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UNITED STATES

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Form 10-Q

(Mark One)
þ		QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended September 30, 2005
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

Former name, former address and former fiscal year, if changed since last report: 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 for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ü                         No                

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

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes                        No  ü               

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of September 30, 2005: 2,595,607,825.

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Table of Contents

Explanatory Note

     Overview. This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005 (Third Quarter Form 10-Q) of American International Group, Inc. (AIG) provides information about the financial results for the three and nine month periods ended September 30, 2005 and a general overview of AIG’s announced restatements of prior period financial statements.

     First Restatement. In connection with the preparation of AIG’s consolidated financial statements included in AIG’s Annual Report on Form 10-K for the year ended December 31, 2004 (2004 Annual Report on Form 10-K), AIG’s management initiated an internal review of its books and records, which was substantially expanded in mid-March 2005 with the oversight of the Audit Committee of the Board of Directors of AIG. The review spanned AIG’s major business units globally, and included a number of transactions from 2000 to 2004. As disclosed in the 2004 Annual Report on Form 10-K, as a result of the findings of the internal review, together with the results of investigations by outside counsel at the request of AIG’s Audit Committee and in consultation with PricewaterhouseCoopers LLP, AIG 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 (the First Restatement).

     AIG disclosed in its 2004 Annual Report on Form 10-K that it had identified a number of material weaknesses in internal controls over financial reporting, including controls over certain balance sheet reconciliations, controls over the accounting for certain derivative transactions and controls over income tax accounting. AIG has been and continues to be actively engaged in the implementation of remediation efforts to address all of its material weaknesses in internal controls.

     Second Restatement. As announced on November 9, 2005, AIG identified certain errors, the preponderance of which were identified during the remediation of the material weaknesses in internal controls referred to above, principally relating to internal controls surrounding accounting for derivatives and related assets and liabilities under Financial Accounting Standards Board Statement No. 133 — “Accounting for Derivative Instruments and Hedging Activities” (FAS 133), reconciliation of certain balance sheet accounts and income tax accounting. Due to the significance of these corrections, AIG will restate its financial statements for the years ended December 31, 2004, 2003 and 2002, along with 2001 and 2000 for purposes of preparation of the Selected Consolidated Financial Data for 2001 and 2000, and quarterly financial information for 2004 and 2003 and the first two quarters of 2005 (the Second Restatement). As part of the Second Restatement, AIG will also correct errors that have been identified since the First Restatement, including those relating to the accounting for certain payments received from aircraft and engine manufacturers by International Lease Finance Corporation (ILFC), which were originally corrected as an out-of-period item in AIG’s Form 10-Q for the quarter ended June 30, 2005 (Second Quarter Form 10-Q).

     The financial information as of September 30, 2004 and for the three and nine month periods ended September 30, 2004 that is included in this Third Quarter Form 10-Q has been restated as part of both the First Restatement and the Second Restatement (the Restatements). The financial information as of December 31, 2004 has been restated as part of the Second Restatement.

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CONSOLIDATED BALANCE SHEET

(in millions) (unaudited)

					September 30,				December 31,
					2005				2004
									(Restated)
Assets:
	Investments, financial services assets and cash:
		Fixed maturities:
			Bonds available for sale, at market value (amortized cost: 2005 – $348,028; 2004 – $329,838)		$	362,194			$	344,399
			Bonds held to maturity, at amortized cost (market value: 2005 – $22,028; 2004 – $18,791)			21,532				18,294
			Bond trading securities, at market value (cost: 2005 – $3,953; 2004 – $2,973)			3,975				2,984
		Equity securities:
			Common stocks available for sale, at market value (cost: 2005 – $9,981; 2004 – $8,569)			12,368				9,917
			Common stocks trading, at market value (cost: 2005 – $7,382; 2004 – $5,651)			8,098				5,894
			Preferred stocks, at market value (cost: 2005 – $2,206; 2004 – $2,017)			2,269				2,040
		Mortgage loans on real estate, net of allowance (2005 – $53; 2004 – $65)				14,202				13,146
		Policy loans				7,082				7,035
		Collateral and guaranteed loans, net of allowance (2005 – $15; 2004 – $18)				2,257				2,282
		Financial services assets:
			Flight equipment primarily under operating leases, net of accumulated depreciation (2005 – $7,145; 2004 – $6,390)			35,535				32,130
			Securities available for sale, at market value (cost: 2005 – $37,466; 2004 – $30,779)			37,872				32,768
			Trading securities, at market value			6,667				3,142
			Spot commodities, at market value			234				95
			Unrealized gain on swaps, options and forward transactions			20,427				22,670
			Trading assets			909				3,331
			Securities purchased under agreements to resell, at contract value			12,129				26,272
			Finance receivables, net of allowance (2005 – $646; 2004 – $571)			27,701				23,574
		Securities lending collateral, at cost (approximates market value)				57,627				49,169
		Other invested assets				24,808				22,471
		Short-term investments, at cost (approximates market value)				16,238				16,102
		Cash				2,108				2,009
			Total investments, financial services assets and cash			676,232				639,724
	Investment income due and accrued					5,955				5,556
	Premiums and insurance balances receivable, net of allowance (2005 – $469; 2004 – $425)					15,177				14,788
	Reinsurance assets, net of allowance (2005 – $512; 2004 – $500)					22,023				19,857
	Deferred policy acquisition costs					32,083				29,740
	Investments in partially owned companies					1,149				1,496
	Real estate and other fixed assets, net of accumulated depreciation (2005 – $4,989; 2004 – $4,650)					6,841				6,192
	Separate and variable accounts					61,157				57,741
	Goodwill					8,354				8,556
	Income taxes receivable – current					–				109
	Other assets					14,426				16,283
Total assets					$	843,397			$	800,042

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CONSOLIDATED BALANCE SHEET (continued)

(in millions, except share data)(unaudited)

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				September 30,				December 31,
				2005				2004
								(Restated)
Liabilities:
	Reserve for losses and loss expenses			$	71,161			$	62,371
	Reserve for unearned premiums				24,228				23,094
	Future policy benefits for life and accident and health insurance contracts				108,461				104,756
	Policyholders’ contract deposits				227,241				216,474
	Other policyholders’ funds				10,682				10,280
	Reserve for commissions, expenses and taxes				5,096				4,539
	Insurance balances payable				4,178				3,686
	Funds held by companies under reinsurance treaties				3,948				3,404
	Income taxes payable				8,551				6,768
	Financial services liabilities:
		Borrowings under obligations of guaranteed investment agreements			19,953				18,919
		Securities sold under agreements to repurchase, at contract value			10,694				23,581
		Trading liabilities			1,707				2,304
		Securities and spot commodities sold but not yet purchased, at market value			5,223				4,866
		Unrealized loss on swaps, options and forward transactions			15,721				17,611
		Trust deposits and deposits due to banks and other depositors			4,255				4,248
		Commercial paper			7,723				6,724
		Notes, bonds, loans and mortgages payable			66,270				59,683
	Commercial paper				1,978				2,969
	Notes, bonds, loans and mortgages payable				7,411				5,502
	Liabilities connected to trust preferred stock				1,489				1,489
	Separate and variable accounts				61,157				57,741
	Minority interest				5,120				4,584
	Securities lending payable				58,430				49,972
	Other liabilities				23,245				23,750
Total liabilities					753,922				719,315
Preferred shareholders’ equity in subsidiary companies					193				199
Shareholders’ equity:
	Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued 2005 – 2,751,327,476; 2004 – 2,751,327,476				6,878				6,878
	Additional paid-in capital				2,249				2,094
	Retained earnings				73,246				64,254
	Accumulated other comprehensive income (loss)				9,175				9,513
	Treasury stock, at cost; 2005 – 155,719,651; 2004 – 154,904,286 shares of common stock				(2,266	)			(2,211	)
Total shareholders’ equity					89,282				80,528
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	843,397			$	800,042

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CONSOLIDATED STATEMENT OF INCOME

(in millions, except per share data) (unaudited)
				Nine Months								Three Months
				Ended September 30,								Ended September 30,
				2005				2004				2005				2004
								(Restated)								(Restated)
Revenues:
	Premiums and other considerations			$	52,470			$	49,418			$	17,244			$	17,237
	Net investment income				16,196				13,563				5,629				4,501
	Realized capital gains (losses)				216				(88	)			79				(83	)
	Other revenues				12,660				9,685				3,409				3,625
	Total revenues				81,542				72,578				26,361				25,280
Benefits and expenses:
	Incurred policy losses and benefits				45,665				42,273				16,503				15,166
	Insurance acquisition and other operating expenses				20,966				17,719				7,381				6,023
	Total benefits and expenses				66,631				59,992				23,884				21,189
Income before income taxes, minority interest and cumulative effect of an accounting change					14,911				12,586				2,477				4,091
Income taxes (benefits):
	Current				2,355				2,639				372				203
	Deferred				2,204				1,196				334				1,061
					4,559				3,835				706				1,264
Income before minority interest and cumulative effect of an accounting change					10,352				8,751				1,771				2,827
Minority interest					(329	)			(317	)			(54	)			(142	)
Income before cumulative effect of an accounting change					10,023				8,434				1,717				2,685
Cumulative effect of an accounting change, net of tax					–				(144	)			–				–
Net income				$	10,023			$	8,290			$	1,717			$	2,685
Earnings per common share:
	Basic
		Income before cumulative effect of an accounting change		$	3.86			$	3.24			$	0.66			$	1.04
		Cumulative effect of an accounting change, net of tax			–				(0.06	)			–				–
		Net income		$	3.86			$	3.18			$	0.66			$	1.04
	Diluted
		Income before cumulative effect of an accounting change		$	3.82			$	3.20			$	0.65			$	1.02
		Cumulative effect of an accounting change, net of tax			–				(0.06	)			–				–
		Net income		$	3.82			$	3.14			$	0.65			$	1.02
Cash dividends per common share				$	0.400			$	0.205			$	0.150			$	0.075
Average shares outstanding:
	Basic				2,597				2,608				2,597				2,606
	Diluted				2,624				2,639				2,624				2,638

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CONSOLIDATED STATEMENT OF CASH FLOWS

(in millions) (unaudited)
					2005				2004
Nine Months Ended September 30,									(Restated)
Summary:
	Net cash provided by operating activities				$	23,080			$	19,611
	Net cash used in investing activities					(41,666	)			(53,675	)
	Net cash provided by financing activities					19,341				35,027
	Effect of exchange rate changes on cash					(656	)			187
	Change in cash					99				1,150
	Cash at beginning of period					2,009				922
	Cash at end of period				$	2,108			$	2,072
Cash flows from operating activities:
	Net income				$	10,023			$	8,290
	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			13,850				16,261
			Premiums and insurance balances receivable and payable – net			103				(1,364	)
			Reinsurance assets			(2,166	)			663
			Deferred policy acquisition costs			(1,748	)			(2,364	)
			Investment income due and accrued			(399	)			(823	)
			Funds held under reinsurance treaties			544				396
			Other policyholders’ funds			402				586
			Current and deferred income taxes – net			2,526				2,371
			Reserve for commissions, expenses and taxes			557				(30	)
			Other assets and liabilities – net			(165	)			988
			Trading assets and liabilities – net			1,825				(3,308	)
			Trading securities, at market value			(3,525	)			380
			Spot commodities, at market value			(139	)			117
			Net unrealized (gain) loss on swaps, options and forward transactions			353				2,950
			Securities purchased under agreements to resell			14,143				(10,184	)
			Securities sold under agreements to repurchase			(12,887	)			4,585
			Securities and spot commodities sold but not yet purchased, at market value			357				(563	)
		Realized capital (gains) losses				(216	)			88
		Equity in income of partially owned companies and other invested assets				(1,263	)			(897	)
		Amortization of premium and discount on securities				240				231
		Depreciation expenses, principally flight equipment				1,311				1,511
		Provision for finance receivable losses				315				282
		Other – net				(961	)			(555	)
		Total adjustments				13,057				11,321
Net cash provided by operating activities					$	23,080			$	19,611

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CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

(in millions) (unaudited)
		2005				2004
Nine Months Ended September 30,						(Restated)
Cash flows from investing activities:
Cost of bonds, at market sold		$	99,133			$	92,777
Cost of bonds, at market matured or redeemed			12,832				10,776
Cost of equity securities sold			10,162				10,621
Realized capital gains (losses)			216				(88	)
Purchases of fixed maturities			(133,692	)			(140,608	)
Purchases of equity securities			(13,361	)			(13,490	)
Mortgage, policy and collateral loans granted			(3,859	)			(2,208	)
Repayments of mortgage, policy and collateral loans			2,883				1,655
Sales of securities available for sale			4,913				2,032
Maturities of securities available for sale			2,190				3,603
Purchases of securities available for sale			(13,390	)			(8,922	)
Sales of flight equipment			1,384				1,155
Purchases of flight equipment			(5,482	)			(3,869	)
Net additions to real estate and other fixed assets			(1,216	)			(531	)
Sales or distributions of other invested assets			7,480				5,533
Investments in other invested assets			(8,441	)			(8,349	)
Change in short-term investments			1,029				452
Investments in partially owned companies			(5	)			3
Finance receivable originations and purchases			(37,792	)			(18,026	)
Finance receivable principal payments received			33,350				13,809
Net cash used in investing activities		$	(41,666	)		$	(53,675	)
Cash flows from financing activities:
Receipts from policyholders’ contract deposits		$	37,278			$	40,372
Withdrawals from policyholders’ contract deposits			(26,562	)			(16,965	)
Change in trust deposits and deposits due to banks and other depositors			7				160
Change in commercial paper			8				3,286
Proceeds from notes, bonds, loans and mortgages payable			43,302				22,471
Repayments on notes, bonds, loans and mortgages payable			(34,578	)			(16,120	)
Liquidation of zero coupon notes payable			–				(189	)
Proceeds from guaranteed investment agreements			8,919				8,006
Maturities of guaranteed investment agreements			(7,885	)			(4,882	)
Redemption of subsidiary company preferred stock			–				(200	)
Proceeds from common stock issued			44				130
Cash dividends to shareholders			(1,031	)			(535	)
Acquisition of treasury stock			(170	)			(508	)
Other – net			9				1
Net cash provided by financing activities		$	19,341			$	35,027
Supplementary information:
Taxes paid		$	2,031			$	2,011
Interest paid		$	3,587			$	3,119

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(in millions) (unaudited)
												Three Months
				Nine Months								Ended
				Ended September 30,								September 30,
				2005				2004				2005				2004
								(Restated)								(Restated)
Comprehensive income (loss):
	Net income			$	10,023			$	8,290			$	1,717			$	2,685
Other comprehensive income (loss):
	Unrealized (depreciation) appreciation of investments – net of reclassification adjustments				(181	)			(522	)			(2,458	)			5,327
		Deferred income tax benefit (expense) on above changes			422				141				979				(1,911	)
	Foreign currency translation adjustments				(656	)			187				210				64
		Applicable income tax benefit (expense) on above changes			121				(67	)			(381	)			(52	)
	Net derivative gains (losses) arising from cash flow hedging activities				7				152				(63	)			88
		Deferred income tax (expense) benefit on above changes			19				(47	)			90				(34	)
	Retirement plan liabilities adjustment, net of tax				(70	)			(63	)			(42	)			(54	)
Other comprehensive income (loss)					(338	)			(219	)			(1,665	)			3,428
Comprehensive income (loss)				$	9,685			$	8,071			$	52			$	6,113

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

1.	Financial Statement Presentation

These statements are unaudited. In the opinion of management, all adjustments including normal recurring accruals have been made for a fair statement of the results presented herein. All material intercompany accounts and transactions have been eliminated. Certain accounts have been reclassified in the 2004 financial statements to conform to their 2005 presentation. For further information, refer to the Annual Report on Form 10-K of American International Group, Inc. (AIG) for the year ended December 31, 2004 (2004 Annual Report on Form 10-K).

     As more fully described in AIG’s 2004 Annual Report on Form 10-K, and AIG’s Forms 10-Q/A for the quarterly periods ended March 31, 2004 and June 30, 2004, AIG restated the accounting for certain transactions and certain relationships for the quarters ended March 31, 2004 and June 30, 2004, as part of the restatement of 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 (the First Restatement).

     As announced on November 9, 2005, AIG identified certain errors, the preponderance of which were identified during the remediation of the material weaknesses in internal controls referred to in the Explanatory Note, principally relating to internal controls surrounding accounting for derivatives and related assets and liabilities under FAS 133, reconciliation of certain balance sheet accounts and income tax accounting. Due to the significance of these corrections, AIG will restate its financial statements for the years ended December 31, 2004, 2003 and 2002, along with 2001 and 2000, for purposes of preparation of the Selected Consolidated Financial Data for 2001 and 2000, and quarterly financial information for 2004 and 2003 and the first two quarters of 2005 (the Second Restatement, and together with the First Restatement, the Restatements). As part of the Second Restatement, AIG will also correct errors that have been identified since the First Restatement, including those relating to the accounting for certain payments received from aircraft and engine manufacturers by ILFC, which were originally corrected as an out-of-period item in AIG’s Second Quarter Form 10-Q.

2.	Restatements of Previously Issued Financial Statements

The following provides a description of the accounting adjustments included in the Restatements of AIG’s consolidated financial statements and the effect of the adjustments on AIG’s Consolidated Balance Sheet at December 31, 2004 and its Consolidated Statement of Income for the three and nine month periods ended September 30, 2004 and Consolidated Statement of Cash Flow for the nine months ended September 30, 2004. All prior period amounts included in this report affected by the Restatements are presented on a restated basis.

(a) First Restatement

     Internal Review. In connection with the preparation of AIG’s consolidated financial statements included in the 2004 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 2005. 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 2004. 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.

     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 concluded that the accounting for certain transactions and certain relationships needed to be restated.

     First Restatement. AIG 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. See Selected Financial Data, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 2 of Notes to Financial Statements in the 2004 Annual Report on Form 10-K for a discussion of the First Restatement and a reconciliation of previously reported amounts to the restated amounts for the years ended December 31, 2003, 2002, 2001 and 2000, and see below for reconciliation of such amounts for the three and nine month periods ended September 30, 2004.

     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 First 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

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2.	Restatement of Previously Issued Financial Statements (continued)

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 First 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 First 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.

•

Risk Transfer. To recognize the cash flows under an insurance contract as premium and losses, generally accepted accounting principles (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.

–

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 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).
	As a result of the First Restatement relating to Union Excess, as of December 31, 2004, total assets decreased by approximately $1.5 billion, and shareholders’ equity decreased by approximately $951 million. Net income decreased by approximately $20 million and $59 million for the three and nine month periods ended September 30, 2004.

–

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 this transaction as a deposit rather than as insurance. Such recharacterization had virtually no effect on net income or consolidated shareholders’ equity, but increased other liabilities by $250 million at December 31, 2004, and reduced reserves for loss and loss expenses by $250 million at December 31, 2004.

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–

Other Risk Transfer: AIG has concluded that Richmond Insurance Company, Ltd., a Bermuda-based reinsurance holding company (Richmond) in which AIG held a 19.9 percent ownership interest at September 30, 2004, 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. 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. On June 30, 2005, AIG acquired an additional 49.9 percent of Richmond shares, and in October 2005 AIG acquired the remaining 30.2 percent of Richmond.

	As a result of its internal review of AIG Re, AIG Risk Finance and AIG Risk Management and certain of their transactions, AIG determined that adjustments were required because certain transactions lacked sufficient risk transfer to qualify for insurance accounting under GAAP.
	As a result of the First Restatement for Richmond, AIG Re, AIG Risk Finance, AIG Risk Management and these other transactions, as of December 31, 2004 total assets increased by approximately $47 million, total liabilities increased by approximately $123 million, and shareholders’ equity decreased by approximately $77 million. Net income increased by approximately $1 million and decreased by approximately $24 million for the three and nine month periods ended September 30, 2004.

•

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.

The effect of the First Restatement is a decrease in consolidated shareholders’ equity of approximately $572 million at December 31, 2004, an increase in the reserve for losses and loss expenses of approximately $880 million at December 31, 2004, and an increase in incurred policy losses and benefits of approximately $107 million and $197 million for the three and nine month periods ended September 30, 2004.

•	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. Net investment income increased over previously reported amounts by $9 million and $28 million for the three and nine month periods ended September 30, 2004, and realized capital gains increased by $3 million and $44 million for the three and nine month periods ended September 30, 2004. The First Restatement had no net effect on consolidated shareholders’ equity at December 31, 2004.
–	Synthetic Fuel Investment: AIG subsidiaries own interest in certain limited liability companies that invest in synthetic fuel production facilities. The sale of coal synthetic fuel by these facilities generates 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

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	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 First Restatement had the effect of decreasing net investment income by approximately $68 million and $203 million for the three and nine month periods ended September 30, 2004, decreasing other revenues by approximately $38 million and $136 million for the three and nine month periods ended September 30, 2004, and reflecting an income tax benefit of approximately $106 million and $339 million for the three and nine month periods ended September 30, 2004. There was no effect on consolidated net income or shareholders’ equity.
–	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 previously allowed AIG to record net investment income to the extent there were 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 at December 31, 2004.
–	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. Because the program was discontinued in early 2003, there was no effect on the consolidated balance sheets as of December 31, 2004. However, net investment income increased over previously reported amounts by $13 million and $53 million for the three and nine month periods ended September 30, 2004, and realized capital gains increased by $1 million and $20 million for the three and nine month periods ended September 30, 2004.

–

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 First Restatement had no effect on consolidated net income or shareholders’ equity but net investment income decreased by approximately $25 million and $75 million and insurance acquisition and other operating expenses decreased by approximately $25 million and $75 million for the three and nine month periods ended September 30, 2004.

•

“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 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,

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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.

	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 First Restatement reverses all such unsupported “top level” and other directed entries, including the Foreign Life Insurance Net Investment Income Reclassification, and as a result, as of December 31, 2004, total assets decreased by approximately $108 million and shareholders’ equity decreased by approximately $206 million. Net income increased by approximately $17 million and $57 million for the three and nine month periods ended September 30, 2004.

•

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 required 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 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.

	Together the effect of the First Restatement for Capco, The Robert Plan and AIRCO was to decrease total shareholders’ equity by approximately $30 million as of December 31, 2004. Net income increased by approximately $9 million and $70 million for the three and nine month periods ended September 30, 2004.

•	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

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	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. The effect of the First Restatement resulting from DBG issues was to decrease total assets by approximately $837 million and to decrease total shareholders’ equity by approximately $290 million as of December 31, 2004. Net income increased by approximately $38 million and $7 million for the three and nine month periods ended September 30, 2004.
–	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 First 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 net income increased by approximately $26 million for the nine month period ended September 30, 2004.

•	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.

	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 First 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.
	In addition to its remediation efforts, AIG is assessing the cost and benefits of modifying its hedging activities to obtain hedge accounting under the requirements of FAS 133. The First 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, increased total assets by approximately $2.3 billion and increased total shareholders’ equity by approximately $1.0 billion as of December 31, 2004. Net income increased by approximately $779 million and $565 million for the three and nine month periods ended September 30, 2004.

–	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 First Restatement increased total shareholders’ equity by $889 million as of December 31, 2004.

–	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

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	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 back to reserve for losses and loss expenses.
	Together, these restatements increased total shareholders’ equity by approximately $131 million as of December 31, 2004. Net income decreased by approximately $8 million and $19 million for the three and nine month periods ended September 30, 2004.

–

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 First Restatement was to decrease total assets by approximately $3.2 billion, decrease total liabilities by approximately $2.8 billion and decrease total shareholders’ equity by approximately $396 million as of December 31, 2004. Net income decreased by approximately $36 million and $102 million for the three and nine month periods ended September 30, 2004.

–	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 the First Restatement was to decrease total assets by approximately $546 million and to decrease total shareholders’ equity by approximately $344 million as of December 31, 2004.
–	SICO Deferred Compensation: AIG included in the First 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 in AIG’s 2004 Annual Report on Form 10-K), 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

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	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 periods prior to January 1, 2000, 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 decreased net income by approximately $14 million and $42 million for the three and nine month periods ended September 30, 2004.
–	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 the First Restatement any commutations that were originally recorded through written premium are reclassified to paid losses in the period in which they occurred. The First Restatement had no effect on consolidated net income or shareholders’ equity but did decrease premiums and other considerations and incurred policy losses and benefits each by approximately $180 million and $177 million for the three and nine month periods ended September 30, 2004.
–	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. Net income increased by approximately $77 million and $10 million for the three and nine month periods ended September 30, 2004.
–	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 First Restatement decreased total assets by approximately $525 million and decreased total shareholders’ equity by approximately $322 million as of December 31, 2004.
–	SunAmerica Partnerships: As part of the First 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 First Restatement had no effect on consolidated net income or total shareholders’ equity, but increased other revenues by approximately $129 million and $450 million for the three and nine month periods ended September 30, 2004, and increased insurance and other operating expenses by approximately $129 million and $450 million for the three and nine month periods ended September 30, 2004.

(b) Second Restatement

     As announced on November 9, 2005, AIG identified certain additional errors in its accounting, the preponderance of which were identified during the remediation of material weaknesses in internal controls referred to above. Because of the significance of the errors to be corrected, AIG will restate its financial statements for the years ended December 31, 2004, 2003 and 2002, along with 2001 and 2000, for purposes of preparation of the Selected Consolidated Financial Data for 2001 and 2000 and quarterly financial information

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for 2004 and 2003 and the first two quarters of 2005. This Quarterly Report on Form 10-Q restates financial information for the three and nine month periods ended September 30, 2004 and reconciles previously reported amounts for those periods to the restated amounts.

     Details of Accounting Adjustments included in the Second Restatement. The accounting adjustments relate primarily to the categories described below.

•

Accounting for Derivatives (FAS 133 Hedge Accounting). During the third quarter, AIG identified and corrected additional errors identified during the remediation of the previously disclosed material weakness in internal controls surrounding accounting for derivatives and related assets and liabilities under FAS 133. AIG continues to believe such hedging activities have been and remain economically effective, but do not currently qualify for hedge accounting.

	Included in the adjustments to correct AIG’s accounting for derivatives are adjustments correcting the errors in accounting for certain secured financings where AIGFP had sold an available-for-sale security and concurrently entered into a total return swap with a repurchase obligation. The adjustments for these errors increased both securities available for sale, at market value, and securities sold under agreements to repurchase, by approximately $2 billion as of December 31, 2004.
	The appropriate GAAP accounting for these derivatives and related assets and liabilities, including related currency translation gains and losses, decreased net income by approximately $531 million and $100 million for the three and nine month periods ended September 30, 2004, respectively, and increased total shareholders’ equity by approximately $367 million as of December 31, 2004.

•	Asset Realization — Domestic Brokerage Group (DBG) Issues. During the third quarter of 2005, AIG concluded that additional adjustments should be made to the value of certain DBG reserves and allowances for doubtful accounts for time periods prior to January 1, 2003, resulting in an after-tax reduction in total shareholders’ equity at December 31, 2004 of approximately $205 million. The adjustments had no effect on net income for the three and nine month periods ended September 30, 2004.
•	Income Tax Accounting. During the third quarter, AIG identified and corrected additional errors in its income tax accounting. The most significant adjustment resulted from AIG incorrectly recording the income tax benefit resulting from employee exercises of stock options as a reduction in income tax expense rather than as an increase in additional paid-in capital as required by GAAP. This adjustment has no effect on total shareholders’ equity. The effect of the income tax adjustments was to increase total tax expense by approximately $14 million for the nine months ended September 30, 2004 and to increase total shareholders’ equity as of December 31, 2004 by approximately $131 million.
•	Manufacturers’ Payments Received by ILFC. In the course of the ILFC review of its application of FAS 133 in connection with AIG’s internal review, ILFC, in consultation with its independent registered public accounting firm, identified an error in its accounting for certain payments received from aircraft and engine manufacturers. Under arrangements with these manufacturers, in certain circumstances, the manufacturers established notional accounts for the benefit of ILFC to which amounts were credited by the manufacturers in connection with the purchase by and delivery to ILFC and the lease of aircraft. Amounts credited to the notional accounts were used at ILFC’s direction to protect ILFC from certain events, including loss when airline customers of ILFC defaulted on lease payment obligations, to provide lease subsidies and other incentives to ILFC’s airline customers in connection with leases of certain aircraft, and to reduce ILFC’s cost of aircraft purchased.

	Historically, ILFC recorded as revenues gross lease receipts from lessees who had received lease subsidies from the notional accounts and amounts paid directly to ILFC from the notional accounts in connection with lessee defaults. Amounts recorded as revenue at the time they were disbursed to ILFC or its lessees should have been recorded as a reduction of the purchase price of the aircraft at the time of delivery.
	Although ILFC restated its financial statements for the years 2000 through 2004 and for the quarter ended March 31, 2005 to correct its accounting for the payments from aircraft and engine manufacturers described above, AIG had previously considered these adjustments not to be sufficiently material to require correction by restatement in AIG’s consolidated financial statements. The effect of the adjustments included in the Second Restatement relating to the manufacturers’ payments was to decrease other revenues and net income by approximately $34 million and $15 million, respectively, for the three month period ended September 30, 2004, and by approximately $84 million and $33 million, respectively, for the nine month period ended September 30, 2004. Additionally, shareholders’ equity was reduced by approximately $320 million as of December 31, 2004.

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2.	Restatement of Previously Issued Financial Statements (continued)

The following tables present the previously reported and the restated Consolidated Balance Sheet, Consolidated Statement of Income, and Condensed Consolidated Statement of Cash Flows:

CONSOLIDATED BALANCE SHEET

					December 31, 2004
					As Previously				As
(in millions) (unaudited)					Reported				Restated
Assets:
	Investments, financial services assets and cash:
		Fixed maturities:
			Bonds available for sale, at market value		$	344,399			$	344,399
			Bonds held to maturity, at amortized cost			18,294				18,294
			Bond trading securities, at market value			2,984				2,984
		Equity securities:
			Common stocks available for sale, at market value			9,917				9,917
			Common stocks trading, at market value			5,894				5,894
			Preferred stocks, at market value			2,040				2,040
		Mortgage loans on real estate, net of allowance				13,146				13,146
		Policy loans				7,035				7,035
		Collateral and guaranteed loans, net of allowance				2,282				2,282
		Financial services assets:
			Flight equipment primarily under operating leases, net of accumulated depreciation			32,705				32,130
			Securities available for sale, at market value			30,448				32,768
			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				23,574
		Securities lending collateral, at cost				49,972				49,169
		Other invested assets				22,527				22,471
		Short-term investments, at cost				16,102				16,102
		Cash				2,009				2,009
			Total investments, financial services assets and cash			638,838				639,724
	Investment income due and accrued					5,588				5,556
	Premiums and insurance balances receivable, net of allowance					15,137				14,788
	Reinsurance assets, net of allowance					19,958				19,857
	Deferred policy acquisition costs					29,736				29,740
	Investments in partially owned companies					1,452				1,496
	Real estate and other fixed assets, net of accumulated depreciation					6,192				6,192
	Separate and variable accounts					57,741				57,741
	Goodwill					8,601				8,556
	Income taxes receivable – current					95				109
	Other assets					15,322				16,283
Total assets					$	798,660			$	800,042

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2.	Restatement of Previously Issued Financial Statements (continued)

CONSOLIDATED BALANCE SHEET (continued)

				December 31, 2004
				As Previously				As
(in millions) (unaudited)				Reported				Restated
Liabilities:
	Reserve for losses and loss expenses			$	62,371			$	62,371
	Reserve for unearned premiums				23,094				23,094
	Future policy benefits for life and accident and health insurance contracts				104,737				104,756
	Policyholders’ contract deposits				216,655				216,474
	Other policyholders’ funds				10,280				10,280
	Reserve for commissions, expenses and taxes				4,583				4,539
	Insurance balances payable				3,703				3,686
	Funds held by companies under reinsurance treaties				3,404				3,404
	Income taxes payable				7,042				6,768
	Financial services liabilities:
		Borrowings under obligations of guaranteed investment agreements			18,919				18,919
		Securities sold under agreements to repurchase, at contract value			21,264				23,581
		Trading liabilities			2,304				2,304
		Securities and spot commodities sold but not yet purchased, at market value			4,866				4,866
		Unrealized loss on swaps, options and forward transactions			18,132				17,611
		Trust deposits and deposits due to banks and other depositors			4,248				4,248
		Commercial paper			6,724				6,724
		Notes, bonds, loans and mortgages payable			59,663				59,683
	Commercial paper				2,969				2,969
	Notes, bonds, loans and mortgages payable				5,499				5,502
	Liabilities connected to trust preferred stock				1,489				1,489
	Separate and variable accounts				57,741				57,741
	Minority interest				4,584				4,584
	Securities lending payable				49,972				49,972
	Other liabilities				23,611				23,750
Total liabilities					717,854				719,315
Preferred shareholders’ equity in subsidiary companies					199				199
Shareholders’ equity:
	Common stock				6,878				6,878
	Additional paid-in capital				1,954				2,094
	Retained earnings				64,393				64,254
	Accumulated other comprehensive income (loss)				9,593				9,513
	Treasury stock, at cost				(2,211	)			(2,211	)
Total shareholders’ equity					80,607				80,528
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity				$	798,660			$	800,042

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2.	Restatement of Previously Issued Financial Statements (continued)

CONSOLIDATED STATEMENT OF INCOME

				For the												For the
				Nine Months Ended												Three Months Ended
				September 30, 2004												September 30, 2004
(in millions, except per share data)				As Previously				First				Second				As Previously				First				Second
(unaudited)				Reported				Restatement				Restatement				Reported				Restatement				Restatement
Revenues:
	Premiums and other considerations			$	50,150			$	49,414			$	49,418			$	17,690			$	17,236			$	17,237
	Net investment income				14,084				13,568				13,563				4,708				4,502				4,501
	Realized capital gains (losses)				(72	)			110				(88	)			(12	)			136				(83	)
	Other revenues				8,695				9,977				9,685				3,025				4,315				3,625
	Total revenues				72,857				73,069				72,578				25,411				26,189				25,280
Benefits and expenses:
	Incurred policy losses and benefits				42,709				42,261				42,273				15,434				15,160				15,166
	Insurance acquisition and other operating expenses				17,510				17,990				17,719				6,019				6,123				6,023
	Total benefits and expenses				60,219				60,251				59,992				21,453				21,283				21,189
Income before income taxes, minority interest and cumulative effect of an accounting change					12,638				12,818				12,586				3,958				4,906				4,091
Income taxes (benefits):
	Current				3,207				2,705				2,639				607				432				203
	Deferred				830				1,210				1,196				673				1,096				1,061
					4,037				3,915				3,835				1,280				1,528				1,264
Income before minority interest and cumulative effect of an accounting change					8,601				8,903				8,751				2,678				3,378				2,827
Minority interest					(390	)			(317	)			(317	)			(166	)			(142	)			(142	)
Income before cumulative effect of an accounting change					8,211				8,586				8,434				2,512				3,236				2,685
Cumulative effect of an accounting change, net of tax					(181	)			(144	)			(144	)			–				–				–
Net income				$	8,030			$	8,442			$	8,290			$	2,512			$	3,236			$	2,685
Earnings per common share:
	Basic
		Income before cumulative effect of an accounting change		$	3.15			$	3.30			$	3.24			$	0.97			$	1.24			$	1.04
		Cumulative effect of an accounting change, net of tax			(0.07	)			(0.06	)			(0.06	)			–				–				–
		Net income		$	3.08			$	3.24			$	3.18			$	0.97			$	1.24			$	1.04
	Diluted
		Income before cumulative effect of an accounting change		$	3.12			$	3.27			$	3.20			$	0.95			$	1.23			$	1.02
		Cumulative effect of an accounting change, net of tax			(0.07	)			(0.06	)			(0.06	)			–				–				–
		Net income		$	3.05			$	3.21			$	3.14			$	0.95			$	1.23			$	1.02
Cash dividends per common share				$	0.205			$	0.205			$	0.205			$	0.075			$	0.075			$	0.075
Average shares outstanding:
	Basic				2,608				2,608				2,608				2,606				2,606				2,606
	Diluted				2,630				2,639				2,639				2,628				2,638				2,638

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2.	Restatement of Previously Issued Financial Statements (continued)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

		Nine Months Ended
		September 30, 2004
		As Previously				First				Second
(in millions) (unaudited)		Reported				Restatement				Restatement
Net cash provided by operating activities		$	20,432			$	19,786			$	19,611
Net cash used in investing activities			(54,578	)			(53,706	)			(53,675	)
Net cash provided by financing activities			35,295				35,080				35,027
Change in cumulative translation adjustments			1				(10	)			187
Change in cash			1,150				1,150				1,150
Cash at beginning of period			922				922				922
Cash at end of period		$	2,072			$	2,072			$	2,072

The following table reflects the effect of the aforementioned adjustments on each component of revenue:

For the Nine Months Ended
September 30, 2004				Premiums and				Net Investment				Realized Capital				Other				Total
(in millions) (unaudited)				Other Considerations				Income				Gains (Losses)				Revenues				Revenues
As Previously Reported				$	50,150			$	14,084			$	(72	)		$	8,695			$	72,857
Adjustments in First Restatement:
Risk Transfer:
	Union Excess				290				195				(36	)			–				449
	Other Risk Transfer				(231	)			(5	)			–				–				(236	)
Net Investment Income:
	Covered Calls				–				28				44				–				72
	Synthetic Fuel Investment				–				(203	)			–				(136	)			(339	)
	Hedge Fund Accounting				–				11				–				(17	)			(6	)
	Muni Tender Option Bond Program				–				53				20				–				73
	DBG/AIG Capital Corporation Intercompany Dividend				–				(75	)			–				–				(75	)
“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					82				(261	)			53				49				(77	)
Conversion of Underwriting Losses to Capital Losses					–				–				104				–				104
Asset Realization:
	Other Than Temporary Declines				–				–				40				–				40
Other GAAP Corrections:
	Accounting for Derivatives (FAS 133 Hedge Accounting)				–				–				(61	)			959				898
	Foreign Currency Translation (FAS 52)				–				–				(26	)			–				(26	)
	Life Settlements				(617	)			(107	)			–				–				(724	)
	Commutations				(177	)			–				–				–				(177	)
	Dollar Roll Transactions				–				–				10				–				10
All Other Adjustments — Net					(83	)			(152	)			34				427				226
		Total Adjustments in First Restatement			(736	)			(516	)			182				1,282				212
As Adjusted in First Restatement					49,414				13,568				110				9,977				73,069
Adjustments in Second Restatement:
Accounting for Derivatives (FAS 133 Hedge Accounting)					–				–				(198	)			(221	)			(419	)
Manufacturers Payments Received by ILFC					–				–				–				(84	)			(84	)
All Other Adjustments — Net					4				(5	)			–				13				12
		Total Adjustments in Second Restatement			4				(5	)			(198	)			(292	)			(491	)
As Adjusted in Second Restatement				$	49,418			$	13,563			$	(88	)		$	9,685			$	72,578

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2.	Restatement of Previously Issued Financial Statements (continued)

The following table reflects the effect of the aforementioned adjustments on each component of Benefits and Expenses:

For the Nine Months Ended September 30, 2004				Incurred Policy				Insurance Acquisition and				Total Benefits
(in millions)(unaudited)				Losses and Benefits				Other Operating Expenses				and Expenses
As Previously Reported				$	42,709			$	17,510			$	60,219
Adjustments in First Restatement:
Risk Transfer:
	Union Excess				503				36				539
	Other Risk Transfer				(162	)			(36	)			(198	)
Loss Reserves					197				–				197
Net Investment Income:
	DBG/AIG Capital Corporation Intercompany Dividend				–				(75	)			(75	)
“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					50				(215	)			(165	)
Conversion of Underwriting Losses to Capital Losses					–				(4	)			(4	)
Asset Realization:
	Domestic Brokerage Group (DBG) Issues				–				(43	)			(43	)
Other GAAP Corrections:
	Accounting for Derivatives (FAS 133 Hedge Accounting)				–				31				31
	Foreign Currency Translation (FAS 52)				–				2				2
	Life Settlements				(566	)			–				(566	)
	Deferred Acquisition Costs (DAC)				(205	)			239				34
	SICO Deferred Compensation				–				42				42
	Commutations				(177	)			–				(177	)
All Other Adjustments — Net					(88	)			503				415
		Total Adjustments in First Restatement			(448	)			480				32
As Adjusted in First Restatement					42,261				17,990				60,251
Adjustments in Second Restatement:
Accounting for Derivatives (FAS 133 Hedge Accounting)					(1	)			(247	)			(248	)
Manufacturers Payments Received by ILFC					–				(33	)			(33	)
All Other Adjustments — Net					13				9				22
		Total Adjustments in Second Restatement			12				(271	)			(259	)
As Adjusted in Second Restatement				$	42,273			$	17,719			$	59,992

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2.	Restatement of Previously Issued Financial Statements (continued)

The following table reflects the effect of the aforementioned adjustments on income taxes:

For the Nine Months Ended September 30,
(in millions) (unaudited)				2004
Income Taxes, as Previously Reported				$	4,037
Adjustments in First Restatement:
Risk Transfer:
	Union Excess				(32	)
	Other Risk Transfer				(17	)
Loss Reserves					(69	)
Net Investment Income:
	Covered Calls				25
	Synthetic Fuel Investment				(339	)
“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					31
Asset Realization:
	Domestic Brokerage Group (DBG) Issues				37
	Other Than Temporary Declines				14
Other GAAP Corrections:
	Accounting for Derivatives (FAS 133 Hedge Accounting)				303
	Accounting for Deferred Taxes				(25	)
	Foreign Currency Translation (FAS 52)				(9	)
	Life Settlements				(55	)
	Deferred Acquisition Costs (DAC)				(10	)
All Other Adjustments — Net					24
	Total Adjustments in First Restatement				(122	)
Income Taxes, as Adjusted in First Restatement					3,915
Adjustments in Second Restatement:
Income Tax Accounting					14
All Other Adjustments — Net					(94	)
		Total Adjustments in Second Restatement			(80	)
Income Taxes, as Adjusted in Second Restatement				$	3,835

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2.	Restatement of Previously Issued Financial Statements (continued)

The following table reflects the effect of the aforementioned adjustments on each component of revenue:

For the Three Months Ended
September 30, 2004			Premiums and				Net Investment				Realized Capital				Other				Total
(in millions) (unaudited)			Other Considerations				Income				Gains (Losses)				Revenues				Revenues
As Previously Reported			$	17,690			$	4,708			$	(12	)		$	3,025			$	25,411
Adjustments in First Restatement:
Risk Transfer:
	Union Excess			97				65				(12	)			–				150
	Other Risk Transfer			(105	)			(1	)			–				–				(106	)
Net Investment Income:
	Covered Calls			–				9				3				–				12
	Synthetic Fuel Investment			–				(68	)			–				(38	)			(106	)
	Hedge Fund Accounting			–				(13	)			–				–				(13	)
	Muni Tender Option Bond Program			–				13				1				–				14
	DBG/AIG Capital Corporation Intercompany Dividend			–				(25	)			–				–				(25	)
“Top Level” Adjustments and Other Directed Entries (other than loss reserves)				13				(71	)			10				11				(37	)
Conversion of Underwriting Losses to Capital Losses				–				–				12				–				12
Other GAAP Corrections:
	Accounting for Derivatives (FAS 133 Hedge Accounting)			–				–				22				1,193				1,215
	Foreign Currency Translation (FAS 52)			–				–				1				–				1
	Life Settlements			(242	)			(35	)			–				–				(277	)
	Commutations			(180	)			–				–				–				(180	)
	Dollar Roll Transactions			–				–				77				–				77
All Other Adjustments – Net				(37	)			(80	)			34				124				41
	Total Adjustments in First Restatement			(454	)			(206	)			148				1,290				778
As Adjusted in First Restatement				17,236				4,502				136				4,315				26,189
Adjustments in Second Restatement:
Accounting for Derivatives (FAS 133 Hedge Accounting)				–				–				(219	)			(664	)			(883	)
Manufacturers Payments Received by ILFC				–				–				–				(34	)			(34	)
All Other Adjustments – Net				1				(1	)			–				8				8
	Total Adjustments in Second Restatement			1				(1	)			(219	)			(690	)			(909	)
As Adjusted in Second Restatement			$	17,237			$	4,501			$	(83	)		$	3,625			$	25,280

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2.	Restatement of Previously Issued Financial Statements (continued)

The following table reflects the effect of the aforementioned adjustments on each component of Benefits and Expenses:

For the Three Months Ended September 30, 2004				Incurred Policy				Insurance Acquisition and				Total Benefits
(in millions) (unaudited)				Losses and Benefits				Other Operating Expenses				and Expenses
As Previously Reported				$	15,434			$	6,019			$	21,453
Adjustments in First Restatement:
Risk Transfer:
	Union Excess				168				12				180
	Other Risk Transfer				(94	)			(12	)			(106	)
Loss Reserves					107				–				107
Net Investment Income:
	DBG/AIG Capital Corporation Intercompany Dividend				–				(25	)			(25	)
“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					20				(82	)			(62	)
Conversion of Underwriting Losses to Capital Losses					–				(2	)			(2	)
Asset Realization:
	Domestic Brokerage Group (DBG) Issues				–				(57	)			(57	)
Other GAAP Corrections:
	Accounting for Derivatives (FAS 133 Hedge Accounting)				–				20				20
	Foreign Currency Translation (FAS 52)				–				8				8
	Life Settlements				(221	)			–				(221	)
	Deferred Acquisition Costs (DAC)				(75	)			84				9
	SICO Deferred Compensation				–				14				14
	Commutations				(180	)			–				(180	)
All Other Adjustments — Net					1				144				145
		Total Adjustments in First Restatement			(274	)			104				(170	)
As Adjusted in First Restatement					15,160				6,123				21,283
Adjustments in Second Restatement:
Accounting for Derivatives (FAS 133 Hedge Accounting)					(1	)			(92	)			(93	)
Manufacturers Payments Received by ILFC					–				(11	)			(11	)
All Other Adjustments – Net					7				3				10
		Total Adjustments in Second Restatement			6				(100	)			(94	)
As Adjusted in Second Restatement				$	15,166			$	6,023			$	21,189

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2.	Restatement of Previously Issued Financial Statements (continued)

The following table reflects the effect of the aforementioned adjustments on income taxes:

For the Three Months Ended September 30,
(in millions) (unaudited)				2004
Income Taxes, as Previously Reported				$	1,280
Adjustments in First Restatement:
Risk Transfer:
	Union Excess				(11	)
	Other Risk Transfer				(2	)
Loss Reserves					(37	)
Net Investment Income:
	Covered Calls				4
	Synthetic Fuel Investment				(106	)
“Top Level” Adjustments and Other Directed Entries (other than loss reserves)					9
Asset Realization:
	Domestic Brokerage Group (DBG) Issues				20
Other GAAP Corrections:
	Accounting for Derivatives (FAS 133 Hedge Accounting)				418
	Accounting for Deferred Taxes				(11	)
	Life Settlements				(19	)
	Deferred Acquisition Costs (DAC)				(3	)
All Other Adjustments — Net					(14	)
		Total Adjustments in First Restatement			248
Income Taxes, as Adjusted in First Restatement					1,528
Adjustments in Second Restatement:
Income Tax Accounting					5
All Other Adjustments — Net					(269	)
		Total Adjustments in Second Restatement			(264	)
Income Taxes, as Adjusted in Second Restatement				$	1,264

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3.	Segment Information

The following table summarizes the operations by major operating segment for the nine months and quarter ended September 30, 2005 and 2004:

			Nine Months								Three Months
			Ended September 30,								Ended September 30,
Operating Segments							2004								2004
(in millions) (unaudited)			2005				(Restated)				2005				(Restated)
Revenues(a):
	General Insurance(b)		$	33,906			$	30,893			$	11,216			$	10,616
	Life Insurance & Retirement Services(c)			35,008				31,981				11,641				10,699
	Financial Services(d)			8,092				6,335				1,934				2,789
	Asset Management(e)			3,926				3,342				1,330				1,111
	Other			610				27				240				65
Consolidated			$	81,542			$	72,578			$	26,361			$	25,280
Operating income (loss)(a)(f)(g):
	General Insurance		$	3,481			$	3,490			$	(126	)		$	609
	Life Insurance & Retirement Services			6,699				5,693				2,125				1,627
	Financial Services			3,435				2,377				232				1,405
	Asset Management			1,657				1,502				543				560
	Other(h)(i)			(361	)			(476	)			(297	)			(110	)
Consolidated			$	14,911			$	12,586			$	2,477			$	4,091

(a)	Includes the effect of hedging activities that do not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. For 2005 and 2004, the effect was $(59) million and $(31) million for the first nine months, and $(10) million and $(20) million for the third quarter in operating income for Aircraft Finance, and $1.75 billion and $730 million for the first nine months, and $(359) million and $805 million for the third quarter in revenues and operating income, respectively, for Capital Markets (AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries).
(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 guaranteed investment contracts (GICs).

(f)	Represents income before income taxes, minority interest and cumulative effect of an accounting change.

(g)	Catastrophe related losses for the third quarter of 2005 and 2004 were $2.44 billion and $814 million, respectively.
(h)	Represents other income (deductions) – net and other realized capital gains (losses).

(i)	Includes $246 million and $74 million in catastrophe related losses from partially owned companies in the third quarter of 2005 and 2004, respectively.

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3.	Segment Information (continued)

The following table summarizes AIG’s General Insurance operations by major internal reporting unit for the nine months and quarter ended September 30, 2005 and 2004:

			Nine Months								Three Months
			Ended September 30,								Ended September 30,
General Insurance							2004								2004
(in millions) (unaudited)			2005				(Restated)				2005				(Restated)
Revenues:
	Domestic Brokerage Group		$	18,771			$	17,065			$	6,270			$	6,000
	Transatlantic			2,874				2,964				944				1,021
	Personal Lines			3,615				3,334				1,235				1,137
	Mortgage Guaranty			488				485				146				165
	Foreign General			8,148				7,023				2,616				2,287
	Reclassifications, Eliminations and Other			10				22				5				6
Total General Insurance			$	33,906			$	30,893			$	11,216			$	10,616
Operating income (loss)(a):
	Domestic Brokerage Group		$	1,184	(b)(c)		$	1,375			$	(312	)		$	277
	Transatlantic			(62	)			188				(275	)			(43	)
	Personal Lines			229				271				18				76
	Mortgage Guaranty			285				303				72				91
	Foreign General			1,835				1,331				366				202
	Reclassifications, Eliminations and Other			10				22				5				6
Total General Insurance			$	3,481			$	3,490			$	(126	)		$	609

(a)	Catastrophe related losses for the third quarter of 2005 and 2004 by reporting unit were as follows:

		2005								2004
Reporting Unit		Insurance Related				Net Reinstatement				Insurance Related
(in millions)		Losses				Premium Cost				Losses
Domestic Brokerage Group		$	1,250			$	122			$	406
Transatlantic			355				40				165
Personal Lines			67				2				25
Mortgage Guaranty			10				–				–
Foreign General			173				94				140
Total		$	1,855			$	258			$	736

(b)	Includes $157 million of additional losses incurred resulting from increased labor and material costs related to the 2004 Florida hurricanes.

(c)	Includes $100 million accrual in the second quarter of 2005 to cover DBG’s current estimate of the liability in connection with certain policies of workers compensation insurance written between 1985 and 1996. See Note 7(l).

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3.	Segment Information (continued)

The following table summarizes AIG’s Life Insurance & Retirement Services operations by major internal reporting unit for the nine months and quarter ended September 30, 2005 and 2004:

				Nine Months								Three Months
				Ended September 30,								Ended September 30,
Life Insurance & Retirement Services								2004								2004
(in millions) (unaudited)				2005				(Restated)				2005				(Restated)
Revenues(a):
	Foreign:
		AIA, AIRCO and Nan Shan(b)		$	11,570			$	11,429			$	3,604			$	3,903
		ALICO, AIG Star Life and AIG Edison Life(c)			11,128				8,734				3,962				2,805
		Philamlife and Other			390				362				133				133
	Domestic:
		AGLA and AG Life(d)			6,770				6,594				2,273				2,165
		VALIC, AIG Annuity and AIG SunAmerica(e)			5,150				4,862				1,669				1,693
Total Life Insurance & Retirement Services				$	35,008			$	31,981			$	11,641			$	10,699
Operating Income:
	Foreign:
		AIA, AIRCO and Nan Shan(b)		$	1,797			$	1,570			$	521			$	335
		ALICO, AIG Star Life and AIG Edison Life(c)			2,240				1,564				804				486
		Philamlife and Other			47				61				14				18
	Domestic:
		AGLA and AG Life(d)			1,026				962				333				232
		VALIC, AIG Annuity and AIG SunAmerica(e)			1,589				1,536				453				556
Total Life Insurance & Retirement Services				$	6,699			$	5,693			$	2,125			$	1,627

(a)	Represents the sum of Life Insurance & Retirement Services GAAP premiums, net investment income and realized capital gains (losses).
(b)	Represents the operations of American International Assurance Company, Limited together with American International Assurance Company (Bermuda) Limited (AIA), American International Reinsurance Company, Ltd. (AIRCO), and Nan Shan Life Insurance Company, Ltd. (Nan Shan). Revenues in 2004 include approximately $640 million of a single premium from a reinsurance transaction involving terminal funding pension business, which is offset by a similar increase in benefit reserves. Also includes realized capital gains (losses) of $160 million and $199 million for the nine month periods ended September 30, 2005 and 2004, respectively, and $(59) million and $(127) million for the three month periods ended September 30, 2005 and 2004, respectively.

(c)

Represents the operations of American Life Insurance Company (ALICO), AIG Star Life Insurance Co., Ltd. (AIG Star Life), and AIG Edison Life Insurance Company (AIG Edison Life). Includes realized capital gains (losses) of $(56) million and $(328) million for the nine month periods ended September 30, 2005 and 2004, respectively, and $46 million and $(207) million for the three month periods ended September 30, 2005 and 2004, respectively.

(d)

AG Life includes the life operations of AIG Life Insurance Company and American International Life Assurance Company of New York. Also includes the operations of American General Life and Accident Insurance Company (AGLA). Includes realized capital gains (losses) of $(22) million and $(41) million for the nine month periods ended September 30, 2005 and 2004, respectively, and $41 million and $(87) million for the three month periods ended September 30, 2005 and 2004, respectively.

(e)

“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. Also includes the operations of The Variable Annuity Life Insurance Company (VALIC) and AIG Annuity Insurance Company (AIG Annuity). Includes realized capital gains (losses) of $(177) million and $(118) million for the nine month periods ended September 30, 2005 and 2004, respectively, and $(155) million and $11 million for the three month periods ended September 30, 2005 and 2004, respectively.

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3.	Segment Information (continued)

The following table summarizes AIG’s Financial Services operations by major internal reporting unit for the nine months and quarter ended September 30, 2005 and 2004:

			Nine Months								Three Months
			Ended								Ended
			September 30,								September 30,
Financial Services							2004								2004
(in millions) (unaudited)			2005				(Restated)				2005				(Restated)
Revenues(a):
	Aircraft Finance(b)		$	2,661			$	2,320			$	943			$	808
	Capital Markets(c)(d)			2,706				1,758				31				1,193
	Consumer Finance(e)			2,664				2,178				940				762
	Other			61				79				20				26
Total Financial Services			$	8,092			$	6,335			$	1,934			$	2,789
Operating income(loss)(a):
	Aircraft Finance		$	476			$	466			$	165			$	163
	Capital Markets(d)			2,258				1,266				(142	)			1,016
	Consumer Finance(f)			677				593				198				208
	Other			24				52				11				18
Total Financial Services			$	3,435			$	2,377			$	232			$	1,405

(a)	Includes the effect of hedging activities that do not qualify for hedge accounting treatment under FAS 133, including the related foreign exchange gains and losses. For 2005 and 2004, the effect was $(59) million and $(31) million for the first nine months, and $(10) million and $(20) million for the third quarter, in operating income, respectively, for Aircraft Finance and $1.75 billion and $730 million for the first nine months, and $(359) million and $805 million for the third quarter in revenues and operating income, respectively, for Capital Markets (AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries).
(b)	Revenues are primarily from ILFC aircraft lease rentals.

(c)	Revenues, shown net of interest expense, are primarily from hedged proprietary positions entered into in connection with counterparty transactions and the effect of hedging activities that do not qualify for hedge accounting treatment under FAS 133 described in (a) above.

(d)	Certain transactions entered into by AIGFP generate tax credits and benefits which are included in income taxes on the consolidated statement of income. The amount of tax credits and benefits for the first nine months and third quarter ended September 30, 2005 and 2004 are $63 million and $23 million, and $88 million and $24 million, respectively.

(e)	Revenues are primarily finance charges.

(f)	2005 includes $62 million of catastrophe related losses.

The following table summarizes AIG’s Asset Management revenues and operating income for the nine months and quarter ended September 30, 2005 and 2004:

			Nine Months								Three Months
			Ended								Ended
			September 30,								September 30,
Asset Management							2004								2004
(in millions) (unaudited)			2005				(Restated)				2005				(Restated)
Revenues:
	Guaranteed investment contracts		$	2,689			$	2,260			$	890			$	756
	Institutional Asset Management			776				729				279				248
	Brokerage Services and Mutual Funds			192				185				67				62
	Other			269				168				94				45
Total Asset Management			$	3,926			$	3,342			$	1,330			$	1,111
Operating income:
	Guaranteed investment contracts(a)		$	921			$	944			$	276			$	303
	Institutional Asset Management(b)			424				344				155				198
	Brokerage Services and Mutual Funds			50				54				20				17
	Other			262				160				92				42
Total Asset Management			$	1,657			$	1,502			$	543			$	560

(a)	The effect of hedging activities that do not qualify for hedge accounting treatment under FAS 133 was $127 million and $241 million for the first nine months of 2005 and 2004, respectively, and $18 million and $90 million for the third quarter of 2005 and 2004, respectively.
(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 the first nine months and third quarter ended September 30, 2005 and 2004, operating income includes $189 million and $77 million, and $147 million and $115 million, respectively, of third-party limited partner earnings offset as an expense in Minority interest.

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4.	Earnings Per Share

Earnings per share of AIG are based on the weighted average number of common shares outstanding during the period.

Computation of Earnings Per Share:

			Nine Months								Three Months
			Ended								Ended
			September 30,								September 30,
(in millions, except per share data) (unaudited)			2005				2004				2005				2004
			(Restated)								(Restated)
Numerator for basic earnings per share:
Income before cumulative effect of an accounting change			$	10,023			$	8,434			$	1,717			$	2,685
Cumulative effect of an accounting change, net of tax				–				(144	)			–				–
Net income applicable to common stock			$	10,023			$	8,290			$	1,717			$	2,685
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				2,752
	Common stock in treasury			(155	)			(144	)			(155	)			(146	)
Average shares outstanding – basic				2,597				2,608				2,597				2,606
Numerator for diluted earnings per share:
Income before cumulative effect of an accounting change			$	10,023			$	8,434			$	1,717			$	2,685
Cumulative effect of an accounting change, net of tax				–				(144	)			–				–
Net income applicable to common stock				10,023				8,290				1,717				2,685
Interest on contingently convertible bonds, net of tax (a)				8				8				3				2
Adjusted net income applicable to common stock(a)			$	10,031			$	8,298			$	1,720			$	2,687
Denominator for diluted earnings per share:
Average shares outstanding				2,597				2,608				2,597				2,606
Incremental shares from potential common stock:
Average number of shares arising from outstanding employee stock plans (treasury stock method)(b)				18				22				18				23
Contingently convertible bonds(a)				9				9				9				9
Adjusted average shares outstanding – diluted(a)				2,624				2,639				2,624				2,638
Earnings per share:
Basic:
Income before cumulative effect of an accounting change			$	3.86			$	3.24			$	0.66			$	1.04
Cumulative effect of an accounting change, net of tax				–				(0.06	)			–				–
Net income			$	3.86			$	3.18			$	0.66			$	1.04
Diluted:
Income before cumulative effect of an accounting change			$	3.82			$	3.20			$	0.65			$	1.02
Cumulative effect of an accounting change, net of tax				–				(0.06	)			–				–
Net income			$	3.82			$	3.14			$	0.65			$	1.02

(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 issuable pursuant to 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 21 million and 8 million for the first nine months of 2005 and 2004, respectively.

     Pursuant to Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure, an amendment to FASB Statement No. 123” (FAS 148), AIG adopted the “Prospective Method” of accounting for stock-based employee compensation effective January 1, 2003. FAS 148 also requires that AIG disclose the effect of stock-based compensation expense that would have been recognized if the fair value based method had been applied to all the awards vesting in the current period.

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4.	Earnings Per Share (continued)

     The effect with respect to stock-based compensation expense that would have been recognized if the fair value based method had been applied to all the awards vesting was approximately $0.01 per share for the first nine months of 2005 and 2004, and less than $0.005 per share for the third quarter of 2005 and 2004.

     The quarterly dividend rate per common share, commencing with the dividend paid September 16, 2005 is $0.15.

5.	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.

     None of the costs of the various benefits provided under the SICO Plans have been paid by AIG, although AIG has recorded a charge to reported earnings 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 may permit an early payout 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 may elect to pay a participant cash in lieu of shares of AIG common stock.

     Prior to 2005, SICO 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 $129 million and $42 million for the nine months ended September 30, 2005 and 2004, respectively.

6.	Ownership and Transactions With Related Parties

(a) Ownership: C.V. Starr & Co., Inc. (Starr), a private holding company, The Starr Foundation, and SICO, a private holding company, owned in the aggregate approximately 16 percent of the voting stock of AIG at September 30, 2005.

     (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 September 30, 2005.

7.	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 AIG’s Capital Markets operations, comprised of AIG Financial Products Corp. and AIG Trading Group Inc. and their subsidiaries (AIGFP). See also Note 20 in AIG’s 2004 Annual Report on Form 10-K.

     (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 operations 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. Revenues for the nine months ended September 30, 2005 and 2004 from Capital Markets operations were $2.71 billion and $1.76 billion, respectively.

     (c) At September 30, 2005, ILFC had committed to purchase 308 new aircraft deliverable from 2005 through 2010 at an estimated aggregate purchase price of $20.1 billion and had options to purchase 12 new aircraft deliverable through 2009 at an estimated aggregate purchase price of $988 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 set-

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7.	Commitments and Contingent Liabilities (continued)

tlements 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 techniques. 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 at September 30, 2005 ($3.32 billion gross; $1.40 billion net) 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 June 27, 2005, AIG entered into agreements 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 certain employees of AIG and its subsidiaries under the SICO Plans (as defined in Note 5) and (ii) make any payment to the extent not promptly paid by Starr with respect to amounts that become payable to certain 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 an aggregate of approximately $1 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 $358 million as of September 30, 2005.

     (i) On October 14, 2004, the Office of the Attorney General of the State of New York (NYAG) brought a lawsuit chal-

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7.	Commitments and Contingent Liabilities (continued)

lenging 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 NYAG’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.

     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. In August 2005, AIG received a pre-summons notice from the Internal Revenue Service (IRS) relating to certain items in AIG’s restatement described in the 2004 Annual Report on Form 10-K and other issues. AIG has cooperated, and will continue to cooperate, in producing documents and other information in response to the subpoenas.

     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, Racketeer Influenced and Corrupt Organizations Act (RICO), Employee Retirement Income Security Act (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.

     Between October 19, 2004 and August 1, 2005, AIG or its subsidiaries were named as a defendant in thirteen complaints that were filed in federal court and two that were originally filed in state courts in Massachusetts and Florida. 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. On August 1, 2005, the plaintiffs in the multidistrict litigation filed a First Consolidated Amended Commercial Class Action Complaint, which, in addition to the previously named AIG defendants, names new AIG subsidiaries as defendants. Also on August 1, 2005, AIG and a subsidiary were named as defendants in a First Consolidated Amended Employee Benefits Complaint filed in the District of New Jersey that adds claims under ERISA. The two cases filed in Massachusetts and Florida state courts have been stayed in favor of the consolidated federal court proceeding.

     In April and May 2005, 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 AIG’s 2004 Annual Report on Form 10-K. In September 2005, a second amended complaint was filed in the consolidated securities cases adding allegations concerning AIG’s restatement described in the 2004 Annual Report on Form 10-K. Also in September 2005, a new securities action complaint was filed in the Southern District of New York, asserting claims premised on the same allegations made in the consolidated cases. In September 2005, a consolidated complaint was filed in the ERISA case pending in the Southern District of New York. Also in April 2005, new derivative actions were filed in Delaware Chancery Court, and in July and August 2005, two new derivative actions were filed in the Southern District of New York asserting claims duplicative of the claims made in the consolidated derivative action.

     In July 2005, a second amended complaint was filed in the consolidated derivative case in the Southern District of New York, expanding upon accounting-related allegations, based upon the restatement in AIG’s 2004 Annual Report on Form 10-K and, in August 2005, an amended consolidated complaint was filed. In June 2005, the derivative cases in Delaware were consolidated. AIG’s Board of Directors has appointed a special committee of independent directors to review certain of the matters asserted in the derivative complaints. The court has approved an agreement staying the derivative cases pending in the Southern District of New York and in Delaware Chancery Court while the special committee of independent directors performs its work.

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7.	Commitments and Contingent Liabilities (continued)

     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 and SICO. 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. Plaintiffs in that case have agreed to dismiss newly added allegations unrelated to transactions with entities affiliated with Starr and SICO without prejudice to pursuit of these claims in the separate derivative actions described above.

     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 the 2004 Annual Report on Form 10-K. The complaint seeks disgorgement, injunctive relief, punitive damages and costs, among other things.

     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.

     AIG cannot 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.

     (j) On July 8, 2005, Starr International Company, Inc. (SICO) filed a complaint against AIG in the United States District Court for the Southern District of New York. The complaint alleges that AIG is in the possession of items, including artwork, which SICO claims it owns, and seeks an order causing AIG to release those items as well as actual, consequential, punitive and exemplary damages. On September 27, 2005, AIG filed its answer to SICO’s complaint denying SICO’s allegations and asserting counter-claims for breach of contract, unjust enrichment, conversion and breach of fiduciary duty relating to SICO’s breach of its commitment to use its AIG shares for the benefit of AIG and its employees. On October 17, 2005, SICO replied to AIG’s counter-claims and additionally sought a judgment declaring that SICO is neither a control person nor an affiliate of AIG for purposes of Schedule 13D under the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 144 under the Securities Act of 1933, as amended (the Securities Act), respectively. AIG responded to the SICO claims and sought a dismissal of SICO’s claims on November 7, 2005.

     (k) AIG subsidiaries own interests in certain limited liability companies (LLCs) which invested in six coal synthetic fuel production facilities. The sale of coal synthetic fuel produced by these six facilities generates income tax credits. One of the conditions a taxpayer must meet to qualify for coal synfuel tax credits is that the synfuel production facility must have been “placed in service” before July 1, 1998. On July 1, 2005 Internal Revenue Service (IRS) field agents issued notices of proposed adjustment to the LLCs proposing to disallow all of the credits taken by the LLCs during the years 2001 through 2003. The IRS field agents have since conceded that one of the facilities was timely placed in service, but they contend that none of the other underlying production facilities were placed in service by the statutory deadline. On October 3, 2005, IRS field agents issued 60-day letters to the LLCs proposing to disallow the tax credits taken with respect to synfuel sales by the remaining five production facilities. AIG strongly believes that all the facilities did in fact meet the placed-in-service requirement. Although AIG believes that this issue will be resolved without a material charge to AIG, AIG cannot assure the ultimate outcome of this matter. If this matter were ultimately resolved in a manner unfavorable to AIG, AIG could be prevented from realizing projected future tax credits and could be required to reverse previously utilized tax credits, which could entail payment of substantial additional taxes and interest. Since acquiring the facilities, AIG has recognized approximately $940 million of synfuel tax credits through September 30, 2005, of which $815 million is in dispute.

     Tax credits generated from the production and sale of synthetic fuel under section 29 of the Internal Revenue Code are subject to an annual phase-out provision that is based on the average wellhead price of domestic crude oil. The price range within which the tax credits are phased-out was originally established in 1980 and is adjusted annually for inflation. Depending on the price of domestic crude oil for a particular year, all or a portion of the tax credits generated in that year might be eliminated. Although AIG cannot predict the future price of domestic crude oil for the remainder of 2005 or for years 2006 and 2007 (the final year the tax credits are available), AIG believes that the phase-out provision is unlikely to affect tax credits generated in 2005. AIG has also entered into hedges designed to mitigate a portion of its future exposure to a sustained high price of oil. However, no assurance can be given as

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7.	Commitments and Contingent Liabilities (continued)

to the effectiveness of the hedging in actually reducing such exposure or whether such hedging will continue.

     AIG cannot 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.

     (l) As a result of pending actions against AIG arising out of the liability of certain Domestic Brokerage Group (DBG) companies for taxes, assessments, and surcharges for policies of workers compensation insurance written between 1985 and 1996, AIG established a reserve in the second quarter of 2005 of $100 million (including interest) to cover estimated liabilities to various states, guarantee funds, and residual market facilities (and the members thereof) relating to these actions.

     (m) AIG understands that some of its employees have received Wells notices in connection with previously disclosed SEC investigations of certain of AIG’s transactions or accounting practices. Under SEC procedures, a Wells notice is an indication that the SEC staff has made a preliminary decision to recommend enforcement action that provides recipients with an opportunity to respond to the SEC staff before a formal recommendation is finalized. AIG anticipates that additional current and former employees could receive similar notices in the future as the regulatory investigations proceed.

     (n) In August 2005, the Bureau of Labor Insurance in Taiwan began to levy a monthly administrative penalty against Nan Shan for not providing its agency leaders a choice between alternative government pension plans. Nan Shan is actively involved with both the Bureau of Labor Insurance and its agency union leaders to resolve the issue of which pension plan is appropriate for the agency leaders. Evaluation of the terms of ultimate settlement, including the required financial benefits to be provided, if any, is dependent upon numerous factors, which include agent choice, past service periods and contractual terms, all of which are being reviewed. At the current time, Nan Shan management expects that an amicable solution will be achieved and that the ultimate liability, if any, will not be material to AIG’s consolidated financial condition or results of operations.

8.	Employee Benefits

(a) The following table presents the components of the net periodic benefit costs with respect to pensions and other benefits for the nine months and quarter ended September 30, 2005 and 2004:

			Pensions												Postretirement
			Non-U.S.				U.S.								Non-U.S.				U.S.
(In millions)			Plans				Plans				Total				Plans				Plans				Total
Nine Months Ended September 30, 2005
	Components of net period benefit cost:
	Service cost		$	56			$	78			$	134			$	3			$	5			$	8
	Interest cost			24				111				135				1				11				12
	Expected return on assets			(16	)			(123	)			(139	)			–				–				–
	Amortization of prior service cost			(8	)			(2	)			(10	)			–				(5	)			(5	)
	FAS 88 loss due to settlements			4				–				4				–				–				–
	Amortization of transition liability			1				–				1				–				–				–
	Recognized actuarial loss			17				49				66				–				2				2
Net period benefit cost			$	78			$	113			$	191			$	4			$	13			$	17
Three Months Ended September 30, 2005
	Components of net period benefit cost:
	Service cost		$	19			$	26			$	45			$	1			$	2			$	3
	Interest cost			8				37				45				–				4				4
	Expected return on assets			(5	)			(41	)			(46	)			–				–				–
	Amortization of prior service cost			(3	)			–				(3	)			–				(2	)			(2	)
	FAS 88 loss due to settlements			1				–				1				–				–				–
	Recognized actuarial loss			6				16				22				–				1				1
Net period benefit cost			$	26			$	38			$	64			$	1			$	5			$	6

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8.	Employee Benefits (continued)

			Pensions												Postretirement
			Non-U.S.				U.S.								Non-U.S.				U.S.
(In millions)			Plans				Plans				Total				Plans				Plans				Total
Nine Months Ended September 30, 2004
	Components of net period benefit cost:
	Service cost		$	45			$	69			$	114			$	–			$	3			$	3
	Interest cost			24				120				144				–				12				12
	Expected return on assets			(15	)			(129	)			(144	)			–				–				–
	Amortization of prior service cost			(2	)			3				1				–				(5	)			(5	)
	Amortization of transitional liability			2				–				2				–				–				–
	Recognized actuarial loss			15				42				57				–				2				2
Net period benefit cost			$	69			$	105			$	174			$	–			$	12			$	12
Three Months Ended September 30, 2004
	Components of net period benefit cost:
	Service cost		$	15			$	23			$	38			$	–			$	1			$	1
	Interest cost			8				40				48				–				4				4
	Expected return on assets			(5	)			(43	)			(48	)			–				–				–
	Amortization of prior service cost			(1	)			1				–				–				(2	)			(2	)
	Amortization of transitional liability			1				–				1				–				–				–
	Recognized actuarial loss			5				14				19				–				1				1
Net period benefit cost			$	23			$	35			$	58			$	–			$	4			$	4

     (b) AIG expects to contribute between $250 million to $400 million to its pension plans during 2005.

9.	Recent Accounting Standards

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 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 had resolved certain implementation issues with respect to this guidance, but the disclosures remain effective. This FSP, re-titled FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” replaces the measurement and recognition guidance set forth in Issue No. 03-1 and codifies certain existing guidance on impairment. Adoption of FSP FAS 115-1 is not expected to have a material effect on AIG’s financial condition or results of operations.

     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 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 and its related interpretive guidance 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. In April 2005, the Securities and Exchange Commission (SEC) delayed the effective date for FAS 123R. As a result, AIG expects to adopt the provisions of the revised FAS 123R and its interpretive guidance 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 financial condition or results of operations.

     In March 2005, the 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. This 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. AIG adopted FSP FIN46R-5 in the second quarter of 2005. The adoption of FSP FIN 46R-5 did not have a material effect on AIG’s financial condition or results of operations.

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9.	Recent Accounting Standards (continued)

     On December 16, 2004, the FASB issued Statement No. 153, “Exchanges of Nonmonetary Assets — An Amendment of APB Opinion No. 29” (FAS 153). FAS 153 amends APB Opinion No. 29, “Accounting for Nonmonetary Transactions.” The amendments made by FAS 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have “commercial substance.” Previously, APB Opinion No. 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. The provisions in FAS 153 are effective for nonmonetary asset exchanges beginning July 1, 2005. The adoption of FAS 153 did not have a material effect on AIG’s financial condition or results of operations.

     On June 1, 2005, the FASB issued Statement No. 154, “Accounting Changes and Error Corrections” (FAS 154). FAS 154 replaces APB Opinion No. 20, “Accounting Changes” and FASB Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements.” FAS 154 requires that a voluntary change in accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. FAS 154 also provides that a correction of errors in previously issued financial statements should be termed a “restatement.” The new standard is effective for accounting changes and correction of errors beginning January 1, 2006.

     At the June 2005 meeting, the Emerging Issues Task Force (EITF) reached a consensus with respect to Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (formerly, “Investor’s Accounting for an Investment in a Limited Partnership When the Investor Is the Sole General Partner and the Limited Partners Have Certain Rights”). The Issue addresses what rights held by the limited partner(s) preclude consolidation in circumstances in which the sole general partner would consolidate the limited partnership in accordance with generally accepted accounting principles absent the existence of the rights held by the limited partner(s). Based on that consensus, the EITF also agreed to amend the consensus in Issue No. 96-16, “Investor’s Accounting for an Investee When the Investor Has a Majority of the Voting Interest but the Minority Shareholders Have Certain Approval or Veto Rights.” The guidance in this Issue is effective after June 29, 2005 for general partners of all new limited partnerships formed and for existing limited partnerships for which the partnership agreements are modified. For general partners in all other limited partnerships, the guidance in this Issue is effective beginning January 1, 2006. AIG is currently assessing the effect of adopting this EITF Issue.

     On June 29, 2005, FASB issued Statement 133 Implementation Issue No. B38, “Embedded Derivatives: Evaluation of Net Settlement with Respect to the Settlement of a Debt Instrument through Exercise of an Embedded Put Option or Call Option.” This implementation guidance relates to the potential settlement of the debtor’s obligation to the creditor that would occur upon exercise of the put option or call option, which meets the net settlement criterion in FAS 133 paragraph 9(a). The effective date of the implementation guidance is January 1, 2006. AIG is currently assessing the effect of implementing this guidance.

     On June 29, 2005, FASB issued Statement 133 Implementation Issue No. B39, “Application of Paragraph 13(b) to Call Options That Are Exercisable Only by the Debtor.” The conditions in FAS 133 paragraph 13(b) do not apply to an embedded call option in a hybrid instrument containing a debt host contract if the right to accelerate the settlement of the debt can be exercised only by the debtor (issuer/borrower). This guidance does not apply to other embedded derivative features that may be present in the same hybrid instrument. The effective date of the implementation guidance is January 1, 2006. AIG is currently assessing the effect of implementing this guidance.

     On September 19, 2005, FASB issued Statement of Position 05-1, “Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts.” SOP 05-1 provides guidance on accounting for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in FASB Statement No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments.” The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverage that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. The effective date of the implementation guidance is January 1, 2007. AIG is currently assessing the effect of implementing this guidance.

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10.	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) American General Corporation (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:

Condensed Consolidating Balance Sheet

			American
			International
September 30, 2005			Group, Inc.				AGC				Other								Consolidated
(in millions) (unaudited)			Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Assets:
	Invested assets		$	3,137			$	–			$	685,969			$	(14,982	)		$	674,124
	Cash			102				–				2,006				–				2,108
	Carrying value of subsidiaries and partially owned companies, at equity			91,950				26,934				13,752				(131,487	)			1,149
	Other assets			2,832				2,634				160,845				(295	)			166,016
Total assets			$	98,021			$	29,568			$	862,572			$	(146,764	)		$	843,397
Liabilities:
	Insurance liabilities		$	363			$	–			$	454,690			$	(58	)		$	454,995
	Debt			5,103				2,184				109,668				(12,131	)			104,824
	Other liabilities			3,273				4,285				189,763				(3,218	)			194,103
Total liabilities				8,739				6,469				754,121				(15,407	)			753,922
Preferred shareholders’ equity in subsidiary companies				–				–				193				–				193
Total shareholders’ equity				89,282				23,099				108,258				(131,357	)			89,282
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity			$	98,021			$	29,568			$	862,572			$	(146,764	)		$	843,397

			American
			International
December 31, 2004 (Restated)			Group, Inc.				AGC				Other								Consolidated
(in millions) (unaudited)			Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Assets:
	Invested assets		$	1,394			$	–			$	649,305			$	(12,984	)		$	637,715
	Cash			17				–				1,992				–				2,009
	Carrying value of subsidiaries and partially owned companies, at equity			81,482				29,106				12,248				(121,340	)			1,496
	Other assets			2,753				2,546				153,912				(389	)			158,822
Total assets			$	85,646			$	31,652			$	817,457			$	(134,713	)		$	800,042
Liabilities:
	Insurance liabilities		$	405			$	–			$	428,268			$	(69	)		$	428,604
	Debt			3,647				2,482				101,414				(12,257	)			95,286
	Other liabilities			1,066				4,076				191,489				(1,206	)			195,425
Total liabilities				5,118				6,558				721,171				(13,532	)			719,315
Preferred shareholders’ equity in subsidiary companies				–				–				199				–				199
Total shareholders’ equity				80,528				25,094				96,087				(121,181	)			80,528
Total liabilities, preferred shareholders’ equity in subsidiary companies and shareholders’ equity			$	85,646			$	31,652			$	817,457			$	(134,713	)		$	800,042

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10.	Information Provided in Connection with Outstanding Debt (continued)

Condensed Consolidating Statement of Income

		American
		International
Nine Months Ended September 30, 2005		Group, Inc.				AGC				Other								Consolidated
(in millions) (unaudited)		Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Operating income (loss)		$	114	(a)		$	(130	) (b)		$	14,927	(c)		$	–			$	14,911	(d)
Equity in undistributed net income of consolidated subsidiaries			9,354				1,888				–				(11,242	)			–
Dividend income from consolidated subsidiaries			1,151				–				–				(1,151	)			–
Income taxes (benefits)			596				(45	)			4,008				–				4,559
Minority interest			–				–				(329	)			–				(329	)
Net income (loss)		$	10,023			$	1,803			$	10,590			$	(12,393	)		$	10,023

		American
		International
Nine Months Ended September 30, 2004 (Restated)		Group, Inc.				AGC				Other								Consolidated
(in millions)		Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Operating income (loss)		$	111	(e)		$	(83	) (f)		$	12,558	(g)		$	–			$	12,586	(h)
Equity in undistributed net income of consolidated subsidiaries			7,630				1,766				–				(9,396	)			–
Dividend income from consolidated subsidiaries			935				65				–				(1,000	)			–
Income taxes (benefits)			386				(56	)			3,505				–				3,835
Minority interest			–				–				(317	)			–				(317	)
Cumulative effect of an accounting change, net of tax			–				–				(144	)			–				(144	)
Net income (loss)		$	8,290			$	1,804			$	8,592			$	(10,396	)		$	8,290

(a)	Includes other income (deductions) – net and other realized capital gains (losses) of $(487) million for the nine months ended September 30, 2005.
(b)	Includes other income (deductions) – net and other realized capital gains (losses) of $(130) million for the nine months ended September 30, 2005.
(c)	Includes other income (deductions) – net and other realized capital gains (losses) of $256 million for the nine months ended September 30, 2005.
(d)	Includes other income (deductions) – net and other realized capital gains (losses) of $(361) million for the nine months ended September 30, 2005.
(e)	Includes other income (deductions) – net and other realized capital gains (losses) of $(168) million for the nine months ended September 30, 2004.
(f)	Includes other income (deductions) – net and other realized capital gains (losses) of $(83) million for the nine months ended September 30, 2004.
(g)	Includes other income (deductions) – net and other realized capital gains (losses) of $(225) million for the nine months ended September 30, 2004.
(h)	Includes other income (deductions) – net and other realized capital gains (losses) of $(476) million for the nine months ended September 30, 2004.

		American
		International
Three Months Ended September 30, 2005		Group, Inc.				AGC				Other								Consolidated
(in millions) (unaudited)		Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Operating income (loss)		$	(35	)(a)		$	(54	) (b)		$	2,566	(c)		$	–			$	2,477	(d)
Equity in undistributed net income of consolidated subsidiaries			1,854				601				–				(2,455	)			–
Dividend income from consolidated subsidiaries			223				–				–				(223	)			–
Income taxes (benefits)			325				(19	)			400				–				706
Minority interest			–				–				(54	)			–				(54	)
Net income (loss)		$	1,717			$	566			$	2,112			$	(2,678	)		$	1,717

		American
		International
Three Months Ended September 30, 2004 (Restated)		Group, Inc.				AGC				Other								Consolidated
(in millions)		Guarantor				Issuer				Subsidiaries				Eliminations				AIG
Operating income (loss)		$	151	(e)		$	(42	) (f)		$	3,982	(g)		$	–			$	4,091	(h)
Equity in undistributed net income of consolidated subsidiaries			2,384				624				–				(3,008	)			–
Dividend income from consolidated subsidiaries			294				65				–				(359	)			–
Income taxes (benefits)			144				(30	)			1,150				–				1,264
Minority interest			–				–				(142	)			–				(142	)
Net income (loss)		$	2,685			$	677			$	2,690			$	(3,367	)		$	2,685

(a)	Includes other income (deductions) – net and other realized capital gains (losses) of $(354) million for the three months ended September 30, 2005.
(b)	Includes other income (deductions) – net and other realized capital gains (losses) of $(54) million for the three months ended September 30, 2005.
(c)	Includes other income (deductions) – net and other realized capital gains (losses) of $111 million for the three months ended September 30, 2005.
(d)	Includes other income (deductions) – net and other realized capital gains (losses) of $(297) million for the three months ended September 30, 2005.
(e)	Includes other income (deductions) – net and other realized capital gains (losses) of $2 million for the three months ended September 30, 2004.
(f)	Includes other income (deductions) – net and other realized capital gains (losses) of $(42) million for the three months ended September 30, 2004.
(g)	Includes other income (deductions) – net and other realized capital gains (losses) of $(71) million for the three months ended September 30, 2004.
(h)	Includes other income (deductions) – net and other realized capital gains (losses) of $(111) million for the three months ended September 30, 2004.

39

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Table of Contents

10.	Information Provided in Connection with Outstanding Debt (continued)

Condensed Consolidating Statements of Cash Flow

			American
			International
Nine Months Ended September 30, 2005			Group, Inc.				AGC				Other				Consolidated
(in millions) (unaudited)			Guarantor				Issuer				Subsidiaries				AIG
Net cash provided by operating activities			$	1,597			$	685			$	20,798			$	23,080
Cash flows from investing:
	Invested assets disposed			–				–				175,567				175,567
	Invested assets acquired			(1,762	)			–				(214,255	)			(216,017	)
	Other			(547	)			(270	)			(399	)			(1,216	)
Net cash used in investing activities				(2,309	)			(270	)			(39,087	)			(41,666	)
Cash flows from financing activities:
	Change in debts			1,659				(299	)			8,406				9,766
	Other			(925	)			(116	)			10,616				9,575
Net cash (used in) provided by financing activities				734				(415	)			19,022				19,341
Change in cumulative translation adjustments				63				–				(719	)			(656	)
Change in cash				85				–				14				99
Cash at beginning of period				17				–				1,992				2,009
Cash at end of period			$	102			$	–			$	2,006			$	2,108

American

International

Nine Months Ended September 30, 2004 (Restated)

Group, Inc.

AGC

Other

Consolidated

(in millions) (unaudited)

Guarantor

Issuer

Subsidiaries

AIG

Net cash provided by operating activities

$

1,707

$

780

$

17,124

$

19,611

Cash flows from investing:

Invested assets disposed

200

–

142,128

&nb