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CORRESP
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CORRESP

September 16, 2008

Mr. Jim B. Rosenberg

Senior Assistant Chief Accountant

United States

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, NE

Mail Stop 6010

Washington, D. C. 20549

    Re:

    American International Group, Inc.

Form 10-K for the Year Ended December 31, 2007

Form 10-Q for the Quarter Ended June 30, 2008

File No. 1-8787

Dear Mr. Rosenberg:

In response to our discussion with various members of the Staff of the Commission on Friday,
September 12, 2008 regarding American International Group, Inc.’s (AIG) captioned filings, this
letter presents a unified discussion of our super senior credit default swap portfolio as
we intend to present it in our Form 10-Q for the quarter ended September 30, 2008, and provides
certain supplemental information requested by the Staff.

AIG acknowledges that the adequacy and accuracy of the disclosure in AIG’s filings is the
responsibility of AIG, that Staff comments or changes to disclosure in response to Staff comments
do not foreclose the Commission from taking any action with respect to the filings and that Staff
comments may not be asserted by AIG as a defense in any proceeding initiated by the Commission or
any person under the Federal securities laws of the United States.

AIGFP’s Super Senior Credit Default Swap Portfolio

AIGFP wrote credit protection on the super senior risk layer of diversified portfolios of corporate
debt, prime residential mortgages, CLOs and multi-sector CDOs. In these transactions, AIGFP is at
risk on the super senior risk layer related to a diversified portfolio referenced to loans or debt
securities. That is, AIGFP is obligated to perform under the credit protection written only after
various layers of subordinated interests in the diversified portfolios have been exhausted by
losses on the underlying loans or securities. To a lesser extent, AIGFP also wrote protection on
tranches below the super senior risk layer, primarily in respect of regulatory capital
transactions.

At September 30, 2008, the notional amount, fair value and unrealized market valuation loss of the
AIGFP super senior credit default swap portfolio, including certain regulatory capital relief
transactions, by asset class were as follows:

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    Unrealized Market

    Valuation Loss

    (Gain)

    Three

    Nine

    Fair Value

    Months

    Months

    Loss at

    Ended

    Ended

    Notional

    September 30,

    September 30,

    September 30,

    (in millions)

    Amount

    2008

    2008(a)

    2008(a)

    Regulatory Capital:(b)

    Corporate loans

    $

    $
    —

    $
    —

    $
    —

    Prime residential mortgages

    —

    —

    —

    Other(c)(d)

    Total

    Arbitrage:

    Multi-sector CDOs, including 2a-7 Puts(e)

    Corporate debt/CLOs

    Total

    Mezzanine tranches(f)

    Total

    $

    $

    (g)

    $

    $

    (a)

    Includes credit valuation adjustment gains of $XX million and $XXX million, respectively, for
the three- and nine-month periods ended September 30, 2008.

    (b)

    Represents predominantly transactions written to facilitate regulatory capital relief.

    (c)

    Represents transactions where AIGFP believes the counterparties are no longer using the
transactions to obtain regulatory capital relief.

    (d)

    During the second quarter of 2008, a European RMBS regulatory capital relief transaction with
a notional amount of $1.6 billion was not terminated as expected when it no longer provided
regulatory capital relief to the counterparty.

    (e)

    Approximately $XX.X billion in net notional amount includes some exposure to U.S. sub-prime
mortgages and approximately $X.X billion in net notional amount includes CDOs of CMBS.

    (f)

    Represents credit default swaps written by AIGFP on tranches below super senior on certain
regulatory capital relief trades.

    (g)

    Fair value amounts are shown before the effects of counterparty netting adjustments.

General Contractual Terms

AIGFP enters into credit derivative transactions in the ordinary course of its business. The
majority of AIGFP’s credit derivatives require AIGFP to provide credit protection on a designated
portfolio of loans or debt securities. Generally, AIGFP provides such credit protection on a
“second loss” basis, under which AIGFP’s payment obligations arise only after credit losses in the
designated portfolio exceed a specified threshold amount or level of “first losses.”

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Typically, the credit risk associated with a designated portfolio of loans or securities is
tranched into different layers of risk, which are then analyzed and rated by the credit rating
agencies. At origination, there is usually an equity layer covering the first credit losses in
respect of the portfolio up to a specified percentage of the total portfolio, and then successive
layers ranging from generally a BBB-rated layer to one or more AAA-rated layers. In transactions
that are rated by rating agencies, a significant majority of the risk layers or tranches that are
immediately junior to the threshold level above which AIGFP’s payment obligation would generally
arise were rated AAA at origination. In transactions that are not rated, AIGFP applies equivalent
risk criteria for setting the threshold level for its payment obligations. Therefore, the risk
layer assumed by AIGFP with respect to the designated portfolio of loans or securities in these
transactions is often called the “super senior” risk layer, defined as the layer of credit risk
senior to a risk layer that has been rated AAA by the credit rating agencies, or if the transaction
is not rated, equivalent thereto.

Regulatory Capital Portfolio

Approximately $XXX billion (consisting of corporate loans and prime residential mortgages) of the
$XXX billion in notional exposure of AIGFP’s super senior credit default swap portfolio as of
September 30, 2008 represented derivatives written for financial institutions, principally in
Europe, for the purpose of providing regulatory capital relief rather than risk mitigation. In
exchange for a minimum guaranteed fee, the counterparties receive credit protection with respect to
diversified loan portfolios they own, thus improving their regulatory capital position. These
transactions generally provide for cash settlement; however, AIGFP does not expect to be required
to make payments under these contracts during their estimated life. Under the typical settlement
provisions in these transactions, cash payments from AIGFP would be due following the occurrence of
certain defined credit events if the resulting aggregate losses (deemed or realized) on the
protected portfolio exceed the threshold level at which AIGFP’s payment obligations commence. In
these circumstances, once aggregate losses on loans exceed the relevant threshold, AIGFP would
usually be required to pay the par value of further affected loans less any amounts recovered, or
deemed recovered, by the lender upon a work-out of those loans in accordance with the lenders
credit and collection policies. In some cases, the amounts that AIGFP would be required to pay will
be calculated as the difference between the par value of the relevant loan and the market value of
the loan determined by reference to market quotations. These derivatives are generally expected to
terminate at no additional cost to the counterparty when the transactions no longer provide a
regulatory capital benefit. AIG expects that the majority of these transactions will be terminated
within the next [6 to 18] months by AIGFP’s counterparties. As of [October 20], 2008, $XX.X billion
in notional exposures have either been terminated or are in the process of being terminated. AIGFP
was not required to make any payments as part of these terminations and in certain cases was paid a
fee upon termination.

Arbitrage Portfolio

Approximately $XX billion of the $XXX billion in notional exposure on AIGFP’s super senior credit
default swaps as of September 30, 2008 are arbitrage-motivated transactions

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written on multi-sector CDOs or designated pools of investment grade corporate debt or CLOs.

While certain credit default swaps written on corporate debt are cash settled, the majority of the credit
default swaps written on multi-sector CDOs and CLOs require physical settlement. In these cases,
AIGFP would be required to purchase the referenced super senior security at par upon the occurrence
of a credit event related to that security. Thus, for physically settled contracts, the economic
loss at the time of settlement is determined by the difference between the par value of the
referenced security and the fair value of such security. For those credit default swaps written on
multi-sector CDOs and CLOs and on corporate debt that are cash settled, cash payments from AIGFP
would be due following the occurrence of certain defined credit events if the resulting aggregate
losses (deemed or realized) on the protected portfolio exceed the threshold level at which AIGFP’s
payment obligations commence. In these circumstances, once aggregate losses on the referenced
portfolio  exceed the relevant threshold, AIGFP would usually be required to pay either any additional losses
(deemed or realized) on the protected portfolio
less any amounts recovered, or deemed recovered, with respect to that portfolio or the
difference between the par value of any further affected referenced securities and the market value of those securities
determined by reference to market quotations.

Certain of the AIGFP credit default swaps with an aggregate notional amount totaling $X.X billion
protect CDOs that include over-collateralization provisions which adjust the value of the
collateral based, in part, on the ratings of the collateral underlying the CDOs. If the
over-collateralization provisions are not satisfied, an event of default would occur triggering a
right by a specified controlling class of note holders to accelerate the payment of principal and
interest on the referenced security. In certain of these circumstances, AIGFP may be required to
purchase the referenced super senior security at par upon the acceleration of the security. As of
[October 20], 2008, [six] CDOs for which AIGFP had written credit protection on the super senior
CDO securities had experienced events of default. [One] of these CDOs has been accelerated and
AIGFP extinguished a portion of its swap obligations by purchasing the protected CDO security for
$XXX million, which equaled the principal amount outstanding related to this obligation. AIGFP’s
remaining notional exposure with respect to these CDOs was $X.X billion at [October 20], 2008.
AIGFP cannot currently determine if and when it may be required to perform its obligations in the
future under the foregoing provisions, including the timing of any additional purchases that might
be required. Therefore, there can be no assurance that the extinguishment of these obligations by
AIGFP will not have a material effect on AIG’s liquidity.

Included in the multi-sector CDO portfolio are maturity-shortening puts that allow the holders of
the securities issued by certain CDOs to treat the securities as short-term eligible 2a-7
investments under the Investment Company Act of 1940 (2a-7 Puts). The general terms of these
transactions differ from those referenced above. Holders of securities are required, in certain
circumstances, to tender their securities to the issuers at

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par. If an issuer’s remarketing agent is unable to resell the securities so tendered, AIGFP must
purchase the securities at par as long as the security has not experienced a payment default or
certain bankruptcy events have not occurred. During the nine-month period ended September 30, 2008,
AIGFP repurchased securities with a principal amount of approximately $XXX million in connection
with these obligations. In certain transactions, AIGFP has contracted with third parties to provide
liquidity for the securities if they are put to AIGFP for up to a three-year period. Such unused
liquidity facilities totaled $X.X billion at [September 30, 2008], compared to the notional
exposure of $XX.X billion on the 2a-7 Puts at that date.

Collateral

Certain of AIGFP’s credit default swaps are subject to collateral posting provisions. These
provisions differ among counterparties and asset classes. In the case of most of the multi-sector
CDO transactions, the amount of collateral required is determined based on the change in value of
the underlying security that represents the super senior risk layer subject to credit protection,
and not on the change in value of the super senior credit derivative.

AIGFP has received collateral calls from counterparties in respect of certain super senior credit
default swaps (including those entered into by counterparties for regulatory capital relief
purposes and those in respect of corporate debt/CLOs). Frequently, valuation estimates made by
counterparties with respect to certain super senior credit default swaps or the underlying
reference CDO securities, for purposes of determining the amount of collateral required to be
posted by AIGFP in connection with such instruments, have differed, at times significantly, from
AIGFP’s estimates. In almost all cases, AIGFP has been able to successfully resolve the differences
or otherwise reach an accommodation with respect to collateral posting levels, including in certain
cases by entering into compromise collateral arrangements, some of which are for specified periods
of time. Due to the ongoing nature of these collateral calls, AIGFP may engage in discussions with
one or more counterparties in respect of these differences at any time. As of September 30, 2008,
AIGFP had posted collateral (or had received collateral, where offsetting exposures on other
transactions resulted in the counterparty posting to AIGFP) based on exposures, calculated in
respect of super senior credit default swaps, in an aggregate net amount of $XX.X billion.
Valuation estimates made by counterparties for collateral purposes were considered in the
determination of the fair value estimates of AIGFP’s super senior credit default swap portfolio.

Models and Modeling

AIGFP values its credit default swaps written on the super senior risk layers of designated pools
of debt securities or loans using internal valuation models, third-party prices and market indices.
The specific valuation methodologies vary based on the nature of the referenced obligations and
availability of market prices.

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The valuation of the super senior credit derivatives continues to be challenging given the
limitation on the availability of market observable information due to the lack of trading and
price transparency in the structured finance market, particularly during and since the fourth
quarter of 2007. These market conditions have increased the reliance on management estimates and
judgments in arriving at an estimate of fair value for financial reporting purposes. Further,
disparities in the valuation methodologies employed by market participants and the varying
judgments reached by such participants when assessing volatile markets have increased the
likelihood that the various parties to these instruments may arrive at significantly different
estimates as to their fair values.

AIGFP’s valuation methodologies for the super senior credit default swap portfolio have evolved in
response to the deteriorating market conditions and the lack of sufficient market observable
information. AIG has sought to calibrate the model to market information and to review the
assumptions of the model on a regular basis.

Arbitrage Portfolio — Multi-Sector CDOs

The underlying assumption of the valuation methodology for credit default swaps in AIGFP’s
multi-sector CDO portfolio is that, in order to be willing to assume the obligations under a credit
default swap, a mark