AIG Provides Additional Information on Japan Disaster Impact on AIG's Financial Results

American International Group, Inc. AIG today released additional information about how potential losses stemming from earthquake-related claims filed with Fuji Fire and Marine Insurance Co., Ltd., in which AIG holds a 54.66 percent equity stake, could affect AIG's financial results. Last week, AIG issued a preliminary pre-tax insurance loss estimate for Chartis, its property casualty insurance unit, of $1.0 billion, or $0.9 billion after tax – 1.1 percent of total AIG shareholders' equity as of December 31, 2010 – net of all reinsurance recoverables for the first quarter of 2011, related to various catastrophes, including a pre-tax insurance loss of $0.7 billion related to the recent earthquake in Japan, consequent tsunami, and related exposures. As AIG noted in its announcement last week, the preliminary estimate excluded losses arising from AIG's general insurance operations in Japan that participate in the Japanese Earthquake Reinsurance Company, including Fuji Fire and Marine. Under U.S. generally accepted accounting principles, AIG consolidates Fuji Fire and Marine's financial results in AIG's financial statements. AIG believes the vast majority of any losses recorded by Fuji Fire and Marine in connection with the Japanese earthquake will relate to Fuji Fire and Marine's participation in the JERC, a joint government-private sector insurance system that is the exclusive provider of earthquake coverage for personal dwellings and their contents in Japan. Under this system, the Japanese government is to a great extent responsible for insurance liability through a reinsurance system that defines the various limits of liability to be covered by the government, the JERC, and private, general insurance companies in Japan, including Fuji Fire and Marine. Although Fuji Fire and Marine has not announced an actual loss estimate for earthquake-related claims because its net loss exposure is dependent on industry total losses, which have not yet been determined, the company said earlier this week that the maximum possible loss that it could sustain in connection with JERC-related claims is approximately $508 million. In accordance with Japanese statutory accounting rules, as well as the requirements for private sector participants in the JERC, Fuji Fire and Marine had previously established catastrophe reserves of approximately $482 million for potential claims associated with earthquake damage to personal dwellings. These reserves, which are backed by funds held by the JERC, exist to cover the potential losses that Fuji Fire and Marine could sustain in connection with JERC-related claims, and limit the maximum net additional cash payments to the JERC to $26 million. As U.S. GAAP prohibits the establishment of catastrophe reserves in advance of a catastrophic event occurring, the total net JERC losses that Fuji Fire and Marine actually incurs in connection with the Japan earthquake will flow through AIG's income statement. However, AIG expects minimal net effects on the statutory capital and liquidity of its local Japanese operations, including those of Fuji Fire and Marine, in light of existing local reserves as outlined above. AIG expects that any net U.S. GAAP charge for earthquake-related losses by Fuji Fire and Marine would relate almost entirely to Fuji Fire and Marine's participation in the JERC, and that such a charge would be funded from Fuji Fire and Marine's JERC-related earthquake reserves, which are backed by funds held by the JERC for the benefit of supporting Fuji Fire and Marine's potential JERC-related liability.