AIG Q3 2007

1.Overall --adj NI $3.49 billion or $1.35 EPS (1.6 est), vs 1.53 last year, 29% decline -- 2.Segments operating income --general insurance: 2.4 bil vs 2.6 bil (-7%) due to 215 mil operating loss in the Mortgage Guaranty business --life insurance: 1.99 bil vs 2.44 bil (-19.1%) due to declining premium in-force in the group life/health business --financial service: 0.669 bil vs 1.179 bil (-43.3%) due to 359 mil writedown of AIGFP's super senior credit default swap portfolio (short CDS) --asset management .419 bil vs 0.211 bil (100%) due to spread-based investment 3.Credit Metrics Mortage Insurance -- Op Inc -215 mil, domestic exp 28.2 bil risk in-force, 60 day delinquency rate 3% (24 bil, 2% last year) (-81 mil Op Inc, 25.9 bil 2.5% Q2) (-10 mil OI, --> will continue to lose money --subprime RMBS holdings totaled 25.9 bil, 98.3% of which rated AAA or AA as of Sep 30 (28.6 bil Q2) --> red flag, AAA value declined after Sep 30 Credit loss (CDS) --359 mil writedown of AIGFP's super senior credit default swap portfolio (short CDS), exp 12-18 bil (est based on Unrealized gain on swaps, options and forward transactions) -> more loss --CDO investments holdings 234 mil 4. Market comments --loss of 149 mil in portfolio of MBS --2.45 bil after tax drop inthe value of investmenets in assets that are backed at least in part by subprime mortgages. --663 mil of AIG's RMBS securiteis have been downgradecd through Nov 7th and 893 mil was place on negative watch. (662 mil were subprime 2.4% of subprime holdings) my comments: --further loss in AIGFP's CDS portfolio in Q4 0.55 bil --morgage insurance will lose at least 220 mil in Q4 --AIGFP's CDS portfolio will lose at least 400 mil --est EPS 1.2 - 1.3 --short the bond