AGREEMENT AND RELEASE

Exhibit 10.2

AGREEMENT AND RELEASE

     AGREEMENT AND RELEASE by and between American International Group, Inc. (the “Company”) and Robert M. Sandler (“Employee”).

     WHEREAS, Employee has been employed by the Company and the Company and Employee desire to address the termination of their employment relationship.

     NOW, THEREFORE, the Company and Employee agree as follows:

     1. For the time period from June 2, 2008 until September 30, 2008, the Company shall pay Employee a bi-weekly salary of $14,871.76, pursuant to the Company’s regular payroll practices, for performing his employment duties and responsibilities and this salary will compensate Employee for all hours worked. Employee will cease performing his employment duties and responsibilities for the Company, and will no longer report to work for the Company, effective September 30, 2008 (the “End Work Date”).

     2. Employee shall remain on the payroll of the Company from the End Work Date through and including September 30, 2010 (the “Termination Date”), except for (a) any Long Term Disability plan withholdings (which will cease as of the End Work Date) and (b) any Employee Stock Purchase Plan deductions, Incentive Savings Plan contributions or matches, and deductions under the Executive Deferred Compensation Plan or the Supplemental Incentive Savings Plan (all of which will cease as of the last day of the pay period in which the End Work Date occurs), with only the following payments to be made to Employee: (i) the Company shall pay Employee the sum of: salary of $193,333.50, less withholdings, bonus of $85,833.48, less withholdings, and supplemental bonus of $349,375.00, less withholdings, within ten (10) business days after the Delay Date (defined below) (collectively, these payments are the “First Payments”) and the Company shall then pay Employee a bi-weekly sum of: salary of $14,871.80, less withholdings, bonus of $6,602.57, less withholdings, and supplemental bonus of $26,875.00, less withholdings, from the Delay Date through and including the Termination Date. Employee’s employment with the Company shall terminate on the Termination Date and the Termination Date will be the date of termination of Employee’s employment under the American International Group, Inc. Amended and Restated 1999 Stock Option Plan, the American International Group, Inc. Amended and Restated 2002 Stock Incentive Plan, the American International Group, Inc. Amended and Restated 2007 Stock Incentive Plan (collectively, the “Option/RSU Plans”) and for purposes of the American International Group, Inc. Retirement Plan (the “Retirement Plan”). Employee shall retire on October 1, 2010 and Employee shall be entitled to all benefits in accordance with such retirement.

     3. The Company agrees to continue Employee’s benefits through and including the Termination Date; provided , however , that (a) no additional vacation benefits shall accrue to Employee as a result of the continuation of Employee on payroll beyond the End Work Date, (b) Employee is responsible for the payment of any corporate credit card late fees or any business expenses that the Company has not approved and processed for payment on or before the End Work Date, (c) Employee’s eligibility for coverage under the Short Term and Long Term Disability programs, the Incentive Savings Plan, the Employee Stock Purchase Plan, the

Executive Deferred Compensation Plan and the Supplemental Incentive Savings Plan will cease as of the End Work Date, and (d) nothing in this Agreement and Release modifies or affects any of the terms of any benefit plans or programs (including, without limitation, the Company’s right to alter the terms of such plans or programs). This Agreement and Release does not abrogate any rights that Employee may have to COBRA benefit continuation after the Termination Date.

     4. Notwithstanding anything in this Agreement and Release, or any other agreements, to the contrary, Employee and the Company agree that all agreements between Employee and the Company (or any of its affiliates) will be interpreted and administered so that distributions that are conditioned upon termination of Employee’s employment with the Company will be conditioned upon Employee’s “separation from service” with the Company within the meaning of Internal Revenue Code Section 409A (“Section 409A”). For purposes of determining the date of the First Payment and the commencement date of any other payments or benefits that are subject to the six-month delay due to Section 409A, your “separation from service” with the Company within the meaning of Section 409A will be September 30, 2008 and the six month delay shall end on April 1, 2009 (“Delay Date”). Each payment under this Agreement and Release and any other Company plan in which you participate (including the SICO Plans) will be treated as a separate payment for purposes of Section 409A. Any reimbursements to which you may be entitled will not offset any amounts payable to you under this Agreement and Release, and any reimbursements will be made to you no later than the end of the calendar year in which such expenses were incurred and otherwise in accordance with the reimbursement rules of Section 409A.

     5. Employee has been a participant in the American International Group, Inc. 2005-2006 Deferred Compensation Profit Participation Plan (the “AIG DCPPP”). The AIG DCPPP matures two years from the inception of such plan (the “Maturity Date”). On the Maturity Date of the plan, a certain number of shares of AIG Common Stock were set aside for Employee in accordance with the terms thereof (with respect to the AIG DCPPP, the total set aside shares and pro rata reload shares is a total of 48,000, hereinafter the “AIG DCPPP Shares”). The Company will provide Employee the AIG DCPPP Shares (plus any shares attributable to stock splits or stock dividends paid prior to the payment of the AIG DCPPP Shares to Employee) in accordance with the terms and conditions of the AIG DCPPP. The AIG DCPPP Shares shall be issued to Employee within ten (10) business days after the Delay Date.

In the event of Employee’s death prior to the Delay Date, Employee’s estate would receive the AIG DCPPP Shares within ten (10) business days after the Delay Date. No cash dividends or other property rights pertaining to the AIG DCPPP Shares (other than the stock splits or stock dividends described above) will accrue or accumulate to Employee or Employee’s estate’s benefit during the period prior to Employee’s receipt of such shares in accordance with the terms of this Agreement and Release.

     6. In accordance with the terms and conditions of the AIG Partners Plan the Company will provide Employee: (a) with respect to the 2006 transition grant, 16,188 shares of AIG Common Stock, payable within ten (10) business days after the Delay Date; (b) with respect to the 2007 grant, that number of shares of AIG Common Stock that are attributable to the number of performance RSUs earned based on the Company’s performance in accordance with such plan (21,000 shares upon achievement of target-level performance), payable within ten (10)

business days after the Delay Date; and (c) with respect to the 2008 grant, that number of shares of AIG Common Stock that are attributable to the number of performance RSUs earned based on the Company’s performance in accordance with such plan (9,000 shares upon achievement of target-level performance), payable within ten (10) business days after the Delay Date.

     7. In accordance with the terms and conditions of the AIG Senior Partners Plan (the “SPP”) and the AIG 2005 Senior Partners Plan (the “2005 SPP”) the Company will provide Employee:

     8. In accordance with the terms and conditions of the Option/RSU Plans, within ten (10) business days after the Delay Date Employee shall receive: (a) 11,483 RSUs (a seventy-five percent (75%) pro-rated amount of the 15,311 unvested RSUs from the grant date of December 13, 2007), and (b) vesting in any currently unvested options, as per the terms and conditions of such option plans.

     9. Employee agrees that if Employee fails to fulfill Employee’s duties under paragraphs 11, 12, 13 or 14 below Employee will forfeit the right to receive any of the payments or benefit enhancements set forth in paragraphs 2 and 3 above (and the Company shall be entitled to immediately cease paying any amounts remaining due or providing any benefits to Employee pursuant to this Agreement and Release) and, to the extent that any such payments already have been made to Employee or benefit enhancements already implemented at or prior to the time of Employee’s failure to satisfy any such condition, Employee must immediately return to the Company all such sums already paid to Employee. Employee acknowledges and agrees that the Company’s, and where applicable the Released Parties’ (as defined below), remedies at law for a breach or threatened breach of any of the provisions of paragraph 9, 11, 12, 13, 14, 15 or 16 of this Agreement and Release would be inadequate and, in recognition of this fact, Employee agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company or the Released Parties, without posting any bond, shall be entitled to obtain equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.

     10. In the event that Employee’s employment is terminated by the Compan