CASE STUDY II

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CURRENT INVESTMENT OPPORTUNITY

Wehaveidentifiedapubliccompany:

Tradesatlessthanonehalftangiblebookvalue Fortressbalancesheet Shareholderequitytoassetsratioof15% Repurchasingcommonstock Leaderinglobalpropertyandcasualtyinsurance DominantU.S.lifeinsuranceandretirementservicesprovider 86millioncustomerandclientrelationshipsworldwide

Soundinteresting?
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Wecertainlythinkso.

Insurance is critical to the smooth functioning of the world economy. Businesses cannot operate without coverage against the unexpected and most capital transactions cannot be financed without insurance.
BruceR.Berkowitz OutstandingInvestorDigest YearEnd2001Edition
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InvestmentThesisforAIG
ReasonableExpectations

10% Returnon
OwnersEquity

20% ImpliedAnnual
ReturnonInvestment

Thisisareasonablereturn evenatheightenedcapital ratiosexpectedthiscycle.

Thisisareasonablereturn whenyoubuystockatless thanhalfbookvalue.

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InvestinginourCircleofCompetence
Experiencedwithinsurancecompanies Favorableearningspower
$1,800 $1,600 $1,400 $1,200

Fixableproblems Availableatattractiveprices

Initiatedpurchaseafter thefinancialcrisis.

Price*

$1,000 $800 $600 $400 $200 $

Price
*Dateofreversesplit:07/01/2009

BookValuepershare
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Theseedsofgreatperformanceareusuallysown intimesofintensefearafteradisaster.
BruceR.Berkowitz,LettertoClients,October2011

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Whenarecoveringicontradesathalfofourunderstandingofintrinsic valueforareasonthathasnothingtodowithitsprospects,weswingbig.
BruceR.Berkowitz,LettertoClients,June30,2011
$60

$50

$40

Price

$30

$20

$10

WithAIGspricesignificantly belowbookvalue,weinitiated ourinvestment.

AsthegapbetweenAIGsstock priceandbookvaluewidenedin 2011,weincreasedourstake.

$0

Price

BookValuepershare

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isBack
#1GlobalPropertyandCasualtyInsurer,ServingCustomersinmorethan130Countries

EUROMONEY INSURANCE SURVEY BEST INSURER OVERALL GLOBAL REGION

#1WesternEurope #1LatinAmerica #2NorthAmerica #2Asia #2Central&EasternEurope

CATEGORY
#1GeneralP&C #1D&OLiability #1MarineandFire #1MedicalandLife #2Catastrophe

AIGscrisisisoverallthefundamentalsofrunningthiscompanyaremovinginthe rightdirection.Wecanlookforwardandfocusonoperatingresults.Itsallabouthow tocreatethebestshareholdervaluegoingforward.

RobertH.Benmosche,PresidentandChiefExecutiveOfficer,AIG,August5,2011

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KeyFranchisesUnscathedbyCrisis, RevenuesGrowing
RevenuesbyReportableSegments (inmillions) Worldleaderinglobalpropertyand casualtyinsurance.
45,000employees 70millionworldwideclients #1GlobalInsurer(Euromoney)
$37,629 $11,317 $10,147 +10% $41,590

U.S.lifeinsuranceandretirement servicesleader.
13,000employees 16millioncustomers RecognizedleaderinU.S.market
*Revenuesbyreportablesegmentsthrough09/30/2010 **Revenuesbyreportablesegmentsthrough09/30/2011

$27,482

$30,273

YTD2010* Chartis

YTD2011** SunAmerica
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IndustryLeaderWithLoyalCustomerBase
2011ACCOLADES
BUYERS CHOICE AWARD FOR EXPERTISE,BUSINESS INSURANCE INNOVATION AWARD,BUSINESS INSURANCE MOST TRUSTED BRAND IN KOREA,CHOSUN ILBO BEST QUALITY SERVICE TRAVEL INSURANCE COMPANY (CHINA), WORLD TRAVEL FAIR STANDOUT COMPANY AWARD (BRAZIL), REVISTA SEGURADOR BRASIL BEST PRODUCT INNOVATION AWARD (GENERAL INSURANCE), CELENT COMPANY OF THE YEAR (HEALTH INSURANCE),CELENT BEST PRACTICES IN TECHNOLOGY (GLOBAL MARINE AND ENERGY), CELENT
~93%*RetentionontheseSegments
*AtSeptember30,2011,basedona12monthrollingaverage.

98%

96%

89%

~33%

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Tracingitshistorybackto1850,SunAmerica hasovera160yeartrack recordofleadershipintheU.S.lifeandretirementservicesmarket.

LEADING PROVIDER OF TERM AND UNIVERSAL LIFE
PRODUCTS LONGSTANDING LEADER IN THE STRUCTURED SETTLEMENT ANNUITY MARKET

LONGSTANDING LEADER IN 403(B)DEFINED

CONTRIBUTION MARKET

TOP BANK CHANNEL FIXED ANNUITY PROVIDER FOR 15CONSECUTIVE YEARS LEADER IN INDIVIDUAL VARIABLE ANNUITIES

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TrustButVerify
OurResearchhasbeenEnhancedbyUnprecedentedDisclosure

Wearecommittedtoaddingevenfurtherdisclosuretomakeiteasierforpeopleto reachtheirownconclusions[aboutAIG].We[havealso]acceleratedthepaceof thirdparty scrutinybyoutsideactuariessothatitsnotaslowercycle.

PeterD.Hancock,ChiefExecutiveOfficer,Chartis,December7,2011
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AIGMovingForward
AggressivelyWindingDownandDeRiskingtheAIGFP*DerivativesPortfolio
$1,600 $1,400

$1,450

89%ReductioninDerivativesExposures 94%ReductionofTradePositions 95%ReductionofCDSportfolio

Exposure(inbillions)

$1,200 $1,000 $800 $600 $400 $200 $0 MarketDerivatives Arbitrage/Multi SectorCDS

2008

89%
$240 $144 $65 $18 $8 $40 $20
RegulatoryCapital StableValueWrap CDS(including Book Mezzanine)

3Q2011

40,000

$350,000 35,000 SuperSeniorCDSExposure (inmillions) $300,000 $250,000 $200,000 $150,000 $100,000 $59,850 $50,000 $0 2008 2009 2010 3Q2011
*AIGFinancialProductsCorporation

35,000

$302,201

OutstandingTradePositions

30,000 25,000 20,000 15,000 10,000 5,000

16,100

94%
3,900 2,100

$183,526

95%
$26,042 2010 3Q2011

2008

2009

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PowerfulFranchisesandValuableAssets
AsAIGshedsadditionalnoncoreassetsandfurtherreducesriskexposures, thevalueofitspowerfulfranchisesandassetswillemerge.

ILFC AIA MORTGAGE GUARANTEE

CHARTIS

SUNAMERICA

MAIDEN LANE II/MAIDEN LANE III

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ComparedtoitsPeers, AIGisExceptionallyCheap
1.40

Historical15yearPrice/BookAverageforProperty&CasualtyInsuranceSector= 1.30
1.20

AIGPrice/Book =0.56
1.00

PricetoBook

0.80

0.60

0.40

0.20

Chubb (MarketCap:$18+Billion) Ace (MarketCap:$23+Billion) Travelers (MarketCap:$23+Billion) Allstate AmericanInternationalGroup (MarketCap:$14+Billion) (MarketCap:$47+Billion)

5YearAveragePrice/Book

CurrentPrice/Book

MarketCapitalizationsasofJanuary30,2012.

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MarginofSafety:$25BuysYou$45+
Investingisallaboutwhatyougiveversuswhatyouget.*

GIVE =$25
FutureCash Flows

MarketCap:$47bn

In return for purchasing stock (above) at historic lows, an investor in AIG receives value (right) that far outweighs the cost. This provides downside protection as well as upside opportunity when the market returns to a weighing machine, AIGs market cap will increase.

TangibleBookValue:$80bn Reserves:$73bn DTAs:$17bn $25bn

GET =$45+

*BruceR.Berkowitz,MorningstarConference,June9,2011 MarketPricesasofJanuary30,2012.

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AIGsLongTermGoals
PositioningforSuccess
INCREASE RETURN ON EQUITY (ROE)TO 10% GROW EARNINGS PER SHARE INCREASE PRETAX OPERATING INCOME UTILIZE DEFERRED TAX ASSETS (DTA) REDUCE GENERAL &ADMINISTRATIVE EXPENSES DEPLOY EXCESS CAPITAL FOR: POTENTIAL SHARE REPURCHASES DIVIDEND PAYMENTS ACQUISITIONS ORGANIC BUSINESS OPPORTUNITIES

Simplyput,thiscompanyistoovaluabletoignore.Andwehaveaclearvisionfor [AIG]tobethemostvaluableinsurancecompany,notthebiggest.Thisisa franchisethathasarealextraordinaryuniquenesstoit.

PeterD.Hancock,ChiefExecutiveOfficer,Chartis,December7,2011

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Manyshallberestoredthatnowarefallen
Horace,Ars Poetica
40,000,000 $1,800 $1,600 $1,400 $1,200 35,000,000

30,000,000

ShortInterest

25,000,000

20,000,000 $800 15,000,000 $600 10,000,000 $400 $200 $

5,000,000

ShortInterest

Price

*Dateofreversesplit:07/01/2009

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Price*

$1,000

Staying theCourse
Courage ofConviction
This is not an easy time for value investors. As we practice the strategy, value investing has been underperforming and prices for our companies are depressed and do not reflect intrinsic value or business fundamentalsEach of our holdings generates excess free cash. All are at bargain prices. Yet, our investment experience has taught us that we cannot control prices. Cheap can get cheaper, even if there is nothing fundamentally wrong. However, market history says that high quality, wellmanaged companies dont stay cheap for long.
BruceR.Berkowitz LettertoClients February2000
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This presentation uses American International Group as a case study to illustrate Fairholme Capital Managements investment strategy for the Fairholme Fund. In the pages that follow, we show Fairholme Fund shareholders why we Ignore the crowd with regard to our portfolio positions that are currently out of favor in the market. However, nothing in this presentation should be taken as a recommendation to anyone to buy, hold, or sell certain securities or any other investment mentioned herein. Our opinion of a companys prospects should not be considered a guarantee of future events. Investors are reminded that there can be no assurance that past performance will continue, and that a mutual funds current and future portfolio holdings always are subject to risk. As with all mutual funds, investing in the Fairholme Fund involves risk including potential loss of principal. Opinions expressed are those of the author and/or Fairholme Capital Management, L.L.C. and should not be considered a forecast of future events, a guarantee of future results, nor investment advice. The Fairholme Funds holdings and sector weightings are subject to change. As of November 30, 2011, American International Group securities comprised 26.2% of the Fairholme Funds total net assets. The Fairholme Funds portfolio holdings are generally disclosed as required by law or regulation on a quarterly basis through reports to shareholders or filings with the SEC within 60 days after quarter end. A complete list of the Fairholme Funds top ten holdings is available on our website at www.fairholmefunds.com. The Fairholme Fund is nondiversified, which means that it invests in a smaller number of securities when compared to more diversified funds. Therefore, the Fairholme Fund is exposed to greater individual security volatility than diversified funds. The Fairholme Fund can invest in foreign securities which may involve greater volatility and political, economic, and currency risks and differences in accounting methods. The Fairholme Fund may also invest in special situations to achieve its objectives. These strategies may involve greater risks than other fund strategies. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longerterm debt securities. Lowerrated and nonrated securities present greater loss to principal than higherrated securities. The Fairholme Funds investment objectives, risks, charges, and expenses should be considered carefully before investing. The prospectus contains this and other important information about the Fairholme Fund, and may be obtained by calling shareholder services at (866) 2022263 or by visiting our website at www.fairholmefunds.com. Read it carefully before investing. Fairholme Distributors, Inc. (01/12)

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