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CORRESP
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corresp

(AIG Letterhead)

February 24, 2011

VIA EDGAR CORRESPONDENCE

Mr. Jim B. Rosenberg

Senior Assistant Chief Accountant

Securities and Exchange Commission

Division of Corporation Finance

100 F Street, NE

Mail Stop 4720

Washington, D.C. 20549

    Re:

    American International Group, Inc.

Form 8-K

Filed February 9, 2011

File No. 001-8787

Dear Mr. Rosenberg:

          We are in receipt of your letter dated February 14, 2011 with respect to American
International Group, Inc.’s (“AIG”) Current Report on Form 8-K filed on February 9, 2011 (“Form
8-K”). This letter sets forth AIG’s responses to the Staff’s comments contained in your letter.

          AIG acknowledges that the adequacy and accuracy of the disclosure in the Form 8-K is the
responsibility of AIG, that Staff comments or changes to disclosure in response to Staff comments
do not foreclose the Securities and Exchange Commission (the “Commission”) from taking any action
with respect to the Form 8-K 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.

          We have repeated your comments below to facilitate your review.

Item 8.01

    1.

    For the $4.1 billion charge that you expect to record in the fourth quarter of 2010, please
provide us the following:

    •

    An analysis supporting why this change in estimate is appropriately recorded in the
fourth quarter of 2010. Your analysis should address both why this amount is required under
GAAP to present fairly your loss reserves at December 31, 2010 and why recognition in
earlier periods was not required. We would expect this analysis to go into more detail than
the disclosures, including those suggested in comment two below, that you intend to make in
your December 31, 2010  Form 10-K.

    •

    A robust chronology of the events encompassing your annual comprehensive loss reserve
review leading to your determination to record the $4.1 billion charge.

    Mr. Jim B. Rosenberg

Securities and Exchange Commission

    Page 2

*   *    *    *    *

An analysis supporting why this change in estimate is appropriately recorded in the fourth quarter
of 2010. Your analysis should address both why this amount is required under GAAP to present fairly
your loss reserves at December 31, 2010 and why recognition in earlier periods was not required. We
would expect this analysis to go into more detail than the disclosures, including those suggested
in comment two below, that you intend to make in your December 31, 2010 Form 10-K.

AIG Response

Background

AIG estimates its loss reserves using a continuous and thorough review process that occurs
throughout the year and culminates in a comprehensive loss reserve review performed in connection
with the preparation of AIG’s year-end consolidated financial statements. The comprehensive loss
reserve review establishes the baseline for AIG’s expectation of loss emergence for future periods.
At each quarter end, AIG compares its actual claims experience with its baseline expectation of
loss emergence and evaluates whether observed trends or events indicate that changes in carried
reserves and the expectation of future losses should be made. The comprehensive loss reserve review
uses actual claims data experienced since the previous year’s comprehensive review to forecast
expected loss experience for both short-tail (generally one to three years) and long-tail (which
can extend beyond 40 years) classes of business.

In general, prior-year development recorded in the first quarter of the year, because it closely
follows the completion of the comprehensive loss reserve review, tends to be attributable to
short-tail classes or significant unexpected events. For long-tail classes, prior-year development
recorded in the first three quarters of the year tends to be primarily attributable to developed
differences between actual claims experience and the baseline expectations for those quarters.

More significant changes in reserves for long-tail classes largely depend on both the existence and
analysis of trends in the data. Because of the nature of these long-tail classes of business,
claims may not be received until several years after the loss event giving rise to the claim and
the claims may extend for years or even decades. As a result, AIG would not expect to see
significant credible trends develop in the relatively short time period after the completion of the
comprehensive loss reserve review. However, if events or trends are observable or have intensified,
AIG would respond to those events or trends appropriately. The more significant changes in the
reserves for long-tail lines generally are made during the more in-depth comprehensive loss reserve
review in which the full year’s experience can be observed, analyzed and addressed by management to
determine whether the experience represents an anomaly in the data or a credible trend for which
prior year development should be recorded.

The following table summarizes, by quarter for 2010, the amount and timing of AIG’s loss
development in total and by major class of coverage that contributed to the $4.2 billion 2010
fourth quarter reserve strengthening for the Chartis property and casualty insurance operations:

Summary of General Insurance Undiscounted Prior-Year Development Reported During 2010

    Mr. Jim B. Rosenberg

Securities and Exchange Commission

    Page 3

    Favorable/(Unfavorable)

    in millions

    Construction

    Primary

    and

    National

    Total

    (Specialty)

    Excess

    Commercial

    Accounts —

    General

    Excess

    Workers’

    Workers’

    Risk

    Loss

    Insurance

    Casualty

    Compensation

    Compensation

    Asbestos

    Management

    Sensitive

    All Other

    1Q10

    $
    244

    $
    —

    $
    (15
    )

    $
    —

    $
    —

    $
    (19
    )

    $
    —

    $
    278

    2Q10

    (95
    )

    —

    (38
    )

    —

    (35
    )

    (23
    )

    —

    1

    3Q10

    (361
    )

    (70
    )

    (43
    )

    —

    (175
    )

    (67
    )

    —

    (6
    )

    4Q10

    (4,638
    )

    (1,013
    )

    (421
    )

    (825
    )

    (1,265
    )

    (420
    )

    (400
    )

    (294
    )

The undiscounted prior-year development reported during the fourth quarter of 2010 represents
approximately seven percent of AIG’s total general insurance net liability for unpaid claims and
claims adjustment expense of $63.7 billion reported at September 30, 2010. These classes, each of
which is long-tailed, are among the hundreds of classes of business written by AIG. These classes
represented approximately 6.7 percent of the net premiums written by Chartis for the year ended
December 31, 2010.

As discussed below, in response to the loss or claims development in 2010, AIG initiated timely
actions to analyze the causes of the unfavorable loss or claims development, which culminated in
the comprehensive loss reserve review completed in January 2011 in connection with the preparation
of AIG’s 2010 consolidated financial statements. When appropriate, AIG recognized loss or claims
development in connection with its quarterly reviews.

The 2010 comprehensive review included members of AIG’s claims division, business unit actuaries,
corporate actuarial function, and the finance and internal audit departments. AIG’s internal
resources were supplemented with additional perspectives from third-party actuaries. These teams
assessed the reasons for the unfavorable loss development by analyzing claims experience and new
data and considering emerging industry trends, including loss characteristics and the recent trends
in legal settlement activity. When appropriate, AIG updated and calibrated its loss models.
Following this comprehensive review, AIG determined that the loss reserve strengthening in the
fourth quarter was both necessary and appropriate.

AIG believes that the net $4.2 billion 2010 fourth quarter reserve strengthening represents a
change in estimate reflecting new loss development information and analyses that necessarily are
based on trends established over several quarters and take considerable time to analyze thoroughly.
AIG believes the 2010 fourth quarter reserve strengthening is not indicative of an error in
previously-issued financial statements. AIG believes this conclusion is consistent with the
accounting literature, which defines both an estimate and an error (see Attachment). AIG believes
that the reserve strengthening is necessary to present fairly, in all material respects, its loss
reserves in accordance with U.S. generally accepted accounting principles (“GAAP”) at December 31,
2010 for the reasons discussed below.

Discussion

The fourth quarter 2010 loss reserve strengthening reflects adverse development on prior accident
years in classes with long reporting tails. Four classes—excess casualty, primary (specialty)
workers’ compensation, excess workers’ compensation, and asbestos—comprise approximately 80
percent of the total charge, of which over 50 percent related to accident years 2000 and prior.
Excluding the asbestos class, approximately 50 percent of the total reserve strengthening charge
related to accident years 2006 through 2009.

    Mr. Jim B. Rosenberg

Securities and Exchange Commission

    Page 4

AIG tends to participate in the excess classes of insurance, and the high-severity/low-frequency
nature of these classes makes it more challenging for AIG to estimate reserves than for insurers
writing coverage in the primary or lower excess layers. For excess casualty, primary (specialty)
workers’ compensation and excess workers’ compensation, AIG has previously disclosed the long-tail
nature of these classes as well as quantitative sensitivity analysis under reasonably likely
deviations from the estimated reserves in its 2009 Annual Report on Form 10-K. In each of these
classes the fourth quarter 2010 reserve charges are within these disclosed sensitivities of
possible deviations from prior estimates. In the case of asbestos, AIG has included historical
qualitative disclosure regarding the uncertainty to which these exposures are subject.

Additional discussion of the fourth quarter 2010 reserve strengthening by class of insurance is
provided below.

Excess Casualty—$1.0 billion

AIG increased its estimate for its year-end 2009 loss reserve for excess casualty liabilities by
more than $1 billion, primarily relating to accident years 2006 and prior. The majority of the 2009
charge resulted from management’s decision to place greater reliance on the experience of the five
most recent calendar years, resulting in significantly higher loss development factor assumptions
for the year-end 2009 loss reserve review.

Even with these higher loss development factors, during the fourth quarter of 2010, loss emergence
across all accident years for excess casualty was approximately $115 million worse than expected
and was concentrated in accident years 2007 and 2008. The concentration of such losses in more
recent accident years resulted in much higher loss estimates at year-end 2010 because the
experience is extrapolated not only for these years, but to all years through the application of
the loss development factors. The higher than expected loss emergence in the last half of 2010,
particularly in the fourth quarter, led management to select higher loss development factors than
those selected in 2009 because greater weight was placed on the adverse development in the recent
calendar years (i.e., the three most recent calendar years). In these low frequency/high severity
classes of business, AIG applied significant judgment to select an appropriate averaging period for
loss development that is long enough to be statistically credible while recognizing changing trends
in a sufficiently responsive manner. AIG also considered recent trends in large products liability
verdicts in the United States given the impact of the recession and the impact of anti-corporate
sentiment in the mind of the general public, as well as the high attachment points at which this
business is written.

In determining the appropriate reserve estimate, in addition to the adverse claim emergence during
late 2010, management considered the continued exposure to latent product liability claim emergence
for this long tail class and the continued uncertainty of the expected loss ratios during the soft
market conditions that prevailed in recent accident years. At December 31, 2010, the calculation of
AIG’s loss development factor assumptions was based on giving much greater weight to the latest
three calendar years of loss development experience. This change from basing the loss development
factor assumptions on the last five years provides still greater recognition of the recent
calendar-year experience than the assumptions used in the 2009 loss reserve review, and in
management’s judgment was warranted based on the developing trends described above. Approximately
$80 million of the reserve strengthening in the fourth quarter of 2010 pertained to accident year
2009, whereas approximately $200 million was attributable to accident year 2008, $340 million to
accident year 2007, $195 million to accident year 2006, $100 million

    Mr. Jim B. Rosenberg

Securities and Exchange Commission

    Page 5

to accident years 1999 and prior, and approximately $95 million in the aggregate to accident years
2000 through 2005.

During the first half of 2010, loss emergence for excess casualty was consistent with AIG’s
expectations following the year-end 2009 decision to place greater reliance on the experience of
the five most recent calendar years. In the third quarter, however, actual experience was worse
than AIG’s projected loss estimates and AIG reported approximately $70 million of adverse
development for excess casualty losses using then-existing loss development averaging methods.
While AIG recognized this loss in the third quarter, AIG concluded that, at September 30, the
actual experience in that quarter was not indicative of a loss trend and that it did not have
sufficient credible data to increase loss reserves beyond $70 million.

Excess Workers’ Compensation—$825 million before discount

During 2009, AIG increased its excess workers’ compensation reserves by approximately $925 million.
The increased loss development assumptions were based on an actuarial study performed by AIG in
response to the emergence of losses from accident years 2002 and prior. This study analyzed the
development patterns emanating from the AIG claims staff projections of expected ultimate cost for
each open claim.

This class of business has an extremely long tail and is one of the most challenging classes of
business to reserve for because it is highly sensitive to small changes in assumptions—in the rate
of medical inflation or the longevity of injured workers, for example—which can have a significant
effect on the ultimate reserve estimate. Furthermore, claims estimates for this line are highly
sensitive to:

    •

    The assumed future rate of inflation and other economic conditions in the United States;

    •

    Changes in the legal, regulatory, judicial and social environment;

    •

    The expected impact of recently enacted health care reform on workers’ compensation costs;

    •

    Underlying policy pricing, terms and conditions;

    •

    Claims settlement trends that can materially alter the mix and ultimate cost of claims;

    •

    Changes in claims reporting practices of insureds and third-party administrators;

    •

    The cost of new and additional treatment specialties, such as “pain management”;

    •

    Changes in injured worker longevity; and

    •

    Territorial experience differences (across states and within regio