Lending Activities

6 Months Ended

Jun. 30, 2011

Lending Activities

Lending Activities

8. Lending Activities

The following table presents the composition of Mortgage and other loans receivable:

(in millions)	June 30, 2011			December 31, 2010
Commercial mortgages	$	13,303		$	13,571
Residential mortgages*		9			9
Life insurance policy loans		3,071			3,133
Commercial loans, other loans and notes receivable		3,705			4,402
Total mortgage and other loans receivable		20,088			21,115
Allowance for losses		(835	)		(878	)
Mortgage and other loans receivable, net	$	19,253		$	20,237

*

Primarily consists of foreign mortgage loans.

    Commercial mortgages primarily represent loans for office, retail and industrial properties, with exposures in California and New York representing the largest geographic concentrations (26 percent and 11 percent, respectively, at June 30, 2011). Over 98 percent and 97 percent of the commercial mortgages were current as to payments of principal and interest at June 30, 2011 and December 31, 2010, respectively.

The following table presents the credit quality indicators for the U.S. commercial mortgage loans:

June 30, 2011 (dollars in millions)		Number of Loans		Class														Percent of Total
				Apartments		Offices		Retail		Industrial		Hotel		Others		Total
Credit Quality Indicator:
	In good standing		1,007	$	1,680	$	4,669	$	2,218	$	1,957	$	924	$	1,293	$	12,741		96	%
	Restructured(a)		12		49		184		-		4		-		68		305		2
	90 days or less delinquent		1		-		31		-		-		-		-		31		-
	>90 days delinquent or in process of foreclosure		16		-		134		10		5		-		77		226		2
Total(b)			1,036	$	1,729	$	5,018	$	2,228	$	1,966	$	924	$	1,438	$	13,303		100	%
Valuation allowance				$	71	$	160	$	57	$	52	$	31	$	61	$	432		3	%

(a)

Performing under restructured terms, which may have included extended maturity dates and revised interest rates.

(b)

Does not reflect valuation allowances.

Methodology used to estimate the allowance for credit losses

    For commercial mortgage loans, impaired value is based on the fair value of underlying collateral which is determined based on the expected net future cash flows of the collateral, less estimated costs to sell. An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for incurred but not specifically identified impairments, based on the analysis of internal risk ratings and current loan values. Internal risk ratings are assigned based on the consideration of risk factors including debt service coverage, loan-to-value ratio or the ratio of the loan balance to the estimated value of the property, property occupancy, profile of the borrower and of the major property tenants, economic trends in the market where the property is located, and condition of the property. These factors and the resulting risk ratings also provide a basis for determining the level of monitoring performed at both the individual loan and the portfolio level. When all or a portion of a commercial mortgage loan is deemed uncollectible, the uncollectible portion of the carrying value of the loan is charged off against the allowance.

    AIG may restructure the terms of commercial real estate, mortgage and other loans receivable. Restructuring may involve extending the maturity of a loan or otherwise changing the interest rate or other terms of a loan. When the restructuring is related to financial difficulties of the borrower and the new terms are not consistent with current market terms, AIG considers the loan to be, and accounts for it as, a troubled debt restructuring.

    A significant majority of commercial mortgage loans in the portfolio are non-recourse loans and, accordingly, the only guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for AIG to have cause to enforce the provisions of a guarantee on a commercial real estate or mortgage loan.

The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other loans receivable:

			2011									2010
Six Months Ended June 30, (in millions)
			Commercial Mortgages			Other Loans			Total			Commercial Mortgages			Other Loans			Total
Allowance, beginning of year			$	470		$	408		$	878		$	432		$	2,012		$	2,444
	Loans charged off			(36	)		(31	)		(67	)		(196	)		(77	)		(273	)
	Recoveries of loans previously charged off			35			—			35			-			11			11
		Net charge-offs		(1	)		(31	)		(32	)		(196	)		(66	)		(262	)
	Provision for loan losses			(6	)		26			20			218			(2	)		216
	Other			(31	)		-			(31	)		9			(23	)		(14	)
	Reclassified to Assets of businesses held for sale			-			-			-			(46	)		(10	)		(56	)
Allowance, end of period			$	432	*	$	403		$	835		$	417		$	1,911		$	2,328

*

Of the total, $112 million relates to individually assessed credit losses on $610 million of commercial mortgage loans.