subsidiaries during that period relative to those entered into during the prior period. Operating income and the percentage change in operating income for any period are determined by the number, size and profitability of the transactions attributable to that period relative to those attributable to the prior period. Generally, the realization of trading revenues as measured by the receipt of funds is not a significant reporting event as the gain or loss on AIGFP’s trading transactions are currently reflected in operating income as the fair values change from period to period.

     Derivative transactions are entered into in the ordinary course of Capital Markets operations. Therefore, income on interest rate, currency, equity, commodity, and credit derivatives, along with their related hedges, are recorded on a mark to market value or at estimated fair value where market prices are not readily available with the resulting unrealized gains or losses reflected in the income statement in the current year. In 2004, less than five percent of revenues resulted from transactions valued at estimated fair value. The mark to fair value of derivative transactions is reflected in the balance sheet in the captions “Unrealized gain on swaps, options and forward transactions” and “Unrealized loss on swaps, options and forward transactions.” Pursuant to ISDA Master Agreements, unrealized gains represent the present value of the aggregate of each net receivable by counterparty, and the unrealized losses represent the present value of the aggregate of each net payable by counterparty as of December 31, 2004. These amounts will change from one period to the next due to changes in interest rates, currency rates, equity and commodity prices and other market variables, as well as cash movements, execution of new transactions and the maturing of existing transactions. See also the discussion under “Derivatives” herein and Note 20 of Notes to Financial Statements.

     Spread income on investments and borrowings is recorded on an accrual basis over the life of the transaction. Investments are classified as securities available for sale and are marked to market with the resulting unrealized gains or losses reflected in accumulated other comprehensive income. AIGFP hedges the economic exposure on its investments and borrowings through its derivatives portfolio. The requirements under FAS 133 hedge accounting were not met for certain of these hedge transactions for the years ending December 31, 2004, 2003, 2002, 2001 and 2000. Where hedge accounting is not achieved, previous adjustments to record the change in value of investments and borrowings in income were required to be reversed.

     The related investments continue to be classified as securities available for sale. The related U.S. dollar denominated borrowings are carried at cost. AIGFP borrowings in any currency other than the U.S. dollar result in unrealized foreign exchange gains or losses reported as income.

Consumer Finance

Domestically, AIG’s Consumer Finance operations derive a substantial portion of their revenues from finance charges assessed on outstanding mortgages, home equity loans, secured and unsecured consumer loans and retail merchant financing. Credit quality continues to be strong and receivables grew substantially. Overseas operations, particularly those in emerging markets, provide credit cards, personal and auto loans, term deposits, savings accounts, sales finance and mortgages.

     Consumer Finance operations are exposed to loss when contractual payments are not received. Collection exposure is managed through tight underwriting controls, mix of loans and collateral thereon.

Financial Services operations for 2004, 2003 and 2002 were as follows:

			2004				2003				2002
(in millions)							(Restated)				(Restated)
Revenues(a):
	Aircraft Finance(b)		$	3,251			$	3,042			$	2,845
	Capital Markets(c)(d)			1,650				549				1,212
	Consumer Finance(e)			2,978				2,642				2,473
	Other			103				108				74
Total			$	7,982			$	6,341			$	6,604
Operating income (loss)(a):
	Aircraft Finance		$	712			$	777			$	795
	Capital Markets(d)			1,026				(241	)			524
	Consumer Finance			808				623				507
	Other, including intercompany adjustments			67				75				44
Total			$	2,613			$	1,234			$	1,870

(a)

Includes the unrealized gain (loss) attributable to economic hedges not qualifying for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. For 2004, 2003 and 2002, the effect was $(27) million, $49 million and $20 million, respectively, in operating income for Aircraft Finance and $215 million, $(1.09) billion and $(192) million in both revenues and operating income for Capital Markets.

(b)	Revenues were primarily from ILFC aircraft lease rentals.

(c)	Revenues, shown net of interest expense, were primarily from AIGFP hedged proprietary positions entered into in connection with counterparty transactions.

(d)

Certain transactions entered into by AIGFP generate tax credits and benefits which are shown in the income tax line on the consolidated statement of income. Thus, this source of income is not reflected in the revenues and operating income categories. The amount of tax credits and benefits for the years ended December 31, 2004, 2003 and 2002 are $114 million, $130 million and $107 million, respectively.

(e)	Revenues were primarily finance charges.

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Financial Services Results

Financial Services operating income increased in 2004 compared to 2003. Fluctuations in revenues and operating income from quarter to quarter are not unusual because of the transaction-oriented nature of Capital Markets operations and the volatility resulting from the accounting treatment for the economic hedges under FAS 133. Capital Markets operating income was also negatively affected in 2004 by the costs of the PNC settlement. See Item 3. Legal Proceedings.

     To the extent the Financial Services subsidiaries, other than AIGFP, use derivatives to hedge their assets or liabilities with respect to their future cash flows, and such hedges do not qualify for hedge accounting treatment under FAS 133 (as previously discussed in Restatement of Previously Issued Financial Statements), the changes in fair value of such derivatives are recorded in realized capital gains (losses) or other revenues.

     Financial market conditions in 2004 compared with 2003 were characterized by interest rates which were broadly unchanged across fixed income markets globally, a tightening of credit spreads and higher equity valuations. Capital Markets results in 2004 compared with 2003 reflected a shift in product segment activity to respond to these conditions. See also Note 20 of Notes to Financial Statements.

     The most significant component of Capital Markets operating expenses is compensation, which was approximately $497 million, $616 million and $557 million in 2004, 2003 and 2002, respectively. The amount of compensation was not affected by unrealized gains or losses attributable to economic hedges, including the related foreign exchange gains and losses not qualifying for hedge accounting treatment under FAS 133.

     The decrease in Aircraft Finance operating income reflects the effect of the disposition of approximately $2 billion in aircraft through securitizations in the third quarter 2003 and first quarter 2004. Offsetting the benefit to operating income of the growth in ILFC’s aircraft fleet is a decrease of its lease margin for 2004 compared to 2003.

     With respect to ILFC, the revenue growth in each year resulted primarily from the increase in flight equipment under operating lease, despite the aforementioned effect of securitizations, and the increase in the relative value of the leased fleet. The decline in ILFC’s operating income for 2003 was largely a result of the decline in aircraft remarketing due to the relatively weak market conditions for the sale of secondhand aircraft.

     ILFC continued to see net improvements in lease rates and an increasing level of interest from traditional buyers, third-party investors and debt providers for the purchase of aircraft from ILFC’s extensive lease portfolio. Thus, the outlook for 2005 is positive.

     In connection with a global aircraft lease transaction entered into in 2000 for a total of 14 aircraft, ILFC acquired certain securities of and issued certain guarantees to ATA Airlines and related entities (ATA). During the fourth quarter of 2004, ATA filed for protection under Chapter 11 of the U.S. Bankruptcy Code. On the basis of estimates of the probable outcome of the ATA bankruptcy, ILFC recorded a charge in the fourth quarter to write down the value of the ATA securities and record obligations assumed under the guarantee. The pre-tax charges aggregated $54 million (reported as a realized capital loss) and did not have a material effect on AIG’s results of operations, financial condition or liquidity.

     ATA has cured all of the defaults under the existing leases and continues to perform under the leases at the pre-bankruptcy contracted lease terms.

     Consumer Finance operations, both domestically and internationally, did very well with increased revenues and operating income.

     The increase in Consumer Finance revenues in 2004 was the result of growth in average finance receivables. Credit quality continues to be strong. Foreign Consumer Finance operations performed well, as the operations in Poland continued its strong growth, and the Hong Kong credit card business benefited from the strengthening local economy, resulting in less need for loan loss provisions. Further, reductions of the cost to borrow led to an improvement in the operating income in 2003 over 2002.

     Financial Services operating income represented 17.5 percent of AIG’s consolidated income before income taxes, minority interest and cumulative effect of accounting changes in 2004. This compares to 10.6 percent and 23.4 percent in 2003 and 2002, respectively. The increase in contribution percentage in 2004 and the decrease in 2003 was primarily due to the fluctuation in earnings resulting from derivatives that did not qualify for hedge accounting under FAS 133. The decrease in contribution percentage in 2003 was also influenced by the effect of the 2002 General Insurance loss reserve charge on General Insurance operating income and the reduced contribution of General Insurance operations to income before income taxes, minority interest and cumulative effect of accounting changes.

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Financial Services Invested Assets

The following table is a summary of the composition of AIG’s Financial Services invested assets at December 31, 2004 and 2003. See also the discussions under “Operating Review — Financial Services Operations”, “Capital Resources” and “Derivatives” herein.

										2003
		2004								(Restated)
		Invested				Percent of				Invested				Percent of
(dollars in millions)		Assets				Total				Assets				Total
Flight equipment primarily under operating leases, net of accumulated depreciation		$	32,705				22.4	%		$	30,343				24.3	%
Finance receivables, net of allowance			23,574				16.2				17,500				14.0
Unrealized gain on swaps, options and forward transactions			22,670				15.5				21,459				17.2
Securities available for sale, at market value			30,448				20.9				24,042				19.2
Trading securities, at market value			3,142				2.1				4,418				3.5
Securities purchased under agreements to resell, at contract value			26,272				18.0				20,819				16.7
Trading assets			3,331				2.3				2,277				1.8
Spot commodities, at market value			95				0.1				250				0.2
Other, including short-term investments			3,625				2.5				3,896				3.1
Total		$	145,862				100.0	%		$	125,004				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 2004, ILFC acquired flight equipment costing $4.96 billion. See also the discussion under “Operating Review — Financial Services Operations” and “Capital Resources” herein.

     At December 31, 2004, ILFC had committed to purchase 371 new and used aircraft deliverable from 2005 through 2010 at an estimated aggregate purchase price of $21.6 billion and had options to purchase six new aircraft deliverable through 2007 at an estimated aggregate purchase price of $361 million. As of March 31, 2005, ILFC has entered into leases for all of the new aircraft to be delivered in 2005, 86 of 93 of the new aircraft to be delivered in 2006 and 29 of 166 of the new aircraft to be delivered subsequent to 2006. ILFC will be required to find customers for any aircraft currently on order and any aircraft to be ordered, and it must arrange financing for portions of the purchase price of such equipment. In a rising interest rate environment, ILFC negotiates higher lease rates on any new contracts. ILFC has been successful to date both in placing its new aircraft on lease or under sales contract and obtaining adequate financing, but there can be no assurance that such success will continue in future environments.

     AIG’s Consumer Finance operations provide a wide variety of consumer finance products both domestically and overseas. Such products include real estate mortgages, consumer loans, and retail sales finance. These products are funded through deposits and 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.

     Capital Markets 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 required to sell or close out the transactions prior to maturity. AIG believes that the effect of any such event would not be significant to AIG’s financial condition or its overall liquidity. See also the discussion under “Operating 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 AIGFP financings. See also the discussion under “Capital Resources” herein.

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     Securities available for sale is predominately a portfolio of debt securities, where the individual securities have varying degrees of credit risk. At December 31, 2004, 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 economically hedge its credit risk associated with $225 million of these securities. Securities deemed below investment grade at December 31, 2004 amounted to approximately $62 million in fair value representing 0.2 percent of the total AIGFP securities available for sale. There have been no significant downgrades through March 31, 2005.

     AIGFP’s risk management objective is to minimize interest rate, currency, commodity and equity risks associated with its securities available for sale. That is, when AIGFP purchases a security for its securities available for sale investment portfolio, it simultaneously enters into an offsetting internal hedge such that the payment terms of the hedging transaction offset the payment terms of the investment security, which achieves the economic result of converting the return on the underlying security to USD LIBOR plus or minus a spread based on the underlying profit on each security on the initial trade date. The market risk associated with such internal hedges is managed on a portfolio basis, with third party hedging transactions executed as necessary. As hedge accounting treatment is not achieved in accordance with FAS 133, the unrealized gains and losses on these securities, resulting from changes in interest rates, currency rates, commodity and equity prices, are recorded in accumulated other comprehensive income while the unrealized gains and losses on the related economic hedges are reflected in operating income. When a security is sold, the related hedging transaction is terminated. The realized gain or loss with respect to each security is then recorded in operating income.

     Securities purchased under agreements to resell are treated as collateralized financing 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 it 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, or the credit default swap counterparty failed to perform, AIGFP could have a liquidity strain. AIG guarantees AIGFP’s payment obligations, including its debt obligations.

     AIGFP also conducts, as principal, market-making and trading activities in foreign exchange and commodities, primarily precious metals. AIGFP 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. AIGFP 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. AIGFP 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” herein and Note 20 of Notes to Financial Statements.

The gross unrealized gains and gross unrealized losses of Capital Markets operations included in the financial services assets and liabilities at December 31, 2004 were as follows:

		Gross				Gross
		Unrealized				Unrealized
(in millions)		Gains				Losses
Securities available for sale, at market value(a)		$	1,706			$	103
Unrealized gain/loss on swaps, options and forward transactions(b)			22,670				18,132

(a)	See also Note 8(h) of Notes to Financial Statements.
(b)	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 economically managed by taking internal offsetting positions on a security by security basis with its derivatives portfolio, thereby offsetting a significant portion of the unrealized appreciation or depreciation. As previously discussed in “Financial Services Results” these economic offsets do not meet the hedge accounting requirements of FAS 133.

     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 trading securities are held to meet the short-term risk management objectives of Capital Markets operations.

     The senior management of AIG defines the policies and establishes general operating parameters for Capital Markets operations. AIG’s senior management has established various oversight committees to review the various financial market, operational and credit issues of the Capital Markets operations. The senior management of AIGFP reports the results of its operations to and reviews future strategies with AIG’s senior management.

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     AIG actively manages the exposures to limit potential losses, while maximizing the rewards afforded by these business opportunities. In doing so, AIG must continually manage a variety of exposures including credit, market, liquidity, operational and legal risks.

     AIGFP held a large portfolio of privately negotiated financing transactions with institutional counterparties in the United Kingdom. Certain provisions in the UK Finance Bill that was published by the House of Commons on March 22, 2005 have caused AIGFP’s counterparties to exercise rights to unwind these transactions early. Although the unwind of these transactions will not cause AIGFP to suffer any losses, the unwinds do mean that AIGFP will not realize spread income in the future that AIGFP expects it would have realized had the transactions remained outstanding. The aggregate reduction in 2005 operating income attributable to such foregone future accrual earnings is currently expected to be approximately $75 million.

Asset Management Operations

AIG’s Asset Management operations comprise a wide variety of investment-related services and investment products including institutional and retail asset management, broker dealer services and spread-based investment business from the sale of guaranteed investment contracts, also known as funding agreements (GICs). Such services and products are offered to individuals and institutions both domestically and overseas.

     As discussed above, AIG Retirement Services operations are now reported with Life Insurance operations. Therefore, Asset Management operations now represent the results of AIG’s asset management and brokerage services operations, mutual fund operations and the foreign and domestic GIC operations.

Asset Management revenues and operating income for 2004, 2003 and 2002 were as follows:

			2004				2003				2002
(in millions)							(Restated)				(Restated)
Revenues:
	Guaranteed Investment Contracts		$	3,191			$	2,621			$	2,559
	Institutional Asset Management(a)			1,035				661				547
	Brokerage Services and Mutual Funds			249				206				227
	Other			217				155				152
Total			$	4,692			$	3,643			$	3,485
Operating income:
	Guaranteed Investment Contracts		$	1,014			$	657			$	674
	Institutional Asset Management(a)(b)			501				217				140
	Brokerage Services and Mutual Funds			70				60				48
	Other			205				144				144
Total			$	1,790			$	1,078			$	1,006

(a)	Includes AIG Global Investment Group and certain smaller asset management operations.

(b)	Includes the results of certain AIG managed private equity and real estate funds that are consolidated effective December 31, 2003 pursuant to FIN46R, “Consolidation of Variable Interest Entities”. For 2004, operating income includes $195 million of third-party limited partner earnings offset in Minority interest expense.

Asset Management Results

Asset Management operating income increased in 2004 as a result of the upturn in worldwide financial markets and a strong global product portfolio. The operating income growth results from fees related to the management of mutual funds and various investment portfolios that are, in great part, contingent upon the growth in the equity markets and customer interest in equity sensitive products. Thus, as equity markets expand and contract, the appetite for listed and private equity investments changes. The revenues and operating income with respect to this segment are similarly affected. GICs are sold domestically and abroad to both institutions and individuals. These products are written on an opportunistic basis when market conditions are favorable. Thus, revenues, operating income and cash flow attributable to GICs will vary from one reporting period to the next. AIG expects to launch a matched investment program utilizing issuances of AIG debt securities, which will become AIG’s principal spread-based investment activity. In light of recent developments, the timing of the launch of this program is unclear. See “Certain Factors Affecting AIG’s Business — Access to Capital Markets” for a discussion of how the timing of this program may be delayed. Because AIG’s credit spreads in the capital markets have widened following the ratings declines, there may be a reduction in the earnings on new business in AIG’s institutional spread based funding business.

     Asset Management operating income represented 12.0 percent of AIG’s consolidated income before income taxes, minority interest and cumulative effect of accounting changes in 2004. This compares to 9.2 percent and 12.6 percent in 2003 and 2002, respectively.

     At December 31, 2004, AIG’s third-party assets under management, including both retail mutual funds and institu-

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Other Operations

Other income (deductions)-net includes 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, the cash distributions on the liabilities connected to trust preferred stock, as well as the income and expenses of the parent holding company and other miscellaneous income and expenses. Other income (deductions)-net amounted to $(334) million, $(1.17) billion and $(606) million in 2004, 2003 and 2002, respectively. AIG’s equity in certain partially owned subsidiaries includes $96 million in catastrophe losses in 2004. The decline in 2003 was primarily the result of increases in pension and interest expenses.

	Capital Resources

At December 31, 2004, AIG had total consolidated shareholders’ equity of $80.61 billion and total borrowings of $95.26 billion. At that date, $85.28 billion of such borrowings were either not guaranteed by AIG or were AIGFP’s matched borrowings under obligations of guaranteed investment agreements (GIAs) or matched notes and bonds payable.

Borrowings

At December 31, 2004, AIG’s net borrowings were $8.50 billion after reflecting amounts that were matched borrowings under AIGFP’s obligations of GIAs, matched notes and bonds payable, amounts not guaranteed by AIG and liabilities connected to trust preferred stock. The following table summarizes borrowings outstanding at December 31, 2004 and 2003 (Restated):

December 31,							2003
(in millions)			2004				(Restated)
AIG’s net borrowings			$	8,498			$	7,469
Liabilities connected to trust preferred stock				1,489				1,682
AIGFP
	GIAs			18,919				15,337
	Matched notes and bonds payable			20,624				16,735
Borrowings not guaranteed by AIG				45,733				38,986
Total debt			$	95,263			$	80,209

Borrowings issued or guaranteed by AIG and those borrowings not guaranteed by AIG at December 31, 2004 and 2003 (Restated) were as follows:

December 31,							2003
(in millions)			2004				(Restated)
AIG borrowings:
	Medium term notes		$	667			$	791
	Notes and bonds payable			2,980				3,141
	Loans and mortgages payable			349				337
	Total			3,996				4,269
Borrowings guaranteed by AIG:
AIGFP
	GIAs			18,919				15,337
	Notes and bonds payable			21,062				17,468
	Total			39,981				32,805
AIG Funding, Inc. commercial paper				2,969				1,223
AGC Notes and bonds payable				1,095				1,244
Liabilities connected to trust preferred stock				1,489				1,682
Total borrowings issued or guaranteed by AIG				49,530				41,223
Borrowings not guaranteed by AIG:
ILFC
	Commercial paper			2,670				1,575
	Medium term notes			5,972				5,960
	Notes and bonds payable(a)			15,734				14,431
	Loans and mortgages payable(b)			40				143
	Total			24,416				22,109
AGF
	Commercial paper			3,686				2,877
	Medium term notes			13,709				9,704
	Notes and bonds payable			1,585				1,739
	Total			18,980				14,320
Commercial paper:
	AIG Credit Card Company (Taiwan)			359				250
	AIG Finance (Taiwan) Limited			9				13
	Total			368				263
Loans and mortgages payable:
	AIGCFG			792				624
	AIG Finance (Hong Kong) Limited			49				161
	Total			841				785
Other Subsidiaries				829				725
(continued)

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December 31,							2003
(in millions)			2004				(Restated)
Variable Interest Entity debt:
	ILFC(c)			–				464
	AIG Global Investment Group			–				6
	AIG Global Real Estate Investment			8				–
	AIG Capital Partners			165				148
	AIG SunAmerica			126				166
	Total			299				784
Total borrowings not guaranteed by AIG				45,733				38,986
Total debt			$	95,263			$	80,209

(a)	Includes borrowings under Export Credit Facility of $1.7 billion.
(b)	Capital lease obligations.

(c)	Synthetic lease obligations expired in September 2004.

For a description of the effects on AIG’s capital resources, including the cost of borrowing, of recent downgrades and rating actions by the major rating agencies, see the discussion under “Outlook” herein and “Certain Factors Affecting AIG’s Business — AIG’s Credit Ratings,” as well as Note 9 of Notes to Financial Statements.

     During 2004, AIG did not issue any medium term notes, and $124 million of previously issued notes matured or were redeemed. AIG completed an exchange offer in April 2004 with respect to Rule 144A/ Regulation S Notes and issued in exchange substantially identical notes that are registered under the Securities Act. On August 15, 2004, Eurodollar zero coupon notes with a face value of $189 million matured. AIG intends to continue its customary practice of issuing debt securities from time to time to meet its financing needs and those of certain of its subsidiaries for general corporate purposes, as well as to initiate a matched investment program. However AIG’s ability to do so may be limited due to the delay in filing its periodic financial reports. See “Certain Factors Affecting AIG’s Business — Access to Capital Markets.”

     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 beginning on November 9, 2006.

     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 borrowings may also be temporarily invested in securities purchased under agreements to resell. See also the discussions under “Operating Review,” “Liquidity” and “Derivatives” herein and Notes 1, 8, 9 and 20 of Notes to Financial Statements.

     AIGFP has established a Euro Medium Term Note Program under which an aggregate principal amount of up to $5.0 billion of notes may be outstanding. The program provides that additional notes may be issued to replace matured or redeemed notes. As of December 31, 2004, $7.24 billion of notes had been issued under the program, $4.57 billion of which were outstanding, including $213 million resulting from foreign exchange translation into U.S. dollars. Notes issued under this program are included in Notes and Bonds Payable in the preceding table of borrowings.

     AIG Funding, Inc. (AIG Funding), through the issuance of commercial paper, helps fulfill the short-term cash requirements of AIG and its subsidiaries. AIG Funding intends to continue to meet AIG’s funding requirements through the issuance of commercial paper guaranteed by AIG. The issuance of AIG Funding’s commercial paper is subject to the approval of AIG’s Board of Directors.

     AIG and AIG Funding are parties to unsecured syndicated revolving credit facilities aggregating $2.75 billion, consisting of $1.375 billion in a 364-day revolving credit facility that expires in July of 2005 and $1.375 billion in a five-year revolving credit facility that expires in July of 2007. The 364-day facility allows for the conversion by AIG of any outstanding loans at expiration into one-year term loans. The facilities can be used for general corporate purposes and also to provide backup for AIG’s commercial paper programs administered by AIG Funding. AIG expects to replace or extend these credit facilities on or prior to their expiration. There are currently no borrowings outstanding under these facilities, nor were any borrowings outstanding as of December 31, 2004.

     AIG obtained waivers from the lenders under these revolving credit facilities providing for the extension of the delivery date of AIG’s consolidated financial statements for year-end 2004 and for the first quarter of 2005 through June 30, 2005.

     AIG is also a party to an unsecured inter-company revolving credit facility provided by certain of its subsidiaries aggregating $2 billion that expires in October of 2005. The facility allows for the conversion of any outstanding loans at expiration into one-year term loans. The facility can be used for general corporate purposes and also to provide backup for AIG’s commercial paper programs. AIG expects to replace or extend this credit facility on or prior to its expiration. There are currently no borrowings outstanding under the inter-company facility, nor were any borrowings outstanding as of December 31, 2004.

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     As of November 2001, AIG guaranteed the notes and bonds of AGC. During 2002, AGC issued $200 million in notes which matured in March 2003. During 2004, $149 million of previously issued notes matured.

     Preferred stock issued by an AGC subsidiary, American General Capital I, with a liquidation value of $200 million was redeemed for cash on September 8, 2004. AGC redeemed the related Junior Subordinated Debentures at that time, extinguishing the liabilities connected to the trust preferred stock.

     ILFC fulfills its short term cash requirements through the issuance of commercial paper. The issuance of commercial paper is subject to the approval of ILFC’s Board of Directors and is not guaranteed by AIG. ILFC is a party to unsecured syndicated revolving credit facilities aggregating $6.0 billion at December 31, 2004. The facilities can be used for general corporate purposes and also to provide backup for ILFC’s commercial paper program and consist of $4.0 billion in a 364-day revolving credit facility that expires in October 2005, with a one-year term out option, and $2.0 billion in a five-year revolving credit facility that expires in October 2009. ILFC expects to replace or extend these credit facilities on or prior to their expiration. There are currently no borrowings under these facilities, nor were any borrowings outstanding as of December 31, 2004.

     During 2004, ILFC increased the aggregate principal amount outstanding of its medium term and long-term notes, which included $518 million resulting from foreign exchange translation into U.S. dollars as of year-end. ILFC had $13.13 billion of debt securities registered for public sale at December 31, 2004. As of December 31, 2004, $5.59 billion of debt securities were issued. In addition, ILFC has a Euro Medium Term Note Program for $7.0 billion, under which $4.48 billion in notes were sold through December 31, 2004. ILFC has substantially eliminated the currency exposure arising from foreign-currency denominated notes by either hedging the notes through swaps or through the offset provided by operating lease payments in Euros. Notes issued under this program are included in Notes and Bonds Payable in the preceding table of borrowings.

     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 varies from 5.75 percent to 5.90 percent on these amortizing ten-year borrowings depending on the delivery date of the aircraft. At December 31, 2004, ILFC had $1.5 billion outstanding under this facility. The debt is collateralized by a pledge of the shares of a subsidiary of ILFC, which holds title to the aircraft financed under the facility. In May 2004, ILFC entered into a similarly structured Export Credit Facility (ECA) for up to a maximum of $2.64 billion for Airbus aircraft to be delivered in 2004 and 2005. The facility becomes available as the various European Export Credit Agencies provide their guarantees for aircraft based on a six-month forward-looking calendar, and the interest rate is determined through a bid process. At December 31, 2004, ILFC had $202 million outstanding under this facility. Borrowings with respect to these facilities are included in Notes and Bonds Payable in the preceding table of borrowings.

     In August 2004, ILFC received a commitment for an Ex-Im Bank comprehensive guarantee in the amount of $1.68 billion to support the financing of up to 30 new Boeing aircraft. The delivery period initially extends from September 1, 2004 through August 31, 2005, but may be extended to August 31, 2006. ILFC did not have any borrowings outstanding under this facility at December 31, 2004. During 2003, ILFC entered into various bank financings for a total funded amount of $1.3 billion. The financings mature through 2009. One tranche of one of the loans totaling $410 million was funded in Japanese yen and swapped to U.S. dollars.

     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 “Operating Review” and “Liquidity” herein.

     AGF fulfills its short term cash requirements through the issuance of commercial paper. The issuance of commercial paper is subject to the approval of AGF’s Board of Directors and is not guaranteed by AIG. AGF is a party to unsecured syndicated revolving credit facilities aggregating $3.25 billion, consisting of $1.75 billion in a 364-day revolving credit facility that expires in July of 2005 and $1.5 billion in a five-year revolving credit facility that expires in July of 2007. The 364-day facility allows for the conversion by AGF of any outstanding loans at expiration into one-year term loans. The facilities can be used for general corporate purposes and also to provide backup for AGF’s commercial paper programs. AGF expects to replace or extend these credit facilities on or prior to their expiration. There are currently no borrowings under these AGF facilities, nor were any borrowings outstanding as of December 31, 2004.

     AGF is also party to several bilateral credit agreements aggregating $260 million at March 31, 2005. The terms and

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conditions of these agreements are identical to AGF’s 364-day revolving credit facility.

     During 2004, AGF issued $2.96 billion of fixed rate and variable rate medium term notes ranging in maturities from two to ten years. As of December 31, 2004, notes aggregating $13.71 billion were outstanding with maturity dates ranging from 2005 to 2014 at interest rates ranging from 1.38 percent to 7.50 percent. To the extent deemed appropriate, AGF may enter into swap transactions to manage its effective borrowing with respect to these notes.

     In addition, AGF issued $2.86 billion of long-term funding in 2004 from sources including Euro-denominated and Sterling-denominated transactions totaling the equivalent of $1.82 billion. Other funding sources included private placement debt, retail note issuances and bank financings.

     AIG Credit Card Company (Taiwan) — (AIGCCC-Taiwan) and AIG Finance (Taiwan) Limited — (AIGF-Taiwan), both consumer finance subsidiaries in Taiwan, have issued commercial paper for the funding of their own operations. At December 31, 2004, AIG did not guarantee the commercial paper of any of its subsidiaries other than AIG Funding. See also the discussion under “Derivatives” herein and Note 9 of Notes to Financial Statements.

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Contractual Obligations and Other Commercial Commitments

The maturity schedule of AIG’s contractual obligations at December 31, 2004 was as follows:

						Payments due by Period
						Less				One				Four
						Than				Through				Through				After
		Total				One				Three				Five				Five
(in millions)		Payments				Year				Years				Years				Years
Borrowings(a)		$	85,271			$	24,420			$	17,844			$	14,417				$28,590
Loss reserves(b)			62,371				17,152				19,023				9,044				17,152
Insurance and investment contract liabilities(c)			54,810				10,317				15,561				15,088				13,844
Operating leases			2,682				543				708				505				926
Aircraft purchase commitments			21,587				5,839				10,132				5,249				367
Total		$	226,721			$	58,271			$	63,268			$	44,303				$60,879

(a)	Excludes commercial paper and obligations included as debt pursuant to FIN46R and includes ILFC’s capital lease obligations. See also Note 9 of Notes to Financial Statements.

(b)	Represents future loss and loss adjustment expense payments estimated based on historical loss development payment patterns.

(c)

Insurance and investment contract liabilities include various investment-type products with contractually scheduled maturities including periodic payments of a term certain nature and guaranteed maturities under guaranteed investment contracts. Items excluded from the table include (i) liabilities for future policy benefits of approximately $105 billion, and (ii) policyholder contract deposits of approximately $165 billion. Amounts excluded from the table are generally comprised of policies or contracts where (i) AIG is currently not making payments until the occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship, or (iii) the occurrence of a payment due to a surrender or other non-scheduled event out of AIG’s control. The determination of these liability amounts and timing of payment are not reasonably fixed and determinable. Significant uncertainties relating to these liabilities include mortality, morbidity, expenses, persistency, investment returns, inflation, and future policyholder elections as to benefits.

The maturity schedule of AIG’s other commercial commitments by segment at December 31, 2004 was as follows:

							Amount of Commitment Expiration
							Less				One				Four
			Total				Than				Through				Through				After
			Amounts				One				Three				Five				Five
(in millions)			Committed				Year				Years				Years				Years
Letters of credit:
	Life Insurance & Retirement Services		$	185			$	81			$	4			$	–			$	100
	DBG			211				115				96				–				–
Standby letters of credit:
	Capital Markets			1,556				2				43				35				1,476
Guarantees:
	Life Insurance & Retirement Services(a)			2,523				225				340				–				1,958
	Asset Management			156				105				40				11				–
Other commercial commitments(b):
	Capital Markets(c)			16,286				484				1,933				3,023				10,846
	Aircraft Finance(d)			853				234				361				–				258
	Life Insurance & Retirement Services(e)			2,275				429				753				278				815
	Asset Management			347				250				97				–				–
	DBG(f)			1,519				–				–				–				1,519
Total			$	25,911			$	1,925			$	3,667			$	3,347			$	16,972

(a)	Primarily AIG SunAmerica construction guarantees connected to affordable housing investments.
(b)	Excludes commitments with respect to pension plans. AIG expects to contribute approximately $132 million to its U.S. and non-U.S. pension plans in 2005. See also Note 15 of Notes to Financial Statements.
(c)	Primarily liquidity facilities provided in connection with certain municipal swap transactions and collateralized bond obligations.

(d)	Primarily in connection with options to acquire aircraft.

(e)	Primarily AIG SunAmerica commitments to invest in partnerships.

(f)	Primarily commitments to invest in limited partnerships.

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     “Rating triggers” have been defined by one independent rating agency to include clauses or agreements the outcome of which depends upon the level of ratings maintained by one or more rating agencies. Rating triggers generally relate to events which (i) could result in the termination or limitation of credit availability, or require accelerated repayment, (ii) could result in the termination of business contracts or (iii) could require a company to post collateral for the benefit of counterparties.

     AIG believes that any of its or its subsidiaries’ contractual obligations that are subject to “ratings triggers” or financial covenants relating to “ratings triggers” would not have a material adverse effect on its financial condition, future operating results or liquidity.

     As a result of the downgrades of AIG’s long-term senior debt ratings, AIG has been required to post approximately $1.16 billion of collateral with counterparties to municipal guaranteed investment contracts and financial derivatives transactions. In the event of a further downgrade, AIG will be required to post additional collateral. It is estimated that, as of the close of business on May 18, 2005, based on AIG’s outstanding municipal guaranteed investment contracts and financial derivatives transactions as of such date, a further downgrade of AIG’s long-term senior debt ratings to ‘Aa3’ by Moody’s or ‘AA-’ by S&P would permit counterparties to call for approximately $2.33 billion of additional collateral. Further, additional downgrades could result in requirements for substantial additional collateral, which could have a material effect on how AIG manages its liquidity. The actual amount of additional collateral that AIG would be required to post to counterparties in the event of such downgrades depends on market conditions, the market value of the outstanding affected transactions and other factors prevailing at the time of the downgrade. The requirement to post additional collateral may increase if additional counterparties begin to require credit support from AIG through collateralization agreements. Additional obligations to post collateral will increase the demand on AIG’s liquidity.

Shareholders’ Equity

AIG’s consolidated shareholders’ equity increased $10.58 billion during 2004. During 2004, retained earnings increased $9.0 billion, resulting from net income less dividends. Unrealized appreciation of investments, net of taxes, increased $1.35 billion and the cumulative translation adjustment loss, net of taxes, decreased $686 million. During 2004, there was a gain of $333 million, net of taxes, relating to derivative contracts designated as cash flow hedging instruments. See also the discussion under “Operating Review” and “Liquidity” herein, Notes 1(z), 8(d) and 20 of Notes to Financial Statements and the Consolidated Statement of Comprehensive Income.

     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.

Stock Purchase

During 2004, AIG purchased in the open market 16,299,300 shares of its common stock. AIG from time to time may buy shares of its common stock in the open market for general corporate purposes, including to satisfy its obligations under various employee benefit plans. At December 31, 2004, an additional 39,019,800 shares could be purchased under the then current authorization by AIG’s Board of Directors. Through March 31, 2005, AIG purchased an additional 2,477,100 shares of its common stock.

Dividends from Insurance Subsidiaries

Payments of dividends to AIG by its insurance subsidiaries are subject to certain restrictions imposed by regulatory authorities. With respect to AIG’s domestic insurance subsidiaries, the payment of any dividend requires formal notice to the insurance department in which the particular insurance subsidiary is domiciled. Under the laws of many states, an insurer may pay a dividend without prior approval of the insurance regulator when the amount of the dividend is below certain regulatory thresholds. Largely as a result of the restrictions, approximately 89 percent of consolidated shareholders’ equity was restricted from immediate transfer to AIG parent at December 31, 2004. However, AIG cannot predict how recent regulatory investigations may affect the ability of its regulated subsidiaries to pay dividends. See “Certain Factors Affecting AIG’s Business — Regulatory Investigations.”

     With respect to AIG’s foreign insurance subsidiaries, the most significant insurance regulatory jurisdictions include Bermuda, Japan, Hong Kong, Taiwan, the United Kingdom, Thailand and Singapore.

     AIG cannot predict whether the regulatory investigations currently underway or future regulatory issues will impair AIG’s financial condition, results of operations or liquidity. To AIG’s knowledge, no AIG company is currently on any regulatory or similar “watch list” with regard to solvency. See also the discussion under “Liquidity” herein and Note 11 of Notes to Financial Statements, as well as “Certain Factors Affecting AIG’s Business.”

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Regulation and Supervision

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. In the U.S. 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 December 31, 2004, the risk-based adjusted surplus of each of AIG’s Domestic General companies and of each of AIG’s Domestic Life companies exceeded each of their RBC standards. As discussed above, various regulators have commenced investigations into certain insurance business practices, including with respect to AIG. While such investigations are in their early stages, it is possible that they may result in additional regulation of the insurance industry and specific action with respect to AIG, and AIG cannot predict the ultimate effect that such additional regulation might have on its business. Federal, state or local legislation may affect AIG’s ability to operate and expand its various financial services businesses, and changes in the current laws, regulations or interpretations thereof may have a material adverse effect on these businesses. See “Certain Factors Affecting AIG’s Business — Regulatory Investigations” for a further discussion of the effect these investigations may have on AIG’s businesses.

     AIG’s U.S. operations are negatively affected 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 2004, 2003, and 2002 were $118 million, $77 million and $76 million, respectively.

     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.

     A substantial portion of AIG’s General Insurance business and a majority of its Life Insurance & Retirement Services business are conducted in foreign countries. The degree of regulation and supervision in foreign jurisdictions varies. 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 affect 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.

     Foreign operations are individually subject to local solvency margin requirements that require maintenance of adequate capitalization, which AIG complies with by country. In addition, certain foreign locations, notably Japan, have established regulations that can result in guarantee fund assessments. These have not had a material effect on AIG’s operations.

	Liquidity

AIG’s liquidity is primarily derived from the operating cash flows of its General and Life Insurance & Retirement Services operations. Management believes that AIG’s liquid assets, its net cash provided by operations, and access to short term funding through commercial paper and bank credit facilities will enable it to meet any anticipated cash requirements. See “Certain Factors Affecting AIG’s Business — Access to Capital Markets.”

     At December 31, 2004, AIG’s consolidated invested assets included $18.11 billion of cash and short-term investments. Consolidated net cash provided from operating activities in 2004 amounted to $35.58 billion.

     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. Cash flow includes periodic premium collections, including policyholders’ contract deposits, cash flows from investment operations and paid loss recoveries less reinsurance premiums, losses, benefits, and 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. Investment income cash flow is primarily derived from interest and dividends received and includes realized capital gains net of realized capital losses. See also the discussions under “Operating Review — General Insurance

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Operations” and “Life Insurance & Retirement Services Operations” herein.

     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 might 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 significant 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 significantly decreased in value. See also the discussions under “Operating Review — General Insurance Operations” herein.

     With respect to Life Insurance & Retirement Services operations, if a substantial portion of the Life Insurance & Retirement Services operations bond portfolio diminished significantly in value and/or defaulted, AIG might need to liquidate other portions of its Life Insurance & Retirement Services 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 & Retirement Services operations exist, nationalization, terrorist acts, or other such economic or political upheaval. In addition, a significant rise in interest rates leading to a significant increase in policyholder surrenders could also create a liquidity strain. See also the discussions under “Operating Review — Life Insurance & Retirement Services Operations” herein.

     In addition to the combined insurance pretax operating cash flow, AIG’s insurance operations held $7.63 billion in cash and short-term investments at December 31, 2004. 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 predominately 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 $126 billion from the maturities, sales and redemptions of fixed income securities and from the sale of equity securities was used to purchase approximately $184 billion of fixed income securities and marketable equity securities during 2004.

     AIG’s major Financial Services operating subsidiaries consist of AIGFP, ILFC, AGF and AIGCFG. Sources of funds considered in meeting the liquidity needs of AIGFP’s operations include guaranteed investment agreements, issuance of long-term and short-term debt, maturities and sales of securities available for sale, securities sold under repurchase agreements, trading liabilities, and securities and spot commodities sold but not yet purchased. ILFC, AGF and AIGCFG all utilize the commercial paper markets, bank loans and bank credit facilities as sources of liquidity. ILFC and AGF also fund in the domestic and international capital markets without reliance on any guarantee from AIG. An additional source of liquidity for ILFC is the use of export credit facilities. AIGCFG also uses wholesale and retail bank deposits as sources of funds. On occasion, AIG has provided equity capital to ILFC, AGF and AIGCFG and provides intercompany loans to AIGCFG. Cash flow provided from operations is a major source of liquidity for AIG’s primary Financial Services operating subsidiaries.

     AIG, the parent company, funds its short-term working capital needs through commercial paper issued by AIG Funding. As of March 31, 2005, AIG Funding had $3.485 billion of commercial paper outstanding with an average maturity of 26 days. As additional liquidity, AIG parent has a $2 billion inter-company revolving credit facility provided by certain of its subsidiaries, a $1.375 billion 364-day revolving bank credit facility that expires in July 2005 and a $1.375 billion five year revolving bank credit facility that expires in July 2007. AIG parent’s primary sources of cash flow are dividends and loans from its subsidiaries. Largely as a result of regulatory restrictions, approximately 89 percent of consolidated shareholders’ equity was restricted from immediate transfer to AIG parent at December 31, 2004. However AIG cannot predict how recent regulatory investigations may affect the ability of its regulated subsidiaries to pay dividends. See “Certain Factors Affecting AIG’s Business — Regulatory Investigations.” AIG parent’s primary uses of cash flow are for debt service and the payment of dividends to shareholders. As of March 31, 2005, including debt obligations of AGC that are guaranteed by AIG, remaining debt maturities due in 2005 are $300 million, $55 million and $500 million for the second, third and fourth quarters, respectively. See also Note 9 of Notes to Consolidated Financial Statements for additional information on debt maturities for AIG and its subsidiaries.

	Special Purpose Vehicles and Off Balance Sheet Arrangements

AIG uses special purpose vehicles (SPVs) and off balance sheet arrangements in the ordinary course of business. As a result of recent changes in accounting, a number of SPVs and off balance sheet arrangements have been reflected in AIG’s consolidated financial statements. In addition, certain entities have

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     AIG has restrictive guidelines with respect to the formation of and investment in SPVs and off balance sheet arrangements. In particular, AIG has expanded the responsibility of its Complex Structured Financial Transaction Committee (CSFT) to include the review of any transaction that could enable a third party to achieve an accounting or financial reporting result that is not in conformity with applicable GAAP or subject AIG to heightened legal, reputational, regulatory or other risk. See “Management’s Report on Internal Control Over Financial Reporting” in Item 9A of Part II for a further discussion of the CSFT.

     For additional information related to AIG’s activities with respect to VIEs and certain guarantees see “Recent Accounting Standards” herein and also Notes 1 and 19 of Notes to Financial Statements. Also, for additional disclosure regarding AIG’s commercial commitments (including guarantors), see “Contractual Obligations and Other Commercial Commitments” herein.

	Derivatives

Derivatives are financial instruments among two or more parties with returns 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, financial or commodity indices, or other variables. 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 by the Capital Markets operations, 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, AIGFP’s credit department operates 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 appropriate. In addition, AIGFP utilizes various credit enhancements, including letters of credit, guarantees, collateral, credit triggers, credit derivatives, and margin agreements to reduce the credit risk relating to its outstanding derivative financial transactions. AIGFP requires credit enhancements in connection with specific transactions based on, among other things, the creditworthiness of the counterparties, and the transaction’s size and maturity.

     AIG’s Derivatives Review Committee provides an independent review of any proposed derivative transaction or program except those derivative transactions entered into by AIGFP with third parties. The committee examines, among other things, the nature and purpose of the derivative transaction, its potential credit exposure, if any, and the estimated benefits.

     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.

     FAS 133 requires that third-party derivatives used for hedging must be specifically matched with the underlying exposures to an outside third party and documented contemporaneously to qualify for hedge accounting treatment. In many cases AIG did not meet these hedging requirements with respect to certain hedging transactions.

     AIG has historically reported the changes in the fair value of certain derivatives used for hedging activities through other comprehensive income in consolidated shareholders’ equity or in net income with a corresponding adjustment to the hedged

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item, depending on the nature of the hedge relationship. In order to comply with FAS 133, the restated consolidated financial statements include the changes in fair value for certain derivatives, previously recorded through other comprehensive income, in current period income and reverse the previous adjustments on assets and liabilities recorded in net income in connection with hedge accounting. Because these derivatives did not qualify for hedge accounting, Statement of Financial Accounting Standards No. 115 — “Accounting for Certain Investments in Debt and Equity Securities” requires AIG to recognize the corresponding changes in fair value, including foreign exchange gains and losses resulting from exchange rate fluctuations relating to available for sale investments through other comprehensive income. These restatement adjustments with respect to FAS 133 do not result in any changes in AIG’s liquidity or its overall financial condition even though inter-period volatility of earnings increased.

     See also Notes 2 and 20 of Notes to Financial Statements for detailed information relating to AIG’s derivative activities, and Note 1(z) of Notes to Financial Statements for AIG’s derivative accounting policies.

	Managing Market Risk

Market risk is the risk of loss of fair value resulting from adverse fluctuations in interest rates, foreign currencies, equities and commodity prices. AIG has exposures to these risks.

     AIG analyzes market risk using various statistical techniques including Value at Risk (VaR). VaR is a summary statistical measure that applies the estimated volatility and correlation of market factors to AIG’s market positions. The output from the VaR calculation is the maximum loss that could occur over a defined period of time given a certain probability. 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. AIG believes that statistical models alone do not provide a reliable method of monitoring and controlling market risk. Therefore, such models are tools and do not substitute for the experience or judgment of senior management.

Insurance

AIG has performed a separate VaR analysis for the General Insurance and Life Insurance & Retirement Services segments and for each market risk within each segment. For purposes of the VaR calculation, the insurance assets and liabilities from GICs are included in the Life Insurance & Retirement Services segment. For the calculations in the analyses the financial instrument assets included are the insurance segments’ invested assets, excluding real estate and investment income due and accrued, and the financial instrument liabilities included are reserve for losses and loss expenses, reserve for unearned premiums, future policy benefits for life and accident and health insurance contracts and other policyholders’ funds.

     AIG calculated the VaR with respect to the net fair value of each of AIG’s insurance segments as of December 31, 2004 and December 31, 2003. The VaR number represents the maximum potential loss that could be incurred with a 95 percent confidence (i.e., only five percent of historical scenarios show losses greater than the VaR figure) within a one-month holding period. AIG uses the historical simulation methodology that entails repricing all assets and liabilities under explicit changes in market rates within a specific historical time period. AIG uses the most recent three years of historical market information for interest rates, foreign exchange rates, and equity index prices. For each scenario, each transaction was repriced. Portfolio, business unit, and finally AIG-wide scenario values are then calculated by netting the values of all the underlying assets and liabilities.

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 December 31, 2004 and December 31, 2003. Due to diversification effects, the combined VaR is always smaller than the sum of its components.

											Life Insurance &
			General Insurance								Retirement Services
(in millions)			2004				2003				2004				2003
Market risk:
	Combined		$	1,396			$	1,100			$	5,024			$	3,075
	Interest rate			1,563				1,173				4,750				2,967
	Currency			139				125				478				257
	Equity			727				797				1,024				758

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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 December 31, 2004 and December 31, 2003. Due to diversification effects, the combined VaR is always smaller than the sum of its components.

				2004												2003
(in millions)				Average				High				Low				Average				High				Low
General Insurance:
	Market risk:
		Combined		$	1,299			$	1,497			$	1,100			$	888			$	1,120			$	658
		Interest rate			1,407				1,591				1,173				732				1,173				411
		Currency			111				139				88				94				147				64
		Equity			744				797				688				781				935				631
Life Insurance & Retirement Services:
	Market risk:
		Combined		$	4,021			$	5,024			$	3,075			$	2,262			$	3,419			$	1,299
		Interest rate			3,831				4,750				2,967				2,207				3,347				1,376
		Currency			326				478				257				204				257				166
		Equity			884				1,024				758				762				975				627

     VaR figures are typically amplified when yields fall dramatically over time. The notable increase in the Combined and Interest rate VaRs from 2003 to 2004 in the Life Insurance & Retirement Services segment was predominantly caused by continuing declines in yields throughout Asia, along with strong growth in the Asian life businesses.

Financial Services

AIG generally manages its market exposures within Financial Services by maintaining offsetting positions. Capital Markets seeks to minimize or set limits for open or uncovered market positions. Credit exposure is managed separately. See the discussion on the management of credit risk above.

     AIG’s Market Risk Management Department provides detailed independent review of AIG’s market exposures, particularly those market exposures of the Capital Markets operations. 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.

     ILFC is exposed to market risk and the risk of loss of fair value and possible liquidity strain resulting from adverse fluctuations in interest rates. As of December 31, 2004 and December 31, 2003, AIG statistically measured the loss of fair value through the application of a VaR model. In this analysis, the net fair value of Aircraft Finance operations 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 effect of the current derivative positions was also taken into account.

     AIG calculated the VaR with respect to the net fair value of Aircraft Finance operations using the historical simulation methodology, as previously described. As of December 31, 2004 and December 31, 2003, the average VaR with respect to the net fair value of Aircraft Finance operations was approximately $70 million and $38 million, respectively.

     Capital Markets operations are exposed to market risk due to changes in the level and volatility of interest rates, foreign currency exchange rates, equity prices and commodity prices. AIGFP hedges its exposure to these risks primarily through swaps, options, forwards, and futures. To economically hedge interest rate risks, AIGFP may also purchase U.S. and foreign government obligations.

     AIGFP does not seek to manage the market risk of each transaction through an individual third party offsetting transaction. Rather, AIGFP takes a portfolio approach to the management of its market risk exposures. AIGFP values the predominant portion of its market-sensitive transactions by marking them to market currently through income. A smaller portion is priced by estimated fair value based upon a conservative extrapolation of market factors. There is another limited portion of transactions where changes in fair value are not recorded through income currently and gains or losses are accrued over the life of the transactions. These valuations represent an assessment of the present values of expected future cash flows and may include reserves for such risks as are deemed appropriate by AIGFP and AIG management.

     AIGFP manages 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 from 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,

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financial condition or liquidity. Such differences would be immediately recognized when the transactions are sold or closed out prior to maturity.

     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 extrapolation from observable and verifiable prices nearest to the dates of the transactions. Historically, actual results have not materially deviated from these models.

     Systems used by Capital Markets operations can monitor each unit’s respective market positions on an intraday basis. AIGFP operates in major business centers overseas and therefore is open for business essentially 24 hours a day. Thus, the market exposure and offset strategies are monitored, reviewed and coordinated around the clock.

     AIGFP applies various testing techniques which reflect significant potential market movements in interest rates, foreign exchange rates, commodity and equity prices, volatility levels, and the effect of time. These techniques vary by currency and are regularly changed to reflect factors affecting the derivatives portfolio. The results from these analyses are regularly reviewed by AIG management.

     As described above, Capital Markets operations are 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 as well as implied volatilities thereon. AIG statistically measures the losses of fair value through the application of a VaR model across Capital Markets.

     Capital Markets asset and liability portfolios for which the VaR analyses were performed included over the counter and exchange traded investments, derivative instruments and commodities. Because 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. The VaR calculation is unaffected by the accounting treatment of hedged transactions under FAS 133.

     In the calculation of VaR for Capital Markets operations, AIG uses the same historical simulation methodology, described under Insurance above, which entails repricing all assets and liabilities under explicit changes in market rates within a specific historical time period. AIGFP has recently enhanced its library of factors by including implied option volatilities to construct the historical scenarios for simulation.

The following table presents the VaR on a combined basis and of each component of risk for Capital Markets operations as of December 31, 2004 and 2003. Due to diversification effects, the combined VaR is always smaller than the sum of its components.

(in millions)		2004				2003*
Combined		$	17			$	13
Interest rate			11				8
Currency			4				4
Equity			16				5
Commodity			7				4

*	Adjusted to conform to 2004 methodology.

The following table presents the average, high, and low VaRs on a combined basis and of each component of risk for Capital Markets operations as of December 31, 2004 and 2003. Due to diversification effects, the combined VaR is always smaller than the sum of its components.

		2004												2003*
(in millions)		Average				High				Low				Average				High				Low
Combined		$	19			$	24			$	13			$	17			$	19			$	13
Interest rate			9				12				5				9				11				8
Currency			4				4				3				7				10				4
Equity			13				16				5				11				16				5
Commodity			6				7				4				6				11				4

*	Adjusted to conform to 2004 methodology.

	Recent Accounting Standards

In December 2003, FASB issued a revision to Interpretation No. 46 (FIN46R). See also Note 19 of Notes to Financial Statements.

     In July 2003, the American Institute of Certified Public Accountants issued SOP 03-1. See also Note 21 of Notes to Financial Statements.

     At the March 2004 meeting, the Emerging Issue Task Force (EITF) reached a consensus with respect to Issue No. 03-1, “The Meaning of Other-Than Temporary Impairment and Its Application to Certain Investments.” On September 30, 2004, the FASB issued FASB Staff Position (FSP) EITF Issue 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.”

     At the September 2004 meeting, the EITF reached a consensus with respect to Issue No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share.”

     In December 2004, the FASB issued Statement No. 123 (revised 2004) (FAS 123R), “Share Based Payment.”

     In March 2005, FASB issued FSP FIN46R-5, “Implicit Variable Interests under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities.”

     For further discussion of these recent accounting standards and their application to AIG, see Note 1(bb) of Notes to Financial Statements.

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ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk

Included in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 8.	Financial Statements and Supplementary Data

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES

		Page
Report of Independent Registered Public Accounting Firm			99
Consolidated Balance Sheet at December 31, 2004 and 2003 (Restated)			102
Consolidated Statement of Income for the years ended December 31, 2004, 2003 (Restated) and 2002 (Restated)			104
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2004, 2003 (Restated) and 2002 (Restated)			105
Consolidated Statement of Cash Flows for the years ended December 31, 2004, 2003 (Restated) and 2002 (Restated)			106
Consolidated Statement of Comprehensive Income for the years ended December 31, 2004, 2003 (Restated) and 2002 (Restated)			108
Notes to Financial Statements			109
Schedules:
I  – Summary of Investments – Other Than Investments in Related Parties at December 31, 2004			230
II  – Condensed Financial Information of Registrant at December 31, 2004 and 2003 (Restated) and for the years ended December 31, 2004, 2003 (Restated) and 2002 (Restated)			231
III  – Supplementary Insurance Information at December 31, 2004, 2003 (Restated) and 2002 (Restated) and for the years then ended			233
IV – Reinsurance at December 31, 2004, 2003 (Restated) and 2002 (Restated) and for the years then ended			234

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
American International Group, Inc.:

     We have completed an integrated audit of American International Group, Inc.’s 2004 consolidated financial statements and of its internal control over financial reporting as of December 31, 2004 and audits of its 2003 and 2002 consolidated financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our opinions, based on our audits, are presented below.

Consolidated financial statements and

     In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of American International Group, Inc. and its subsidiaries (AIG) at December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of AIG’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit of financial statements includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     As described in Note 2 to the consolidated financial statements, AIG restated its 2003 and 2002 consolidated financial statements.

     As described in Note 21 to the consolidated financial statements, AIG changed the manner in which it accounts for certain non-traditional long duration contracts and for separate accounts as of January 1, 2004.

Internal control over financial reporting

     Also, we have audited management’s assessment, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A, that AIG did not maintain effective internal control over financial reporting as of December 31, 2004 because of the effect of the material weaknesses relating to the (1) control environment, (2) controls over the evaluation of risk transfer, (3) controls over certain balance sheet reconciliations, (4) controls over accounting for certain derivative transactions and (5) controls over income tax accounting based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). AIG’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express opinions on management’s assessment and on the effectiveness of AIG’s internal control over financial reporting based on our audit.

     We conducted our audit of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. An audit of internal control over financial reporting includes obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we consider necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

     A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of

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     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. As of December 31, 2004, the following material weaknesses have been identified and included in management’s assessment.

     Control environment: Certain of AIG’s controls within its control environment were not effective to prevent certain members of senior management, including the former Chief Executive Officer and former Chief Financial Officer, from having the ability, which in certain instances was utilized, to override certain controls and effect certain transactions and accounting entries. In certain of these instances, such transactions and accounting entries appear to have been largely motivated to achieve desired accounting results and were not properly accounted for in accordance with GAAP. Further, in certain of these instances, information critical to an effective review of transactions, accounting entries, and certain entities used in these transactions and accounting entries, were not disclosed to the appropriate financial and accounting personnel, regulators and AIG’s independent registered public accounting firm. As a result, discussion and thorough legal, accounting, actuarial or other professional analysis did not occur. This control deficiency is based primarily on these overrides. Specifically, this control deficiency permitted the following:

•	Creation of Capco, a special purpose entity used to effect transactions that were recorded to convert, improperly, underwriting losses to investment losses and that were not correctly accounted for in accordance with GAAP, resulting in a misstatement of premiums and other considerations, realized capital gains (losses), incurred policy losses and benefits and related balance sheet accounts.
•	Incorrect recording under GAAP of reinsurance transactions that did not involve sufficient risk transfer, such as the Gen Re transaction, and in some cases also related to entities which should have been consolidated, such as Union Excess and Richmond. This incorrect recording under GAAP resulted in a misstatement of premiums and other considerations, incurred policy losses and benefits, net investment income, reinsurance assets, deferred policy acquisition costs, other assets, reserve for losses and loss expenses, reserve for unearned premiums, other liabilities and retained earnings. See below for a related discussion under Controls over the evaluation of risk transfer.
•	Various transactions, such as Covered Calls and certain “Top Level” Adjustments, converted realized and unrealized gains into investment income, thereby incorrectly applying GAAP, resulting in a misstatement of net investment income, realized capital gains (losses), and accumulated other comprehensive income.
•	Incorrect recording under GAAP of changes to loss reserves and changes to loss reserves through “Top Level” Adjustments without adequate support, resulting in a misstatement of incurred policy losses and benefits, reserves for losses and loss expenses, foreign currency translation adjustments and retained earnings.

     Controls over the evaluation of risk transfer: AIG did not maintain effective controls over the proper evaluation, documentation and disclosure of whether certain insurance and reinsurance transactions involved sufficient risk transfer to qualify for insurance and reinsurance accounting. These transactions included Gen Re, Union Excess, Richmond and certain transactions involving AIG Re, AIG Risk Finance and AIG Risk Management. As a result, AIG did not properly account for these transactions under GAAP, resulting in a misstatement of premiums and other considerations, incurred policy losses and benefits, net investment income, reinsurance assets, deferred policy acquisition costs, other assets, reserve for losses and loss expenses, reserve for unearned premiums, other liabilities and retained earnings.

     Controls over certain balance sheet reconciliations: AIG did not maintain effective controls to ensure the accuracy of certain balance sheet accounts in certain key segments of AIG’s operations, principally in the Domestic Brokerage Group. Specifically, accounting personnel did not perform timely reconciliations and did not properly resolve reconciling items for premium receivables, reinsurance recoverables and intercompany accounts. As a result, insurance acquisition and other operating expenses, premiums and insurance balances receivable, reinsurance assets, other assets and retained earnings were misstated under GAAP.

     Controls over the accounting for certain derivative transactions: AIG did not maintain effective controls over the evaluation and documentation of whether certain derivative transactions qualified under GAAP for hedge accounting, resulting in a misstatement of net investment income, realized capital gains (losses), other revenues, accumulated other comprehensive income (loss) and related balance sheet accounts.

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     Controls over income tax accounting: AIG did not maintain effective controls over the determination and reporting of certain components of the provision for income taxes and related deferred income tax balances. Specifically, AIG did not maintain effective controls to review and monitor the accuracy of the components of the income tax provision calculations and related deferred income taxes and to monitor the differences between the income tax basis and the financial reporting basis of assets and liabilities to effectively reconcile the differences to the deferred income tax balances. As a result, deferred income taxes payable, retained earnings and accumulated other comprehensive income were misstated under GAAP.

     The control deficiencies described above resulted in the restatement of AIG’s 2003, 2002, 2001 and 2000 annual consolidated financial statements and 2004 and 2003 interim consolidated financial statements, as well as adjustments, including audit adjustments relating to the derivative matter described above, to AIG’s 2004 annual consolidated financial statements. Furthermore, these control deficiencies could result in other misstatements in financial statement accounts and disclosures that would result in a material misstatement to the annual or interim AIG consolidated financial statements that would not be prevented or detected. Accordingly, management has concluded that these control deficiencies constitute material weaknesses. These material weaknesses were considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2004 consolidated financial statements, and our opinion regarding the effectiveness of AIG’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

     In our opinion, management’s assessment that AIG did not maintain effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal Control – Integrated Framework issued by the COSO. Also, in our opinion, because of the effects of the material weaknesses described above on the achievement of the objectives of the control criteria, AIG has not maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control – Integrated Framework issued by the COSO.

PricewaterhouseCoopers LLP
New York, New York
May 27, 2005

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CONSOLIDATED BALANCE SHEET

December 31,									2003
(in millions)					2004				(Restated)
Assets:
	Investments, financial services assets and cash:
		Fixed maturities:
			Bonds available for sale, at market value (amortized cost: 2004 – $329,838; 2003 – $287,810)		$	344,399			$	300,935
			Bonds held to maturity, at amortized cost (market value: 2004 – $18,791; 2003 – $8,173)			18,294				8,037
			Bond trading securities, at market value (cost: 2004 – $2,973; 2003 – $252)			2,984				282
		Equity securities:
			Common stocks, at market value (cost: 2004 – $8,569; 2003 – $6,759)			9,917				7,522
			Common stocks trading, at market value (cost: 2004 – $5,651; 2003 – $125)			5,894				156
			Preferred stocks, at market value (cost: 2004 – $2,017; 2003 – $1,743)			2,040				1,906
		Mortgage loans on real estate, net of allowance (2004 – $65; 2003 – $68)				13,146				12,328
		Policy loans				7,035				6,658
		Collateral and guaranteed loans, net of allowance (2004 – $18; 2003 – $15)				2,282				2,241
		Financial services assets:
			Flight equipment primarily under operating leases, net of accumulated depreciation (2004 – $6,390; 2003 – $5,458)			32,705				30,343
			Securities available for sale, at market value (cost: 2004 – $28,845; 2003 – $22,587)			30,448				24,042
			Trading securities, at market value			3,142				4,418
			Spot commodities, at market value			95				250
			Unrealized gain on swaps, options and forward transactions			22,670				21,459
			Trading assets			3,331				2,277
			Securities purchased under agreements to resell, at contract value			26,272				20,845
			Finance receivables, net of allowance (2004 – $571; 2003 – $562)			23,574				17,500
		Securities lending collateral, at cost (approximates market value)				49,972				30,195
		Other invested assets				22,527				18,484
		Short-term investments, at cost (approximates market value)				16,102				8,908
		Cash				2,009				922
		Total investments, financial services assets and cash				638,838				519,708
	Investment income due and accrued					5,588				4,612
	Premiums and insurance balances receivable, net of allowance (2004 – $225; 2003 – $235)					15,137				13,189
	Reinsurance assets					19,958				20,948
	Deferred policy acquisition costs					29,736				25,920
	Investments in partially owned companies					1,452				1,420
	Real estate and other fixed assets, net of accumulated depreciation (2004 – $4,650; 2003 – $4,282)					6,192				5,966
	Separate and variable accounts					57,741				60,536
	Goodwill					8,601				7,664
	Income taxes receivable – current					95				–
	Other assets					15,322				14,190
Total assets					$	798,660			$	674,153

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CONSOLIDATED BALANCE SHEET (continued)

December 31,				2004				2003
(in millions, except share amounts)								(Restated)
Liabilities:
	Reserve for losses and loss expenses			$	62,371			$	52,381
	Reserve for unearned premiums				23,094				20,910
	Future policy benefits for life and accident and health insurance contracts				104,737				92,912
	Policyholders’ contract deposits				216,655				171,917
	Other policyholders’ funds				10,280				9,124
	Reserve for commissions, expenses and taxes				4,583				4,588
	Insurance balances payable				3,703				2,915
	Funds held by companies under reinsurance treaties				3,404				3,043
	Income taxes payable:
		Current			–				366
		Deferred			7,042				4,633
	Financial services liabilities:
		Borrowings under obligations of guaranteed investment agreements			18,919				15,337
		Securities sold under agreements to repurchase, at contract value			21,264				15,813
		Trading liabilities			2,304				6,153
		Securities and spot commodities sold but not yet purchased, at market value			4,866				5,458
		Unrealized loss on swaps, options and forward transactions			18,132				14,658
		Trust deposits and deposits due to banks and other depositors			4,248				3,627
		Commercial paper			6,724				4,715
		Notes, bonds, loans and mortgages payable			59,663				51,389
	Commercial paper				2,969				1,223
	Notes, bonds, loans and mortgages payable				5,499				5,863
	Liabilities connected to trust preferred stock				1,489				1,682
	Separate and variable accounts				57,741				60,536
	Minority interest				4,584				3,302
	Securities lending payable				49,972				30,195
	Other liabilities				23,611				21,191
Total liabilities					717,854				603,931
Preferred shareholders’ equity in subsidiary companies					199				192
Shareholders’ equity:
	Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2004 – 2,751,327,476; 2003 – 2,751,327,476				6,878				6,878
	Additional paid-in capital				1,954				1,913
	Retained earnings				64,393				55,392
	Accumulated other comprehensive income				9,593				7,244
	Treasury stock, at cost; 2004 – 154,904,286; 2003 – 142,880,430 shares of common stock (including 119,263,196 and 119,250,750 shares, respectively, held by subsidiaries)				(2,211	)			(1,397	)
Total shareholders’ equity					80,607				70,030
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	798,660			$	674,153

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CONSOLIDATED STATEMENT OF INCOME

Years Ended December 31,				2004				2003				2002
(in millions, except per share amounts)								(Restated)				(Restated)
Revenues:
	Premiums and other considerations			$	66,593			$	54,880			$	44,259
	Net investment income				18,434				15,468				13,721
	Realized capital gains (losses)				(24	)			(620	)			(1,298	)
	Other revenues				12,984				9,718				9,778
	Total revenues				97,987				79,446				66,460
Benefits and expenses:
	Incurred policy losses and benefits				58,313				46,145				39,987
	Insurance acquisition and other operating expenses				24,724				21,646				18,491
	Total benefits and expenses				83,037				67,791				58,478
Income before income taxes, minority interest and cumulative effect of accounting changes					14,950				11,655				7,982
Income taxes:
	Current				2,676				2,786				1,682
	Deferred				1,944				617				274
					4,620				3,403				1,956
Income before minority interest and cumulative effect of accounting changes					10,330				8,252				6,026
Minority interest					(455	)			(252	)			(160	)
Income before cumulative effect of accounting changes					9,875				8,000				5,866
Cumulative effect of accounting changes, net of tax					(144	)			9				–
Net income				$	9,731			$	8,009			$	5,866
Earnings per common share:
	Basic
		Income before cumulative effect of accounting changes		$	3.79			$	3.07			$	2.25
		Cumulative effect of accounting changes, net of tax			(0.06	)			–				–
		Net income			3.73				3.07				2.25
	Diluted
		Income before cumulative effect of accounting changes		$	3.75			$	3.04			$	2.22
		Cumulative effect of accounting changes, net of tax			(0.06	)			–				–
		Net income			3.69				3.04				2.22
Average shares outstanding:
	Basic				2,606				2,610				2,612
	Diluted				2,637				2,637				2,643

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CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

Years Ended December 31,					2004				2003				2002
(in millions, except per share amounts)									(Restated)				(Restated)
Common stock:
	Balance at beginning of year				$	6,878			$	6,878			$	6,876
		Issued under stock plans				–				–				2
	Balance at end of year					6,878				6,878				6,878
Additional paid-in capital:
	Balance at beginning of year					1,913				1,677				1,912
		Excess of cost over proceeds of common stock issued under stock plans				(105	)			(76	)			(94	)
		Adjustment in connection with AGC acquisition				-				–				5
		Other				146				312				(146	)
	Balance at end of year					1,954				1,913				1,677
Retained earnings:
	Balance at beginning of year					55,392				47,967				42,568
		Net income				9,731				8,009				5,866
		Cash dividends to common shareholders ($.28, $.22 and $.18 per share, respectively)				(730	)			(584	)			(467	)
	Balance at end of year					64,393				55,392				47,967
Accumulated other comprehensive income (loss):
	Balance at beginning of year					7,244				3,626				61
		Unrealized appreciation of investments – net of reclassification adjustments				1,974				4,281				5,908
			Deferred income tax expense on changes			(622	)			(1,204	)			(1,906	)
		Foreign currency translation adjustments				682				744				(40	)
			Applicable income tax (expense) benefit on above changes			4				(133	)			(57	)
		Net derivative gains (losses) arising from cash flow hedging activities				438				14				(487	)
			Deferred income tax (expense) benefit on above changes			(105	)			(18	)			188
		Retirement plan liabilities adjustment, net of tax				(22	)			(66	)			(41	)
		Other comprehensive income				2,349				3,618				3,565
	Balance at end of year					9,593				7,244				3,626
Treasury stock, at cost:
	Balance at beginning of year					(1,397	)			(1,343	)			(888	)
		Cost of shares acquired during year				(1,083	)			(207	)			(734	)
		Issued under stock plans				263				151				260
		Other				6				2				19
	Balance at end of year					(2,211	)			(1,397	)			(1,343	)
Total shareholders’ equity at end of year					$	80,607			$	70,030			$	58,805

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CONSOLIDATED STATEMENT OF CASH FLOWS

Years Ended December 31,					2004				2003				2002
(in millions)									(Restated)				(Restated)
Summary:
	Net cash provided by operating activities				$	35,581			$	33,098			$	18,208
	Net cash used in investing activities					(80,488	)			(59,418	)			(46,962	)
	Net cash provided by financing activities					45,313				25,330				29,252
	Change in cumulative translation adjustments					681				747				(31	)
	Change in cash					1,087				(243	)			467
	Cash at beginning of year					922				1,165				698
	Cash at end of year				$	2,009			$	922			$	1,165
Cash flows from operating activities:
	Net income				$	9,731			$	8,009			$	5,866
	Adjustments to reconcile net income to net cash provided by operating activities:
		Noncash revenues, expenses, gains and losses included in income:
		Change in:
			General and life insurance reserves			26,939				22,471				15,645
			Premiums and insurance balances receivable and payable – net			(1,161	)			(1,764	)			(924	)
			Reinsurance assets			990				2,103				(2,233	)
			Deferred policy acquisition costs			(4,035	)			(3,781	)			(3,766	)
			Investment income due and accrued			(929	)			(395	)			(492	)
			Funds held under reinsurance treaties			361				832				629
			Other policyholders’ funds			1,156				687				9
			Current and deferred income taxes – net			1,484				2,049				652
			Reserve for commissions, expenses and taxes			(5	)			1,010				58
			Other assets and liabilities – net			1,729				249				1,964
			Trading assets and liabilities – net			(4,903	)			4,574				909
			Trading securities, at market value			1,276				773				1,440
			Spot commodities, at market value			155				239				(137	)
			Net unrealized (gain) loss on swaps, options and forward transactions			2,263				(3,219	)			(2,563	)
			Securities purchased under agreements to resell			(5,427	)			(3,010	)			(2,480	)
			Securities sold under agreements to repurchase			5,451				6,454				(2,119	)
			Securities and spot commodities sold but not yet purchased, at market value			(592	)			(6,307	)			3,434
		Realized capital (gains) losses				24				620				1,298
		Equity in income of partially owned companies and other invested assets				(1,294	)			(711	)			(228	)
		Amortization of premium and discount on securities				314				61				(195	)
		Depreciation expenses, principally flight equipment				2,035				1,861				1,686
		Provision for finance receivable losses				389				429				402
		Other – net				(370	)			(136	)			(647	)
		Total adjustments				25,850				25,089				12,342
Net cash provided by operating activities					$	35,581			$	33,098			$	18,208

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CONSOLIDATED STATEMENT OF CASH FLOWS (continued)

Years Ended December 31,			2004				2003				2002
(in millions)							(Restated)				(Restated)
Cash flows from investing activities:
	Cost of bonds, at market sold		$	98,415			$	95,874			$	99,777
	Cost of bonds, at market matured or redeemed			14,357				15,966				13,666
	Cost of equity securities sold			13,710				10,040				6,509
	Realized capital gains (losses)			(24	)			(620	)			(1,298	)
	Purchases of fixed maturities			(166,354	)			(158,496	)			(149,537	)
	Purchases of equity securities			(17,751	)			(10,692	)			(5,955	)
	Acquisitions, net of cash acquired			–				(2,091	)			–
	Mortgage, policy and collateral loans granted			(2,792	)			(2,745	)			(2,867	)
	Repayments of mortgage, policy and collateral loans			1,731				2,043				2,011
	Sales of securities available for sale			4,291				8,376				4,382
	Maturities of securities available for sale			5,802				4,690				3,882
	Purchases of securities available for sale			(16,252	)			(11,114	)			(8,455	)
	Sales of flight equipment			1,329				1,212				184
	Purchases of flight equipment			(4,962	)			(5,509	)			(5,302	)
	Net additions to real estate and other fixed assets			(950	)			(1,131	)			(924	)
	Sales or distributions of other invested assets			8,453				8,730				12,261
	Investments in other invested assets			(10,487	)			(10,484	)			(12,581	)
	Change in short-term investments			(2,542	)			(1,563	)			16
	Investments in partially owned companies			1				255				(479	)
	Finance receivable originations and purchases			(21,636	)			(14,690	)			(10,066	)
	Finance receivable principal payments received			15,173				12,531				7,814
Net cash used in investing activities			$	(80,488	)		$	(59,418	)		$	(46,962	)
Cash flows from financing activities:
	Receipts from policyholders’ contract deposits		$	56,011			$	38,843			$	42,320
	Withdrawals from policyholders’ contract deposits			(24,497	)			(18,422	)			(19,589	)
	Change in trust deposits and deposits due to banks and other depositors			648				641				785
	Change in commercial paper			3,755				(3,174	)			(2,421	)
	Proceeds from notes, bonds, loans and mortgages payable			30,857				22,509				21,896
	Repayments on notes, bonds, loans and mortgages payable			(23,000	)			(14,467	)			(11,136	)
	Liquidation of zero coupon notes payable			(189	)			–				–
	Proceeds from guaranteed investment agreements			10,814				6,387				7,167
	Maturities of guaranteed investment agreements			(7,232	)			(5,900	)			(8,709	)
	Redemption of subsidiary company preferred stock			(200	)			(371	)			(50	)
	Proceeds from common stock issued			158				74				168
	Cash dividends to shareholders			(730	)			(584	)			(467	)
	Acquisition of treasury stock			(1,083	)			(207	)			(734	)
	Other – net			1				1				22
Net cash provided by financing activities			$	45,313			$	25,330			$	29,252
Supplementary information:
Taxes paid			$	3,060			$	2,454			$	1,203
Interest paid			$	4,314			$	4,128			$	3,590

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Years Ended December 31,				2004				2003				2002
(in millions)								(Restated)				(Restated)
Comprehensive income:
	Net income			$	9,731			$	8,009			$	5,866
Other comprehensive income:
	Unrealized appreciation of investments – net of reclassification adjustments				1,974				4,281				5,908
		Deferred income tax expense on above changes			(622	)			(1,204	)			(1,906	)
	Foreign currency translation adjustments				682				744				(40	)
		Applicable income tax (expense) benefit on above changes			4				(133	)			(57	)
	Net derivative gains (losses) arising from cash flow hedging activities				438				14				(487	)
		Deferred income tax (expense) benefit on above changes			(105	)			(18	)			188
	Retirement plan liabilities adjustment, net of tax				(22	)			(66	)			(41	)
Other comprehensive income					2,349				3,618				3,565
Comprehensive income				$	12,080			$	11,627			$	9,431

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NOTES TO FINANCIAL STATEMENTS

1.	Summary of Significant Accounting Policies

(a) Principles of Consolidation: Certain of AIG’s foreign subsidiaries included in the consolidated financial statements report on a fiscal year ending November 30. The consolidated financial statements include the accounts of AIG, its majority owned subsidiaries and those entities required to be consolidated under applicable accounting standards. See also Note 1(bb) herein. All material intercompany accounts and transactions have been eliminated.

(b) Basis of Presentation: The accompanying financial statements have been prepared on the basis of U.S. generally accepted accounting principles (GAAP). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The accompanying financial statements give effect to the restatement and adjustments for changes in estimates described in Notes 1(cc) and 2.

     General Insurance Operations: AIG’s General Insurance subsidiaries are multiple line companies writing substantially all lines of property and casualty insurance. Premiums are earned primarily on a pro rata basis over the term of the related coverage. The reserve for unearned premiums represents the portion of premiums written relating to the unexpired terms of coverage.

     Acquisition costs represent those costs, including commissions and premium taxes, that vary with and are primarily related to the acquisition of new business. These costs are deferred and amortized over the period in which the related premiums written are earned. The deferred policy acquisition cost (DAC) asset is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is not anticipated in the recoverability of deferred policy acquisition costs.

     Losses and loss expenses are charged to income as incurred. The reserve for losses and loss expenses represents the accumulation of estimates for reported losses and includes provisions for losses incurred but not reported. The methods of determining such estimates and establishing resulting reserves, including amounts relating to reserves for estimated unrecoverable reinsurance, are reviewed and updated. Adjustments resulting therefrom are reflected in income currently. AIG discounts its loss reserves relating to workers compensation business written by its U.S. domiciled subsidiaries as permitted by the domiciliary statutory regulatory authorities. As of year end 2004, this discount is $399 million on a tabular basis and $503 million on a non-tabular basis. Additionally, AIG discounts liability business assumed by AIRCO from DBG as permitted by its domiciliary regulatory authority. As of year end 2004, this discount is $651 million. The total amount of discount is $1.55 billion or less than three percent of outstanding loss reserves as reflected on the accompanying consolidated balance sheet.

     Life Insurance & Retirement Services Operations: AIG’s Life Insurance & Retirement Services subsidiaries offer a wide range of insurance and retirement savings products both domestically and abroad. Insurance-oriented products consist of individual and group life, payout annuities, endowment, and accident and health policies. Retirement savings-oriented products generally consist of fixed and variable annuities.

     Premiums for life insurance products and life contingent annuities are recognized as revenues when due. Estimates for premiums due but not yet collected are accrued. Benefits and expenses are provided against such revenues to recognize profits over the estimated life of the policies. Revenues for universal life and investment-type products consist of policy charges for the cost of insurance, administration, and surrenders during the period. Policy charges collected with respect to future services are deferred and recognized in a manner similar to the deferred policy acquisition costs related to such products. Expenses include interest credited to policy account balances and benefit payments made in excess of policy account balances. Personal accident products are accounted for in a manner similar to general insurance products described above.

     Policy acquisition costs for life insurance products are generally deferred and amortized over the premium paying period of the policy (FAS 60). Policy acquisition costs and policy issuance costs related to universal life and investment-type products (investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the contracts (FAS 97). Estimated gross profits are composed of net interest income, net realized investment gains and losses, fees, surrender charges, expenses, and mortality and morbidity gains and losses.

     The resulting DAC asset is reviewed for recoverability based on the profitability (both current and projected future) of the underlying insurance contracts.

     The deferred policy acquisition costs for investment-oriented products are adjusted with respect to estimated gross profits as a result of changes in the net unrealized gains or losses on debt and equity securities available for sale. That is,

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	1. Summary of Significant Accounting Policies (continued)

as debt and equity securities available for sale are carried at aggregate fair value, an adjustment is made to deferred policy acquisition costs equal to the change in amortization that would have been recorded if such securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. The change in this adjustment, net of tax, is included with the change in net unrealized gains/losses on debt and equity securities available for sale that is credited or charged directly to comprehensive income. Deferred policy acquisition costs have been decreased by $2.26 billion at December 31, 2004 and decreased by $2.05 billion at December 31, 2003 for this adjustment. See also Note 4 herein.

     Value of Business Acquired (VOBA) is determined at time of acquisition. This value is based on present value of future pre-tax profits discounted at current yields applicable at time of purchase. For products accounted under FAS 60, the VOBA is amortized over the life of the business similar to that for Deferred Acquisition Costs based on the assumptions at purchase. For FAS 97 products, the VOBA is amortized in relation to the estimated gross profits to date for each period. No impairments have occurred for acquired business to date.

     The liabilities for future policy benefits and policyholders’ contract deposits are established using assumptions described in Note 6.

     Financial Services: AIG’s Financial Services subsidiaries engage in diversified activities including aircraft leasing, capital market transactions, and consumer and insurance premium financing.

     Aircraft Finance operations represent the operations of ILFC, which engages primarily in the acquisition of commercial jet aircraft and the leasing and remarketing of such aircraft to airlines around the world. ILFC also provides, for a fee, fleet management services to certain third-party operators.

     ILFC, as lessor, leases flight equipment principally under operating leases. Accordingly, income is recognized over the life of the lease as rentals become receivable under the provisions of the lease or, in the case of leases with varying payments, under the straight-line method over the noncancelable term of the lease. In certain cases, leases provide for additional payments contingent on usage. Rental income is recognized at the time such usage occurs less a provision for future contractual aircraft maintenance. ILFC is also a remarketer of flight equipment for its own account and for airlines and financial institutions and provides, for a fee, fleet management services to certain third-party operators. ILFC’s revenues from such operations consist of net gains on sales of flight equipment and commissions.

     During the third quarter of 2003, AIG integrated the operations of AIG Trading Group Inc. with AIG Financial Products Corp., establishing the Capital Markets reporting unit. AIGFP engages as principal in standard and customized interest rate, currency, equity, commodity, and credit products with top-tier corporations, financial institutions, governments, agencies, institutional investors, and high-net-worth individuals throughout the world. AIGFP also raises funds through municipal reinvestment contracts and other private and public securities offerings, investing the proceeds in a diversified portfolio of high grade securities and derivative transactions. AIGFP engages in various commodity and foreign exchange trading and market-making activities. AIGFP 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. See also Note 3 herein.

     Consumer Finance operations include AGF as well as AIG Consumer Finance Group, Inc. (AIGCFG). AGF provides a wide variety of consumer finance products, including real estate mortgages, consumer loans, retail sales finance and credit-related insurance to customers in the United States. AIGCFG, through its subsidiaries, is engaged in developing a multi-product consumer finance business with an emphasis on emerging markets. See also Note 3 herein.

     Finance charges are recognized as revenue using the interest method. Revenue ceases to be accrued when contractual payments are not received for four consecutive months for loans and retail sales contracts, and for six months for revolving retail accounts and private label receivables. Extension fees, late charges, and prepayment penalties are recognized as revenue when received.

     Direct costs of originating loans, net of nonrefundable points and fees, are deferred and included in the carrying amount of the related loans. The amount deferred is recognized as an adjustment to finance charge revenues, using the interest method over the lesser of the contractual term or the expected life based on prepayment experience. If loans are prepaid, any remaining deferral is charged or credited to revenue.

     The allowance for finance receivable losses is maintained at a level considered adequate to absorb estimated credit losses in the existing portfolio. The portfolio is periodically evaluated on a pooled basis and considers factors such as economic conditions, portfolio composition, and loss and delinquency experience in the evaluation of the allowance.

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	1. Summary of Significant Accounting Policies (continued)

     Foreclosure proceedings are initiated on real estate loans when four monthly installments are past due, and these loans are charged off at foreclosure. All other finance receivables are charged off when minimal or no collections have been made for six months.

     Together, the Aircraft Finance, Capital Markets and Consumer Finance operations generate the vast majority of the revenues produced by AIG’s consolidated Financial Services operations.

     Imperial A.I. Credit Companies also contribute to Financial Services income. This operation engages principally in insurance premium financing for both AIG’s customers and those of other insurers.

     Asset Management Operations: AIG’s Asset Management operations comprise a wide variety of investment-related services and investment products including institutional and retail asset management, broker dealer services and spread-based investment business from the sale of guaranteed investment contracts (GICs), also known as funding agreements. Such products and services are offered to individuals and institutions both domestically and overseas. The fees generated with respect to Asset Management operations are recognized as revenues when earned. Certain costs incurred in the sale of mutual funds are deferred and subsequently amortized.

(c) Investments in Fixed Maturities and Equity Securities: Bonds held to maturity are principally owned by the insurance subsidiaries and are carried at amortized cost where AIG has the ability and positive intent to hold these securities until maturity.

     Where AIG may not have the positive intent to hold bonds and preferred stocks until maturity, these securities are considered to be available for sale and carried at current market values. Interest income with respect to fixed maturity securities is accrued as earned.

     Premiums and discounts arising from the purchase of bonds are treated as yield adjustments over their estimated lives, or call date if applicable.

     Bond trading securities are carried at current market values, as it is AIG’s intention to sell these securities in the near term.

     Common and preferred stocks are carried at current market values. Dividend income is generally recognized when receivable.

     Unrealized gains and losses from investments in equity securities and fixed maturities available for sale are reflected as a separate component of comprehensive income, net of deferred income taxes in consolidated shareholders’ equity currently. Unrealized gains and losses from investments in trading securities are reflected in income currently.

     Realized capital gains and losses are determined principally by specific identification. AIG evaluates its investments for impairment. As a matter of policy, the determination that a security has incurred an other-than-temporary decline in value and the amount of any loss recognition requires the judgment of AIG’s management and a continual review of its investments.

     In general, a security is considered a candidate for impairment if it meets any of the following criteria:

•	Trading at a significant (25 percent or more) discount to par, amortized cost (if lower) or cost for an extended period of time (nine months or longer);
•	The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding obligation; or (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws intended for the court supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than par value of their claims; or
•	In the opinion of AIG’s management, it is possible that AIG may not realize a full recovery on its investment, irrespective of the occurrence of one of the foregoing events.

     Once a security has been identified as impaired, the amount of such impairment is determined by reference to that security’s contemporaneous market price and recorded as a charge to earnings.

     AIG also enters into dollar roll agreements. These are agreements to sell mortgage-backed securities and to repurchase substantially similar securities at a specified price and date in the future. At December 31, 2004, 2003 and 2002, there were no dollar roll agreements outstanding.

(d) Mortgage Loans on Real Estate, Policy, and Collateral Loans – net: Mortgage loans on real estate, policy loans, and collateral loans are carried at unpaid principal balances. Interest income on such loans is accrued as earned.

     Impairment of mortgage loans on real estate and collateral loans is based upon certain risk factors and when collection of all amounts due under the contractual term is not probable. This impairment is generally measured based on the

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	1. Summary of Significant Accounting Policies (continued)

present value of expected future cash flows discounted at the loan’s effective interest rate subject to the fair value of underlying collateral. Interest income on such loans is recognized as cash is received.

     There is no allowance for policy loans, as these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively collateralized by the cash surrender value of the policy.

(e) Financial Services – Flight Equipment: Flight equipment is stated at cost. Major additions, modifications and interest are capitalized. Normal maintenance and repairs, airframe and engine overhauls and compliance with return conditions of flight equipment on lease are provided by and paid for by the lessee. Under the provisions of most leases for certain airframe and engine overhauls, the lessee is reimbursed for costs incurred up to but not exceeding contingent rentals paid to AIG by the lessee. AIG provides a charge to income for such reimbursements based upon the expected reimbursements during the life of the lease. Depreciation and amortization are computed on the straight-line basis to a residual value of approximately 15 percent over the estimated useful lives of the related assets but not exceeding 25 years. AIG monitors the global aircraft market and the values of various types and models of aircraft within that market relative to the values of its own fleet. If events or circumstances were such that the carrying amount of AIG’s aircraft might be impaired, AIG would determine if such impairment existed and recognize such impairment in accordance with Financial Accounting Standards Board (FASB) Statement No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

     This caption also includes deposits for aircraft to be purchased. At the time the assets are retired or disposed of, the cost and associated accumulated depreciation and amortization are removed from the related accounts and the difference, net of proceeds, is recorded as a gain or loss.

(f) Financial Services – Securities Available for Sale, at market value: These securities are held to meet long-term investment objectives and are accounted for as available for sale, carried at current market values and recorded on a trade date basis. This portfolio is hedged using interest rate, foreign exchange, commodity and equity derivatives. The market risk associated with such hedges is managed on a portfolio basis, with third party hedging transactions executed as necessary. As hedge accounting treatment is not achieved in accordance with FAS 133, the unrealized gains and losses on these securities resulting from changes in interest rates, currency rates and equity prices are recorded in consolidated shareholders’ equity while the unrealized gains and losses on the related economic hedges are reflected in operating income.

(g) Financial Services – Trading Securities, at market value: Trading securities are held to meet short term investment objectives, including hedging securities. These securities are recorded on a trade-date basis and carried at current market values. Unrealized gains and losses are reflected in income currently.

(h) Financial Services – Spot Commodities, at market value: Spot commodities are carried at current market values and are recorded on a trade-date basis. The exposure to market risk may be reduced through the use of forwards, futures and option contracts. Unrealized gains and losses from commodities and derivative transactions are reflected in income currently.

(i) Financial Services – Unrealized Gain and Unrealized Loss on Swaps, Options and Forward Transactions: Interest rate, currency, equity and commodity swaps, swaptions, options and forward transactions are accounted for as contractual commitments recorded on a trade-date basis and are carried at current market values or estimated fair values when market values are not available. Unrealized gains and losses are reflected in income currently, where appropriate. In certain instances, income is recognized over the life of the contract. Estimated fair values are based on the use of valuation models that utilize, among other things, current interest, foreign exchange, equity, commodity and volatility rates. AIG attempts to secure reliable and independent current market prices, such as 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, AIG uses an internal methodology which includes extrapolation from observable and verifiable prices nearest to the dates of the transactions. These valuations represent an assessment of the present values of expected future cash flows of these transactions and reflect market and credit risk. The portfolio’s discounted cash flows are evaluated with reference to current market conditions, maturities within the portfolio, and other relevant factors. Based upon this evaluation, it is determined what offsetting transactions, if any, are necessary to reduce the market risk 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. Because of the limited liquidity of some of these instruments, the recorded values of these transactions may be different from the values that might be realized if AIG were 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 in income when the transactions are sold or closed out prior to maturity.

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	1. Summary of Significant Accounting Policies (continued)

(j) Financial Services – Trading Assets and Trading Liabilities: Trading assets and trading liabilities include option premiums paid and received and receivables from and payables to counterparties which relate to unrealized gains and losses on futures, forwards, and options and balances due from and due to clearing brokers and exchanges.

     Futures, forwards, and options purchased and written are accounted for as contractual commitments on a trade-date basis and are carried at fair values. Unrealized gains and losses are reflected in income currently. The fair values of futures contracts are based on closing exchange quotations. Commodity forward transactions are carried at fair values derived from dealer quotations and underlying commodity exchange quotations. For long-dated forward transactions, where there are no dealer or exchange quotations, fair values are derived using internally developed valuation methodologies based on observable and available market information. Options are carried at fair values based on the use of valuation models that utilize, among other things, current interest or commodity rates, and foreign exchange and volatility rates, as applicable.

(k) Financial Services – Securities Purchased (Sold) Under Agreements to Resell (Repurchase), at contract value: Purchases of securities under agreements to resell and sales of securities under agreements to repurchase are accounted for as collateralized lending transactions and are recorded at their contracted resale or repurchase amounts, plus accrued interest. Generally, AIG’s policy is to take possession of or obtain a security interest in securities purchased under agreements to resell.

     AIG minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring customer credit exposure and collateral value and generally requiring additional collateral to be deposited with AIG when deemed necessary.

(l) Financial Services – Finance Receivables: Finance receivables are carried at amortized cost, plus unamortized fees, net of an allowance.

(m) Securities Lending Collateral and Securities Lending Payable: AIG’s insurance and asset management operations lend their securities and primarily take cash as collateral with respect to the securities lent. Income earned on invested collateral, net of interest payable to the collateral provider, is recorded in net investment income.

     The market value of securities pledged under securities lending arrangements were $48.8 billion and $29.5 billion as of December 31, 2004 and 2003, respectively. Of these amounts, $48.2 billion and $29.3 billion represent securities included in the bonds available for sale caption in AIG’s consolidated balance sheet as of December 31, 2004 and 2003, respectively.

(n) Other Invested Assets: Other invested assets consist primarily of investments by AIG’s insurance operations in hedge funds and limited partnerships.

     Hedge funds and limited partnerships in which AIG holds in the aggregate less than a five percent interest are carried at fair value. The change in fair value is recognized as a component of other comprehensive income.

     With respect to hedge funds and limited partnerships in which AIG holds in the aggregate a five percent or greater interest, AIG’s carrying value is the net asset value. The changes in such net asset values are recorded in earnings through net investment income.

     AIG obtains the fair value of its investments in limited partnerships and hedge funds from information provided by the general partner or manager of each of these investments, the accounts of which are generally audited on an annual basis.

(o) Reinsurance Assets: Reinsurance assets include the balances due from both reinsurance and insurance companies under the terms of AIG’s reinsurance agreements for paid and unpaid losses and loss expenses, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and loss expenses with respect to these reinsurance agreements are substantially collateralized.

(p) Deposit Liabilities: AIG has entered into certain insurance and reinsurance contracts, primarily in its general insurance segment, which do not contain sufficient amount and timing risk to be accounted for as insurance or reinsurance. Accordingly, these transactions are recorded based upon deposit accounting, and the premiums received, after deduction for certain related expenses, are recorded as deposits within Other liabilities on the consolidated balance sheet. Net proceeds of these deposits are invested and generate net investment income. As amounts are paid, consistent with the underlying contracts, the deposit liability is reduced. Periodically, AIG evaluates the expected payments to be made under each contract and adjusts the deposit liability through earnings in the current period.

(q) Investments in Partially Owned Companies: Generally, the equity method of accounting is used for AIG’s investment in companies in which AIG’s ownership interest approximates

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	1. Summary of Significant Accounting Policies (continued)

20 percent but is not greater than 50 percent (minority owned companies). At December 31, 2004, AIG’s significant investments in partially owned companies included its 24.3 percent interest in IPC Holdings, Ltd., its 23.4 percent interest in Allied World Assurance Holdings, Ltd. and its 24.5 percent interest in The Fuji Fire and Marine Insurance Co., Ltd. This balance sheet caption also includes investments in less significant partially owned companies and in certain minor majority owned subsidiaries. The amounts of dividends received from unconsolidated entities owned less than 50 percent were $21 million, $12 million and $12 million in 2004, 2003 and 2002, respectively. The undistributed earnings of unconsolidated entities owned less than 50 percent was $403 million, $283 million and $155 million as of December 31, 2004, 2003 and 2002, respectively.

(r) Real Estate and Other Fixed Assets: The costs of buildings and furniture and equipment are depreciated principally on a straight-line basis over their estimated useful lives (maximum of 40 years for buildings and ten years for furniture and equipment). Expenditures for maintenance and repairs are charged to income as incurred; expenditures for betterments are capitalized and depreciated.

     From time to time, AIG assesses the carrying value of its real estate relative to the market values of real estate within the specific local area, for the purpose of determining any asset impairment.

(s) Separate and Variable Accounts: Separate and variable accounts represent funds for which investment income and investment gains and losses accrue directly to the policyholders who predominantly bear the investment risk. Each account has specific investment objectives, and the assets are carried at market value. The assets of each account are legally segregated and are not subject to claims which arise out of any other business of AIG. The liabilities for these accounts are generally equal to the account assets.

(t) Financial Services – Securities and Spot Commodities Sold but not yet Purchased, at market value: Securities and spot commodities sold but not yet purchased represent sales of securities and spot commodities not owned at the time of sale. The obligations arising from such transactions are recorded on a trade-date basis and carried at the respective current market values or current commodity prices. Unrealized gains or losses are reflected in income currently.

(u) Liabilities Connected to Trust Preferred Stock: Liabilities connected to trust preferred stock relates to outstanding securities issued by AGC, a wholly owned subsidiary of AIG. Cash distributions on such preferred stock are accounted for as interest expense.

(v) Preferred Shareholders’ Equity in Subsidiary Companies: Preferred shareholders’ equity in subsidiary companies relates principally to outstanding preferred stock or interest of ILFC, a wholly owned subsidiary of AIG. Cash distributions on such preferred stock or interest are accounted for as interest expense.

(w) Translation of Foreign Currencies: Financial statement accounts expressed in foreign currencies are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation” (FAS 52). Under FAS 52, functional currency assets and liabilities are translated into U.S. dollars generally using current rates of exchange prevailing at the balance sheet date of each respective subsidiary and the related translation adjustments are recorded as a separate component of comprehensive income, net of any related taxes, in consolidated shareholders’ equity. Functional currencies are generally the currencies of the local operating environment. Income statement accounts expressed in functional currencies are translated using average exchange rates. The adjustments resulting from translation of financial statements of foreign entities operating in highly inflationary economies are recorded in income. Exchange gains and losses resulting from foreign currency transactions are recorded in income currently. The exchange gain or loss with respect to utilization of qualifying foreign exchange hedging activities is recorded as a component of other comprehensive income. In the situation where the qualifying hedge is identified to an underlying foreign currency transaction, the hedging activity exchange or loss is transferred out of other comprehensive income and netted against the exchange gain or loss of the underlying in income.

(x) Income Taxes: Deferred federal and foreign income taxes are provided for temporary differences for the expected future tax consequences of events that have been recognized in AIG’s financial statements or tax returns.

(y) Earnings Per Share: Basic earnings per common share are based on the weighted average number of common shares outstanding, retroactively adjusted to reflect all stock dividends and stock splits. Diluted earnings per share are based on those shares used in basic earnings per share plus shares that would have been outstanding assuming issuance of common shares for all dilutive potential common shares outstanding, retroactively adjusted to reflect all stock dividends and stock splits.

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	1. Summary of Significant Accounting Policies (continued)

The computation of earnings per share for December 31, 2004, 2003 and 2002 was as follows:

Years Ended December 31,			2004				2003				2002
(in millions, except per share amounts)							(Restated)				(Restated)
Numerator for basic earnings per share:
Income before cumulative effect of accounting changes			$	9,875			$	8,000			$	5,866
Cumulative effect of accounting changes, net of tax				(144	)			9				–
Net income applicable to common stock			$	9,731			$	8,009			$	5,866
Denominator for basic earnings per share:
Average shares outstanding used in the computation of per share earnings:
	Common stock issued			2,752				2,752				2,752
	Common stock in treasury			(146	)			(142	)			(140	)
Average shares outstanding – basic				2,606				2,610				2,612
Numerator for diluted earnings per share:
Income before cumulative effect of accounting changes			$	9,875			$	8,000			$	5,866
Cumulative effect of accounting changes, net of tax				(144	)			9				–
Net income applicable to common stock				9,731				8,009				5,866
Interest on contingently convertible bonds, net of tax(a)				11				11				10
Adjusted net income applicable to common stock(a)			$	9,742			$	8,020			$	5,876
Denominator for diluted earnings per share:
Average shares outstanding				2,606				2,610				2,612
Incremental shares from potential common stock:
Average number of shares arising from outstanding employee stock plans (treasury stock method)(b)				22				18				22
Contingently convertible bonds(a)				9				9				9
Adjusted average shares outstanding – diluted(a)				2,637				2,637				2,643
Earnings per share:
Basic:
Income before cumulative effect of accounting changes			$	3.79			$	3.07			$	2.25
Cumulative effect of accounting changes, net of tax				(0.06	)			–				–
Net income			$	3.73			$	3.07			$	2.25
Diluted:
Income before cumulative effect of accounting changes			$	3.75			$	3.04			$	2.22
Cumulative effect of accounting changes, net of tax				(0.06	)			–				–
Net income			$	3.69			$	3.04			$	2.22

(a)	Assumes conversion of contingently convertible bonds due to the adoption of EITF Issue No. 04-8 “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share.”

(b)	Certain shares arising from employee stock plans were not included in the computation of diluted earnings per share where the exercise price of the options exceeded the average market price and would have been antidilutive. The number of shares excluded were 7 million, 26 million and 9 million for 2004, 2003 and 2002, respectively.

(z) Derivatives: AIG carries all derivatives in the consolidated balance sheet at fair value. The financial statement recognition of the change in the fair value of a derivative depends on a number of factors, including the intended use of the derivative and the extent to which it is effective as part of a hedge transaction. The changes in fair value of the derivative transactions of AIGFP are currently presented as a component of AIG’s operating income. However, in certain instances income is recognized over the life of the contract, where appropriate.

     The discussion below relates to the derivative activities of AIG (other than those of AIGFP) that qualify for hedge accounting treatment under FAS 133. (See also Note 2 “Other GAAP Corrections — Accounting for Derivatives (FAS 133 Hedge Accounting)”).

     For derivatives designated as hedges, on the date the derivative contract is entered into, AIG designates the derivative as: (i) a hedge of the subsequent changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (“fair value” hedge); (ii) a hedge of a forecasted transaction, or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge); or (iii) a hedge of a net investment in a foreign operation. Fair value and cash flow hedges may involve foreign currencies (“foreign currency hedges”). The gain or loss in the fair value of a derivative that is appropriately and contemporaneously documented, designated and is highly effective as a fair value hedge is recorded in current period earnings, along with the loss or gain on the hedged item attributable to the hedged risk. The gain or loss in the fair value of a derivative that is appropriately

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	1. Summary of Significant Accounting Policies (continued)

and contemporaneously documented, designated and is highly effective as a cash flow hedge is recorded in other comprehensive income, until earnings are affected by the variability of cash flows. The gain or loss in the fair value of a derivative that is appropriately and contemporaneously documented, designated and is highly effective as a hedge of a net investment in a foreign operation is recorded in the foreign currency translation adjustments account within other comprehensive income. Changes in the fair value of derivatives used for other than hedging activities are reported in current period earnings (principally in realized capital gains and losses for AIG’s insurance operations).

     AIG appropriately and contemporaneously documented relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as hedges to specific assets or liabilities on the balance sheet, specific firm commitments, or forecasted transactions. AIG also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

     In addition to hedging activities, AIG also uses derivative instruments with respect to investment operations, which include, among other things, credit default swaps, and purchasing investments with embedded derivatives, such as equity linked notes and convertible bonds. All changes in the market value of these derivatives are recorded in earnings. AIG bifurcates an embedded derivative where: (i) the economic characteristics of the embedded instruments are not clearly and closely related to those of the remaining components of the financial instrument; and (ii) a separate instrument with the same terms as the embedded instrument meets the definition of a derivative under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” See also Note 20 herein.

(aa) Goodwill and Intangible Assets: Goodwill is reviewed for impairment on an annual basis, or more frequently if circumstances indicate that a possible impairment has occurred. The assessment of impairment involves a two-step process whereby an initial assessment for potential impairment is performed, followed by a measurement of the amount of impairment, if any. No impairment has been recorded by AIG in 2004, 2003 or 2002.

     On August 29, 2003, AIG acquired 100 percent of the outstanding common shares of GE Edison Life Insurance Company in Japan and the U.S.-based auto and home insurance business of General Electric Company (GE) for $2.1 billion. The acquisition expanded AIG’s life insurance presence in Japan and AIG’s auto and home insurance presence in the U.S. At the date of acquisition, the fair values of the assets acquired and liabilities assumed were $20 billion and $19 billion, respectively. Goodwill associated with this transaction as of December 31, 2003 amounted to $1.3 billion, primarily related to the life business.

     Other changes in the carrying amount of goodwill are primarily caused as a result of foreign currency translation adjustments and other purchase price adjustments.

(bb) Recent Accounting Standards: In December 2003, FASB issued Interpretation No. 46R, “Consolidation of Variable Interest Entities Revised” (FIN46R). See also Notes 2 and 19 herein.

In March 2005, FASB issued FSP FIN46R-5 “Implicit Variable Interests under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities” (FSP FIN46R-5) to address whether a reporting enterprise has an implicit variable interest in a variable interest entity (VIE) or potential VIE when specific conditions exist. Although implicit variable interests are mentioned in FIN46R, the term is not defined and only one example is provided. FSP FIN46R-5 offers additional guidance, stating that implicit variable interests are implied financial interests in an entity that change with changes in the fair value of the entity’s net assets exclusive of variable interests. An implicit variable interest acts the same as an explicit variable interest except it involves the absorbing and/or receiving of variability indirectly from the entity (rather than directly). The identification of an implicit variable interest is a matter of judgment that depends on the relevant facts and circumstances. FSP FIN46R-5 is effective for the second quarter of 2005, and AIG is currently assessing the effect, if any, of FSP FIN46R-5.

     In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1). See also Note 21 herein.

     In December 2003, FASB issued Statement of Financial Accounting Standards No. 132 (Revised), “Employers’ Disclosures About Pensions and Other Post Retirement Benefits,” which revised disclosure requirements with respect to defined benefit plans. See also Note 15 herein.

     At the March 2004 meeting, the Emerging Issue Task Force (EITF) reached a consensus with respect to Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.” On September 30, 2004, the FASB issued FASB Staff Position (FSP)

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	1. Summary of Significant Accounting Policies (continued)

EITF No. 03-1-1, Effective Date of Paragraphs 10-20 of EITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” delaying the effective date of this guidance until the FASB has resolved certain implementation issues with respect to this guidance. The disclosure requirements of EITF 03-1 were previously adopted by AIG as of December 31, 2003 and reflected in the Annual Report on Form 10-K for that year for investments accounted for under FAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” For all other investments within the scope of this Issue, the disclosures are effective for the year ending December 31, 2004.

     At the September 2004 meeting, the EITF reached a consensus with respect to Issue No. 04-8, “Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings per Share.” This Issue addresses when the dilutive effect of contingently convertible debt (Co-Cos) with a market price trigger should be included in diluted earnings per share (EPS). The EITF concluded that these securities should be treated as convertible securities and included in a dilutive EPS calculation (if dilutive), regardless of whether the market price triggers (or other contingent features) have been met. Co-Cos are generally convertible into common shares of the issuer after the common stock has exceeded a predetermined threshold for a specific time period. The predetermined threshold is greater than the conversion price of the debt. The guidance is effective for the year ending December 31, 2004; AIG has applied the guidance retroactively and has restated previously reported EPS. The adoption of Issue No. 04-8 did not have a material effect on AIG’s diluted EPS.

     In December 2004, the FASB issued Statement No. 123 (revised 2004) (FAS 123R), “Share-Based Payment.” FAS 123R replaces FASB Statement No. 123 (FAS 123), “Accounting for Stock-Based Compensation,” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FAS 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. On January 1, 2003, AIG adopted the recognition provisions of FAS 123. See also Note 14 herein. In April 2005, the SEC delayed the effective date for FAS 123R until the first fiscal year beginning after June 15, 2005. As a result, AIG expects to adopt the provisions of the revised FAS 123R in the first quarter of 2006. AIG is currently assessing the effect of FAS 123R and believes the effect will not be material to AIG’s results of operations.

     In March 2005, FASB issued FSP No. 46(R)-5, “Implicit Variable Interests under FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities”, or FSP FIN 46R-5. FSP FIN 46R-5 provides guidance for a reporting enterprise on whether it holds an implicit variable interest in VIEs or potential VIEs when specific conditions exist. This FSP is effective in the first period beginning after March 3, 2005 in accordance with the transition provisions of FIN 46R. AIG is currently assessing the effect of the adoption of FSP FIN 46R-5 on results of operations and financial condition and does not expect it to have a material impact.

(cc) Fourth Quarter 2004 Changes in Estimates: The preparation of consolidated financial statements in conformity with GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses. Examples of some of the significant estimates in AIG’s financial statements include estimation of loss and loss adjustment expense reserves, deferred acquisition costs, allowances for reinsurance recoverable, estimation of future cash flows for use in evaluating asset valuation and potential asset impairments, loss contingencies, fair value of financial instruments, income tax provisions and tax valuation reserves and various assumptions with regard to the valuation of pension and other post-retirement employee benefit expenses.

     AIG’s internal review was complemented by investigations by outside counsel for AIG and for the Audit Committee of the Board of Directors. PricewaterhouseCoopers LLP, an independent registered public accounting firm (PwC or independent auditors) was consulted on the scope of the internal review for certain matters and reviewed the results of the internal review.

     As a result of the findings of the internal review, together with the results of investigations conducted by outside counsel at the request of AIG’s Audit Committee and in consultation with PwC, AIG has concluded that the accounting for certain transactions and certain relationships needs to be restated or adjusted. See Note 2 herein – “Restatement of Previously Issued Financial Statements”.

     In connection with the internal review previously described, AIG has made extensive evaluation of information used in the preparation of certain estimates made in completing the financial statements for the year ended December 31, 2004. These estimates were reflected in the previously released unaudited results of operations disclosed in AIG’s press release furnished in its Current Report on Form 8-K dated February 9, 2005. Management believes that the additional information now available provides additional evidence about conditions that existed at the balance sheet date that have

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	1. Summary of Significant Accounting Policies (continued)

come to management’s attention prior to the release of the Company’s audited financial statements for the year ended December 31, 2004. Accordingly, certain fourth quarter 2004 estimates were revised to reflect the financial statement effect of the additional information upon management’s estimates.

The following table summarizes the more significant of the fourth quarter changes in estimates:

			For the Three Months and
			Twelve Months Ended
(in millions)			December 31, 2004
Fourth Quarter 2004 Changes in Estimates:
	Increase in reserve for asbestos and environmental losses and loss expenses		$	(850	)
	Deferred acquisition costs adjustments			(56	)
	Accrual for salvage and subrogation recoveries			(232	)
	Subsequent events related to reinsurance arbitration			(178	)
	DBG asset realization			(150	)
	Other changes in estimates			(136	)
	Total pretax changes in estimates			(1,602	)
	Income tax adjustments			(146	)
	Less: tax effect related to changes in estimates			561
	Total changes in estimates		$	(1,187	)

2.	Restatement of Previously Issued Financial Statements

In connection with the preparation of AIG’s consolidated financial statements included in this Annual Report on Form 10-K, AIG’s current management initiated an internal review of AIG’s books and records, which was substantially expanded in mid-March. The following provides a description of the internal review process, details of the accounting adjustments included in the restatement of AIG’s consolidated financial statements and the effect of the adjustments on AIG’s Consolidated Balance Sheet at December 31, 2003 and its Consolidated Statement of Income and Consolidated Statement of Cash Flows for the years ended December 31, 2003 and 2002.

     Internal Review. The internal review, conducted under the direction of current senior management with the oversight of the Audit Committee of the Board of Directors, spanned AIG’s major business units globally, and included a review of information and a number of transactions from 2000 to the present. In certain cases, items in periods prior to 2000 were examined due to the nature of the transactions under review. The business units subject to review were Domestic General Insurance, Foreign General Insurance, Reinsurance, Financial Services, Domestic and Foreign Life Insurance & Retirement Services and Asset Management. The internal review encompassed AIG’s books and records, thousands of files and e-mails and interviews with current and former employees and members of management. Management believes that the scope and process of its internal review was sufficient to identify issues of a material nature that could affect AIG’s financial statements.

     AIG’s internal review was complemented by investigations by outside counsel for AIG and for the Audit Committee of the Board of Directors. PricewaterhouseCoopers LLP, an independent registered public accounting firm (PwC or independent auditors), was consulted on the scope of the internal review for certain matters and reviewed the results of the internal review.

     As a result of the findings of the internal review, together with the results of investigations conducted by outside counsel at the request of AIG’s Audit Committee and in consultation with AIG’s independent auditors, AIG has concluded that the accounting for certain transactions and certain relationships needs to be restated.

     Restatement. AIG has restated its Consolidated Balance Sheet at December 31, 2003 and its Consolidated Statement of Income and Consolidated Statement of Cash Flows for the years ended December 31, 2003 and 2002 as well as the quarters ended March 31, June 30 and September 30, 2004 and 2003 and the quarter ended December 31, 2003 included herein. AIG’s previously issued financial statements for these periods should no longer be relied upon. See below for a reconciliation of certain previously reported amounts to the restated amounts.

     As part of its internal review, AIG evaluated the financial reporting consolidation process and the resulting financial statements as well as the appropriateness of AIG’s prior accounting and reporting decisions. Based on this evaluation, the restatement includes corrections of errors in current or prior accounting periods for improper or inappropriate transactions or entries identified by the review. In many cases these transactions or entries appear to have had the purpose of achieving an accounting result that would enhance measures

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	2. Restatement of Previously Issued Financial Statements (continued)

believed to be important to the financial community and may have involved documentation that did not accurately reflect the true nature of the arrangements. In certain instances, these transactions or entries may also have involved misrepresentations to members of management, regulators and AIG’s independent auditors. The restatement includes adjustments, some of which had been previously identified but considered not to be sufficiently material to require correction.

     Details of Accounting Adjustments included in the Restatement. The accounting adjustments relate primarily to the categories described below. Many of the adjustments that do not affect previously reported net income or consolidated shareholders’ equity do, however, change both the consolidated and business segment reporting of premiums, underwriting results, net investment income, realized capital gains and losses and operating income, as well as other items. Adjustments that affect reported net income and consolidated shareholders’ equity relate to both the timing and recognition of revenues and expenses and affect the comparison of period-to-period results. Following the description of each transaction, accounting entry or entity category is a summary of the principal consolidated statement of income and balance sheet accounts affected by the adjustments relating to that category.

•	Risk Transfer. To recognize the cash flows under an insurance contract as premium and losses, GAAP requires the transfer of risk. If risk transfer requirements are not met, an insurance contract is accounted for as a deposit, resulting in the recognition of cash flows under the contract as deposit assets or liabilities and not as revenues or expense. AIG has concluded, based upon its internal review, that there was insufficient risk transfer to qualify for insurance accounting for certain transactions where AIG subsidiaries either wrote direct insurance or assumed or ceded reinsurance. These transactions are now recorded using deposit accounting. The changes resulting from the change to deposit accounting affect both the consolidated balance sheet and statement of income. Detailed discussions of the principal accounts affected are provided below for each of the categories included.
–	Union Excess: AIG has concluded, based on documents and information identified during the course of the internal review, that reinsurance ceded to Union Excess Reinsurance Company, Ltd., a Barbados-domiciled reinsurer (Union Excess), did not result in risk transfer because of AIG’s control over certain transactions undertaken directly or indirectly with Union Excess, including the timing and nature of certain commutations. Eliminating the cessions reduces reinsurance assets, effectively eliminates the inherent discount related to the loss reserves ceded under the contracts, and increases net premiums and losses.
	In addition, as a result of certain facts and circumstances related to the formation of Union Excess, as well as certain relationships with Starr International Company, Inc. (SICO), Union Excess is now included in AIG’s consolidated financial statements. The facts and circumstances surrounding SICO’s involvement with Union Excess were not properly reflected in AIG’s books and records, were not known to all relevant AIG financial reporting personnel and, AIG now believes, were not known to AIG’s independent auditors. For example, a significant portion of the ownership interests of Union Excess shareholders are protected against loss under financial arrangements with SICO. Additionally, from its formation in 1991, Union Excess has reinsured risks emanating primarily or solely from AIG subsidiaries, both directly and indirectly. Further, it appears that the employees responsible for the reinsurance related to Union Excess managed that relationship to prevent signifi- cant losses or gains to Union Excess so that substantially all of the risks and rewards of the underlying reinsurance inured to AIG. This relationship allowed AIG to absorb substantially all the economic returns, which in turn caused Union Excess to be deemed a variable interest entity (VIE). The effect of the restatement relating to Union Excess on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Premiums and other considerations		$	439			$	673
	Net investment income			304				233
	Realized capital gains (losses)			(17	)			105
	Incurred policy losses and benefits			433				683
	Insurance acquisition and other operating expenses			48				52
	Net income			160				180
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			1,923
	Reinsurance assets			(5,815	)
	Other assets			2,549
	Total shareholders’ equity			(873	)

–

Gen Re: In December 2000 and March 2001, an AIG subsidiary entered into an assumed reinsurance transaction with a subsidiary of General Re Corporation (Gen Re) involving two tranches of $250 million each. In connection with each tranche, consolidated net premiums written and consolidated incurred policy losses and benefits increased by $250 million in the fourth quarter of 2000 (with respect to the first tranche) and the first quarter of 2001 (with

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	2. Restatement of Previously Issued Financial Statements (continued)

respect to the second tranche). The first tranche of the transaction was commuted in November 2004, reducing premiums and reserves for losses and loss expenses by approximately $250 million in the fourth quarter 2004. AIG has concluded that the transaction was done to accomplish a desired accounting result and did not entail sufficient qualifying risk transfer. As a result, AIG has determined that the transaction should not have been recorded as insurance. AIG’s restated financial statements recharacterize the transaction as a deposit rather than as insurance. Such recharacterization had virtually no effect on net income or consolidated shareholders’ equity but had the following effect on AIG’s consolidated balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Balance Sheet:
	Reserve for losses and loss expenses			(500	)
	Other liabilities			500

–	Other Risk Transfer: AIG has concluded that Richmond Insurance Company, Ltd., a Bermuda-based reinsurance holding company (Richmond) in which AIG currently holds a 19.9 percent ownership interest, should be treated as a consolidated entity in AIG’s financial statements due to AIG’s ability to exert control over that entity. Such determination was based, in part, on arrangements and documents, including put agreements requiring an AIG subsidiary to purchase the Richmond shares, that appear not to have been previously disclosed to appropriate AIG financial personnel or AIG’s independent auditors. Although AIG currently owns only a minority ownership interest in Richmond, a review of the operations of Richmond and its subsidiaries has shown significant previously undisclosed evidence of AIG control causing Richmond to be deemed a VIE. The consolidation of Richmond had virtually no effect on net income or consolidated shareholders’ equity. AIG has received notice of exercise of a put with respect to 49.9 percent of the Richmond shares and expects to acquire the shares by June 30, 2005.
	As a result of its internal review of AIG Re, AIG Risk Finance and AIG Risk Management and certain transactions, AIG determined that adjustments were required because certain transactions lacked sufficient risk transfer to qualify for insurance accounting under GAAP.
	The effect of the restatement for Richmond, AIG Re, AIG Risk Finance, AIG Risk Management and certain other transactions on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Premiums and other considerations		$	33			$	(856	)
	Incurred policy losses and benefits			53				(862	)
	Insurance acquisition and other operating expenses			(62	)			(35	)
	Net income			–				22
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			(389	)
	Reinsurance assets			(1,185	)
	Other assets			1,126
	Reserve for losses and loss expenses			(1,609	)
	Reserve for unearned premiums			112
	Funds held by companies under reinsurance treaties			(1,019	)
	Other liabilities			2,114
	Total shareholders’ equity			(51	)

•

Loss Reserves: Estimation of ultimate net losses and loss expenses is a complex process requiring the use of assumptions which may be highly uncertain at the time of estimation. As a result of its internal review, AIG has determined that the IBNR included in the General Insurance reserve for losses and loss expenses was adjusted on a regular basis without appropriate support for the changes requested to be made. Although AIG does not believe that any change materially affected the integrity of AIG’s loss reserve position because in each instance IBNR as adjusted was determined to be within an appropriate tolerance of the applicable actuarial point estimate, AIG has determined that the unsupported decreases in reserves generated independently from the actuarial process constituted errors which should be corrected and has restated the amounts of carried reserves accordingly. As a result, the fourth quarter 2002 charge relating to the increase in the General Insurance reserve for losses and loss expenses, previously reported as $2.8 billion, has been restated to $2.1 billion to reduce the original charge by the cumulative effect of the correction of the unsupported adjustments to reserves through that date (approximately $700 million). Therefore, the charge to pretax earnings is approximately $700 million less than previously reported, reflecting the removal of the unsupported adjustments to reserves in periods prior to and including the fourth quarter of 2002. The effect of the restatement of the loss reserves on

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	2. Restatement of Previously Issued Financial Statements (continued)

	certain of AIG’s consolidated statement of income and balance sheet accounts is set forth as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Incurred policy losses and benefits		$	342			$	(351	)
	Net income			(222	)			228
Consolidated Balance Sheet:
	Reserve for losses and loss expenses			578
	Total shareholders’ equity			(375	)

•	Net Investment Income. As a result of the internal review, AIG determined that the accounting for certain transactions had the effect of improperly converting capital gains into net investment income and was not consistent with GAAP. The most significant of these transactions are:
–	Covered Calls: From 2001 through 2003, certain AIG subsidiaries entered into a series of transactions with third parties whereby these subsidiaries sold in-the-money calls, principally on municipal bonds in their investment portfolios that had unrealized appreciation associated with them. Upon exercise of a call, the related bonds were delivered to the purchaser of the call and subsequently reacquired by the subsidiaries pursuant to contingent forward agreements which permitted the AIG subsidiaries to repurchase the bonds at the prevailing market value. In connection with selling the calls, the AIG subsidiaries also entered into interest rate swaps to protect them against the effects of changes in value of the applicable bonds as a result of movements in interest rates during the transaction period. These transactions were accounted for as sales and subsequent purchases and appear to have been initiated to increase net investment income. AIG has determined that, because AIG was able to cause the bonds to be returned from the third parties even after the third parties exercised the call options, AIG did not cede control over the bonds and therefore the transactions should not have been accounted for as sales and subsequent purchases but rather as financings. The adjustments required to correct this error reduce previously reported amounts of net investment income and correspondingly increase realized capital gains from these transactions over the three-year period. The restatement had no net effect on consolidated shareholders’ equity for any period and the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Net investment income		$	(179	)		$	(7	)
	Realized capital gains (losses)			118				61
	Net income			(40	)			35

–

Synthetic Fuel Investment: AIG subsidiaries invest in certain limited liability companies that invest in synthetic fuel production facilities as a means of generating income tax credits. As a result of a misapplication of GAAP, AIG recorded net investment income or, in some cases, other revenues, on a pretax basis rather than reflecting the tax credit as a reduction of income tax expense, thereby increasing net investment income for AIG’s life insurance and retirement services segment and other revenues for the financial services segment. Certain of these entries were previously identified but not corrected as the amounts were viewed as not sufficiently material to require correction. In the fourth quarter of 2004, AIG changed its accounting to present these tax credits as a component of income taxes. AIG has now determined that it is necessary to record these adjustments for the periods prior to the fourth quarter of 2004. The restatement had no effect on consolidated net income or shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Net investment income		$	(238	)		$	(259	)
	Other revenues			(200	)			(165	)
	Income taxes			(438	)			(424	)

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	2. Restatement of Previously Issued Financial Statements (continued)

–

Hedge Fund Accounting: AIG subsidiaries invest in a variety of alternative asset classes, including hedge fund limited partnerships, that are accounted for as available for sale securities. As part of the underlying partnership agreements, such AIG subsidiaries have the right to redeem their interests at defined times. A redemption allows AIG to record net investment income to the extent there are gains in the underlying funds at the time. However, as a result of its internal review, AIG has determined that, in certain cases, the redemption resulted in inappropriate gain recognition because the proceeds were required to be immediately reinvested in the funds. In addition, the cost bases of certain funds were misallocated in determining gains. The restated consolidated financial statements correct these errors. These corrections had virtually no effect on consolidated shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts.

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Net investment income		$	29			$	159
	Other revenues			–				26
	Net income			19				120

–

Muni Tender Option Bond Program: From 2000 through early 2003, AIG subsidiaries participated in a program in which they transferred highly rated municipal bonds at market value to a third-party broker, which in turn transferred these securities to a trust that the broker had established. The trust then issued two sets of beneficial interests. Half of the beneficial interests were floating interest rate certificates. The remaining beneficial interests were “inverse” floating interest rate certificates. Third parties invested in the floating interest rate certificates, and AIG subsidiaries invested in the inverse floating interest rate certificates. AIG did not consolidate the trust into AIG’s balance sheet.

The AIG subsidiaries, as the holders of the residual interest inverse floating rate certificates, had the right to unilaterally liquidate the trust and cause the municipal bonds to be returned to AIG on short notice. Accordingly, the AIG subsidiaries did not cede control over the bonds. As a result, AIG now believes that the conclusion not to consolidate was an error in the application of GAAP. Therefore, AIG has now consolidated the trusts into its balance sheets. Because the program was discontinued in early 2003 there was no effect on the consolidated balance sheet at December 31, 2003: The consolidations had no effect on consolidated shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Net investment income		$	60			$	44
	Realized capital gains (losses)			(148	)			(47	)
	Net income			(57	)			(2	)

–

DBG/AIG Capital Corporation Intercompany Dividend: In 2002, AIG Capital Corporation issued shares of its preferred stock to National Union in exchange for shares of ILFC’s common stock. AIG did not eliminate the preferred stock investment in consolidation, instead recording the dividend as income in net investment income and as corresponding expense in other operating expenses. AIG has now determined that this accounting is a misapplication of GAAP. Accordingly, AIG has eliminated this intercompany investment and reversed the accounting entries in its consolidated statement of income. The restatement had no effect on consolidated net income or shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Net investment income		$	(100	)		$	–
	Insurance acquisition and other operating expenses			(100	)			–

•

“Top Level” Adjustments and Other Directed Entries (other than loss reserves). Certain accounting entries originated at the parent company level had the effect of reclassifying realized capital gains to net investment income, as well as adjusting other line item reclassifications and other segment financial information. In some cases, expense deferrals were increased or reserves decreased, both having the effect of increasing reported earnings. In other

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	2. Restatement of Previously Issued Financial Statements (continued)

cases, the adjustments affected revenue and expense recognition between reporting periods or among business segments. Certain of these entries were previously identified but considered not to be sufficiently material to require correction. As part of its internal review, AIG analyzed and assessed “top level” adjustments since 2000 and determined that certain entries appear to have been made at the direction of certain former members of senior management without appropriate documentation or support.

–

Foreign Life Insurance Net Investment Income Reclassification: In addition to the matters described above, certain accounting entries, now determined to be errors, had the effect of reclassifying capital gains realized from investments made to match liabilities relating to policies in Japan and Southeast Asia. Due to the limited availability of long-duration bonds or bonds with sufficient yield to meet the policyholder liability requirements in Japan and Southeast Asia, AIG subsidiaries made alternative investments, including investments in equities. Until the fourth quarter of 2003, a portion of the capital gains realized on these alternative investments, including substantial amounts related to the sale of fixed income securities, was reclassified to net investment income in the consolidated statement of income to match these revenues against the incurred policy benefit expense of the underlying policies. Amounts so reflected, which were previously identified but not corrected as they were viewed as immaterial, are treated as corrections of errors in the restated financial statements, and are as follows: $448 million and $278 million for 2003 and 2002, respectively.

Beginning in the first quarter of 2004, a process was implemented to identify only certain equity-related gains in Southeast Asia and a limited amount of fixed income and equity gains in Japan and to segregate and treat such realized capital gains separately for segment reporting purposes only. The new process and limits were applied retroactively for 2003, 2002, 2001 and 2000 as part of the restatement.

The restatement reverses all such unsupported “top level” and other directed entries, including the Foreign Life Insurance Net Investment Income Reclassification, with the following effect on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Premiums and other considerations		$	250			$	(199	)
	Net investment income			(783	)			(733	)
	Realized capital gains (losses)			559				374
	Other revenues			89				92
	Incurred policy losses and benefits			195				(337	)
	Insurance acquisition and other operating expenses			(115	)			47
	Net income			26				(112	)
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			(265	)
	Reserve for losses and loss expenses			(30	)
	Other liabilities			231
	Total shareholders’ equity			(401	)

•	Conversion of Underwriting Losses to Capital Losses. This category includes transactions and entries that had the principal effect of improperly recharacterizing underwriting losses as capital losses. This category also includes insurance and reinsurance transactions where AIG’s accounting resulted in errors relating to the timing and classification of income recognition as well as errors relating to the timing of premium recognition. The most significant transactions in this category are the following:
–	Capco: AIG has determined that a series of transactions with Capco Reinsurance Company, Ltd. (Capco), a Barbados-domiciled reinsurer, involved an improper structure created to recharacterize underwriting losses relating to auto warranty business as capital losses. That structure, which appears to have not been properly disclosed to appropriate AIG personnel or its independent auditors, consisted primarily of arrangements between subsidiaries of AIG and Capco that require Capco to be treated as a consolidated entity in AIG’s financial statements. The result of such consolidation is to reverse capital losses for the years 2000 through 2003 and recognize a corresponding amount of underwriting losses in 2000.
–	The Robert Plan: AIG has restated the accounting for surplus notes purchased as part of a litigation settlement in 2002 with The Robert Plan Corporation (The Robert Plan). Pursuant to the settlement agreement, the surplus notes were to be repaid through profits received from a managing general agency relationship with The Robert Plan. When AIG deemed that repayment under the surplus notes was unlikely, AIG recorded the impairment charge as realized capital losses rather than underwriting losses. AIG now be-

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	2. Restatement of Previously Issued Financial Statements (continued)

	lieves that this accounting treatment was an error and has restated the impairment charges as underwriting losses.
–	AIRCO Reinsurance: In each of 1999 and 2000, AIRCO entered into stop loss reinsurance agreements with Union Excess relating to accident and health business of Nan Shan. Concurrently with each reinsurance agreement, AIRCO entered into a swap agreement with Union Excess, under which the payments were linked to payments under the reinsurance agreement. The transaction had the effect of converting incurred policy losses into capital losses. AIG has determined that its prior accounting was a misapplication of GAAP and has reversed both the cessions under the reinsurance agreement and the corresponding swaps.

The effect of the restatement on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Premiums and other considerations		$	–			$	(43	)
	Realized capital gains (losses)			19				48
	Incurred policy losses and benefits			–				130
	Insurance acquisition and other operating expenses			(2	)			1
	Net income			20				(65	)
Consolidated Balance Sheet:
	Collateral and guaranteed loans, net of allowance			(55	)
	Short-term investments, at cost			–
	Other assets			(7	)
	Total shareholders’ equity			(109	)

•	Asset Realization. As a result of the internal review, AIG concluded that adjustments should be made to the value of certain assets included in its consolidated balance sheet. The most significant of these items are:
–	Domestic Brokerage Group (DBG) Issues: A review of allowances for doubtful accounts and other accruals recorded by certain DBG member companies has led AIG to conclude that the allowances related to certain premiums receivable, reinsurance recoverables and other assets were not properly analyzed in prior periods and that appropriate allowances were not properly recorded in AIG’s consolidated financial statements. Certain relevant information was known by certain members of senior management but, AIG now understands, not previously disclosed to the independent auditors. In addition, various accounts were not properly reconciled. AIG’s restated financial statements reflect the recording of appropriate amounts for these reserves and allowances for doubtful accounts for the appropriate time period, resulting in an after-tax reduction in consolidated shareholders’ equity at December 31, 1999 of $514 million. Because all of the reporting periods affected by these adjustments were prior to 2000, the restatement results in decreases in insurance acquisition and other operating expenses for the periods presented. The effect of the restatement resulting from DBG issues on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Insurance acquisition and other operating expenses		$	(224	)		$	(23	)
	Net income			146				15
Consolidated Balance Sheet:
	Premiums and insurance balances receivable, net of allowance			(918	)
	Reserve for losses and loss expenses			(509	)
	Reserve for unearned premiums			(81	)
	Total shareholders’ equity			(324	)

–

Other Than Temporary Declines: AIG’s investment accounting policies require that an investment that has been identified as impaired should be written down in the period in which such impairment is determined, and recorded as a realized capital loss. AIG has determined that realized capital losses with respect to certain impaired investments were not recorded in the appropriate periods, and the restatement will thus affect the timing of previously reported realized capital losses. The restatement resulting from other than temporary declines had only a minor effect on consolidated shareholders’ equity but affected certain of AIG’s consolidated statement of income and balance sheet accounts as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Realized capital gains (losses)		$	463			$	307
	Net income			301				200

•	Other GAAP Corrections. As part of its internal review, AIG has considered the application of certain accounting principles to specific businesses and transactions, and has determined that certain misapplications of GAAP are errors that require restatement of its financial statements. These adjustments include the following:
–	Accounting for Derivatives (FAS 133 Hedge Accounting): AIG and its subsidiaries, including AIGFP, engage in hedging activities for their own accounts, which AIG believes have been and remain economically effective. AIG

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	2. Restatement of Previously Issued Financial Statements (continued)

and its subsidiaries enter into derivative contracts principally to hedge interest rate risk and foreign currency risk associated with their assets, liabilities and forecasted cash flows. Such derivative transactions include interest rate swaps, cross currency swaps and forwards, which are generally executed through AIGFP. Statement of Financial Accounting Standards No. 133 — “Accounting for Derivative Instruments and Hedging Activities” (FAS 133) requires that third-party derivatives used for hedging must be specifically matched with the underlying exposures to an outside third party and documented contemporaneously to qualify for hedge accounting treatment. The internal review determined that in many cases AIG did not meet these hedging requirements with respect to certain hedging transactions. See Note 20 herein.

AIG has historically reported the changes in the fair value of certain derivatives used for hedging activities through other comprehensive income in consolidated shareholders’ equity or in net income with a corresponding adjustment to the hedged item, depending on the nature of the hedging relationship. In order to comply with FAS 133, the restated consolidated financial statements include the changes in fair value for certain derivatives, previously recorded through other comprehensive income, in current period income and reverse the previous adjustments on certain assets and liabilities recorded in income in connection with hedge accounting. Because these activities did not qualify for hedge accounting, Statement of Financial Accounting Standards No. 115 — “Accounting for Certain Investments in Debt and Equity Securities” requires AIG to recognize the corresponding changes in fair value, including foreign exchange gains and losses resulting from exchange rate fluctuations, relating to available-for-sale investments through accumulated other comprehensive income. These restatement adjustments with respect to FAS 133 do not result in any changes in AIG’s liquidity or its overall financial condition even though inter-period volatility of earnings increases.

AIG is assessing the cost and benefits of modifying its hedging activities to obtain hedge accounting under the requirements of FAS 133. The restatement to reflect appropriate GAAP accounting for these derivatives, which also included reclassifications between the accounts securities available for sale, at market value and securities purchased under agreements to resell, at contract value, had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Realized capital gains (losses)		$	104			$	(14	)
	Other revenues			(1,357	)			(503	)
	Net income			(783	)			(323	)
Consolidated Balance Sheet:
Financial services assets:
	Securities available for sale, at market value			8,328
	Securities purchased under agreements to resell, at contract value			(7,325	)
Financial services liabilities:
	Securities sold under agreements to repurchase, at contract value			1,003
	Unrealized loss on swaps, options and forward transactions			(610	)
	Retained earnings			(646	)
	Accumulated other comprehensive income			1,439
	Total shareholders’ equity			792

–	Accounting for Deferred Taxes: AIG identified certain misapplications of GAAP in its provision for deferred income taxes as follows:

	For certain foreign subsidiaries for which AIG has plans to permanently reinvest undistributed earnings, AIG incorrectly provided U.S. deferred taxes on the unrealized appreciation associated with investment securities in accumulated other comprehensive income.

	For certain foreign subsidiaries for which AIG does not have plans for permanent reinvestment of undistributed earnings, U.S. deferred taxes were incorrectly omitted on certain components of other comprehensive income.

	The restatement had the following effects on AIG’s consolidated net income and shareholders’ equity:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Net income		$	(23	)		$	(22	)
Consolidated Balance Sheet:
	Total shareholders’ equity			761

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	2. Restatement of Previously Issued Financial Statements (continued)

–	Foreign Currency Translation (FAS 52): FAS 52 is used to determine the timing of the recognition of income or expense resulting from foreign exchange rate changes for transactions denominated in other than a functional currency.
	AIG has determined that, in certain cases, its application of FAS 52 in its consolidated financial statements did not comply with the functional currency determination requirements of the standard. As a result, AIG has recorded accounting adjustments to reclassify currency transaction gains and losses from accumulated other comprehensive income to net income. These corrections affected consolidated net income in certain periods but had no effect on consolidated shareholders’ equity at December 31, 2004 or for prior periods.
	AIG adopted a practice in the 1990s of recording adjustments to general insurance reserves to offset increases or decreases in such reserves through other comprehensive income, net of tax, resulting from translation of reserves denominated in foreign currencies. AIG now believes that this accounting practice was a misapplication of GAAP. As a result of this adjustment, general insurance reserves denominated in foreign currencies have been restated to restore the translation effect to reserve for losses and loss expenses.

Together, these restatements had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Realized capital gains (losses)		$	(193	)		$	(52	)
	Net income			(193	)			(53	)
Consolidated Balance Sheet:
	Other assets			143
	Reserve for losses and loss expenses			(407	)
	Total shareholders’ equity			358

–	Life Settlements. Life settlements are designed to assist life insurance policyholders to monetize the existing value of life insurance policies. AIG, through an insurance subsidiary and non-consolidated trusts, which are deemed to be a qualifying special purpose entity and a VIE, engages in this business. The non-consolidated trusts purchase life insurance policies from policyholders at an initial price and pay additional premiums to keep the policies in force until the insured dies. AIG’s proportionate share of the net death benefits from the purchased contracts, net of reinsurance to a third party reinsurer, was recorded as premium. The costs incurred by the trusts to acquire the contracts and keep them in force were recorded as paid losses by AIG, net of reinsurance. AIG’s accounting resulted in upfront gain recognition of expected profits and premium recognition for amounts loaned to the trusts by other AIG subsidiaries.
	AIG has determined, in light of new information which was not available to management or AIG’s independent auditors at the time the initial accounting determination was made, that the accounting for these transactions as insurance and reinsurance is a misapplication of GAAP that should be corrected through restatement. This restatement results in life settlements being accounted for using an investment method of accounting under FASB Technical Bulletin (FTB) 85-4 “Accounting for Purchases of Life Insurance.” Under FTB 85-4, the carrying value of each contract at purchase and at the end of each reporting period is equal to the cash surrender value of the contract. Cash paid to purchase these contracts that is in excess of the cash surrender value at the date of purchase is recognized as a loss immediately and periodic maintenance costs, such as premiums necessary to keep the underlying contract in force, are charged to earnings immediately. The life insurance benefits at the insured’s death are payable to the AIG subsidiary and reflected in income at that time. The effect of the restatement on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Premiums and other considerations		$	(809	)		$	(603	)
	Net investment income			(143	)			(114	)
	Incurred policy losses and benefits			(743	)			(552	)
	Net income			(136	)			(107	)
Consolidated Balance Sheet:
	Other invested assets			(253	)
	Premiums and insurance balances receivable, net of allowance			(1,842	)
	Other assets			219
	Reserve for losses and loss adjustment expenses			(1,026	)
	Funds held by companies under reinsurance treaties			(601	)
	Total shareholders’ equity			(270	)

–	Deferred Acquisition Costs (DAC): The internal review identified a misapplication of GAAP with respect to General Insurance DAC. As a result of “top level” entries, substantially all costs associated with underwriting and marketing operations were deferred. The internal review determined

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	2. Restatement of Previously Issued Financial Statements (continued)

that certain of these costs did not vary sufficiently with the production of business and should not have been deferred. These costs have been allocated to the periods in which they were incurred and the corresponding DAC asset has been adjusted accordingly. In addition, AIG determined that the amortization period for certain DAC was longer than the typical life of the underlying policies and needed to be shortened, and that certain deferrals associated with an inter-company reinsurance treaty were in error and required correction. This adjustment includes the recharacterization of certain incurred policy losses and benefits to Insurance acquisition and other operating expenses. The effect of the restatement on certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Incurred policy losses and benefits		$	(231	)		$	(188	)
	Insurance acquisition and other operating expenses			287				285
	Net income			2				(12	)
Consolidated Balance Sheet:
	Deferred policy acquisition costs			(432	)
	Other assets			(94	)
	Total shareholders’ equity			(311	)

–

SICO Deferred Compensation: AIG has included in this restatement, expense amounts attributable to deferred compensation granted to certain AIG employees by SICO (pursuant to the SICO Plans described in Note 16 herein), a private holding company that owns approximately 12 percent of AIG’s common stock. The amount of deferred compensation granted by SICO has previously been disclosed in the notes to AIG’s consolidated financial statements but was not included as an expense in the calculation of AIG’s consolidated net income because the amounts had been determined not to be material to AIG’s consolidated results of operations in any individual period. The expense related to SICO deferred compensation is recorded as a charge to reported earnings in the periods restated, with an offsetting entry to additional paid-in capital reflecting amounts deemed contributed by SICO. For prior periods, AIG has recorded a reduction of $905 million in retained earnings on its December 31, 1999 consolidated balance sheet and a corresponding increase to additional paid-in capital. The volatility in the expense is attributable to the variable accounting as well as the fact that shares are allocated only in alternate years. The inclusion of the expense attributable to the SICO Plans in AIG’s consolidated financial statements had no effect on consolidated shareholders’ equity but had the following effects on certain of AIG’s consolidated statement of income accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Insurance acquisition and other operating expenses		$	275			$	(173	)
	Net income			(275	)			173

–

Commutations: Certain direct insurance, and ceded and assumed reinsurance contracts, were commuted prior to their natural expiration. For certain commutations, the cash received was recorded through negative paid losses in accordance with statutory guidance, while for others it was recorded as written premiums. Despite the lack of guidance under GAAP with respect to this issue, AIG has determined that the accounting for certain commutations was in error due to the inconsistency in AIG’s accounting for commutations and the fact that certain commutations were recorded through the written premium line when there was no unearned premium balance outstanding. As part of this restatement any commutations that were originally recorded through written premium are reclassified to paid losses in the period in which they occurred. The restatement has no effect on consolidated net income or shareholders’ equity but affected certain of AIG’s consolidated statement of income and balance sheet accounts is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Premiums and other considerations		$	(405	)		$	(79	)
	Incurred policy losses and benefits			(405	)			(79	)
Consolidated Balance Sheet:
	Reserves for losses and loss expenses			58
	Insurance balances payable			(51	)

–

Dollar Roll Transactions: In 2002 and 2003, certain AIG subsidiaries entered into dollar roll transactions with third parties designed to enhance the return on AIG’s mortgage backed securities (MBS) portfolio. In a dollar roll transaction, AIG subsidiaries agree to sell a pool of MBSs and simultaneously agree to repurchase substantially the same securities at a later date, typically in one month. AIG accounted for these transactions as collateralized financings under SFAS 140. Even though it had received collateral sufficient to fund substantially all of the cost of purchasing identical replacement securities at the time of transfer, AIG was not fully protected during the term of the contract to

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	2. Restatement of Previously Issued Financial Statements (continued)

replace the asset in the event that the transferee defaulted. Accordingly, AIG should not have accounted for these transactions as financings, but rather as derivatives with mark-to-market changes reflected in earnings. The effect of the restatement on certain of AIG’s consolidated statement of income is as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Realized capital gains (losses)		$	(98	)		$	157
	Net income			(98	)			157

–

Affordable Housing: Through an investment limited partnership, an AIG subsidiary, as the general partner, syndicates the tax benefits (including both tax credits and tax losses) generated by affordable housing real estate properties. AIG guarantees the return of the tax benefits to the limited partner investors. Prior to the second quarter of 2003, these syndication transactions were accounted for as sales and the gain was recorded on a straight-line basis over ten years. Beginning in the third quarter of 2003, because of the guarantees, AIG changed its accounting for these partnerships to record all new syndications as financings, rather than sales. At the same time, AIG adjusted its consolidated balance sheet to reflect previous syndications as financings, but did not record the cumulative impact to earnings because the amounts were viewed as immaterial. AIG has now determined that it is necessary to record these adjustments for the periods prior to the third quarter of 2003, and the restatement had the following effects on certain of AIG’s consolidated statement of income and balance sheet accounts:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Other revenues		$	(44	)		$	(43	)
	Net income			(28	)			(28	)
Consolidated Balance Sheet:
	Other invested assets			1,652
	Investment income due and accrued			(254	)
	Other assets			(2,009	)
	Other liabilities			(154	)
	Total shareholders’ equity			(297	)

–

SunAmerica Partnerships: As part of the restatement, management has reclassified the earnings of the SunAmerica partnerships out of other operations, where previously reported, into the Asset Management segment. This revised presentation characterizes the partnership earnings as revenues rather than as a component of insurance acquisition and operating expenses in AIG’s consolidated statement of income. Within the Asset Management segment, this presentation divides the partnership earnings into those of SunAmerica Life, whose equity supports the GIC business, and those of AIG SunAmerica, which are now classified as other asset management revenues. The restatement has no effect on consolidated net income and the effect of the restatement on certain of AIG’s consolidated statement of income accounts is set forth as follows:

Increase (Decrease) For Years Ended and at December 31,
(in millions)			2003				2002
Consolidated Statement of Income:
	Other revenues		$	323			$	243
	Insurance acquisition and other operating expenses			353				247

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	2. Restatement of Previously Issued Financial Statements (continued)

The following tables summarize the effect on major balance sheet and statement of income accounts of the adjustments included in the restatement by transaction, accounting entry or entity category.

CONSOLIDATED BALANCE SHEET ACCOUNTS

Total Assets

(in millions)					December 31, 2003
Total Assets, as Previously Reported					$	678,346
Adjustments:
	Risk Transfer:
		Union Excess				(1,343	)
		Other Risk Transfer				(456	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(413	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(872	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				1,985
		Accounting for Deferred Taxes				(603	)
		Life Settlements				(1,895	)
		Deferred Acquisition Costs (DAC)				(495	)
		Affordable Housing				(611	)
	All Other — Net					510
			Total Adjustments			(4,193	)
Total Assets, as Restated					$	674,153

Other Invested Assets

(in millions)					December 31, 2003
Other Invested Assets, as Previously Reported					$	16,787
Adjustments:
	Other GAAP Corrections:
		Life Settlements				(253	)
		Affordable Housing				1,652
	All Other — Net					298
			Total Adjustments			1,697
Other Invested Assets, as Restated					$	18,484

Premiums and Insurance Balances Receivable, Net of Allowance

(in millions)					December 31, 2003
Premium and Insurance Balances Receivable, Net of Allowance, as Previously Reported					$	14,166
Adjustments:
	Risk Transfer:
		Union Excess				1,923
		Other Risk Transfer				(389	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(265	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(918	)
	Other GAAP Corrections:
		Life Settlements				(1,842	)
	All Other — Net					514
			Total Adjustments			(977	)
Premium and Insurance Balances Receivable, Net of Allowance, as Restated					$	13,189

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Reinsurance Assets

(in millions)					December 31, 2003
Reinsurance Assets, as Previously Reported					$	27,962
Adjustments:
	Risk Transfer:
		Union Excess				(5,815	)
		Other Risk Transfer				(1,185	)
	All Other — Net					(14	)
			Total Adjustments			(7,014	)
Reinsurance Assets, as Restated					$	20,948

Other Assets

(in millions)					December 31, 2003
Other Assets, as Previously Reported					$	12,820
Adjustments:
	Risk Transfer:
		Union Excess				2,549
		Other Risk Transfer				1,126
	Conversion of Underwriting Losses to Capital Losses					(7	)
	Other GAAP Corrections:
		Life Settlements				219
		Deferred Acquisition Costs (DAC)				(94	)
		Affordable Housing				(2,009	)
	All Other – Net					(414	)
			Total Adjustments			1,370
Other Assets, as Restated					$	14,190

Total Liabilities

(in millions)					December 31, 2003
Total Liabilities, as Previously Reported					$	606,901
Adjustments:
	Risk Transfer:
		Other Risk Transfer				(406	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(548	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				1,195
		Accounting for Deferred Taxes				(1,364	)
		Life Settlements				(1,626	)
		Affordable Housing				(314	)
	All Other — Net					93
			Total Adjustments			(2,970	)
Total Liabilities, as Restated					$	603,931

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Reserve for Losses and Loss Expenses

(in millions)					December 31, 2003
Reserve for Losses and Loss Expenses, as Previously Reported					$	56,118
Adjustments:
	Risk Transfer:
		Gen Re				(500	)
		Other Risk Transfer				(1,609	)
	Loss Reserves					578
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(30	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(509	)
	Other GAAP Corrections:
		Foreign Currency Translation (FAS 52)				(407	)
		Life Settlements				(1,026	)
	All Other — Net					(234	)
			Total Adjustments			(3,737	)
Reserve for Losses and Loss Expenses, as Restated					$	52,381

Reserve for Unearned Premiums

(in millions)					December 31, 2003
Reserve for Unearned Premiums, as Previously Reported					$	20,762
Adjustments:
	Risk Transfer:
		Other Risk Transfer				112
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(81	)
	All Other — Net					117
			Total Adjustments			148
Reserve for Unearned Premiums, as Restated					$	20,910

Funds Held by Companies Under Reinsurance Treaties

(in millions)					December 31, 2003
Funds Held by Companies Under Reinsurance Treaties, as Previously Reported					$	4,664
Adjustments:
	Risk Transfer:
		Other Risk Transfer				(1,019	)
	Other GAAP Corrections:
		Life Settlements				(601	)
	All Other — Net					(1	)
			Total Adjustments			(1,621	)
Funds Held by Companies Under Reinsurance Treaties, as Restated					$	3,043

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Other Liabilities

(in millions)					December 31, 2003
Other Liabilities, as Previously Reported					$	18,282
Adjustments:
	Risk Transfer:
		Gen Re				500
		Other Risk Transfer				2,114
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					231
	Other GAAP Corrections:
		Affordable Housing				(154	)
	All Other — Net					218
			Total Adjustments			2,909
Other Liabilities, as Restated					$	21,191

Total Shareholders’ Equity

(in millions)					December 31, 2003
Total Shareholders’ Equity, as Previously Reported					$	71,253
Adjustments:
	Risk Transfer:
		Union Excess				(873	)
	Loss Reserves					(375	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(401	)
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(324	)
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				792
		Accounting for Deferred Taxes				761
		Life Settlements				(270	)
		Affordable Housing				(297	)
	All Other — Net					(236	)
			Total Adjustments			(1,223	)
Total Shareholders’ Equity, as Restated					$	70,030

Accumulated Other Comprehensive Income (Loss)

(in millions)					December 31, 2003
Accumulated Other Comprehensive Income (Loss), as Previously Reported					$	4,244
Adjustments:
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				1,439
		Accounting for Deferred Taxes				805
		Foreign Currency Translation (FAS 52)				408
	All Other — Net					348
			Total Adjustments			3,000
Accumulated Other Comprehensive Income (Loss), as Restated					$	7,244

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	2. Restatement of Previously Issued Financial Statements (continued)

CONSOLIDATED STATEMENT OF INCOME ACCOUNTS

Net Income

Years Ended December 31,
(in millions)					2003				2002
Net Income, as Previously Reported					$	9,274			$	5,519
Adjustments:
	Risk Transfer:
		Union Excess				160				180
	Loss Reserves					(222	)			228
	Net Investment Income:
		Covered Calls				(40	)			35
		Hedge Fund Accounting				19				120
		Muni Tender Option Bond Program				(57	)			(2	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					26				(112	)
	Conversion of Underwriting Losses to Capital Losses					20				(65	)
	Asset Realization:
		Other Than Temporary Declines				301				200
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				(783	)			(323	)
		Accounting for Deferred Taxes				(23	)			(22	)
		Foreign Currency Translation (FAS 52)				(193	)			(53	)
		Life Settlements				(136	)			(107	)
		SICO Deferred Compensation				(275	)			173
	All Other — Net					(62	)			95
			Total Adjustments			(1,265	)			347
Net Income, as Restated					$	8,009			$	5,866

Premiums and Other Considerations

Years Ended December 31,
(in millions)					2003				2002
Premiums and Other Considerations, as Previously Reported					$	55,226			$	45,135
Adjustments:
	Risk Transfer:
		Union Excess				439				673
		Other Risk Transfer				33				(856	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					250				(199	)
	Other GAAP Corrections:
		Life Settlements				(809	)			(603	)
		Commutations				(405	)			(79	)
	All Other – Net					146				188
			Total Adjustments			(346	)			(876	)
Premiums and Other Considerations, as Restated					$	54,880			$	44,259

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	2. Restatement of Previously Issued Financial Statements (continued)

Net Investment Income

Years Ended December 31,
(in millions)					2003				2002
Net Investment Income, as Previously Reported					$	16,596			$	14,714
Adjustments:
	Risk Transfer:
		Union Excess				304				233
	Net Investment Income:
		Covered Calls				(179	)			(7	)
		Synthetic Fuel Investment				(238	)			(259	)
		Hedge Fund Accounting				29				159
		Muni Tender Option Bond Program				60				44
		DBG/AIG Capital Corporation Intercompany Dividend				(100	)			–
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(783	)			(733	)
	Other GAAP Corrections:
		Life Settlements				(143	)			(114	)
	All Other — Net					(78	)			(316	)
			Total Adjustments			(1,128	)			(993	)
Net Investment Income, as Restated					$	15,468			$	13,721

Realized Capital Gains (Losses)

Years Ended December 31,
(in millions)					2003				2002
Realized Capital Gains (Losses), as Previously Reported					$	(1,433	)		$	(2,441	)
Adjustments:
	Risk Transfer:
		Union Excess				(17	)			105
	Net Investment Income:
		Covered Calls				118				61
		Muni Tender Option Bond Program				(148	)			(47	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					559				374
	Conversion of Underwriting Losses to Capital Losses					19				48
	Asset Realization:
		Other Than Temporary Declines				463				307
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				104				(14	)
		Foreign Currency Translation (FAS 52)				(193	)			(52	)
		Dollar Roll Transactions				(98	)			157
	All Other — Net					6				204
			Total Adjustments			813				1,143
Realized Capital Gains (Losses), as Restated					$	(620	)		$	(1,298	)

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	2. Restatement of Previously Issued Financial Statements (continued)

Other Revenues

Years Ended December 31,
(in millions)					2003				2002
Other Revenues, as Previously Reported					$	10,914			$	10,074
Adjustments:
	Net Investment Income:
		Synthetic Fuel Investment				(200	)			(165	)
		Hedge Fund Accounting				–				26
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					89				92
	Other GAAP Corrections:
		Accounting for Derivatives (FAS 133 Hedge Accounting)				(1,357	)			(503	)
		SunAmerica Partnerships				323				243
	All Other — Net					(51	)			11
			Total Adjustments			(1,196	)			(296	)
Other Revenues, as Restated					$	9,718			$	9,778

Incurred Policy Losses and Benefits

Years Ended December 31,
(in millions)					2003				2002
Incurred Policy Losses and Benefits, as Previously Reported					$	46,390			$	41,402
Adjustments:
	Risk Transfer:
		Union Excess				433				683
		Other Risk Transfer				53				(862	)
	Loss Reserves					342				(351	)
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					195				(337	)
	Other GAAP Corrections:
		Life Settlements				(743	)			(552	)
		Deferred Acquisition Costs (DAC)				(231	)			(188	)
		Commutations				(405	)			(79	)
	All Other — Net					111				271
			Total Adjustments			(245	)			(1,415	)
Incurred Policy Losses and Benefits, as Restated					$	46,145			$	39,987

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	2. Restatement of Previously Issued Financial Statements (continued)

Insurance Acquisition and Other Operating Expenses

Years Ended December 31,
(in millions)					2003				2002
Insurance Acquisition and Other Operating Expenses, as Previously Reported					$	21,005			$	17,938
Adjustments:
	Risk Transfer:
		Union Excess				48				52
		Other Risk Transfer				(62	)			(35	)
	Net Investment Income:
		DBG/AIG Capital Corporation Intercompany Dividend				(100	)			–
	“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					(115	)			47
	Asset Realization:
		Domestic Brokerage Group (DBG) Issues				(224	)			(23	)
	Other GAAP Corrections:
		Deferred Acquisition Costs (DAC)				287				285
		SICO Deferred Compensation				275				(173	)
		SunAmerica Partnerships				353				247
	All Other — Net					179				153
			Total Adjustments			641				553
Insurance Acquisition and Other Operating Expenses, as Restated					$	21,646			$	18,491

Income Taxes (Current and Deferred)

Years Ended December 31,
(in millions)					2003				2002
Income Taxes (Current and Deferred), as Previously Reported					$	4,264			$	2,328
Adjustments:
	Net Investment Income:
		Synthetic Fuel Investment				(438	)			(424	)
	All Other — Net					(423	)			52
			Total Adjustments			(861	)			(372	)
Income Taxes (Current and Deferred), as Restated					$	3,403			$	1,956

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	2. Restatement of Previously Issued Financial Statements (continued)

The following table presents the effect of the aforementioned adjustments on the Consolidated Balance Sheet, including the percentage of increase (decrease) as a result of the restatement by line item:

CONSOLIDATED BALANCE SHEET
December 31, 2003

					Previously								As				Percent
(in millions)					Reported				Adjustments				Restated				Change
Assets:
	Investments, financial services assets and cash:
		Fixed maturities:
			Bonds available for sale, at market value (amortized cost: $287,810)		$	300,935			$	—			$	300,935				—	%
			Bonds held to maturity, at amortized cost (market value: $8,173)			8,037				—				8,037				—
			Bond trading securities, at market value (cost: $252)			282				—				282				—
		Equity securities:
			Common stocks, at market value (cost: $6,759)			7,522				—				7,522				—
			Common stocks trading, at market value (cost: $125)			156				—				156				—
			Preferred stocks, at market value (cost: $1,743)			1,906				—				1,906				—
		Mortgage loans on real estate, net of allowance ($68)				12,295				33				12,328				0.3
		Policy loans				6,658				—				6,658				—
		Collateral and guaranteed loans, net of allowance ($15)				2,296				(55	)			2,241				(2.4	)
		Financial services assets:
			Flight equipment primarily under operating leases, net of accumulated depreciation ($5,458)			30,343				—				30,343				—
			Securities available for sale, at market value (cost: $22,587)			15,714				8,328				24,042				53.0
			Trading securities, at market value			3,300				1,118				4,418				33.9
			Spot commodities, at market value			250				—				250				—
			Unrealized gain on swaps, options and forward transactions			21,599				(140	)			21,459				(0.6	)
			Trading assets			2,548				(271	)			2,277				(10.6	)
			Securities purchased under agreements to resell, at contract value			28,170				(7,325	)			20,845				(26.0	)
			Finance receivables, net of allowance ($562)			17,609				(109	)			17,500				(0.6	)
		Securities lending collateral, at cost (approximates market value)				30,195				—				30,195				—
		Other invested assets				16,787				1,697				18,484				10.1
		Short-term investments, at cost (approximates market value)				8,914				(6	)			8,908				(0.1	)
		Cash				922				—				922				—
		Total investments, financial services assets and cash				516,438				3,270				519,708				0.6
	Investment income due and accrued					4,959				(347	)			4,612				(7.0	)
	Premiums and insurance balances receivable, net of allowance ($235)					14,166				(977	)			13,189				(6.9	)
	Reinsurance assets					27,962				(7,014	)			20,948				(25.1	)
	Deferred policy acquisition costs					26,398				(478	)			25,920				(1.8	)
	Investments in partially-owned companies					1,428				(8	)			1,420				(0.6	)
	Real estate and other fixed assets, net of accumulated depreciation ($4,282)					6,006				(40	)			5,966				(0.7	)
	Separate and variable accounts					60,536				—				60,536				—
	Goodwill					7,633				31				7,664				0.4
	Other assets					12,820				1,370				14,190				10.7
Total assets					$	678,346			$	(4,193	)		$	674,153				(0.6	)%

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	2. Restatement of Previously Issued Financial Statements (continued)

CONSOLIDATED BALANCE SHEET (continued)
December 31, 2003

					Previously								As				Percent
(in millions)					Reported				Adjustments				Restated				Change
Liabilities:
	Reserve for losses and loss expenses				$	56,118			$	(3,737	)		$	52,381				(6.7	)%
	Reserve for unearned premiums					20,762				148				20,910				0.7
	Future policy benefits for life and accident and health insurance contracts					92,970				(58	)			92,912				(0.1	)
	Policyholders’ contract deposits					171,989				(72	)			171,917				–
	Other policyholders’ funds					9,100				24				9,124				0.3
	Reserve for commissions, expenses and taxes					4,487				101				4,588				2.3
	Insurance balances payable					2,592				323				2,915				12.5
	Funds held by companies under reinsurance treaties					4,664				(1,621	)			3,043				(34.8	)
	Income taxes payable:
			Current			1,977				(1,611	)			366				(81.5	)
			Deferred			5,778				(1,145	)			4,633				(19.8	)
	Financial services liabilities:
		Borrowings under obligations of guaranteed investment agreements				15,337				–				15,337				–
		Securities sold under agreements to repurchase, at contract value				14,810				1,003				15,813				6.8
		Trading liabilities				6,153				–				6,153				–
		Securities and spot commodities sold but not yet purchased, at market value				5,458				–				5,458				–
		Unrealized loss on swaps, options and forward transactions				15,268				(610	)			14,658				(4.0	)
		Trust deposits and deposits due to banks and other depositors				3,491				136				3,627				3.9
		Commercial paper				4,715				–				4,715				–
		Notes, bonds, loans and mortgages payable				50,138				1,251				51,389				2.5
	Commercial paper					1,223				–				1,223				–
	Notes, bonds, loans and mortgages payable					5,865				(2	)			5,863				–
	Liabilities connected to trust preferred stock					1,682				–				1,682				–
	Separate and variable accounts					60,536				–				60,536				–
	Minority interest					3,311				(9	)			3,302				(0.3	)
	Securities lending payable					30,195				–				30,195				–
	Other liabilities					18,282				2,909				21,191				15.9
Total liabilities						606,901				(2,970	)			603,931				(0.5	)
Preferred shareholders’ equity in subsidiary companies						192				–				192				–
Shareholders’ equity:
	Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued – 2,751,327,476					6,878				–				6,878				–
	Additional paid-in capital					568				1,345				1,913				236.8
	Retained earnings					60,960				(5,568	)			55,392				(9.1	)
	Accumulated other comprehensive income (loss)					4,244				3,000				7,244				70.7
	Treasury stock, at cost – 142,880,430 shares of common stock (including 119,250,750 shares held by subsidiaries)					(1,397	)			–				(1,397	)			–
Total shareholders’ equity						71,253				(1,223	)			70,030				(1.7	)
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity					$	678,346			$	(4,193	)		$	674,153				(0.6	)%

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	2. Restatement of Previously Issued Financial Statements (continued)

The following table presents the effect of the aforementioned adjustments on the Consolidated Statement of Income, including the percentage of increase (decrease) as a result of the restatement by line item:

CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2003

				Previously								As				Percent
(in millions, except per share amounts)				Reported				Adjustments				Restated				Change
Revenues:
	Premiums and other considerations			$	55,226			$	(346	)		$	54,880				(0.6	)%
	Net investment income				16,596				(1,128	)			15,468				(6.8	)
	Realized capital gains (losses)				(1,433	)			813				(620	)			–
	Other revenues				10,914				(1,196	)			9,718				(11.0	)
	Total revenues				81,303				(1,857	)			79,446				(2.3	)
Benefits and expenses:
	Incurred policy losses and benefits				46,390				(245	)			46,145				(0.5	)
	Insurance acquisition and other operating expenses				21,005				641				21,646				3.1
	Total benefits and expenses				67,395				396				67,791				0.6
Income before income taxes, minority interest and cumulative effect of accounting changes					13,908				(2,253	)			11,655				(16.2	)
Income Taxes:
		Current			3,407				(621	)			2,786				(18.2	)
		Deferred			857				(240	)			617				(28.0	)
					4,264				(861	)			3,403				(20.2	)
Income before minority interest and cumulative effect of accounting changes					9,644				(1,392	)			8,252				(14.4	)
Minority interest					(379	)			127				(252	)			–
Income before cumulative effect of accounting changes					9,265				(1,265	)			8,000				(13.7	)
Cumulative effect of accounting changes, net of tax					9				–				9				–
Net Income				$	9,274			$	(1,265	)		$	8,009				(13.6	)%
Earnings per common share:
	Basic
		Income before cumulative effect of accounting changes		$	3.55			$	(0.48	)		$	3.07				(13.5	)%
		Cumulative effect of accounting changes, net of tax			–				–				–				–
		Net Income			3.55				(0.48	)			3.07				(13.5	)
	Diluted
		Income before cumulative effect of accounting changes		$	3.52			$	(0.48	)		$	3.04				(13.6	)%
		Cumulative effect of accounting changes, net of tax			–				–				–				–
		Net Income			3.52				(0.48	)			3.04				(13.6	)
	Average shares outstanding:
		Basic			2,610								2,610
		Diluted			2,637								2,637

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	2. Restatement of Previously Issued Financial Statements (continued)

The following table presents the effect of the aforementioned adjustments on the Consolidated Statement of Income, including the percentage of increase (decrease) as a result of the restatement by line item:

CONSOLIDATED STATEMENT OF INCOME
Year Ended December 31, 2002

				Previously								As				Percent
(in millions, except per share amounts)				Reported				Adjustments				Restated				Change
Revenues:
	Premiums and other considerations			$	45,135			$	(876	)		$	44,259				(1.9	)%
	Net investment income				14,714				(993	)			13,721				(6.7	)
	Realized capital gains (losses)				(2,441	)			1,143				(1,298	)			–
	Other revenues				10,074				(296	)			9,778				(2.9	)
	Total revenues				67,482				(1,022	)			66,460				(1.5	)
Benefits and expenses:
	Incurred policy losses and benefits				41,402				(1,415	)			39,987				(3.4	)
	Insurance acquisition and other operating expenses				17,938				553				18,491				3.1
	Total benefits and expenses				59,340				(862	)			58,478				(1.5	)
Income before income taxes, minority interest and cumulative effect of accounting changes					8,142				(160	)			7,982				(2.0	)
Income Taxes:
		Current			1,972				(290	)			1,682				(14.7	)
		Deferred			356				(82	)			274				(23.0	)
					2,328				(372	)			1,956				(16.0	)
Income before minority interest and cumulative effect of accounting changes					5,814				212				6,026				3.6
Minority interest					(295	)			135				(160	)			–
Income before cumulative effect of accounting changes					5,519				347				5,866				6.3
Cumulative effect of accounting changes, net of tax					–				–				–				–
Net Income				$	5,519			$	347			$	5,866				6.3	%
Earnings per common share:
	Basic
		Income before cumulative effect of accounting changes		$	2.11			$	0.14			$	2.25				6.6	%
		Cumulative effect of accounting changes, net of tax			–				–				–				–
		Net Income			2.11				0.14				2.25				6.6
	Diluted
		Income before cumulative effect of accounting changes		$	2.09			$	0.13			$	2.22				6.2	%
		Cumulative effect of accounting changes, net of tax			–				–				–				–
		Net Income			2.09				0.13				2.22				6.2
	Average shares outstanding:
		Basic			2,612								2,612
		Diluted			2,643								2,643

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	2. Restatement of Previously Issued Financial Statements (continued)

The following table presents the effect of the aforementioned adjustments on the summary of Consolidated Statement of Cash Flows, including the percentage of increase (decrease) as a result of the restatement by line item.

SUMMARY OF CONSOLIDATED STATEMENT OF CASH FLOWS

Year Ended December 31, 2003		Previously												Percent
(in millions)		Reported				Adjustments				As Restated				Change
Net cash provided by operating activities			$36,155			$	(3,057	)			$33,098				(8.5	)%
Net cash used in investing activities			(61,119	)			1,701				(59,418	)			(2.8	)
Net cash provided by financing activities			24,167				1,163				25,330				4.8
Change in cumulative translation adjustments			554				193				747				34.8
Change in cash			(243	)			–				(243	)			–
Cash at beginning of year			1,165				–				1,165				–
Cash at end of year			$922			$	–				$922				–	%

Year Ended December 31, 2002		Previously												Percent
(in millions)		Reported				Adjustments				As Restated				Change
Net cash provided by operating activities		$	19,093			$	(885	)		$	18,208				(4.6	)%
Net cash used in investing activities			(46,598	)			(364	)			(46,962	)			0.8
Net cash provided by financing activities			28,377				875				29,252				3.1
Change in cumulative translation adjustments			(405	)			374				(31	)			(92.3	)
Change in cash			467				–				467				–
Cash at beginning of year			698				–				698				–
Cash at end of year		$	1,165			$	–			$	1,165				–	%

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	3. Segment Information

In 2003 and prior years, AIG’s operations were conducted by its subsidiaries principally through four operating segments: General Insurance, Life Insurance, Financial Services and Retirement Services & Asset Management. Beginning with the first quarter of 2004, AIG reports Retirement Services results in the same segment as Life Insurance, reflecting the convergence of protective financial and retirement products and AIG’s current management of these operations. Information for years prior to 2004 included herein has been reclassified to show AIG’s results of operations and financial position on a comparable basis with the 2004 presentation. These segments and their respective operations are as follows:

     General Insurance: AIG’s General Insurance subsidiaries are multiple line companies writing substantially all lines of property and casualty insurance. AIG’s principal General Insurance operations are as follows:

     DBG writes substantially all classes of business insurance in the U.S. and Canada, accepting such business mainly from insurance brokers.

     Transatlantic subsidiaries offer reinsurance capacity on both a treaty and facultative basis. Transatlantic structures programs for a full range of property and casualty products with an emphasis on specialty risks.

     AIG’s personal lines operations engage in the mass marketing of personal lines insurance, primarily private passenger auto and personal umbrella coverages.

     Mortgage Guaranty operations provide guaranty insurance primarily on conventional first mortgage loans on single family dwellings and condominiums.

     AIG’s Foreign General Insurance group accepts risks primarily underwritten through AIU, a marketing unit consisting of wholly owned agencies and insurance companies. The Foreign General Insurance group also includes business written by AIG’s foreign-based insurance subsidiaries. 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 Asia, the Pacific Rim, the United Kingdom, Europe, Africa, the Middle East and Latin America.

     Life Insurance & Retirement Services: AIG’s Life Insurance & Retirement Services subsidiaries offer a wide range of insurance and investment-oriented products both domestically and abroad. Insurance-oriented products consist generally of individual and group life, payout annuities, endowments and accident and health policies. Investment-oriented products consist of fixed and variable annuities.

     AIG’s principal overseas Life Insurance & Retirement Services operations are ALICO, AIA, Nan Shan, Philamlife, AIG Edison Life and AIG Star Life.

     AIG’s principal domestic Life Insurance & Retirement Services operations are AG Life, USLIFE, AGLA, AIG Annuity, VALIC and AIG SunAmerica.

     AIRCO acts as an internal reinsurance company for AIG’s foreign life operations.

     Financial Services: AIG’s Financial Services subsidiaries engage in diversified financial products and services including aircraft leasing, capital market transactions, and consumer and insurance premium financing.

     Aircraft Finance operations represent the operations of ILFC, which 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.

     Capital Markets represents the operations of AIGFP, which engages in a wide variety of financial transactions, including standard and customized interest rate, currency, equity, commodity and credit products and structured borrowings through notes, bonds and guaranteed investment agreements. AIGFP also engages in various commodity and foreign exchange trading, and market-making activities.

     Consumer Finance operations include AGF as well as AIGCFG. AGF and AIGCFG provide a wide variety of consumer finance products, including real estate mortgages, consumer loans, retail sales finance and credit-related insurance to customers both domestically and overseas, particularly in emerging markets.

     Asset Management: AIG’s Asset Management operations comprise a wide variety of investment-related services and investment products including mutual funds management, investment asset management and AIG’s spread-based investment business from the sale of GICs, also known as funding agreements. Such products and services are offered to individuals and institutions both domestically and overseas.

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	3. Segment Information (continued)

(a) The following table summarizes the operations by major operating segment for the years ended December 31, 2004, 2003 and 2002:

		Operating Segments
						Life
						Insurance																Total				Reclassifications
		General				& Retirement				Financial				Asset								Reportable				and
(in millions)		Insurance				Services				Services				Management				Other(a)				Segments				Eliminations				Consolidated
2004
Revenues(b)		$	41,897			$	43,386			$	7,982			$	4,692			$	30			$	97,987			$	–			$	97,987
Interest expense			9				63				4,202				8				192				4,474				–				4,474
Operating income (loss) before minority interest			3,237	(c)			7,924				2,613				1,790				(614	)			14,950				–				14,950
Income taxes (benefits)			624				2,598				809				638				(49	)			4,620				–				4,620
Depreciation expense			251				262				1,366				19				137				2,035				–				2,035
Capital expenditures			350				480				5,189				11				207				6,237				–				6,237
Identifiable assets			131,513				447,896				163,287				80,075				80,203				902,974				(104,314	)			798,660
2003 (Restated)
Revenues(b)		$	33,852			$	36,253			$	6,341			$	3,643			$	(643	)		$	79,446			$	–			$	79,446
Interest expense			4				68				3,813				8				194				4,087				–				4,087
Operating income (loss) before minority interest			4,539				6,353				1,234				1,078				(1,549	)			11,655				–				11,655
Income taxes (benefits)			1,169				1,969				301				381				(417	)			3,403				–				3,403
Depreciation expense			204				244				1,261				15				137				1,861				–				1,861
Capital expenditures			284				483				5,934				19				239				6,959				–				6,959
Identifiable assets			117,156				372,175				140,078				64,047				70,434				763,890				(89,737	)			674,153
2002 (Restated)
Revenues(b)		$	25,627			$	31,564			$	6,604			$	3,485			$	(820	)		$	66,460			$	–			$	66,460
Interest expense			–				76				3,312				11				215				3,614				–				3,614
Operating income (loss) before minority interest			1,038	(d)			5,183				1,870				1,006				(1,115	)			7,982				–				7,982
Income taxes (benefits)			16				1,533				558				424				(575	)			1,956				–				1,956
Depreciation expense			192				239				1,097				13				145				1,686				–				1,686
Capital expenditures			323				725				5,395				59				150				6,652				–				6,652
Identifiable assets			105,929				289,966				127,615				53,732				59,503				636,745				(75,189	)			561,556

(a)	Includes AIG Parent and other operations which are not required to be reported separately.
(b)	Represents the sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income with respect to guaranteed investment contracts, and realized capital gains (losses).

(c)	Includes charge of $850 million in fourth quarter 2004 attributable to change in estimate for asbestos and environmental reserves.

(d)	Includes loss reserve charge of $2.1 billion.

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	3. Segment Information (continued)

(b) The following table summarizes AIG’s General Insurance operations by major internal reporting unit for the years ended December 31, 2004, 2003 and 2002:

		General Insurance
		Domestic																				Total				Reclassifications				Total
		Brokerage								Personal				Mortgage				Foreign				Reportable				and				General
(in millions)		Group				Transatlantic				Lines				Guaranty				General				Segment				Eliminations				Insurance
2004
Revenues(a)		$	23,281			$	3,990			$	4,495			$	660			$	9,453			$	41,879			$	18			$	41,897
Losses & loss expenses incurred			18,784				2,755				3,211				142				5,441				30,333				–				30,333
Underwriting expenses			3,610				953				971				119				2,674				8,327				–				8,327
Underwriting profit (loss)(b)(c)(d)(e)			(1,192	)			(47	)			109				278				703				(149	)			–				(149	)
Operating income(c)			887				282				313				399				1,338				3,219				18				3,237
Depreciation expense			122				3				29				3				94				251				–				251
Capital expenditures			115				2				92				7				134				350				–				350
Identifiable assets			81,607				10,605				5,185				2,826				36,031				136,254				(4,741	)			131,513
2003 (Restated)
Revenues(a)		$	18,135			$	3,452			$	3,856			$	683			$	7,756			$	33,882			$	(30	)		$	33,852
Losses & loss expenses incurred			13,797				2,233				2,789				110				4,029				22,958				–				22,958
Underwriting expenses			2,493				829				727				122				2,184				6,355				–				6,355
Underwriting profit(b)(c)(d)			504				109				162				264				1,035				2,074				–				2,074
Operating income(c)			1,845				390				340				451				1,543				4,569				(30	)			4,539
Depreciation expense			97				3				19				3				82				204				–				204
Capital expenditures			83				2				45				3				151				284				–				284
Identifiable assets			73,165				8,708				4,976				2,879				31,593				121,321				(4,165	)			117,156
2002 (Restated)
Revenues(a)		$	13,599			$	2,616			$	2,965			$	656			$	5,784			$	25,620			$	7			$	25,627
Losses & loss expenses incurred			11,917				1,796				2,377				118				3,391				19,599				–				19,599
Underwriting expenses			1,972				631				562				137				1,688				4,990				–				4,990
Underwriting profit (loss)(b)(c)(d)			(1,556	)(f)			(57	)(f)			(148	)			247				497				(1,017	)			–				(1,017	)
Operating income (loss)(c)			(290	)(f)			189	(f)			26				401				705				1,031				7				1,038
Depreciation expense			86				3				27				3				73				192				–				192
Capital expenditures			101				1				38				2				181				323				–				323
Identifiable assets			70,168				7,287				3,233				2,547				26,202				109,437				(3,508	)			105,929

(a)	Represents the sum of General Insurance net premiums earned, net investment income and realized capital gains (losses).
(b)	Underwriting profit (loss) is a GAAP measure that represents statutory underwriting profit or loss adjusted primarily for changes in deferred policy acquisition costs.
(c)	Catastrophe losses for 2004 by reporting unit were: DBG $582 million, Personal Lines $25 million, Transatlantic $215 million and Foreign General $232 million. Catastrophe losses for 2003 by reporting unit were: DBG $48 million, Personal Lines $5 million, Transatlantic $4 million and Foreign General $26 million. Catastrophe losses in 2002 by reporting unit were: DBG $20 million and Foreign General $41 million.

(d)	For Foreign General, includes the results of wholly owned AIU agencies.

(e)	Includes charge of $850 million ($700 million for DBG; $150 million for Foreign General) in fourth quarter 2004 attributable to change in estimate for asbestos and environmental reserves.
(f)	Includes loss reserve charge of $2.0 billion and $100 million for DBG and Transatlantic, respectively.

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	3. Segment Information (continued)

(c) The following table summarizes AIG’s Life Insurance & Retirement Services operations by major internal reporting unit for the years ended December 31, 2004, 2003 and 2002:

		Life Insurance & Retirement Services
						AIA,								VALIC/																Total Life
		ALICO/				AIRCO				AGLA				AIG Annuity/				Philamlife				Total				Reclassifications				Insurance &
		AIG Star Life/				and Nan				and				AIG				and				Reportable				and				Retirement
(in millions)		AIG Edison Life(a)				Shan				AG Life(b)				SunAmerica(c)				Other				Segment				Eliminations				Services
2004
Revenues(d)		$	12,444			$	15,274			$	8,610			$	6,562			$	496			$	43,386			$	–			$	43,386
Operating income			2,671				2,188				928				2,053				84				7,924				–				7,924
Depreciation expense			101				55				62				37				7				262				–				262
Capital expenditures			308				93				47				29				3				480				–				480
Identifiable assets			102,856				74,581				91,579				183,124				2,630				454,770				(6,874	)			447,896
2003 (Restated)
Revenues(d)		$	8,531			$	13,231			$	8,219			$	5,822			$	450			$	36,253			$	–			$	36,253
Operating income			1,727				1,844				1,161				1,532				89				6,353				–				6,353
Depreciation expense			77				56				68				36				7				244				–				244
Capital expenditures			281				51				91				58				2				483				–				483
Identifiable assets			79,697				61,365				84,139				151,688				2,523				379,412				(7,237	)			372,175
2002 (Restated)
Revenues(d)		$	7,032			$	11,655			$	7,299			$	5,160			$	418			$	31,564			$	–			$	31,564
Operating income			1,602				1,510				777				1,208				86				5,183				–				5,183
Depreciation expense			73				48				71				41				6				239				–				239
Capital expenditures			245				148				56				274				2				725				–				725
Identifiable assets			47,170				49,919				74,769				121,664				2,348				295,870				(5,904	)			289,966

(a)	Reflects acquisition of AIG Edison Life in August 2003.

(b)

Includes the life operations of AIG Life Insurance Company and American International Life Assurance Company of New York. 2004 includes a $178 million charge related to a workers compensation quota share reinsurance agreement with Superior National Insurance Company. In addition, in 2004, as part of the business review of Group life/health, approximately $68 million was incurred for reserve strengthening and allowances for receivables. See Note 12(h) herein for additional information.

(c)	“AIG SunAmerica” represents the annuity operations of AIG SunAmerica Life Assurance Company, as well as those of First SunAmerica Life Insurance Company and SunAmerica Life Insurance Company.

(d)	Represents the sum of Life Insurance & Retirement Services GAAP premiums, net investment income and realized capital gains (losses).

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	3. Segment Information (continued)

(d) The following table summarizes AIG’s Financial Services operations by major internal reporting unit for the years ended December 31, 2004, 2003 and 2002:

		Financial Services
																		Total				Reclassifications				Total
		Aircraft				Capital				Consumer								Reportable				and				Financial
(in millions)		Finance				Markets(a)				Finance				Other				Segment				Eliminations				Services
2004
Revenues(b)(c)		$	3,251			$	1,650			$	2,978			$	835			$	8,714			$	(732	)		$	7,982
Interest expense(c)			1,041				2,413				705				144				4,303				(101	)			4,202
Operating income(c)			712				1,026				808				89				2,635				(22	)			2,613
Depreciation expense			1,273				42				33				18				1,366				–				1,366
Capital expenditures			5,108				29				35				17				5,189				–				5,189
Identifiable assets			34,525				95,064				26,563				13,985				170,137				(6,850	)			163,287
2003 (Restated)
Revenues(b)(c)		$	3,042			$	549			$	2,642			$	641			$	6,874			$	(533	)		$	6,341
Interest expense(c)			945				2,218				619				132				3,914				(101	)			3,813
Operating income (loss)(c)			777				(241	)			623				80				1,239				(5	)			1,234
Depreciation expense			1,139				51				34				37				1,261				–				1,261
Capital expenditures			5,835				42				29				28				5,934				–				5,934
Identifiable assets			31,972				80,240				20,574				11,742				144,528				(4,450	)			140,078
2002 (Restated)
Revenues(b)(c)		$	2,845			$	1,212			$	2,473			$	569			$	7,099			$	(495	)		$	6,604
Interest expense(c)			885				1,742				639				122				3,388				(76	)			3,312
Operating income(c)			795				524				507				45				1,871				(1	)			1,870
Depreciation expense			964				55				32				46				1,097				–				1,097
Capital expenditures			5,304				38				24				29				5,395				–				5,395
Identifiable assets			27,771				75,886				18,900				10,313				132,870				(5,255	)			127,615

(a)

Certain transactions entered into by AIGFP generate tax credits and benefits which are shown in the income tax line on the consolidated statement of income. Thus, this source of income is not reflected in the Revenue and Operating Income categories in the above table. The amount of tax credits and benefits for the years ended December 31, 2004, 2003, and 2002 are $114 million, $130 million, and $107 million, respectively.

(b)	Represents primarily the sum of ILFC aircraft lease rentals, AIGFP hedged proprietary positions entered into in connection with counterparty transactions and finance charges from consumer finance operations.
(c)	Includes the unrealized gain (loss) attributable to economic hedges not qualifying for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. For 2004, 2003 and 2002, the effect was $(27) million, $49 million and $20 million, respectively, in operating income for Aircraft Finance and $215 million, $(1.09) billion and $(192) million in both revenues and operating income for Capital Markets.

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	3. Segment Information (continued)

(e) A substantial portion of AIG’s operations is conducted in countries other than the United States and Canada. The following table summarizes AIG’s operations by major geographic segment. Allocations have been made on the basis of the location of operations and assets.

		Geographic Segments
										Other
(in millions)		Domestic(a)				Far East				Foreign				Consolidated
2004
Revenues(b)		$	54,079			$	27,851			$	16,057			$	97,987
Real estate and other fixed assets, net of accumulated depreciation			2,341				2,834				1,017				6,192
Flight equipment primarily under operating leases, net of accumulated depreciation			32,705				–				–				32,705
2003 (Restated)
Revenues(b)		$	43,625			$	22,436			$	13,385			$	79,446
Real estate and other fixed assets, net of accumulated depreciation			2,539				2,518				909				5,966
Flight equipment primarily under operating leases, net of accumulated depreciation			30,343				–				–				30,343
2002 (Restated)
Revenues(b)		$	38,988			$	19,045			$	8,427			$	66,460
Real estate and other fixed assets, net of accumulated depreciation			2,485				2,041				812				5,338
Flight equipment primarily under operating leases, net of accumulated depreciation			26,867				–				–				26,867

(a)	Including revenues from General Insurance operations in Canada of $580 million, $433 million, and $189 million in 2004, 2003, and 2002, respectively.
(b)	Represents the sum of General Insurance net premiums earned, Life Insurance & Retirement Services GAAP premiums, net investment income, Financial Services interest, lease and finance charges, Asset Management advisory and management fees and net investment income with respect to guaranteed investment contracts, and realized capital gains (losses).

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	4. Deferred Policy Acquisition Costs

The following reflects the policy acquisition costs deferred for amortization against future income and the related amortization charged to income for general and life insurance & retirement services operations:

Years Ended December 31,			2004				2003				2002
(in millions)							(Restated)				(Restated)
General Insurance operations:
	Balance at beginning of year		$	3,627			$	3,073			$	2,324
	Acquisition costs deferred			6,560				5,165				4,181
	Amortization charged to Income			(6,179	)			(4,611	)			(3,432	)
	Balance at end of year		$	4,008			$	3,627			$	3,073
Life Insurance & Retirement Services operations:
	Balance at beginning of year		$	22,293			$	18,772			$	16,706
	Value of business acquired			–				1,538	*			358
	Acquisition costs deferred			6,957				5,048				4,448
	Amortization charged to Income			(4,013	)			(2,778	)			(2,184	)
	Effect of net unrealized losses on securities			(219	)			(813	)			(951	)
	Increase due to foreign exchange			710				526				395
Balance at end of year			$	25,728			$	22,293			$	18,772
Total deferred policy acquisition costs			$	29,736			$	25,920			$	21,845

*	Relates to the acquisition of AIG Edison Life in August 2003.

     Included in the above table is the value of business acquired (VOBA), an intangible asset recorded during purchase accounting, which is amortized in a manner similar to deferred acquisition costs. Amortization of VOBA was $504 million, $417 million and $382 million while the unamortized balance was $2.52 billion, $3.17 billion and $2.01 billion for 2004, 2003 and 2002, respectively. The percentage of the unamortized balance of VOBA at 2004 expected to be amortized for 2005 through 2010 by year is: 12.8 percent, 11.3 percent, 10.0 percent, 8.8 percent, and 7.6 percent, respectively, with 49.5 percent being amortized after five years. These projections are based on current estimates for investment, persistency, mortality, and morbidity assumptions.

	5. Reinsurance

In the ordinary course of business, AIG’s General and Life Insurance companies place reinsurance with other insurance companies in order to provide greater diversification of AIG’s business and limit the potential for losses arising from large risks.

     General Reinsurance: General reinsurance is effected under reinsurance treaties and by negotiation on individual risks. Certain of these reinsurance arrangements consist of excess of loss contracts which protect AIG against losses over stipulated amounts. Ceded premiums are considered prepaid reinsurance premiums and are amortized into income over the contract period in proportion to the protection received. Amounts recoverable from general reinsurers are estimated in a manner consistent with the claims liabilities associated with the reinsurance and presented as a component of reinsurance assets.

General Insurance premiums written and earned were comprised of the following:

Years Ended December 31,
(in millions)		Written				Earned
2004
Gross premiums		$	52,030			$	50,175
Ceded premiums			(11,423	)			(11,664	)
Net premiums		$	40,607			$	38,511
2003 (Restated)
Gross premiums		$	46,929			$	43,019
Ceded premiums			(11,907	)			(11,632	)
Net premiums		$	35,022			$	31,387
2002 (Restated)
Gross premiums		$	36,670			$	33,341
Ceded premiums			(9,960	)			(9,769	)
Net premiums		$	26,710			$	23,572

     For the years ended December 31, 2004, 2003 and 2002, reinsurance recoveries, which reduced loss and loss expenses incurred, amounted to $11.36 billion, $10.21 billion and $9.03 billion, respectively.

     Life Insurance: AIG Life Insurance companies generally limit exposure to loss on any single life. For ordinary insurance, AIG generally retains a maximum of approximately $1.7 million of coverage per individual life with respect to AIG’s overseas life operations and $5 million of coverage per individual life with respect to AIG’s Domestic Life operations. There are smaller retentions for other lines of business. Life reinsurance is effected principally under yearly renewable term treaties. The premiums with respect to these treaties are considered prepaid reinsurance premiums and are amortized into income over the contract period in proportion to the protection provided. Amounts recoverable from life reinsurers are estimated in a manner consistent with the assumptions used for the underlying policy benefits and are presented as a component of reinsurance assets.

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	5. Reinsurance (continued)

Life Insurance & Retirement Services GAAP premiums were comprised of the following:

Years Ended December 31,		2004				2003				2002
(in millions)						(Restated)				(Restated)
Gross GAAP premiums		$	29,202			$	24,451			$	21,604
Ceded premiums			(1,120	)			(958	)			(917	)
GAAP premiums		$	28,082			$	23,493			$	20,687

     Life Insurance recoveries, which reduced death and other benefits, approximated $779 million, $651 million and $624 million, respectively, for the years ended December 31, 2004, 2003 and 2002.

Life Insurance in force ceded to other insurance companies was as follows:

Years Ended December 31,		2004				2003				2002
(in millions)						(Restated)				(Restated)
Life Insurance in force		$	344,036			$	293,064			$	278,704

     Life Insurance assumed represented 0.7 percent, 0.1 percent and 0.2 percent of gross Life Insurance in force at December 31, 2004, 2003 and 2002, respectively, and Life Insurance & Retirement Services GAAP premiums assumed represented 2.5 percent, 0.1 percent and 0.2 percent of gross GAAP premiums for the periods ended December 31, 2004, 2003 and 2002, respectively.

Supplemental information for gross loss and benefit reserves net of ceded reinsurance at December 31, 2004 and 2003 follows:

		As				Net of
(in millions)		Reported				Reinsurance
2004
Reserve for losses and loss expenses		$	(62,371	)		$	(47,747	)
Future policy benefits for life and accident and health insurance contracts			(104,737	)			(103,344	)
Reserve for unearned premiums			(23,094	)			(19,971	)
Reinsurance assets			19,958				–
2003 (Restated)
Reserve for losses and loss expenses		$	(52,381	)		$	(36,738	)
Future policy benefits for life and accident and health insurance contracts			(92,912	)			(91,707	)
Reserve for unearned premiums			(20,910	)			(17,546	)
Reinsurance assets			20,948				–

     AIRCO acts primarily as an internal reinsurance company for AIG’s foreign life operations. This facilitates insurance risk management (retention, volatility, concentrations) and capital planning locally (branch and subsidiary). It also allows AIG to pool its insurance risks and purchase reinsurance more efficiently at a consolidated level and manage global counterparty risk and relationships.

     AIG’s domestic Life Insurance & Retirement Services operations utilize internal and third-party reinsurance relationships to manage insurance risks and to facilitate capital management strategies. Pools of highly-rated third-party reinsurers are utilized to manage net amounts at risk in excess of retention limits. AIG’s domestic life insurance companies also cede excess, non-economic reserves carried on a statutory-basis only on certain term and universal life insurance policies and certain fixed annuities to an offshore affiliate.

     AIG generally obtains letters of credit in order to obtain statutory recognition of these intercompany reinsurance transactions. For this purpose, AIG entered into a $2.5 billion syndicated letter of credit facility in December 2004. Letters of credit totaling $2.17 billion were outstanding as of December 31, 2004, and letters of credit for all $2.5 billion were outstanding as of March 31, 2005. The letter of credit facility has a ten-year term, but the facility can be reduced or terminated by the lenders beginning after seven years.

     Reinsurance Security: AIG’s reinsurance arrangements do not relieve AIG from its direct obligation to its insureds. Thus, a credit exposure exists with respect to both general and life reinsurance ceded to the extent that any reinsurer is unable to meet the obligations assumed under the reinsurance agreements. AIG holds substantial collateral as security under related reinsurance agreements in the form of funds, securities, and/or letters of credit. A provision has been recorded for estimated unrecoverable reinsurance. AIG has been largely successful in prior recovery efforts.

     AIG evaluates the financial condition of its reinsurers and establishes limits per reinsurer through AIG’s Credit Risk Committee. AIG believes that no exposure to a single reinsurer represents an inappropriate concentration of risk to AIG, nor is AIG’s business substantially dependent upon any reinsurance contract.

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	6. Reserve for Losses and Loss Expenses and Future Life Policy Benefits and Policyholders’ Contract Deposits

(a) The following analysis provides a reconciliation of the activity in the reserve for losses and loss expenses:

Years Ended December 31,			2004				2003				2002
(in millions)							(Restated)				(Restated)
At beginning of year:
	Reserve for losses and loss expenses		$	52,381			$	47,095			$	41,638
	Reinsurance recoverable			(15,643	)			(17,327	)			(15,201	)
				36,738				29,768				26,437
Acquisitions				–				391	(a)			–
Losses and loss expenses incurred:
	Current year			27,129				20,663				15,723
	Prior years(b)			3,204	(c				) 2,295			3,876
Total				30,333				22,958				19,599
Losses and loss expenses paid:
	Current year			7,161				5,604				5,261
	Prior years			12,163				10,775				11,007
Total				19,324				16,379				16,268
At end of year:
	Net reserve for losses and loss expenses			47,747				36,738				29,768
	Reinsurance recoverable			14,624				15,643				17,327
Total			$	62,371			$	52,381			$	47,095

(a)	Reflects the opening balances with respect to the GE U.S.-based auto and home insurance business acquired in 2003.
(b)	Includes accretion of discount of $377 million in 2004, $296 million in 2003 and $280 million in 2002.
(c)	Includes fourth quarter charge of $850 million attributable to the change in estimate for asbestos and environmental reserves.

(b) The analysis of the future policy benefits and policyholders’ contract deposits liabilities at December 31, 2004 and 2003 (Restated) follows:

			2004				2003
(in millions)							(Restated)
Future policy benefits:
	Long duration contracts		$	101,576			$	90,222
	Short duration contracts			3,161				2,690
Total			$	104,737			$	92,912
Policyholders’ contract deposits:
	Annuities		$	130,524			$	107,125
	Guaranteed investment contracts (GICs)			46,653				42,216
	Corporate life products			2,042				2,149
	Universal life			16,771				14,790
	Variable products(a)			5,960				–
	Variable investment contracts(a)			7,579				–
	Other investment contracts			7,126				5,637
Total			$	216,655			$	171,917

(a)	In 2003, amounts were reported as part of Separate and Variable Account Liabilities. In 2004, adoption of SOP 03-1 requires that amounts be reported as policy holders’ contract deposits. See Note 21 herein.

(c) Long duration contract liabilities included in future policy benefits, as presented in the preceding table, result from life products. Short duration contract liabilities are primarily accident and health products. The liability for future life policy benefits has been established based upon the following assumptions:

     (i) Interest rates (exclusive of immediate/terminal funding annuities), which vary by territory, year of issuance and products, range from 1.5 percent to 12.0 percent within the first 20 years. Interest rates on immediate/terminal funding annuities are at a maximum of 11.5 percent and grade to not greater than 5.5 percent.

     (ii) Mortality and surrender rates are based upon actual experience by geographical area modified to allow for variations in policy form. The weighted average lapse rate, including surrenders, for individual and group life approximated 6.3 percent.

     (iii) The portions of current and prior net income and of current unrealized appreciation of investments that can inure to the benefit of AIG are restricted in some cases by the insurance contracts and by the local insurance regulations of the countries in which the policies are in force.

     (iv) Participating life business represented approximately 24 percent of the gross insurance in force at December 31, 2004 and 37 percent of gross GAAP premiums in 2004. The amount of annual dividends to be paid is determined locally by the boards of directors. Provisions for future dividend payments are computed by jurisdiction, reflecting local regulations.

(d) The liability for policyholders’ contract deposits has been established based on the following assumptions:

     (i) Interest rates credited on deferred annuities, which vary by territory and year of issuance, range from 1.5 percent to, including bonuses, 9.8 percent. Current declared interest rates are generally guaranteed to remain in effect for a period of one year though some are guaranteed for longer periods. Withdrawal charges generally range from zero percent to 14.0 percent grading to zero over a period of zero to 15 years.

     (ii) Domestically, GICs have market value withdrawal provisions for any funds withdrawn other than benefit responsive payments. Interest rates credited generally range from 1.4 percent to 9.0 percent. The vast majority of these GICs mature within ten years. Overseas, interest rates credited on GICs generally range from 1.7 percent to 6.9 percent and maturities range from one to five years.

     (iii) Interest rates on corporate life insurance products are guaranteed at 4.0 percent and the weighted average rate credited in 2004 was 5.6 percent.

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	6. Reserve for Losses and Loss Expenses and Future Life Policy Benefits and Policyholders’ Contract Deposits (continued)

     (iv) The universal life funds have credited interest rates of 1.5 percent to 7.5 percent and guarantees ranging from 1.5 percent to 5.5 percent depending on the year of issue. Additionally, universal life funds are subject to surrender charges that amount to 11.1 percent of the aggregate fund balance grading to zero over a period not longer than 20 years.

     (v) For variable products and investment contracts, policy values are expressed in terms of investment units. Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset portfolio. The current liability at any time is the sum of the current unit value of all investment units. A portion of these liabilities are classified in the GIC product line for segment reporting purposes.

(e) Certain products are subject to experience adjustments. These include group life and group medical products, credit life contracts, accident and health insurance contracts/riders attached to life policies and, to a limited extent, reinsurance agreements with other direct insurers. Ultimate premiums from these contracts are estimated and recognized as revenue, and the unearned portions of the premiums are held as reserves. Experience adjustments vary according to the type of contract and the territory in which the policy is in force and are subject to local regulatory guidance.

	7. Statutory Financial Data

Statutory surplus and net income for General Insurance and Life Insurance & Retirement Services operations as reported to regulatory authorities were as follows:

Years Ended December 31,
(in millions)			2004				2003				2002
Statutory surplus:
	General Insurance		$	24,132			$	20,462			$	16,765
	Life Insurance & Retirement Services			28,609				25,501	(a)			22,716
Statutory net income(b):
	General Insurance			3,028	(c)			2,911				277
	Life Insurance & Retirement Services			4,474				3,453				2,529

(a)	Restated.
(b)	Includes net realized capital gains and losses.
(c)	Includes catastrophe losses, net of tax of $660 million.

     The statutory earnings and surplus figures presented above reflect AIG’s current financial statement filings with various state and foreign regulatory authorities. It is AIG’s intention to carefully examine and evaluate each of the items that have been restated or adjusted in its consolidated GAAP financial statements (refer to Note 2 herein) to determine whether restatement to its previously filed statutory financial statements are needed. AIG cannot reasonably estimate the effects of any such restatements should they occur.

     AIG’s insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by domestic or foreign insurance regulatory authorities. The differences between statutory financial statements and financial statements prepared in accordance with GAAP vary between domestic and foreign jurisdictions. The principal differences are that statutory financial statements do not reflect deferred policy acquisition costs, all bonds are carried at amortized cost, and assets and liabilities are presented net of reinsurance, and certain assets are non-admitted. AIG’s use of permitted statutory accounting practices does not have a significant effect on statutory surplus.

	8. Investment Information

(a) Statutory Deposits: Cash and securities with carrying values of $9.6 billion and $7.5 billion were deposited by AIG’s insurance subsidiaries under requirements of regulatory authorities as of December 31, 2004 and 2003, respectively.

(b) Net Investment Income: An analysis of the net investment income from the General and Life Insurance & Retirement Services operations follows:

Years Ended December 31,		2004				2003				2002
(in millions)						(Restated)				(Restated)
Fixed maturities		$	15,878			$	13,708			$	11,989
Equity securities			722				585				310
Short-term investments			177				94				179
Interest on mortgage, policy and collateral loans			1,096				1,047				1,034
Other invested assets			1,318				759				815
Total investment income			19,191				16,193				14,327
Investment expenses			757				725				606
Net investment income		$	18,434			$	15,468			$	13,721

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	8. Investment Information (continued)

(c) Investment Gains and Losses: The realized capital gains (losses) and increase (decrease) in unrealized appreciation of investments were as follows:

Years Ended December 31,			2004				2003				2002
(in millions)							(Restated)				(Restated)
Realized capital gains (losses) on investments:
	Fixed maturities		$	216			$	(222	)		$	(1,088	)
	Equity securities			541				(495	)			(879	)
	Other invested assets			(781	)			97				669
Realized capital gains (losses)			$	(24	)		$	(620	)		$	(1,298	)
Increase (decrease) in unrealized appreciation of investments:
	Fixed maturities		$	1,436			$	2,493			$	6,209
	Equity securities			445				1,354				149
	Other invested assets			93				434				(450	)
Increase (decrease) in unrealized appreciation			$	1,974			$	4,281			$	5,908

The gross gains and gross losses realized on available for sale securities were as follows:

		Gross				Gross
		Realized				Realized
(in millions)		Gains				Losses
2004
Bonds		$	1,560			$	1,344
Common stocks			774				379
Preferred stocks			173				27
Total		$	2,507			$	1,750
2003 (Restated)
Bonds		$	2,470			$	2,692
Common stocks			465				827
Preferred stocks			139				272
Total		$	3,074			$	3,791
2002 (Restated)
Bonds		$	1,856			$	2,944
Common stocks			363				1,192
Preferred stocks			12				62
Total		$	2,231			$	4,198

(d) Market Value of Fixed Maturities and Unrealized Appreciation of Investments: At December 31, 2004 and 2003, the balance of the unrealized appreciation of investments in equity securities (before applicable taxes) included gross gains of approximately $1.6 billion and $993 million, and gross losses of approximately $256 million and $67 million, respectively.

The amortized cost and estimated market value of investments in fixed maturities held to maturity and carried at amortized cost at December 31, 2004 and December 31, 2003 follows:

							Gross				Gross				Estimated
			Amortized				Unrealized				Unrealized				Market
(in millions)			Cost				Gains				Losses				Value
2004
Fixed maturities:
	Bonds — States*		$	18,294			$	510			$	13			$	18,791
Total			$	18,294			$	510			$	13			$	18,791
2003
Fixed maturities:
	Bonds — States*		$	8,037			$	157			$	21			$	8,173
Total			$	8,037			$	157			$	21			$	8,173

*	Including municipalities and political subdivisions.

The amortized cost and estimated market value of bonds available for sale and carried at market value at December 31, 2004 and 2003 were as follows:

							Gross				Gross				Estimated
			Amortized				Unrealized				Unrealized				Market
(in millions)			Cost				Gains				Losses				Value
2004
Bonds:
	U.S. government(a)		$	8,055			$	156			$	37			$	8,174
	States(b)			37,204				1,175				83				38,296
	Foreign governments			64,374				3,715				446				67,643
	All other corporate			220,205				11,089				1,008				230,286
Total bonds			$	329,838			$	16,135			$	1,574			$	344,399
2003
Bonds:
	U.S. government(a)		$	4,923			$	143			$	42			$	5,024
	States(b)			47,048				1,402				262				48,188
	Foreign governments			42,221				3,201				408				45,014
	All other corporate			193,618				10,597				1,506				202,709
Total bonds			$	287,810			$	15,343			$	2,218			$	300,935

(a)	Including U.S. government agencies and authorities.
(b)	Including municipalities and political subdivisions.

The amortized cost and estimated market values of fixed maturities available for sale at December 31, 2004, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

						Estimated
		Amortized				Market
(in millions)		Cost				Value
Fixed maturities available for sale:
Due in one year or less		$	10,450			$	10,785
Due after one year through five years			64,831				67,019
Due after five years through ten years			116,371				121,207
Due after ten years			138,186				145,388
Total available for sale		$	329,838			$	344,399

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	8. Investment Information (continued)

(e) Fixed Maturities Below Investment Grade: At December 31, 2004, fixed maturities held by AIG that were below investment grade or not rated totaled $18.53 billion.

(f) Non-Income Producing Invested Assets: At December 31, 2004, non-income producing invested assets were insignificant.

(g) Gross Unrealized Losses and Estimated Fair Values on Investments: The following table summarizes the gross unrealized losses and cost basis on insurance and asset management investment securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2004 and December 31, 2003.

		Less than 12 Months								12 Months or More								Total
						Unrealized								Unrealized								Unrealized
(in millions)		Cost(a)				Losses				Cost(a)				Losses				Cost(a)				Losses
2004
Bonds(b)		$	51,901			$	758			$	14,204			$	816			$	66,105			$	1,574
Equity securities			2,435				256				–				–				2,435				256
Total		$	54,336			$	1,014			$	14,204			$	816			$	68,540			$	1,830
2003
Bonds(b)		$	61,302			$	1,586			$	5,630			$	632			$	66,932			$	2,218
Equity securities			788				67				–				–				788				67
Total		$	62,090			$	1,653			$	5,630			$	632			$	67,720			$	2,285

(a)	For bonds, represents amortized cost.
(b)	Primarily relates to the “All other corporate” category.

     As of December 31, 2004, AIG held 6,462 and 1,017 of individual bond and stock investments that were in an unrealized loss position, of which 1,475 individual investments (bonds) were in an unrealized loss position continuously for 12 months or more.

     AIG recorded impairment losses net of taxes of approximately $369 million, $1.0 billion and $595 million in 2004, 2003 and 2002, respectively. See Note 1(c) herein for AIG’s impairment accounting policy.

     The carrying value, which approximates market value, of other invested assets as of December 31, 2004 was $22.5 billion, consisting primarily of hedge funds and limited partnerships. Of the $22.5 billion, approximately $6.7 billion relates to investments accounted for on an available for sale basis, with almost all of the remaining investments being accounted for on the equity method of accounting. All of the investments are subject to impairment testing (refer to Note 1(c) herein). Of the investments accounted for as available for sale, the gross unrealized loss as of December 31, 2004 was $520 million, the majority of which represents investments that have been in a continuous unrealized loss position for less than 12 months.

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	8. Investment Information (continued)

(h) Securities Available for Sale: AIGFP follows a policy of minimizing interest rate, currency, commodity, and equity risks associated with securities available for sale by entering into internal offsetting positions, on a security by security basis within its derivatives portfolio, thereby offsetting a significant portion of the unrealized appreciation and depreciation. In addition, to reduce its credit risk, AIGFP has entered into credit derivative transactions with respect to $225 million of securities available for sale to economically hedge its credit risk. As previously discussed these economic offsets do not meet the hedge accounting requirements of FAS 133 and, as such, are recorded in other revenue in the Consolidated Statement of Income.

The amortized cost and estimated market value of securities available for sale at December 31, 2004 and 2003 were as follows:

							Gross				Gross				Estimated
			Amortized				Unrealized				Unrealized				Market
(in millions)			Cost				Gains				Losses				Value
2004
Securities available for sale:
	Corporate and bank debt		$	14,269			$	1,034			$	74			$	15,229
	Foreign government obligations			1,211				132				–				1,343
	Asset-backed and collateralized			4,132				424				1				4,555
	Preferred stocks			7,151				38				23				7,166
	U.S. government obligations			2,082				78				5				2,155
Total			$	28,845			$	1,706			$	103			$	30,448
2003 (Restated)
Securities available for sale:
	Corporate and bank debt		$	8,386			$	1,110			$	111			$	9,385
	Foreign government obligations			36				25				–				61
	Asset-backed and collateralized			4,443				423				1				4,865
	Preferred stocks			7,539				12				8				7,543
	U.S. government obligations			2,183				44				39				2,188
Total			$	22,587			$	1,614			$	159			$	24,042

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	8. Investment Information (continued)

The amortized cost and estimated market values of securities available for sale at December 31, 2004, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

						Estimated
		Amortized				Market
(in millions)		Cost				Value
Securities available for sale:
Due in one year or less		$	3,393			$	3,484
Due after one year through five years			4,205				4,711
Due after five years through ten years			3,230				3,460
Due after ten years			13,885				14,238
Asset-backed and collateralized			4,132				4,555
Total securities available for sale		$	28,845			$	30,448

     Only an insignificant amount of securities available for sale were below investment grade at December 31, 2004.

(i) Finance Receivables: Finance receivables, net of unearned finance charges, were as follows:

Years Ended December 31,				2004				2003
(in millions)								(Restated)
Real estate loans				$	17,069			$	11,654
Non-real estate loans					3,462				3,162
Credit card loans					1,226				1,091
Retail sales finance					2,254				1,966
Other loans					134				189
	Total finance receivables				24,145				18,062
	Allowance for losses				(571	)			(562	)
		Finance receivables, net		$	23,574			$	17,500

	9. Debt Outstanding

At December 31, 2004, AIG’s net borrowings were $8.50 billion after reflecting amounts not guaranteed by AIG, amounts that were matched borrowings under AIGFP’s obligations of guaranteed investment agreements (GIAs), matched notes and bonds payable, and liabilities connected to trust preferred stock. The following table summarizes borrowings outstanding at December 31, 2004:

(in millions)
AIG’s net borrowings			$	8,498
Liabilities connected to trust preferred stock				1,489
Borrowings not guaranteed by AIG(a)				45,733
AIGFP:
	GIAs			18,919
	Matched notes and bonds payable			20,624
Total debt				95,263
Commercial paper				(9,693	)
Variable interest entity (VIE) debt(b)				(299	)
Total debt, excluding commercial paper and VIE			$	85,271

(a)	Includes commercial paper not guaranteed by AIG.
(b)	Represents borrowings of VIEs required to be consolidated under the provisions of FIN 46R.

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	9. Debt Outstanding (continued)

Total debt, excluding commercial paper of $9.7 billion and VIE debt of $299 million, at December 31, 2004 is shown below with year of payment due in each of the next five years and thereafter.

(in millions)					Total				2005				2006				2007				2008				2009				Thereafter
Borrowings under obligations of GIAs					$	18,919			$	6,059			$	1,863			$	937			$	714			$	506			$	8,840
Medium term notes:
	AGF(a)					13,709				1,151				2,990				2,275				1,260				1,238				4,795
	ILFC(a)					5,972				1,999				934				1,003				903				678				455
	AIG					667				555				23				65				–				–				24
Total						20,348				3,705				3,947				3,343				2,163				1,916				5,274
Notes and bonds payable:
	AIGFP					21,062				10,373				1,351				575				510				1,725				6,528
	ILFC(a):
		Notes				12,760				1,451				1,727				2,204				2,548				2,282				2,548
		Export credit facility(b)				1,718				305				305				305				305				253				245
		Bank financings				1,256				14				714				64				10				454				–
			Total ILFC			15,734				1,770				2,746				2,573				2,863				2,989				2,793
	AGF(a)					1,585				1,013				–				97				–				399				76
	AIG:
		Term notes				1,500				–				–				–				500				–				1,000
		Zero coupon convertible debt				1,045				–				–				–				–				–				1,045
		SAI				435				–				–				100				73				–				262
			Total AIG			2,980				–				–				100				573				–				2,307
	AGC					1,095				299				–				–				–				–				796
Total						42,456				13,455				4,097				3,345				3,946				5,113				12,500
Loans and mortgages payable:
	AIGCFG(a)					792				792				–				–				–				–				–
	AIG					349				37				–				225				–				–				87
	ILFC(a)(c)					40				40				–				–				–				–				–
	AIG Finance (Hong Kong) Limited(a)					49				41				7				–				–				–				1
Total						1,230				910				7				225				–				–				88
Other subsidiaries(a)						829				291				80				–				59				–				399
Liabilities connected to trust preferred stock						1,489				–				–				–				–				–				1,489
Total					$	85,271			$	24,420			$	9,994			$	7,850			$	6,882			$	7,535			$	28,590

(a)	AIG does not guarantee these borrowings.
(b)	Reflects future minimum payment for ILFC’s borrowing under the Export Credit Facility.

(c)	Capital lease obligations.

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	9. Debt Outstanding (continued)

At December 31, 2004, long-term borrowings were $70.54 billion and short-term borrowings were $24.42 billion, excluding $299 million with respect to debt of VIE’s required to be consolidated under the provisions of FIN 46R. Long-term borrowings include commercial paper and exclude that portion of long-term debt maturing in less than one year.

(a) Commercial Paper: At December 31, 2004, the commercial paper issued and outstanding was as follows:

						Unamortized								Weighted				Weighted
		Net				Discount								Average				Average
		Book				and Accrued				Face				Interest				Maturity
(dollars in millions)		Value				Interest				Amount				Rate				in Days
ILFC		$	2,670			$	5			$	2,675				2.34	%			33
AGF			3,686				7				3,693				2.39				32
AIG Funding			2,969				4				2,973				2.31				26
AIGCCC – Taiwan*			359				1				360				2.01				45
AIGF – Taiwan*			9				–				9				1.51				65
Total		$	9,693			$	17			$	9,710				–				–

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

     At December 31, 2004, AIG did not guarantee the commercial paper of any of its subsidiaries other than AIG Funding.

(b) Borrowings under Obligations of Guaranteed Investment Agreements: Borrowings under obligations of guaranteed investment agreements, which are guaranteed by AIG, are recorded at the amount outstanding under each contract. Obligations may be called at various times prior to maturity at the option of the counterparty. Interest rates on these borrowings are primarily fixed, vary by maturity, and range up to 9.8 percent.

     Funds received from GIA borrowings are invested in a diversified portfolio of securities and derivative transactions. At December 31, 2004, the market value of securities pledged as collateral with respect to these obligations approximated $6.4 billion.

(c) Medium Term Notes Payable:

     (i) Medium Term Notes Payable Issued by AGF: AGF’s Medium Term Notes are unsecured obligations which generally may not be redeemed by AGF prior to maturity and bear interest at either fixed rates set by AGF at issuance or variable rates determined by reference to an interest rate or other formula.

     As of December 31, 2004, notes aggregating $13.71 billion were outstanding with maturity dates ranging from 2005 to 2014 at interest rates ranging from 1.38 percent to 7.50 percent. To the extent deemed appropriate, AGF may enter into swap transactions to manage its effective borrowing rates with respect to these notes.

     (ii) Medium Term Notes Payable Issued by ILFC: ILFC’s Medium Term Notes are unsecured obligations which may not be redeemed by ILFC prior to maturity.

     As of December 31, 2004, notes aggregating $5.97 billion were outstanding with maturity dates from 2005 to 2011 at interest rates ranging from 2.25 percent to 8.26 percent. These notes provide for a single principal payment at the maturity of each note.

     (iii) Medium Term Notes Payable Issued by AIG: AIG’s Medium Term Notes are unsecured obligations which generally may not be redeemed by AIG prior to maturity and bear interest at either fixed rates set by AIG at issuance or variable rates determined by reference to an interest rate or other formula.

An analysis of AIG’s Medium Term Notes for the year ended December 31, 2004 was as follows:

(in millions)		AIG				SAI				Total
Balance December 31, 2003		$	669			$	122			$	791
Matured during year			(4	)			(20	)			(24	)
Redeemed during year			(100	)			–				(100	)
Balance December 31, 2004		$	565			$	102			$	667

     The interest rates on AIG’s Medium Term Notes range from 0.50 percent to 2.85 percent. To the extent deemed appropriate, AIG may enter into swap transactions to reduce its effective borrowing rates with respect to these notes.

     At December 31, 2004, Medium Term Notes originally issued by SunAmerica, Inc. (SAI), which was merged into AIG on January 1, 1999, aggregating $102 million had maturity dates ranging from 2005 to 2026 at interest rates ranging from 6.43 percent to 7.34 percent.

     During 2000, AIG issued $210 million of equity-linked Medium Term Notes due May 15, 2007. These notes accrue interest at the rate of 0.50 percent and the total return on these notes is linked to the appreciation in market value of AIG’s common stock. The notes may be redeemed, at the option of AIG, as a whole but not in part, at any time on or after May 15, 2003. In conjunction with the issuance of these notes, AIG entered into a series of swap transactions which effectively converted its interest expense to a fixed rate of 7.17 percent until May 15, 2003 and a floating rate of LIBOR minus 0.50 percent thereafter and transferred the equity appreciation exposure to a third party for the life of the notes. AIG is exposed to credit risk with respect to the counterparties to these swap transactions. During 2003 and 2004, $45 mil-

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	9. Debt Outstanding (continued)

lion and $100 million of these notes were redeemed, respectively.

     At December 31, 2004, AIG had $25.1 billion of debt securities registered and available for issuance from time to time. However, due to the delay in filing this Annual Report on Form 10-K, AIG will be unable to issue registered debt securities until it has filed and had declared effective by the SEC post-effective amendments to its registration statements under the Securities Act of 1933.

(d) Notes and Bonds Payable:

     (i) Notes and Bonds Payable Issued by AIGFP: At December 31, 2004, AIGFP’s notes and bonds outstanding, the proceeds of which are invested in a diversified portfolio of securities and derivative transactions, were as follows:

Range of								U.S. Dollar
Maturities				Range of				Carrying
(dollars in millions)		Currency		Interest Rates				Value
2005-2039		U.S. dollar			0.26 -  9.50	%		$	11,357
2005-2026		United Kingdom pound			4.16 -  7.08				3,965
2005-2033		Euro			0.74 - 10.15				2,876
2005-2008		New Zealand dollar			6.30 -  8.35				1,156
2005-2034		Japanese yen			0.04 -  6.00				1,470
2005-2011		Australian dollar			2.50 -  5.41				94
2005-2024		Swiss francs			0.73 -  1.38				125
2009		Hong Kong dollar			1.30				19
Total								$	21,062

     AIGFP economically hedges its notes and bonds. AIG guarantees all of AIGFP’s debt.

     (ii) Notes and Bonds Payable Issued by ILFC: ILFC’s unsecured obligations may not be redeemed prior to maturity.

     As of December 31, 2004, notes aggregating $12.76 billion were outstanding with maturity dates from 2005 to 2013 and interest rates ranging from 2.95 percent to 6.63 percent. Notes aggregating $2.97 billion are at floating interest rates and the remainder are at fixed rates. These notes provide for a single principal payment at maturity.

     At December 31, 2004, ILFC had increased the aggregate principal amount outstanding of its medium term and long-term notes, including $518 million resulting from foreign exchange translation. ILFC had $13.13 billion of debt securities registered for public sale at December 31, 2004. As of December 31, 2004, $5.59 billion of debt securities were issued. In addition, ILFC has a Euro Medium Term Note Program for $7.0 billion, under which $4.48 billion in notes were sold through December 31, 2004. ILFC has substantially eliminated the currency exposure arising from foreign currency denominated notes by either hedging the notes through swaps or through the offset provided by operating lease payments. Notes issued under this program are included in Notes and Bonds Payable in the preceding table of borrowings.

     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 varies from 5.75 percent to 5.90 percent on these borrowings depending on the delivery date of the aircraft. At December 31, 2004, ILFC had $1.5 billion outstanding under this facility. The debt is collateralized by a pledge of the shares of a subsidiary of ILFC, which holds title to the aircraft financed under the facility. In May 2004, ILFC entered into a similarly structured Export Credit Facility (ECA) for up to a maximum of $2.64 billion for Airbus aircraft to be delivered in 2004 and 2005. The facility becomes available as the various European Export Credit Agencies provide their guarantees for aircraft based on a six-month forward-looking calendar, and the interest rate is determined through a bid process. As of December 31, 2004, ILFC had $202 million outstanding under this facility. Borrowings with respect to these facilities are included in Notes and Bonds Payable. In August 2004, ILFC received a commitment for an Ex-Im Bank comprehensive guarantee in the amount of $1.68 billion to support the financing of up to 30 new Boeing aircraft. The delivery period initially extends from September 1, 2004 through August 31, 2005, but may be extended to August 31, 2006. ILFC did not have any borrowings outstanding under this facility at December 31, 2004.

     During 2003, ILFC entered into various bank financings for a total funded amount of $1.3 billion. The financings mature through 2009. One tranche of one of the loans totaling $410 million was funded in Japanese yen and swapped to US dollars. The interest rates are LIBOR based and ranged from 0.375 percent to 1.625 percent above LIBOR at December 31, 2004.

     AIG does not guarantee any of the debt obligations of ILFC.

     (iii) Notes and Bonds Payable Issued by AGF: As of December 31, 2004, AGF notes aggregating $1.59 billion were outstanding with maturity dates ranging from 2005 to 2010 at interest rates ranging from 2.11 percent to 8.45 percent. These notes provide for a single principal payment at maturity.

     In 2003, AGF increased its shelf registration statement by $7.5 billion. AGF had $5.9 billion of debt securities registered and available for issuance at December 31, 2004. AGF uses the proceeds from the issuance of notes and bonds for the funding of its finance receivables.

     AIG does not guarantee any of the debt obligations of AGF.

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	9. Debt Outstanding (continued)

     (iv) Notes, Bonds and Debentures Issued by AIG:

         (A) Zero Coupon Notes: On October 1, 1984, AIG issued Eurodollar zero coupon notes in the aggregate principal amount at stated maturity of $750 million. The notes were offered at 12 percent of principal amount at stated maturity, bore no interest and matured on August 15, 2004.

         (B) Zero Coupon Convertible Senior Debentures: On November 9, 2001, AIG issued zero coupon convertible senior debentures in the aggregate principal amount at stated maturity of $1.52 billion. The notes were offered at 65.8 percent of principal amount at stated maturity, bear no interest unless contingent interest becomes payable under certain conditions and are due November 9, 2031. The net proceeds to AIG were $990 million. Commencing January 1, 2002, holders may convert the debentures into shares of AIG common stock at a conversion rate of 6.0627 shares per $1,000 principal amount of debentures on any day if AIG’s common stock price exceeds 120 percent of the conversion price on the last trading day of the preceding fiscal quarter for a set period of time, and after September 30, 2031, on any day if AIG’s common stock price exceeds such amount for one day, subject to certain restrictions. The debentures are redeemable by AIG on or after November 9, 2006 at specified redemption prices. Holders may require AIG to repurchase the debentures at specified repurchase prices on November 9, 2006, 2011, 2016, 2021, and 2026. At December 31, 2004, the debentures outstanding had a face value of $1.52 billion, unamortized discount of $475 million and a net book value of $1.04 billion. The amortization of the original issue discount was recorded as a component of other income (deductions) – net.

         (C) Notes and Debentures Issued by SAI: As of December 31, 2004, notes and debentures originally issued by SAI aggregating $435 million (net of amortized discount of $40 million) were outstanding with maturity dates from 2007 to 2097 at interest rates ranging from 5.60 percent to 9.95 percent.

         (D) Term Notes: On May 15, 2003, AIG sold $1.5 billion principal amount of notes in a Rule 144A/Regulation S offering, $500 million of which bear interest at a rate of 2.875 percent per annum and mature in 2008 and $1.0 billion of which bear interest at a rate of 4.250 percent per annum and mature in 2013. The notes are senior unsecured obligations of AIG and rank equally with all of AIG’s other senior debt outstanding. AIG completed an exchange offer in April 2004 with respect to the Rule 144A/ Regulation S Notes and issued in exchange substantially identical notes that are registered under the Securities Act.

     (v) Notes and Bonds Payable Issued by AGC: As of December 31, 2004, AGC notes aggregating $1.10 billion were outstanding with maturity dates ranging from 2005 to 2029 at interest rates ranging up to 7.75 percent.

     As of November 2001, AIG guaranteed the notes and bonds of AGC. During 2002, AGC issued $200 million in notes which matured in March 2003.

(e) Loans and Mortgages Payable: Loans and mortgages payable at December 31, 2004, consisted of the following:

		Uncollateralized				Collateralized
		Loans				Loans and
(in millions)		Payable				Mortgages Payable
ILFC		$	–			$	40
AIG Finance (Hong Kong) Limited			50				–
AIGCFG			792				–
AIG			269				80
Other subsidiaries			254				575
Total		$	1,365			$	695

     At December 31, 2004, ILFC’s capital lease obligations were $40 million. Fixed interest rates with respect to these obligations range from 6.18 percent to 6.89 percent; variable rates are referenced to LIBOR. These obligations mature through 2005. The flight equipment associated with the capital lease obligations had a net book value of $507 million.

At December 31, 2004, the maturity schedule for ILFC’s capital lease obligations was as follows:

(in millions)
2005		$	41
Less amount representing interest			1
Present value of net minimum capital lease obligations		$	40

(f) Liabilities Connected to Trust Preferred Stock: AGC issued Junior Subordinated Debentures (liabilities) to four trusts established by AGC, which represent the sole assets of the trusts. The trusts have no independent operations. The trusts issued mandatory redeemable preferred stock to investors. The interest terms and payment dates of the liabilities correspond to those of the preferred stock. AGC’s obligations with respect to the liabilities and related agreements, when taken together, constitute a full and unconditional guarantee by AGC of payments due on the preferred securities. The liabilities are redeemable, under certain conditions, at the option of AGC on a proportionate basis.

     The preferred stock consists of $100 million liquidation value of 8.05 percent preferred stock issued by American General Capital III in December 2000, $300 million liquidation value of 8.5 percent preferred stock issued by American General Capital II in June 2000, $500 million liquidation value of

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	9. Debt Outstanding (continued)

8.125 percent preferred stock issued by American General Institutional Capital B in March 1997, and $500 million liquidation value of 7.57 percent preferred stock issued by American General Institutional Capital A in December 1996.

(g) Revolving Credit Facilities: AIG and AIG Funding are parties to unsecured syndicated revolving credit facilities aggregating $2.75 billion, consisting of $1.375 billion in a 364-day revolving credit facility that expires in July of 2005 and $1.375 billion in a five-year revolving credit facility that expires in July of 2007. The 364-day facility allows for the conversion by AIG of any outstanding loans at expiration into one-year term loans. The facilities can be used for general corporate purposes and also to provide backup for AIG’s commercial paper programs administered by AIG Funding. AIG expects to replace or extend these credit facilities on or prior to their expiration. There are currently no borrowings outstanding under these facilities, nor were any borrowings outstanding as of December 31, 2004.

     AIG obtained waivers from the lenders under these revolving credit facilities providing for the extension of the delivery date of AIG’s consolidated financial statements for year-end 2004 and for the first quarter of 2005 through June 30, 2005.

     AIG is also a party to an unsecured inter-company revolving credit facility provided by certain of its subsidiaries aggregating $2 billion that expires in October of 2005. The facility allows for the conversion of any outstanding loans at expiration into one-year term loans. The facility can be used for general corporate purposes and also to provide backup for AIG’s commercial paper programs. AIG expects to replace or extend this credit facility on or prior to its expiration. There are currently no borrowings outstanding under the inter-company facility, nor were any borrowings outstanding as of December 31, 2004.

     AGF is a party to unsecured syndicated revolving credit facilities aggregating $3.25 billion, consisting of $1.75 billion in a 364-day revolving credit facility that expires in July of 2005 and $1.5 billion in a five-year revolving credit facility that expires in July of 2007. The 364-day facility allows for the conversion by AGF of any outstanding loans at expiration into one-year term loans. The facilities can be used for general corporate purposes and also to provide backup for AGF’s commercial paper programs. AGF expects to replace or extend these credit facilities on or prior to their expiration. There are currently no borrowings under these AGF facilities, nor were any borrowings outstanding as of December 31, 2004.

     AGF is also a party to several bilateral credit agreements aggregating $260 million at March 31, 2005. The terms and conditions of these agreements are identical to AGF’s 364-day revolving credit facility.

     ILFC is a party to unsecured syndicated revolving credit facilities aggregating $6.0 billion at December 31, 2004. The facilities can be used for general corporate purposes and also to provide backup for ILFC’s commercial paper program and consist of $4.0 billion in a 364-day revolving credit facility that expires in October 2005, with a one-year term out option and $2.0 billion in a five-year revolving credit facility that expires in October 2009. ILFC expects to replace or extend these credit facilities on or prior to their expiration. There are currently no borrowings under these facilities, nor were any borrowings outstanding as of December 31, 2004.

(h) Interest Expense for All Indebtedness: Total interest expense for all indebtedness, net of capitalized interest, aggregated $4.54 billion in 2004, $4.17 billion in 2003 and $3.69 billion in 2002. Capitalized interest was $59 million in 2004, $52 million in 2003 and $61 million in 2002. Cash distributions on the preferred shareholders’ equity in subsidiary companies of ILFC and liabilities connected to trust preferred stock of AGC subsidiaries are accounted for as interest expense in the consolidated statement of income. The cash distributions for ILFC were approximately $4 million, $4 million, and $5 million for the years ended December 31, 2004, 2003, and 2002, respectively. The cash distributions for AGC subsidiaries were approximately $123 million, $128 million and $129 million for the years ended December 31, 2004, 2003 and 2002, respectively.

	10. Preferred Shareholders’ Equity in Subsidiary Companies

As of December 31, 2004, Preferred shareholders’ equity in subsidiary companies represents preferred stocks issued by ILFC, a wholly owned subsidiary of AIG.

     At December 31, 2004, the preferred stock consists of 1,000 shares of market auction preferred stock (MAPS) in two series (Series A and B) of 500 shares each. Each of the MAPS shares has a liquidation value of $100,000 per share and is not convertible. The dividend rate, other than the initial rate, for each dividend period for each series is reset approximately every seven weeks (49 days) on the basis of orders placed in an auction. ILFC repurchased all of the shares of five additional series for their liquidation value in the fourth quarter of 2001 and a sixth in the first six months of 2002. No gains or losses were recognized. During 2001, ILFC extended the term of the Series A to five years at a dividend rate of 5.90 percent. At

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	10. Preferred Shareholders’ Equity in Subsidiary Companies (continued)

December 31, 2004, the dividend rate for Series B was 1.87 percent.

	11. Shareholders’ Equity

(a) AIG parent depends on its subsidiaries for cash flow in the form of loans, advances, reimbursement for shared expenses, and dividends. AIG’s insurance subsidiaries are subject to regulatory restrictions on the amount of dividends which can be remitted to AIG parent. These restrictions vary by state. For example, unless permitted by the New York Superintendent of Insurance, general insurance companies domiciled in New York may not pay dividends to shareholders which in any twelve month period exceed the lesser of ten percent of the company’s statutory policyholders’ surplus or 100 percent of its “adjusted net investment income,” as defined. Generally, less severe restrictions applicable to both General and Life Insurance companies exist in most of the other states in which AIG’s insurance subsidiaries are domiciled. Certain foreign jurisdictions have restrictions which generally cause only a temporary delay in the remittance of dividends. There are also various local restrictions limiting cash loans and advances to AIG by its subsidiaries. Largely as a result of the restrictions, approximately 89 percent of consolidated shareholders’ equity was restricted from immediate transfer to AIG parent at December 31, 2004.

     (b) At December 31, 2004, there were 6,000,000 shares of AIG’s $5 par value serial preferred stock authorized, issuable in series, none of which were outstanding.

(c) The common share activity for the three years ended December 31, 2004 was as follows:

		2004				2003				2002
Shares outstanding at beginning of year			2,608,447,046				2,609,600,831				2,615,431,999
Acquired during the year			(16,426,114	)			(3,899,991	)			(10,959,815	)
Issued pursuant to performance stock unit obligations			24,025				–				–
Issued under stock plans			4,310,733				2,699,584				4,633,631
Issued in connection with acquisitions			–				–				176,076
Issued under contractual obligations			67,500				46,622				318,940
Shares outstanding at end of year			2,596,423,190				2,608,447,046				2,609,600,831

	12. Commitments and Contingent Liabilities

In the normal course of business, various commitments and contingent liabilities are entered into by AIG and certain of its subsidiaries. In addition, AIG guarantees various obligations of certain subsidiaries.

(a) AIG and certain of its subsidiaries become parties to derivative financial instruments with market risk resulting from both dealer and end user activities and to reduce currency, interest rate, equity, and commodity exposures. These instruments are carried at their estimated fair values in the consolidated balance sheet. The vast majority of AIG’s derivative activity is transacted by AIGFP. See also Note 20 herein.

(b) Securities sold, but not yet purchased and spot commodities sold but not yet purchased represent obligations of Capital Markets operations to deliver specified securities and spot commodities at their contracted prices. Capital Markets records a liability to repurchase the securities and spot commodities in the market at prevailing prices.

     AIG has issued unconditional guarantees with respect to the prompt payment, when due, of all present and future payment obligations and liabilities of AIGFP arising from transactions entered into by AIGFP. Net revenues for the twelve months ended December 31, 2004, 2003 and 2002 from Capital Markets operations were $1.65 billion, $549 million and $1.21 billion, respectively.

(c) At December 31, 2004, ILFC had committed to purchase 371 new and used aircraft deliverable from 2005 through 2010 at an estimated aggregate purchase price of $21.6 billion and had options to purchase six new aircraft deliverable through 2007 at an estimated aggregate purchase price of $361 million. ILFC will be required to find customers for any aircraft acquired, and it must arrange financing for portions of the purchase price of such equipment.

(d) AIG and its subsidiaries, in common with the insurance industry in general, are subject to litigation, including claims for punitive damages, in the normal course of their business. The recent trend of increasing jury awards and settlements makes it difficult to assess the ultimate outcome of such litigation.

     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 collectively referred to as environmental claims) and indemnity claims asserting injuries from asbestos. Estimation of asbestos and environmental claims loss reserves is a difficult process, as these claims, which emanate from policies written in 1984 and prior years, cannot be estimated by conventional reserving tech-

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	12. Commitments and Contingent Liabilities (continued)

niques. Asbestos and environmental claims development is affected by factors such as inconsistent court resolutions, the broadening of the intent of policies and scope of coverage and increasing number of new claims. AIG, together with other industry members, has and will continue to litigate the broadening judicial interpretation of policy coverage and the liability issues. If the courts continue in the future to expand the intent of the policies and the scope of the coverage, as they have in the past, additional liabilities would emerge for amounts in excess of reserves held. This emergence cannot now be reasonably estimated, but could have a material effect on AIG’s future operating results. The reserves carried for these claims as at December 31, 2004 ($3.53 billion gross; $1.51 billion net including the fourth quarter 2004 adjustment to reflect a change in estimate) are believed to be adequate as these reserves are based on known facts and current law.

(e) SAI Deferred Compensation Holdings, Inc., a wholly-owned subsidiary of AIG, has established a deferred compensation plan for registered representatives of certain AIG subsidiaries, pursuant to which participants have the opportunity to invest deferred commissions and fees on a notional basis. The value of the deferred compensation fluctuates with the value of the deferred investment alternatives chosen. AIG has provided a full and unconditional guarantee of the obligations of SAI Deferred Compensation Holdings, Inc. to pay the deferred compensation under the plan.

(f) On May 18, 2005, the AIG Board of Directors passed resolutions (Resolutions) pursuant to which AIG agrees, subject to certain conditions, to (i) make any payment that is not promptly paid with respect to the benefits accrued by current employees of AIG and its subsidiaries under the SICO Plan (as defined in Note 16) and (ii) make any payment to the extent not promptly paid by Starr with respect to amounts that become payable to current employees of AIG and its subsidiaries who are also stockholders of Starr after the giving of a notice of repurchase or redemption under Starr’s organizational documents. AIG will accrue approximately $8 million for 2005 for these contingent liabilities.

(g) AIG and certain of its subsidiaries have been named defendants in two putative class actions in state court in Alabama that arise out of the 1999 settlement of class and derivative litigation involving Caremark Rx, Inc. (“Caremark”). An excess policy issued by a subsidiary of AIG with respect to the 1999 litigation was expressly stated to be without limit of liability. In the current actions, plaintiffs allege that the judge approving the 1999 settlement was misled as to the extent of available insurance coverage and would not have approved the settlement had he known of the existence and/or unlimited nature of the excess policy. They further allege that AIG, its subsidiaries, and Caremark are liable for fraud and suppression for misrepresenting and/or concealing the nature and extent of coverage. In their complaint, plaintiffs request compensatory damages for the 1999 class in the amount of $3.2 billion, plus punitive damages. AIG and its subsidiaries deny the allegations of fraud and suppression and have asserted, inter alia, that information concerning the excess policy was publicly disclosed months prior to the approval of the settlement. AIG and its subsidiaries further assert that the current claims are barred by the statute of limitations and that plaintiffs’ assertions that the statute was tolled cannot stand against the public disclosure of the excess coverage. Plaintiffs, in turn, have asserted that the disclosure was insufficient to inform them of the nature of the coverage and did not start the running of the statute of limitations. On January 28, 2005, the Alabama trial court determined that one of the current actions may proceed as a class action on behalf of the 1999 classes that were allegedly defrauded by the settlement. AIG, its subsidiaries, and Caremark are seeking appellate relief from the Alabama Supreme Court. AIG cannot now estimate either the likelihood of its prevailing in these actions or the potential damages in the event liability is determined.

(h) On December 30, 2004, an arbitration panel issued its ruling in connection with a 1998 workers compensation quota share reinsurance agreement under which Superior National Insurance Company, among others, was reinsured by The United States Life Insurance Company in the City of New York (USLIFE), a subsidiary of American General Corporation. In its 2-1 ruling the arbitration panel refused to rescind the contract as requested by USLIFE. Instead, the panel reformed the contract to reduce USLIFE’s participation by ten percent. USLIFE disagrees with the ruling and is pursuing all appropriate legal remedies. USLIFE has certain reinsurance recoverables in connection with the contract and the arbitration ruling established a second phase of arbitration in which USLIFE will present its challenges to cessions to the contract.

     AIG recorded approximately a $178 million pre-tax charge in the fourth quarter of 2004 related to this matter and holds a reserve of approximately $370 million as of December 31, 2004.

(i) As previously disclosed, on October 14, 2004, the Office of the Attorney General of the State of New York (NYAG) brought a lawsuit challenging certain insurance brokerage practices related to contingent commissions. Neither AIG nor any of its subsidiaries is a defendant in that action, although two employees of an AIG subsidiary pleaded guilty in connection with the Attorney General’s investigation in October 2004 and two additional employees of the same subsidiary pleaded guilty in February 2005. AIG has cooperated, and will continue to cooperate, in the investigation. Regulators

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	12. Commitments and Contingent Liabilities (continued)

from several additional states have commenced investigations into the same matters, and AIG expects there will be additional investigations as well. Various parties, including insureds and shareholders, have also asserted putative class action and other claims against AIG or its subsidiaries alleging, among other things, violations of the antitrust and federal securities laws, and AIG expects that additional claims may be made.

     Various federal and state regulatory agencies are reviewing certain other transactions and practices of AIG and its subsidiaries in connection with industry-wide and other inquiries.

     In February 2005, AIG received subpoenas from the NYAG and the SEC relating to investigations into the use of non-traditional insurance products and certain assumed reinsurance transactions and AIG’s accounting for such transactions. The United States Department of Justice and various state regulators are also investigating related issues. AIG has cooperated, and will continue to cooperate, in producing documents and other information in response to the subpoenas. As more fully described in Note 2, AIG has concluded that the accounting for certain transactions and certain relationships needs to be restated or adjusted.

     A number of lawsuits have been filed regarding the subject matter of the investigations of insurance brokerage practices and non-traditional insurance products, including derivative actions in New York state courts and civil actions under the federal securities laws and the Employee Retirement Income Security Act (ERISA) in the U.S. district court for the Southern District of New York. These actions are in the early pleadings stage.

     In addition, in late 2002, a shareholder derivative action was filed in Delaware Chancery Court alleging breaches of fiduciary duty of loyalty and care against AIG’s directors. AIG’s Board of Directors appointed a special committee of independent directors to review the complaint and respond to the lawsuit. The special committee has issued a report that concluded that it was not in the best interests of AIG or its shareholders to pursue the litigation and moved the Delaware Chancery Court to terminate the litigation. The Plaintiff filed an amended complaint on May 17, 2005. The amendment includes additional claims of breach of fiduciary duty by current and former directors of AIG based on, among other things, AIG’s transactions with reinsurers (including reinsurers in which AIG has an ownership interest) and accounting for these transactions, AIG’s broker compensation practices, and AIG’s sale of finite insurance products.

     On May 26, 2005, the NYAG and the New York Superintendent of Insurance filed a civil complaint against AIG as well as its former Chairman and Chief Executive Officer M.R. Greenberg, and former Vice Chairman and Chief Financial Officer Howard Smith, in the Supreme Court of the State of New York. The complaint asserts claims under New York’s Martin Act and Insurance Law, among others, and makes allegations concerning certain of the transactions discussed more fully in Management’s Discussion and Analysis of Financial Condition and Results of Operations, including, among others, Gen Re, Capco, AIRCO Reinsurance, Life Settlements, Richmond and Union Excess. The complaint seeks disgorgement, injunctive relief, punitive damages and costs, among other things.

     AIG cannot at this time predict the outcome of the matters described above or estimate the potential costs related to these matters and, accordingly, no reserve is being established in AIG’s financial statements at this time. In the opinion of AIG management, AIG’s ultimate liability for the matters referred to above is not likely to have a material adverse effect on AIG’s consolidated financial condition, although it is possible that the effect would be material to AIG’s consolidated results of operations for an individual reporting period.

	13. Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, “Disclosures about Fair Value of Financial Instruments” (FAS 107), requires disclosure of fair value information about financial instruments, as defined therein, for which it is practicable to estimate such fair value. In the measurement of the fair value of certain financial instruments, where quoted market prices are not available, other valuation techniques are utilized. These fair value estimates are derived using internally developed valuation methodologies based on available and observable market information. FAS 107 excludes certain financial instruments, including those related to insurance contracts.

     The following methods and assumptions were used by AIG in estimating the fair value of the financial instruments presented:

     Cash and short-term investments: The carrying amounts approximate fair values.

     Fixed maturity securities: Fair values were generally based upon quoted market prices. For certain fixed maturity securities for which market prices were not readily available, fair values were estimated using values obtained from independent pricing services. No other fair valuation techniques were applied to these securities as AIG believes it would have to expend excessive costs for the benefits derived.

     Equity securities: Fair values were based upon quoted market prices.

     Mortgage loans on real estate, policy and collateral loans: Where practical, the fair values of loans on real estate and collateral loans were estimated using discounted cash flow

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	13. Fair Value of Financial Instruments (continued)

calculations based upon AIG’s current incremental lending rates for similar type loans. The fair values of the policy loans were not calculated as AIG believes it would have to expend excessive costs for the benefits derived.

     Trading assets and trading liabilities: Fair values approximate the carrying values.

     Finance receivables: Fair values were estimated using discounted cash flow calculations based upon the weighted average rates currently being offered for similar finance receivables.

     Securities available for sale: Fair values were based on quoted market prices. Where market prices were not readily available, fair values were estimated using quoted market prices of comparable investments.

     Securities lending collateral and securities lending payable: The contract values of these financial instruments approximate fair value.

     Trading securities: Fair values were based on current market value where available. For securities for which market values were not readily available, fair values were estimated using quoted market prices of comparable investments.

     Spot commodities: Fair values were based on current market prices.

     Unrealized gains and losses on swaps, options and forward transactions: Fair values were based on the use of valuation models that utilize, among other things, current interest, foreign exchange commodity, equity and volatility rates, as applicable.

     Securities purchased (sold) under agreements to resell (repurchase), at contract value: As these securities (obligations) are short-term in nature, the contract values approximate fair values.

     Other invested assets: Consisting principally of hedge funds and limited partnerships. Fair values are provided by the general partner or manager of each investment.

     Policyholders’ contract deposits: Fair values were estimated using discounted cash flow calculations based upon interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued.

     GIAs: Fair values of AIG’s obligations under investment type agreements were estimated using discounted cash flow calculations based on interest rates currently being offered for similar agreements with maturities consistent with those remaining for the agreements being valued.

     Securities and spot commodities sold but not yet purchased: The carrying amounts for the financial instruments approximate fair values. Fair values for spot commodities sold short were based on current market prices.

     Trust deposits and deposits due to banks and other depositors: To the extent certain amounts are not demand deposits or certificates of deposit which mature in more than one year, fair values were not calculated as AIG believes it would have to expend excessive costs for the benefits derived.

     Commercial paper: The carrying amount approximates fair value.

     Notes, bonds, loans and mortgages: Where practical, the fair values of these obligations were estimated using discounted cash flow calculations based upon AIG’s current incremental borrowing rates for similar types of borrowings with maturities consistent with those remaining for the debt being valued.

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	13. Fair Value of Financial Instruments (continued)

The carrying values and fair values of AIG’s financial instruments at December 31, 2004 and 2003 with respect to derivative positions during 2004 and 2003 were as follows:

			2004								2003 (Restated)
			Carrying				Fair				Carrying				Fair
(in millions)			Value				Value				Value				Value
Assets:
	Fixed maturities		$	365,677			$	366,174			$	309,254			$	309,390
	Equity securities			17,851				17,851				9,584				9,584
	Mortgage loans on real estate, policy and collateral loans			22,463				22,959				21,227				22,067
	Securities available for sale			30,448				30,448				24,042				24,042
	Trading securities			3,142				3,142				4,418				4,418
	Spot commodities			95				95				250				250
	Unrealized gain on swaps, options and forward transactions			22,670				22,670				21,459				21,459
	Trading assets			3,331				3,331				2,277				2,277
	Securities purchased under agreements to resell			26,272				26,272				20,845				20,845
	Finance receivables, net of allowance			23,574				24,133				17,500				18,013
	Securities lending collateral			49,972				49,972				30,195				30,195
	Other invested assets			22,527				22,527				18,484				18,484
	Short-term investments			16,102				16,102				8,908				8,908
	Cash			2,009				2,009				922				922
Liabilities:
	Policyholders’ contract deposits			216,655				212,724				171,917				169,336
	Borrowings under obligations of guaranteed investment agreements			18,919				20,897				15,337				17,113
	Securities sold under agreements to repurchase			21,264				21,264				15,813				15,813
	Trading liabilities			2,304				2,304				6,153				6,153
	Securities and spot commodities sold but not yet purchased			4,866				4,866				5,458				5,458
	Unrealized loss on swaps, options and forward transactions			18,132				18,132				14,658				14,658
	Trust deposits and deposits due to banks and other depositors			4,248				4,553				3,627				3,807
	Commercial paper			9,693				9,693				5,938				5,938
	Notes, bonds, loans and mortgages payable			65,162				67,064				57,252				59,226

	14. Stock Compensation Plans

At December 31, 2004, AIG had three types of stock-based compensation plans: (i) a stock option plan; (ii) an incentive stock plan under which restricted stock units had been issued; and (iii) an employee stock purchase plan.

     Effective January 1, 2003, AIG adopted the recognition provision of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (FAS 123). This statement establishes the financial accounting and reporting standards for stock-based employee compensation plans, such as AIG’s stock purchase plan, stock option plan, and stock incentive plan. Under the recognition provisions of FAS 123, costs with respect to stock compensation are measured using the fair value of the shares subscribed or granted as at the date of grant recognized ratably over the vesting period. Such fair value is derived through an option pricing model.

     Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment to FASB Statement No. 123” (FAS 148), was issued in 2002. This statement amended FAS 123 and provides alternative methods of transition for a voluntary change to the recognition provisions of FAS 123. Also, FAS 148 amended certain of the disclosure requirements of FAS 123.

     AIG elected the “Prospective Method” in the application of the recognition provisions as prescribed by FAS 123. Such method provides for the recognition of the fair value with respect to stock-based compensation for shares subscribed for or granted on or after January 1, 2003.

     Prior to adoption of the recognition provisions of FAS 123, as amended, AIG recognized stock compensation in accordance with the provisions of APB Opinion No. 25 “Accounting for Stock Issued to Employees.” Shares subscribed for or granted prior to January 1, 2003 continue to be accounted for pursuant to APB Opinion No. 25.

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	14. Stock Compensation Plans (continued)

With respect to net income for December 31, 2004, 2003, and 2002, the following table provides a pro forma reconciliation as if AIG had adopted the recognition provisions of FAS 123 at its inception:

			2004				2003				2002
(in millions, except per share amounts)							(Restated)				(Restated)
Net income, as reported			$	9,731			$	8,009			$	5,866
Add back interest on contingently convertible bonds, net of tax				11				11				10
				9,742				8,020				5,876
Actual stock-based compensation recognized, net of tax				40				16				–
				9,782				8,036				5,876
Pro forma stock-based compensation, net of tax				49				56				55
Actual stock-based compensation recognized, net of tax				40				16				–
Net income, pro forma			$	9,693			$	7,964			$	5,821
Earnings per common share:
	Basic:
	Net income, as reported		$	3.73			$	3.07			$	2.25
	Stock-based compensation, net of tax			(0.02	)			(0.02	)			(0.03	)
Net income, pro forma			$	3.71			$	3.05			$	2.22
	Diluted:
	Net income, as reported		$	3.69			$	3.04			$	2.22
	Stock-based compensation, net of tax			(0.02	)			(0.02	)			(0.03	)
Net income, pro forma			$	3.67			$	3.02			$	2.19
Average shares outstanding:
	Basic			2,606				2,610				2,612
	Diluted			2,637				2,637				2,643

     AIG currently uses a binomial model to calculate the fair value of stock option grants. The model uses ten years of historical exercise behavior to account for the early exercise of employee options and five years of historical stock price data to infer the implied volatility. The fair-value model has been refined from time to time since AIG adopted FAS 123 on January 1, 2003, but valuation results have been consistent from one reporting period to the next.

     The fair values of stock options granted during the three years ended December 31, 2004, 2003, and 2002 were $80 million, $179 million and $140 million, respectively.

     The following weighted average assumptions were used for stock options granted in 2004, 2003 and 2002, respectively: dividend yields of 0.36 percent, 0.32 percent and 0.26 percent; expected volatility of 34.4 percent, 34.0 percent and 34.0 percent; risk-free interest rates of 3.87 percent, 3.57 percent and 4.33 percent; and expected terms of seven years in each year.

     Also included in the above table is the compensation expense with respect to AIG’s employee stock purchase plan. The fair value calculated was derived by using the Black-Scholes model. The pro forma recognition of such fair value had an insignificant effect on the pro forma amounts disclosed above.

     The fair values of purchase privileges granted during the years ended December 31, 2004, 2003 and 2002 were $12 million, $12 million and $8 million, respectively. The weighted average fair values per share of those purchase rights granted in 2004, 2003, and 2002 were $14.82, $11.64, and $12.42, respectively. The fair value of each purchase right was derived at the date of the subscription using the AIG model.

     The following weighted average assumptions were used for purchase privileges granted in 2004, 2003 and 2002, respectively: dividend yields of 0.36 percent, 0.32 percent and 0.26 percent; expected volatilities of 34.4 percent, 34.0 percent and 34.0 percent; risk-free interest rates of 1.60 percent, 1.10 percent and 1.26 percent; and terms of one year.

(a) Stock Option Plan: The AIG 1999 Stock Option Plan, as amended (the 1999 Plan), provides that options to purchase a maximum of 45,000,000 shares of common stock can be granted to certain key employees and members of the Board of Directors at prices not less than fair market value at the date of grant. The 1999 Plan limits the maximum number of shares as to which stock options may be granted to any employee in any one year to 900,000 shares. Options granted under this Plan expire not more than ten years from the date of the grant. Options with respect to 25,000 shares, 25,000 shares, and 25,000 shares were granted to nonemployee members of the Board of Directors on May 19, 2004, May 14, 2003 and February 10, 2003, respectively. These options become exercisable on the first anniversary of the date of grant, expire ten years from the date of grant, and do not qualify for Incentive Stock Option Treatment under the Section 422 of the Internal Revenue Code (ISO Treatment). The 1999 Plan, and the options previously granted thereunder, were approved by the shareholders at the 2000 Annual Meeting of Shareholders, and certain amendments were approved at the 2003 Annual Meeting of Shareholders. At December 31, 2004, 23,164,449 shares

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	14. Stock Compensation Plans (continued)

were reserved for future grants under the 1999 Plan. The 1999 Plan superseded the 1991 employee stock option plan (the 1991 Plan) and the previously superseded 1987 employee stock option plan (the 1987 Plan), although outstanding options granted under the 1991 Plan continue in force until exercise or expiration. At December 31, 2004, there were 28,416,552 shares reserved for issuance under the 1999 Plan and the 1991 Plan.

     During 2003, AIG granted options with respect to 137,300 shares which become exercisable on the fifth anniversary of the date of grant and expire ten years from the date of grant. These options do not qualify for ISO Treatment. The agreements with respect to all other options granted to employees under these plans in 2004 and 2003 provide that 25 percent of the options granted become exercisable on the anniversary of the date of grant in each of the four years following that grant and expire 10 years from the date of the grant. As of December 31, 2004, outstanding options granted with respect to 13,304,176 shares qualified for ISO Treatment.

     At January 1, 1999, the merger date, SunAmerica Inc. had five stock-based compensation plans pursuant to which options, restricted stock, and deferred share and share unit obligations had been issued and remained outstanding. Options granted under these plans had an exercise price equal to the market price on the date of grant, had a maximum term of ten years, and generally became exercisable ratably over a five-year period. Substantially all of the SunAmerica Inc. options outstanding at the merger date became fully vested on that date and were converted into options to purchase AIG common stock at the exchange ratio of 0.855 shares of AIG common stock for each share of SunAmerica Inc. common stock. No further options can be granted under the SunAmerica Inc. plans, but outstanding options so converted continue in force until exercise or expiration. At December 31, 2004, there were 13,750,667 shares of AIG common stock reserved for issuance on exercise of options under these plans. None of these options qualified for ISO Treatment as of December 31, 2004.

     During 2004, 2003 and 2002, deferred share and share unit obligations with respect to 1,895 shares, 1,895 shares and 1,895 shares, respectively, of AIG common stock vested and were issued. No additional deferred share or share unit obligations may be granted under the SunAmerica plans. As of December 31, 2004, deferred share and share unit obligations with respect to 61,867 shares remained outstanding under the SunAmerica plans.

     The AIG Board of Directors has construed the AIG stock option plans to allow, at the request of an optionee, the deferral of delivery of AIG shares otherwise deliverable upon the exercise of an option to a date or dates specified by the optionee. During 2004, options with respect to 3,397,999 shares were exercised with delivery deferred. At December 31, 2004, optionees had made valid elections to defer delivery of 3,102,648 shares of AIG common stock upon exercise of options expiring during 2005. In addition, nonemployee directors of AIG made valid elections to defer delivery of 63,280 shares and 42,186 shares of AIG common stock upon exercise of options expiring during 2005 and 2006, respectively.

     As a result of the acquisition of HSB in November 2000, HSB options outstanding at the acquisition date were fully vested and were converted into options to purchase AIG common stock at the exchange ratio of 0.4178 shares of AIG common stock for each share of HSB common stock. No further options can be granted under the HSB option plans, but outstanding options so converted continue in force until exercise or expiration. At December 31, 2004, there were 722,814 shares of AIG common stock reserved for issuance under the HSB option plans, none of which qualified for ISO Treatment.

     At August 29, 2001, AGC had stock-based compensation plans pursuant to which options and restricted share units had been issued and remained outstanding. Options granted under these plans had an exercise price equal to the market price on the date of the grant, had a maximum term of ten years, and generally became exercisable ratably over a three-year period. All of the AGC options outstanding at the acquisition date became fully vested on that date and were converted into options to purchase AIG common stock at an exchange ratio of 0.5790 shares of AIG common stock for each share of AGC common stock. No further options can be granted under the AGC plans, but outstanding options so converted continue in force until exercise or expiration. At December 31, 2004, there were 11,572,970 shares of AIG common stock reserved for issuance on exercise of options under these plans. Options with respect to 1,406,489 of these shares qualified for ISO Treatment as of December 31, 2004.

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	14. Stock Compensation Plans (continued)

Additional information with respect to AIG’s plans at December 31, 2004, and changes for the three years then ended, were as follows:

			2004								2003								2002
							Weighted								Weighted								Weighted
							Average								Average								Average
			Shares				Exercise Price				Shares				Exercise Price				Shares				Exercise Price
Shares Under Option:
	Outstanding at beginning of year			59,253,166			$	48.00				54,214,016			$	45.63				54,295,320			$	42.68
	Granted			3,474,100				64.65				8,602,909				56.15				5,683,324				66.17
	Exercised			(3,387,734	)			34.02				(2,182,680	)			22.69				(4,242,718	)			35.04
	Exercised, delivery deferred			(3,397,999	)			5.98				(495,787	)			8.46				(590,048	)			6.60
	Forfeited			(1,478,530	)			70.69				(885,292	)			66.37				(931,862	)			72.29
Outstanding at end of year				54,463,003			$	51.94				59,253,166			$	48.00				54,214,016			$	45.63
Options exercisable at year-end				40,211,710			$	47.80				43,397,566			$	42.17				43,978,843			$	39.30
Weighted average fair value per share of options granted							$	25.61							$	20.86							$	24.65

     In addition, at December 31, 2004, options to purchase 243,125 shares at a weighted average exercise price of $20.33

Information about stock options outstanding at December 31, 2004, is summarized as follows:

			Options Outstanding										Options Exercisable
					Weighted				Weighted								Weighted
					Average				Average								Average
			Number		Remaining				Exercise				Number				Exercise
			Outstanding		Contractual Life				Price				Exercisable				Price
Range of Exercise Prices:
$ 7.67 - 24.68			9,023,979			1.9 years			$	18.23				9,023,979			$	18.23
	25.99 - 38.23		7,211,758			3.2 years				34.67				7,211,758				34.67
	41.23 - 48.70		4,878,421			7.2 years				46.86				2,127,763				46.67
	50.19 - 59.99		9,558,798			4.3 years				55.53				9,490,885				55.52
	60.13 - 63.95		10,003,856			7.9 years				62.33				4,641,587				61.56
	64.01 - 73.87		7,121,482			7.7 years				65.67				3,398,120				66.10
	76.07 - 98.00		6,664,709			6.6 years				84.56				4,317,618				85.95
			54,463,003						$	51.94				40,211,710			$	47.80

(b) 2002 Stock Incentive Plan: AIG’s 2002 Stock Incentive Plan was adopted at its 2002 shareholders’ meeting and amended and restated by the AIG Board of Directors on September 18, 2002. This plan provides that equity-based or equity-related awards with respect to shares of common stock can be issued to officers, employees or members of the Board of Directors of AIG in any year up to a maximum of that number of shares equal to (a) 1,000,000 shares plus (b) the number of shares available but not issued in the prior calendar year. Under the Plan, no grantee may receive awards covering more than 250,000 shares of common stock. During 2004 and 2003, AIG granted restricted stock units (RSUs) relating to 992,481 shares and 222,974 shares of common stock to employees, respectively. These RSUs will vest on the fourth anniversary of the date of grant assuming continued employment through such date. AIG reserves the right to make payment for the RSUs in shares of common stock or the cash equivalent on the date of vesting. At December 31, 2004, there were 16,631,980 shares of common stock reserved for issuance in connection with future grants of awards under the Plan.

(c) Performance-Based Restricted Stock Units: During 2002 AIG issued performance-based restricted stock units with respect to 4,783 shares of AIG common stock in connection with contractual obligations as a result of the AGC acquisition.

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	14. Stock Compensation Plans (continued)

(d) Employee Stock Purchase Plan: AIG’s 1996 Employee Stock Purchase Plan, as amended and approved by AIG shareholders in 2003 (the 1996 Plan), provides that eligible employees (those employed at least one year) may receive privileges to purchase up to an aggregate of 10,000,000 shares of AIG common stock, at a price equal to 85 percent of the fair market value on the date of the grant of the purchase privilege. Purchase privileges are granted annually and are limited to the number of whole shares that can be purchased by an amount equal to 10 percent of an employee’s annual salary or $10,000, whichever is less. There were 922,999 shares, 516,904 shares and 274,442 shares issued under the 1996 plan at weighted average prices of $46.41, $48.03 and $70.76 for the years ended December 31, 2004, 2003 and 2002, respectively. The excess or deficit of the proceeds over the par value or cost of the common stock issued was credited or charged to additional paid-in capital.

     As of December 31, 2004, there were 798,775 shares of common stock subscribed to at a weighted average price of $58.79 per share pursuant to grants of privileges under the 1996 plan. There were 4,295,367 shares available for the grant of future purchase privileges under the 1996 plan at December 31, 2004.

	15. Employee Benefits

(a) Pension Plans: Employees of AIG, its subsidiaries and certain affiliated companies, including employees in foreign countries, are generally covered under various funded, unfunded and insured pension plans. Eligibility for participation in the various plans is based on either completion of a specified period of continuous service or date of hire, subject to age limitations.

     AIG’s U.S. retirement plan is a qualified, noncontributory defined benefit plan which is subject to the provisions of the Employee Retirement Income Security Act of 1974. All employees of AIG and most of its subsidiaries and affiliates who are regularly employed in the United States, including certain U.S. citizens employed abroad on a U.S. dollar payroll, and who have attained age 21 and completed twelve months of continuous service are eligible to participate in this plan. An employee with 5 or more years of plan participation is entitled to pension benefits beginning at normal retirement at age 65. Benefits are based upon a percentage of average final compensation multiplied by years of credited service limited to 44 years of credited service. The average final compensation is subject to certain limitations. Employees may elect certain options with respect to receipt of their pension benefits including a joint and survivor annuity. An employee with 10 or more years of plan participation may retire early from age 55 to 64. An early retirement factor is applied resulting in a reduced benefit. If an employee terminates with less than five years of plan participation, the employee forfeits the right to receive any pension benefits accumulated to that time. Annual funding requirements are determined based on the “projected unit credit” cost method, which attributes a pro rata portion of the total projected benefit payable at normal retirement to each year of credited service.

     The HSB retirement plan was merged into the AIG U.S. retirement plan effective April 1, 2001. Benefits for HSB participants were changed effective January 1, 2005 to be substantially similar to the AIG U.S. retirement plan benefit subject to a grandfathering agreement. The AGC retirement plan was merged into the AIG U.S. retirement plan effective January 1, 2002. Benefits for AGC participants were changed effective January 1, 2003 to be substantially similar to the AIG U.S. retirement plan benefits subject to grandfathering requirements.

     AIG SunAmerica employees began participation and accruing benefits in the AIG plan on January 1, 2003. Vesting with respect to AIG SunAmerica employees in the AIG plan begins on the later of January 1, 1999 or the date of hire.

     21^st Century Insurance Group sponsors its own benefit plans for its eligible employees. Assets, obligations and costs with respect to 21^st Century’s plans are included herein. The assumptions used in its plans were not significantly different from those used by AIG in AIG’s U.S. plans.

     The AIG Excess Retirement Income Plan provides a benefit equal to the reduction in benefits payable under the AIG U.S. retirement plan as a result of federal tax limitations on compensation and benefits payable thereunder. AIG has adopted a Supplemental Executive Retirement Plan (Supplemental Plan) to provide additional retirement benefits to designated executives. Under the Supplemental Plan, an annual benefit accrues at a percentage of final average pay multiplied by each year of credited service, not greater than 60 percent of final average pay, reduced by any benefits from the current and any predecessor retirement plans (including the AIG Excess Retirement Income Plan and any comparable plans), Social Security, if any, and from any qualified pension plan of prior employers. Currently, each of these plans is unfunded. AGC and HSB have adopted similar supplemental type plans. These plans are also unfunded.

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	15. Employee Benefits (continued)

     Where non-U.S. retirement plans are defined benefit plans, they are either based on the employees’ years of credited service and average compensation in the years preceding retirement, or on points accumulated based on the employee’s job grade and other factors during each year of service.

(b) Postretirement Plans: In addition to AIG’s defined benefit pension plan, AIG and its subsidiaries provide a postretirement benefit program for medical care and life insurance domestically and in certain foreign countries. Eligibility in the various plans is generally based upon completion of a specified period of eligible service and attaining a specified age. Overseas, benefits vary by geographic location.

     AIG’s U.S. postretirement medical and life insurance benefits are based upon the employee electing immediate retirement and having a minimum of ten years of service. Retirees who were age 65 by May 1, 1989 and their dependents participate in the medical plan at no cost. Employees who retired after May 1, 1989 and prior to January 1, 1993 pay the active employee premium if under age 65 and 50 percent of the active employee premium if over age 65. Retiree contributions are subject to adjustment annually. Other cost sharing features of the medical plan include deductibles, coinsurance and Medicare coordination and a lifetime maximum benefit of $2.0 million. The maximum life insurance benefit prior to age 70 is $32,500, with a maximum of $25,000 thereafter.

     Effective January 1, 1993, both plans’ provisions were amended. Employees who retire after January 1, 1993 are required to pay the actual cost of the medical benefits premium reduced by a credit of a certain amount, based on years of service at retirement. The life insurance benefit varies by age at retirement from $5,000 for retirement at ages 55 through 59; $10,000 for retirement at ages 60 through 64 and $15,000 for retirement at ages 65 and over.

(c) Voluntary Savings Plans: AIG sponsors a voluntary savings plan for domestic employees (the AIG Incentive Savings plan), which, during the three years ended December 31, 2004, provided for salary reduction contributions by employees and matching contributions by AIG of up to seven percent of annual salary depending on the employees’ years of service. Contributions are funded currently.

     AGC sponsored a voluntary savings plan for its employees, which was merged into the AIG Incentive Savings plan on January 1, 2003.

     HSB sponsored a voluntary savings plan for its employees, which was merged into the AIG Incentive Savings plan on January 1, 2002.

     AIG SunAmerica sponsored a voluntary savings plan for its employees, which was merged into the AIG Incentive Savings plan on January 1, 2003. Under an Executive Savings Plan, designated AIG SunAmerica executives also could defer up to 90 percent of cash compensation and AIG SunAmerica matched four percent of the participants’ base salaries deferred. Contributions are funded currently.

(d) Post Employment Benefits: AIG provides certain benefits to inactive employees who are not retirees. Certain of these benefits are insured and expensed currently; other expenses are provided for currently. Such uninsured expenses include medical and life insurance continuation, and COBRA medical subsidies.

(e) Benefit Obligations: Accumulated benefit obligations represent the present value of pension benefits earned as of December 31, 2004 based on service and compensation as of December 31, 2004. Projected benefit obligations for defined benefit plans represent the present value of pension benefits earned as of December 31, 2004 projected for estimated salary increases as of an assumed date with respect to retirement, termination, disability or death. Projected benefit obligations for postretirement plans represent the present value of postretirement medical and life insurance benefits deemed earned as of December 31, 2004 projected for estimated salary and medical claim rate increases as of an assumed date with respect to retirement, termination, disability, or death.

The accumulated benefit obligations with respect to both non-U.S. and U.S. pension benefit plans as of December 31, 2004 and 2003 were as follows:

(in millions)		2004				2003
Non-U.S. pension benefit plans		$	1,260			$	1,243
U.S. pension benefit plans		$	2,367			$	2,252

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	15. Employee Benefits (continued)

The following table sets forth the change in the projected benefit obligation of the defined benefit pension plans, including the supplemental plans, and postretirement benefit plans as of December 31, 2004 and 2003:

			Pension												Postretirement
			Non-U.S.				U.S.								Non-U.S.				U.S.
(in millions)			Plans				Plans(a)				Total				Plans				Plans				Total
2004
Change in projected benefit obligation:
	Benefit obligation at beginning of year		$	1,348			$	2,602			$	3,950			$	16			$	247			$	263
	Service cost			59				101				160				3				6				9
	Interest cost			33				147				180				2				14				16
	Participant contributions			2				–				2				–				–				–
	Actuarial loss			133				59				192				11				(6	)			5
	Plan amendments and mergers			(92	)			(42	)			(134	)			–				–				–
	Benefits paid:
	AIG assets			(48	)			(8	)			(56	)			(1	)			(16	)			(17	)
	Plan assets			(27	)			(71	)			(98	)			–				–				–
	Effect of foreign currency fluctuation			67				–				67				1				–				1
	Other(b)			(99	)			(38	)			(137	)			3				(2	)			1
Benefit obligation at end of year			$	1,376			$	2,750			$	4,126			$	35			$	243			$	278
2003
Change in projected benefit obligation:
	Benefit obligation at beginning of year		$	1,071			$	2,146			$	3,217			$	16			$	238			$	254
	Service cost			52				79				131				1				4				5
	Interest cost			33				151				184				1				15				16
	Participant contributions			4				–				4				–				–				–
	Actuarial loss			139				277				416				(3	)			5				2
	Plan amendments and mergers			34				27				61				–				–				–
	Benefits paid:
	AIG assets			(41	)			(7	)			(48	)			–				(15	)			(15	)
	Plan assets			(25	)			(71	)			(96	)			–				–				–
	Effect of foreign currency fluctuation			107				–				107				1				–				1
	Other			(26	)			–				(26	)			–				–				–
Benefit obligation at end of year			$	1,348			$	2,602			$	3,950			$	16			$	247			$	263

(a)	Includes excess retirement income type plans and supplemental executive type plans.
(b)	With respect to the non-U.S. Plans obligations, the reduction resulted from transferring to the Japanese government certain Japanese plan obligations approximating $50 million. Additionally, the Japanese government also provided a subsidy with respect to certain Japanese plan obligations approximating $50 million.

The weighted average assumptions used to determine the benefit obligations at December 31, 2004 and 2003 were as follows:

			Pension								Postretirement
			Non-U.S.				U.S.				Non-U.S.				U.S.
			Plans				Plans				Plans				Plans
2004
	Discount rate			1.75 - 12.00%				5.75%				4.50 - 6.00%				5.75	%
	Rate of compensation increase			1.50 - 10.00%				4.25%				3.00%				4.25	%
2003
	Discount rate			2.00 -  8.00%				6.00%				5.50 - 6.00%				6.00	%
	Rate of compensation increase			1.50 -  7.00%				4.25%				5.50%				4.25	%

     The benefit obligations outside the United States reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries providing such benefits.

     A 9.0 percent annual rate of increase in the per capita cost of covered healthcare benefits for AIG’s U.S. plans will be assumed for 2005. This rate is assumed to decrease gradually to 5.0 percent through 2009 and remain at that level thereafter.

     The assumed range for 2005 with respect to the annual rates of increase in the per capita cost of covered healthcare benefits of AIG’s non-U.S. plans is 7.0 to 9.2 percent. These rates are assumed to decrease gradually to 5.0 percent after three to six years and remain at that level thereafter.

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	15. Employee Benefits (continued)

A one percent point change in the assumed healthcare cost trend rate would have the following effect on AIG’s postretirement benefit obligations at December 31, 2004:

		One Percentage Point
(in millions)		Increase				Decrease
Non-U.S. plans		$	6			$	4
U.S. plans		$	3			$	3

(f) Funded Status: The funded status of the AIG defined benefit plans is a comparison of the pension benefit obligations to the assets related to the respective plan, if any. The difference between the two represents amounts that have been appropriately recognized as expenses in prior periods or represent amounts that will be recognized as expenses in the future.

The following table sets forth the funded status of the plans, reconciled to the amount reported on the consolidated balance sheet at December 31, 2004 and 2003:

			Pension												Postretirement(b)
			Non-U.S.				U.S.								Non-U.S.				U.S.
(in millions)			Plans(a)				Plans				Total				Plans				Plans				Total
2004
Fair value of plan assets			$	624			$	2,247			$	2,871			$	–			$	–			$	–
Less projected benefit obligations				1,376				2,750				4,126				35				243				278
	Funded status			(752	)			(503	)			(1,255	)			(35	)			(243	)			(278	)
Amounts not yet recognized:
	Actuarial (gains)/losses(c)			380				840				1,220				–				44				44
	Prior service cost			(101	)			3				(98	)			–				(39	)			(39	)
	Transition obligations			2				–				2				–				–				–
Net amount recognized			$	(471	)		$	340			$	(131	)		$	(35	)		$	(238	)		$	(273	)
Composition of net amount recognized:
	Prepaid benefit cost		$	13			$	499			$	512			$	–			$	–			$	–
	Accrued benefit cost			(697	)			(191	)			(888	)			(35	)			(238	)			(273	)
	Intangible asset			5				6				11				–				–				–
	Accumulated other comprehensive income			208				26				234				–				–				–
Net amount recognized			$	(471	)		$	340			$	(131	)		$	(35	)		$	(238	)		$	(273	)
2003
Fair value of plan assets			$	591			$	2,124			$	2,715			$	–			$	–			$	–
Less projected benefit obligations				1,348				2,602				3,950				16				247				263
	Funded status			(757	)			(478	)			(1,235	)			(16	)			(247	)			(263	)
Amounts not yet recognized:
	Actuarial (gains)/losses(c)			281				830				1,111				–				52				52
	Prior service cost			(14	)			44				30				–				(45	)			(45	)
	Transition obligations			3				–				3				–				–				–
Net amount recognized			$	(487	)		$	396			$	(91	)		$	(16	)		$	(240	)		$	(256	)
Composition of net amount recognized:
	Prepaid benefit cost		$	2			$	550			$	552			$	–			$	–			$	–
	Accrued benefit cost			(756	)			(185	)			(941	)			(16	)			(240	)			(256	)
	Intangible asset			9				5				14				–				–				–
	Accumulated other comprehensive income			258				26				284				–				–				–
Net amount recognized			$	(487	)		$	396			$	(91	)		$	(16	)		$	(240	)		$	(256	)

(a)	A significant portion of these plans, particularly those in Japan, are not required by local regulation to be funded currently. With respect to the funded status of these Japanese plans, approximately $480 million represents the projected benefit obligation and approximately $400 million has been recognized at December 31, 2004.
(b)	AIG does not currently fund postretirement benefits.
(c)	Actuarial (gains)/losses are amounts included in the projected benefit obligations but not yet recognized in the financial statements.

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	15. Employee Benefits (continued)

Defined benefit pension plan obligations where the projected benefit obligation was in excess of the related plan assets at December 31, 2004 and 2003 were as follows:

		2004								2003
		Non-U.S.				U.S.				Non-U.S.				U.S.
(in millions)		Plans				Plans				Plans				Plans
Projected benefit obligation		$	1,344			$	2,750			$	1,324			$	2,602
Accumulated benefit obligation			1,240				2,367				1,222				2,252
Fair value of plan assets			576				2,247				554				2,124

Defined benefit pension plan obligations where the accumulated benefit obligation was in excess of the related plan assets at December 31, 2004 and 2003 were as follows:

		2004								2003
		Non-U.S.				U.S.				Non-U.S.				U.S.
(in millions)		Plans				Plans				Plans				Plans
Projected benefit obligation		$	1,324			$	232			$	1,308			$	227
Accumulated benefit obligation			1,226				194				1,215				192
Fair value of plan assets			558				9				542				9

(g) Plan Assets: The following table sets forth the change in plan assets as at December 31, 2004 and 2003:

			Pension												Postretirement
			Non-U.S.				U.S.								Non-U.S.				U.S.
(in millions)			Plans				Plans				Total				Plans				Plans				Total
2004
	Change in plan assets:
	Fair value of plan assets at beginning of year		$	591			$	2,124			$	2,715			$	–			$	–			$	–
	Actual return on plan assets net of expenses			40				151				191				–				–				–
	AIG contributions			81				61				142				1				16				17
	Participant contributions			2				–				2				–				–				–
	Benefits paid:
	AIG assets			(48	)			(8	)			(56	)			(1	)			(16	)			(17	)
	Plan assets			(27	)			(71	)			(98	)			–				–				–
	Effect of foreign currency fluctuation			30				–				30				–				–				–
	Other*			(45	)			(10	)			(55	)			–				–				–
Fair value of plan assets at end of year			$	624			$	2,247			$	2,871			$	–			$	–			$	–
2003 Change in plan assets:
	Fair value of plan assets at beginning of year		$	479			$	1,697			$	2,176			$	–			$	–			$	–
	Actual return on plan assets net of expenses			65				340				405				–				–				–
	AIG contributions			60				165				225				–				15				15
	Participant contributions			4				–				4				–				–				–
	Benefits paid:
	AIG assets			(41	)			(7	)			(48	)			–				(15	)			(15	)
	Plan assets			(25	)			(71	)			(96	)			–				–				–
	Effect of foreign currency fluctuation			49				–				49				–				–				–
Fair value of plan assets at end of year			$	591			$	2,124			$	2,715			$	–			$	–			$	–

*	Approximately $50 million was disbursed as a result of the settlement of certain Japanese plan obligations with the Japanese government.

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	15. Employee Benefits (continued)

The asset allocation percentage by major asset class for AIG’s U.S. plan at December 31, 2004 and 2003, and the target allocation for 2005 follows:

							Allocation
			Target				Actual				Actual
			2005				2004				2003
Asset class:
	Equity securities			50-70	%			63	%			62	%
	Debt securities			30-50				37				38
Total								100	%			100	%

     Included in equity securities at December 31, 2004 and 2003 were 1.2 million shares of AIG common stock, with values of $79.3 million and $80.0 million, respectively.

     The investment strategy with respect to AIG’s pension plan assets is to preserve capital and to seek investment returns with a goal of fully funding the plan.

     Further, the investments for the non-U.S. Plans and the asset allocation thereof may be limited in some countries due to appropriate asset availability within an asset class. Thus, the disclosure with respect to a range for either the target asset class allocation or an actual range of asset class allocations related to the investments for non-U.S. Pension plan assets would not be meaningful.

     The expected rate of return with respect to AIG’s domestic pension plan was 8.25 percent and 8.75 percent for the twelve months ended December 31, 2004 and 2003, respectively. These rates of return are an aggregation of expected returns within each asset category. The return with respect to each asset class considers both historical returns and the future expectations for such returns.

(h) Expected Cash Flows: With respect to AIG’s U.S. pension plan, the actuarially prepared funding amount ranges from the minimum amount AIG would be required to contribute to the maximum amount that would be deductible for U.S. tax purposes. This range is generally not determined until the fourth quarter with respect to the contribution year. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. Supplemental and excess plans’ payments and postretirement plan payments are deductible when paid.

     AIG expects to contribute approximately $67 million during 2005 to its U.S. pension plan, depending on the actuarially calculated funding requirements of such plan and pending Congressional legislation.

     AIG expects to contribute approximately $65 million during 2005 to its non-U.S. defined benefit pension plans depending upon actuarially calculated funding requirements and local regulatory and taxing authority requirements.

The expected future benefit payments, net of participants’ contributions with respect to the defined benefit pension plans and other postretirement benefit plans, are as follows:

		Pension								Postretirement
		Non-U.S.				U.S.				Non-U.S.				U.S.
(in millions)		Plans				Plans				Plans				Plans
2005		$	69			$	95			$	1			$	17
2006			70				102				1				17
2007			71				110				1				18
2008			79				118				1				18
2009			86				127				1				18
2010-2014			438				807				6				95

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	15. Employee Benefits (continued)

(i) Net Periodic Benefit Costs: The following table presents the components of the net periodic benefit costs with respect to pensions and other benefits for the years ended December 31, 2004, 2003 and 2002:

			Pensions												Postretirement
			Non-U.S.				U.S.								Non-U.S.				U.S.
(in millions)			Plans				Plans				Total				Plans				Plans				Total
2004
	Components of net periodic benefit cost:
	Service cost		$	59			$	101			$	160			$	3			$	6			$	9
	Interest cost			33				147				180				2				14				16
	Expected return on assets			(22	)			(170	)			(192	)			–				–				–
	Amortization of prior service cost			(8	)			–				(8	)			–				(7	)			(7	)
	Amortization of transitional liability			2				–				2				–				–				–
	Recognition of net actuarial (gains)/losses			15				53				68				11				2				13
	Other*			(24	)			–				(24	)			3				–				3
Net periodic benefit cost			$	55			$	131			$	186			$	19			$	15			$	34
2003
	Components of net periodic benefit cost:
	Service cost		$	52			$	79			$	131			$	1			$	4			$	5
	Interest cost			33				151				184				1				15				16
	Expected return on assets			(18	)			(145	)			(163	)			–				–				–
	Amortization of prior service cost			(3	)			4				1				–				(6	)			(6	)
	Amortization of transitional liability			2				1				3				–				–				–
	Recognition of net actuarial (gains)/losses			19				61				80				–				1				1
	Other			(26	)			–				(26	)			–				–				–
Net periodic benefit cost			$	59			$	151			$	210			$	2			$	14			$	16
2002
	Components of net periodic benefit cost:
	Service cost		$	48			$	74			$	122			$	1			$	4			$	5
	Interest cost			30				141				171				1				16				17
	Expected return on assets			(19	)			(176	)			(195	)			–				–				–
	Amortization of prior service cost			–				2				2				–				(6	)			(6	)
	Amortization of transitional liability			2				1				3				–				–				–
	Recognition of net actuarial (gains)/losses			15				3				18				–				–				–
	Other			(10	)			3				(7	)			–				1				1
Net periodic benefit cost			$	66			$	48			$	114			$	2			$	15			$	17

*	The reduction resulted from transferring to the Japanese government certain Japanese plan obligations approximating $50 million reduced by approximately $26 million loss incurred with respect to the settlement of those obligations.

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	15. Employee Benefits (continued)

The weighted average assumptions used to determine the benefit obligations and net periodic pension costs for the years ended December 31, 2004, 2003, and 2002 were as follows:

			Pension								Postretirement
			Non-U.S.				U.S.				Non-U.S.				U.S.
			Plans*				Plans				Plans*				Plans
2004
	Discount rate			2.00 -  8.00%				6.00%				5.50 - 6.00%				6.00%
	Rate of compensation increase			1.50 -  7.00%				4.25%				5.50%				4.25%
	Expected return on assets			2.50 - 10.00%				8.25%				N/A				N/A
2003
	Discount rate			2.00 -  8.00%				6.75%				5.50 - 6.00%				6.75%
	Rate of compensation increase			1.50 -  7.00%				4.50%				5.50%				4.50%
	Expected return on assets			3.00 - 10.00%				8.75%				N/A				N/A
2002
	Discount rate			2.50 - 10.00%				7.50%				6.00 - 7.25%				7.50%
	Rate of compensation increase			2.00 -  8.00%				5.00%				6.00%				5.00%
	Expected return on assets			3.00 - 13.00%				9.00%				N/A				N/A

*	The benefit obligations outside the United States reflect those assumptions that were most appropriate for each local economic environment of the subsidiaries providing such benefits.

     AIG’s postretirement plans provide benefits primarily in the form of defined employer contributions as opposed to defined employer benefits. As such, a change in the assumed healthcare cost trend rate has little effect on postretirement expense.

	16. Benefits Provided by Starr International Company, Inc.

Starr International Company, Inc. (SICO) has provided a series of two-year Deferred Compensation Profit Participation Plans (SICO Plans) to certain AIG employees. The SICO Plans came into being in 1975 when the voting shareholders and Board of Directors of SICO, a private holding company whose principal asset is AIG common stock, decided that a portion of the capital value of SICO should be used to provide an incentive plan for the current and succeeding managements of all American International companies, including AIG.

     Participation in the SICO Plans by any person, and the amount of such participation, has been at the sole discretion of SICO’s Board of Directors. None of the costs of the various benefits provided under the SICO Plans has been paid by AIG, although in its restated financial statements, AIG has recorded a charge to reported earnings in all years presented for the deferred compensation amounts paid to AIG employees by SICO, with an offsetting entry to additional paid-in capital reflecting amounts deemed contributed by SICO. The SICO Plans provide that shares currently owned by SICO may be set aside by SICO for the benefit of the participant and distributed upon retirement. The SICO Board of Directors currently may permit an early payout of units under certain circumstances. Prior to payout, the participant is not entitled to vote, dispose of or receive dividends with respect to such shares, and shares are subject to forfeiture under certain conditions, including but not limited to the participant’s voluntary termination of employment with AIG prior to normal retirement age. In addition, SICO’s Board of Directors currently may elect to pay a participant cash in lieu of shares of AIG common stock. See also Note 12(f) herein.

SICO has also provided certain personal benefits to AIG employees. The cost of such benefits, primarily attributable to personal use of corporate aircraft, has not been included in compensation expense.

Compensation expense with respect to the SICO Plans aggregated $56 million, $275 million and $(173) million for 2004, 2003 and 2002, respectively.

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	17. Leases

(a) AIG and its subsidiaries occupy leased space in many locations under various long-term leases and have entered into various leases covering the long-term use of data processing equipment.

At December 31, 2004, the future minimum lease payments under operating leases were as follows:

(in millions)
2005		$	543
2006			405
2007			303
2008			242
2009			263
Remaining years after 2009			926
Total		$	2,682

     Rent expense approximated $568 million, $524 million, and $503 million for the years ended December 31, 2004, 2003, and 2002 respectively.

(b) Minimum future rental income on noncancelable operating leases of flight equipment which have been delivered at December 31, 2004 was as follows:

(in millions)
2005		$	2,817
2006			2,474
2007			2,085
2008			1,672
2009			1,292
Remaining years after 2009			3,066
Total		$	13,406

     Flight equipment is leased, under operating leases, with remaining terms ranging from one to 17 years.

	18. Ownership and Transactions With Related Parties

(a) Ownership: The directors and officers of AIG, together with C.V. Starr & Co., Inc. (Starr), a private holding company, The Starr Foundation, and SICO, a private holding company, owned or otherwise controlled approximately 19 percent of the voting stock of AIG at December 31, 2004. Five directors of AIG served as directors of Starr and SICO as of December 31, 2004. As of April 30, 2005, no director of AIG serving as an executive officer of AIG served as a director of Starr or SICO.

(b) Transactions with Related Parties: During the ordinary course of business, AIG and its subsidiaries pay commissions to Starr and its subsidiaries for the production and management of insurance business. There are no significant receivables from/payables to related parties at December 31, 2004. Payment for the production of insurance business to Starr aggregated approximately $205 million in 2004, $173 million in 2003, and $114 million in 2002, from which Starr generally is required to pay commissions due originating brokers and its operating expenses. AIG also received approximately $24 million in 2004, $24 million in 2003, and $17 million in 2002 from Starr and paid approximately $39,000 in 2004, $114,000 in 2003, and $352,000 in 2002 to Starr in rental fees and $262,000 for services in 2004, 2003 and 2002. AIG also received approximately $1 million in 2004, $2 million in 2003, and $3 million in 2002, respectively, from SICO and paid approximately $1 million in each of the years 2004, 2003 and 2002 to SICO as reimbursement for services rendered at cost. AIG also paid to SICO $4 million in 2004, $4 million in 2003, and $5 million in 2002 in rental fees.

	19. Variable Interest Entities

In January 2003, FASB issued FIN46. FIN46 changed the method of determining whether certain entities should be consolidated in AIG’s consolidated financial statements. An entity is subject to FIN46 and is called a Variable Interest Entity (VIE) if it has (i) equity that is insufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or (ii) equity investors that cannot make significant decisions about the entity’s operations, or that do not absorb the expected losses or receive the expected returns of the entity. A VIE is consolidated by its primary beneficiary, which is the party that has a majority of the expected losses or a majority of the expected residual returns of the VIE, or both. All other entities not considered VIEs are evaluated for consolidation under existing guidance. In December 2003, FASB issued a revision to Interpretation No. 46 (FIN46R).

     The provisions of FIN46R had to be applied immediately to VIEs created after January 31, 2003, and to VIEs in which AIG obtains an interest after that date. For VIEs in which AIG

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	19. Variable Interest Entities (continued)

held a variable interest that it acquired before February 1, 2003, FIN46R was applied as of December 31, 2003. For any VIEs that must be consolidated under FIN46R that were created before February 1, 2003, the assets, liabilities and noncontrolling interest of the VIEs would be initially measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being recognized as the cumulative effect of an accounting change. In accordance with the transition provisions of FIN46R, AIG recorded a gain of $9 million ($14 million before tax) reported as a cumulative effect of an accounting change for the fourth quarter of 2003 and added approximately $4.7 billion of assets and liabilities in its consolidated balance sheet at December 31, 2003.

     Of the $4.7 billion, approximately $4.2 billion relates to assets and liabilities arising from AIG’s real estate partnerships, principally connected to affordable housing transactions involving AIG SunAmerica subsidiaries, and private equity partnerships managed by AIG Global Investment Group and AIG Capital Partners.

     SunAmerica Affordable Housing Partners, Inc. (SAAHP) organizes limited partnerships that are considered to be VIEs, and that are consolidated by AIG. The partnerships invest as limited partners in operating partnerships that develop and operate low income housing and a smaller number of market rate properties across the United States. The general partners in the operating partnerships are almost exclusively unaffiliated third party developers. AIG does not generally consolidate an operating partnership if the general partner is an affiliated person. Through approximately 1,000 partnerships, SAAHP has invested in developments with approximately 147,000 apartment units nationwide, and has syndicated over $5 billion in partnership equity since 1991 to other investors who will receive, among other benefits, tax credits under certain sections of the Internal Revenue Code. AIG Retirement Services, Inc. functions as the general partner in the limited partnerships and acts as both a credit enhancer in certain transactions, through differing structures with respect to funding development costs for the operating partnerships, and as guarantor that investors will receive the tax benefits projected at the time of syndication. As part of their incentive compensation, certain key SAAHP employees have been awarded residual cash flow interests in the partnerships, subject to certain vesting requirements. The operating income of SAAHP is reported, along with other SunAmerica partnership income, as a component of AIG’s Asset Management segment.

     The remaining approximately $500 million involves ILFC, and arises principally from a sale-leaseback transaction which expired during 2004.

     As of December 31, 2004, AIG’s consolidated balance sheet included approximately $5.4 billion of assets and liabilities connected to entities consolidated under FIN46R.

     The following VIE activities are not consolidated by AIG under FIN46R:

•	AIG uses VIEs primarily in connection with certain guaranteed investment contract programs (GIC Programs) written by its Life Insurance & Retirement Services subsidiaries. In the GIC Programs, AIG’s Life Insurance subsidiaries (principally SunAmerica Life Insurance Company) provide guaranteed investment contracts to VIEs which are not controlled by AIG, and in which AIG does not have a direct variable interest, as defined under FIN46R, in the entity. The VIE issues notes or bonds which are sold to third-party institutional investors. Neither AIG nor the insurance company issuing the GICs has any obligation to the investors in the notes or bonds. The proceeds from the securities issued by the VIE are invested by the VIE in the GICs. The insurance company subsidiaries use the proceeds to invest in a diversified portfolio of securities, primarily investment grade bonds. Both the assets and the liabilities of the insurance companies arising from these GIC Programs are presented in AIG’s consolidated balance sheet. Thus, at December 31, 2004, approximately $42 billion of policyholders’ contract deposits represented liabilities from issuances of GICs included in these GIC Programs, the proceeds of which are used to invest in insurance invested assets.
•	AIG manages Collateralized Bond and Loan Obligation trusts (collectively, Collateralized Debt Obligation trusts or CDO trusts). As asset manager, AIG receives fees for management of the assets held in the CDO trust, which support the issuance of securities sold by the CDO trust. AIG may take minority equity and/or fixed-income security interests in the CDO trust. AIG has entered into such arrangements to expand its asset management activities. Third-party investors have recourse only to the CDO trust and have no recourse to AIG. AIG does not consolidate these CDO trusts, pursuant to FIN46R.
•	AIG’s insurance operations also invest in assets of VIEs. These VIEs 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 these VIEs allows AIG’s insurance entities to purchase assets permitted by insurance regulations while maximizing their return on these assets. These VIEs are not consolidated by AIG, pursuant to FIN46R. For a discussion of VIEs in connection with insurance and reinsurance activities, see Note 2 herein.

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	19. Variable Interest Entities (continued)

     As a result of AIG’s internal review, certain entities, including Union Excess and Richmond, were determined to be VIEs and were consolidated in AIG’s consolidated financial statements. See Note 2 herein.

     AIGFP is also involved with various special purpose vehicles that are not considered VIEs, but rather are considered voting interest entities and are not governed by FIN46R. AIGFP uses such entities 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 entities, subject to certain transaction specific limitations. AIGFP generally consolidates these entities under previously issued GAAP guidance. AIGFP also sponsors a Qualified Special Purpose Vehicle (QSPE) that issues commercial paper and secured liquidity notes to third-party institutional investors. This QSPE uses the proceeds of these offerings to obtain beneficial interests in certain financial assets (total assets of approximately $999 million), which serve as collateral for the securities issued by the QSPE. AIGFP provides credit and liquidity support to the QSPE, which is not consolidated by AIG, pursuant to other guidance (QSPEs are generally not subject to FIN46R).

	20. 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. Derivative payments may be based on interest rates and exchange rates and/or prices of certain securities, certain commodities, or financial or commodity indices. These instruments are carried at fair value in the consolidated balance sheet. Collateral is required, at the discretion of AIG, on certain transactions based on the creditworthiness of the counterparty.

     The vast majority of AIG’s derivative activity is transacted by Capital Markets operations. AIGFP becomes a party to derivative financial instruments in the normal course of business and to reduce currency, interest rate, commodity, and equity exposures. Interest rate, currency, commodity, and equity risks related to such instruments are reflected in the consolidated financial statements and are carried at a market or a fair value, whichever is appropriate. The recorded estimated fair values of such instruments may be different from the values that might be realized if AIGFP was required to sell or close out the transactions prior to maturity.

     AIGFP, in the ordinary course of operations and as principal, structures and enters into derivative transactions to meet the needs of counterparties who may be seeking to hedge certain aspects of such counterparties’ operations or obtain a desired financial exposure. AIGFP also enters into derivative transactions to hedge the financial exposures arising from its counterparty transactions. Such derivative transactions include interest rate, currency, commodity, credit and equity swaps, swaptions, and forward commitments. Interest rate swap transactions generally involve the exchange of fixed and floating rate interest payment obligations without the exchange of the underlying principal amounts. AIGFP typically becomes a principal in the exchange of interest payments between the parties and, therefore, is exposed to counterparty credit risk and may be exposed to loss, if counterparties default. Currency, commodity, and equity swaps are similar to interest rate swaps, but involve the exchange of specific currencies or cashflows based on the underlying commodity, equity securities or indices. Also, they may involve the exchange of principal amounts at the beginning and end of the transaction. Swaptions are options where the holder has the right but not the obligation to enter into a swap transaction or cancel an existing swap transaction. At December 31, 2004, the aggregate notional principal amount of AIGFP’s outstanding swap transactions approximated $1,286.0 billion, primarily related to interest rate swaps of approximately $858.7 billion.

     Notional amount represents a standard of measurement of the volume of swaps business of Capital Markets operations. Notional amount is not a quantification of market risk or credit risk and is not recorded on the consolidated balance sheet. Notional amounts generally 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 Capital Markets foreign exchange forwards and exchange traded futures and options contracts are determined by each of the respective contractual agreements.

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	20. Derivatives (continued)

The following table presents the contractual and notional amounts by maturity and type of derivative of Capital Markets derivatives portfolio at December 31, 2004 and 2003:

			Remaining Life of Notional Amount*
																							Total
			One				Two Through				Six Through				After Ten				Total				2003
(in millions)			Year				Five Years				Ten Years				Years				2004
Capital Markets interest rate, currency and equity swaps and swaptions:
Notional amount:
	Interest rate swaps		$	192,785			$	470,233			$	176,074			$	19,641			$	858,733			$	756,936
	Currency swaps			41,475				144,854				67,298				21,839				275,466				226,222
	Swaptions, equity and commodity swaps			50,123				43,939				24,748				32,979				151,789				193,514
Total			$	284,383			$	659,026			$	268,120			$	74,459			$	1,285,988			$	1,176,672

*	Notional amount is not representative of either market risk or credit risk and is not recorded on the consolidated balance sheet.

     Futures and forward contracts are contracts that obligate the holder to sell or purchase foreign currencies, commodities or financial indices in which the seller/ purchaser agrees to make/ take delivery at a specified future date of a specified instrument, at a specified price or yield. Options are contracts that allow the holder of the option to purchase or sell the underlying commodity, currency or index at a specified price and within, or at, a specified period of time. As a writer of options, AIGFP generally receives an option premium and then manages the risk of any unfavorable change in the value of the underlying commodity, currency or index by entering into offsetting transactions with third-party market participants. Risks arise as a result of movements in current market prices from contracted prices, and the potential inability of the counterparties to meet their obligations under the contracts. At December 31, 2004, the contractual amount of Capital Markets futures, forward and option contracts approximated $305.4 billion.

The following table presents Capital Markets futures, forward and option contracts portfolio by maturity and type of derivative at December 31, 2004 and 2003:

			Remaining Life
																							Total
			One				Two Through				Six Through				After Ten				Total				2003
(in millions)			Year				Five Years				Ten Years				Years				2004
Futures, forward and options contracts:
	Exchange traded futures and options contracts contractual amount		$	24,986			$	2,366			$	104				–			$	27,456			$	17,840
	Over the counter forward contracts contractual amount			266,634				10,179				1,122				–				277,935				233,073
Total			$	291,620			$	12,545			$	1,226				–			$	305,391			$	250,913

     AIGFP enters into credit derivative transactions in the ordinary course of its business. The majority of AIGFP’s credit derivatives require AIGFP to provide credit protection on a designated portfolio of loans or debt securities. AIGFP provides such credit protection on a “second loss” basis, under which AIGFP’s payment obligations arise only after credit losses in the designated portfolio exceed a specified threshold amount or level of “first losses.” The threshold amount of credit losses that must be realized before AIGFP has any payment obligation is negotiated by AIGFP for each transaction to provide that the likelihood of any payment obligation by AIGFP under each transaction is remote, even in severe recessionary market scenarios.

     In certain cases, the credit risk associated with a designated portfolio is tranched into different layers of risk, which are then analyzed and rated by the credit rating agencies. Typically, there will be an equity layer covering the first credit losses in respect of the portfolio up to a specified percentage of the total portfolio, and then successive layers that are rated, generally a BBB-rated layer, an A-rated layer, an AA-rated layer, and an AAA-rated layer. In transactions that are rated, the risk layer or tranche that is immediately junior to the threshold level above which AIGFP’s payment obligation would arise is rated AAA by the rating agencies. In transactions that are not rated, AIGFP applies the same risk criteria for setting the threshold level for its payment obligations. Therefore the risk layer assumed by AIGFP with respect to the designated portfolio in these transactions is often called the “super senior” risk layer, defined as the layer of credit risk senior to a risk layer that has been rated AAA by the credit rating agencies or if the transaction is not rated, equivalent thereto. For example, in a transaction with an equity layer covering credit losses from zero to two percent of the total portfolio, a BBB-rated layer covering credit losses from two to four percent, an A-rated layer from four to six percent,

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	20. Derivatives (continued)

an AA-rated layer from six to eight percent, and a AAA-rated layer from eight to 11 percent. AIGFP would cover credit losses arising in respect of the portfolio that exceeded an 11 percent first loss threshold amount and thereby bear risk that is senior to the AAA-rated risk layer.

     AIGFP continually monitors the underlying portfolios to determine whether the credit loss experience for any particular portfolio has caused the likelihood of AIGFP having a payment obligation under the transaction to be super senior risk. AIGFP maintains the ability opportunistically to hedge specific securities in a portfolio and thereby further limit its exposure to loss and has hedged outstanding transactions in this manner on occasion. AIGFP has never had a payment obligation under these credit derivatives transactions where AIGFP is providing credit protection on the super senior risk. Furthermore, based on portfolio credit losses experienced to date under all such outstanding transactions, no transaction has experienced credit losses in an amount that has made the likelihood of AIGFP having to make a payment, in AIGFP’s view, to be greater than remote, even in severe recessionary market scenarios. At December 31, 2004, the notional amount with respect to the Capital Markets credit derivative portfolio was $290.3 billion.

     AIGFP utilizes various credit enhancements, including letters of credit, guarantees, collateral, credit triggers, credit derivatives, and margin agreements to reduce the credit exposure relating to derivative financial instruments. AIGFP requires credit enhancements in connection with specific transactions based on, among other things, the creditworthiness of the counterparties, and the transaction’s size and maturity. In addition, Capital Markets derivative transactions are generally documented under ISDA Master Agreements. Management believes that such agreements provide for legally enforceable set-off and close-out netting of exposures to specific counterparties. Under such agreements, in connection with an early termination of a transaction, AIGFP is permitted to set-off its receivables from a counterparty against its payables to the same counterparty arising out of all included transactions. As a result, the fair value represents the net sum of estimated positive fair values after the application of such strategies, agreements and collateral held. After consideration of these credit enhancements, the fair value of AIGFP’s interest rate, currency, commodity and equity swaps, options, swaptions, and forward commitments, futures, and forward contracts approximated $22.67 billion at December 31, 2004 and $21.46 billion at December 31, 2003. These amounts have been determined in accordance with the respective close-out netting provisions under the applicable ISDA Master Agreements. The fair value represents the maximum potential loss to AIGFP.

     AIGFP independently evaluates the creditworthiness of its counterparties, taking into account credit ratings assigned by recognized statistical rating organizations. In addition, AIGFP’s credit approval process involves pre-set counterparty, country, and industry credit exposure limits and, for particularly credit intensive transactions, obtaining approval from AIG’s Credit Risk Committee. The average credit rating of Capital Markets counterparties as a whole (as measured by AIGFP) is equivalent to AA-. The maximum potential loss will increase or decrease during the life of the derivative commitments as a function of maturity and market conditions.

Capital Markets determines counterparty credit quality by reference to ratings from independent rating agencies or, where such ratings are not available, by internal analysis. At December 31, 2004 and 2003, the counterparty credit quality with respect to the fair value of Capital Markets derivatives portfolios were as follows:

			Fair Value
			Total				Total
(in millions)			2004				2003
Counterparty credit quality:
	AAA		$	9,185			$	9,160
	AA			7,244				6,105
	A			4,448				4,461
	BBB			1,193				1,127
	Below investment grade			600				120
	Other			–				486
Total			$	22,670			$	21,459

At December 31, 2004 and 2003, the counterparty breakdown by industry with respect to the fair value of Capital Markets derivatives portfolio was as follows:

		Fair Value
		Total				Total
(in millions)		2004				2003
Non-U.S. banks		$	7,163			$	5,869
Insured municipalities			543				607
U.S. industrials			2,139				1,884
Governmental			1,387				959
Non-U.S. financial service companies			1,511				919
Non-U.S. industrials			2,377				1,952
Special purpose			4,937				4,265
U.S. banks			773				623
U.S. financial service companies			1,726				3,836
Supranationals			114				59
Other			–				486
Total		$	22,670			$	21,459

     As a result of its internal review, AIG determined that in many cases it did not meet hedging requirements under FAS 133 with respect to certain hedging transactions. See Note 2 herein.

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	21. Variable Life and Annuity Contracts

In July 2003, the American Institute of Certified Public Accountants issued Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (SOP 03-1). This Statement was effective January 1, 2004, and requires AIG to recognize a liability for guaranteed minimum death benefits and other living benefits related to its variable annuity and variable life contracts and modifies certain disclosures and financial statement presentations for these products. AIG reported for the first quarter of 2004 a one-time cumulative accounting charge upon adoption of $144 million to reflect the liability as of January 1, 2004. For 2004, the ongoing earnings effect of AIG’s adoption of SOP 03-1 was a charge of $10 million to benefit expense.

     As of January 1, 2004, approximately $11 billion of assets and liabilities representing most of the non-U.S. portion of AIG’s separate and variable account assets and liabilities were reclassified in accordance with SOP 03-1 to several invested asset captions and to the Policyholders’ contract deposits liability caption, respectively. Approximately $11 billion of separate and variable account assets were reclassified as follows: $4 billion to Short-term investments; $4 billion to Equity securities – common stocks trading; $2 billion to Fixed maturities – bond trading securities; and $1 billion to various other asset captions.

     Except as noted above, AIG reports variable contracts through separate and variable accounts when investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities). AIG also reports variable annuity and life contracts through separate and variable accounts where AIG contractually guarantees to the contract holder (variable contracts with guarantees) either (a) total deposits made to the contract less any partial withdrawals plus a minimum return (and in minor instances, no minimum returns) (Net Deposits Plus a Minimum Return) or (b) the highest contract value attained, typically on any anniversary date minus any subsequent withdrawals following the contract anniversary (Highest Contract Value Attained). These guarantees include benefits that are payable in the event of death, annuitization, or, in other instances, at specified dates during the accumulation period. Such benefits are referred to as guaranteed minimum death benefits (GMDB), guaranteed minimum income benefits (GMIB), and guaranteed minimum withdrawal benefit (GMWB), or guaranteed minimum account value benefits (GMAV), respectively. For AIG, GMDB is by far the most widely offered benefit.

     The assets supporting the variable portion of both traditional variable annuities and variable contracts with guarantees are carried at fair value and reported as summary total separate and variable account assets with an equivalent summary total reported for liabilities. Amounts assessed against the contract holders for mortality, administrative, and other services are included in revenue and changes in liabilities for minimum guarantees are included in policyholder benefits in the Consolidated Statement of Income. Separate and variable account net investment income, net investment gains and losses, and the related liability changes are offset within the same line item in the Consolidated Statement of Income.

The vast majority of AIG’s exposure on guarantees made to variable contract holders arises from GMDB. Details concerning AIG’s GMDB exposures as of December 31, 2004 are as follows:

		Net Deposits
		Plus a Minimum				Highest Contract
(dollars in billions)		Return				Value Attained
Account Value(a)			$57				$12
Amount at Risk(b)			8				2
Average Attained Age of Contract Holders by Product			49-70 years				52-68 years
Range of Guaranteed Minimum Return Rates			0-10%

(a)	Included in Policyholders’ Contract Deposits in the Consolidated Balance Sheet.
(b)	Represents the amount of death benefit currently in excess of Account Value.

The following summarizes GMDB liabilities for guarantees on variable contracts reflected in the general account.

(in millions)
Balance at January 1, 2004*		$	479
Reserve increase			86
Benefits paid			(80	)
Balance at December 31, 2004		$	485

*	Includes amounts from the one-time cumulative accounting charge resulting from the adoption of SOP 03-1.

     The GMDB liability is determined each period end by estimating the expected value of death benefits in excess of the projected account balance and recognizing the excess ratably over the accumulation period based on total expected assessments. AIG regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised.

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	21. Variable Life and Annuity Contracts (continued)

     The following assumptions and methodology were used to determine the domestic and foreign GMDB liability as of December 31, 2004:

•	Data used was up to 5,000 stochastically generated investment performance scenarios.
•	Mean investment performance assumptions ranged from approximately four percent to ten percent depending on the block of business.
•	Volatility assumptions ranged from 16 percent to 30 percent depending on the block of business.
•	Mortality was assumed at between 60 percent and 100 percent of various life and annuity mortality tables.
•	For domestic contracts, lapse rates vary by contract type and duration and ranged from zero percent to 40 percent. For Japan, lapse rates ranged from zero percent to 25 percent depending on the type of contract.
•	For domestic contracts, the discount rate ranged from three percent to 11 percent. For Japan, the discount rate ranged from two percent to seven percent.

     In addition to GMDB, AIG’s contracts currently include to a lesser extent GMIB. The GMIB liability is determined each period end by estimating the expected value of the annuitization benefits in excess of the projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total expected assessments. AIG regularly evaluates estimates used and adjusts the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions should be revised. As of December 31, 2004, most of AIG’s GMIB exposure was transferred via reinsurance agreements. Contracts with GMIB not reinsured have account values of $1.3 billion with a corresponding reserve of less than $1 million.

     AIG contracts currently include a minimal amount of GMAV and GMWB. GMAV and GMWB are considered to be derivatives and are recognized at fair value through earnings. AIG enters into derivative contracts to partially hedge the economic exposure that arises from GMAV and GMWB.

22.	Restated Quarterly Financial Information (Unaudited)

AIG has set forth below selected quarterly financial data for the years ended December 31, 2004 and 2003 (as restated). Because certain of the data set forth in the following tables has been restated from amounts previously reported on Form 10-Q for the applicable period, the following tables reconcile the quarterly information presented with those previously reported.

     See Note 2 herein for a description of the adjustments reflected in the restated financial statements.

The following quarterly financial information for each of the three months ended March 31, June 30, September 30, and December 31, 2004 and 2003 is unaudited.

The following table sets forth quarterly financial information for the year ended December 31, 2004

			Three Months Ended								Three Months Ended								Three Months Ended								Three Months Ended
			March 31, 2004								June 30, 2004								September 30, 2004								December 31, 2004
Condensed Statements			Previously								Previously								Previously								Previously
of Income			Reported				Restated				Reported				Restated				Reported				Restated				Announced*				Revised
Revenues			$	23,637			$	23,375			$	23,809			$	23,505			$	25,411			$	26,189			$	25,758			$	24,918
Net income				2,656				2,519				2,862				2,650				2,512				3,236				3,018				1,326
Net income per common share:
	Basic			1.02				0.97				1.09				1.02				0.97				1.24				1.16				0.50
	Diluted			1.01				0.96				1.08				1.01				0.95				1.23				1.15				0.49
Average shares outstanding:
	Basic			2,610				2,610				2,608				2,608				2,606				2,606				2,601				2,601
	Diluted			2,642				2,642				2,640				2,640				2,638				2,638				2,632				2,632

*	Announced by AIG on February 9, 2005 in its earnings release.

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	22. Restated Quarter Financial Information (Unaudited) (continued)

The following table sets forth quarterly financial information for the year ended December 31, 2003

			Three Months Ended								Three Months Ended								Three Months Ended								Three Months Ended
			March 31, 2003								June 30, 2003								September 30, 2003								December 31, 2003
Condensed Statements			Previously								Previously								Previously								Previously
of Income			Reported				Restated				Reported				Restated				Reported				Restated				Reported				Restated
Revenues			$	18,927			$	18,192			$	19,891			$	19,205			$	20,306			$	20,683			$	22,179			$	21,366
Net income				1,954				1,525				2,276				1,895				2,337				2,480				2,707				2,109
Net income per common share:
	Basic			0.75				0.58				0.87				0.73				0.90				0.95				1.03				0.81
	Diluted			0.74				0.58				0.87				0.72				0.88				0.94				1.03				0.80
Average shares outstanding:
	Basic			2,610				2,610				2,610				2,610				2,610				2,610				2,609				2,609
	Diluted			2,637				2,637				2,637				2,637				2,637				2,637				2,636				2,636

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	23. Information Provided in Connection With Outstanding Debt

The following condensed consolidating financial statements are provided in compliance with Regulation S-X of the Securities and Exchange Commission.

(a) AGC is a holding company and a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of all outstanding debt of AGC.

AMERICAN GENERAL CORPORATION (AGC):

CONDENSED CONSOLIDATING BALANCE SHEET

			American
			International
			Group, Inc.				AGC				Other								Consolidated
(in millions)			Guarantor				Issuer				Subsidiaries				Eliminations				AIG
December 31, 2004
Assets:
	Invested assets		$	1,394			$	–			$	647,610			$	(12,175	)		$	636,829
	Cash			17				–				1,992				–				2,009
	Carrying value of subsidiaries and partially owned companies, at equity			81,610				26,165				12,076				(118,399	)			1,452
	Other assets			2,753				2,546				154,269				(1,198	)			158,370
Total assets			$	85,774			$	28,711			$	815,947			$	(131,772	)		$	798,660
Liabilities:
	Insurance liabilities		$	405			$	–			$	428,491			$	(69	)		$	428,827
	Debt			3,647				2,482				101,391				(12,257	)			95,263
	Other liabilities			1,115				4,076				189,779				(1,206	)			193,764
Total liabilities				5,167				6,558				719,661				(13,532	)			717,854
Preferred shareholders’ equity in subsidiary companies				–				–				199				–				199
Total shareholders’ equity				80,607				22,153				96,087				(118,240	)			80,607
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity			$	85,774			$	28,711			$	815,947			$	(131,772	)		$	798,660
December 31, 2003 (Restated)
Assets:
	Invested assets		$	1,811			$	–			$	527,475			$	(10,500	)		$	518,786
	Cash			19				–				903				–				922
	Carrying value of subsidiaries and partially owned companies, at equity			69,718				21,489				11,126				(100,913	)			1,420
	Other assets			2,662				2,602				148,604				(843	)			153,025
Total assets			$	74,210			$	24,091			$	688,108			$	(112,256	)		$	674,153
Liabilities:
	Insurance liabilities		$	358			$	–			$	357,463			$	(31	)		$	357,790
	Debt			3,932				2,824				83,416				(9,963	)			80,209
	Other liabilities			(110	)			3,849				163,651				(1,458	)			165,932
Total liabilities				4,180				6,673				604,530				(11,452	)			603,931
Preferred shareholders’ equity in subsidiary companies				–				–				192				–				192
Total shareholders’ equity				70,030				17,418				83,386				(100,804	)			70,030
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity			$	74,210			$	24,091			$	688,108			$	(112,256	)		$	674,153

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	23. Information Provided in Connection With Outstanding Debt (continued)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

		American
		International
		Group, Inc.				AGC				Other								Consolidated
(in millions)		Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Year Ended December 31, 2004
Operating income		$	157	(a)		$	90	(b				) $14,703			(c	) $–		$	14,950	(d)
Equity in undistributed net income of consolidated subsidiaries			8,730				1,952				–				(10,682	)			–
Dividend income from consolidated subsidiaries			1,836				65				–				(1,901	)			–
Income taxes (benefits)			992				32				3,596				–				4,620
Minority interest			–				–				(455	)			–				(455	)
Cumulative effect of accounting changes			–				–				(144	)			–				(144	)
Net income (loss)		$	9,731			$	2,075			$	10,508			$	(12,583	)		$	9,731
Year Ended December 31, 2003 (Restated)
Operating income		$	(601	)(e)		$	(98	)(f				) $12,354(g)		$	–			$	11,655	(h)
Equity in undistributed net income of consolidated subsidiaries			7,489				1,792				–				(9,281	)			–
Dividend income from consolidated subsidiaries			1,471				196				–				(1,667	)			–
Income taxes (benefits)			350				(23	)			3,076				–				3,403
Minority interest			–				–				(252	)			–				(252	)
Cumulative effect of accounting changes			–				–				9				–				9
Net income (loss)		$	8,009			$	1,913			$	9,035			$	(10,948	)		$	8,009
Year Ended December 31, 2002 (Restated)
Operating income		$	(461	)(i)		$	(192	)(			j	) $8,635(k)		$	–			$	7,982	(l)
Equity in undistributed net income of consolidated subsidiaries			4,762				1,112				–				(5,874	)			–
Dividend income from consolidated subsidiaries			1,644				532				–				(2,176	)			–
Income taxes (benefits)			79				(56	)			1,933				–				1,956
Minority interest			–				–				(160	)			–				(160	)
Net income (loss)		$	5,866			$	1,508			$	6,542			$	(8,050	)		$	5,866

(a)	Includes other income (deductions) — net and other realized capital gains (losses) of $(432) million.
(b)	Includes other income (deductions) — net and other realized capital gains (losses) of $90 million.
(c)	Includes other income (deductions) — net and other realized capital gains (losses) of $(272) million.
(d)	Includes other income (deductions) — net and other realized capital gains (losses) of $(614) million.
(e)	Includes other income (deductions) — net and other realized capital gains (losses) of $(1,130) million.
(f)	Includes other income (deductions) — net and other realized capital gains (losses) of $(98) million.
(g)	Includes other income (deductions) — net and other realized capital gains (losses) of $(321) million.
(h)	Includes other income (deductions) — net and other realized capital gains (losses) of $(1,549) million.
(i)	Includes other income (deductions) — net and other realized capital gains (losses) of $(775) million.
(j)	Includes other income (deductions) — net and other realized capital gains (losses) of $(192) million.
(k)	Includes other income (deductions) — net and other realized capital gains (losses) of $(148) million.
(l)	Includes other income (deductions) — net and other realized capital gains (losses) of $(1,115) million.

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	23. Information Provided in Connection With Outstanding Debt (continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW

			American
			International
			Group, Inc.				AGC				Other
(in millions)			Guarantor				Issuer				Subsidiaries				Consolidated
															AIG
Year Ended December 31, 2004
Net cash provided by operating activities			$	2,738			$	839			$	32,004			$	35,581
Cash flows from investing:
	Invested assets disposed			503				–				160,193				160,696
	Invested assets acquired			(107	)			–				(240,127	)			(240,234	)
	Other			(1,040	)			(408	)			498				(950	)
Net cash used in investing activities			$	(644	)			(408	)			(79,436	)			(80,488	)
Cash flows from financing activities:
	Change in debts			(400	)			(349	)			15,754				15,005
	Other			(1,521	)			(82	)			31,911				30,308
Net cash (used in) provided by financing activities				(1,921	)			(431	)			47,665				45,313
Change in cumulative translation adjustment				(175	)			–				856				681
Change in cash				(2	)			–				1,089				1,087
Cash at beginning of year				19				–				903				922
Cash at end of year			$	17			$	–			$	1,992			$	2,009
Year Ended December 31, 2003 (Restated)
Net cash provided by operating activities			$	630			$	1,376			$	31,092			$	33,098
Cash flows from investing:
	Invested assets disposed			186				–				157,348				157,534
	Invested assets acquired			(830	)			–				(212,900	)			(213,730	)
	Acquisitions, net of cash acquired			–				–				(2,091	)			(2,091	)
	Other			(842	)			(926	)			637				(1,131	)
Net cash used in investing activities				(1,486	)			(926	)			(57,006	)			(59,418	)
Cash flows from financing activities:
	Change in debts			1,288				(376	)			4,443				5,355
	Other			(416	)			(75	)			20,466				19,975
Net cash provided by (used in) financing activities				872				(451	)			24,909				25,330
Change in cumulative translation adjustment				(15	)			–				762				747
Change in cash				1				(1	)			(243	)			(243	)
Cash at beginning of year				18				1				1,146				1,165
Cash at end of year			$	19			$	–			$	903			$	922
Year Ended December 31, 2002 (Restated)
Net cash provided by operating activities			$	2,574			$	4,054			$	11,580			$	18,208
Cash flows from investing:
	Invested assets disposed			415				–				148,310				148,725
	Invested assets acquired			(220	)			–				(194,543	)			(194,763	)
	Other			(1,627	)			(1,684	)			2,387				(924	)
Net cash used in investing activities				(1,432	)			(1,684	)			(43,846	)			(46,962	)
Cash flows from financing activities:
	Change in debts			68				(2,300	)			9,029				6,797
	Other			(1,190	)			(70	)			23,715				22,455
Net cash (used in) provided by financing activities				(1,122	)			(2,370	)			32,744				29,252
Change in cumulative translation adjustment				(3	)			–				(28	)			(31	)
Change in cash				17				–				450				467
Cash at beginning of year				1				1				696				698
Cash at end of year			$	18			$	1			$	1,146			$	1,165

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	23. Information Provided in Connection With Outstanding Debt (continued)

(b) AIG Liquidity Corp. is a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of all obligations of AIG Liquidity Corp., which commenced operations in 2003.

AIG LIQUIDITY CORP.:

CONDENSED CONSOLIDATING BALANCE SHEET

			American
			International				AIG
			Group, Inc.				Liquidity				Other
(in millions)			Guarantor				Corp.				Subsidiaries				Eliminations				Consolidated
																			AIG
December 31, 2004
Assets:
	Invested assets		$	1,394			$		*		$	647,610			$	(12,175	)		$	636,829
	Cash			17					*			1,992				–				2,009
	Carrying value of subsidiaries and partially owned companies, at equity			81,610				–				38,241				(118,399	)			1,452
	Other assets			2,753					*			156,815				(1,198	)			158,370
Total assets			$	85,774			$		*		$	844,658			$	(131,772	)		$	798,660
Liabilities:
	Insurance liabilities		$	405			$	–			$	428,491			$	(69	)		$	428,827
	Debt			3,647					*			103,873				(12,257	)			95,263
	Other liabilities			1,115					*			193,855				(1,206	)			193,764
Total liabilities				5,167					*			726,219				(13,532	)			717,854
Preferred shareholders’ equity in subsidiary companies				–				–				199				–				199
Total shareholders’ equity				80,607					*			118,240				(118,240	)			80,607
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity			$	85,774			$		*		$	844,658			$	(131,772	)		$	798,660
December 31, 2003 (Restated)
Assets:
	Invested assets		$	1,811			$		*		$	527,475			$	(10,500	)		$	518,786
	Cash			19					*			903				–				922
	Carrying value of subsidiaries and partially owned companies, at equity			69,718				–				32,615				(100,913	)			1,420
	Other assets			2,662					*			151,206				(843	)			153,025
Total assets			$	74,210			$		*		$	712,199			$	(112,256	)		$	674,153
Liabilities:
	Insurance liabilities		$	358			$	–			$	357,463			$	(31	)		$	357,790
	Debt			3,932					*			86,240				(9,963	)			80,209
	Other liabilities			(110	)				*			167,500				(1,458	)			165,932
Total liabilities				4,180					*			611,203				(11,452	)			603,931
Preferred shareholders’ equity in subsidiary companies				–				–				192				–				192
Total shareholders’ equity				70,030					*			100,804				(100,804	)			70,030
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity			$	74,210			$		*		$	712,199			$	(112,256	)		$	674,153

*	Amounts significantly less than $1 million.

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	23. Information Provided in Connection With Outstanding Debt (continued)

CONDENSED CONSOLIDATING STATEMENT OF INCOME

		American
		International				AIG
		Group, Inc.				Liquidity				Other								Consolidated
(in millions)		Guarantor				Corp.				Subsidiaries				Eliminations				AIG
Year Ended December 31, 2004
Operating Income		$	157	(a)		$		*		$	14,793	(b)		$	–			$	14,950	(c)
Equity in undistributed net income of consolidated subsidiaries			8,730				–				1,952				(10,682	)			–
Dividend income from consolidated subsidiaries			1,836				–				65				(1,901	)			–
Income taxes (benefits)			992					*			3,628				–				4,620
Minority interest			–				–				(455	)			–				(455	)
Cumulative effect of accounting changes			–				–				(144	)			–				(144	)
Net income (loss)		$	9,731			$		*		$	12,583			$	(12,583	)		$	9,731
Year Ended December 31, 2003 (Restated)
Operating Income		$	(601	)(d)		$		*		$	12,256	(e)		$	–			$	11,655	(f)
Equity in undistributed net income of consolidated subsidiaries			7,489				–				1,792				(9,281	)			–
Dividend income from consolidated subsidiaries			1,471				–				196				(1,667	)			–
Income taxes (benefits)			350					*			3,053				–				3,403
Minority interest			–				–				(252	)			–				(252	)
Cumulative effect of accounting changes			–				–				9				–				9
Net income (loss)		$	8,009			$		*		$	10,948			$	(10,948	)		$	8,009

(a)	Includes other income (deductions) — net and other realized capital gains (losses) of $(432) million.
(b)	Includes other income (deductions) — net and other realized capital gains (losses) of $(182) million.
(c)	Includes other income (deductions) — net and other realized capital gains (losses) of $(614) million.
(d)	Includes other income (deductions) — net and other realized capital gains (losses) of $(1,130) million.
(e)	Includes other income (deductions) — net and other realized capital gains (losses) of $(419) million.
(f)	Includes other income (deductions) — net and other realized capital gains (losses) of $(1,549) million.

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	23. Information Provided in Connection With Outstanding Debt (continued)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOW

				American
				International				AIG
				Group, Inc.				Liquidity				Other
(in millions)				Guarantor				Corp.				Subsidiaries				Consolidated
																AIG
Year Ended December 31, 2004
Net cash provided by operating activities				$	2,738			$		*		$	32,843			$	35,581
Cash flows from investing:
		Invested assets disposed			503				–				160,193				160,696
		Invested assets acquired			(107	)			–				(240,127	)			(240,234	)
		Other			(1,040	)				*			90				(950	)
Net cash used in investing activities					(644	)				*			(79,844	)			(80,488	)
Cash flows from financing activities:
		Change in debts			(400	)			–				15,405				15,005
		Other			(1,521	)				*			31,829				30,308
Net cash (used in) provided by financing activities					(1,921	)				*			47,234				45,313
Change in cumulative translation adjustment					(175	)			–				856				681
Change in cash					(2	)				*			1,089				1,087
Cash at beginning of year					19				–				903				922
Cash at end of year				$	17			$		*		$	1,992			$	2,009
Year Ended December 31, 2003 (Restated)
Net cash provided by operating activities				$	630			$		*		$	32,468			$	33,098
Cash flows from investing:
	Invested assets disposed				186				–				157,348				157,534
	Invested assets acquired				(830	)			–				(212,900	)			(213,730	)
	Acquisitions, net of cash acquired				–				–				(2,091	)			(2,091	)
	Other				(842	)				*			(289	)			(1,131	)
Net cash used in investing activities					(1,486	)				*			(57,932	)			(59,418	)
Cash flows from financing activities:
	Change in debts				1,288				–				4,067				5,355
	Other				(416	)				*			20,391				19,975
Net cash provided by financing activities					872					*			24,458				25,330
Change in cumulative translation adjustment					(15	)			–				762				747
Change in cash					1					*			(244	)			(243	)
Cash at beginning of year					18				–				1,147				1,165
Cash at end of year				$	19			$		*		$	903			$	922

	24. Federal Income Taxes

(a) AIG and its eligible domestic subsidiaries file a consolidated U.S. Federal income tax return. The AGC group of life insurance companies also files a consolidated U.S. Federal income tax return. Commencing with taxable year 2004, the AIG SunAmerica group of life insurance companies is included in AIG’s consolidated tax return.

     Revenue Agent’s Reports proposing to assess additional taxes for the years 1991-1996 and 1997-1999 have been issued to AIG. Apart from some relatively minor issues, years prior to 1991 are closed. Letters of Protest contesting the proposed assessments for 1991-1996 and 1997-1999 have been filed with the Internal Revenue Service (IRS).

     In addition, Revenue Agent’s Reports proposing to assess additional taxes for the years ended September 30, 1993-1994, 1995-1996, and September 30, 1997-December 31, 1998 have been issued to AIG SunAmerica. Such proposed assessments relate to years prior to AIG’s acquisition of SunAmerica, Inc. Letters of Protest contesting the proposed assessments have been filed with the IRS. SunAmerica Life has also received a proposed assessment, and has filed a protest, for the year ended December 31, 1999. It is management’s belief that there are substantial arguments in support of the

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	24. Federal Income Taxes (continued)

positions taken by AIG, SunAmerica and SunAmerica Life in their Letters of Protest. Although the final outcome of any issues raised in connection with these examinations is uncertain, AIG believes that the tax obligation, including interest thereon, will not be significant to AIG’s financial condition, results of operations or liquidity. AGC’s tax years through 1999 have been audited and settled with the IRS.

     A component of life insurance surplus accumulated prior to 1984 is not taxable unless it exceeds certain statutory limitations or is distributed to shareholders. This surplus, accumulated in policyholder surplus accounts, totaled approximately $945 million at December 31, 2004. AIG has not made any provision in the accompanying financial statements for taxation of this amount as management has no intention of making any taxable distributions from this surplus. During 2004, the American Jobs Creation Act amended federal income tax law to permit life insurance companies to distribute amounts from policyholders’ surplus accounts in 2005 and 2006 without incurring federal income tax on the distributions. AIG is evaluating this new law and expects to reduce its policyholders’ surplus accounts during these two years.

     Some of AIG’s foreign income is not expected to be taxed in the United States because AIG’s foreign subsidiaries were generally not subject to U.S. income taxes on income earned prior to January 1, 1987 and because certain foreign subsidiaries are not taxed on their active financial services income. Such income would become subject to U.S. income taxes at current tax rates if remitted to the United States or if other events occur which would make these amounts currently taxable. The cumulative amount of translated undistributed earnings of AIG’s foreign subsidiaries currently not subject to U.S. income taxes was approximately $7.0 billion at December 31, 2004. Management has not subjected, and has no current intention of subjecting, these accumulated earnings to U.S. income taxes and no provision has been made in the accompanying financial statements for such taxes. Because of the availability of foreign tax credits, it is not practicable to determine the U.S. federal income tax liability that would be payable if such earnings were not reinvested indefinitely.

     As a result of its internal review, AIG has identified certain misapplications of GAAP in its provisions for deferred income taxes. See Note 2 herein.

(b) The pretax components of domestic and foreign income reflect the locations in which such pretax income was generated. The pretax domestic and foreign income was as follows for the years ended December 31, 2004, 2003 and 2002:

		2004				2003				2002
(in millions)						(Restated)				(Restated)
Domestic		$	6,090			$	4,326				$3,489
Foreign			8,860				7,329				4,493
Total		$	14,950			$	11,655				$7,982

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	24. Federal Income Taxes (continued)

(c) The U.S. Federal income tax rate is 35 percent for 2004, 2003 and 2002. Actual tax expense on income differs from the “expected” amount computed by applying the Federal income tax rate because of the following:

											2003								2002
			2004								(Restated)								(Restated)
							Percent								Percent								Percent
Years Ended December 31,							of Pretax								of Pretax								of Pretax
(dollars in millions)			Amount				Income				Amount				Income				Amount				Income
“Expected” tax expense			$	5,233				35.0	%		$	4,079				35.0	%		$	2,794				35.0	%
Adjustments:
	Tax exempt interest			(440	)			(2.9	)			(329	)			(2.8	)			(267	)			(3.3	)
	Dividends received deduction			(83	)			(0.6	)			(83	)			(0.7	)			(80	)			(1.0	)
	State income taxes			23				0.2				12				0.1				38				0.5
	Foreign income not expected to be taxed in the United States, less foreign income taxes(a)			213				1.4				(107	)			(0.9	)			(81	)			(1.0	)
	Synthetic fuel tax credits(b)			(264	)			(1.8	)			(278	)			(2.4	)			(264	)			(3.3	)
	Affordable housing tax credits			(46	)			(0.3	)			(24	)			(0.2	)			(35	)			(0.4	)
	Nondeductible compensation			20				0.1				96				0.8				(61	)			(0.8	)
	Penalties			28				0.2				–				–				–				–
	Other			(64	)			(0.4	)			37				0.3				(88	)			(1.2	)
Actual tax expense			$	4,620				30.9	%		$	3,403				29.2	%		$	1,956				24.5	%
Foreign and domestic components of actual tax expense:
Foreign(c):
	Current		$	1,097							$	882							$	663
	Deferred			664								490								393
Domestic(c):
	Current			1,579								1,904								1,019
	Deferred			1,280								127								(119	)
Total			$	4,620							$	3,403							$	1,956

(a)	In 2004, it was determined that the earnings of certain foreign subsidiaries are expected to be repatriated to the U.S., and, accordingly, the undistributed earnings of these subsidiaries are no longer considered permanently reinvested abroad. As a consequence of this determination, U.S. deferred taxes have been provided for the undistributed earnings of these foreign subsidiaries.
(b)	In 2003 and 2002, AIG has restated from net investment income to income tax expense, as a benefit, tax credits generated from the production and sale of synthetic fuel.
(c)	Foreign tax expense reflects the expense resulting from local tax regulation. Domestic tax expense includes U.S. taxes incurred on foreign income.

(d) The components of the net deferred tax liability as of December 31, 2004 and 2003 were as follows:

							2003
(in millions)			2004				(Restated)
Deferred tax assets:
	Loss reserve discount		$	2,400				$1,941
	Unearned premium reserve reduction			1,075				949
	Derivatives			17				92
	Adjustment to life policy reserves			3,495				3,929
	Accruals not currently deductible, cumulative translation adjustment and other(a)			2,006				2,518
Deferred tax liabilities:
	Deferred policy acquisition costs			7,955				6,870
	Depreciation of flight equipment			2,963				2,672
	Unrealized appreciation of investments(b)			4,667				4,088
	Other			450				432
Net deferred tax liability			$	7,042				$4,633

(a)	Included herein at December 31, 2004 were approximately $199 million of foreign tax credits which are expected to be utilized prior to the expiration of such credits.
(b)	As part of the restatement, it was determined that the unrealized appreciation of certain investments of certain foreign subsidiaries is considered permanently invested abroad. As a consequence of this determination, U.S. deferred taxes related primarily to unrealized appreciation of investments was reduced by $889 million and $761 million at December 31, 2004 and 2003, respectively.

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											Amount at
											which shown
At December 31, 2004											in the
(in millions)			Cost*				Value				Balance Sheet
Fixed maturities:
	Bonds:
	United States government and government agencies and authorities		$	8,116			$	8,234			$	8,234
	States, municipalities and political subdivisions			55,514				57,103				56,606
	Foreign governments			65,006				68,277				68,277
	Public utilities			18,296				19,278				19,278
	All other corporate			204,173				213,282				213,282
	Total bonds			351,105				366,174				365,677
Total fixed maturities				351,105				366,174				365,677
Equity securities:
	Common stocks:
	Public utilities			359				385				385
	Banks, trust and insurance companies			1,712				2,031				2,031
	Industrial, miscellaneous and all other			12,149				13,395				13,395
	Total common stocks			14,220				15,811				15,811
	Preferred stocks			2,017				2,040				2,040
Total equity securities				16,237				17,851				17,851
Mortgage loans on real estate, policy and collateral loans				22,463				22,959				22,463
Financial services assets:
	Flight equipment primarily under operating leases, net of accumulated depreciation			32,705				–				32,705
	Securities available for sale, at market value			28,845				30,448				30,448
	Trading securities, at market value			–				3,142				3,142
	Spot commodities, at market value			–				95				95
	Unrealized gain on swaps, options and forward transactions			–				22,670				22,670
	Trading assets			–				3,331				3,331
	Securities purchased under agreements to resell, at contract value			26,272				–				26,272
	Finance receivables, net of allowance			23,574				24,133				23,574
Securities lending collateral, at cost (approximates market value)				49,972				–				49,972
Other invested assets (approximates market value)				22,527				–				22,527
Short-term investments, at cost (approximates market value)				16,102				–				16,102
Total investments				–				–			$	636,829

*	Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts.

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December 31,
(in millions)			2004				2003
							(Restated)
Assets:
	Cash		$	17			$	19
	Short-term investments			672				974
	Invested assets			722				836
	Carrying value of subsidiaries and partially-owned companies, at equity			81,610				69,718
	Premiums and insurance balances receivable – net			198				139
	Other assets			2,555				2,524
Total assets				85,774				74,210
Liabilities:
	Insurance balances payable			405				358
	Due to affiliates – net			3,343				2,475
	Medium term notes payable			667				791
	Term notes payable			1,935				1,934
	Zero coupon notes			1,045				1,207
	Other liabilities			(2,228	)			(2,585	)
Total liabilities				5,167				4,180
Shareholders’ equity:
	Common stock			6,878				6,878
	Additional paid-in capital			1,954				1,913
	Retained earnings			64,393				55,392
	Accumulated other comprehensive income			9,593				7,244
	Treasury stock			(2,211	)			(1,397	)
Total shareholders’ equity				80,607				70,030
Total liabilities and shareholders’ equity			$	85,774			$	74,210

STATEMENT OF INCOME – PARENT COMPANY ONLY

Years Ended December 31,			2004				2003				2002
(in millions)							(Restated)				(Restated)
Agency loss			$	(8	)		$	(1	)		$	(12	)
Financial services income				608				543				335
Asset management loss				(11	)			(13	)			(9	)
Dividend income from consolidated subsidiaries:
	Cash			1,835				1,471				1,644
	Other			1				–				–
Dividend income from partially-owned companies				11				9				–
Equity in undistributed net income of consolidated subsidiaries and partially-owned companies				8,730				7,489				4,762
Other income (deductions) – net				(443	)			(1,139	)			(775	)
Income before income taxes				10,723				8,359				5,945
Income taxes				992				350				79
Net income			$	9,731			$	8,009			$	5,866

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Years Ended December 31,			2004				2003				2002
(in millions)							(Restated)				(Restated)
Cash flows from operating activities:
	Net income		$	9,731			$	8,009			$	5,866
Adjustments to reconcile net income to net cash provided by operating activities:
	Noncash revenues, expenses, gains and losses included in income:
	Equity in undistributed net income of consolidated subsidiaries and partially owned companies			(8,730	)			(7,489	)			(4,762	)
	Change in premiums and insurance balances receivable and payable – net			(12	)			(4	)			48
	Other – net			1,749				114				1,422
	Total adjustments			(6,993	)			(7,379	)			(3,292	)
Net cash provided by operating activities				2,738				630				2,574
Cash flows from investing activities:
	Purchase of investments			(107	)			–				(83	)
	Sale of investments			200				186				415
	Change in short-term investments			302				(830	)			(137	)
	Contributions to subsidiaries and investments in partially owned companies			(1,026	)			(573	)			(1,481	)
	Other – net			(13	)			(269	)			(146	)
Net cash used in investing activities				(644	)			(1,486	)			(1,432	)
Cash flows from financing activities:
	Change in medium term notes			(124	)			(207	)			456
	Change in term notes			1				1,500				1
	Redemption of zero coupon notes			(189	)			–				–
	Proceeds from common stock issued			158				74				168
	Change in loans payable			(88	)			(5	)			(389	)
	Cash dividends to shareholders			(730	)			(584	)			(467	)
	Acquisition of treasury stock			(1,083	)			(207	)			(734	)
	Other – net			134				301				(157	)
Net cash (used in) provided by financing activities				(1,921	)			872				(1,122	)
Change in cumulative translation adjustments				(175	)			(15	)			(3	)
Change in cash				(2	)			1				17
Cash at beginning of year				19				18				1
Cash at end of year			$	17			$	19			$	18

(1)	Agency operations conducted in New York through the North American Division of AIU are included in the financial statements of the parent company.
(2)	Certain accounts have been reclassified in the 2003 and 2002 financial statements to conform to their 2004 presentation.
(3)	“Equity in undistributed net income of consolidated subsidiaries and partially owned companies” in the accompanying Statement of Income – Parent Company Only – includes equity in income of the minority-owned insurance operations.
(4)	See also Notes to Consolidated Financial Statements.

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At December 31, 2004, 2003 and 2002 and for the years then ended

							Reserves
							for																				Losses
							Losses and																				and				Amortization
			Deferred				Loss				Reserve				Policy												Loss				of Deferred
			Policy				Expenses,				for				and								Net				Expenses				Policy				Other				Net
			Acquisition				Future Policy				Unearned				Contract				Premium				Investment				Incurred,				Acquisition				Operating				Premiums
Segment (in millions)			Costs				Benefits(a)				Premiums				Claims(b)				Revenue				Income				Benefits				Costs				Expenses				Written
2004
	General Insurance		$	4,008			$	62,371			$	23,094			$	–			$	38,511			$	3,166			$	30,333			$	6,179			$	2,148			$	40,607
	Life Insurance & Retirement Services			25,728				104,737				–				2,451				28,082				15,268				27,980				4,013				3,469				–
			$	29,736			$	167,108			$	23,094			$	2,451			$	66,593			$	18,434			$	58,313			$	10,192			$	5,617			$	40,607
2003 (Restated)
	General Insurance		$	3,627			$	52,381			$	20,910			$	–			$	31,387			$	2,527			$	22,958			$	4,611			$	1,744			$	35,022
	Life Insurance & Retirement Services			22,293				92,912				–				2,015				23,493				12,941				23,187				2,778				3,935				–
			$	25,920			$	145,293			$	20,910			$	2,015			$	54,880			$	15,468			$	46,145			$	7,389			$	5,679			$	35,022
2002 (Restated)
	General Insurance		$	3,073			$	47,095			$	16,299			$	–			$	23,572			$	2,423			$	19,599			$	3,432			$	1,558			$	26,710
	Life Insurance & Retirement Services			18,772				72,284				–				1,649				20,687				11,298				20,388				2,184				3,809				–
			$	21,845			$	119,379			$	16,299			$	1,649			$	44,259			$	13,721			$	39,987			$	5,616			$	5,367			$	26,710

(a)	Reserves for losses and loss expenses with respect to the General Insurance operations are net of discounts of $1.55 billion, $1.52 billion and $1.50 billion at December 31, 2004, 2003 and 2002, respectively.
(b)	Reflected in insurance balances payable on the accompanying balance sheet.

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At December 31, 2004, 2003 and 2002 and for the years then ended

																			Percent of
							Ceded				Assumed								Amount
			Gross				to Other				from Other				Net				Assumed
(dollars in millions)			Amount				Companies				Companies				Amount				to Net
2004
Life Insurance in-force			$	1,844,189			$	344,036			$	13,905			$	1,514,058				0.9	%
Premiums:
	General Insurance		$	44,676			$	11,423			$	7,354			$	40,607				18.1	%
	Life Insurance & Retirement Services			28,486				1,120				716				28,082	*			2.5
Total premiums			$	73,162			$	12,543			$	8,070			$	68,689				11.7	%
2003 (Restated)
Life Insurance in-force			$	1,580,982			$	293,064			$	2,049			$	1,289,967				0.2	%
Premiums:
	General Insurance		$	40,777			$	11,907			$	6,152			$	35,022				17.6	%
	Life Insurance & Retirement Services			24,415				958				36				23,493	*			0.2
Total premiums			$	65,192			$	12,865			$	6,188			$	58,515				10.6	%
2002 (Restated)
Life Insurance in-force			$	1,296,514			$	278,704			$	2,078			$	1,019,888				0.2	%
Premiums:
	General Insurance		$	31,798			$	9,960			$	4,872			$	26,710				18.2	%
	Life Insurance & Retirement Services			21,568				917				36				20,687	*			0.2
Total premiums			$	53,366			$	10,877			$	4,908			$	47,397				10.4	%

*	Includes accident and health premiums of $5.63 billion, $4.17 billion and $3.45 billion in 2004, 2003 and 2002, respectively.

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PART II – OTHER INFORMATION

ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There have been no changes in or disagreements with accountants on accounting and financial disclosure during the twenty-four months ended December 31, 2004.

ITEM 9A.	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report (December 31, 2004), an evaluation was carried out by AIG’s management, with the participation of AIG’s current Chief Executive Officer and Chief Financial Officer, of the effectiveness of AIG’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act)). Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on its evaluation and the identification of the material weaknesses in internal control over financial reporting described below and new information about preexisting facts which came to AIG’s attention during the course of its internal review, and because of an inability to file the Annual Report on Form 10-K within the statutory time period, AIG’s Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2004, AIG’s disclosure controls and procedures were ineffective.

     As more fully described in Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 2 to the Consolidated Financial Statements, following receipt of subpoenas from, and commencement of investigations by, various regulatory agencies, in March 2005, AIG’s then Chief Executive Officer retired and the then Chief Financial Officer was terminated. In connection with the preparation of AIG’s consolidated financial statements to be included in this report, AIG’s current management initiated an internal review of AIG’s books and records, which was substantially expanded in mid-March with the oversight of the Audit Committee of the Board of Directors.

     As a result of the findings of that review, together with the results of investigations conducted by outside counsel at the request of AIG’s Audit Committee, and in consultation with AIG’s independent registered public accounting firm, AIG has restated its audited consolidated financial statements for the years ended December 31, 2003, 2002, 2001 and 2000 and its unaudited condensed consolidated financial statements for the quarters ended March 31, June 30 and September 30, 2004 and 2003 and the quarter ended December 31, 2003. Notwithstanding the existence of the material weaknesses described below, AIG believes that the consolidated financial statements in this Form 10-K fairly present, in all material respects, AIG’s financial condition as of December 31, 2004 and 2003, and results of its operations and cash flows for the years ended December 31, 2004, 2003 and 2002, in conformity with U.S. generally accepted accounting principles (GAAP).

Management’s Report on Internal Control Over Financial Reporting

Management of AIG and its consolidated subsidiaries is responsible for establishing and maintaining adequate internal control over financial reporting. AIG’s internal control over financial reporting is a process, under the supervision of AIG’s Chief Executive Officer and Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of AIG’s financial statements for external reporting purposes in accordance with GAAP.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

     AIG management conducted an assessment of the effectiveness of AIG’s internal control over financial reporting as of December 31, 2004 based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

     A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of AIG’s annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, AIG management identified control deficiencies as of December 31, 2004 in the following areas:

     Control environment: Certain of AIG’s controls within its control environment were not effective to prevent certain members of senior management, including the former Chief Executive Officer and former Chief Financial Officer, from having the ability, which in certain instances was utilized, to override certain controls and effect certain transactions and

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     Specifically, this control deficiency permitted the following:

•	Creation of Capco, a special purpose entity used to effect transactions that were recorded to convert, improperly, underwriting losses to investment losses and that were not correctly accounted for in accordance with GAAP, resulting in a misstatement of premiums and other considerations, realized capital gains (losses), incurred policy losses and benefits and related balance sheet accounts.
•	Incorrect recording under GAAP of reinsurance transactions that did not involve sufficient risk transfer, such as the Gen Re transaction, and in some cases also related to entities which should have been consolidated, such as Union Excess and Richmond. This incorrect recording under GAAP resulted in a misstatement of premiums and other considerations, incurred policy losses and benefits, net investment income, reinsurance assets, deferred policy acquisition costs, other assets, reserve for losses and loss expenses, reserve for unearned premiums, other liabilities and retained earnings. See below for a related discussion under Controls over the evaluation of risk transfer.
•	Various transactions, such as Covered Calls and certain “Top Level” Adjustments, converted realized and unrealized gains into investment income, thereby incorrectly applying GAAP, resulting in a misstatement of net investment income, realized capital gains (losses), and accumulated other comprehensive income.
•	Incorrect recording under GAAP of changes to loss reserves and changes to loss reserves through “Top Level” Adjustments without adequate support, resulting in a misstatement of incurred policy losses and benefits, reserves for losses and loss expenses, foreign currency translation adjustments and retained earnings.

     Controls over the evaluation of risk transfer: AIG did not maintain effective controls over the proper evaluation, documentation and disclosure of whether certain insurance and reinsurance transactions involved sufficient risk transfer to qualify for insurance and reinsurance accounting. These transactions included Gen Re, Union Excess, Richmond and certain transactions involving AIG Re, AIG Risk Finance and AIG Risk Management. As a result, AIG did not properly account for these transactions under GAAP, resulting in a misstatement of premiums and other considerations, incurred policy losses and benefits, net investment income, reinsurance assets, deferred policy acquisition costs, other assets, reserve for losses and loss expenses, reserve for unearned premiums, other liabilities, and retained earnings.

     Controls over certain balance sheet reconciliations: AIG did not maintain effective controls to ensure the accuracy of certain balance sheet accounts in certain key segments of AIG’s operations, principally in the Domestic Brokerage Group. Specifically, accounting personnel did not perform timely reconciliations and did not properly resolve reconciling items for premium receivables, reinsurance recoverables and intercompany accounts. As a result, insurance acquisition and other operating expenses, premiums and insurance balances receivable, reinsurance assets, other assets and retained earnings were misstated under GAAP.

     Controls over the accounting for certain derivative transactions: AIG did not maintain effective controls over the evaluation and documentation of whether certain derivative transactions qualified under GAAP for hedge accounting, resulting in a misstatement of net investment income, realized capital gains (losses), other revenues, accumulated other comprehensive income (loss) and related balance sheet accounts.

     Controls over income tax accounting: AIG did not maintain effective controls over the determination and reporting of certain components of the provision for income taxes and related deferred income tax balances. Specifically, AIG did not maintain effective controls to review and monitor the accuracy of the components of the income tax provision calculations and related deferred income taxes and to monitor the differences between the income tax basis and the financial reporting basis of assets and liabilities to effectively reconcile the differences to the deferred income tax balances. As a result, deferred income taxes payable, retained earnings and accumulated other comprehensive income were misstated under GAAP.

     The control deficiencies described above resulted in the restatement of AIG’s 2003, 2002, 2001 and 2000 annual consolidated financial statements and 2004 and 2003 interim consolidated financial statements, as well as adjustments, including audit adjustments relating to the derivative matter described above, to AIG’s 2004 annual consolidated financial statements. Furthermore, these control deficiencies could result in other misstatements in financial statement accounts and disclosures that would result in a material misstatement to the annual or interim AIG consolidated financial statements that would not be prevented or detected. Accordingly, management has concluded that these control deficiencies constitute material weaknesses.

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     As a result of the material weaknesses described above, AIG management has concluded that, as of December 31, 2004, AIG’s internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework issued by COSO.

     Management’s assessment of the effectiveness of AIG’s internal control over financial reporting as of December 31, 2004 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is included in this Annual Report on Form 10-K.

Remediation of Material Weaknesses in Internal Control Over Financial Reporting

AIG is actively engaged in the implementation of remediation efforts to address the material weaknesses in AIG’s internal control over financial reporting as of December 31, 2004. These remediation efforts, outlined below, are specifically designed both to address the material weaknesses identified by AIG management and to enhance AIG’s overall corporate governance.

     AIG has taken, and is developing further plans to take, significant actions to improve its control environment, starting with a clear statement of the tone and philosophy set by its current senior management.

     AIG appointed a new Chief Executive Officer and a new Chief Financial Officer, who, together with other senior executives, are committed to achieving transparency and clear communication with all stakeholders through effective corporate governance, a strong control environment, high ethical standards and financial reporting integrity.

     AIG is considering the appropriate remedial actions with respect to certain employees in management and in the underwriting, accounting, auditing, actuarial and financial reporting functions. Such remedial actions may include further training and supervision, reassignment outside areas of involvement with financial reporting or termination.

     The AIG Board of Directors has recently established the Regulatory, Compliance and Legal Committee to provide oversight of AIG’s compliance with applicable laws and regulations.

     AIG has enhanced its Code of Conduct for employees and mandated that all employees complete special formal ethics training developed and monitored by AIG Corporate Compliance. AIG has implemented a Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics, to provide reasonable assurance that all members of the Board of Directors, executive officers and senior financial officers adhere to the stated principles and procedures set forth in that Code.

     AIG is developing a corporate level compliance framework, including implementation of compliance programs at the major business areas.

     AIG has strengthened the position of Chief Risk Officer, responsible for enterprise-wide credit, market, and operational risk management and oversight of the corresponding functions at the business levels and has empowered the Chief Risk Officer to work more closely with top executives at the corporate and major business area level to identify, assess, quantify, manage and mitigate risks to AIG.

     AIG has established an Operational Risk Management department, reporting to the Chief Risk Officer, to engage in expanded risk self-assessment processes for more effective identification and management of operational and reputational risks.

     In 2004, AIG established the Complex Structured Finance Transaction Committee at the corporate level to review and approve transactions that could enable a third party to achieve an accounting or financial reporting result inconsistent with applicable accounting principles or subject AIG to heightened legal, reputational, regulatory or other risk. AIG has expanded the scope and activities of the Complex Structured Finance Transaction Committee, to include the review and approval of AIG’s accounting and financial reporting of identified transactions, including related party transactions.

     AIG plans to establish a Financial Disclosure Committee to assist the Chief Executive Officer and the Chief Financial Officer in fulfilling their responsibilities for oversight of the accuracy and timeliness of the disclosures made by AIG.

     AIG has taken several initial steps, and is developing others, that will provide reasonable assurance that risk transfer will be properly evaluated and contemporaneously documented and that the proper GAAP accounting will be utilized.

     AIG is establishing specific processes and controls and modifying others to provide reasonable assurance that reconciliations are performed as part of standardized procedures, reconciling items are reported on a periodic basis for timely resolution and consolidated exposure analyses are initiated and completed.

     AIG has commenced an evaluation of alternative approaches necessary to conform to hedge accounting in accordance with GAAP, is expanding the quarterly hedge effectiveness reviews currently performed independently by AIG’s Market Risk Management Department to ensure that certain derivative transactions meet hedge accounting requirements, and has begun to develop and implement the processes and controls necessary to ensure the appropriate evaluation and documentation of transactions qualifying for hedge accounting treatment.

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     AIG has commenced a process to enhance controls to ensure that accounting for deferred taxes is in accordance with GAAP, addressing the reconciliation of deferred tax assets and liabilities to the tax basis of the related assets and liabilities and the monitoring of the effective tax rate applied to foreign subsidiaries eligible for relief from US income tax.

Changes in Internal Control Over Financial Reporting

There has been no change in AIG’s internal control over financial reporting during the quarter ended December 31, 2004 that has materially affected, or is reasonably likely to materially affect, AIG’s internal control over financial reporting.

ITEM 9B.	Other Information

None.

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PART III

ITEM 10.	Directors and Executive Officers of the Registrant

     Set forth below is information concerning the directors of AIG. All directors are elected for one-year terms at the annual meeting of shareholders. There are no arrangements or understandings between any director and any other person pursuant to which the director was elected.

     The principal occupation or affiliation of the directors and their recent experience and other directorships are shown opposite their name. Unless otherwise indicated, each of the directors who is also an executive officer of AIG has, for more than five years, occupied an executive position with AIG or companies that are now its subsidiaries, and each other director has occupied an executive position with his or her company or organization listed in the table for at least five years.

     AIG expects that Messrs. Greenberg and Smith will not be nominated for reelection as directors at the 2005 Annual Meeting of Shareholders. Mr. Hoenemeyer notified AIG that he will retire from the Board of Directors following the 2005 Annual Meeting.

								Director
Name of Director		Position and Other Directorships		Age				Since
M. Bernard Aidinoff		Retired Partner, Sullivan & Cromwell LLP (Attorneys) Director, First SunAmerica Life Insurance Company, a wholly-owned subsidiary of AIG			76			1984
Pei-yuan Chia		Retired Vice Chairman, Citicorp and Citibank, N.A.			66			1996
Marshall A. Cohen		Counsel, Cassels Brock & Blackwell (Barristers and Solicitors); Former President and Chief Executive Officer, The Molson Companies Limited Director, Barrick Gold Corporation, Collins & Aikman Corporation, Lafarge North America Inc., Metaldyne Corporation, Premcor Inc., Toronto Dominion Bank			70			1992
William S. Cohen		Chairman and Chief Executive Officer, The Cohen Group (The Cohen Group provides business consulting services and advice in international markets); United States Secretary of Defense, 1997 to January 2001; Former United States Senator Director, Viacom, Inc.			64			2004
Martin S. Feldstein		Professor of Economics, Harvard University; President and Chief Executive Officer, National Bureau of Economic Research (a nonprofit economic research center) Director, Eli Lilly and Company, HCA Inc.			65			1987
Ellen V. Futter		President, American Museum of Natural History Director, Bristol-Myers Squibb Company, Consolidated Edison, Inc. (also serves as Trustee of Consolidated Edison Company of New York, Inc.), J.P. Morgan Chase & Co.			55			1999
M. R. Greenberg		Retired Chairman and Chief Executive Officer, AIG Director, President and Chief Executive Officer of C.V. Starr & Co., Inc.			80			1967
Stephen L. Hammerman		Retired; Former Deputy Commissioner of Legal Matters for the New York City Police Department, February 2002 through December 2004 and Vice Chairman, Merrill Lynch & Co., January 1999 to January 2002			67			2005
Carla A. Hills		Chairman and Chief Executive Officer, Hills & Company (Hills & Company provides international investment, trade and risk advisory services); Former United States Trade Representative Director, Time Warner Inc., ChevronTexaco Corporation, Lucent Technologies Inc.			71			1993
Frank J. Hoenemeyer		Financial Consultant; Retired Vice Chairman, Prudential Insurance Company of America Director, Carey Fiduciary Advisors, Inc., Cincinnati, Inc.			85			1985
Richard C. Holbrooke		Vice Chairman, Perseus LLC (Perseus LLC is a merchant bank and private equity fund management company.); Former United States Ambassador to the United Nations, 1999 to 2001 and Vice Chairman, Credit Suisse First Boston Director, Human Genome Sciences, Inc., Quebecor World Inc.			64			2001
Donald P. Kanak		Executive Vice Chairman and Chief Operating Officer, AIG			52			2004
George L. Miles, Jr.		President and Chief Executive Officer, WQED Multimedia; Former Executive Vice President and Chief Operating Officer, WNET/Thirteen in New York; Director, WESCO International, Inc., Equitable Resources, Inc., Harley Davidson, Inc., Westwood One, Inc.			63			2005
Morris W. Offit		Co-Chief Executive Officer of Offit Hall Capital Management LLC; founder and former CEO of OFFITBANK			68			2005
Howard I. Smith		Former Vice Chairman and Chief Financial Officer, AIG			60			1997
Martin J. Sullivan		President and Chief Executive Officer, AIG Director, ILFC, Transatlantic			50			2002
Edmund S. W. Tse		Senior Vice Chairman – Life Insurance, AIG			67			1996
Frank G. Zarb		Chairman, Frank Zarb Associates, LLC; Senior Advisor, Hellman & Friedman LLC (Private Equity Investment Firm); Former Chairman and Chief Executive Officer, National Association of Securities Dealers, Inc., February 1997 to October 2000, and The Nasdaq Stock Market, Inc., February 1997 to January 2001, and served as Chairman of those organizations until September 2001; Director, FPL Group, Inc.			70			2001

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     Set forth below is information concerning the executive officers of AIG. All officers serve at the pleasure of the Board of Directors, but subject to the foregoing, are elected to one-year terms.

     Except as hereinafter noted, each of the executive officers has, for more than five years, occupied an executive position with AIG or companies that are now its subsidiaries. There are no other arrangements or understandings between any officer and any other person pursuant to which the officer was elected to such position. From January 2000 until joining AIG in May 2004, Mr. Frenkel served as Chairman of Merrill Lynch International, Inc. Between 1991 and 2001, Mr. Frenkel served for two consecutive terms as the Governor of the Bank of Israel. Prior to joining AIG in 2001, Mr. Rautenberg was Vice President and General Manager, Corporate Communications, at Canon, U.S.A. from September 2000 to June 2001 and for five years prior to that he was the senior corporate communications executive at Reliance Group Holdings. Prior to joining AIG in September 2002, Mr. Bensinger was Executive Vice President and Chief Financial Officer of Combined Specialty Group, Inc. (a division of Aon Corporation) commencing in March 2002, and served as Executive Vice President of Trenwick Group, Ltd. from October 1999 through December 2001. Prior to joining AIG in February 2005, Mr. Winans was a Vice President at Lehman Brothers Equity Research covering property-casualty insurers. Prior to joining Lehman in June 2003, he held a similar position at Williams Capital, following three years as an equity analyst covering the property-casualty sector at Morgan Stanley and previously at Paine Webber, which he joined in late 1999.

								Served as Officer
Name of Officer		Title		Age				Since
Martin J. Sullivan		President and Chief Executive Officer			50			1997
Donald P. Kanak		Executive Vice Chairman and Chief Operating Officer			52			1998
Edmund S. W. Tse		Senior Vice Chairman – Life Insurance			67			1991
Thomas R. Tizzio		Senior Vice Chairman – General Insurance			67			1982
Jacob A. Frenkel		Vice Chairman – Global Economic Strategies			61			2004
Frank G. Wisner		Vice Chairman – External Affairs			66			1997
Steven J. Bensinger		Executive Vice President, Chief Financial Officer, Treasurer and Comptroller			50			2002
Rodney O. Martin, Jr.		Executive Vice President – Life Insurance			52			2002
Kristian P. Moor		Executive Vice President – Domestic General Insurance			45			1998
Win J. Neuger		Executive Vice President and Chief Investment Officer			55			1995
R. Kendall Nottingham		Executive Vice President – Life Insurance			66			1998
Robert M. Sandler		Executive Vice President – Domestic Personal Lines			62			1980
Jay S. Wintrob		Executive Vice President – Retirement Services			48			1999
William N. Dooley		Senior Vice President – Financial Services			52			1992
Axel I. Freudmann		Senior Vice President – Human Resources			58			1986
Robert E. Lewis		Senior Vice President and Chief Risk Officer			54			1993
Ernest T. Patrikis		Senior Vice President and General Counsel			61			1998
Brian T. Schreiber		Senior Vice President – Strategic Planning			39			2002
Richard W. Scott		Senior Vice President – Investments			51			2002
Kathleen E. Shannon		Senior Vice President, Secretary and Deputy General Counsel			56			1986
Keith L. Duckett		Vice President and Director of Internal Audit			44			2001
Charlene M. Hamrah		Vice President and Director of Investor Relations			57			2004
Peter K. Lathrop		Vice President and Director of Taxes			62			2001
Steven A. Rautenberg		Vice President – Communications			55			2001
Christopher D. Winans		Vice President – Media Relations			54			2005

Audit Committee

AIG has a separately designated standing audit committee established in accordance with SEC rules. AIG’s audit committee assists the Board’s oversight of AIG’s financial statements and compliance with legal and regulatory requirements, the qualifications and performance of AIG’s independent registered public accounting firm and the performance of AIG’s internal audit function.

Mr. Hoenemeyer chaired the Audit Committee, which included Messrs. Aidinoff, Chia and Zarb and Mrs. Hills during 2004. On May 18, 2005, Messrs. Miles and Offit were named to the Audit Committee. The Board has determined, upon the recommendation of the Nominating and Corporate Governance Committee, that all members of the Audit Committee are independent under both New York Stock Exchange and SEC rules. The Board has also determined that each member of the Audit Committee is financially literate within the meaning of the New York Stock Exchange listing standards.

In addition, the Board has determined that Mr. Hoenemeyer is an audit committee financial expert for purposes of the SEC rules and has accounting or related financial management expertise for purposes of the New York Stock Exchange listing standards. Although designated as an audit committee financial expert, Mr. Hoenemeyer is not an accountant for AIG and, under the SEC rules, is not an “expert” for purposes of the liability provisions of the Securities Act or for any other purpose. Mr. Hoenemeyer does not have any responsibilities or obligations in addition to those of the other audit committee members; all audit committee members have the identical duties and responsibilities.

Code of Ethics

AIG has adopted a Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics and a Code of Conduct for employees, which are available free of charge on or through the Investor Information section of AIG’s corporate website at www.aigcorporate.com. Any

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires directors, executive officers, and ten percent holders of AIG Common Stock to file reports concerning their ownership of AIG equity securities. Based solely on the review of the Forms 3, 4 and 5 furnished to AIG and certain representations made to AIG, AIG believes that the only filing deficiencies under Section 16(a) by its directors, executive officers, and ten percent holders during 2004 were: one late report filed by Mr. Bensinger, an executive officer, reporting the purchase of 24 shares on March 5, 2004; one late report filed by Mr. Freudmann, an executive officer, reporting three sales involving an aggregate of 15,331 shares on December 2, 2004, December 21, 2004 and December 22, 2004; three late reports filed by Mr. Greenberg reflecting the disposition of an aggregate of 48 shares by Starr upon the exercise of stock options by Starr employees (41 shares on January 26, 2004 and eight shares on November 9, 2004) and the disposition of 450 shares by Starr relating to purchases by Starr employees of shares under the Starr Employee Stock Purchase Plan. Mr. Sullivan has filed one late report reflecting the acquisition of 424 shares as a result of his marriage in October 2002.

ITEM 11.	Executive Compensation

1. Compensation of Directors

Directors who are employees of AIG or its subsidiaries do not receive fees for service on the Board or the committees of the Board. Each other director of AIG currently receives director’s fees of $40,000 per year, plus $1,500 for each Board meeting attended. An annual fee of $5,000 is paid to each member of each committee of the Board. Members of each committee also receive $1,500 for each committee meeting attended. Directors who are not employees of AIG or its subsidiaries are granted 500 shares of AIG Common Stock annually, receipt of which is deferred until retirement from the Board, pursuant to the AIG Director Stock Plan. In addition, under the AIG Amended and Restated 1999 Stock Option Plan, non-management directors receive annually an option which vests after one year and is exercisable for nine years thereafter to purchase 2,500 shares of AIG Common Stock at an option price equal to the fair market value of AIG Common Stock on the date of grant, which is the date of the Annual Meeting of Shareholders. Receipt of shares upon exercise of these options may be deferred at the election of the director. Certain directors who are not employees of AIG also serve as directors of various subsidiaries of AIG and receive fees for meeting attendance.

2. Compensation of Executive Officers

The following Summary Compensation Table sets forth the compensation for (i) the persons who during 2004 served as AIG’s chief executive officer or were among AIG’s four other most highly compensated executive officers (based on annual salary and bonus) and (ii) certain other current or former executive officers of AIG.

     The persons named in the Summary Compensation Table also had positions with, and received payments from, C.V. Starr & Co., Inc. (Starr) and Starr International Company, Inc. (SICO) during 2004. These payments are described in Section 3 below.

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SUMMARY COMPENSATION TABLE

																			Long Term Compensation
							Annual Compensation												Awards				Payouts
Name and Principal															Other Annual								SICO LTIP				All Other
Position			Year				Salary				Bonus(1)				Compensation(2)				Stock Options				Payouts(3)(4)				Compensation(5)
Current
Martin J. Sullivan (6)				2004			$	774,963			$	830,000			$	28,075				50,000			$	4,202,880			$	14,350
	President and			2003				792,347				730,000				235,062				80,000				—				14,000
	Chief Executive Officer			2002				593,500				440,000				—				40,000				1,851,200				11,000
Donald P. Kanak (7)(8)				2004				743,000				960,000				365,474				50,000				3,152,160				14,350
	Executive Vice Chairman			2003				718,538				860,000				1,164,528				65,000				—				13,999
	and Chief Operating			2002				554,710				553,917				1,684,589				75,000				1,851,200				11,000
	Officer
Jay S. Wintrob				2004				716,000				900,000				20,948				50,000				2,626,800				1,510,707
	Executive Vice			2003				731,038				625,000				—				80,000				—				1,424,499
	President — Retirement			2002				716,000				490,000				—				40,000				1,851,200				6,469,372
	Services
Richard W. Scott(8)				2004				550,000				1,139,905				32,405				15,000				709,236				13,341
	Senior Vice			2003				559,616				1,061,250				—				30,000				—				9,000
	President — Investments			2002				500,000				858,730				—				15,000				624,780				8,375
Thomas R. Tizzio				2004				654,700				630,000				27,905				25,000				5,043,456				14,350
	Senior Vice Chairman —			2003				679,881				630,000				—				55,000				1,996,800				14,000
	General Insurance			2002				654,700				655,000				—				30,000				3,702,400				10,500
Edmund S.W. Tse				2004				805,152				790,192				20,000				55,000				5,043,456				—
	Senior Vice Chairman —			2003				815,156				746,859				—				100,000				1,784,880				—
	Life Insurance			2002				765,154				781,859				—				50,000				3,702,400				—
Rodney O. Martin, Jr.				2004				682,000				918,767				30,006				40,000				1,050,720				1,586,947
	Executive Vice President —			2003				695,731				1,340,000				95,118				40,000				—				104,118
	Life Insurance			2002				678,431				1,340,000				129,256				20,000				624,780				137,631
Kristian P. Moor				2004				628,298				635,000				14,245				40,000				3,152,160				12,692
	Executive Vice President —			2003				651,479				585,000				—				65,000				—				12,342
	Domestic General Insurance			2002				568,273				365,000				—				30,000				1,851,200				9,782
Win J. Neuger				2004				902,154				560,000				—				50,000				3,152,160				9,225
	Executive Vice President			2003				927,384				475,000				—				65,000				—				9,000
	and Chief Investment Officer			2002				852,923				350,000				—				25,000				1,851,200				7,333
Former
M.R. Greenberg(9)				2004				1,000,000				8,000,000				292,716				375,000				10,086,912				14,350
	Former Chairman			2003				1,000,000				6,500,000				—				750,000				—				14,000
	and Chief Executive			2002				1,000,000				5,000,000				—				375,000				11,107,200				11,000
	Officer
Howard I. Smith(10)				2004				631,154				730,000				29,700				60,000				4,202,880				14,350
	Former Vice Chairman &			2003				654,231				680,000				—				100,000				—				14,000
	Chief Financial Officer			2002				533,847				630,000				—				50,000				3,702,400				11,000

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	(1)	Amounts shown for named executive officers other than Mr. Greenberg represent year-end bonuses and bonuses paid quarterly pursuant to a quarterly bonus program. Mr. Greenberg did not participate in the quarterly bonus program.
	(2)	Amounts shown for Mr. Sullivan represent tax equalization payments of $229,262 in 2003 in connection with the exercise of certain nonqualified stock options granted while Mr. Sullivan was resident in the United Kingdom and tax preparation and consultation services — $8,075 (2004), $5,800 (2003) and $2,400 (2002). Amounts shown for Mr. Kanak represent the following expatriate benefits paid to Mr. Kanak due to his service in Japan: cost of living adjustment — $335,423 (2004) and $156,312 in each of 2003 and 2002; tax equalization payments — $715,224 (2003) and $1,239,195 (2002); housing costs — $211,107 (2003) and $209,678 (2002); home leave airfare — $16,080 (2003) and $15,243 (2002); foreign service premium — $6,824 in each of 2003 and 2002; local education allowance — $21,946 (2003) and $41,879 (2002); and also represents tax preparation and consultant services — $7,831 (2004), $28,720 (2003) and $6,015 (2002); automobile allowance — $2,743 (2003) and $3,555 (2002); club dues — $5,573 (2003) and $5,888 (2002); and temporary living expense reimbursement — $17,000 (2004). Amounts shown for Mr. Wintrob include an automobile allowance of $7,166 in 2004. Amounts shown for Mr. Martin include an automobile allowance of $14,400 in 2004, premiums paid by AGC for a group carve out individual life insurance policy of $4,385 (2003) and $4,120 (2002), the value of split- dollar life insurance ($78 in 2004, $90,733 in 2003 and $96,386 in 2002) which represents the present value of the interest projected to accrue on the current year’s insurance premium paid by AGC. Amounts shown for Mr. Greenberg and Mr. Tse include amounts attributable to the incremental cost of personal usage of automobiles in 2004 of $23,500 and $20,000, respectively. Amounts in 2004 also include amounts attributable to the incremental cost of personal usage of corporate aircraft as follows: Mr. Wintrob — $13,782, Mr. Martin — $15,527, Mr. Moor — $14,245 and Mr. Greenberg — $266,180 and personal usage of car service as follows: Mr. Sullivan — $20,000, Mr. Kanak — $5,200, Mr. Tizzio — $27,905 and Mr. Smith — $29,700. Except as indicated above, perquisites for years prior to 2004 total less than $50,000.
	(3)	The LTIP payouts will be made by SICO pursuant to its 2003-2004 Deferred Compensation Profit Participation Plan. Since 1975, SICO has provided a series of two-year SICO Plans to senior AIG employees (each, a SICO Plan). The original SICO Plan came into being in 1975 when the

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		voting shareholders and Board of Directors of SICO, whose principal asset consists of AIG Common Stock, decided that a portion of the capital value of SICO should be used to provide an incentive plan for the current and succeeding management of all American International companies, including AIG. Participation in the SICO Plan by any person, and the amount of such participation, has been at the sole discretion of SICO’s board of directors. Historically, SICO has delivered cash or AIG Common Stock under the SICO Plans; AIG has made no payments. In its restated financial statements AIG has recorded a charge to reported earnings in the periods restated for deferred compensation amounts granted to AIG employees by SICO, with an offsetting entry to additional paid-in capital, reflecting amounts deemed contributed by SICO. AIG is currently in the process of terminating various relationships with SICO and Starr and has authorized the creation of a 2005-2006 Deferred Compensation Profit Participation Plan. This Plan will be modeled after the SICO Plan with respect to the 2003-2004 period, except that it will be administered by AIG and its costs will be borne directly by AIG. In addition, SICO has confirmed and AIG will, subject to certain conditions, assure, that all benefits accrued to employees under the SICO Plans through 2004 will be paid to employees in accordance with the terms of the SICO Plans.
	(4)	Amounts shown do not represent actual payments. Payments do not begin until the employee retires after reaching age 65. Amounts shown in 2004 represent the value, based on the closing sale price of AIG Common Stock on December 31, 2004 ($65.67), of shares of AIG Common Stock contingently allocated with respect to the January 1, 2003 to December 31, 2004 period but not distributed under the 2003-2004 SICO Plan. Amounts shown in 2002 represent the value, based on the closing sale price of AIG Common Stock on December 31, 2002 ($57.85), of shares of AIG Common Stock contingently allocated with respect to the January 1, 2001 to December 31, 2002 period but not distributed under the 2001-2002 SICO Plan. The values shown for the year 2004 represent the number of AIG shares contingently allocated to the named executive officers as follows: Sullivan — 64,000 shares; Kanak — 48,000 shares; Wintrob — 40,000 shares; Scott — 10,800 shares; Tizzio — 64,000 shares; Tse — 64,000 shares; Martin — 16,000 shares; Moor — 48,000 shares; Neuger — 48,000 shares; Greenberg — 128,000 shares and Smith — 64,000 shares. The values shown for the year 2002 represent the number of AIG shares contingently allocated to the named executive officers as follows: Sullivan — 32,000 shares; Kanak — 32,000 shares; Wintrob — 32,000 shares; Scott — 10,800 shares; Tizzio — 64,000 shares; Tse — 64,000 shares; Martin — 10,800 shares; Moor — 32,000 shares; Neuger — 32,000 shares; Greenberg — 192,000 shares and Smith — 64,000 shares. The right to payouts is subject to forfeiture under certain conditions, including the participant’s termination of employment with AIG and its subsidiaries before normal retirement age other than by death or disability (unless the SICO board determines to reinstate the payment right). The SICO Board of Directors currently may permit the early payout of units under certain circumstances. No executive named in the Summary Compensation Table other than Mr. Martin is eligible for early payout with respect to units awarded to them. Prior to earning the right to payout, the participant is not entitled to any equity interest with respect to underlying shares. In addition, SICO’s board of directors currently makes the final decision whether to pay a participant cash in lieu of shares of AIG Common Stock.
	(5)	Amounts shown for each of Sullivan, Kanak, Scott, Moor and Neuger represent solely matching contributions under the AIG savings plan (“401(k) Plan”). Amounts shown for Mr. Tizzio include matching contributions under 401(k) plan of $14,350 in 2004, $14,000 in 2003 and $10,500 in 2002. Amounts shown for Mr. Smith include matching contributions of $14,350 in 2004, $14,000 in 2003 and $21,000 in 2002. Amounts shown for Mr. Greenberg include matching contributions of $14,350 in 2004, $14,000 in 2003 and $11,000 in 2002. Amounts shown for Mr. Wintrob include matching contributions under the 401(k) Plan of $14,350 (2004) and $14,000 (2003), $5,000,000 paid in 2002 as a retention bonus paid pursuant to an agreement entered into in connection with the acquisition of SunAmerica Inc. and $1,496,357 (2004), $1,410,499 (2003) and $1,469,372 (2002) paid under a SunAmerica Five-Year Deferred Bonus Plan from awards granted in 2000 and 2001, which pays out in 20 percent installments over five years of continued employment. Amounts shown for Mr. Martin include matching contributions under the 401(k) Plan of $9,225 (2004), $9,000 (2003) and $8,375 (2002), matching contributions under the AGC Thrift Plan of $8,500 (2002) and the AGC Supplementary Thrift Plan of $20,250 (2002) and $1,577,722 which is the value on December 31, 2004 of 24,025 shares of AIG Common Stock representing performance share units awarded under an employment agreement with Mr. Martin negotiated in connection with AIG’s acquisition of AGC in August 2001. Under the employment agreement, during the employment period (August 29, 2001 through August 29, 2004), Mr. Martin was entitled to receive a base salary of not less than $650,000, an annual bonus of not less than $1,250,000 and a supplemental bonus of $90,000. The employment agreement also contained provisions relating to the payment of benefits upon the termination of Mr. Martin’s employment during the employment period.
	(6)	Mr. Sullivan was elected President and Chief Executive Officer as of March 14, 2005. Prior thereto he was Vice Chairman and Co-Chief Operating Officer.
	(7)	Mr. Kanak was elected Executive Vice Chairman and Chief Operating Officer as of March 14, 2005. Prior thereto he was Vice Chairman and Co-Chief Operating Officer.
	(8)	In 2002, Mr. Kanak and Mr. Scott received restricted stock units with respect to 20,000 shares of AIG Common Stock with a value of $1,226,000 on the date of grant and 6,500 shares of AIG Common Stock with a value of $398,450 on the date of grant, respectively, which vest on the fourth anniversary of the date of grant. As of December 31, 2004, these restricted stock units had a value of $1,313,400 and $426,855, respectively, based on the closing sale price of AIG Common Stock on December 31, 2004 ($65.67).
	(9)	Mr. Greenberg retired as Chairman and Chief Executive Officer on March 14, 2005.

(10)	Mr. Smith was terminated as Vice Chairman and Chief Financial Officer on March 21, 2005.

     In order to facilitate the performance of their management responsibilities, AIG provides to Messrs. Sullivan and Tse (and, before his retirement, provided to Mr. Greenberg) automobiles and drivers and to these individuals and other officers and employees the use of corporate aircraft, club memberships, recreational opportunities and clerical and investment management services. From time to time Starr also made a yacht owned by SICO available to AIG officers and employees. These facilities are provided for use for business purposes and the costs thereof incurred by AIG are considered ordinary and necessary business expenses. The incremental cost of any personal benefit these persons derive from the use of these facilities or from the services provided by AIG for 2004 has been included, under the column Other Annual Compensation, in the Summary Compensation Table. For prior years shown in the Summary Compensation Table, the incremental cost to AIG was de minimis or there was no incremental cost to AIG because these benefits were provided by Starr or SICO.

     In connection with the employment and relocation to New York of Mr. Wisner (an executive officer), in 1997 AIG paid certain expenses involved with his purchase of a cooperative apartment and has provided credit support for his mort-

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     AIG maintains a policy of directors and officers liability insurance for itself, its directors and officers, its subsidiaries, and their directors and officers. The premium for the year ending May 24, 2005 is approximately $9.4 million. AIG has obtained coverage for the year ending May 24, 2006 at a premium of approximately $32.8 million.

     Executive Employment Agreements.

     In March 2005, the Board of Directors of AIG delivered to Messrs. Sullivan, Kanak and Bensinger a letter of understanding in connection with their appointments to their current executive positions. The letters provide a severance benefit in the event that the executive’s employment is terminated without cause by AIG or by the executive, following a material breach by AIG. The severance benefit is $15 million in the case of Mr. Sullivan, $10 million in the case of Mr. Kanak, and $5 million in the case of Mr. Bensinger. As contemplated by the letters, AIG’s Compensation Committee has been negotiating comprehensive three-year employment agreements with each of these executives, including terms regarding base salary, bonuses, severance, long-term incentives, retirement and stock based compensation, as well as customary intellectual property protections, and post-employment restrictive covenants. These employment agreements will supersede the letters of understanding. The Compensation Committee is actively continuing its negotiations with Messrs. Sullivan, Kanak and Bensinger and AIG expects to enter into employment agreements with each of these executives in the near future.

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Options

The following table summarizes information with respect to grants of options to purchase AIG Common Stock during 2004 to the individuals named in the Summary Compensation Table, to all executive officers of AIG as a group, to all directors who are not executive officers of AIG as a group, and to all employees other than executive officers as a group.

Option Grants in 2004

										Percentage of
										Total Options
										Granted to				Exercise
		Date				Options				Employees				Price				Expiration				Grant
Name		of Grant				Granted(1)				During 2004				Per Share				Date				Date Value(2)
Current
Martin J. Sullivan			12/16/2004				50,000				1.61				64.47				12/16/2014			$	1,280,500
Donald P. Kanak			12/16/2004				50,000				1.61				64.47				12/16/2014				1,280,500
Jay S. Wintrob			12/16/2004				50,000				1.61				64.47				12/16/2014				1,280,500
Richard W. Scott			12/16/2004				15,000				.48				64.47				12/16/2014				384,150
Thomas R. Tizzio			12/16/2004				25,000				.80				64.47				12/16/2014				640,250
Edmund S.W. Tse			12/16/2004				55,000				1.77				64.47				12/16/2014				1,408,550
Rodney O. Martin			12/16/2004				40,000				1.29				64.47				12/16/2014				1,024,400
Kristian P. Moor			12/16/2004				40,000				1.29				64.47				12/16/2014				1,024,400
Win J. Neuger			12/16/2004				50,000				1.61				64.47				12/16/2014				1,280,500
Former
M.R. Greenberg			12/16/2004				375,000				12.07				64.47				12/16/2014				9,603,750
Howard I. Smith			12/16/2004				60,000				1.93				64.47				12/16/2014				1,536,600
Groups(3)
All Executive Officers of AIG as a Group (28 Individuals)			12/16/2004				1,047,500				33.72				64.47				12/16/2014				26,826,475
All Directors who are not Executive Officers of AIG as a Group (10 Individuals)			5/19/04				25,000				N/A				69.55				5/19/14				690,699
All Employees other than Executive Officers as a Group			Various				2,058,600				66.28				64.72	(4)			Various				52,720,746

(1)	All options were granted pursuant to the Amended and Restated 1999 Stock Option Plan at an exercise price equal to the fair market value of such stock at the date of grant. The option grants to all executive officers, including the named individuals, provide that 25 percent of the options granted on any date become exercisable on each anniversary date in each of the successive four years and expire ten years from the date of grant.
(2)	Value calculated based on AIG’s binomial option-pricing model. The AIG model uses AIG’s historical exercise experience to determine the option value which takes into account the early exercise of employee options. The following weighted average assumptions were used for stock options granted in 2004: a dividend yield of 0.36 percent; expected volatility of 34.4 percent; risk-free interest rate of 3.87 percent; and an expected term of seven years.
(3)	Includes individuals who held those positions as of December 31, 2004.
(4)	Weighted average exercise price per share.

     Messrs. Greenberg, Smith and Tizzio were granted options to purchase 16,000 shares, 8,000 shares and 8,000 shares, respectively, of common stock of Transatlantic at an exercise price of $60.34 per share (the fair market value of Transatlantic common stock on the date of grant) on December 2, 2004 as compensation for services to Transatlantic. These grants provide that 25 percent of the options granted become exercisable on each anniversary date in each of the successive four years and that the options expire ten years from the date of grant. In addition, Mr. Greenberg received $75,000 in director’s fees in each of 2004, 2003 and 2002, Mr. Smith received $40,500, $31,850 and $21,000 in directors’ fees in 2004, 2003 and 2002, respectively, and Mr. Tizzio received $46,500, $34,050 and $23,800 in directors’ fees in 2004, 2003 and 2002, respectively, from Transatlantic.

     Mr. Smith and Mr. Sandler, an executive officer, were each granted options to purchase 4,000 shares of common stock of 21st Century at a price of $12.87 per share (the fair market value of 21st Century common stock on the date of grant) on May 26, 2004 as compensation for services to 21st Century. These options became exercisable on May 26, 2005 and expire ten years from the date of grant. Mr. Sandler and Mr. Bensinger were each granted options to purchase 4,000 shares of common stock of 21st Century at a price of $13.61 per share (the fair market value of 21st Century common stock on the date of grant) on May 25, 2005 as compensation for services to 21st Century. These options become exercisable on May 25, 2006 and expire ten years from the date of grant.

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The following table summarizes information with respect to the exercise of options to purchase AIG Common Stock during 2004 by the individuals named in the Summary Compensation Table and the unexercised options to purchase AIG Common Stock held by such individuals at December 31, 2004.

Aggregated Option Exercises during the Year Ended December 31, 2004

Number of Unexercised

Value of Unexercised

Options at

In-the-Money Options at

Shares

December 31, 2004

December 31, 2004(2)

Acquired on

Value

Name

Exercise

Realized(1)

Exercisable/Unexercisable

Exercisable/Unexercisable

Current

Martin J. Sullivan

4,218

$

165,028

80,750/133,750

$

668,688/759,100

Donald P. Kanak

–

–

68,703/138,750

460,759/754,288

Jay S. Wintrob

162,316

10,523,498

731,870/163,750

34,417,907/759,100

Richard W. Scott

–

–

397,485/75,542

3,128,010/280,163

Thomas R. Tizzio

94,921

5,163,826

325,781/88,750

8,548,567/547,875

Edmund S.W. Tse

44,296

1,744,877

381,093/167,500

7,423,844/939,875

Rodney O. Martin, Jr.

–

–

718,672/175,754

4,126,280/397,550

Kristian P. Moor

–

–

76,474/107,500

745,157/578,775

Win J. Neuger

94,921

3,901,348

106,561/115,000

2,065,278/516,288

Former

M.R. Greenberg

158,203

(3)

7,821,762

(3)

1,901,561/1,218,750

30,992,176/7,004,063

Howard I. Smith

25,312

1,235,957

277,655/170,000

4,641,770/945,875

(1)	Aggregate market value on date of exercise (closing sale price as reported in the New York Stock Exchange Composite Transactions Report) less aggregate exercise price.
(2)	Aggregate market value on December 31, 2004 (closing sale price as reported in the New York Stock Exchange Composite Transactions Report) less aggregate exercise price.
(3)	Receipt of 115,812 shares with an aggregate value of $5,725,896 was deferred.

Long-Term Incentive Plans

     As discussed in the notes to the Summary Compensation Table, since 1975 SICO has provided a series of two-year Deferred Compensation Profit Participation Plans to senior AIG employees. AIG has authorized the creation of a 2005-2006 Deferred Compensation Profit Participation Plan that will be modeled on the SICO Plan with respect to the 2003-2004 period, except that the 2005-2006 Plan will be administered by AIG and its costs will be borne directly by AIG. AIG has determined the number of units that will be granted to each AIG employee under the 2005-2006 Plan. However, the documentation for the new 2005-2006 Plan has not been finalized or approved and formal awards have not yet been issued.

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The following table summarizes information with respect to benefits under the forthcoming 2005-2006 Deferred Compensation Profit Participation Plan that will be awarded to the individuals named in the Summary Compensation Table once the 2005-2006 Plan is finalized.

Long-Term Incentive Plans

Number of

Estimated Future

Name

Units(1)

Unit Award Period

Payouts(2)

Current

Martin J. Sullivan

4,000

Two years

64,000 Shares

Donald P. Kanak

3,500

Two years

56,000 Shares

Jay S. Wintrob

3,000

Two years

48,000 Shares

Richard W. Scott

950

Two years

15,200 Shares

Thomas R. Tizzio

3,000

Two years

48,000 Shares

Edmund S.W. Tse

4,000

Two years

64,000 Shares

Rodney O. Martin, Jr.

1,200

Two years

19,200 Shares

Kristian P. Moor

3,500

Two years

56,000 Shares

Win J. Neuger

3,400

Two years

54,400 Shares

Former

M.R. Greenberg

—

—

—

Howard I. Smith

—

—

—

(1)	Awards represent grants of units that will be made under the forthcoming 2005-2006 Deferred Compensation Profit Participation Plan with respect to the two-year period from January 1, 2005 through December 31, 2006. The number of shares of AIG Common Stock, if any, allocated to a unit for the benefit of a participant under the 2005-2006 Plan will be dependent primarily upon two factors: the growth in earnings per share of AIG during the 2005-2006 award period as compared to the 2003-2004 period and the book value of AIG at the end of the award period. As a result, the number of shares to be allocated with respect to units to be awarded for the 2005-2006 period and the value of such shares upon future payout cannot be determined at this time. See Note 2 below.
(2)	The number of shares to be allocated with respect to units to be awarded for the 2005-2006 period cannot be determined at this time. The ‘Estimated Future Payouts’ column represents the number of shares that would be contingently allocable to the named individuals if, at the end of 2006, the criteria used to allocate shares to units were the same as those used by the Board of Directors of SICO for the 2003-2004 period. However, any share allocation made under the 2005-2006 Plan will be made by the Compensation Committee of AIG’s Board of Directors. Before obtaining the right to a payout, no participant will have any equity interest with respect to shares allocated to him or her and the allocated shares will be subject to forfeiture under certain conditions, including the participant’s voluntary termination of employment with AIG prior to normal retirement age other than by death or disability.

Pension Benefits

     The executives named in the Summary Compensation Table participate in a series of retirement plans that provide retirement benefits to designated executives and key employees. Under the plans, annual retirement benefits, not to exceed 60 percent of Average Final Compensation, accrue at a rate of 2.4 percent of Average Final Compensation for each year of service or fraction thereof for each full month of active employment. The benefit payable under the plans is reduced by payments from Social Security and any payments from a qualified pension plan of a prior employer. Certain of the plans allow participants over the age of 70 1/2 the option to commence their benefits while still employed. The benefit cannot commence until at least one year after the date of such election.

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Annual amounts of normal retirement pension commencing at normal retirement age of 65 based upon Average Final Compensation and credited service under these retirement plans are illustrated in the following table:

Estimated Annual Pension at Age 65

Average
Final Compensation			10 Years				15 Years				20 Years				25 Years				30 Years				35 Years				40 Years
	$125,000		$	14,341			$	23,244			$	38,244			$	53,244			$	53,244			$	53,244			$	59,100
	$150,000			17,904				32,244				50,244				68,244				68,244				68,244				73,350
	$175,000			21,466				41,244				62,244				83,244				83,244				83,244				87,600
	$200,000			26,244				50,244				74,244				98,244				98,244				98,244				101,850
	$225,000			32,244				59,244				86,244				113,244				113,244				113,244				116,100
	$250,000			38,244				68,244				98,244				128,244				128,244				128,244				130,350
	$300,000			50,244				86,244				122,244				158,244				158,244				158,244				158,850
	$375,000			68,244				113,244				158,244				203,244				203,244				203,244				203,244
	$400,000			74,244				122,244				170,244				218,244				218,244				218,244				218,244
	$500,000			98,244				158,244				218,244				278,244				278,244				278,244				278,244
	$750,000			158,244				248,244				338,244				428,244				428,244				428,244				428,244
$1,000,000				218,244				338,244				458,244				578,244				578,244				578,244				578,244
$1,375,000				308,244				473,244				638,244				803,244				803,244				803,244				803,244

     The respective years of credited service for the individuals named in the Summary Compensation Table through December 31, 2004 are as follows: Sullivan — 25.4 years; Kanak — 12.5 years; Wintrob — 4.5 years; Scott — 10.33; Tizzio — 36.67 years; Tse — 43.5 years; Moor — 19.75 years; Neuger — 9.33 years; Smith — 20.3 years. For purposes of the plans, Average Final Compensation is the average pensionable salary of a participant during the three consecutive years in the last ten years of his credited service affording the highest such average, or during all of the years of his credited service if less than three years. Pensionable salary includes the regular salary paid by AIG and its subsidiaries and does not include amounts attributable to supplementary bonuses or overtime pay. For such named individuals, pensionable salary during 2004 was as follows: Sullivan — $675,962; Kanak — $655,000; Wintrob — $650,000; Scott — $525,000; Tizzio — $654,700; Tse — $661,156; Moor — $551,298; Neuger — $621,154; Smith — $631,154.

Mr. Martin has accrued an estimated annual benefit payable upon retirement at normal retirement age at 65 from all applicable AIG and AGC plans of $203,381.

Mr. Greenberg elected to commence his retirement plan benefits on October 1, 2004. His total annual benefit from the retirement plans is $1,637,532 payable in the form of a 100 percent joint and survivor annuity.

3. Relationships with Starr and SICO

A number of senior AIG executives, including the individuals named in the Summary Compensation Table, have historically held positions with, and received compensation from, Starr and SICO. Both companies own substantial amounts of AIG common stock and have had other relationships with AIG. For example, from time to time, Starr has offered members of AIG’s senior management the opportunity to purchase shares of its common stock and, since 1975, SICO has provided a series of two-year Deferred Compensation Profit Participation Plans to certain senior AIG employees. Consistent with AIG’s traditional presentation, the amount of AIG stock beneficially owned by Starr and SICO and the amount of Starr and SICO voting stock beneficially owned by AIG’s directors and executive officers is discussed in Item 12 (“Security Ownership of Certain Beneficial Owners and Management – Ownership of Certain Securities”), awards allocated under the SICO Plans are reflected in the Summary Compensation Table (in Section 2 of this Item 11) and other transactions between AIG, on the one hand, and Starr and SICO, on the other hand, are discussed in Item 13 (“Certain Relationships and Related Transactions – Certain Transactions”).

     AIG is currently in the process of unwinding and resolving various relationships with Starr and SICO. As a result, AIG’s executive officers no longer serve as officers or directors of SICO and Starr or their subsidiaries.

Payments and Benefits Provided by Starr and SICO

AIG intends to provide new or enhanced compensation opportunities to AIG employees in order to reflect the compensation and benefits previously provided by Starr and SICO. AIG is providing the following information to give a historical perspective of the payments made by Starr and SICO to AIG executive officers, including the executives named in the Summary Compensation Table. This table does not include the allocation of awards under the SICO Plans, because they are included in the Summary Compensation Table. The information in this table reflects the best information available to AIG, but AIG does not currently have full access to the books and records of Starr and SICO.

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Summary of Salary, Bonus and Directors Fees Paid by Starr and SICO*

								Bonus Amounts				Directors Fees
				Starr				Paid by SICO
Name		Year		Salary				and/or Starr				Starr				SICO
Current
Martin J. Sullivan		2004		$	99,000			$	100,000			$	100,000			$	50,000
		2003			91,385				75,000				100,000				50,000
		2002			66,000				50,000				100,000				50,000
Donald P. Kanak		2004			88,000				100,000				100,000				50,000
		2003			68,538				—				100,000				50,000
		2002			66,000				205,917				100,000				50,000
Jay S. Wintrob		2004			66,000				100,000				100,000				50,000
		2003			68,538				75,000				100,000				50,000
		2002			66,000				50,000				100,000				50,000
Richard W. Scott		2004			25,000				—				—				—
		2003			25,962				—				—				—
		2002			—				—				—				—
Thomas R. Tizzio		2004			62,000				62,000				100,000				50,000
		2003			87,231				62,000				100,000				50,000
		2002			84,000				62,000				100,000				50,000
Edmund S.W. Tse		2004			154,000				150,000				100,000				50,000
		2003			154,000				150,000				50,000				50,000
		2002			154,000				100,000				50,000				50,000
Rodney O. Martin, Jr.		2004			32,000				—				—				—
		2003			33,231				—				—				—
		2002			28,431				—				—				—
Kristian P. Moor		2004			77,000				125,000				100,000				50,000
		2003			79,962				100,000				100,000				50,000
		2002			66,000				50,000				100,000				50,000
Win J. Neuger		2004			281,000				75,000				100,000				50,000
		2003			283,538				50,000				100,000				50,000
		2002			281,000				40,000				100,000				50,000
Former
M.R. Greenberg		2004			380,000				2,630,000				100,000				50,000
		2003			394,615				2,128,000				100,000				50,000
		2002			468,000				3,128,000				100,000				50,000
Howard I. Smith		2004			165,000				150,000				100,000				50,000
		2003			171,346				100,000				100,000				50,000
		2002			154,000				100,000				100,000				50,000
All Executive Officers of AIG as a Group		2004			1,339,250				1,119,000				1,300,000				650,000
		2003			1,337,183				784,000				1,250,000				650,000
		2002			1,258,681				1,059,917				1,250,000				650,000

*	Payments made by Starr or SICO for services provided to AIG are also included in the Summary Compensation table herein.

     Starr and SICO also provided perquisites or other personal benefits to AIG executives for their services to Starr and SICO. The preceding table does not include the incremental cost of these benefits because AIG does not currently have access to complete information.

Existing SICO Plans

Existing SICO Deferred Compensation

Name			Number of Shares(1)
Current
	Martin J. Sullivan		192,033
	Donald P. Kanak		121,439
	Jay S. Wintrob		96,000
	Richard W. Scott		21,600
	Thomas R. Tizzio		873,317
	Edmund S.W. Tse		535,543
	Rodney O. Martin, Jr.		26,800
	Kristian P. Moor		169,265
	Win J. Neuger		231,481
Former
	M.R. Greenberg		3,680,759
	Howard I. Smith		424,403

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	(1)	As discussed in the notes to the Summary Compensation Table, until retirement after age 65 or early payout under certain circumstances, the named individuals have no dividend or voting rights with respect to these shares.

Investments in Starr

Starr from time to time offered members of AIG’s senior management the opportunity to purchase shares of its common stock. Book value was used to determine the purchase price, and the shares have generally paid cash dividends as well as dividends in the form of non-voting preferred shares.

     The Starr common and preferred shares are subject to agreements that limit their transferability and give Starr the right, and in some cases the obligation, to repurchase the shares after a holder ceases to be an employee of Starr and substantially all of Starr’s affiliated or associated companies. The repurchase price is generally based on the adjusted book value of the common shares and the sum of the liquidation value and unpaid dividends of the preferred shares. However, Starr can repurchase the shares for a substantially lower price if a holder voluntarily departs (without the approval of Starr’s board of directors) before the holder turns 60 or, for holders voluntarily departing between 60 and 65, if the holder competes with Starr, or Starr’s affiliated or associated companies before turning 65.

     During 2004, Starr offered a total of 1,125 shares of its common stock to AIG employees. Mr. Sullivan purchased 125 shares, Mr. Kanak purchased 250 shares and Mr. Bensinger purchased 125 shares, respectively, at a purchase price of $300 per share. As of January 1, 2005, Messrs. Sullivan, Neuger and Smith purchased an additional 125 shares each at a purchase price of $300 per share.

The following table sets forth information with respect to the Starr holdings of the individuals named in the Summary Compensation Table, as of January 1, 2005.

						Liquidation Value of								Cash
						Preferred Shares								Dividends
		Total
		Purchase				Increase in								Paid in
Name		Price(1)				2004				Total				2004
Current
Martin J. Sullivan		$	337,500			$	2,475,000			$	10,062,500			$	393,375
Donald P. Kanak			300,000				1,650,000				8,250,000				308,000
Jay S. Wintrob			225,000				1,650,000				7,275,000				288,750
Richard W. Scott			37,500				275,000				550,000				41,500
Thomas R. Tizzio			450,000				3,850,000				32,060,000				815,100
Edmund S.W. Tse			525,000				3,850,000				26,663,750				770,337
Rodney O. Martin, Jr.			75,000				550,000				1,600,000				88,000
Kristian P. Moor			262,500				1,925,000				9,237,500				344,375
Win J. Neuger			225,000				1,650,000				8,000,000				296,000
Former
M.R. Greenberg			1,200,000				8,800,000				121,375,000				2,775,250
Howard I. Smith			562,500				4,125,000				26,646,250				806,463
All Executive Officers of AIG as a Group			3,975,000				29,150,000				175,923,750				4,427,282

(1)	Reflects cumulative purchase price paid by the holder from time to time through December 31, 2004.
(2)	Martin J. Sullivan and Donald P. Kanak purchased 125 shares and 250 shares, respectively, of Starr common stock at a purchase price of $300 per share in 2004. As of January 1, 2005, each of Martin J. Sullivan, Win J. Neuger and Howard I. Smith purchased an additional 125 shares of Starr common stock at a purchase price of $300 per share.

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ITEM 12.	Security Ownership of Certain Beneficial Owners and Management

Ownership of Certain Securities

     The only persons who, to the knowledge of AIG, own in excess of five percent of the Common Stock of AIG are FMR Corp., 82 Devonshire Street, Boston, Massachusetts 02109, which filed a Schedule 13G on February 14, 2005, with respect to the 161,203,013 shares of AIG Common Stock held by it, and SICO. According to the Schedule 13G filed by FMR Corp., it is the parent company of various entities (collectively, “Fidelity”) that provide investment advisory and management services to the Fidelity Group of mutual funds. The FMR Corp. Schedule 13G states that Fidelity is the beneficial owner of an aggregate of 5.672 percent of the outstanding AIG Common Stock, 147,737,387 shares as a result of providing these services to the funds, and that Fidelity International Limited, which operates as an entity separate from FMR Corp. and Fidelity, is the beneficial owner of 6,949,031 shares of AIG Common Stock. At March 31, 2005, SICO (which has executive offices at Clifton House, Lower Fitzwilliam Street, Dublin 2, Ireland) held 310,905,397 shares, or 11.98 percent, of the outstanding AIG Common Stock. The Starr Foundation and Starr (both having executive offices at 70 Pine Street, New York, New York) held 50,529,531 shares and 47,337,246 shares (including 18,644,278 shares held by the C.V. Starr & Co., Inc. Trust), or 1.95 percent and 1.82 percent, respectively, of the outstanding AIG Common Stock on that date.

The following table summarizes the ownership of equity securities of AIG, Starr, and SICO by the directors, by the current and former executive officers named in the Summary Compensation Table (as set forth in Item 11 under the heading “Compensation of Directors and Executive Officers”), and by the directors and current executive officers as a group.

Equity Securities of AIG, Starr and SICO

										Starr Common Stock								SICO Voting Stock
		AIG Common Stock								Amount								Amount
										and								and
			Amount and Nature of								Nature of								Nature of
			Beneficial				Percent				Beneficial				Percent				Beneficial				Percent
Director or Executive Officer			Ownership(3)(4)(5)(6)				of Class				Ownership(7)				of Class				Ownership				of Class
M. Bernard Aidinoff			85,808					(8)			—				—				—				—
Pei-yuan Chia			58,624					(8)			—				—				—				—
Marshall A. Cohen			75,595					(8)			—				—				—				—
William S. Cohen			2,500					(8)			—				—				—				—
Martin S. Feldstein			73,829					(8)			—				—				—				—
Ellen V. Futter			58,742					(8)			—				—				—				—
M.R. Greenberg			46,467,855				1.79				4,000				17.11				10				8.33
Stephen L. Hammerman			0				—				—				—				—				—
Carla A. Hills			112,188					(8)			—				—				—				—
Frank J. Hoenemeyer			72,363					(8)			—				—				—				—
Richard C. Holbrooke			15,800					(8)			—				—				—				—
Donald P. Kanak			98,669					(8)			1,000				4.28				—				—
Rodney O. Martin, Jr.			786,059				.03				250				1.07				—				—
Kristian P. Moor			87,119					(8)			1,000				4.28				—				—
Win J. Neuger			208,947					(8)			875				3.74				—				—
Richard W. Scott			437,153				.02				250				1.07				—				—
Howard I. Smith			509,564				.02				2,000				8.56				10				8.33
Martin J. Sullivan			129,791					(8)			1,250				5.35				—				—
Thomas R. Tizzio			943,185				.04				1,250				5.35				10				8.33
Edmund S.W. Tse			1,337,017				.05				1,750				7.49				10				8.33
Jay S. Wintrob			2,087,515				.08				750				3.21				—				—
Frank G. Zarb			16,900					(8)			—				—				—				—
All Directors and Executive Officers of AIG as a Group (39 individuals)			55,447,089				2.13				18,875				74.87				40				33.32

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(1)	Additional information with respect to the Starr common and preferred stock can be found in Item 11 under the heading “3. Relationships with Starr and SICO.” George L. Miles, Jr. and Morris W. Offit were elected to the Board of Directors subsequent to March 31, 2005. Neither of Messrs. Miles or Offit beneficially own any equity securities of AIG, Starr or SICO.
(2)	Amounts of equity securities of Starr and SICO shown represent shares as to which the individual has sole voting and investment power. With respect to shares of AIG Common Stock, totals include shares as to which the individual shares voting and investment power as follows: Feldstein — 23,727  shares with his wife, Greenberg — 41,399,802 shares with his wife and 103,082 shares with co- trustees, Tse — 3,555 shares with his wife, and all directors and executive officers of AIG as a group — 42,061,880 shares.
(3)	Amount of equity securities shown includes shares of AIG Common Stock subject to options which may be exercised within 60 days as follows: Aidinoff — 36,593 shares, Chia — 36,593 shares, M. Cohen  — 36,593 shares, Feldstein — 15,500 shares, Futter — 57,686 shares, Greenberg —

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	3,120,311 shares, Hills — 68,233 shares, Hoenemeyer — 15,500 shares, Kanak — 74,953 shares, Martin — 723,672, Moor — 83,974, Neuger — 112,811, Scott — 399,983 shares, Smith — 290,155 shares, Sullivan — 90,750 shares, Tizzio — 333,281, Tse — 393,593 shares, Wintrob — 741,870 shares, and all directors and executive officers of AIG as a group — 8,415,340 shares. Amount of equity securities shown excludes 500 shares granted to each non-employee director during 2004 with delivery deferred until retirement from the Board.
(4)	Amount of shares shown for each of Mr. Greenberg and Mr. Smith does not include 18,644,278 shares held as trustee for the C.V. Starr & Co., Inc. Trust, as to which each of them disclaims beneficial ownership. Inclusion of these shares would increase the percentage ownership of AIG Common Stock shown above for each of them by .72 percent.
(5)	Amount of equity securities shown also excludes the following securities owned by members of the named individual’s immediate family as to which securities such individual has disclaimed beneficial ownership: Aidinoff — 2,364 shares, Chia — 403 shares, Hills — 750 shares, Martin — 1,125 shares, Scott — 1,700 shares, Sullivan — 424 shares, Tizzio — 54,266 shares, Wintrob — 4,009 shares, Zarb — 4,945 shares, and all directors and executive officers of AIG as a group — 18,779,268 shares.
(6)	Amount of shares shown for Mr. Greenberg also excludes 4,909,940 shares owned directly by Starr (representing 17.11 percent of the shares owned directly by Starr) as to which Mr. Greenberg disclaims beneficial ownership.
(7)	As of January 31, 2005, Starr also had outstanding 6,000 shares of Common Stock Class B, a non-voting stock, 3,838 shares of Preferred Stock, Series X-1 and 220 shares of Special Preferred Stock, Series One. None of the named individuals holds such shares. As of January 31, 2005, the named individuals beneficially owned the following aggregate shares of various series of Starr Preferred Stock (out of an aggregate total outstanding of 393,233 shares): Greenberg 118,000; Kanak (4,375); Martin (750); Moor (5,250); Neuger (4,375); Scott (250); Smith (20,250); Sullivan (5,725); Tizzio (28,375); Tse (20,500); and Wintrob (3,750). These named individuals received dividends of Starr Series W Preferred Stock in 2004 out of a total issued of 29,500 shares as follows: Greenberg (4,000); Kanak (1,000); Martin (250); Moor (875); Neuger (750); Scott (250); Smith (1,750); Sullivan (1,125); Tizzio (1,500); Tse (1,750) and Wintrob (750). Mr. Greenberg also beneficially owned 100 shares of Starr’s 5% Senior Preferred Stock as of January 31, 2005. Additional information with respect to the Starr preferred stock can be found under Item 11, under the heading “3. Relationships with Starr and SICO.”
(8)	Less than .01 percent.

     At March 31, 2005, Mr. Greenberg and Mr. Tizzio owned 56,250 shares and 87,068 shares, respectively, of Transatlantic common stock and the named individuals also held options which may be exercised within 60 days with respect to shares of Transatlantic and 21st Century as follows: Transatlantic common stock, $1.00 par value per share: Greenberg — 137,500 shares, Smith — 29,374 shares and Tizzio — 54,686 shares; 21st Century common stock, without par value: Smith — 36,000 shares.

Equity Compensation Plan Information

The following table provides information as of December 31, 2004, regarding equity compensation plans under which equity securities of AIG are authorized for issuance:

															Number of Securities
															Remaining Available
											Weighted-				for Future Issuance
							Number of Securities to				Average Exercise				Under Equity
							be Issued Upon				Price of				Compensation Plans
							Exercise of Outstanding				Outstanding				(Excluding Securities
							Options, Warrants and				Options, Warrants				Reflected in the
			Plan Category				Rights(1)				and Rights(1)				Second Column)
Equity compensation plans approved by security holders			1991 Employee Stock Option Plan					6,697,067				41.68				—
			Amended and Restated 1999 Stock Option Plan					21,719,486				66.47				23,164,449
			Amended and Restated 2002 Stock Incentive Plan					1,368,020				64.81	(2)			16,631,980	(3)
				Director Stock Plan				8,375				—				91,250
Equity compensation plans not approved by security holders				Option Plan for Directors(4)				243,125				20.33				—
	Total							30,036,073				60.29	(5)			39,887,679

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(1)	In connection with acquisition transactions, options with respect to 26,046,450 shares were outstanding as a result of AIG’s assumption of options granted by the acquired entities, at a weighted average option exercise price of $42.46 per share. AIG has not made, and will not make, any future grants or awards of equity securities under the plans of these acquired companies.
(2)	Weighted average value of restricted stock units at date of grant.
(3)	An additional 1,000,000 shares become available for grant or award in each year pursuant to the terms of the Amended and Restated 2002 Stock Incentive Plan.
(4)	Effective with the approval of the 1999 Stock Option Plan by the Board of Directors in September 1999, option grants to directors were made pursuant to that plan. Prior thereto, options were granted to directors under the Option Plan for Directors. Under such plan, options were granted at an option price equal to the fair market value of AIG Common Stock on the date of grant, vesting after one year and exercisable for nine years thereafter.
(5)	Excludes restricted stock units.

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ITEM 13.	Certain Relationships and Related Transactions

Certain Transactions

Certain transactions in 2004 effected in the ordinary course of business between AIG and its subsidiaries and SICO and Starr are summarized in the following table:

			SICO and				Starr and
			Subsidiaries				Subsidiaries
			(In thousands)
AIG and Subsidiaries Paid:
	For production of insurance business*		$	—			$	204,800
	For services **			1,400				262
	Rentals			4,000				39
AIG and Subsidiaries Received:
	For services **			619				22,100
	Rentals			11				1,900

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*	From these payments, which constituted approximately 52 percent of Starr’s consolidated gross revenues for the year, Starr is generally required to pay its operating expenses as well as commissions due originating brokers. The amounts are paid at terms not greater than those available to unaffiliated parties, and represent approximately 0.2 percent of the gross revenues of AIG.

**	These services are provided and obtained at a price which, in the opinion of the management of AIG, does not exceed the price of obtaining such services from unaffiliated sources.

     Starr from time to time offered members of AIG’s senior management the opportunity to purchase shares of its common stock. Information regarding purchases of Starr securities can be found in Item 11. under the heading “Relationships with Starr and SICO.”

ITEM 14.	Principal Accounting Fees and Services

AIG’s Audit Committee adopted a policy for pre-approval of audit and permitted non-audit services by PricewaterhouseCoopers LLP during 2003. Under the policy, the Audit Committee approves categories of services and fee caps for each category. The pre-approved services include: audit services, such as financial statement audits, regulatory filings and attestation services; audit-related services, such as employee benefit plan audits, due diligence, control reviews and GAAP consultations; tax services, such as tax compliance and consulting, transfer pricing, customs and duties and expatriate tax services, and other permitted non-audit services, such as information resources and training. No expenditure may exceed the dollar caps without the separate specific approval of the Audit Committee.

Fees Paid to Independent Registered Public Accounting Firm

The following table shows information about fees paid by AIG to PricewaterhouseCoopers LLP.

		2004				2003
		(in millions)				(in millions)
Fees paid by AIG:
Audit fees(a)			$66.7				$33.7
Audit-related fees(b)			1.4				2.2
Tax fees(c)			6.9				7.0
All other fees(d)			2.7				1.9

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(a)	Includes in 2004 fees related to the audit of the consolidated financial statements, including restatements included therein, and on Management’s Report on Internal Control over Financial Reporting.
(b)	Audit-related fees are fees in respect of assurance and related services that are traditionally performed by independent auditors, including: employee benefit plan audits; due diligence related to mergers and acquisitions; accounting consultations and audits in connection with acquisitions; internal control reviews; and consultation concerning financial accounting and reporting standards.
(c)	Tax fees are fees in respect of tax return preparation and consultation on tax matters (including tax return preparation and consultation on tax matters for expatriate employees), tax advice relating to transactions and other tax planning and advice.
(d)	All other fees include: assistance with information technology; providing access to information resources; training; reports on internal controls pursuant to SAS 70; and compliance reviews under AIMR.

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     The services provided by PricewaterhouseCoopers LLP and the fees paid by AIG were authorized and approved by the Audit Committee in compliance with the pre-approval policy and procedures described above. None of the non-audit services performed by PricewaterhouseCoopers LLP were approved under the Securities and Exchange Commission’s de minimis exception to audit committee pre-approval.

PART IV

ITEM 15.	Exhibits and Financial Statement Schedules

     (a) Financial Statements and Schedules. See accompanying Index to Financial Statements.

     (b) Exhibits. See accompanying Exhibit Index.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York and State of New York, on the 27th of May, 2005.

	AMERICAN INTERNATIONAL GROUP, INC.

	By	/s/ MARTIN J. SULLIVAN

	(Martin J. Sullivan, President and Chief Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Martin J. Sullivan, Donald P. Kanak and Steven J. Bensinger, and each of them severally, his or her true and lawful attorney-in-fact, with full power of substitution and resubstitution, to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

     Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed below by the following persons in the capacities indicated on the 27th of May, 2005.

Signature		Title
/s/ MARTIN J. SULLIVAN (Martin J. Sullivan)		President, Chief Executive Officer and Director (Principal Executive Officer)
/s/ STEVEN J. BENSINGER (Steven J. Bensinger)		Executive Vice President, Chief Financial Officer Treasurer and Comptroller (Principal Financial Officer and Principal Accounting Officer)
/s/ M. BERNARD AIDINOFF (M. Bernard Aidinoff)		Director
/s/ PEI-YUAN CHIA (Pei-yuan Chia)		Director
/s/ MARSHALL A. COHEN (Marshall A. Cohen)		Director
/s/ WILLIAM S. COHEN (William S. Cohen)		Director
/s/ MARTIN S. FELDSTEIN (Martin S. Feldstein)		Director
/s/ ELLEN V. FUTTER (Ellen V. Futter)		Director

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Signature		Title
(M.R. Greenberg)		Director
(Stephen L. Hammerman)		Director
/s/ CARLA A. HILLS (Carla A. Hills)		Director
/s/ FRANK J. HOENEMEYER (Frank J. Hoenemeyer)		Director
/s/ RICHARD C. HOLBROOKE (Richard C. Holbrooke)		Director
/s/ DONALD P. KANAK (Donald P. Kanak)		Director
(George L. Miles, Jr.)		Director
(Morris W. Offit)		Director
(Howard I. Smith)		Director
/s/ EDMUND S.W. TSE (Edmund S.W. Tse)		Director
/s/ FRANK G. ZARB (Frank G. Zarb)		Director

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EXHIBIT INDEX

Exhibit
Number		Description							Location
2		Plan of acquisition, reorganization, arrangement, liquidation or succession
		Agreement and Plan of Merger, dated as of May 11, 2001,   among American International Group, Inc., Washington   Acquisition Corporation and American General Corporation							Incorporated by reference to Exhibit 2.1(i)(a) to AIG’s Registration Statement on Form S-4 (File No. 333-62688).
3(i)(a)		Restated Certificate of Incorporation of AIG							Incorporated by reference to Exhibit 3(i) to AIG’s Annual Report on Form 10-K for the year ended December 31, 1996 (File No. 1-8787).
3(i)(b)		Certificate of Amendment of Certificate of Incorporation of AIG, filed June 3, 1998							Incorporated by reference to Exhibit 3(i) to AIG’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-8787).
3(i)(c)		Certificate of Merger of SunAmerica Inc. with and into AIG, filed December 30, 1998 and effective January 1, 1999							Incorporated by reference to Exhibit 3(i) to AIG’s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-8787).
3(i)(d)		Certificate of Amendment of Certificate of Incorporation of AIG, filed June 5, 2000							Incorporated by reference to Exhibit 3(i)(c) to AIG’s Registration Statement on Form S-4 (File No. 333-45828).
3(ii)		By-laws of AIG							Incorporated by reference to Exhibit 3.1 to AIG’s Current Report on Form 8-K filed with the SEC on March 17, 2005 (File No. 1-8787).
4		Instruments defining the rights of security holders, including indentures							Certain instruments defining the rights of holders of long- term debt securities of AIG and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. AIG hereby undertakes to furnish to the Commission, upon request, copies of any such instruments.
9		Voting Trust Agreement							None.
10		Material contracts*
			(1)		AIG 1969 Employee Stock Option Plan and Agreement Form				Filed as exhibit to AIG’s Registration Statement (File No. 2-44043) and incorporated herein by reference.
			(2)		AIG 1972 Employee Stock Option Plan				Filed as exhibit to AIG’s Registration Statement (File No. 2-44702) and incorporated herein by reference.
			(3)		AIG 1972 Employee Stock Purchase Plan				Filed as exhibit to AIG’s Registration Statement (File No. 2-44043) and incorporated herein by reference.
			(4)		AIG 1984 Employee Stock Purchase Plan				Filed as exhibit to AIG’s Registration Statement (File No. 2-91945) and incorporated herein by reference.
			(5)		AIG Amended and Restated 1996 Employee Stock Purchase Plan				Filed as exhibit to AIG’s Definitive Proxy Statement dated April 4, 2003 (File No. 1-8787) and incorporated herein by reference.
			(6)		AIG 2003 Japan Employee Stock Purchase Plan				Incorporated by reference to Exhibit 4 to AIG’s Registration Statement on Form S-8 (File No. 333-111737).
			(7)		AIG 1977 Stock Option and Stock Appreciation Rights Plan				Filed as exhibit to AIG’s Registration Statement (File No. 2-59317) and incorporated herein by reference.
			(8)		AIG 1982 Employee Stock Option Plan				Filed as exhibit to AIG’s Registration Statement (File No. 2-78291) and incorporated herein by reference.
			(9)		AIG 1987 Employee Stock Option Plan				Filed as exhibit to AIG’s Definitive Proxy Statement dated April 6, 1987 (File No. 0-4652) and incorporated herein by reference.
			(10)		AIG 1991 Employee Stock Option Plan				Filed as exhibit to AIG’s Definitive Proxy Statement dated April 4, 1997 (File No. 1-8787) and incorporated herein by reference.
			(11)		AIG Amended and Restated 1999 Stock Option Plan				Filed as exhibit to AIG’s Definitive Proxy Statement dated April 4, 2003 (File No. 1-8787) and incorporated herein by reference.

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*	All material contracts are management contracts or compensatory plans or arrangements.

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Exhibit
Number		Description						Location
		(12)		Form of Stock Option Grant Agreement under the AIG Amended and Restated 1999 Stock Option Plan				Incorporated by reference to Exhibit 10(a) to AIG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-8787).
		(13)		AIG Amended and Restated 2002 Stock Incentive Plan				Incorporated by reference to Exhibit 4(a) to AIG’s Registration Statement on Form S-8 (File No. 333-101967).
		(14)		Form of Restricted Stock Unit Award Agreement under the AIG Amended and Restated 2002 Stock Incentive Plan				Incorporated by reference to Exhibit 10(b) to AIG’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-8787).
		(15)		AIG Executive Deferred Compensation Plan				Incorporated by reference to Exhibit 4(a) to AIG’s Registration Statement on Form S-8 (File No. 333-101640).
		(16)		AIG Supplemental Incentive Savings Plan				Incorporated by reference to Exhibit 4(b) to AIG’s Registration Statement on Form S-8 (File No. 333-101640).
		(17)		AIG Director Stock Plan				Filed as an exhibit to AIG’s Definitive Proxy Statement dated April 5, 2004 (File No. 1-8787) and incorporated herein by reference.
		(18)		AIG Chief Executive Officer Annual Compensation Plan				Filed as an exhibit to AIG’s Definitive Proxy Statement dated April 5, 2004 (File No. 1-8787) and incorporated herein by reference.
		(19)		AIRCO 1972 Employee Stock Option Plan				Incorporated by reference to AIG’s Joint Proxy Statement and Prospectus (File No. 2-61994).
		(20)		AIRCO 1977 Stock Option and Stock Appreciation Rights Plan				Incorporated by reference to AIG’s Joint Proxy Statement and Prospectus (File No. 2-61994).
		(21)		Purchase Agreement between AIA and Mr. E.S.W. Tse.				Incorporated by reference to Exhibit 10(l) to AIG’s Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-8787).
		(22)		Retention and Employment Agreement between AIG and Jay S. Wintrob				Incorporated by reference to Exhibit 10(m) to AIG’s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-8787).
		(23)		SunAmerica Inc. 1988 Employee Stock Plan				Incorporated by reference to Exhibit 4(a) to AIG’s Registration Statement on Form S-8 (File No. 333-70069).
		(24)		SunAmerica 1997 Employee Incentive Stock Plan				Incorporated by reference to Exhibit 4(b) to AIG’s Registration Statement on Form S-8 (File No. 333-70069).
		(25)		SunAmerica Nonemployee Directors’ Stock Option Plan				Incorporated by reference to Exhibit 4(c) to AIG’s Registration Statement on Form S-8 (File No. 333-70069).
		(26)		SunAmerica 1995 Performance Stock Plan				Incorporated by reference to Exhibit 4(d) to AIG’s Registration Statement on Form S-8 (File No. 333-70069).
		(27)		SunAmerica Inc. 1998 Long-Term Performance-Based Incentive Plan For the Chief Executive Officer				Incorporated by reference to Exhibit 4(e) to AIG’s Registration Statement on Form S-8 (File No. 333-70069).
		(28)		SunAmerica Inc. Long-Term Performance-Based Incentive Plan Amended and Restated 1997				Incorporated by reference to Exhibit 4(f) to AIG’s Registration Statement on Form S-8 (File No. 333-70069).
		(29)		SunAmerica Five Year Deferred Cash Plan				Incorporated by reference to Exhibit 4(a) to AIG’s Registration Statement on Form S-8 (File No. 333-31346).
		(30)		SunAmerica Executive Savings Plan				Incorporated by reference to Exhibit 4(b) to AIG’s Registration Statement on Form S-8 (File No. 333-31346).
		(31)		HSB Group, Inc. 1995 Stock Option Plan				Incorporated by reference to Exhibit 10(iii)(f) to HSB’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-13135).
		(32)		HSB Group, Inc. 1985 Stock Option Plan				Incorporated by reference to Exhibit 10(iii)(a) HSB’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 (File No. 1-13135).

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Exhibit
Number		Description						Location
		(33)		HSB Group, Inc. Employee’s Thrift Incentive Plan				Incorporated by reference to Exhibit 4(i)(c) to The Hartford Steam Boiler Inspection and Insurance Company’s Registration Statement on Form S-8 (File No. 33-36519).
		(34)		American General Corporation 1984 Stock and Incentive Plan				Incorporated by reference to Exhibit 10.1 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-7981).
		(35)		Amendment to American General Corporation 1984 Stock and Incentive Plan (January 2000)				Incorporated by reference to Exhibit 10.2 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-7981).
		(36)		American General Corporation 1994 Stock and Incentive Plan (January 2000)				Incorporated by reference to Exhibit 10.2 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-7981).
		(37)		Amendment to American General Corporation 1994 Stock and Incentive Plan (January 1999)				Incorporated by reference to Exhibit 10.4 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-7981).
		(38)		Amendment to American General Corporation 1994 Stock and Incentive Plan (January 2000)				Incorporated by reference to Exhibit 10.5 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-7981).
		(39)		Amendment to American General Corporation 1994 Stock and Incentive Plan (November 2000)				Incorporated by reference to Exhibit 10.1 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 1-7981).
		(40)		American General Corporation 1997 Stock and Incentive Plan				Incorporated by reference to Exhibit 10.3 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 (File No. 1-7981).
		(41)		Amendment to American General Corporation 1997 Stock and Incentive Plan (January 1999)				Incorporated by reference to Exhibit 10.7 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-7981).
		(42)		Amendment to American General Corporation 1997 Stock and Incentive Plan (November 2000)				Incorporated by reference to Exhibit 10.2 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 1-7981).
		(43)		American General Corporation 1999 Stock and Incentive Plan				Incorporated by reference to Exhibit 10.4 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1998 (File No. 1-7981).
		(44)		Amendment to American General Corporation 1999 Stock and Incentive Plan (January 1999)				Incorporated by reference to Exhibit 10.9 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-7981).
		(45)		Amendment to American General Corporation 1999 Stock and Incentive Plan (November 2000)				Incorporated by reference to Exhibit 10.3 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 (File No. 1-7981).
		(46)		Amended and Restated American General Corporation Deferred Compensation Plan (12/11/00)				Incorporated by reference to Exhibit 10.13 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-7981).
		(47)		Amended and Restated Restoration of Retirement Income Plan for Certain Employees Participating in the Restated American General Retirement Plan (Restoration of Retirement Income Plan) (12/31/98)				Incorporated by reference to Exhibit 10.14 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-7981).
		(48)		Amended and Restated American General Supplemental Thrift Plan (12/31/98)				Incorporated by reference to Exhibit 10.15 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 2000 (File No. 1-7981).
		(49)		American General Employees’ Thrift and Incentive Plan (restated July 1, 2001)				Incorporated by reference to Exhibit 4(a) to AIG’s Registration Statement on Form S-8 (File No. 333-68640).

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Exhibit
Number		Description							Location
			(50)		American General Agents’ and Managers’ Thrift and Incentive Plan (restated July 1, 2001)				Incorporated by reference to Exhibit 4(b) to AIG’s Registration Statement on Form S-8 (File No. 333-68640).
			(51)		CommLoCo Thrift Plan (restated July 1, 2001)				Incorporated by reference to Exhibit 4(c) to AIG’s Registration Statement on Form S-8 (File No. 333-68640).
			(52)		Western National Corporation 1993 Stock and Incentive Plan, as amended				Incorporated by reference to Exhibit 10.18 to Western National Corporation’s Annual Report on Form 10-K for the year ended December 31, 1995 (File No. 1-12540).
			(53)		USLIFE Corporation 1991 Stock Option Plan, as amended				Incorporated by reference to USLIFE Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 (File No. 1-5683).
			(54)		Employment Agreement, Amendment to Employment Agreement, and Split-Dollar Agreement, including Assignment of Life Insurance Policy as Collateral, with Rodney O. Martin, Jr.				Incorporated by reference to Exhibit 10(xx) to AIG’s Annual Report on Form 10-K for the year ended December 31, 2002 (File No. 1-8787).
			(55)		Employment Arrangements with Richard W. Scott
					(a) Employment Agreement				Incorporated by reference to Exhibit 10.3 to American General Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 (File No. 1-7981).
					(b) Change in Control Severance Agreement				Incorporated by reference to Exhibit 10.32 to American General Corporation’s Annual Report on Form 10-K for the year ended December 31, 1999 (File No. 1-7981).
					(c) Amendment to Employment Arrangements				Incorporated by reference to Exhibit 10(zz)(iii) to AIG’s Annual Report on Form 10-K for the year ended December 31, 2003 (File No. 1-8787.)
			(56)		Letter from AIG to Martin J. Sullivan, dated March 16, 2005				Incorporated by reference to Exhibit 10.1 to AIG’s Current Report on Form 8-K filed with the SEC on March 17, 2005 (File No. 1-8787).
			(57)		Letter from AIG to Donald P. Kanak, dated March 16, 2005				Incorporated by reference to Exhibit 10.2 to AIG’s Current Report on Form 8-K filed with the SEC on March 17, 2005 (File No. 1-8787).
			(58)		Letter from AIG to Steven J. Bensinger, dated March 16, 2005.				Incorporated by reference to Exhibit 10.3 to AIG’s Current Report on Form 8-K filed with the SEC on March 17, 2005 (File No. 1-8787).
11		Statement re computation of per share earnings							Included in Note 1(y) of Notes to Financial Statements.
12		Statements re computation of ratios							Filed herewith.
13		Annual report to security holders							Not required to be filed.
16		Letter re change in certifying accountant							None.
18		Letter re change in accounting principles							None.
21		Subsidiaries of the Registrant							Filed herewith.
23		Consent of PricewaterhouseCoopers LLP							Filed herewith.
24		Power of attorney							Included on the signature page hereof.
31		Rule 13a-14(a)/15d-14(a) Certifications							Filed herewith.
32		Section 1350 Certifications							Filed herewith.
99		Additional exhibits							None.