American International Group 2013 Annual Report

Description
In 1919, American entrepreneur Cornelius Vander Starr established a general insurance agency.

American International Group, Inc.
175 Water Street
New York, NY 10038
www.aig.com
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American International Group, Inc.
2013 Annual Report
In 1919, American entrepreneur Cornelius Vander Starr
established a general insurance agency, American Asiatic
Underwriters, in a two-room office in Shanghai, China.
Ninety-five years later, AIG – which traces its roots to
that small Shanghai operation – is a global insurer, with
approximately 64,000 employees serving customers
worldwide. Today, AIG continues to focus on what it has been
known for throughout the years: the ability to provide products
and services to meet the diverse needs of its customers.
The Bund, which housed
the headquarters of AIG’s
predecessor American Asiatic
Underwriters in Shanghai
beginning in 1927.
$68.7 billion
AIG’s revenue in 2013
More than 98%
of Fortune 500 served
58,300+
Loans modi?ed,
helping families in the U.S.
keep their homes
Donations made by AIG’s
Matching Grants Program to match
employees’ gifts to charitable
organizations in 2013
$7 million
95
years
300,000+
Financial professionals who make
up the AIG Life and Retirement
distribution organization
When we look back on 2013, we can truly say that it was an
opportunity for us to demonstrate that what we’ve done at AIG
over the past few years is sustainable.
Last year, we capitalized on strong forward momentum, driven
by the winning spirit of our people and solid performance in
our core insurance operating businesses.
The actions we took last year positioned us for an even
stronger 2014, as we concentrate on four core priorities:
• Intense focus on customers: We’ve invested a tremendous
amount of time and effort into changing the company for
the better over the past few years, never losing sight of our
driving force – our customers – along the way. Every step
we took to improve AIG was designed to enable us to
serve them better and become closer to them.
• Strong growth and profitability in our operating businesses:
Our efforts to improve risk selection, strengthen distribution,
and grow sales are really paying off. We became a
stronger, and more efficient and sustainable company,
thanks in part to our continued progress in such areas as
technology, operations, and our centers of excellence.
AIG is an insurance and retirement solutions leader, and we
have opportunities to grow – in smart ways that leverage
shared technology and other resources.
• Operational efficiency: We continue to look at ways to
simplify our organization so that there are as few layers as
possible between us and our customers. We are also fine-
tuning our decision-making processes to ensure that the best
qualified people are the ones making the calls, in the most
reasonable amount of time.
• Our people: We have endeavored to create a simpler
organization, which, with clearer role responsibility, will
help empower our people, increase collaboration and
efficiency, and further strengthen our customer relationships.
Our 2013 results illustrate how we are effectively leveraging
all of our resources across every business to add value to our
overall organization:
• AIG Property Casualty had growth in pre-tax operating
income, attributable to an improvement in underwriting
results and an increase in net investment income, partially
offset by the impact of higher severe losses.
To Our Shareholders,
2
Robert H. Benmosche
President and Chief Executive Officer
• AIG Life and Retirement experienced strong sales,
generated significant positive net ?ows, and captured
opportunities in an era where unprecedented numbers of
baby boomers continue to retire. Assets under management
continued to rise year-over-year, and the diversified
distribution platform delivered near-record sales of variable
annuities, fixed annuities, and retail mutual funds.
• United Guaranty Corporation saw net premiums written rise
in 2013. The business also paid a $90 million cash dividend
to AIG Parent in 2013, its first since 2010.
• AIG announced an agreement to sell International Lease
Finance Corporation (ILFC) to a wholly owned subsidiary of
AerCap Holdings N.V. in the fourth quarter of 2013 for total
consideration of approximately $5.4 billion.
• Cash dividends and loan repayments to AIG Parent from
insurance subsidiaries totaled $8.7 billion in 2013.
• AIG Common Stock purchases and cash dividends to
shareholders totaled $891 million in 2013.
This year, we celebrate the 95th anniversary of our roots in
Shanghai, a city of entrepreneurs. When I first came to AIG in
2009, I visited The Bund – headquarters for AIG’s predecessor
in China – and got a real sense of the company’s simple
beginnings, as well as the interest in people and passion
for enterprise.
Today, we are looking for much the same thing, only on a
larger, more global scale: a simplified organization that brings
our talented people closer to our customers, so that we can
better grow our business and deliver strong results to all of
our stakeholders.
Bring on tomorrow.
Last year, we capitalized on strong
forward momentum, driven by the winning spirit
of our people and solid performance in our core insurance
operating businesses.
Robert H. Benmosche
3
2012 was the year we fully repaid America’s financial support of
AIG. 2013 was a year in which AIG demonstrated that it has a solid
foundation for sustainable profitability. Now, in 2014, it is time to
look forward to future opportunities.
We must be ready to capitalize on opportunity. The company is
working on better understanding and providing for customer needs,
and is working to intensify its customer focus and elevate innovation.
The Board will continue to consider the right opportunities to help
expand our global reach in all businesses, while at the same time
supporting the company’s initiative to become more scientific and
selective in the business it does.
While we have made remarkable progress over the last few years,
there is still work to be done. For example, the current stock price still
lags well behind book value. Consistent with the Board’s role of rep-
resenting the best interests of both the company and its shareholders,
one of our goals is to make AIG an investment worth keeping, and to
grow value for all of our stakeholders.
Another area of focus is the current and developing regulatory
structure, which is undergoing significant change. Under Dodd-Frank,
AIG was officially named a non-bank systemically important finan-
cial institution in 2013. We were also named a global systemically
important insurer by the Financial Stability Board in consultation with
the International Association of Insurance Supervisors.
As I have said many times, the Board welcomes regulation by the
Federal Reserve, and we are committed to working with them with
trust and transparency. They share our objective of making AIG a
better, stronger company, able to withstand whatever may happen in
the future.
There is a lot of work being done both in the U.S. and internationally
to build the appropriate regulatory structure for the insurance indus-
try, and the next few years are going to be crucial as regulations are
finalized. An important part of our work as a Board is to understand
and help shape this new regulatory environment. We have two main
objectives: ensuring global consistency of rules and requirements;
and creating a framework that is appropriate for the insurance indus-
try and that will help foster growth.
Cultivating great talent is one of the most important ways that AIG
distinguishes itself. We have put a lot of time and thought into making
sure the company has the right people in the right roles, and toward
developing a deep bench of incredibly capable leaders waiting
to step up to whatever challenge is given to them. For those who
were with AIG through the financial crisis, the company’s turnaround
further strengthened their leadership abilities, and our success is
attracting top talent to AIG. We are winners, and the best players
want to be on our team. The ability of the company to hire the best
people in the industry allows us to gain new ideas and perspectives
from their experience.
I and the other Directors have had the pleasure of observing
firsthand the people of AIG working together to bring the company
to this moment. We are moving in the right direction, with the right
priorities, the right perspectives, and, most importantly, the right
internal and external checks and balances. I look forward to where
we take AIG next.
Dear AIG Shareholder,
Robert S. Miller
4
Robert S. Miller
Non-Executive Chairman of the Board
Financial Highlights
Years Ended December 31,
(dollars in millions, except per share data) 2013 2012 2011
Operating results:
Total revenues $ 68,678 $ 71,021 $ 65,105
Net income attributable to AIG 9,085 3,438 20,622
After-tax operating income attributable to AIG 6,762 6,635 2,086
Earnings per share (EPS):
Basic
Net income attributable to AIG 6.16 2.04 11.01
Diluted
Net income attributable to AIG 6.13 2.04 11.01
After-tax operating income attributable to AIG $ 4.56 $ 3.93 $ 1.16
Balance sheet:
Total assets $541,329 $548,633 $553,054
Shareholders’ equity 100,470 98,002 101,538
Book value per share
(1)
68.62 66.38 53.53
Book value per share, excluding Accumulated other
comprehensive income (AOCI) $ 64.28 $ 57.87 $ 50.11
Key metrics:
AIG Property Casualty combined ratio 101.3 108.5 108.7
AIG Property Casualty accident year combined ratio, as adjusted
(2)
98.4 99.8 99.1
AIG Life and Retirement premiums and deposits $ 28,809 $ 20,994 $ 24,392
(1) 2011 adjusted to re?ect reclassification of income taxes from AOCI to Additional paid-in capital.
(2) Combined ratio presented excluding catastrophe losses and related reinstatement premiums, prior year development, net of premium
adjustments and the impact of reserve discounting.
2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011
After-Tax Operating Income
($ in billions)
Total Assets
($ in billions)
Shareholders’ Equity
($ in billions)
Book Value per Share
Excluding AOCI
$64.28
$100.5
$98.0
$101.5
$541.3
$553.1
$6.8
$57.87
$6.6
$50.11
$2.1
$548.6
5
6
Where we need to be.
AIG’s customers around the globe count on us to be there – wherever that may
be. Throughout our history, we’ve been among the ?rst insurers to enter new
markets, growing along with them. We have been in Latin America for over 75
years; Europe for over 65 years; the Middle East for over 60 years; and Asia,
where we trace our roots, since the beginning.
Even today, with customers in over 130 countries and jurisdictions, we see
opportunities to expand our reach. Our global view gives us an advantage,
as we are able to look across our network to ?nd solutions from one region
to another.
For instance, when AIG entered into a joint venture agreement with PICC Life
in 2013, we already had a product being marketed to Chinese Americans
throughout the U.S. in both Cantonese and Mandarin. It was as if the product
had originally been designed for exactly the consumers that PICC was looking
to reach in China. AIG’s Quality of Life…Insurance
®
does just that – ensure a
standard of living – with bene?ts that customers can use during their lifetime.
C.V. Starr visits with a potential customer
in the Wusih Hills outside Shanghai in 1922.
95years
AIG provides coverage for a scientific
expedition to the North Pole in the 1950s.
7
When we need to be there.
AIG is in the business of helping customers plan for the future. One of the ways
we do that is by selling insurance products that customers hope they will never use.
Yet, when they need us, we are ready to make good on our promises. AIG Property
Casualty paid an average of more than $100 million in claims each business day
in 2013.
For instance, when Storm Sandy hit the northeastern U.S. in late 2012, it created a
worst-case scenario for many businesses, homeowners, and communities. One New
York City-based customer had a retail location that was particularly hard-hit. In the
early days of recovery, AIG advanced the business a $10 million claims payment,
and with AIG’s business interruption coverage, the store was able to retain all of its
employees during the months it took to rebuild and reopen in March 2013. In total,
AIG expects to pay out approximately $2.0 billion in claims related to Sandy, helping
our customers get back on their feet.
Through our insurance and retirement solutions, customers can also imagine a future
that they might not have before. In 2014, for example, AIG VALIC celebrates the 50th
anniversary of an American first: the enrollment of the first public K-12 school in a
403(b) retirement program. Two of that initial plan’s longest-served teachers (pictured
above) are now retired happily – and, with the returns on their accounts, both have
withdrawn more during retirement than they ever contributed.
95years
An employee in West Berlin after World War II stands with a
Fiat Topolino; customers recognized the car and used to stop it
so they could pay their insurance premiums on the spot.
8
Employees in Indonesia unload supplies to be ?own to
Banda Aceh following the 2004 tsunami in South Asia.
9
Why we do it.
The employee publication, Contact, represented in the collage at right, has been connecting the people of AIG
across businesses and geographies for over 80 years, to better serve all of AIG’s stakeholders.
95years
10
Since our beginnings, we’ve insured some exciting events, and groundbreaking
travels and projects – like the rebuilding of the World Trade Center. We’re as
proud and passionate about insuring risks anyone may encounter: the woman
in Argentina (pictured above, second from right) rebuilding her home after
devastating ?oods … the soldier recovering from an eye injury suffered during
a training mission … the hospital administrator focused on being able to make
the most of retirement … the person just starting to think about retirement … the
employee of a company in China who falls ill while based in Angola and must be
?own to a South African hospital for treatment.
Giving back is an important part of AIG’s identity. In 2013, nearly 5,000
employees participated in global Volunteer Weeks around the world. The almost
400 projects ranged from visiting and supporting underprivileged children at a
school in Guayaquil, Ecuador; to assisting at an animal shelter in Melbourne,
Australia; to beautifying a dilapidated playground in Budapest, Hungary.
We’ve built our business on identifying the risks that individuals and companies
face, creating the right solutions for them, and responding when they need help
most. We segment claims into three categories – major, complex, and express –
to better respond to customer needs. We also help our customers reduce their risk,
first by understanding it and then by taking preventive measures.
In all of these ways, we enable our customers and communities to bring on tomorrow.
Artwork by John Olsen 11
Board of Directors
From left
Arthur C. Martinez
Former Chairman of the Board,
President, and Chief Executive Officer
Sears, Roebuck and Co.
W. Don Cornwell
Former Chairman of the Board and
Chief Executive Officer
Granite Broadcasting Corporation
Henry S. Miller
Chairman
Marblegate Asset Management, LLC
Former Chairman and Managing Director
Miller Buckfire & Co., LLC
John H. Fitzpatrick
Secretary General
The Geneva Association
Former Chief Financial Officer, Head of
the Life and Health Reinsurance Business
Group, and Head of Financial Services
Swiss Re
William G. Jurgensen
Former Chief Executive Officer
Nationwide Insurance
Suzanne Nora Johnson
Former Vice Chairman
The Goldman Sachs Group, Inc.
Robert S. Miller
Non-Executive Chairman of the Board
American International Group, Inc.
Former Chief Executive Officer
Hawker Beechcraft, Inc.
Former Executive Chairman
Delphi Corporation
Robert H. Benmosche
President and Chief Executive Officer
American International Group, Inc.
Christopher S. Lynch
Former National Partner in Charge
of Financial Services
KPMG LLP
George L. Miles, Jr.
Chairman Emeritus
Chester Engineers, Inc.
Former President and Chief Executive Officer
WQED Multimedia
Ronald A. Rittenmeyer
Chairman, President, and
Chief Executive Officer
Expert Global Solutions, Inc.
Former Chairman, Chief Executive Officer,
and President
Electronic Data Systems Corporation
Theresa M. Stone
Former Executive Vice President and Treasurer
Massachusetts Institute of Technology
Former Executive Vice President and
Chief Financial Officer
Jefferson-Pilot Corporation
Former President
Chubb Life Insurance Company
Douglas M. Steenland
Former President and Chief Executive Officer
Northwest Airlines Corporation
12
American International Group, Inc.
Form 10-K
26OCT201220500047
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2013 Commission file number 1-8787
American International Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-2592361
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
175 Water Street, New York, New York 10038
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (212) 770-7000
Securities registered pursuant to Section 12(b) of the Act: See Exhibit 99.02
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ? No ?
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ? No ?
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ? No ?
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files). Yes ? No ?
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is
not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ?
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting
company’’ in Rule 12b-2 of the Exchange Act.
Large accelerated filer ? Accelerated filer ? Non-accelerated filer ? Smaller reporting company ?
(Do not check if a
smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ? No ?
The aggregate market value of the voting and nonvoting common equity held by nonaffiliates of the registrant (based on the
closing price of the registrant’s most recently completed second fiscal quarter) was approximately $65,993,000,000.
As of February 14, 2014, there were outstanding 1,464,067,641 shares of Common Stock, $2.50 par value per share, of
the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Document of the Registrant Form 10-K Reference Locations
Portions of the registrant’s definitive proxy statement for the Part III, Items 10, 11, 12, 13 and 14
2014 Annual Meeting of Shareholders
Item 1. Business 2
• AIG’s Global Insurance Operations 3
• A Review of Liability for Unpaid Claims and Claims Adjustment Expense 18
• Reinsurance Activities 21
• Generating Revenues: Investment Activities of Our Insurance Operations 22
• Regulation 23
• Our Competitive Environment 30
• Our Employees 30
• Directors and Executive Officers of AIG 31
• Available Information about AIG 32
Item 1A. Risk Factors 33
Item 1B. Unresolved Staff Comments 47
Item 2. Properties 47
Item 3. Legal Proceedings 47
Item 4. Mine Safety Disclosures 47
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities 48
Item 6. Selected Financial Data 51
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 54
• Cautionary Statement Regarding Forward-Looking Information 54
• Use of Non-GAAP Measures 56
• Executive Overview 58
• Results of Operations 71
• Liquidity and Capital Resources 128
• Investments 143
• Enterprise Risk Management 161
• Critical Accounting Estimates 178
• Glossary 203
• Acronyms 207
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 208
Item 8. Financial Statements and Supplementary Data 209
Index to Financial Statements and Schedules 209
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 339
Item 9A. Controls and Procedures 339
Item 10. Directors, Executive Officers and Corporate Governance 340
Item 11. Executive Compensation 340
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters 340
Item 13. Certain Relationships and Related Transactions, and Director Independence 340
Item 14. Principal Accounting Fees and Services 340
Item 15. Exhibits, Financial Statement Schedules 340
341
AMERICAN INTERNATIONAL GROUP, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2013
TABLE OF CONTENTS
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AIG 2013 Form 10-K 1
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FORM 10-K
Item Number Description Page
PART I
PART II
PART III
PART IV
SIGNATURES
American International Group, Inc. (AIG) is a leading global insurance company.
Founded in 1919, today we provide a wide range of property casualty insurance, life insurance, retirement
products, mortgage insurance and other financial services to customers in more than 130 countries and
jurisdictions. Our diverse offerings include products and services that help businesses and individuals protect
their assets, manage risks and provide for retirement security. AIG common stock is listed on the New York
Stock Exchange and the Tokyo Stock Exchange.
* At June 30, 2013, the latest date for which information was available for certain foreign insurance companies.
PART I
World class insurance franchises
A diverse mix of businesses
Effective capital management
Execution of strategic objectives,
Improved profitability,
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AIG 2013 Form 10-K 2
ITEM 1 / BUSINESS
AIG’s key strengths include:
that are leaders in their
categories and are continuing to improve their operating performance;
with a presence in most international
markets;
of the largest shareholders’ equity of
any insurance company in the world*, supported by enhanced risk
management;
such as our focus on growth of
higher value lines of business to increase profitability and grow
assets under management; and
as demonstrated by growth in 2013 over
2012 of pre-tax operating income in each of our core insurance
operations.
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In this Annual Report on Form 10-K, unless otherwise mentioned or unless the context indicates
otherwise, we use the terms ‘‘AIG,’’ the ‘‘Company,’’ ‘‘we,’’ ‘‘us’’ and ‘‘our’’ to refer to American
International Group, Inc., a Delaware corporation, and its consolidated subsidiaries. We use the term
‘‘AIG Parent’’ to refer solely to American International Group, Inc., and not to any of its consolidated
subsidiaries.
AIG’s Global Insurance Operations
We earn revenues primarily from insurance premiums, policy fees from universal life insurance and investment
products, income from investments and advisory fees.
Our operating expenses consist of policyholder benefits and claims incurred, interest credited to policyholders,
commissions and other costs of selling and servicing our products, and general business expenses.
Our profitability is dependent on our ability to price and manage risk on insurance and annuity products, to manage
our portfolio of investments effectively, and to control costs through expense discipline.
Mortgage Guaranty (United Guaranty Corporation or UGC), is a leading provider of private residential mortgage
guaranty insurance (MI). MI covers mortgage lenders for the first loss from mortgage defaults on high
loan-to-value conventional first-lien mortgages. By providing this coverage, UGC enables mortgage lenders to
remain competitive and enables individuals to purchase a house with a lower down payment.
Other Operations also include Global Capital Markets, Direct Investment book, Corporate & Other and Aircraft
Leasing.
HOW WE GENERATE REVENUES AND PROFITABILITY
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AIG 2013 Form 10-K 3
I T EM 1 / BUSI NESS / AI G
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AIG Property Casualty AIG Life and Retirement
AIG Property Casualty is a leading provider of AIG Life and Retirement is a premier provider of
insurance products for commercial, institutional and protection, investment and income solutions for
individual customers through one of the world’s most financial and retirement security. It is among the
far-reaching property casualty networks. AIG Property largest life insurance, annuity and retirement services
Casualty offers one of the industry’s most extensive businesses in the United States. With one of the
ranges of products and services, through its broadest distribution networks and most diverse
diversified, multichannel distribution network, product offerings in the industry, AIG Life and
benefitting from its strong capital position. Retirement helps to ensure financial and retirement
security for more than 18 million customers.
During the first quarter of 2013, AIG Life and
Retirement implemented its previously announced
changes reflecting its new structure and now presents
its operating results in two operating segments —
Retail and Institutional. All prior period amounts
presented have been revised to reflect the new
structure.
Other Operations
14FEB201422522376
On August 14, 2013, we announced a reorganization of our Consumer Insurance business and named a new
management team. Under the new structure, AIG’s global life insurance business will be managed as part of AIG
Global Consumer Insurance — enabling our consumer network across the world to benefit from the sophistication,
scale, and success of our U.S. life insurance platform.
During the fourth quarter of 2013, the newly appointed executive management team made a number of key
appointments to its management team and certain key decisions regarding how its underlying operating segments
will be organized. However, we continue to work on the final key elements of the new organization and operating
structure. When the new structure is finalized, the presentation of AIG Property Casualty and AIG Life and
Retirement results may be modified accordingly and prior periods’ presentations may be revised to conform to the
new reporting presentation.
AIG 2013 Revenue Sources from Insurance Operations*
(dollars in millions)
Commercial
Insurance
$23,137
Other
$2,971
Consumer
Insurance
$13,601
38%
21%
13%
22%
5%
Retail
$12,715
Institutional
$7,875
AIG
PROPERTY
CASUALTY
$39,709
AIG LIFE AND
RETIREMENT
$20,590
1%
MORTGAGE
GUARANTY
$949
65%
34%
* Revenues for AIG Property Casualty and Mortgage Guaranty include net premiums earned, net investment income and net realized capital
gains. Revenues for AIG Life and Retirement include premiums, policy fees, net investment income, advisory fees, legal settlements and net realized
capital gains.
For financial information concerning our reportable segments, including geographic areas of operation and changes
made in 2013, see Note 3 to the Consolidated Financial Statements. Prior periods have been revised to conform to
the current period presentation for segment changes and discontinued operations.
BUSINESS MANAGEMENT
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AIG 2013 Form 10-K 4
I T EM 1 / BUSI NESS / AI G
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17FEB201414390656
2012 and 2013 Key Accomplishments
AREA OF FOCUS ACTION RESULT
CORE
BUSINESS
DEVELOPMENTS
Improved insurance pre-tax operating income
(a)
Grew net premiums written, excluding the effect of
foreign exchange
Improved 2013 current accident year loss ratio, as
adjusted(a)
Improved net flows on investment products from strong
sales through a unified distribution organization
Improvements in base spread rates:
• Fixed Annuities product line base spread
• Group Retirement product line base spread
• Record new insurance written for Mortgage Guaranty
Decline in newly reported delinquencies for Mortgage
Guaranty
Strategic investments in The People’s Insurance
Company (Group) of China Limited (PICC Group),
Woodbury Financial Services, Inc. and Service Net in
2012
Exercise of PICC Property & Casualty Company Limited
(PICC P&C) warrants in 2013
Utilization of life capital loss carryforwards
$10.1 bn in 2013
$6.0 bn in 2012
4.0 percent
63.8 points in 2013
65.2 points in 2012
$4.6 bn in 2013
$(1.3) bn in 2012
2.27 percent in 2013
2.06 percent in 2012
1.97 percent in 2013
1.82 percent in 2012
$49.9 bn in 2013
$37.5 bn in 2012
56 thousand in 2013
71 thousand in 2012
$0.7 bn in 2012
$93 mn in 2013
86 percent cumulative
utilization
FOCUSED
PORTFOLIO
OF
BUSINESSES
INCREASED
FINANCIAL
FLEXIBILITY
NON-CORE ASSET
DIVESTITURES
Entered into agreement to sell International Lease
Finance Corporation (ILFC) to AerCap Ireland Limited, a
wholly-owned subsidiary of AerCap Holdings N.V. in 2013
Monetized remaining interests in Maiden Lane II LLC (ML
II) and Maiden Lane III LLC (ML III) and sold remaining
interest in AIA Group Limited (AIA) in 2012
$5.4 bn(b)
$24.6 bn
STRENGTHEN
LIQUIDITY AND
CAPITAL
Cash distributions from subsidiaries in 2013 and 2012
Growth in 2013 book value per share excluding AOCI
(a)
from 2012
$8.7 bn and $5.2 bn
$64.28 in 2013
$57.87 in 2012
ACTIVE CAPITAL
MANAGEMENT
Decrease in debt outstanding
AIG Common Stock purchases in 2013 and 2012
Cash dividends to shareholders in 2013
$41.7 bn in 2013
$48.5 bn in 2012
$597 mn and
$13.0 bn
$294 mn
COMPLETE
REPAYMENT OF
GOVERNMENT
SUPPORT
United States Department of the Treasury (Department of
the Treasury) exited ownership of AIG through five
offerings of AIG Common Stock in 2012
Repurchased warrants in 2013 previously issued to the
Department of the Treasury in 2008 and 2009
$45.8 bn(c)
$25 mn
EXITED FROM
GOVERNMENT
OWNERSHIP
(a) Pre-tax operating income, accident year loss ratio, as adjusted, and book value per share excluding AOCI are non-GAAP measures. See ‘‘Use of
Non-GAAP Measures’’ for additional information.
(b) Based on AerCap’s pre-announcement closing price per share of $24.93 as of December 13, 2013.
(c) AIG did not receive any proceeds from the sale of AIG Common Stock by the Department of the Treasury. See Notes 4, 16, 17 and 24 to the
Consolidated Financial Statements for further discussion of the government support provided to AIG and the Recapitalization.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 5
I T EM 1 / BUSI NESS / AI G
..................................................................................................................................................................................
AIG Property Casualty
Business Strategy
Growth and Business Mix:
Underwriting Excellence:
Claims Best Practices:
Operating Expense Discipline:
Capital Efficiency:
Investment Strategy:
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 6
I T EM 1 / BUSI NESS / AI G PROPERT Y CASUAL T Y
Grow higher value business to increase
profitability and expand in attractive growth economies.
Enhance risk selection and pricing to earn
returns commensurate with the risk assumed.
Improve claims practices, analytics and tools
to improve customer service, increase efficiency and lower the loss
ratio.
Apply operating expense discipline
and increase efficiencies by taking full advantage of our global
footprint.
Enhance capital management through initiatives
to streamline our legal entity structure, optimize our reinsurance
program and improve tax efficiency.
Execute our investment strategy, which
includes increased asset diversification and yield-enhancement
opportunities that meet our capital, liquidity, risk and return
objectives.
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
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............................................................................................................................................................................................
............................................................................................................................................................................................
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14FEB201420521914
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14FEB201420411057
AIG Property Casualty Operating Segments
AIG Property Casualty operating segments are organized into Commercial Insurance and Consumer Insurance.
Run-off lines of business and operations not attributable to these operating segments are included in an Other
category.
Percent of 2013 Net premiums written by operating segment*
(dollars in millions)
COMMERCIAL
INSURANCE
$20,842
CONSUMER
INSURANCE
$13,552
39%
61%
* The operations reported as part of Other do not have meaningful levels of Net premiums written.
Commercial Insurance Consumer Insurance
Percent of 2013 Net premiums written by product line Percent of 2013 Net premiums written by product line
(dollars in millions) (dollars in millions)
Specialty
$3,730
Property
$4,708
Casualty
$8,145
Financial
lines
$4,259
39%
23%
18%
20%
Personal
Lines
$6,931
Accident
& Health
$6,621
49%
51%
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 7
I T EM 1 / BUSI NESS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
Commercial Insurance Product Lines Consumer Insurance Product Lines
Casualty: Includes general liability, commercial Accident & Health: Includes voluntary and
automobile liability, workers’ compensation, excess sponsor-paid personal accidental and supplemental
casualty and crisis management insurance. Casualty health products for individuals, employees,
also includes risk management and other customized associations and other organizations. It also includes
structured programs for large corporate customers and life products (outside of the U.S. market) as well as a
multinational companies. broad range of travel insurance products and services
for leisure and business travelers.
Property: Includes industrial, energy-related and
commercial property insurance products, which cover Personal: Includes automobile, homeowners and
exposures to man-made and natural disasters, extended warranty insurance. It also includes
including business interruption. insurance for high-net-worth individuals (offered
through Private Client Group), including umbrella,
Specialty: Includes aerospace, environmental, political
yacht and fine art insurance, and consumer specialty
risk, trade credit, surety and marine insurance, and
products, such as identity theft and credit card
various product offerings for small and medium sized
protection.
enterprises.
Financial: Includes various forms of professional
liability insurance, including directors and officers
(D&O), fidelity, employment practices, fiduciary liability,
cyber risk, kidnap and ransom, and errors and
omissions insurance (E&O).
Other: Consists primarily of: run-off lines of business, including excess workers’ compensation, asbestos and
legacy environmental (1986 and prior); certain environmental liability businesses written prior to 2004; operations
and expenses not attributable to the Commercial Insurance or Consumer Insurance operating segments;
unallocated net investment income; net realized capital gains and losses; other income and expense items; and
adverse loss development, net of amortization of deferred gain, for a retroactive reinsurance arrangement.
A Look at AIG Property Casualty
AIG Property Casualty conducts its business primarily through the following major operating companies: National
Union Fire Insurance Company of Pittsburgh, Pa.; American Home Assurance Company; Lexington Insurance
Company; AIU Insurance Company Ltd.; Fuji Fire & Marine Insurance Company Limited (Fuji); AIG Asia Pacific
Insurance, Pte, Ltd. and AIG Europe Limited.
Global Footprint
AIG Property Casualty has a significant international presence in both developed markets and growth economy
nations. It distributes its products through three major geographic regions:
• Americas: Includes the United States, Canada, Central America, South America, the Caribbean and Bermuda.
• Asia Pacific: Includes Japan and other Asia Pacific nations, including China, Korea, Singapore, Vietnam,
Thailand, Australia and Indonesia.
• EMEA (Europe, Middle East and Africa): Includes the United Kingdom, Continental Europe, Russia, India, the
Middle East and Africa.
In 2013, 5.6 percent and 5.1 percent of AIG Property Casualty direct premiums were written in the states of
California and New York, respectively, and 18.3 percent and 6.8 percent were written in Japan and the United
Kingdom, respectively. No other state or foreign jurisdiction accounted for more than 5 percent of such premiums.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 8
I T EM 1 / BUSI NESS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
15FEB201401073754
Total Net Premiums Written $34.4 bn
Based on net premiums written in 2012, AIG Property Casualty is the largest commercial insurer in the U.S. and
Canada. We are the largest U.S. based property casualty insurer in Europe, and the largest foreign property
casualty insurer in China. In addition, AIG Property Casualty was first to market in many developing nations and
is well positioned to enhance its businesses in countries such as Brazil, China through strategic relationships
with PICC Life Insurance Company Limited (PICC Life) and India with the Tata Group.





$17.9 bn
52%
$6.8 bn
20%
$9.7 bn
28%
Americas
U.S., Canada
Latin America and the Caribbean
EMEA
Europe
Middle East
Africa
Asia Pacific
Japan
Other Asia Pacific nations
AIG Property Casualty Distribution Network
Commercial Insurance Consumer Insurance
Commercial Insurance products are primarily Consumer Insurance products are distributed primarily
distributed through a network of independent retail and through agents and brokers, as well as through direct
wholesale brokers, and through an independent marketing, partner organizations such as
agency network. bancassurance, and the internet.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 9
I T EM 1 / BUSI NESS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
Competition
Operating in a highly competitive industry, AIG Property Casualty competes against approximately 4,000 stock
companies, specialty insurance organizations, mutual companies and other underwriting organizations in the U.S. In
international markets, we compete for business with the foreign insurance operations of large global insurance
groups and local companies in specific market areas and product types.
Insurance companies compete through a combination of risk acceptance criteria, product pricing, service and terms
and conditions. AIG Property Casualty distinguishes itself in the insurance industry primarily based on its
well-established brand, global franchise, financial strength and large capital base, innovative products, expertise in
providing specialized coverages and customer service.
We serve our business and individual customers on a global basis — from the largest multinational corporations to
local businesses and individuals. Our clients benefit from our substantial underwriting expertise and long-term
commitment to the markets and clients we serve.
AIG Property Casualty Competitive Strengths and Challenges
Our competitive strengths are:
Financial strength — well capitalized, strong balance sheet
Expertise — in-depth knowledge of risk, experienced employees complemented with new talent;
Global franchise — operating in more than 95 countries and jurisdictions
Scale — facilitates risk diversification to optimize returns on capital
Diversification — breadth of customers served, products underwritten and distribution channels
Innovation — striving to provide superior, differentiated product solutions that meet consumer needs
Service — focused on customer needs, providing strong global claims, loss prevention and mitigation,
engineering, underwriting and other related services
We face the following challenges:
Barriers to entry are high for certain markets
Regulatory changes in recent years created an increasingly complex environment that is affecting industry
growth and profitability
AIG Property Casualty
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 10
I T EM 1 / BUSI NESS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
............................................................................................................................................................................................
AIG Life and Retirement
Business Strategy
Product Diversity and Capacity for Growth:
Integrated Distribution:
Investment Portfolio:
Operational Initiatives:
Effective Risk and Capital Management:
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 11
I T EM 1 / BUSI NESS / AI G L I F E AND RET I REMENT
Continue to enhance our
comprehensive portfolio with superior, differentiated product solutions that meet
consumer needs for financial and retirement security, using our scale and
capital strength to pursue growth opportunities.
Grow assets under management by leveraging our
extensive distribution organization of over 300,000 financial professionals and
expanding relationships with key distribution partners; to effectively market our
diverse product offerings across multiple channels under a more unified
branding strategy.
Maintain a diversified, high quality portfolio of fixed
maturity securities that largely match the duration characteristics of liabilities
with assets of comparable duration, and pursue yield-enhancement
opportunities that meet our liquidity, risk and return objectives.
Continue to streamline our life insurance and annuity
operations and systems into a lower-cost, more agile model that provides
superior service and ease of doing business for customers and producers.
Deliver solid earnings through
disciplined pricing and diversification of risk and increase capital efficiency
within our insurance entities to enhance return on equity.
..................................................................................................................................................................................
............................................................................................................................................................................................
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............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
14FEB201422462962
14FEB201422522107 14FEB201422521552
AIG Life and Retirement Operating Segments
AIG Life and Retirement’s organizational structure includes distinct product divisions, shared annuity and life
operations platforms and a unified multi-channel distribution organization with access to all AIG Life and Retirement
products. AIG Life and Retirement’s operating segments are organized into Retail and Institutional. Retail products
are generally marketed directly to individual consumers through independent and career insurance agents, retail
banks, direct-to-consumer platforms, and national, regional and independent broker-dealers. Institutional products are
generally marketed to groups or large institutions through affiliated financial advisors or intermediaries including
benefit consultants, independent marketing organizations, structured settlement brokers and broker-dealers.
Percent of 2013 Premiums and deposits by operating segment
(dollars in millions)
Retail
$19,912
69%
Institutional
$8,897
31%
Premiums represent amounts received on traditional life insurance policies, group benefit policies and deposits on life
contingent payout annuities. Premiums and deposits is a non-GAAP financial measure that includes direct and
assumed premiums as well as deposits received on universal life insurance, investment-type annuity contracts,
guaranteed investment contracts (GICs) and mutual funds.
See Item 7. MD&A — Results of Operations — AIG Life and Retirement Operations — AIG Life and Retirement
Premiums, Deposits and Net Flows for a reconciliation of premiums and deposits to premiums.
Retail Institutional
Percent of 2013 Premiums and Deposits by product line Percent of 2013 Premiums and Deposits by product line
(dollars in millions) (dollars in millions)
17%
15%
43%
25%
Fixed
Annuities
$2,914
Life
Insurance
and A&H
$3,342
Retail
Mutual
Funds
$4,956
Retirement
Income
Solutions
$8,608
82%
11%
7%
Institutional
Markets
$991
Group
Benefits
$655
Group
Retirement
$7,251
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 12
I T EM 1 / BUSI NESS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
Retail Product Lines Institutional Product Lines
Life Insurance and A&H: Primary products include Group Retirement: Products are marketed under The
term life insurance, universal life insurance and A&H Variable Annuity Life Insurance Company (VALIC)
products. Life insurance and A&H products are brand and include fixed and variable group annuities,
primarily distributed through independent marketing group mutual funds, and group administrative and
organizations, independent insurance agents and compliance services. VALIC career financial advisors
career agents and financial advisors. AIG Direct is a and independent financial advisors provide retirement
proprietary direct-to-consumer distributor of term life plan participants with enrollment support and
insurance and A&H products. The Life Insurance and comprehensive financial planning services.
A&H product line will continue to focus on innovative
Group Benefits: AIG Benefit Solutions markets a wide
product development and delivering differentiated life
range of insurance and other benefit products through
insurance solutions to producers and customers.
employer offerings (both employer-paid and voluntary)
Fixed Annuities: Products include single and flexible and affinity groups. Primary product offerings include
premium deferred fixed annuities and single premium life insurance, accidental death, business travel
immediate and delayed-income annuities. The Fixed accident, disability income, medical excess (stop loss)
Annuities business line maintains its industry-leading and worksite universal life and critical illness and
position in the bank distribution channel by designing accident coverage.
products collaboratively with banks and offering an
Institutional Markets: Products primarily include
efficient and flexible administration platform.
stable value wrap products, structured settlement and
Retirement Income Solutions: Primary products terminal funding annuities, high net worth products,
include variable and fixed index annuities that provide corporate- and bank-owned life insurance and GICs.
asset accumulation and lifetime income benefits. These products are marketed primarily through
Variable annuities are distributed through banks and specialized marketing and consulting firms and
national, regional and independent broker-dealer firms. structured settlement brokers. Institutional Markets has
Fixed index annuities are distributed through banks, a disciplined and opportunistic approach to growth in
broker dealers, independent marketing organizations these product lines.
and career and independent insurance agents.
Brokerage Services: Includes the operations of
Advisor Group, which is one of the largest networks of
independent financial advisors in the U.S. Brands
include Royal Alliance, SagePoint Financial, FSC
Securities and Woodbury Financial.
Retail Mutual Funds: Includes our mutual fund and
related administration and servicing operations.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 13
I T EM 1 / BUSI NESS / AI G L I F E AND RET I REMENT
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14FEB201422343567
A Look at AIG Life and Retirement
AIG Life and Retirement conducts its business primarily through three major insurance operating companies:
American General Life Insurance Company, The Variable Annuity Life Insurance Company and The United States
Life Insurance Company in the City of New York.
AIG Life and Retirement 2013 Sales by Distribution Channel
VALIC Financial
Advisors
AIG Direct
& Other
AIG Financial Network
Advisor
Group
Benefit
Brokers
Other
Banks
Independent
Marketing
Organizations
Broker-Dealers
Affiliated Non-Affiliated
33% 67%
34%
26%
19%
10%
3%
3%
3%
1%
1%
Sales represent life and group A&H premiums from new policies expected to be collected over a one-year period
plus 10 percent of life unscheduled deposits, single premiums and annuity deposits from new and existing
customers.
AIG Life and Retirement’s Diversified Distribution Network
Affiliated Nonaffiliated
VALIC career financial advisors Over 1,200 financial Banks Long-standing market leader in distribution of
advisors serving the worksites of educational, fixed annuities through banks, with 800 banks and
not-for-profit and governmental organizations nearly 80,000 financial institution agents
AIG Financial Network Over 2,200 agents and Independent marketing organizations Relationships
financial advisors serving American families and small with over 1,200 independent marketing organizations
businesses and brokerage general agencies providing access to
over 143,000 licensed independent agents
Advisor Group Over 6,000 independent financial
advisors Broker dealers Access to over 135,000 licensed
financial professionals through relationships with a
AIG Direct A leading direct-to-consumer distributor of
wide network of broker dealers across the U.S.
life and A&H products
Benefit brokers Include consultants, brokers, third
party administrators and general agents
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 14
I T EM 1 / BUSI NESS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
AIG Life and Retirement Competition
AIG Life and Retirement is among the largest life insurance organizations in the United States and is a leader in
today’s financial services marketplace.
AIG Life and Retirement competes in the life insurance and retirement savings businesses against approximately
2,300 providers of life insurance and retirement savings products, primarily based on its long-standing market leading
positions, innovative products, extensive distribution network, customer service and strong financial ratings. AIG Life
and Retirement helps ensure financial and retirement security for more than 18 million customers.
AIG Life and Retirement Competitive Strengths and Challenges
Our competitive strengths are:
Long-standing market leading positions in many of our product lines and key distribution channels
Broad multi-channel distribution network of over 300,000 financial professionals with opportunities to expand
on these relationships to effectively market our diverse product offerings across multiple channels
Diversified and comprehensive product portfolio of superior, differentiated solutions that meet consumer
needs for financial and retirement security
Scale and risk diversification provided by the breadth of our product offerings and scale advantage in key
product lines
Capital strength to fuel growth in assets under management and pursue opportunities that meet our return
objectives
We also face the following challenges:
Highly competitive environment where products are differentiated by pricing, terms, service and ease of doing
business
Regulatory requirements increasing in volume and complexity due to heightened regulatory scrutiny and
supervision of the insurance and financial services industries in recent years
Low interest rate environment makes it more difficult to profitably price attractive guaranteed return products
and puts margin pressure on existing products due to the challenge of investing premiums and deposits and
portfolio cash flow in a low rate environment
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 15
I T EM 1 / BUSI NESS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
Other Operations
Mortgage Guaranty Business Strategy
Mortgage Guaranty
Mortgage Guaranty (United Guaranty Corporation or UGC) offers private residential mortgage guaranty insurance,
which protects mortgage lenders and investors from loss due to borrower default and loan foreclosure. With over
1,000 employees, UGC currently insures over one million mortgage loans in the United States. In 2013, UGC
generated more than $49 billion in new insurance written, which represents the original principal balance of the
insured mortgages, making it a leading provider of private mortgage insurance in the United States.
Products and Services: UGC provides an array of products and services including first-lien mortgage guaranty
insurance in a range of premium payment plans. UGC’s primary product is private mortgage insurance. The
coverage we provide — which is called mortgage guaranty insurance, mortgage insurance, or simply ‘‘MI’’, protects
lenders against the increased risk of borrower default related to high loan-to-value (LTV) mortgages — those with
less than 20 percent equity — enabling borrowers to purchase a house with a modest down payment.
Homeowner Support: UGC also works with homeowners who are behind on their mortgage payments to identify
ways to retain their home. As a liaison between the borrower and the mortgage servicer, UGC provides the added
support to qualified homeowners to help them avoid foreclosure.
Risk Selection:
Innovation:
Ease of Use:
Expense Management:
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 16
I T EM 1 / BUSI NESS / OT HER OPERAT I ONS
Ensure high quality new business through continuous focus on risk
selection and risk-based pricing using disciplined underwriting and a proprietary, multi-variant
risk evaluation model.
Continue to develop and enhance products, technology, and processes that
address the needs of stakeholders in the mortgage system.
Reduce complexity and enable stakeholders to easily utilize our services
throughout the mortgage insurance process.
Streamline our processes through the use of technology and shared
services.
..................................................................................................................................................................................
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A Look at Mortgage Guaranty
Mortgage Guaranty Distribution Network
• National Mortgage Bankers • Community Banks
• Money Center Banks • Builder-owned Mortgage Lenders
• Regional Mortgage Lenders • Internet-sourced Lenders
• Credit Unions
Mortgage Guaranty Competition
United Guaranty competes with seven private providers of mortgage insurance, both well-established and new
entrants to the industry, and The Federal Housing Administration, which is the largest provider of mortgage insurance
in the United States.
Mortgage Guaranty Competitive Strengths and Challenges
Our competitive strengths are:
History — 50 years of service to the mortgage industry
Financial strength — strong capital position and highly rated mortgage insurer
Risk-based pricing strategy — provides products that are priced commensurate with underwriting risk using its
proprietary multivariate risk evaluation model
Innovative products — develop and enhance products to address the changing needs of the mortgage industry
Rigorous approach to risk management
We face the following challenges:
Increasingly complex regulations relating to mortgage originations
Uncertain future regulatory environment in the residential housing finance system
Increasing competition in a limited private MI market
Volatility in the U.S. housing market
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 17
I T EM 1 / BUSI NESS / OT HER OPERAT I ONS
..................................................................................................................................................................................
Other Operations also include:
Global Capital Markets (GCM) consists of the operations of AIG Markets, Inc. (AIG Markets) and the remaining
derivatives portfolio of AIG Financial Products Corp. and AIG Trading Group Inc. and their respective subsidiaries
(collectively AIGFP). AIG Markets acts as the derivatives intermediary between AIG and its subsidiaries and third
parties to provide hedging services for AIG entities. The AIGFP portfolio continues to be wound down and is
managed consistent with AIG’s risk management objectives.
Direct Investment book (DIB) consists of a portfolio of assets and liabilities held directly by AIG Parent in the
Matched Investment Program (MIP) and certain non-derivative assets and liabilities of AIGFP. The DIB portfolio is
being wound down and is managed with the objective of ensuring that at all times it maintains the liquidity we believe
is necessary to meet all of its liabilities as they come due, even under stress scenarios, and to maximize returns
consistent with our risk management objectives.
Retained Interests includes the fair value gains or losses, prior to their sale in 2012, of the AIA ordinary shares
retained following the AIA initial public offering and the MetLife, Inc. (MetLife) securities that were received as
consideration from the sale of American Life Insurance Company (ALICO) and the fair value gains or losses, prior to
the Federal Reserve Bank of New York (FRBNY) liquidation of Maiden Lane III LLC (ML III) assets in 2012, on the
retained interest in ML III.
Corporate & Other consists primarily of interest expense, consolidation and eliminations, expenses of corporate staff
not attributable to specific reportable segments, certain expenses related to internal controls and the financial and
operating platforms, corporate initiatives, certain compensation plan expenses, corporate level net realized capital
gains and losses, certain litigation-related charges and credits, the results of AIG’s other non-core business
operations, and net loss on sale of properties and divested businesses that did not meet the criteria for discontinued
operations accounting treatment.
Aircraft Leasing consists of ILFC. ILFC is one of the world’s leading aircraft lessors. ILFC acquires commercial jet
aircraft from various manufacturers and other parties and leases those aircraft to airlines around the world. As of
December 31, 2013, ILFC had a lease portfolio of approximately 1,000 aircraft, of which it owned 911 aircraft with a
net book value of approximately $35.2 billion.
On December 16, 2013, AIG and AIG Capital Corporation (Seller), a wholly-owned direct subsidiary of AIG, entered
into a definitive agreement (the AerCap Share Purchase Agreement) with AerCap Holdings N.V. (AerCap) and
AerCap Ireland Limited (Purchaser), a wholly-owned subsidiary of AerCap, for the sale of 100 percent of the common
stock of ILFC by Seller to Purchaser (such transaction, the AerCap Transaction). Under the terms of the AerCap
Share Purchase Agreement, consummation of the AerCap Transaction is subject to the satisfaction or waiver of a
number of conditions precedent, such as certain customary conditions and other closing conditions, including the
receipt of approvals or non-disapprovals from antitrust and other regulatory bodies. The AerCap Transaction was
approved by AerCap shareholders on February 13, 2014. See Item 1A. Risk Factors — Business and Regulation and
Note 4 to the Consolidated Financial Statements for more information on the AerCap Transaction.
The liability for unpaid claims and claims adjustment expense represents the accumulation of estimates for unpaid
reported claims and claims that have been incurred but not reported (IBNR) for AIG Property Casualty and UGC.
Unpaid claims and claims adjustment expenses are also referred to as unpaid loss and loss adjustment expenses, or
just loss reserves.
We recognize as assets the portion of this liability that will be recovered from reinsurers. Reserves are discounted,
where permitted, in accordance with U.S. GAAP.
A REVIEW OF LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 18
I T EM 1 / BUSI NESS / OT HER OPERAT I ONS
..................................................................................................................................................................................
............................................................................................................................................................................................
The Loss Reserve Development Process
The process of establishing the liability for unpaid losses and loss adjustment expense is complex and imprecise
because it must take into consideration many variables that are subject to the outcome of future events. As a result,
informed subjective estimates and judgments about our ultimate exposure to losses are an integral component of our
loss reserving process.
We use a number of techniques to analyze the adequacy of the
established net liability for unpaid claims and claims adjustment expense
(net loss reserves). Using these analytical techniques, we monitor the
adequacy of AIG’s established reserves and determine appropriate
assumptions for inflation and other factors influencing loss costs. Our
analysis also takes into account emerging specific development patterns,
such as case reserve redundancies or deficiencies and IBNR emergence.
We also consider specific factors that may impact losses, such as
changing trends in medical costs, unemployment levels and other
economic indicators, as well as changes in legislation and social attitudes
that may affect decisions to file claims or the magnitude of court awards.
See Item 7. MD&A — Critical Accounting Estimates for a description of
our loss reserving process.
A significant portion of AIG Property Casualty’s business is in the U.S.
commercial casualty class, including asbestos and environmental, which
tends to involve longer periods of time for the reporting and settlement of
claims and may increase the risk and uncertainty with respect to our loss
reserve development.
Analysis of Consolidated Loss Reserve Development
The ‘‘Analysis of Consolidated Loss Reserve Development’’ table presents the development of prior year net loss
reserves for calendar years 2003 through 2013 for each balance sheet in that period. The information in the table is
presented in accordance with reporting requirements of the Securities and Exchange Commission (SEC). This table
should be interpreted with care by those not familiar with its format or those who are familiar with other loss
development analyses arranged in an accident year or underwriting year basis rather than the balance sheet, as
shown below. See Note 12 to the Consolidated Financial Statements.
The top row of the table shows Net Reserves Held (the net liability for unpaid claims and claims adjustment
expenses) at each balance sheet date, net of discount. This liability represents the estimated amount of losses and
loss adjustment expenses for claims arising in all years prior to the balance sheet date that were unpaid as of that
balance sheet date, including estimates for IBNR claims. The amount of loss reserve discount included in the net
reserves at each date is shown immediately below the net reserves held. The undiscounted reserve at each date is
equal to the sum of the discount and the net reserves held. For example, Net Reserves Held (Undiscounted) was
$37.7 billion at December 31, 2003.
The next section of the table shows the original Net Undiscounted Reserves re-estimated over 10 years. This
re-estimation takes into consideration a number of factors, including changes in the estimated frequency of reported
claims, effects of significant judgments, the emergence of latent exposures, and changes in medical cost trends. For
example, the original undiscounted reserve of $37.7 billion at December 31, 2003, was re-estimated to $62.1 billion
at December 31, 2013. The amount of the development related to losses settled or re-estimated in 2013, but incurred
in 2010, is included in the cumulative development amount for years 2010, 2011 and 2012. Any increase or decrease
in the estimate is reflected in operating results in the period in which the estimate is changed.
The middle of the table shows Net Redundancy (Deficiency). This is the aggregate change in estimates over the
period of years covered by the table. For example, the net loss reserve deficiency of $24.4 billion for 2003 is the
difference between the original undiscounted reserve of $37.7 billion at December 31, 2003 and the $62.1 billion of
re-estimated reserves at December 31, 2013. The net deficiency amounts are cumulative; in other words, the amount
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 19
I T EM 1 / BUSI NESS
Because reserve estimates
are subject to the outcome of
future events, changes in
prior year estimates are
unavoidable in the insurance
industry. These changes in
estimates are sometimes
referred to as ‘‘loss
development’’ or ‘‘reserve
development.’’
..................................................................................................................................................................................
shown in the 2012 column includes the amount shown in the 2011 column, and so on. Conditions and trends that
have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it generally
is not appropriate to extrapolate future development based on this table.
The bottom portion of the table shows the Paid (Cumulative) amounts during successive years related to the
undiscounted loss reserves. For example, as of December 31, 2013, AIG had paid a total of $51.6 billion of the
$62.1 billion in re-estimated reserves for 2003, resulting in Remaining Reserves (Undiscounted) of $10.5 billion for
2003. Also included in this section are the Remaining Reserves (Undiscounted) and the Remaining Discount for
each year.
The following table presents loss reserves and the related loss development 2003 through 2013 and
consolidated gross liability (before discount), reinsurance recoverable and net liability recorded for each
calendar year, and the re-estimation of these amounts as of December 31, 2013.
(a)
Net Reserves Held
(b)
$ 36,228 $ 47,253 $ 57,476 $ 62,630 $ 69,288 $ 72,456 $ 67,899 $ 71,507 $ 70,825 $ 68,782
Discount (in Reserves Held) 1,516 1,553 2,110 2,264 2,429 2,574 2,655 3,217 3,183 3,246
Net Reserves Held (Undiscounted) 37,744 48,806 59,586 64,894 71,717 75,030 70,554 74,724 74,008 72,028
Net undiscounted Reserve re-estimated as of:
One year later 40,931 53,486 59,533 64,238 71,836 77,800 74,736 74,919 74,429 72,585
Two years later 49,463 55,009 60,126 64,764 74,318 82,043 74,529 75,502 75,167
Three years later 51,497 56,047 61,242 67,303 78,275 81,719 75,187 76,023
Four years later 52,964 57,618 63,872 70,733 78,245 82,422 76,058
Five years later 54,870 60,231 67,102 70,876 79,098 83,135
Six years later 57,300 63,348 67,518 71,572 79,813
Seven years later 60,283 63,928 68,233 72,286
Eight years later 60,879 64,532 69,023
Nine years later 61,449 65,261
Ten years later 62,116
Net Deficiency on net reserves held (24,372) (16,455) (9,437) (7,392) (8,096) (8,105) (5,504) (1,299) (1,159) (557)
Net Deficiency related to asbestos and
environmental (A&E) (4,038) (3,033) (2,104) (1,895) (1,877) (1,827) (1,675) (174) (144) (68)
Net Deficiency excluding A&E (20,334) (13,422) (7,333) (5,497) (6,219) (6,278) (3,829) (1,125) (1,015) (489)
Paid (Cumulative) as of:
One year later 12,163 14,910 15,326 14,862 16,531 24,267 15,919 17,661 19,235 18,758
Two years later 21,773 24,377 25,152 24,388 31,791 36,164 28,428 30,620 31,766
Three years later 28,763 31,296 32,295 34,647 40,401 46,856 38,183 40,091
Four years later 33,825 36,804 40,380 40,447 48,520 53,616 45,382
Five years later 38,087 43,162 44,473 46,474 53,593 58,513
Six years later 42,924 46,330 49,552 50,391 57,686
Seven years later 45,215 50,462 52,243 53,545
Eight years later 48,866 52,214 54,332
Nine years later 50,292 53,693
Ten years later 51,578
Remaining Reserves (Undiscounted) 10,538 11,568 14,691 18,741 22,127 24,622 30,676 35,932 43,401 53,827
Remaining Discount 1,624 1,723 1,861 2,038 2,251 2,487 2,722 2,955 3,186 3,375
Remaining Reserves $ 8,914 $ 9,845 $ 12,830 $ 16,703 $ 19,876 $ 22,135 $ 27,954 $ 32,977 $ 40,215 $ 50,452
Net Liability, End of Year $ 37,744 $ 48,806 $ 59,586 $ 64,894 $ 71,717 $ 75,030 $ 70,554 $ 74,724 $ 74,008 $ 72,028
Reinsurance Recoverable, End of Year 15,644 14,624 19,693 17,369 16,212 16,803 17,487 19,644 20,320 19,209
Gross Liability, End of Year 53,388 63,430 79,279 82,263 87,929 91,833 88,041 94,368 94,328 91,237
Re-estimated Net Liability 62,116 65,261 69,023 72,286 79,813 83,135 76,058 76,023 75,167 72,585
Re-estimated Reinsurance Recoverable 23,728 21,851 24,710 20,998 19,494 18,905 18,509 16,488 18,423 19,408
Re-estimated Gross Liability 85,844 87,112 93,733 93,284 99,307 102,040 94,567 92,511 93,590 91,993
Cumulative Gross
Redundancy (Deficiency) $ (32,456) $ (23,682) $ (14,454) $ (11,021) $ (11,378) $ (10,207) $ (6,526) $ 1,857 $ 738 $ (756)
(a) During 2009, we deconsolidated Transatlantic Holdings, Inc. and sold 21st Century Insurance Group and HSB Group, Inc. The sales and deconsolidation are
reflected in the table above as a reduction in December 31, 2009 net reserves of $9.7 billion and as an $8.6 billion increase in paid losses for the years 2000 through
2008 to remove the reserves for these divested entities from the ending balance.
(b) The increase in Net Reserves Held from 2009 to 2010 is partially due to the $1.7 billion in Net Reserves Held by Fuji, which was acquired in 2010. The decrease
in 2011 is due to the cession of asbestos reserves described in Item 7. MD&A — Results of Operations — Segment Results — AIG Property Casualty Operations —
Liability for Unpaid Claims and Claims Adjustment Expense — Asbestos and Environmental Reserves.
The Liability for unpaid claims and claims adjustment expense as reported in AIG’s Consolidated Balance Sheet at
December 31, 2013 differs from the total reserve reported in the annual statements filed with state insurance
departments and, where applicable, with foreign regulatory authorities primarily for the following reasons:
• Reserves for certain foreign operations are not required or permitted to be reported in the United States for
statutory reporting purposes, including contingency reserves for catastrophic events;
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AIG 2013 Form 10-K 20
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(in millions) 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
$ 64,316
3,555
$ 67,871
$ 67,871
17,231
$ 85,102
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• Statutory practices in the United States require reserves to be shown net of applicable reinsurance recoverable;
and
• Unlike statutory financial statements, AIG’s consolidated Liability for unpaid claims and claims adjustment expense
excludes the effect of intercompany transactions.
Gross loss reserves are calculated without reduction for reinsurance recoverables and represent the accumulation of
estimates for reported losses and IBNR, net of estimated salvage and subrogation. We review the adequacy of
established gross loss reserves in the manner previously described for net loss reserves. A reconciliation of activity
in the Liability for unpaid claims and claims adjustment expense is included in Note 12 to the Consolidated Financial
Statements.
For further discussion of asbestos and environmental reserves, see Item 7. MD&A — Results of Operations —
Segment Results — AIG Property Casualty Operations — Liability for Unpaid Claims and Claims Adjustment
Expense — Asbestos and Environmental Reserves.
Reinsurance is used primarily to manage overall capital adequacy and mitigate the insurance loss exposure related
to certain events such as natural and man-made catastrophes.
AIG subsidiaries operate worldwide primarily by underwriting and accepting risks for their direct account on a gross
basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those
risks exceed the desired retention level. In addition, as a condition of certain direct underwriting transactions, we are
required by clients, agents or regulation to cede all or a portion of risks to specified reinsurance entities, such as
captives, other insurers, local reinsurers and compulsory pools.
Over the last several years, AIG Property Casualty revised its ceded reinsurance framework and strategy to improve
capital management and support our global product line risk and profitability objectives. As a result of adopting the
revised framework and strategy, many individual reinsurance contracts were consolidated into more efficient global
programs and reinsurance ceded to third parties in support of risk and capital management objectives has decreased
for the full year 2013 compared to the prior year. There are many different forms of reinsurance agreements and
different markets that may be used to achieve our risk and profitability objectives. We continually evaluate the relative
attractiveness of various reinsurance markets and arrangements that may be used to achieve our risk and profitability
objectives.
Reinsurance markets include:
• Traditional local and global reinsurance markets including in the United States, Bermuda, London and Europe,
accessed directly and through reinsurance intermediaries;
• Capital markets through investors in insurance-linked securities and collateralized reinsurance transactions, such
as catastrophe bonds, ‘‘sidecars’’ (special purpose entities that allow investors to take on the risk of a book of
business from an insurance company in exchange for a premium) and similar vehicles; and
• Other insurers that engage in both direct and assumed reinsurance and/or engage in swaps.
The form of reinsurance that we may choose from time to time will generally depend on whether we are seeking
(i) proportional reinsurance, whereby we cede a specified percentage of premium and losses to reinsurers, or
non-proportional or excess of loss reinsurance, whereby we cede all or a specified portion of losses in excess of a
specified amount on a per risk, per occurrence (including catastrophe reinsurance) or aggregate basis and
(ii) treaties that cover a defined book of policies, or facultative placements that cover an individual policy. The vast
majority of our reinsurance is non-proportional.
Reinsurance arrangements do not relieve AIG subsidiaries from their direct obligations to insureds. However, an
effective reinsurance program substantially mitigates our exposure to potentially significant losses.
In certain markets, we are required to participate on a proportional basis in reinsurance pools based on our relative
share of direct writings in those markets. Such mandatory reinsurance generally covers higher-risk consumer
exposures such as assigned-risk automobile and earthquake, as well as certain commercial exposures such as
workers’ compensation.
REINSURANCE ACTIVITIES
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AIG 2013 Form 10-K 21
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We continued our strategy to take advantage of the pricing differential between traditional reinsurance markets and
capital markets. On July 9, 2013, we entered into a five-year catastrophe bond transaction with Tradewynd Re Ltd.,
which will provide $125 million of indemnity protection against U.S., Caribbean and Gulf of Mexico named storms,
and U.S. and Canadian earthquakes. The transaction provides us with fully collateralized coverage against losses
from the events described above on a per-occurrence basis through June 2018.
In addition, we entered into a five-year capital markets reinsurance transaction, effective as of January 1, 2014 with
Tradewynd Re Ltd., which will provide $400 million of indemnity reinsurance protection against U.S., Caribbean and
Gulf of Mexico named storms, and U.S. and Canadian earthquakes. To fund its potential obligations to AIG,
Tradewynd Re Ltd. issued three tranches of notes, one with a one-year term and two with three-year terms. The
transaction closed December 18, 2013 and provides AIG with fully collateralized coverage against losses from the
events described above on a per-occurrence basis through December 2018.
See Item 7. MD&A — Enterprise Risk Management — Insurance Operations Risks — AIG Property Casualty Key
Insurance Risks — Reinsurance Recoverable for a summary of significant reinsurers.
AIG Property Casualty and AIG Life and Retirement generally receive
premiums and deposits well in advance of paying covered claims or
benefits. In the intervening periods, we invest these premiums and
deposits to generate net investment income that is available to pay claims
or benefits. As a result, we generate significant revenues from insurance
investment activities.
AIG’s worldwide insurance investment policy places primary emphasis on
investments in fixed maturity securities of corporations, municipal bonds
and government issuances in all of its portfolios, and, to a lesser extent,
investments in high-yield bonds, common stock, real estate, hedge funds
and other alternative investments.
The majority of assets backing our insurance liabilities at AIG consist of intermediate and long duration fixed maturity
securities.
AIG Property Casualty — Fixed maturity securities held by the insurance companies included in AIG Property
Casualty domestic operations have historically consisted primarily of laddered holdings of corporate bonds, municipal
bonds and government bonds. These investments provided attractive returns and limited credit risk. To meet our
domestic operations’ current risk return and business objectives, our domestic property and casualty companies have
been shifting investment allocations to a broader array of debt, including structured securities and equity sectors. Our
fixed maturity securities must meet our liquidity, duration and quality objectives as well as current capital, risk return
and business objectives. Fixed maturity securities held by AIG Property Casualty international operations consist
primarily of intermediate duration high-grade securities, primarily in the markets being served. In addition, AIG
Property Casualty has redeployed cash in excess of operating needs and short-term investments into longer-term,
higher-yielding securities.
AIG Life and Retirement — Our investment strategy is to largely match the duration of our liabilities with assets of
comparable duration, to the extent practicable. AIG Life and Retirement primarily invests in a diversified portfolio of
fixed maturity securities, including corporate bonds, RMBS, CMBS and CDO/ABS. To further diversify the portfolio,
investments are made in private equity funds, hedge funds and affordable housing partnerships. Although these
alternative investments are subject to periodic earnings fluctuations, for the three years ended December 31, 2013,
they have achieved total returns in excess of AIG Life and Retirement’s fixed maturity security returns. AIG Life and
Retirement expects that these alternative investments will continue to outperform the fixed maturity security portfolio
over the long term.
GENERATING REVENUES: INVESTMENT ACTIVITIES OF OUR INSURANCE OPERATIONS
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AIG 2013 Form 10-K 22
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We generate significant
revenues in our AIG Property
Casualty and AIG Life and
Retirement operations from
investment activities.
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The following table summarizes the investment results of AIG’s insurance operations.
AIG Property Casualty:
2012 120,425 4,780 4.0
2011 112,310 4,253 3.8
AIG Life and Retirement:
2012 190,983 10,718 5.6
2011 172,846 9,882 5.7
(a) Excludes cash and short-term investments and includes unrealized appreciation of investments.
(b) Net investment income divided by the annual average investments. The increase in AIG Property Casualty pre-tax return on average investments
for the year ended December 31, 2013 compared to 2012 primarily relates to alternative investments and fair value option assets. See Item 7.
MD&A — Results of Operations — AIG Property Casualty — AIG Property Casualty Net Investment Income and Net Realized Capital Gains
(Losses).
Our operations around the world are subject to regulation by many different types of regulatory authorities, including
insurance, securities, derivatives, investment advisory, banking and thrift regulators in the United States and abroad.
Our insurance subsidiaries are subject to regulation and supervision by the states and jurisdictions in which they do
business. The insurance and financial services industries generally have been subject to heightened regulatory
scrutiny and supervision in recent years.
The following table provides a general overview of our primary regulators and related bodies and a brief
description of their oversight with respect to us and our subsidiaries, including key regulations or initiatives
that we are currently, or may in the future be, subject to. Such regulations and initiatives, both in the United
States and abroad, are discussed in more detail following the table.
U.S. Federal Regulation
Board of Governors of the Federal Reserve System (FRB): Oversees and regulates financial institutions,
including non-bank systemically important financial institutions (SIFIs), bank holding companies and savings and
loan holding companies (SLHCs). We are currently subject to the FRB’s examination, supervision and
enforcement authority, and reporting requirements, as an SLHC and as a SIFI.
Office of the Comptroller of the Currency (OCC): Charters, regulates and supervises all national banks and
federal savings associations. The OCC supervises and regulates AIG Federal Savings Bank, our federal savings
association subsidiary.
Securities and Exchange Commission (SEC): Oversees and regulates the U.S. securities and security-based
swap markets, U.S. mutual funds, U.S. broker-dealers and U.S. investment advisors. Principal regulator of the
mutual funds offered by our broker-dealer subsidiaries owned by AIG Life and Retirement. The SEC is in the
process of implementing rules and regulations governing reporting, execution and margin requirements for
security-based swaps entered into within the U.S. Our security-based swap activities conducted by Global Capital
Markets are subject to these rules and regulations.
Commodities Futures Trading Commission (CFTC): Oversees and regulates the U.S. swap, commodities and
futures markets. The CFTC has implemented, and is in the process of implementing, rules and regulations
governing reporting, execution and margin requirements for swaps entered into within the U.S. or by U.S. persons.
Our swap activities conducted by Global Capital Markets are subject to these rules and regulations.
Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank): Dodd-Frank has effected
comprehensive changes to financial services regulation and subjects us, or will subject us, as applicable, to
additional federal regulation, including:
• minimum capital requirements for SLHCs and insured depository institutions;
• enhanced prudential standards for SIFIs (including minimum leverage and risk-based capital requirements,
stress tests and an early remediation regime process);
• prohibitions on proprietary trading; and
• increased regulation and restrictions on derivatives markets and transactions.
REGULATION
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AIG 2013 Form 10-K 23
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Years Ended December 31, Annual Average Net Investment Pre-tax Return on
(in millions) Investments
(a)
Income Average Investments
(b)
2013 $ 119,307 $ 5,267 4.4%
2013 $ 192,895 $ 10,854 5.6%
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U.S. State Regulation
State Insurance Regulators: Our insurance subsidiaries are subject to regulation and supervision by the states
and other jurisdictions in which they do business. Regulation is generally derived from statutes that delegate
supervisory and regulatory powers to a state insurance regulator, and primarily relates to the insurer’s financial
condition, corporate conduct and market conduct activities.
NAIC Standards: The National Association of Insurance Commissioners (NAIC) is a standard-setting and
regulatory support organization created and governed by the chief insurance regulators from the 50 states, the
District of Columbia and five U.S. territories. The NAIC itself is not a regulator, but through the NAIC, state
insurance regulators establish standards and best practices, conduct peer review and coordinate regulatory
oversight.
Foreign Regulation
Financial Stability Board (FSB): Consists of representatives of national financial authorities of the G20 nations.
The FSB itself is not a regulator, but it coordinates the work of national financial authorities and international
standard-setting bodies and develops and promotes implementation of regulatory, supervisory and other financial
policies.
International Association of Insurance Supervisors (IAIS): Represents insurance regulators and supervisors of
more than 200 jurisdictions in nearly 140 countries and seeks to promote globally consistent insurance industry
supervision. The IAIS itself is not a regulator, but the FSB has directed the IAIS to create standards on issues
such as financial group supervision, capital and solvency standards, systemic economic risk and corporate
governance and incorporate them into IAIS’ Insurance Core Principles (ICPs). The FSB also charged IAIS with
developing a template for measuring systemic risks posed by insurer groups. Based on IAIS’ assessment
template, the FSB identified AIG as a global systemically important insurer (G-SII), which may subject us to a
policy framework that includes recovery and resolution planning requirements, enhanced group-wide supervision,
basic capital requirements and higher loss absorbency capital requirements. The IAIS is also developing
ComFrame, a Common Framework for the Supervision of Internationally Active Insurance Groups (IAIGs), which
includes additional supervisory oversight based on its ICPs but also adds requirements and supervisory processes
pertaining to the international business activities of IAIGs. AIG currently meets the parameters set forth to define
an IAIG.
European Union (EU): Certain financial services firms with regulated entities in the EU, such as us, are subject to
supplementary supervision, which seeks to enable supervisors to perform consolidated banking supervision and
insurance group supervision at the level of the ultimate parent entity. The objective of supplementary supervision
is to detect, monitor, manage and control group risks. The UK Prudential Regulatory Authority, the United
Kingdom’s prudential regulator, is our EU supervisory coordinator. The EU has also established a set of regulatory
requirements for EU derivatives activities under the European Market Infrastructure Regulation (EMIR) that
include, among other things, risk mitigation, risk management and regulatory reporting, which are effective, and
clearing requirements expected to become effective in 2014.
The EU’s Solvency II Directive (2009/138/EEC) (Solvency II), which is expected to become effective in 2016,
includes minimum capital and solvency requirements, governance requirements, risk management and public
reporting standards. The impact on us will depend on whether the U.S. insurance regulatory regime is deemed
‘‘equivalent’’ to Solvency II; if the U.S. insurance regulatory regime is not equivalent, then we could be subjected
to Solvency II standards.
Regulation of Foreign Insurance Company Subsidiaries: Generally, our subsidiaries operating in foreign
jurisdictions must satisfy local regulatory requirements. Our foreign operations are also regulated in various
jurisdictions with respect to currency, policy language and terms, advertising, amount and type of security
deposits, amount and type of reserves, amount and type of capital to be held, amount and type of local
investment and the share of profits to be returned to policyholders on participating policies. Some foreign countries
also regulate rates on various types of policies.
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AIG 2013 Form 10-K 24
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We are regulated by the FRB and subject to its examination, supervision and enforcement authority and reporting
requirements as a SLHC and as a SIFI.
We are a SLHC within the meaning of the Home Owners’ Loan Act (HOLA). Because we were grandfathered as a
unitary SLHC within the meaning of HOLA when we organized AIG Federal Savings Bank and became a SLHC in
1999, we generally are not restricted under existing laws as to the types of business activities in which we may
engage, as long as AIG Federal Savings Bank continues to be a qualified thrift lender.
Dodd-Frank has effected comprehensive changes to the regulation of financial services in the United States and
subjects us to substantial additional federal regulation. The FRB supervises and regulates SLHCs, and the OCC
supervises and regulates federal savings associations, such as AIG Federal Savings Bank. Dodd-Frank directs
existing and newly-created government agencies and oversight bodies to promulgate regulations implementing the
law, an ongoing process that has begun and is anticipated to continue over the next few years.
Changes mandated by Dodd-Frank include directing the FRB to promulgate minimum capital requirements for
SLHCs. The FRB, the OCC and the Federal Deposit Insurance Corporation (FDIC) have established revised
minimum leverage and risk-based capital requirements, which are based on accords established by the Basel
Committee on Banking Supervision, that apply to bank holding companies and SLHCs, as well as to insured
depository institutions, such as AIG Federal Savings Bank. The requirements, however, do not apply to SLHCs that
are substantially engaged in insurance underwriting activities. The FRB expects to implement a capital framework for
SLHCs that are substantially engaged in insurance underwriting activities by the time covered SLHCs must comply
with the requirements in 2015.
As required by Dodd-Frank, the FRB has also proposed enhanced prudential standards (including minimum leverage
and risk-based capital requirements) for SIFIs and has stated its intention to propose enhanced prudential standards
for SLHCs pursuant to HOLA. We cannot predict whether the capital regulations will be adopted as proposed or what
enhanced prudential standards the FRB will promulgate for SLHCs, either generally or as applicable to insurance
businesses. Further, we cannot predict how the FRB will exercise general supervisory authority over us as a SIFI,
although the FRB could, as a prudential matter, for example, limit our ability to pay dividends, repurchase shares of
AIG Common Stock or acquire or enter into other businesses. We cannot predict with certainty the requirements of
the regulations ultimately adopted or how or whether Dodd-Frank and such regulations will affect the financial
markets generally, impact our businesses, results of operations, cash flows or financial condition, or require us to
raise additional capital or result in a downgrade of our credit ratings.
On July 8, 2013, AIG received notice from the U.S. Treasury that the Financial Stability Oversight Council (Council)
has made a final determination that AIG should be supervised by the FRB as a SIFI pursuant to Dodd-Frank. As a
SIFI, we are regulated by the FRB both in that capacity and, for as long as AIG continues to control an insured
depository institution, in our capacity as a SLHC. The regulations applicable to SIFIs and to SLHCs, when all have
been adopted as final rules, may differ materially from each other. AIG is working to restructure AIG Federal Savings
Bank into a trust-only thrift and deregister AIG as a SLHC.
As a SIFI, we anticipate we will be subject to:
• stress tests to determine whether, on a consolidated basis, we have the capital necessary to absorb losses due to
adverse economic conditions;
• stricter prudential standards, including stricter requirements and limitations relating to risk-based capital, leverage,
liquidity and credit exposure, as well as overall risk management requirements, management interlock prohibitions
and a requirement to maintain a plan for rapid and orderly resolution in the event of severe financial distress; and
• an early remediation regime process to be administered by the FRB.
Furthermore, if the Council were to make an additional separate determination that AIG poses a ‘‘grave threat’’ to
U.S. financial stability, we would be required to maintain a debt-to-equity ratio of no more than 15:1 and the FRB
may:
• limit our ability to merge with, acquire, consolidate with, or become affiliated with another company;
• restrict our ability to offer specified financial products;
Federal Reserve Supervision
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AIG 2013 Form 10-K 25
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• require us to terminate specified activities;
• impose conditions on how we conduct our activities; and
• with approval of the Council, and a determination that the foregoing actions are inadequate to mitigate a threat to
U.S. financial stability, require us to sell or otherwise transfer assets or off-balance-sheet items to unaffiliated
entities.
As part of its general prudential supervisory powers, the FRB has the authority to limit our ability to conduct activities
that would otherwise be permissible for us to engage in if we do not satisfy certain requirements.
On December 10, 2013, the FRB, OCC, FDIC, SEC and CFTC adopted the final rule implementing Section 619 of
Dodd-Frank, referred to as the ‘‘Volcker Rule.’’ For as long as AIG Federal Savings Bank continues to be a qualified
thrift lender, we and our affiliates are considered banking entities for purposes of the rule and, after the end of the
rule’s conformance period in July 2015 (subject to extension by the FRB until 2017), would be prohibited from
‘‘proprietary trading’’ and sponsoring or investing in ‘‘covered funds,’’ subject to the rule’s exceptions. The term
‘‘covered funds’’ includes hedge, private equity or similar funds and, in certain cases, issuers of asset-backed
securities if such securities have equity-like characteristics. The Volcker Rule, as adopted, contains an exemption for
proprietary trading and ‘‘covered fund’’ sponsorship or investment by a regulated insurance company or its affiliate for
the general account of the regulated insurance company or a separate account established by the regulated
insurance company. Even if we no longer control an insured depository institution, however, Dodd-Frank authorizes
the FRB to subject SIFIs to additional capital requirements and quantitative limitations if they engage in activities
prohibited for banking entities under the Volcker Rule.
In addition, Dodd-Frank may also have the following effects on us:
• As a SIFI, we will be required to provide to regulators an annual plan for our rapid and orderly resolution in the
event of material financial distress or failure, which must, among other things, ensure that AIG Federal Savings
Bank is adequately protected from risks arising from our other entities and meet several specific standards,
including requiring a detailed resolution strategy and analyses of our material entities, organizational structure,
interconnections and interdependencies, and management information systems, among other elements.
• The Council may recommend that state insurance regulators or other regulators apply new or heightened
standards and safeguards for activities or practices that we and other insurers or other financial services
companies engage in.
• Title II of Dodd-Frank provides that a financial company whose largest United States subsidiary is an insurer (such
as us) may be subject to a special liquidation process outside the federal bankruptcy code. That process is to be
administered by the FDIC upon a coordinated determination by the Secretary of the Treasury, the director of the
Federal Insurance Office and the FRB, in consultation with the FDIC, that such a financial company is in default or
in danger of default and presents a systemic risk to U.S. financial stability.
• Dodd-Frank provides for significantly increased regulation of and restrictions on derivatives markets and
transactions that could affect various activities of AIG and its insurance and financial services subsidiaries,
including (i) regulatory reporting for swaps (which are regulated by the CFTC) and security-based swaps (which
are regulated by the SEC), (ii) mandated clearing through central counterparties and execution through regulated
exchanges or electronic facilities for certain swaps and security-based swaps and (iii) margin and collateral
requirements. Although the CFTC has not yet finalized certain requirements, many other requirements have taken
effect, such as swap reporting, the mandatory clearing of certain interest rate swaps and credit default swaps, and
the mandatory trading of certain swaps on swap execution facilities or exchanges starting in February 2014. The
SEC has proposed, but not yet finalized, rules with respect to the regulations and restrictions noted above. These
regulations have affected and may further affect various activities of AIG and its insurance and financial services
subsidiaries as rules are finalized to implement additional elements of the regulatory regime.
Volcker Rule
Other Effects of Dodd-Frank
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AIG 2013 Form 10-K 26
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Similar regulations have been proposed or adopted outside the United States. For instance, the EU has also
established a set of new regulatory requirements for EU derivatives activities under EMIR. These requirements
include, among other things, various risk mitigation, risk management and regulatory reporting requirements that
have already become effective and clearing requirements that are expected to become effective in 2014. These
requirements could result in increased administrative costs with respect to our EU derivatives activities and
overlapping or inconsistent regulation depending on the ultimate application of cross-border regulatory
requirements between and among U.S. and non-U.S. jurisdictions.
• Dodd-Frank mandated a study to determine whether stable value contracts should be included in the definition of
‘‘swap.’’ If that study concludes that stable value contracts are swaps, Dodd-Frank authorizes certain federal
regulators to determine whether an exemption from the definition of a swap for stable value contracts is
appropriate and in the public interest. Certain of our affiliates participate in the stable value contract business. We
cannot predict what regulations might emanate from the aforementioned study or be promulgated applicable to this
business in the future.
• Dodd-Frank established a Federal Insurance Office (FIO) within the Department of the Treasury headed by a
director appointed by the Secretary of the Treasury. While not having a general supervisory or regulatory authority
over the business of insurance, the director of this office performs various functions with respect to insurance
(other than health insurance), including serving as a non-voting member of the Council . On December 12, 2013,
the FIO released a Dodd-Frank mandated study on how to modernize and improve the system of insurance
regulation in the United States. The report concluded that the uniformity and efficiency of the current state based
regulatory system could be improved and highlighted areas in which Federal involvement is recommended. In the
near-term, the FIO recommended that the states undertake reforms regarding capital adequacy, reform of insurer
resolution practices, and marketplace regulation.
• Dodd-Frank established the Consumer Financial Protection Bureau (CFPB) as an independent agency within the
FRB to regulate consumer financial products and services offered primarily for personal, family or household
purposes. Insurance products and services are not within the CFPB’s general jurisdiction, although the U.S.
Department of Housing and Urban Development has since transferred authority to the CFPB to investigate
mortgage insurance practices. Broker-dealers and investment advisers are not subject to the CFPB’s jurisdiction
when acting in their registered capacity.
• Title XIV of Dodd-Frank also restricts certain terms for mortgage loans, such as loan fees, prepayment fees and
other charges, and imposes certain duties on a lender to ensure that a borrower can afford to repay the loan.
Dodd-Frank imposes various assessments on financial companies, including, as applicable to us, ex-post
assessments to provide funds necessary to repay any borrowing and to cover the costs of any special resolution of a
financial company conducted under Title II (although the regulatory authority would have to take account of the
amounts paid by us into state guaranty funds).
We cannot predict whether these actions will become effective or the effect they may have on the financial markets
or on our business, results of operations, cash flows, financial condition and credit ratings. However, it is possible
that such effect could be materially adverse. See Item 1A. Risk Factors — Regulation for additional information.
As described below, AIG has been designated as a Global Systemically Important Insurer (G-SII).
In addition to the adoption of Dodd-Frank in the United States, regulators and lawmakers around the world are
actively reviewing the causes of the financial crisis and taking steps to avoid similar problems in the future. The FSB,
consisting of representatives of national financial authorities of the G20 nations, has issued a series of frameworks
and recommendations intended to produce significant changes in how financial companies, particularly global
systemically important financial institutions, should be regulated. These frameworks and recommendations address
such issues as financial group supervision, capital and solvency standards, systemic economic risk, corporate
governance including compensation, and a number of related issues associated with responses to the financial crisis.
The FSB has directed the International Association of Insurance Supervisors (the IAIS, headquartered in Basel,
Switzerland) to create standards relative to these areas and incorporate them within that body’s Insurance Core
Principles (ICPs). IAIS’s ICPs form the baseline threshold against which countries’ financial services regulatory efforts
in the insurance sector are measured. That measurement is made by periodic Financial Sector Assessment Program
Other Regulatory Developments
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(FSAP) reviews conducted by the World Bank and the International Monetary Fund and the reports thereon spur the
development of country-specific additional or amended regulatory changes. Lawmakers and regulatory authorities in
a number of jurisdictions in which our subsidiaries conduct business have already begun implementing legislative and
regulatory changes consistent with these recommendations, including proposals governing consolidated regulation of
insurance holding companies by the Financial Services Agency in Japan, financial and banking regulation adopted in
France and compensation regulations proposed or adopted by the financial regulators in Germany and the United
Kingdom Prudential Regulation Authority.
The FSB has also charged the IAIS with developing a template for measuring systemic risks posed by insurer
groups. The IAIS has requested data from selected insurers around the world to determine which elements of the
insurance sector, if any, could materially and adversely impact other parts of the global financial services sector
(e.g., commercial and investment banking, securities trading, etc.). The IAIS has provided its assessment template to
the FSB. Based on this assessment template, on July 18, 2013, the FSB, in consultation with the IAIS and national
authorities, identified an initial list of G-SIIs, which includes AIG. The IAIS intends G-SIIs to be subject to a policy
framework that includes recovery and resolution planning requirements, enhanced group-wide supervision, basic
capital requirements and higher loss absorbency (HLA) capital requirements. The IAIS is currently developing a basic
capital requirement (BCR), which it expects to finalize by the end of 2014. The BCR is expected to cover all group
activities and could be implemented by national authorities as soon as 2015. The BCR will also serve as a
foundation for the application of HLA capital requirements, which the IAIS intends to focus on non-traditional and
non-insurance activities. It is expected that the IAIS will develop HLA capital requirements by the end of 2015 and
the G-SII policy framework will be fully implemented by 2019.
The IAIS is also developing a ComFrame, a Common Framework for the Supervision of Internationally Active
Insurance Groups (IAIGs), which includes additional supervisory oversight based on its ICPs but also adds
requirements and supervisory processes pertaining to the international business activities of IAIGs. As currently
delineated under the ComFrame, AIG meets the parameters set forth to define an IAIG. While we currently do not
know when any ComFrame requirements will be finalized and become effective, the IAIS will undertake a field testing
of the ComFrame, including the possibility of additional capital requirements for IAIGs, which is expected to
commence in the beginning of 2014. It is expected that implementation of the ComFrame would begin in 2019.
Legislation in the European Union could also affect our international insurance operations. The Solvency II Directive
(2009/138/EEC) (Solvency II), which was adopted on November 25, 2009 and is expected to become effective in
2016, reforms the insurance industry’s solvency framework, including minimum capital and solvency requirements,
governance requirements, risk management and public reporting standards. Solvency II is expected to be
accompanied by Omnibus II, an EU proposal for a directive that also contains provisions for the capital treatment of
products with long-term guarantees. Additionally, the European Insurance and Occupational Pensions Authority
recently introduced interim guidelines effective January 1, 2014 that provide regulators in EU Member States with a
framework to ensure that insurers make demonstrable progress towards meeting Solvency II requirements in 2016.
The impact on us will depend on whether the U.S. insurance regulatory regime is deemed ‘‘equivalent’’ to Solvency
II; if the U.S. insurance regulatory regime is not equivalent, then we, along with other U.S.-based insurance
companies, could be required to be supervised under Solvency II standards. Whether the U.S. insurance regulatory
regime will be deemed ‘‘equivalent’’ is still under consideration by European authorities and remains uncertain, so we
are not currently able to predict the impact of Solvency II.
We expect that the regulations applicable to us and our regulated entities will continue to evolve for the foreseeable
future.
Certain states and other jurisdictions require registration and periodic reporting by insurance companies that are
licensed in such jurisdictions and are controlled by other corporations. Applicable legislation typically requires periodic
disclosure concerning the corporation that controls the registered insurer and the other companies in the holding
company system and prior approval of intercompany services and transfers of assets, including in some instances
payment of dividends by the insurance subsidiary, within the holding company system. Our subsidiaries are
registered under such legislation in those jurisdictions that have such requirements.
Our insurance subsidiaries are subject to regulation and supervision by the states and by other jurisdictions in which
they do business. Within the United States, the method of such regulation varies but generally has its source in
Regulation of Insurance Subsidiaries
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statutes that delegate regulatory and supervisory powers to an insurance official. The regulation and supervision
relate primarily to the financial condition of the insurers and their corporate conduct and market conduct activities.
This includes approval of policy forms and rates, the standards of solvency that must be met and maintained,
including with respect to risk-based capital, the licensing of insurers and their agents, the nature of and limitations on
investments, restrictions on the size of risks that may be insured under a single policy, deposits of securities for the
benefit of policyholders, requirements for acceptability of reinsurers, periodic examinations of the affairs of insurance
companies, the form and content of reports of financial condition required to be filed and reserves for unearned
premiums, losses and other purposes. In general, such regulation is for the protection of policyholders rather than the
equity owners of these companies.
In the U.S., the Risk-Based Capital (RBC) formula is designed to measure the adequacy of an insurer’s statutory
surplus in relation to the risks inherent in its business. Virtually every state has adopted, in substantial part, the RBC
Model Law promulgated by the NAIC, which allows states to act upon the results of RBC calculations, and provides
for four incremental levels of regulatory action regarding insurers whose RBC calculations fall below specific
thresholds. Those levels of action range from the requirement to submit a plan describing how an insurer would
regain a calculated RBC ratio above the respective threshold through a mandatory regulatory takeover of the
company. The action thresholds are based on RBC levels that are calculated so that a company subject to such
actions is solvent but its future solvency is in doubt without some type of corrective action. The RBC formula
computes a risk-adjusted surplus level by applying discrete factors to various asset, premium and reserve items.
These factors are developed to be risk-sensitive so that higher factors are applied to items exposed to greater risk.
The statutory surplus of each of our U.S.-based life and property and casualty insurance subsidiaries exceeded RBC
minimum required levels as of December 31, 2013.
If any of our insurance entities fell below prescribed levels of statutory surplus, it would be our intention to provide
appropriate capital or other types of support to that entity, under formal support agreements or capital maintenance
agreements (CMAs) or otherwise. For additional details regarding CMAs that we have entered into with our insurance
subsidiaries, see Item 7. MD&A — Liquidity and Capital Resources — Liquidity and Capital Resources of AIG Parent
and Subsidiaries — AIG Property Casualty — AIG Life and Retirement and — Other Operations — Mortgage
Guaranty.
The NAIC’s Model Regulation ‘‘Valuation of Life Insurance Policies’’ (Regulation XXX) requires insurers to establish
additional statutory reserves for term life insurance policies with long-term premium guarantees and universal life
policies with secondary guarantees (ULSGs). NAIC Actuarial Guideline 38 (Guideline AXXX) clarifies the application
of Regulation XXX as to these guarantees, including certain ULSGs. See Item 1A — Risk Factors and Note 19 to the
Consolidated Financial Statements for risks and additional information related to these statutory reserving
requirements.
The NAIC has undertaken the Solvency Modernization Initiative (SMI) which focuses on a review of insurance
solvency regulations throughout the U.S. financial regulatory system and is expected to lead to a set of long-term
solvency modernization goals. SMI is broad in scope, but the NAIC has stated that its focus will include the U.S.
solvency framework, group solvency issues, capital requirements, international accounting and regulatory standards,
reinsurance and corporate governance.
A substantial portion of AIG Property Casualty’s business is conducted in foreign countries. The degree of regulation
and supervision in foreign jurisdictions varies. Generally, our subsidiaries operating in foreign jurisdictions must
satisfy local regulatory requirements, licenses issued by foreign authorities to our subsidiaries are subject to
modification or revocation by such authorities, and therefore these subsidiaries could be prevented from conducting
business in certain of the jurisdictions where they currently operate.
In addition to licensing requirements, our foreign operations are also regulated in various jurisdictions with respect to
currency, policy language and terms, advertising, amount and type of security deposits, amount and type of reserves,
amount and type of capital to be held, amount and type of local investment and the share of profits to be returned to
policyholders on participating policies. Some foreign countries regulate rates on various types of policies. Certain
countries have established reinsurance institutions, wholly or partially owned by the local government, to which
admitted insurers are obligated to cede a portion of their business on terms that may not always allow foreign
insurers, including our subsidiaries, full compensation. In some countries, regulations governing constitution of
technical reserves and remittance balances may hinder remittance of profits and repatriation of assets.
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14FEB201422521417
See Item 7. MD&A — Liquidity and Capital Resources — Regulation and Supervision and Note 19 to the
Consolidated Financial Statements.
Our businesses operate in a highly competitive global environment. Principal sources of competition are insurance
companies, banks, and other non-bank financial institutions. We consider our principal competitors to be other large
multinational insurance organizations. We describe our competitive strengths, our strategies to retain existing
customers and attract new customers within each of our operating business segment descriptions.
At December 31, 2013, we had approximately 64,000 employees. We believe that our relations with our employees
are satisfactory.
AIG Property
Casualty
Domestic
AIG Property
Casualty
International
14,000
28,000
AIG
PROPERTY
CASUALTY
11,000
11,000
42,000
AIG LIFE AND
RETIREMENT
OTHER OPERATIONS*
* Includes approximately 600 employees of ILFC, which was held for sale at December 31, 2013.
OUR COMPETITIVE ENVIRONMENT
OUR EMPLOYEES
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Information concerning the directors and executive officers of AIG as of February 20, 2014 is set forth below.
Robert H. Benmosche Director, President and Chief Executive Officer 69 2009
W. Don Cornwell Director 66 2011
John H. Fitzpatrick Director 57 2011
William G. Jurgensen Director 62 2013
Christopher S. Lynch Director 56 2009
Arthur C. Martinez Director 74 2009
George L. Miles, Jr. Director 72 2005
Henry S. Miller Director 68 2010
Robert S. Miller Chairman 72 2009
Suzanne Nora Johnson Director 56 2008
Ronald A. Rittenmeyer Director 66 2010
Douglas M. Steenland Director 62 2009
Theresa M. Stone Director 69 2013
Michael R. Cowan Executive Vice President and Chief Administrative Officer 60 2011
William N. Dooley Executive Vice President – Investments 60 1992
John Q. Doyle Executive Vice President – Commercial Property and Casualty Insurance 50 2013
Peter D. Hancock Executive Vice President – Property and Casualty Insurance 55 2010
David L. Herzog Executive Vice President and Chief Financial Officer 54 2005
Kevin T. Hogan Executive Vice President – Consumer Insurance 51 2013
Jeffrey J. Hurd Executive Vice President – Human Resources and Communications 47 2010
Thomas A. Russo Executive Vice President and General Counsel 70 2010
Siddhartha Sankaran Executive Vice President and Chief Risk Officer 36 2010
Brian T. Schreiber Executive Vice President and Deputy AIG Chief Investment Officer 48 2002
Jay S. Wintrob Executive Vice President – Life and Retirement 56 1999
Charles S. Shamieh Senior Vice President and Chief Corporate Actuary 47 2011
All directors of AIG are elected for one-year terms at the annual meeting of shareholders.
All executive officers are elected to one-year terms, but serve at the pleasure of the Board of Directors. Except for
the following individuals below, each of the executive officers has, for more than five years, occupied an executive
position with AIG or companies that are now its subsidiaries. There are no arrangements or understandings between
any executive officer and any other person pursuant to which the executive officer was elected to such position.
Robert Benmosche joined AIG as Chief Executive Officer in August 2009. Previously, he served as Chairman and
Chief Executive Officer of MetLife, Inc. from September 1998 to February 2006 (Chairman until April 2006). He
served as President of MetLife, Inc. from September 1999 to June 2004, President and Chief Operating Officer from
November 1997 to June 1998, and Executive Vice President from September 1995 to October 1997. He has been a
director of ILFC, our wholly-owned subsidiary, since June 2010. Mr. Benmosche served as a member of the Board of
Directors of Credit Suisse Group from 2002 to April 2013.
Michael R. Cowan joined AIG as Senior Vice President and Chief Administrative Officer in January 2010. Prior to
joining AIG, he was at Merrill Lynch where he had served as Senior Vice President, Global Corporate Services, since
1998. Mr. Cowan began his career at Merrill Lynch in 1986 as a Financial Manager and later served as Chief
Administrative Officer for Europe, the Middle East and Africa. He was also Chief Financial Officer and a member of
the Executive Management Committee for the Global Private Client business, including Merrill Lynch Asset
Management.
Thomas Russo joined AIG as Executive Vice President — Legal, Compliance, Regulatory Affairs and Government
Affairs and General Counsel in February 2010. Prior to joining AIG, Mr. Russo was with the law firm of Patton
Boggs, LLP, where he served as Senior Counsel. Prior to that, he was Chief Legal Officer of Lehman Brothers
Holdings, Inc. Before joining Lehman Brothers in 1993, he was a partner at the law firm of Cadwalader,
Wickersham & Taft and a member of its Management Committee.
DIRECTORS AND EXECUTIVE OFFICERS OF AIG
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Served as
Director or
Name Title Age Officer Since
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Peter Hancock joined AIG in February 2010 as Executive Vice President of Finance and Risk. Prior to joining AIG,
Mr. Hancock served as Vice Chairman of KeyCorp, responsible for Key National Banking. Prior to KeyCorp, he
served as Managing Director of Trinsum Group, Inc. Prior to that position, Mr. Hancock was at JP Morgan for
20 years, eventually serving as head of its fixed income division and ultimately Chief Financial Officer.
Siddartha Sankaran joined AIG in December 2010 as Senior Vice President and Chief Risk Officer. Prior to that, he
was a partner in the Finance and Risk practice of Oliver Wyman Financial Services and served as Canadian Market
Manager since 2006.
Kevin T. Hogan joined AIG as Chief Executive Officer of AIG Global Consumer Insurance in October 2013.
Mr. Hogan joined Zurich Insurance Group in December 2008, serving as Chief Executive Officer of Global Life
Americas until June 2010 and as Chief Executive Officer of Global Life from July 2010 to August 2013. From 1984 to
2008, Mr. Hogan held various positions with AIG, including Chief Operating Officer of American International
Underwriters, AIG’s Senior Life Division Executive for China and Taiwan and Chief Distribution Officer, Foreign Life
and Retirement Services.
Our corporate website is www.aig.com. We make available free of charge, through the Investor Information section of
our corporate website, the following reports (and related amendments as filed with the SEC) as soon as reasonably
practicable after such materials are electronically filed with, or furnished to, the SEC:
• Annual Reports on Form 10-K
• Quarterly Reports on Form 10-Q
• Current Reports on Form 8-K
• Proxy Statements on Schedule 14A, as well as other filings with the SEC
Also available on our corporate website:
• Charters for Board Committees: Audit, Nominating and Corporate Governance, Compensation and Management
Resources, Finance and Risk Management, Regulatory, Compliance and Public Policy, and Technology
Committees
• Corporate Governance Guidelines (which include Director Independence Standards)
• Director, Executive Officer and Senior Financial Officer Code of Business Conduct and Ethics (we will post on our
website any amendment or waiver to this Code within the time period required by the SEC)
• Employee Code of Conduct
• Related-Party Transactions Approval Policy
Except for the documents specifically incorporated by reference into this Annual Report on Form 10-K, information
contained on our website or that can be accessed through our website is not incorporated by reference into this
Annual Report on Form 10-K. Reference to our website is made as an inactive textual reference.
AVAILABLE INFORMATION ABOUT AIG
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Investing in AIG involves risk. In deciding whether to invest in AIG, you should carefully consider the following risk
factors. Any of these risk factors could have a significant or material adverse effect on our businesses, results of
operations, financial condition or liquidity. They could also cause significant fluctuations and volatility in the trading
price of our securities. Readers should not consider any descriptions of these factors to be a complete set of all
potential risks that could affect AIG. These factors should be considered carefully together with the other information
contained in this report and the other reports and materials filed by us with the Securities and Exchange Commission
(SEC). Further, many of these risks are interrelated and could occur under similar business and economic conditions,
and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such a
combination could materially increase the severity of the impact of these risks on our businesses, results of
operations, financial condition and liquidity.
Difficult conditions in the global capital markets and the economy may materially and adversely affect our
businesses, results of operations, financial condition and liquidity. Our businesses are highly dependent on the
economic environment, both in the U.S. and around the world. Extreme market events, such as the global financial
crisis during 2008 and 2009, have at times led, and could in the future lead, to a lack of liquidity, highly volatile
markets, a steep depreciation in asset values across all classes, an erosion of investor and public confidence, and a
widening of credit spreads. Concerns and events beyond our control, such as uncertainty as to the U.S. debt ceiling,
the continued funding of the U.S. government, U.S. fiscal and monetary policy, the U.S. housing market, and
concerns about European sovereign debt risk and the European banking industry, have in the past, and may in the
future, adversely affect liquidity, increase volatility, decrease asset prices, erode confidence and lead to wider credit
spreads. Difficult economic conditions could also result in increased unemployment and a severe decline in business
across a wide range of industries and regions. These market and economic factors could have a material adverse
effect on our businesses, results of operations, financial condition and liquidity.
Under difficult economic or market conditions, we could experience reduced demand for our products and an
elevated incidence of claims and lapses or surrenders of policies. Contract holders may choose to defer or cease
paying insurance premiums. Other ways in which we could be negatively affected by economic conditions include,
but are not limited to:
• declines in the valuation and performance of our investment portfolio, including declines attributable to rapid
increases in interest rates;
• increased credit losses;
• declines in the value of other assets;
• impairments of goodwill and other long-lived assets;
• additional statutory capital requirements;
• limitations on our ability to recover deferred tax assets;
• a decline in new business levels and renewals;
• a decline in insured values caused by a decrease in activity at client organizations;
• an increase in liability for future policy benefits due to loss recognition on certain long-duration insurance contracts;
• higher borrowing costs and more limited availability of credit;
• an increase in policy surrenders and cancellations; and
• a write-off of deferred policy acquisition costs (DAC).
Sustained low interest rates may materially and adversely affect our profitability. Recent periods have been
characterized by low interest rates relative to historical levels. Sustained low interest rates can negatively affect the
performance of our investment securities and reduce the level of investment income earned on our investment
MARKET CONDITIONS
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ITEM 1A / RISK FACTORS
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portfolios. If a low interest rate environment persists, we may experience slower investment income growth. Due to
practical and capital markets limitations, we may not be able to fully mitigate our interest rate risk by matching
exposure of our assets relative to our liabilities. Continued low interest rates could also impair our ability to earn the
returns assumed in the pricing and the reserving for our products at the time they were sold and issued.
The performance and value of our investment portfolio are subject to a number of risks and uncertainties,
including changes in interest rates. Our investment securities are subject to market risks and uncertainties. In
particular, interest rates are highly sensitive to many factors, including monetary policies, domestic and international
economic and political issues and other factors beyond our control. Changes in monetary policy or other factors may
cause interest rates to rise, which would adversely affect the value of the fixed income securities that we hold and
could adversely affect our ability to sell these securities. In addition, the evaluation of available-for-sale securities for
other-than-temporary impairments, which may occur if interest rates rise, is a quantitative and qualitative process that
is subject to significant management judgment. For a sensitivity analysis of our exposure to certain market risk
factors, see Item 7. MD&A — Enterprise Risk Management — Market Risk Management. Furthermore, our
alternative investment portfolio includes investments for which changes in fair value are reported through operating
income and are therefore subject to significant volatility. In an economic downturn or declining market, the reduction
in our investment income due to decreases in the fair value of alternative investments could have a material adverse
effect on operating income.
Our investment portfolio is concentrated in certain segments of the economy. Our results of operations and
financial condition have in the past been, and may in the future be, adversely affected by the degree of concentration
in our investment portfolio. We have concentrations in real estate and real estate-related securities, including
residential mortgage-backed, commercial mortgage-backed and other asset-backed securities and commercial
mortgage loans. We also have significant exposures to financial institutions and, in particular, to money center and
global banks; U.S. state and local government issuers and authorities; PICC Group and PICC P&C, as a result of our
strategic investments; and Euro Zone financial institutions, governments and corporations. Events or developments
that have a negative effect on any particular industry, asset class, group of related industries or geographic region
may adversely affect our investments to the extent they are concentrated in such segments. Our ability to sell assets
concentrated in such areas may be limited.
Concentration of our insurance and other risk exposures may have adverse effects. We may be exposed to
risks as a result of concentrations in our insurance policies, derivatives and other obligations that we undertake for
customers and counterparties. We manage these concentration risks by monitoring the accumulation of our
exposures by factors such as exposure type, industry, geographic region, counterparty and other factors. We also
seek to use reinsurance, hedging and other arrangements to limit or offset exposures that exceed the limits we wish
to retain. In certain circumstances, however, these risk management arrangements may not be available on
acceptable terms or may prove to be ineffective for certain exposures. Also, our exposure may be so large that even
a slightly adverse experience compared to our expectations may have a material adverse effect on our consolidated
results of operations or financial condition, or result in additional statutory capital requirements for our subsidiaries.
Our valuation of fixed maturity and equity securities may include methodologies, estimations and
assumptions that are subject to differing interpretations and could result in changes to investment
valuations that may materially adversely affect our results of operations, financial condition and liquidity.
During periods of market disruption, it may be difficult to value certain of our investment securities if trading becomes
less frequent and/or market data becomes less observable. There may be cases where certain assets in normally
active markets with significant observable data become inactive with insufficient observable data due to the financial
environment or market conditions in effect at that time. As a result, valuations may include inputs and assumptions
that are less observable or require greater estimation and judgment as well as valuation methods that are more
complex. These values may not be realized in a market transaction, may not reflect the loan value of the asset and
may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value
and/or an inability to realize that value in a market transaction or secured lending transaction may have a material
adverse effect on our results of operations, financial condition and liquidity.
INVESTMENT PORTFOLIO, CONCENTRATION OF INVESTMENTS, INSURANCE AND OTHER
EXPOSURES
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Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of
natural and man-made catastrophic events. Events such as hurricanes, windstorms, flooding, earthquakes, acts of
terrorism, explosions and fires, cyber crimes, product defects, pandemic and other highly contagious diseases, mass
torts and other catastrophes have adversely affected our business in the past and could do so in the future. In
addition, we recognize the scientific consensus that climate change is a reality of increasing concern, indicated by
higher concentrations of greenhouse gases, a warming atmosphere and ocean, diminished snow and ice, and sea
level rise. We understand that climate change potentially poses a serious financial threat to society as a whole, with
implications for the insurance industry in areas such as catastrophe risk perception, pricing and modeling
assumptions. Because there is significant variability associated with the impacts of climate change, we cannot predict
how physical, legal, regulatory and social responses may impact our business.
Such catastrophic events, and any relevant regulations, could expose us to:
• widespread claim costs associated with property, workers’ compensation, A&H, business interruption and mortality
and morbidity claims;
• loss resulting from a decline in the value of our invested assets;
• limitations on our ability to recover deferred tax assets;
• loss resulting from actual policy experience that is adverse compared to the assumptions made in product pricing;
• declines in value and/or losses with respect to companies and other entities whose securities we hold and
counterparties we transact business with and have credit exposure to, including reinsurers, and declines in the
value of investments; and
• significant interruptions to our systems and operations.
Catastrophic events are generally unpredictable. Our exposure to catastrophes depends on various factors, including
the frequency and severity of the catastrophes, the rate of inflation and the value and geographic concentration of
insured property and people. Vendor models and proprietary assumptions and processes that we use to manage
catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates.
In addition, legislative and regulatory initiatives and court decisions following major catastrophes could require us to
pay the insured beyond the provisions of the original insurance policy and may prohibit the application of a
deductible, resulting in inflated catastrophe claims.
For further details on potential catastrophic events, including a sensitivity analysis of our exposure to certain
catastrophes, see Item 7. MD&A — Enterprise Risk Management — Insurance Operations Risks — AIG Property
Casualty Key Insurance Risks.
Insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss
expenses. We regularly review the adequacy of the established Liability for unpaid claims and claims adjustment
expense and conduct extensive analyses of our reserves during the year. Our loss reserves, however, may develop
adversely. Estimation of ultimate net losses, loss expenses and loss reserves is a complex process, particularly for
long-tail casualty lines of business. These include, but are not limited to, general liability, commercial automobile
liability, environmental, workers’ compensation, excess casualty and crisis management coverages, insurance and
risk management programs for large corporate customers and other customized structured insurance products, as
well as excess and umbrella liability, D&O and products liability.
While we use a number of analytical reserve development techniques to project future loss development, reserves
may be significantly affected by changes in loss cost trends or loss development factors that were relied upon in
setting the reserves. These changes in loss cost trends or loss development factors could be due to difficulties in
predicting changes, such as changes in inflation, the judicial environment, or other social or economic factors
affecting claims. Any deviation in loss cost trends or in loss development factors might not be identified for an
extended period of time after we record the initial loss reserve estimates for any accident year or number of years.
For a further discussion of our loss reserves, see Item 7. MD&A — Results of Operations — Segment Results —
AIG Property Casualty Operations — Liability for Unpaid Claims and Claims Adjustment Expense and Critical
RESERVES AND EXPOSURES
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Accounting Estimates — Liability for Unpaid Claims and Claims Adjustment Expense (AIG Property Casualty and
Mortgage Guaranty).
Reinsurance may not be available or affordable and may not be adequate to protect us against losses. Our
subsidiaries are major purchasers of reinsurance and we use reinsurance as part of our overall risk management
strategy, and have continued our strategy, adopted in 2010, to improve the allocation of our reinsurance between
traditional reinsurance markets and the capital markets, such as through the utilization of catastrophe bonds, to
manage risks more efficiently. While reinsurance does not discharge our subsidiaries from their obligation to pay
claims for losses insured under our policies, it does make the reinsurer liable to them for the reinsured portion of the
risk. For this reason, reinsurance is an important risk management tool to manage transaction and insurance line risk
retention and to mitigate losses from catastrophes. Market conditions beyond our control determine the availability
and cost of reinsurance. For example, reinsurance may be more difficult or costly to obtain after a year with a large
number of major catastrophes. As a result, we may, at certain times, be forced to incur additional expenses for
reinsurance or may be unable to obtain sufficient reinsurance on acceptable terms. In that case, we would have to
accept an increase in exposure risk, reduce the amount of business written by our subsidiaries or seek alternatives.
Additionally, we are exposed to credit risk with respect to our subsidiaries’ reinsurers to the extent the reinsurance
receivable is not secured by collateral or does not benefit from other credit enhancements. We also bear the risk that
a reinsurer may be unwilling to pay amounts we have recorded as reinsurance recoverable for any reason, including
that (i) the terms of the reinsurance contract do not reflect the intent of the parties of the contract, (ii) the terms of
the contract cannot be legally enforced, (iii) the terms of the contract are interpreted by a court differently than
intended, (iv) the reinsurance transaction performs differently than we anticipated due to a flawed design of the
reinsurance structure, terms or conditions, or (v) a change in laws and regulations, or in the interpretation of the laws
and regulations, materially impacts a reinsurance transaction. The insolvency of one or more of our reinsurers, or
inability or unwillingness to make timely payments under the terms of our agreements, could have a material adverse
effect on our results of operations and liquidity. Additionally, the use of catastrophe bonds may not provide the same
levels of protection as traditional reinsurance transactions and any disruption, volatility and uncertainty in the
catastrophe bond market, such as following a major catastrophe event, may limit our ability to access such market on
terms favorable to us or at all. Also, some catastrophe bond transactions may be based on an industry loss index
rather than on actual losses incurred by us, which would result in residual risk. Our inability to obtain adequate
reinsurance or other protection could have a material adverse effect on our business, results of operations and
financial condition.
We currently have limited reinsurance coverage for terrorist attacks. Further, the availability of private sector
reinsurance for terrorism is limited. As a result, we rely heavily on the Terrorism Risk Insurance Program
Reauthorization Act of 2007 (TRIPRA), which provides U.S. government risk assistance to the insurance industry to
manage the exposure to terrorism incidents in the United States. Under TRIPRA, once our losses for certain acts of
terrorism exceed a deductible equal to 20 percent of our commercial property and casualty insurance premiums for
the prior calendar year, the federal government will reimburse us for 85 percent of losses in excess of our deductible,
up to a total industry program limit of $100 billion. However, TRIPRA is scheduled to expire in December 2014, and
there is no assurance that TRIPRA will be renewed in its current form or at all. To the extent that TRIPRA is
renewed on less favorable terms or is not renewed at all, we may not hold adequate terrorism reinsurance coverage
or reserves in the event of one or more insured terrorist incidents in the United States, which could result in a
material adverse effect on our business, results of operations, financial condition and liquidity.
For additional information on our reinsurance, see Item 7. MD&A — Enterprise Risk Management — Insurance
Operations Risks — AIG Property Casualty Key Insurance Risks — Reinsurance Recoverable.
Our internal sources of liquidity may be insufficient to meet our needs. We need liquidity to pay our operating
expenses, interest on our debt, maturing debt obligations and to meet any statutory capital requirements of our
subsidiaries. If our liquidity is insufficient to meet our needs, we may at the time need to have recourse to third-party
financing, external capital markets or other sources of liquidity, which may not be available or could be prohibitively
expensive. The availability and cost of any additional financing at any given time depends on a variety of factors,
including general market conditions, the volume of trading activities, the overall availability of credit, regulatory
actions and our credit ratings and credit capacity. It is also possible that, as a result of such recourse to external
financing, customers, lenders or investors could develop a negative perception of our long- or short-term financial
LIQUIDITY, CAPITAL AND CREDIT
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prospects. Disruptions, volatility and uncertainty in the financial markets, and downgrades in our credit ratings, may
limit our ability to access external capital markets at times and on terms favorable to us to meet our capital and
liquidity needs or prevent our accessing the external capital markets or other financing sources. For a further
discussion of our liquidity, see Item 7. MD&A — Liquidity and Capital Resources.
A downgrade in our credit ratings could require us to post additional collateral and result in the termination
of derivative transactions. Credit ratings estimate a company’s ability to meet its obligations and may directly affect
the cost and availability of financing. A downgrade of our long-term debt ratings by the major rating agencies would
require us to post additional collateral payments related to derivative transactions to which we are a party, and could
permit the termination of these derivative transactions. This could adversely affect our business, our consolidated
results of operations in a reporting period or our liquidity. In the event of further downgrades of two notches to our
long-term senior debt ratings, AIG would be required to post additional collateral of $111 million, and certain of our
counterparties would be permitted to elect early termination of contracts.
AIG Parent’s ability to access funds from our subsidiaries is limited. As a holding company, AIG Parent
depends on dividends, distributions and other payments from its subsidiaries to fund dividends on AIG Common
Stock and to make payments due on its obligations, including its outstanding debt. The majority of our investments
are held by our regulated subsidiaries. Our subsidiaries may be limited in their ability to make dividend payments or
advance funds to AIG Parent in the future because of the need to support their own capital levels or because of
regulatory limits. The inability of our subsidiaries to make payments, dividends or distributions in an amount sufficient
to enable AIG Parent to meet its cash requirements could have an adverse effect on our operations, our ability to
pay dividends or our ability to meet our debt service obligations.
AIG Parent’s ability to support our subsidiaries is limited. AIG Parent has in the past and expects to continue to
provide capital to our subsidiaries as necessary to maintain regulatory capital ratios, comply with rating agency
requirements and meet unexpected cash flow obligations. If AIG Parent is unable to satisfy a capital need of a
subsidiary, the subsidiary could become insolvent or, in certain cases, could be seized by its regulator.
Our subsidiaries may not be able to generate cash to meet their needs due to the illiquidity of some of their
investments. Our subsidiaries have investments in certain securities that may be illiquid, including certain fixed
income securities and certain structured securities, private company securities, private equity funds and hedge funds,
mortgage loans, finance receivables and real estate. Collectively, investments in these assets had a fair value of
$49 billion at December 31, 2013. Adverse real estate and capital markets, and tighter credit spreads, have in the
past, and may in the future, materially adversely affect the liquidity of our other securities portfolios, including our
residential and commercial mortgage-related securities portfolios. In the event additional liquidity is required by one or
more of our subsidiaries and AIG Parent is unable to provide it, it may be difficult for these subsidiaries to generate
additional liquidity by selling, pledging or otherwise monetizing these less liquid investments.
A downgrade in the Insurer Financial Strength ratings of our insurance companies could prevent them from
writing new business and retaining customers and business. Insurer Financial Strength (IFS) ratings are an
important factor in establishing the competitive position of insurance companies. IFS ratings measure an insurance
company’s ability to meet its obligations to contract holders and policyholders. High ratings help maintain public
confidence in a company’s products, facilitate marketing of products and enhance its competitive position.
Downgrades of the IFS ratings of our insurance companies could prevent these companies from selling, or make it
more difficult for them to succeed in selling, products and services, or result in increased policy cancellations,
termination of assumed reinsurance contracts, or return of premiums. Under credit rating agency policies concerning
the relationship between parent and subsidiary ratings, a downgrade in AIG Parent’s credit ratings could result in a
downgrade of the IFS ratings of our insurance subsidiaries.
Interest rate fluctuations, increased surrenders, declining investment returns and other events may require
our subsidiaries to accelerate the amortization of DAC and record additional liabilities for future policy
benefits. We incur significant costs in connection with acquiring new and renewal insurance business. DAC
represents deferred costs that are incremental and directly related to the successful acquisition of new business or
renewal of existing business. The recovery of DAC is generally dependent upon the future profitability of the related
business, but DAC amortization varies based on the type of contract. For long-duration traditional business, DAC is
BUSINESS AND OPERATIONS
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generally amortized in proportion to premium revenue and varies with lapse experience. Actual lapses in excess of
expectations can result in an acceleration of DAC amortization.
DAC for investment-oriented products is generally amortized in proportion to estimated gross profits. Estimated gross
profits are affected by a number of assumptions, including current and expected interest rates, net investment
income and spreads, net realized gains and losses, fees, surrender rates, mortality experience and equity market
returns and volatility. If actual and/or future estimated gross profits are less than originally expected, then the
amortization of DAC would be accelerated in the period the actual experience is known and would result in a charge
to income. For example, if interest rates rise rapidly and significantly, customers with policies that have interest
crediting rates below the current market may seek competing products with higher returns and we may experience
an increase in surrenders and withdrawals of life and annuity contracts, resulting in a decrease in future profitability
and an acceleration of the amortization of DAC.
We also periodically review products for potential loss recognition events, principally insurance-oriented products.
This review involves estimating the future profitability of in-force business and requires significant management
judgment about assumptions including mortality, morbidity, persistency, maintenance expenses, and investment
returns, including net realized capital gains (losses). If actual experience or estimates result in projected future
losses, we may be required to amortize any remaining DAC and record additional liabilities through a charge to
policyholder benefit expense, which could negatively affect our results of operations. For example, realized gains on
investment sales in 2012 and 2013 have reduced future investment margins and required the recognition of
additional liabilities for certain payout annuities. For further discussion of DAC and future policy benefits, see Item 7.
MD&A — Critical Accounting Estimates and Notes 9 and 12 to the Consolidated Financial Statements.
Certain of our products offer guarantees that may increase the volatility of our results. We offer variable
annuity products that guarantee a certain level of benefits, such as guaranteed minimum death benefits (GMDB),
guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits (GMWB) and guaranteed
minimum account value benefits (GMAV). For GMDB, our most widely offered guaranteed benefit feature, the
liabilities included in Future policyholder benefits at December 31, 2013 were $355 million. Our economic hedging
program utilizes derivative instruments, including equity options, futures contracts and interest rate swap contracts,
and is designed so that changes in value of the derivative instruments move in the opposite direction of changes in
the GMWB and GMAV embedded derivative liabilities. Differences between the change in fair value of GMWB and
GMAV embedded derivative liabilities and the hedging instruments can be caused by extreme and unanticipated
movements in the equity markets, interest rates and market volatility, policyholder behavior and our inability to
purchase hedging instruments at prices consistent with the desired risk and return trade-off. While we believe that
our actions have reduced the risks related to guaranteed benefits, our exposure is not fully hedged, and we remain
liable if counterparties are unable or unwilling to pay. In addition, we remain exposed to the risk that policyholder
behavior and mortality may differ from our assumptions. Finally, downturns in equity markets, increased equity
volatility or reduced interest rates could result in an increase in the liabilities associated with the guaranteed benefits,
reducing our net income and shareholders’ equity. See Note 13 to the Consolidated Financial Statements and Item 7.
MD&A — Critical Accounting Estimates for more information regarding these products.
Indemnity claims could be made against us in connection with divested businesses. We have provided
financial guarantees and indemnities in connection with the businesses we have sold, including ALICO, as described
in greater detail in Note 15 to the Consolidated Financial Statements. While we do not currently believe the claims
under these indemnities will be material, it is possible that significant indemnity claims could be made against us. If
such a claim or claims were successful, it could have a material adverse effect on our results of operations, cash
flows and liquidity. See Note 15 to the Consolidated Financial Statements for more information on these financial
guarantees and indemnities.
Our foreign operations expose us to risks that may affect our operations. We provide insurance, investment
and other financial products and services to both businesses and individuals in more than 130 countries. A
substantial portion of our AIG Property Casualty business is conducted outside the United States, and we intend to
continue to grow this business. Operations outside the United States, particularly in developing nations, may be
affected by regional economic downturns, changes in foreign currency exchange rates, political upheaval,
nationalization and other restrictive government actions, which could also affect our other operations.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign
jurisdictions must satisfy local regulatory requirements and it is possible that local licenses may require AIG Parent to
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meet certain conditions. Licenses issued by foreign authorities to our subsidiaries are subject to modification and
revocation. Consequently, our insurance subsidiaries could be prevented from conducting future business in some of
the jurisdictions where they currently operate. Adverse actions from any single country could adversely affect our
results of operations, depending on the magnitude of the event and our financial exposure at that time in that
country.
We may experience difficulty in marketing and distributing products through our current and future
distribution channels. Although we distribute our products through a wide variety of distribution channels, we
maintain relationships with certain key distributors. Distributors have in the past, and may in the future, elect to
renegotiate the terms of existing relationships, or reduce or terminate their distribution relationships with us, including
for such reasons as industry consolidation of distributors or other industry changes that increase the competition for
access to distributors, adverse developments in our business, adverse rating agency actions or concerns about
market-related risks. An interruption in certain key relationships could materially affect our ability to market our
products and could have a material adverse effect on our businesses, operating results and financial condition.
In addition, when our products are distributed through unaffiliated firms, we may not be able to monitor or control the
manner of their distribution, despite our training and compliance programs. If our products are distributed to
customers for whom they are unsuitable or distributed in any other inappropriate manner, we may suffer reputational
and other harm to our business.
Significant conditions precedent must be satisfied to complete the sale of the common stock of ILFC on the
agreed terms. On December 16, 2013, AIG and AIG Capital Corporation (Seller), a wholly-owned direct subsidiary
of AIG, entered into a definitive agreement (the AerCap Share Purchase Agreement) with AerCap Holdings N.V.
(AerCap) and AerCap Ireland Limited (Purchaser), a wholly-owned subsidiary of AerCap, for the sale of 100% of the
common stock of ILFC by Seller to Purchaser (such transaction, the AerCap Transaction). Under the terms of the
AerCap Share Purchase Agreement, consummation of the AerCap Transaction is subject to the satisfaction or waiver
of a number of conditions precedent, such as certain customary conditions and other closing conditions, including the
receipt of approvals or non-disapprovals from antitrust and other regulatory bodies. The AerCap Transaction was
approved by AerCap shareholders on February 13, 2014.
Any relevant regulatory body may refuse its approval or may seek to make its approval subject to compliance by
ILFC or the Purchaser with unanticipated or onerous conditions. Even if approval is not required, the regulator may
impose requirements on ILFC subsequent to consummation of the AerCap Transaction. We or the Purchaser might
not agree to such conditions or requirements and may have a contractual right to terminate the AerCap Share
Purchase Agreement.
In addition to other customary termination events, the Share Purchase Agreement allows termination by (i) AIG,
Seller or Purchaser if the closing of the AerCap Transaction has not occurred on or before September 16, 2014 (the
Long-Stop Date), subject to an extension to December 16, 2014 for the receipt of certain approvals, (ii) AIG, Seller or
Purchaser in the event that approvals or non-disapprovals from certain regulatory bodies have not been obtained by
the Long-Stop Date (as extended), (iii) AIG or Seller, if the AerCap board of directors withdraws or adversely
modifies its approval of the AerCap Transaction or (iv) AIG or Seller if all conditions are satisfied, AIG and Seller are
prepared to close but Purchaser fails to close the AerCap Transaction as required.
Because of the closing conditions and termination rights applicable to the AerCap Transaction, completion of the
AerCap Transaction is not assured or may be delayed or, even if the transaction is completed, the terms of the sale
may need to be significantly restructured.
The completion of the AerCap Transaction as contemplated could expose us to additional risks related to
AerCap’s stock and credit. Upon completion of the AerCap Transaction, we will hold approximately 46 percent of
the common stock of AerCap. As a result, declines in the value of AerCap’s common stock, and the other effects of
our accounting for this investment under the equity method of accounting, could have a material adverse effect on
our results of operations in a reporting period.
In addition, in connection with the AerCap Transaction, AIG, AerCap, Purchaser, AerCap Ireland Capital Limited
(AerCap Ireland) and certain subsidiaries of AerCap, as guarantors, entered into a credit agreement for a senior
unsecured revolving credit facility between AerCap Ireland, as borrower, and AIG, as lender and administrative agent
(the Revolving Credit Facility). The Revolving Credit Facility provides for an aggregate commitment of $1 billion and
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permits loans for general corporate purposes. An event of default under the Revolving Credit Facility could have a
material adverse effect on our results of operations and financial condition.
Failure to complete the AerCap Transaction could negatively affect our businesses and financial results. If
the AerCap Transaction is not completed, the ongoing businesses of ILFC and AIG may be adversely affected and
we will be subject to several risks, including the following:
• alternative plans to dispose of ILFC, such as through a sale or initial public offering, may be difficult to structure
and may take extended periods of time to implement, depending on, among other things, the global economic and
regulatory environments and general market conditions;
• we may not be able to realize equivalent or greater value for ILFC under an alternative asset monetization plan
which could impact the carrying values of ILFC’s assets and liabilities;
• we will have incurred certain significant costs relating to the disposition of ILFC without receiving the benefits of the
AerCap Transaction, and may incur further significant costs if an alternative monetization plan is undertaken;
• negative customer perception could adversely affect ILFC’s ability to compete for, maintain or win new and existing
business in the marketplace; and
• potential further diversion of our management’s time and attention.
Significant legal proceedings may adversely affect our results of operations or financial condition. We are
party to numerous legal proceedings, including securities class actions and regulatory and governmental
investigations. Due to the nature of these proceedings, the lack of precise damage claims and the type of claims we
are subject to, we cannot currently quantify our ultimate or maximum liability for these actions. Developments in
these unresolved matters could have a material adverse effect on our consolidated financial condition or consolidated
results of operations for an individual reporting period. Starr International Company, Inc. (SICO) has brought suits
against the United States (including the Federal Reserve Bank of New York) challenging the government’s assistance
of AIG, pursuant to which (i) AIG entered into a credit facility with the Federal Reserve Bank of New York; (ii) the
United States received an approximately 80 percent ownership interest in AIG; and (iii) AIG entered into transactions
involving Maiden Lane III LLC. The United States has alleged that AIG is obligated to indemnify the United States for
any recoveries in these lawsuits. A determination that the United States is liable for damages in such suits, together
with a determination that AIG is obligated to indemnify the United States, could have a material adverse effect on our
business, consolidated financial condition and results of operations. For a discussion of the SICO litigation and other
unresolved matters, see Note 15 to the Consolidated Financial Statements.
If we are unable to maintain the availability of our electronic data systems and safeguard the security of our
data, our ability to conduct business may be compromised, which could adversely affect our consolidated
financial condition or results of operations. We use computer systems to store, retrieve, evaluate and utilize
customer, employee, and company data and information. Some of these systems in turn, rely upon third-party
systems. Our business is highly dependent on our ability to access these systems to perform necessary business
functions, including providing insurance quotes, processing premium payments, making changes to existing policies,
filing and paying claims, administering variable annuity products and mutual funds, providing customer support and
managing our investment portfolios. Systems failures or outages could compromise our ability to perform these
functions in a timely manner, which could harm our ability to conduct business and hurt our relationships with our
business partners and customers. In the event of a natural disaster, a computer virus, a terrorist attack or other
disruption inside or outside the U.S., our systems may be inaccessible to our employees, customers or business
partners for an extended period of time, and our employees may be unable to perform their duties for an extended
period of time if our data or systems are disabled or destroyed. Our systems have in the past been, and may in the
future be, subject to unauthorized access, such as physical or electronic break-ins or unauthorized tampering. Like
other global companies, we have, from time to time, experienced threats to our data and systems, including malware
and computer virus attacks, unauthorized access, systems failures and disruptions. AIG maintains cyber risk
insurance, but this insurance may not cover all costs associated with the consequences of personal, confidential or
proprietary information being compromised. In some cases, such unauthorized access may not be immediately
detected. This may impede or interrupt our business operations and could adversely affect our consolidated financial
condition or results of operations.
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In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email and
other electronic means. Although we attempt to keep such information confidential, we may be unable to do so in all
events, especially with clients, vendors, service providers, counterparties and other third parties who may not have or
use appropriate controls to protect confidential information. Furthermore, certain of our businesses are subject to
compliance with laws and regulations enacted by U.S. federal and state governments, the European Union or other
jurisdictions or enacted by various regulatory organizations or exchanges relating to the privacy and security of the
information of clients, employees or others. The compromise of personal, confidential or proprietary information could
result in remediation costs, legal liability, regulatory action and reputational harm.
Our businesses are heavily regulated and changes in regulation may affect our operations, increase our
insurance subsidiary capital requirements or reduce our profitability. Our operations generally, and our
insurance subsidiaries, in particular, are subject to extensive and potentially conflicting supervision and regulation by
national authorities and by the various jurisdictions in which we do business. Supervision and regulation relate to
numerous aspects of our business and financial condition. State and foreign regulators also periodically review and
investigate our insurance businesses, including AIG-specific and industry-wide practices. The primary purpose of
insurance regulation is the protection of our insurance contract holders, and not our investors. The extent of domestic
regulation varies, but generally is governed by state statutes. These statutes delegate regulatory, supervisory and
administrative authority to state insurance departments.
We strive to maintain all required licenses and approvals. However, our businesses may not fully comply with the
wide variety of applicable laws and regulations. The relevant authority’s interpretation of the laws and regulations
also may change from time to time. Regulatory authorities have relatively broad discretion to grant, renew or revoke
licenses and approvals. If we do not have the required licenses and approvals or do not comply with applicable
regulatory requirements, these authorities could preclude or temporarily suspend us from carrying on some or all of
our activities or impose substantial fines. Further, insurance regulatory authorities have relatively broad discretion to
issue orders of supervision, which permit them to supervise the business and operations of an insurance company.
In the U.S., the RBC formula is designed to measure the adequacy of an insurer’s statutory surplus in relation to the
risks inherent in its business. Virtually every state has adopted, in substantial part, the RBC Model Law promulgated
by the NAIC, which specifies the regulatory actions the insurance regulator may take if an insurer’s RBC calculations
fall below specific thresholds. Those actions range from requiring an insurer to submit a plan describing how it would
regain a specified RBC ratio to a mandatory regulatory takeover of the company. Regulators at the federal and
international levels are also considering the imposition of additional capital requirements on certain insurance
companies, which may include us, that may augment or even displace state-law RBC standards that apply at the
legal entity level, and such capital calculations may be made on bases other than the statutory statements of our
insurance subsidiaries. See ‘‘Our status as a savings and loan holding company and a systemically important
financial institution, as well as the enactment of Dodd-Frank, will subject us to substantial additional federal
regulation, which may materially and adversely affect our businesses, results of operations and cash flows’’ and
‘‘Actions by foreign governments and regulators could subject us to substantial additional regulation’’ below for
additional information on increased capital requirements that may be imposed on us. We cannot predict the effect
these initiatives may have on our business, results of operations, cash flows and financial condition.
The degree of regulation and supervision in foreign jurisdictions varies. AIG subsidiaries operating in foreign
jurisdictions must satisfy local regulatory requirements and it is possible that local licenses may require AIG Parent to
meet certain conditions. Licenses issued by foreign authorities to our subsidiaries are subject to modification and
revocation. Thus, our insurance subsidiaries could be prevented from conducting future business in certain of the
jurisdictions where they currently operate. Adverse actions from any single country could adversely affect our results
of operations, liquidity and financial condition, depending on the magnitude of the event and our financial exposure at
that time in that country.
See Item 1. Business — Regulation for further discussion of our regulatory environment.
Our status as a savings and loan holding company and a systemically important financial institution, as well
as the enactment of Dodd-Frank , will subject us to substantial additional federal regulation, which may
materially and adversely affect our businesses, results of operations and cash flows. On July 21, 2010,
Dodd-Frank, which effects comprehensive changes to the regulation of financial services in the United States, was
REGULATION
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signed into law. Dodd-Frank directs existing and newly created government agencies and bodies to promulgate
regulations implementing the law, an ongoing process anticipated to continue over the next few years.
We cannot predict the requirements of the regulations ultimately adopted, the level and magnitude of supervision we
may become subject to, or how Dodd-Frank and such regulations will affect the financial markets generally or our
businesses, results of operations or cash flows. It is possible that the regulations adopted under Dodd-Frank and our
regulation by the FRB as an SLHC or as a SIFI could significantly alter our business practices, limit our ability to
engage in capital or liability management, require us to raise additional capital, and impose burdensome and costly
requirements and additional costs. Some of the regulations may also affect the perceptions of regulators, customers,
counterparties, creditors or investors about our financial strength and could potentially affect our financing costs.
See Item 1. Business — Regulation for further discussion of the details of the aforementioned regulations to which
AIG and its businesses are subject.
Actions by foreign governments and regulators could subject us to substantial additional regulation. We
cannot predict the impact laws and regulations adopted in foreign jurisdictions may have on the financial markets
generally or our businesses, results of operations or cash flows. It is possible such laws and regulations, and the
impact of our designation as a global systemically important insurer (G-SII), may significantly alter our business
practices, limit our ability to engage in capital or liability management, require us to raise additional capital, and
impose burdensome requirements and additional costs. It is possible that the laws and regulations adopted in foreign
jurisdictions will differ from one another and that they could be inconsistent with the laws and regulations of other
jurisdictions including the United States.
In addition to the adoption of Dodd-Frank in the United States, regulators and lawmakers around the world are
actively reviewing the causes of the financial crisis and taking steps to avoid similar problems in the future. The FSB,
consisting of representatives of national financial authorities of the G20 nations, has issued a series of frameworks
and recommendations intended to produce significant changes in how financial companies, particularly global
systemically important financial institutions, should be regulated. These frameworks and recommendations address
such issues as financial group supervision, capital and solvency standards, corporate governance including
compensation, and a number of related issues associated with responses to the financial crisis. The FSB has
directed the IAIS to create standards relative to these areas and incorporate them within that body’s ICPs.
Lawmakers and regulatory authorities in a number of jurisdictions in which our subsidiaries conduct business have
already begun implementing legislative and regulatory changes consistent with these recommendations.
The FSB has also charged the IAIS with developing a template for measuring systemic risks posed by insurer
groups. The IAIS has requested data from selected insurers around the world to determine which elements of the
insurance sector, if any, could materially and adversely impact other parts of the global financial services sector
(e.g., commercial and investment banking, securities trading, etc.). The IAIS has provided its assessment template to
the FSB. Based on this assessment template, on July 18, 2013, the FSB, in consultation with the IAIS and national
authorities, identified an initial list of global systemically important insurers (G-SIIs), which includes AIG. The IAIS
intends G-SIIs to be subject to a policy framework that includes recovery and resolution planning requirements,
enhanced group-wide supervision, basic capital requirements (BCR) and higher loss absorbency (HLA) capital
requirements.
The IAIS is also developing a ComFrame, a Common Framework for the Supervision of Internationally Active
Insurance Groups (IAIGs), which includes additional supervisory oversight based on its ICPs but also adds
requirements and supervisory processes pertaining to the international business activities of IAIGs. As currently
delineated under the ComFrame, we meet the parameters set forth to define an IAIG. While we currently do not
know when any ComFrame requirements will be finalized and become effective, the IAIS will undertake a field testing
of the ComFrame, including the possibility of additional capital requirements for IAIGs, which is expected to
commence in the beginning of 2014. It is expected that implementation of the ComFrame would begin in 2019.
Solvency II Legislation in the European Union could also affect our international insurance operations by reforming
minimum capital and solvency requirements, governance requirements, risk management and public reporting
standards.
For further details on these international regulations and their potential impact on AIG and its businesses, see Item 1.
Business — Regulation — Other Regulatory Developments.
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The USA PATRIOT Act, the Office of Foreign Assets Control and similar laws that apply to us may expose us
to significant penalties. The operations of our subsidiaries are subject to laws and regulations, including, in some
cases, the USA PATRIOT Act of 2001, which require companies to know certain information about their clients and
to monitor their transactions for suspicious activities. Also, the Department of the Treasury’s Office of Foreign Assets
Control administers regulations requiring U.S. persons to refrain from doing business, or allowing their clients to do
business through them, with certain organizations or individuals on a prohibited list maintained by the U.S.
government or with certain countries. The United Kingdom, the European Union and other jurisdictions maintain
similar laws and regulations. Although we have instituted compliance programs to address these requirements, there
are inherent risks in global transactions.
Attempts to efficiently manage the impact of Regulation XXX and Actuarial Guideline AXXX may fail in whole
or in part resulting in an adverse effect on our financial condition and results of operations. The NAIC Model
Regulation ‘‘Valuation of Life Insurance Policies’’ (Regulation XXX) requires insurers to establish additional statutory
reserves for term life insurance policies with long-term premium guarantees and universal life policies with secondary
guarantees. In addition, NAIC Actuarial Guideline 38 (AXXX) (Guideline AXXX) clarifies the application of
Regulation XXX as to certain universal life insurance policies with secondary guarantees.
AIG Life and Retirement manages the capital impact on its life insurers of statutory reserve requirements under
Regulation XXX and Guideline AXXX through affiliated reinsurance transactions, to maintain our ability to offer
competitive pricing and successfully market such products. See Note 19 to the Consolidated Financial Statements for
additional information on statutory reserving requirements under Regulation XXX and Guideline AXXX and our use of
affiliated reinsurance. The NAIC, the New York State Department of Financial Services and other regulators have
increased their focus on life insurers’ affiliated reinsurance transactions used to satisfy certain reserve requirements
or to manage the capital impact of certain statutory reserve requirements, particularly transactions using captive
insurance companies or special purpose vehicles. While AIG Life and Retirement does not use captive or special
purpose vehicle structures for this purpose, we cannot predict whether any applicable insurance laws will be changed
in a way that prohibits or adversely impacts the use of affiliated reinsurance. If regulations change, we could be
required to increase statutory reserves, increase prices on our products or incur higher expenses to obtain
reinsurance, which could adversely affect our competitive position, financial condition or results of operations. If our
actions to efficiently manage the impact of Regulation XXX or Guideline AXXX on future sales of term and universal
life insurance products are not successful, we may reduce the sales of these products or incur higher operating
costs, or it may impact our sales of these products.
New regulations promulgated from time to time may affect our businesses, results of operations, financial
condition and ability to compete effectively. Legislators and regulators may periodically consider various
proposals that may affect the profitability of certain of our businesses. New regulations may even affect our ability to
conduct certain businesses at all, including proposals relating to restrictions on the type of activities in which financial
institutions are permitted to engage and the size of financial institutions. These proposals could also impose
additional taxes on a limited subset of financial institutions and insurance companies (either based on size, activities,
geography, government support or other criteria). It is uncertain whether and how these and other such proposals
would apply to us or our competitors or how they could impact our consolidated results of operations, financial
condition and ability to compete effectively.
An ‘‘ownership change’’ could limit our ability to utilize tax losses and credits carryforwards to offset future
taxable income. As of December 31, 2013, we had a U.S. federal net operating loss carryforward of approximately
$34.2 billion, $ 1.1 billion in capital loss carryforwards and $5.8 billion in foreign tax credits (tax losses and credits
carryforwards). Our ability to use such tax attributes to offset future taxable income may be significantly limited if we
experience an ‘‘ownership change’’ as defined in Section 382 of the Internal Revenue Code of 1986, as amended
(the Code). In general, an ownership change will occur when the percentage of AIG Parent’s ownership (by value) of
one or more ‘‘5-percent shareholders’’ (as defined in the Code) has increased by more than 50 percent over the
lowest percentage owned by such shareholders at any time during the prior three years (calculated on a rolling
basis). An entity that experiences an ownership change generally will be subject to an annual limitation on its
pre-ownership change tax losses and credits carryforwards equal to the equity value of the corporation immediately
before the ownership change, multiplied by the long-term, tax-exempt rate posted monthly by the IRS (subject to
certain adjustments). The annual limitation would be increased each year to the extent that there is an unused
limitation in a prior year. The limitation on our ability to utilize tax losses and credits carryforwards arising from an
ownership change under Section 382 would depend on the value of our equity at the time of any ownership change.
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AIG 2013 Form 10-K 43
I T EM 1 A / RI SK F ACT ORS
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If we were to experience an ‘‘ownership change’’, it is possible that a significant portion of our tax losses and credits
carryforwards could expire before we would be able to use them to offset future taxable income.
On March 9, 2011, our Board adopted our Tax Asset Protection Plan (the Plan) to help protect these tax losses and
credits carryforwards, and on January 8, 2014, the Board adopted an amendment to the Plan, extending its
expiration date to January 8, 2017. The Board intends to submit the amendment of the Plan to our shareholders for
ratification at our 2014 Annual Meeting of Shareholders. At our 2011 Annual Meeting of Shareholders, shareholders
adopted a protective amendment to our Restated Certificate of Incorporation (Protective Amendment), which is
designed to prevent certain transfers of AIG Common Stock that could result in an ‘‘ownership change’’ and currently
expires on May 11, 2014. The Board intends to submit to our shareholders for approval at our 2014 Annual Meeting
of Shareholders an amendment to our Restated Certificate of Incorporation to adopt a successor to the Protective
Amendment that contains substantially the same terms as the Protective Amendment but would expire on the third
anniversary of the date of our 2014 Annual Meeting of Shareholders.
The Plan is designed to reduce the likelihood of an ‘‘ownership change’’ by (i) discouraging any person or group from
becoming a 4.99 percent shareholder and (ii) discouraging any existing 4.99 percent shareholder from acquiring
additional shares of AIG Common Stock. The Protective Amendment generally restricts any transfer of AIG Common
Stock that would (i) increase the ownership by any person to 4.99 percent or more of AIG stock then outstanding or
(ii) increase the percentage of AIG stock owned by a Five Percent Stockholder (as defined in the Plan). Despite the
intentions of the Plan and the Protective Amendment to deter and prevent an ‘‘ownership change’’, such an event
may still occur. In addition, the Plan and the Protective Amendment may make it more difficult and more expensive
to acquire us, and may discourage open market purchases of AIG Common Stock or a non-negotiated tender or
exchange offer for AIG Common Stock. Accordingly, the Plan and the Protective Amendment may limit a
shareholder’s ability to realize a premium over the market price of AIG Common Stock in connection with any stock
transaction.
Changes in tax laws could increase our corporate taxes, reduce our deferred tax assets or make some of our
products less attractive to consumers. Changes in tax laws or their interpretation could negatively impact our
business or results. Some proposed changes could have the effect of increasing our effective tax rate by reducing
deductions or increasing income inclusions, such as by limiting rules that allow for deferral of tax on certain foreign
insurance income. Conversely, other changes, such as lowering the U.S. federal corporate tax rate discussed
recently in the context of tax reform, could reduce the value of our deferred tax assets. In addition, changes in the
way foreign taxes can be credited against U.S. taxes, methods for allocating interest expense, the ways insurance
companies calculate and deduct reserves for tax purposes, and impositions of new or changed premium, value
added and other indirect taxes could increase our tax expense, thereby reducing earnings.
In addition to proposing to change the taxation of corporations in general and insurance companies in particular, the
Executive Branch of the U.S. Government and Congress have considered proposals that could increase taxes on
owners of insurance products. For example, there are proposals that would limit the deferral of tax on income from
life and annuity contracts relative to other investment products. These changes could reduce demand in the U.S. for
life insurance and annuity contracts, or cause consumers to shift from these contracts to other investments, which
would reduce our income due to lower sales of these products or potential increased surrenders of in-force business.
Governments’ need for additional revenue makes it likely that there will be continued proposals to change tax rules in
ways that would reduce our earnings. However, it remains difficult to predict whether or when there will be any tax
law changes having a material adverse effect on our financial condition or results of operations.
We will be subject to the following risks until we complete the AerCap Transaction:
Our aircraft leasing business depends on lease revenues and exposes us to the risk of lessee
nonperformance. A decrease in ILFC’s customers’ ability to meet their obligations to ILFC under their leases may
negatively affect our business, results of operations and cash flows.
Customer demand for certain aircraft may be lower than anticipated, which could negatively impact ILFC’s
business. Aircraft are long-lived assets and demand for a particular model and type can decline over time. Demand
may fall for a variety of reasons, including obsolescence following the introduction of newer technologies, market
saturation due to increased production rates, technical problems associated with a particular model, new
BUSINESS AND OPERATIONS OF ILFC PRIOR TO COMPLETION OF THE AERCAP TRANSACTION
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 44
I T EM 1 A / RI SK F ACT ORS
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manufacturers entering the marketplace, additional governmental regulation, or the overall health of the airline
industry. This may result in declining lease rates, losses on sales, impairment charges or fair value adjustments and
may adversely affect ILFC’s business and our consolidated financial condition, results of operations and cash flows.
We face intense competition in each of our businesses. Our businesses operate in highly competitive
environments, both domestically and overseas. Our principal competitors are other large multinational insurance
organizations, as well as banks, investment banks and other non-bank financial institutions. The insurance industry in
particular is highly competitive. Within the U.S., AIG Property Casualty subsidiaries compete with approximately
4,000 other stock companies, specialty insurance organizations, mutual insurance companies and other underwriting
organizations. AIG Life and Retirement subsidiaries compete in the U.S. with approximately 2,300 life insurance
companies and other participants in related financial services fields. Overseas, our subsidiaries compete for business
with the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies.
The past reduction of our credit ratings and past negative publicity have made, and may continue to make, it more
difficult to compete to retain existing customers and to maintain our historical levels of business with existing
customers and counterparties. General insurance and life insurance companies compete through a combination of
risk acceptance criteria, product pricing, and terms and conditions. Retirement services companies compete through
crediting rates and the issuance of guaranteed benefits. A decline in our position as to any one or more of these
factors could adversely affect our profitability.
Competition for employees in our industry is intense, and we may not be able to attract and retain the highly
skilled people we need to support our business. Our success depends, in large part, on our ability to attract and
retain key people. Due to the intense competition in our industry for key employees with demonstrated ability, we
may be unable to hire or retain such employees. Losing any of our key people also could have a material adverse
effect on our operations given their skills, knowledge of our business, years of industry experience and the potential
difficulty of promptly finding qualified replacement employees. Our results of operations and financial condition could
be materially adversely affected if we are unsuccessful in attracting and retaining key employees.
Mr. Benmosche may be unable to continue to provide services to AIG due to his health. Robert Benmosche,
our President and Chief Executive Officer, was diagnosed with cancer and has been undergoing treatment for his
disease. He continues to fulfill all of his responsibilities and has stated his desire to continue in such roles until the
first quarter of 2015. However, his condition may change and prevent him from continuing to perform these roles.
Managing key employee succession and retention is critical to our success. We would be adversely affected if
we fail to adequately plan for the succession of our senior management and other key employees. While we have
succession plans and long-term compensation plans designed to retain our employees, our succession plans may
not operate effectively and our compensation plans cannot guarantee that the services of these employees will
continue to be available to us.
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses.
There have been a number of cases involving fraud or other misconduct by employees in the financial services
industry in recent years and we run the risk that employee misconduct could occur. Instances of fraud, illegal acts,
errors, failure to document transactions properly or to obtain proper internal authorization, misuse of customer or
proprietary information, or failure to comply with regulatory requirements or our internal policies may result in losses.
It is not always possible to deter or prevent employee misconduct, and the controls that we have in place to prevent
and detect this activity may not be effective in all cases.
Actual experience may differ from management’s estimates used in the preparation of financial statements.
Our financial statements are prepared in conformity with U.S. Generally Accepted Accounting Principles
(U.S. GAAP), which requires the application of accounting policies that often involve a significant degree of judgment.
The accounting policies that we consider most dependent on the application of estimates and assumptions, and
therefore may be viewed as critical accounting estimates, are described in Item 7. MD&A — Critical Accounting
Estimates. These accounting estimates require the use of assumptions, some of which are highly uncertain at the
time of estimation. These estimates are based on judgment, current facts and circumstances, and, when applicable,
COMPETITION AND EMPLOYEES
ESTIMATES AND ASSUMPTIONS
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AIG 2013 Form 10-K 45
I T EM 1 A / RI SK F ACT ORS
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internally developed models. Therefore, actual results could differ from these estimates, possibly in the near term,
and could have a material effect on our consolidated financial statements.
Changes in accounting principles and financial reporting requirements could impact our reported results of
operations and our reported financial position. Our financial statements are subject to the application of
U.S. GAAP, which is periodically revised. Accordingly, from time to time, we are required to adopt new or revised
accounting standards issued by recognized authoritative bodies, including the Financial Accounting Standards Board
(FASB). The impact of accounting pronouncements that have been issued but are not yet required to be
implemented is disclosed in our reports filed with the SEC. See Note 2 of the Notes to the Consolidated Financial
Statements. The FASB and International Accounting Standards Board (IASB) have ongoing projects to revise
accounting standards for insurance contracts. While the final resolution of changes to U.S. GAAP and International
Financial Reporting Standards pursuant to these projects is unclear, changes to the manner in which we account for
insurance products could have a significant impact on our future financial reports, operations, capital management
and business. Further, the adoption of a new insurance contracts standard as well as other future accounting
standards could have a material effect on our reported results of operations and reported financial condition.
Changes in our assumptions regarding the discount rate, expected rate of return, and expected
compensation for our pension and other postretirement benefit plans may result in increased expenses and
reduce our profitability. We determine our pension and other postretirement benefit plan costs based on assumed
discount rates, expected rates of return on plan assets, expected increases in compensation levels and trends in
health care costs. Changes in these assumptions, including from the impact of a sustained low interest rate
environment, may result in increased expenses and reduce our profitability. See Note 21 to the Consolidated
Financial Statements for further details on our pension and postretirement benefit plans.
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AIG 2013 Form 10-K 46
I T EM 1 A / RI SK F ACT ORS
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There are no material unresolved written comments that were received from the SEC staff 180 days or more before
the end of AIG’s fiscal year relating to AIG’s periodic or current reports under the Exchange Act.
AIG and its subsidiaries operate from over 400 offices in the United States and approximately 600 offices in over 75
foreign countries. The following offices are located in buildings in the United States owned by AIG and its
subsidiaries:
• 175 Water Street in New York, New York • Amarillo, Ft. Worth and Houston, Texas
• Wilmington, Delaware • Nashville, Tennessee
• Stevens Point, Wisconsin
• San Juan, Puerto Rico
• Greensboro and Winston-Salem, North Carolina
• Livingston, New Jersey
• Stowe, Vermont
In addition, AIG Property Casualty owns offices in approximately 20 foreign countries and jurisdictions including
Argentina, Bermuda, Colombia, Ecuador, Japan, Mexico, the U.K., Taiwan, and Venezuela. The remainder of the
office space utilized by AIG and its subsidiaries is leased. AIG believes that its leases and properties are sufficient
for its current purposes.
As of December 31, 2013, approximately 9 percent of the consolidated assets of AIG were located outside the U.S.
and Canada, including $295 million of cash and securities on deposit with regulatory authorities in those locations.
See Note 3 to the Consolidated Financial Statements for additional geographic information. See Note 6 to the
Consolidated Financial Statements for total carrying values of cash and securities deposited by our insurance
subsidiaries under requirements of regulatory authorities.
Operations outside the U.S. and Canada and assets held abroad may be adversely affected by political
developments in foreign countries, including tax changes, nationalization and changes in regulatory policy, as well as
by consequence of hostilities and unrest. The risks of such occurrences and their overall effect upon AIG vary from
country to country and cannot be predicted. If expropriation or nationalization does occur, AIG’s policy is to take all
appropriate measures to seek recovery of any affected assets. Certain of the countries in which AIG’s business is
conducted have currency restrictions that generally cause a delay in a company’s ability to repatriate assets and
profits. See also Item 1A. Risk Factors — Business and Operations for additional information.
For a discussion of legal proceedings, see Note 15 — Contingencies, Commitments and Guarantees to the
Consolidated Financial Statements, which is incorporated herein by reference.
Not applicable.
LOCATIONS OF CERTAIN ASSETS
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AIG 2013 Form 10-K 47
I T EM 1 B / UNRESOL VED ST AF F COMMENT S
ITEM 1B / UNRESOLVED STAFF COMMENTS
ITEM 2 / PROPERTIES
ITEM 3 / LEGAL PROCEEDINGS
ITEM 4 / MINE SAFETY DISCLOSURES
AIG Property Casualty: AIG Life and Retirement:
Other Operations:
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AIG’s common stock, par value $2.50 per share (AIG Common Stock), is listed on the New York Stock Exchange
(NYSE: AIG), as well as on the Tokyo Stock Exchange. There were approximately 36,319 stockholders of record of
AIG Common Stock as of January 31, 2014.
The following table presents high and low closing sale prices of AIG Common Stock on the New York Stock
Exchange Composite Tape for each quarter of 2013 and 2012:
First quarter $ 30.83 $ 23.54
Second quarter 34.76 27.21
Third quarter 35.02 30.15
Fourth quarter 37.21 30.68
On August 1, 2013, our Board of Directors declared a cash dividend on AIG Common Stock of $0.10 per share,
which was paid on September 26, 2013 to shareholders of record on September 12, 2013.
On October 31, 2013, our Board of Directors declared a cash dividend on AIG Common Stock of $0.10 per share,
which was paid on December 19, 2013 to shareholders of record on December 5, 2013.
On February 13, 2014, our Board of Directors declared a cash dividend on AIG Common Stock of $0.125 per share,
payable on March 25, 2014 to shareholders of record on March 11, 2014.
Any payment of dividends must be approved by AIG’s Board of Directors. In determining whether to pay any
dividend, our Board of Directors may consider AIG’s financial position, the performance of our businesses, our
consolidated financial condition, results of operations and liquidity, available capital, the existence of investment
opportunities, and other factors. AIG is subject to restrictions on the payment of dividends and purchases of AIG
Common Stock as a result of being regulated as a SLHC, and AIG may become subject to other restrictions on the
payment of dividends and repurchases of AIG Common Stock as a SIFI and a G-SII. See Item 1. Business —
Regulation and Item 1A. Risk Factors — Regulation for further discussion.
For a discussion of certain restrictions on the payment of dividends to AIG by some of its insurance subsidiaries, see
Item 1A. Risk Factors — Liquidity, Capital and Credit — AIG Parent’s ability to access funds from our subsidiaries is
limited, and Note 19 to the Consolidated Financial Statements.
Our table of equity compensation plans will be included in the definitive proxy statement for AIG’s 2014 Annual
Meeting of Shareholders. The definitive proxy statement will be filed with the SEC no later than 120 days after the
end of AIG’s fiscal year pursuant to Regulation 14A.
PART II
DIVIDENDS
EQUITY COMPENSATION PLANS
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AIG 2013 Form 10-K 48
I T EM 5 / MARKET F OR REGI ST RANT ’ S COMMON EQUI T Y, REL AT ED ST OCKHOL DER MAT T ERS AND
I SSUER PURCHASES OF EQUI T Y SECURI T I ES
ITEM 5 / MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
2013 2012
High Low High Low
$ 39.58 $ 34.84
46.21 37.69
50.57 44.22
52.30 47.30
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The following table provides the information with respect to purchases made by or on behalf of AIG or any
‘‘affiliated purchaser’’ (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934) of AIG
Common Stock during the three months ended December 31, 2013:
October 1 – 31 – $ – – $808
November 1 – 30 7,565,549 49 7,565,549 440
December 1 – 31 727,904 50 727,904 403
Total 8,293,453 $49 8,293,453 $403
On August 1, 2013, our Board of Directors authorized the repurchase of shares of AIG Common Stock, with an
aggregate purchase price of up to $1.0 billion, from time to time in the open market, private purchases, through
forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise. The authorization has
no set expiration or termination date. AIG purchased approximately 12 million shares of AIG Common Stock pursuant
to the authorization in 2013 for an aggregate purchase price of approximately $597 million. On February 13, 2014,
our Board of Directors increased the August 1, 2013 authorization to repurchase shares of AIG Common Stock by
$1.0 billion, resulting in an aggregate remaining authorization of approximately $1.4 billion.
See Note 16 to the Consolidated Financial Statements for additional information on AIG share purchases.
The following Performance Graph compares the cumulative total shareholder return on AIG Common Stock for a
five-year period (December 31, 2008 to December 31, 2013) with the cumulative total return of the S&P’s 500 stock
index (which includes AIG) and a peer group of companies consisting of 15 insurance companies to which we
compare our business and operations:
• ACE Limited • Lincoln National Corporation
• AEGON, N.V. • MetLife, Inc.
• Aflac Incorporated • Principal Financial Group, Inc.
• Allianz Group • Prudential Financial, Inc.
• AXA Group • The Travelers Companies, Inc.
• The Chubb Corporation • XL Capital Ltd.
• CNA Financial Corporation • Zurich Insurance Group
• Hartford Financial Services Group, Inc.
PURCHASES OF EQUITY SECURITIES
COMMON STOCK PERFORMANCE GRAPH
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AIG 2013 Form 10-K 49
I T EM 5 / MARKET F OR REGI ST RANT ’ S COMMON EQUI T Y, REL AT ED ST OCKHOL DER MAT T ERS AND
I SSUER PURCHASES OF EQUI T Y SECURI T I ES
Total Number Average Total Number of Shares Approximate Dollar Value of Shares
of Shares Price Paid Purchased as Part of Publicly that May Yet Be Purchased Under the
Period Repurchased per Share Announced Plans or Programs Plans or Programs (in millions)
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14FEB201422343728
Five-Year Cumulative Total Shareholder Returns
Value of $100 Invested on December 31, 2008
$250
$200
$150
$100
$50
$0
2008 2009 2010 2011
Years Ending
2012 2013
AMERICAN INTERNATIONAL GROUP S&P 500 INDEX PEER GROUP
Dividend reinvestment has been assumed and returns have been weighted to reflect relative stock market
capitalization.
AIG $ 100.00 $ 95.48 $ 183.50 $ 90.02 $ 136.97
S&P 500 100.00 126.46 145.51 148.59 172.37
Peer Group 100.00 116.50 125.85 109.14 140.15
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AIG 2013 Form 10-K 50
I T EM 5 / MARKET F OR REGI ST RANT ’ S COMMON EQUI T Y, REL AT ED ST OCKHOL DER MAT T ERS AND
I SSUER PURCHASES OF EQUI T Y SECURI T I ES
As of December 31,
2008 2009 2010 2011 2012 2013
$ 198.87
228.19
208.31
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The Selected Consolidated Financial Data should be read in conjunction with Management’s Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and
accompanying notes included elsewhere herein.
Revenues:
Premiums $ 38,047 $ 39,026 $ 45,352 $ 48,613
Policy fees 2,349 2,309 2,418 2,329
Net investment income 20,343 14,755 20,934 18,992
Net realized capital gains (losses) 930 691 (847) (3,706)
Aircraft leasing revenue 4,504 4,508 4,749 4,967
Other income 4,848 3,816 5,680 4,986
Total revenues 71,021 65,105 78,286 76,181
Benefits, claims and expenses:
Policyholder benefits and claims incurred 32,036 33,523 41,429 45,381
Interest credited to policyholder account balances 4,340 4,432 4,483 4,574
Amortization of deferred policy acquisition costs 5,709 5,486 5,821 6,670
Other acquisition and insurance expenses 9,235 8,458 10,163 9,815
Interest expense 2,319 2,444 6,742 13,237
Aircraft leasing expenses 4,138 5,401 5,289 3,506
Net loss on extinguishment of debt 32 2,908 104 –
Net (gain) loss on sale of properties and divested businesses 6,736 74 (19,566) 1,271
Other expenses 3,585 3,280 4,155 6,169
Total benefits, claims and expenses 68,130 66,006 58,620 90,623
Income (loss) from continuing operations before income taxes
(b)
2,891 (901) 19,666 (14,442)
Income tax expense (benefit) (808) (19,764) 6,736 (2,055)
Income (loss) from continuing operations 3,699 18,863 12,930 (12,387)
Income (loss) from discontinued operations, net of taxes 1 2,467 (645) 2,661
Net income (loss) 3,700 21,330 12,285 (9,726)
Net income (loss) attributable to AIG 3,438 20,622 10,058 (8,362)
Income (loss) per common share attributable to AIG common
shareholders
Basic
Income (loss) from continuing operations 2.04 9.65 16.02 (90.50)
Income (loss) from discontinued operations – 1.36 (1.04) 19.13
Net income (loss) attributable to AIG 2.04 11.01 14.98 (71.37)
Diluted
Income (loss) from continuing operations 2.04 9.65 16.02 (90.50)
Income (loss) from discontinued operations – 1.36 (1.04) 19.13
Net income (loss) attributable to AIG 2.04 11.01 14.98 (71.37)
Dividends declared per common share – – – –
Year-end balance sheet data:
Total investments 375,824 410,438 410,412 601,165
Total assets 548,633 553,054 675,573 838,346
Long-term debt 48,500 75,253 106,461 136,733
Total liabilities 449,630 442,138 568,363 748,550
Total AIG shareholders’ equity 98,002 101,538 78,856 60,585
Total equity 98,669 102,393 106,776 88,837
Book value per share
(a)
66.38 53.53 561.40 448.54
Book value per share, excluding Accumulated other
comprehensive income (loss)
(a)
57.87 50.11 498.25 400.90
AIG Property Casualty combined ratio 108.5 108.7 116.8 108.4
Other data (from continuing operations):
Other-than-temporary impairments 1,167 1,280 3,039 6,696
Adjustment to federal deferred tax valuation allowance (1,907) (18,307) 1,361 2,986
Amortization of prepaid commitment fee asset – 49 3,471 8,359
Catastrophe-related losses
(c)
$ 2,652 $ 3,307 $ 1,076 $ 53
(a) Comparability between 2010 and 2009 data is affected by the deconsolidation of AIA in the fourth quarter of 2010. Book value per share,
excluding Accumulated other comprehensive income (loss) is a non-GAAP measure. See Item 7. MD&A — Use of Non-GAAP Measures for
additional information. Comparability of 2010 and 2009 is affected by a one for twenty reverse stock split.
(b) Reduced by fourth quarter reserve strengthening charges of $4.2 billion and $2.2 billion in 2010 and 2009, respectively, related to the annual
review of AIG Property Casualty loss and loss adjustment reserves.
(c) Catastrophe-related losses are generally weather or seismic events having a net impact on AIG Property Casualty in excess of $10 million each.
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AIG 2013 Form 10-K 51
I T EM 6 / SEL ECT ED F I NANCI AL DAT A
ITEM 6 / SELECTED FINANCIAL DATA
Years Ended December 31,
(in millions, except per share data) 2013 2012 2011 2010
(a)
2009
(a)
$ 37,350
2,535
15,810
1,744
4,420
6,819
68,678
29,503
3,892
5,157
9,166
2,142
4,549
651
48
4,202
59,310
9,368
360
9,008
84
9,092
9,085
6.11
0.05
6.16
6.08
0.05
6.13
0.20
356,428
541,329
41,693
440,218
100,470
101,081
68.62
64.28
101.3
327
(3,165)
–
$ 787
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Items Affecting Comparability Between Periods
The following are significant developments that affected multiple periods and financial statement captions. Other
items that affected comparability are included in the footnotes to the table presented immediately above.
AIG concluded that $18.4 billion of the deferred tax asset valuation allowance for the U.S. consolidated income tax
group should be released through the Consolidated Statements of Income in 2011. The valuation allowance resulted
primarily from losses subject to U.S. income taxes recorded from 2008 through 2010. See Note 23 to the
Consolidated Financial Statements for further discussion.
We determined ILFC no longer met the criteria at December 31, 2013 to be presented in discontinued operations.
ILFC operating results, which were previously presented as discontinued operations, have been reclassified as
continuing operations in all periods. ILFC’s results are reflected in Aircraft leasing revenue and Aircraft leasing
expense, and the loss associated with the 2012 classification of ILFC as held for sale is included in Net loss on sale
of properties and divested businesses in the Consolidated Statements of Income. The assets and liabilities of ILFC
are classified as held for sale at December 31, 2013 and 2012. See Notes 1 and 4 to the Consolidated Financial
Statements for a further discussion.
As a result of the closing of the Recapitalization on January 14, 2011, the remaining SPV Preferred Interests held by
the FRBNY of approximately $26.4 billion were purchased by AIG and transferred to the Department of the Treasury.
The SPV Preferred Interests were no longer considered permanent equity on AIG’s Consolidated Balance Sheets,
and were classified as redeemable noncontrolling interests. See Note 17 to the Consolidated Financial Statements
for further discussion.
The following table presents pro forma ratios as if the Recapitalization had been consummated in 2009 and a
reconciliation of book value per share to book value per share, excluding Accumulated other comprehensive
Adjustments to Federal Deferred Tax Valuation Allowance
Aircraft Leasing
Capitalization and Book Value Per Share
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 52
I T EM 6 / SEL ECT ED F I NANCI AL DAT A
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
income (loss), which is a non-GAAP measure. See Item 7. MD&A — Use of Non-GAAP Measures for
additional information.*
Total AIG shareholders’ equity $ 98,002 $ 101,538 $ 78,856 $ 60,585
Recapitalization – – (3,328) –
Value on conversion of equity units – – 2,169 5,880
Pro forma shareholders’ equity 98,002 101,538 77,697 66,465
Accumulated other comprehensive
income 12,574 6,481 8,871 6,435
Total AIG shareholders’ equity,
excluding accumulated other
comprehensive income $ 85,428 $ 95,057 $ 69,985 $ 54,150
Total common shares outstanding 1,476,321,935 1,896,821,482 140,463,159 135,070,907
Issuable for equity units – – 2,854,069 7,736,904
Shares assumed converted – – 1,655,037,962 1,655,037,962
Pro forma common shares
outstanding 1,476,321,935 1,896,821,482 1,798,355,190 1,797,845,773
Book value per common share $ 66.38 $ 53.53 $ 561.40 $ 448.54
Book value per common share,
excluding accumulated other
comprehensive income $ 57.87 $ 50.11 $ 498.25 $ 400.90
Pro forma book value per share N/A N/A $ 43.20 $ 36.97
Pro forma book value per share,
excluding accumulated other
comprehensive income N/A N/A $ 38.27 $ 33.39
* Amounts for periods after December 31, 2009 have been revised to reflect reclassification of income taxes from AOCI to additional paid in
capital to correct the presentation of components of AIG shareholders’ equity. These income tax items related to the creation in 2009 of special
purpose vehicles that held our interests in AIA Group Limited (AIA) and American Life Insurance Company (ALICO). There was no effect on Total
AIG shareholders’ equity or on Total equity as a result of this reclassification.
The decline in interest expense in 2010 was due primarily to a reduced weighted-average interest rate on
borrowings, a lower average outstanding balance and a decline in amortization of the prepaid commitment fee asset
related to the partial repayment of the credit facility provided by the FRBNY (the FRBNY Credit Facility). On
January 14, 2011, AIG repaid the remaining $20.7 billion and terminated this facility, resulting in a net $3.3 billion
pretax charge in the first quarter of 2011, representing primarily the accelerated amortization of the remaining prepaid
commitment fee asset included in Net loss on extinguishment of debt. See Note 24 to the Consolidated Financial
Statements for further discussion of the Recapitalization.
As a result of the closing of the Recapitalization on January 14, 2011, the preferred interests (the SPV Preferred
Interests) in the special purpose vehicles that held remaining AIA shares and the proceeds of the AIA initial public
offering and the ALICO sale (the SPVs) were transferred to the Department of the Treasury. After such closing, the
SPV Preferred Interests were not considered permanent equity on AIG’s Consolidated Balance Sheets and were
classified as redeemable noncontrolling interests.
We entered into an agreement to sell ILFC on December 16, 2013 and executed multiple asset dispositions in 2011,
as further discussed in Note 4 to the Consolidated Financial Statements.
FRBNY Activity and Effect on Interest Expense in 2010
Asset Dispositions in 2011 and 2013
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 53
I T EM 6 / SEL ECT ED F I NANCI AL DAT A
At December 31,
(in millions, except per share data) 2013 2012 2011 2010 2009
$ 100,470
–
–
100,470
6,360
$ 94,110
1,464,063,323
–
–
1,464,063,323
$ 68.62
$ 64.28
N/A
N/A
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
INFORMATION
This Annual Report on Form 10-K and other publicly available documents may include, and officers and
representatives of American International Group, Inc. (AIG) may from time to time make, projections, goals,
assumptions and statements that may constitute ‘‘forward-looking statements’’ within the meaning of the Private
Securities Litigation Reform Act of 1995. These projections, goals, assumptions and statements are not historical
facts but instead represent only AIG’s belief regarding future events, many of which, by their nature, are inherently
uncertain and outside AIG’s control. These projections, goals, assumptions and statements include statements
preceded by, followed by or including words such as ‘‘believe,’’ ‘‘anticipate,’’ ‘‘expect,’’ ‘‘intend,’’ ‘‘plan,’’ ‘‘view,’’
‘‘target’’ or ‘‘estimate.’’ These projections, goals, assumptions and statements may address, among other things:
• the monetization of AIG’s interests in International • AIG’s strategy for risk management;
Lease Finance Corporation (ILFC), including whether
• AIG’s generation of deployable capital;
AIG’s proposed sale of ILFC will be completed and if
completed, the timing and final terms of such sale; • AIG’s return on equity and earnings per share;
• AIG’s exposures to subprime mortgages, monoline • AIG’s strategies to grow net investment income,
insurers, the residential and commercial real estate efficiently manage capital and reduce expenses;
markets, state and municipal bond issuers and
• AIG’s strategies for customer retention, growth,
sovereign bond issuers;
product development, market position, financial results
• AIG’s exposure to European governments and and reserves; and
European financial institutions;
• the revenues and combined ratios of AIG’s
subsidiaries.
It is possible that AIG’s actual results and financial condition will differ, possibly materially, from the results and
financial condition indicated in these projections, goals, assumptions and statements. Factors that could cause AIG’s
actual results to differ, possibly materially, from those in the specific projections, goals, assumptions and statements
include:
• changes in market conditions; • judgments concerning casualty insurance underwriting
and insurance liabilities;
• the occurrence of catastrophic events, both natural
and man-made; • judgments concerning the recognition of deferred tax
assets; and
• significant legal proceedings;
• such other factors discussed in:
• the timing and applicable requirements of any new
regulatory framework to which AIG is subject as a • Part I, Item 1A. Risk Factors of this Annual Report
savings and loan holding company (SLHC), as a on Form 10-K; and
systemically important financial institution (SIFI) and as
• this Part II, Item 7. Management’s Discussion and
a global systemically important insurer (G-SII);
Analysis of Financial Condition and Results of
• concentrations in AIG’s investment portfolios; Operations (MD&A) of this Annual Report on
Form 10-K.
• actions by credit rating agencies;
AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any projections, goals,
assumptions or other statements, whether written or oral, that may be made from time to time, whether as a result of
new information, future events or otherwise.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 54
ITEM 7 / MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
............................................................................................................................................................................................
The MD&A is organized as follows:
56
58
71
Segment Results 74
AIG Property Casualty Operations 79
Liability for Unpaid Claims and Claims Adjustment Expense 95
AIG Life and Retirement Operations 107
Other Operations 121
Discontinued Operations 127
128
Overview 128
Analysis of Sources and Uses of Cash 130
Liquidity and Capital Resources of AIG Parent and Subsidiaries 132
Credit Facilities 136
Contingent Liquidity Facilities 137
Contractual Obligations 137
Off-Balance Sheet Arrangements and Commercial Commitments 139
Debt 140
Credit Ratings 141
Regulation and Supervision 142
Dividends and Repurchases of AIG Common Stock 142
Dividend Restrictions 143
143
Overview 143
Investment Highlights 143
Investment Strategies 144
Credit Ratings 144
Investments by Segment 146
Available-for-Sale Investment 148
Impairments 156
161
Overview 161
Credit Risk Management 163
Market Risk Management 164
Liquidity Risk Management 169
178
203
207
Throughout the MD&A, we use certain terms and abbreviations which are summarized in the Glossary and
Acronyms.
AIG has incorporated into this discussion a number of cross-references to additional information included throughout
this Annual Report on Form 10-K to assist readers seeking additional information related to a particular subject.
INDEX TO ITEM 7
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 55
Page
USE OF NON–GAAP MEASURES
EXECUTIVE OVERVIEW
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
INVESTMENTS
ENTERPRISE RISK MANAGEMENT
CRITICAL ACCOUNTING ESTIMATES
GLOSSARY
ACRONYMS
.......
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USE OF NON-GAAP MEASURES
In Item 6. Selected Financial Data and throughout this MD&A, we present our financial condition and results of
operations in the way we believe will be most meaningful, representative and most transparent. Some of the
measurements we use are ‘‘non-GAAP financial measures’’ under SEC rules and regulations. GAAP is the acronym
for ‘‘accounting principles generally accepted in the United States.’’ The non-GAAP financial measures we present
may not be comparable to similarly-named measures reported by other companies.
Book Value Per Common Share Excluding Accumulated Other Comprehensive Income (Loss) (AOCI) is used
to show the amount of our net worth on a per-share basis. We believe Book Value Per Common Share Excluding
AOCI is useful to investors because it eliminates the effect of non-cash items that can fluctuate significantly from
period to period, including changes in fair value of our available for sale securities portfolio and foreign currency
translation adjustments. Book Value Per Common Share Excluding AOCI is derived by dividing Total AIG
shareholders’ equity, excluding AOCI, by Total common shares outstanding. The reconciliation to book value per
common share, the most comparable GAAP measure, is presented in Item 6. Selected Financial Data.
We use the following operating performance measures because we believe they enhance understanding of the
underlying profitability of continuing operations and trends of AIG and our business segments. We believe they also
allow for more meaningful comparisons with our insurance competitors. When we use these measures,
reconciliations to the most comparable GAAP measure are provided in the Results of Operations section of this
MD&A.
• AIG — After-tax operating income (loss) attributable to AIG is derived by excluding the following items from
net income (loss) attributable to AIG: income (loss) from discontinued operations, net loss (gain) on sale of
divested businesses and properties, income from divested businesses, legacy tax adjustments primarily related to
certain changes in uncertain tax positions and other tax adjustments, legal reserves (settlements) related to
‘‘legacy crisis matters,’’ deferred income tax valuation allowance (releases) charges, changes in fair value of AIG
Life and Retirement fixed maturity securities designated to hedge living benefit liabilities (net of interest expense),
changes in benefit reserves and deferred policy acquisition costs (DAC), value of business acquired (VOBA), and
sales inducement assets (SIA) related to net realized capital (gains) losses, AIG Property Casualty other (income)
expense — net, (gain) loss on extinguishment of debt, net realized capital (gains) losses, non-qualifying derivative
hedging activities, excluding net realized capital (gains) losses, and bargain purchase gain. ‘‘Legacy crisis matters’’
include favorable and unfavorable settlements related to events leading up to and resulting from our September
2008 liquidity crisis and legal fees incurred by AIG as the plaintiff in connection with such legal matters.
• AIG Property Casualty
• Pre-tax operating income (loss): includes both underwriting income (loss) and net investment income, but
excludes net realized capital (gains) losses, other (income) expense — net, legal settlements related to legacy
crisis matters described above, and bargain purchase gain. Underwriting income (loss) is derived by reducing net
premiums earned by claims and claims adjustment expenses incurred, acquisition expenses and general
operating expenses.
• Ratios: AIG Property Casualty, along with most property and casualty insurance companies, uses the loss ratio,
the expense ratio and the combined ratio as measures of underwriting performance. These ratios are relative
measurements that describe, for every $100 of net premiums earned, the amount of claims and claims
adjustment expense, and the amount of other underwriting expenses that would be incurred. A combined ratio of
less than 100 indicates underwriting income and a combined ratio of over 100 indicates an underwriting loss.
The underwriting environment varies across countries and products, as does the degree of litigation activity, all
of which affect such ratios. In addition, investment returns, local taxes, cost of capital, regulation, product type
and competition can have an effect on pricing and consequently on profitability as reflected in underwriting
income and associated ratios.
• Accident year loss and combined ratios, as adjusted: both the accident year loss and combined ratios, as
adjusted, exclude catastrophe losses and related reinstatement premiums, prior year development, net of
premium adjustments, and the impact of reserve discounting. Catastrophe losses are generally weather or
seismic events having a net impact on AIG Property Casualty in excess of $10 million each.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 56
I T EM 7 / USE OF NON- GAAP MEASURES
..................................................................................................................................................................................
• AIG Life and Retirement
• Pre-tax operating income (loss): is derived by excluding the following items from pre-tax income (loss): legal
settlements related to legacy crisis matters described above, changes in fair values of fixed maturity securities
designated to hedge living benefit liabilities (net of interest expense), net realized capital (gains) losses, and
changes in benefit reserves and DAC, VOBA, and SIA related to net realized capital (gains) losses.
• Premiums and deposits: includes direct and assumed amounts received on traditional life insurance policies,
group benefit policies and deposits on life-contingent payout annuities, as well as deposits received on universal
life, investment-type annuity contracts, guaranteed investment contracts (GICs) and mutual funds.
• Other Operations — Pre-tax operating income (loss): pre-tax income (loss) excluding certain legal reserves
(settlements) related to legacy crisis matters described above, (gain) loss on extinguishment of debt, net realized
capital (gains) losses, net loss (gain) on sale of divested businesses and properties, change in benefit reserves
and DAC, VOBA, and SIA related to net realized capital (gains) losses and income from divested businesses,
including Aircraft Leasing.
Results from discontinued operations are excluded from all of these measures.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 57
I T EM 7 / USE OF NON- GAAP MEASURES
..................................................................................................................................................................................
Executive Overview
This overview of management’s discussion and analysis highlights selected information and may not contain all of
the information that is important to current or potential investors in AIG’s securities. You should read this Annual
Report on Form 10-K in its entirety for a complete description of events, trends, uncertainties, risks and critical
accounting estimates affecting AIG and its subsidiaries.
Executive Summary
AIG Property Casualty pre-tax operating income improved in 2013 compared to 2012. Underwriting performance
improved in 2013, as evidenced by the accident year combined ratio, as adjusted, which declined compared to the
prior year. The improvement in pre-tax operating income also reflected lower catastrophe losses, and an increase in
reserve discount compared to the prior year, partially offset by adverse prior year development. Net investment
income increased in 2013 compared to 2012 due to an increase in alternative investment income and income
associated with PICC P&C shares, which are accounted for under the fair value option.
AIG Life and Retirement reported growth in premiums and deposits primarily due to strong sales of annuities in our
Retirement Income Solutions and Fixed Annuities product lines and increased Retail Mutual Fund sales. Pre-tax
operating income improved in 2013 compared to 2012 primarily from active spread management and growth in fee
income, as well as adjustments to update certain estimated gross profit assumptions used to amortize DAC and
related items in our investment-oriented product lines.
Mortgage Guaranty pre-tax operating income improved in 2013 compared to 2012 due to an increase in net
premiums earned, a decline in delinquency rates and improving cure rates, which drove lower incurred losses. New
insurance written increased in 2013 compared to 2012 due to elevated levels of mortgage refinancing activity during
2013 and the market acceptance of UGC’s risk-based pricing model by approximately 300 new lenders.
Our investment portfolio performance, excluding gains recognized in 2012 from our previous investments in
Maiden Lane II LLC (ML II), Maiden Lane III LLC (ML III) and AIA Group Limited (AIA), improved in 2013 compared
to 2012 primarily due to an increase in alternative investment income largely as a result of favorable equity market
performance, partially offset by the effect of our reinvestment of the proceeds from investment activities in a low
interest rate environment.
Net realized capital gains improved in 2013 compared to 2012 due to lower levels of other-than-temporary
impairments on investments, partially offset by impairments on investments in life settlements.
Financial Performance
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 58
I T EM 7 / EXECUT I VE SUMMARY
..................................................................................................................................................................................
............................................................................................................................................................................................
Results of operations data:
Total revenues $ 71,021 $ 65,105
Income from continuing operations 3,699 18,863
Net income attributable to AIG 3,438 20,622
Net income per common share attributable to AIG (diluted) 2.04 11.01
After-tax operating income attributable to AIG 6,635 2,086
Key metrics:
AIG Property Casualty combined ratio 108.5 108.7
AIG Property Casualty accident year combined ratio, as adjusted 99.8 99.1
AIG Life and Retirement premiums and deposits $ 20,994 $ 24,392
AIG Life and Retirement assets under management 290,387 256,924
Mortgage Guaranty new insurance written 37,509 18,792
Balance sheet data:
Total assets $ 548,633
Long-term debt 48,500
Total AIG shareholders’ equity 98,002
Book value per common share 66.38
Book value per common share, excluding AOCI 57.87
Our Performance — Selected Indicators
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AIG 2013 Form 10-K 59
I T EM 7 / EXECUT I VE SUMMARY
Years Ended December 31,
(in millions, except per share data and ratios) 2013 2012 2011
$ 68,678
9,008
9,085
6.13
6,762
101.3
98.4
$ 28,809
317,977
49,933
December 31, December 31,
(in millions, except per share data) 2013 2012
$ 541,329
41,693
100,470
68.62
64.28
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............................................................................................................................................................................................
16FEB201411434445
TOTAL REVENUES
(in millions)
I NCOME FROM CONTI NUI NG OPERATI ONS
(in millions)
2013 2012 2011
$68,678
$71,021
$65,105
2013 2012 2011
$9,008
$3,699
$18,863
NET I NCOME ATTRI BUTABLE TO AI G
(in millions)
NET INCOME PER COMMON SHARE ATTRIBUTABLE
TO AIG (DILUTED)
2013 2012 2011
$9,085
$3,438
$20,622
2013 2012 2011
$6.13
$2.04
$11.01
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AIG 2013 Form 10-K 60
I T EM 7 / EXECUT I VE SUMMARY
..................................................................................................................................................................................
16FEB201411433345
AOCI
Excluding
AOCI
Excluding
AOCI
AFTER-TAX OPERATING INCOME ATTRIBUTABLE TO
AIG (excludes net realized capital gains and certain
other items)
(in millions)
PRE- TAX OPERATI NG I NCOME BY SEGMENT
(in millions)
2013 2012 2011 2013 2012 2011
$6,762 $6,635
$2,086
TOTAL ASSETS
(in millions)
LONG- TERM DEBT
(in millions)
December 31, 2013 December 31, 2012
TOTAL AI G SHAREHOLDERS’ EQUI TY
(in millions)
BOOK VALUE PER COMMON SHARE AND BOOK
VALUE PER COMMON SHARE EXCLUDI NG AOCI
$100,470
$98,002
$541,329 $548,633
AOCI
December 31, 2013 December 31, 2012
$85,428 $94,110
AOCI
Excluding
AOCI
Excluding
AOCI
$68.62
$66.38
AOCI
December 31, 2013 December 31, 2012
$57.87 $64.28
Other Debt*
Financial Debt
AIG/DIB
borrowings
supported by
assets
December 31, 2013 December 31, 2012
$48,500
$41,693
$20,895
$16,050
$17,929
$15,666
AIG Property
Casualty
AIG Life and
Retirement
Other Operations
$1,148
$4,812
$3,277
$(511)
$5,095
$1,793
$4,147
$4,160
$(1,704)
* Includes operating borrowings of other subsidiaries and consolidated investments and hybrid debt securities.
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AIG 2013 Form 10-K 61
I T EM 7 / EXECUT I VE SUMMARY
..................................................................................................................................................................................
We reduced our debt in 2013 as a result of maturities, repayments and repurchases of $9.7 billion. Partially
offsetting this decrease were the issuances of $1.0 billion aggregate principal amount of 3.375% senior notes due
2020 and $1.0 billion aggregate principal amount of 4.125% senior notes due 2024.
We maintained financial flexibility at AIG Parent in 2013 through $4.1 billion in cash dividends from AIG Property
Casualty subsidiaries and $4.4 billion in cash dividends and loan repayments from AIG Life and Retirement
subsidiaries.
Our Board of Directors authorized the repurchase of shares of AIG Common Stock on August 1, 2013, with
an aggregate purchase price of up to $1.0 billion, from time to time in the open market, private purchases, through
forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise. During 2013, we
repurchased approximately 12 million shares of AIG Common Stock, par value $2.50 per share (AIG Common Stock)
under this authorization at a total cost of approximately $597 million.
Our Board of Directors increased our AIG Common Stock share repurchase authorization by $1.0 billion on
February 13, 2014, resulting in an aggregate remaining repurchase authorization of approximately $1.4 billion.
We paid a cash dividend on AIG Common Stock of $0.10 per share on each of September 26, 2013 and
December 19, 2013.
On February 13, 2014, our Board of Directors declared a cash dividend on AIG Common Stock of $0.125 per
share, payable on March 25, 2014 to shareholders of record on March 11, 2014.
We announced an agreement to sell ILFC, which will support our capital management initiatives, sharpen our
business focus, and enable us to redeploy assets in a more productive manner.
Additional discussion and other liquidity and capital resources developments are included in Note 16 to the
Consolidated Financial Statements and Liquidity and Capital Resources herein.
Net investment income decreased 22 percent to $15.8 billion in 2013 compared to 2012, primarily due to gains
recognized in 2012 from our previous investments in ML II, ML III and AIA.
Net investment income for our insurance operations increased by approximately $645 million in 2013 compared to
2012, due to higher alternative investment income in 2013, driven primarily by favorable equity market performance,
which was partially offset by gains recognized in 2012 from our previous investment in ML II. While corporate debt
securities represented the core of new investment allocations, we continued to make investments in structured
securities and fixed income securities with favorable risk versus return characteristics to improve yields and increase
net investment income.
Net unrealized gains in our available for sale portfolio declined to approximately $12 billion as of December 31, 2013
from approximately $25 billion as of December 31, 2012 due to rising interest rates over the period and the
realization of approximately $2.5 billion in gains from sales of securities.
Other-than-temporary impairments were significantly lower relative to the prior year period partly driven by strong
performance in our structured products portfolios due to favorable developments in the housing sector.
The overall credit rating of our fixed maturity portfolio was largely unchanged from last year. Impairments on
investments in life settlements increased in 2013 compared to 2012 as a result of updated longevity assumptions in
the valuation tables used to estimate future expected cash flows.
Liquidity and Capital Resources Highlights
Investment Highlights
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AIG 2013 Form 10-K 62
I T EM 7 / EXECUT I VE SUMMARY
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Risk management is an integral part of managing our businesses. It is a
Risk Management
key element of our approach to corporate governance. We have an
integrated process for managing risks throughout the organization. The
framework of our Enterprise Risk Management (ERM) system provides
• We remain committed to adhering
senior management with a consolidated view of our major risk positions.
to the highest standards of risk
management and corporate
Our risk management process includes:
governance.
An enhanced risk governance structure that supports consistent
and transparent decision making. We have revised our corporate
• We continue to promote awareness
policies to ensure that accountability for the implementation and oversight
and accountability for key risk,
of each policy is better aligned with individual corporate executives while
business decisions, and
specialized risk governance committees already in operation receive
performance.
regular reporting regarding policy compliance.
• We manage risks better by
Risk committees at our corporate level as well as in each business
applying performance metrics that
unit that manage the development and maintenance of a risk and
enable us to assess risk more
control culture encompassing all significant risk categories. Our
clearly and address evolving
Board of Directors oversees the management of risk through the
market conditions.
complementary functioning of the Finance and Risk Management
Committee (the FRMC) and the Audit Committee, as well as through its
regular interaction with other committees of the Board.
A capital and liquidity stress testing framework to assess our aggregate exposure to our most significant
risks. We conduct enterprise-wide stress tests under a range of scenarios to better understand the resources
needed to support our subsidiaries and AIG Parent.
Prior period revenues and expenses were conformed to the current period presentation. These changes did not
affect Net income attributable to AIG. The results of the investments in life settlements, including investment income
and impairment losses, were reclassified from AIG Property Casualty operations to AIG’s Other Operations. Also, as
a result of the interest in AerCap to be acquired by AIG in connection with the announced agreement to sell ILFC to
AerCap, ILFC operating results, which were previously presented as discontinued operations, have been classified as
continuing operations in all periods. The associated assets and liabilities of ILFC continue to be classified as
held-for-sale at December 31, 2013 and 2012. For further discussion, see Notes 1, 3 and 4 to the Consolidated
Financial Statements.
Strategic Outlook
Our business is affected by industry and economic factors such as interest rates, credit and equity market conditions,
catastrophic claims events, regulation, tax policy, competition, and general economic, market and political conditions.
We continued to operate under difficult market conditions in 2013, characterized by factors such as historically low
interest rates, instability in the global markets due to the negotiations over the U.S. debt ceiling, the U.S. Government
shutdown and slow growth in the U.S. economy.
Although there was a rise in interest rates in the U.S. fixed income market during the second half of 2013, interest
rates remain low relative to historical levels, which has affected our industry by reducing investment returns. In
Risk Management Highlights
Our Risk Management Process
Presentation Changes
Industry Trends
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AIG 2013 Form 10-K 63
I T EM 7 / EXECUT I VE SUMMARY
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addition, current market conditions may not necessarily permit insurance companies to increase pricing across all our
product lines.
AIG Priorities for 2014
AIG is focused on the following priorities for 2014:
• Emphasis on customers;
• Growth and profitability in our core insurance businesses;
• Enhance the yield on our investments while maintaining focus on credit quality;
• Manage our capital more efficiently by improving our capital structure and redeploying capital to areas that
promote profitable growth;
• Consummate the sale of our interest in ILFC;
• Work with the Board of Governors of the Federal Reserve System (the FRB) in its capacity as our principal
regulator; and
• Pursue initiatives that continue to reduce expenses and improve efficiencies to best meet the needs of our
customers, including centralizing work streams to lower-cost locations and creating a more streamlined
organization.
Outlook for Our Operating Businesses
The outlook for each of our businesses and management initiatives to improve growth and performance in 2014 and
over the longer term is summarized below.
Executive Overview
Growth and Business Mix — Grow higher value business to increase profitability and expand in attractive
growth economies.
Underwriting Excellence — Enhance risk selection and pricing to earn returns commensurate with the risk
assumed.
Claims Best Practices — Improve claims practices, analytics and tools to improve customer service, increase
efficiency and lower the loss ratio.
Operating Expense Discipline — Apply operating expense discipline and increase efficiencies by taking full
advantage of our global footprint.
Capital Efficiency — Enhance capital management through initiatives to streamline our legal entity structure,
optimize our reinsurance program and improve tax efficiency.
Investment Strategy — Execute our investment strategy, which includes increased asset diversification and
yield-enhancement opportunities that meet our liquidity, capital, risk and return objectives.
AIG PROPERTY CASUALTY STRATEGIC INITIATIVES AND OUTLOOK
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We expect that the current low interest rate environment, currency volatility, and ongoing uncertainty in global
economic conditions will continue to challenge the growth of net investment income and limit growth in some
markets. Due to these conditions, coupled with overcapacity in the property casualty insurance industry, we have
sought to modify terms and conditions, grow profitable segments of the business, exit unprofitable business and
develop advanced data analytics to improve profitability.
We have observed improving trends in certain key indicators that may offset the effect of current economic
challenges. Commencing in the second quarter of 2011, we have benefitted from favorable pricing trends, particularly
in our U.S. commercial business. The property casualty insurance industry is experiencing modest growth as a result
of this positive rate trend and an increase in overall exposures in some markets. We also expect that expansion in
certain growth economies will occur at a faster pace than in developed countries, although at levels lower than those
previously expected due to revised economic assumptions.
In the U.S., our exposure to terrorism risk is mitigated by the Terrorism Risk Insurance Program Reauthorization Act
of 2007 (TRIPRA) in addition to limited private reinsurance protections. TRIPRA is set to expire on December 31,
2014. We are closely monitoring the legislative developments related to the TRIPRA renewal or expiration, and have
implemented appropriate business strategies for potential legislation outcomes, including non-renewal of the law. For
additional information on TRIPRA, see Item 1A. Risk Factors — Reserves and Exposures and Item 7. MD&A —
Enterprise Risk Management — Insurance Operations Risks — AIG Property Casualty Key Insurance Risks —
Terrorism Risk.
We continue efforts to better segment our business by industry, geography and type of coverage, to enhance our
decision making about risk acceptance and pricing. For example, within workers’ compensation we have observed
different experience and trends based on this segmentation, which helps inform our risk appetite, pricing and loss
mitigation decisions.
As part of our strategy to expand our consumer operations in growth economies, on May 29, 2013, we entered into a
joint venture agreement with PICC Life, a subsidiary of PICC Group, to form an agency distribution company in
China. Products under consideration to be distributed by the joint venture company include jointly developed life and
retirement insurance products, existing PICC Life products, PICC P&C insurance products, AIG Property Casualty
products, as well as other products aimed at meeting the needs of this developing market. We will own 24.9 percent
of the joint venture company with PICC Life holding the remaining 75.1 percent. Our participation in the joint venture
will be managed by AIG Property Casualty. The joint venture is planned to commence operations in 2014 subject to
regulatory approval.
We continue to explore other potential life insurance and accident and health opportunities internationally.
We continue to further enhance our risk selection process and refine technical pricing and producer management,
through enhanced tools and analytics. In addition, we remain focused on reducing exposure to capital intensive
long-tail lines. We believe that accident year loss ratios will continue to improve due to these actions.
We continue to reduce loss costs by realizing greater efficiencies in servicing customer claims, introducing improved
claims analytics and services, developing knowledge of the economic drivers of losses which collectively are
expected to mitigate reserve development and legal costs, and improve customer insights and pricing.
Market Conditions and Industry Trends
Strategic Initiatives
Growth and Business Mix
Underwriting Excellence
Claims Best Practices
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AIG 2013 Form 10-K 65
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We continue to make strategic investments in systems, processes and talent worldwide, which are expected to
create additional value and greater efficiency in the years ahead.
We continue to execute capital management initiatives by enhancing broad-based risk tolerance guidelines for our
operating units, implementing underwriting strategies to increase return on equity by line of business and reducing
exposure to businesses with inadequate pricing and increased loss trends. In addition, we remain focused on
enhancing our global reinsurance strategy to improve overall capital efficiency, but with periodic income statement
volatility.
We continue to streamline our legal entity structure to enhance transparency with regulators and optimize capital and
tax efficiency. In 2013, we completed a series of legal entity and branch restructuring transactions resulting in a
simpler legal ownership structure with fewer ownership tiers and cross ownership. These legal entity restructuring
initiatives enhanced our dividend capacity, reduced required capital, and provided tax benefits. Additionally, the
restructurings are allowing us to simplify our reinsurance arrangements which further facilitate increased capital
optimization. As of February 2014, through branch incorporations, legal entity mergers, and reinsurance changes, we
established three key insurance operating units: one insurance pool in the United States with 12 direct writing
entities; one pan-European insurance entity in the United Kingdom with 25 branches throughout Europe; and one
Japan insurance holding company directly owning all of our operating units in that country. Key highlights include:
• Continued integration of our Japan operations including the 2013 conversion of the AIUI Insurance Company
Japan branch to a subsidiary and a plan to effect a similar conversion of the American Home Assurance Japan
Branch in 2014, subject to regulatory approval. On July 16, 2013, we announced the planned merger of AIU
Insurance Company Ltd. and Fuji, scheduled to take place in 2015 or later, subject to regulatory approvals. The
merger is consistent with our growth strategy for the Japan market, and is intended to combine the expertise and
experience of these companies to meet our customers’ and partners’ needs and provide products and services that
will target higher levels of customer satisfaction in a cost-effective manner.
• Simplification of the ownership structure of the Admitted and Surplus Lines Pool members, allowing for the
combination of our Admitted Lines and Surplus Lines pools, which became effective January 1, 2014. We also
transferred the majority of the existing intercompany reinsurance to the pools. In addition, we transferred the
majority of the existing intercompany reinsurance held by one of our Bermuda entities to the Admitted Lines pool.
We paid dividends of approximately $1.8 billion to AIG during 2013 as a result of these activities.
Our overall legal entity restructuring is expected to be substantially completed in 2014 (2015 or later for Japan)
subject to regulatory approvals in the relevant jurisdictions.
See Segment Results — AIG Property Casualty Operations — AIG Property Casualty Results — AIG Property
Casualty Net Investment Income and Net Realized Capital Gains (Losses) and Note 6 to the Consolidated Financial
Statements for additional information.
Operating Expense Discipline
Capital Efficiency
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AIG 2013 Form 10-K 66
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Executive Overview
Product Diversity and Capacity for Growth — Continue to expand our comprehensive portfolio with superior,
differentiated product solutions that meet consumer needs for financial and retirement security, using our scale
and capital strength to pursue growth opportunities.
Integrated Distribution — Grow assets under management by leveraging our extensive distribution organization
of over 300,000 financial professionals and expanding relationships with key distribution partners to effectively
market our diverse product offerings across multiple channels under a more unified branding strategy.
Investment Portfolio — Maintain a diversified, high quality portfolio of fixed maturity securities that largely match
the duration characteristics of liabilities with assets of comparable duration, and pursue yield-enhancement
opportunities that meet our liquidity, risk and return objectives.
Operational Initiatives — Continue to streamline our life insurance and annuity operations and systems into a
lower-cost, more agile model that provides superior service and ease of doing business.
Effective Risk and Capital Management — Deliver solid earnings through disciplined pricing and diversification
of risk and increase capital efficiency within our life insurance entities to enhance return on equity.
Baby boomers reaching retirement age expect to live longer in retirement and place less reliance on traditional
pensions and government retirement benefits than previous generations. These demographic trends, combined with
strong equity markets and low volatility, provide a favorable environment for sales of individual variable annuities, and
have contributed to growth in separate account assets under management in both our Retirement Income Solutions
and Group Retirement product lines. Opportunities to continue growing our position in the individual variable annuities
market are being provided by an increasing demographic of Americans approaching retirement and seeking
guaranteed income features, combined with changes in the competitive landscape.
The interest rate environment has a significant impact on the life and annuity industry. Low long-term interest rates
put pressure on long-term investment returns, negatively affect sales of interest rate sensitive products such as fixed
annuities, and reduce future profits on certain existing fixed rate products. Low interest rates may also affect future
investment margins, and may affect the recoverability and amortization rate of DAC assets in our variable annuity,
fixed annuity and universal life businesses. While long-term interest rates remain low relative to historical levels, the
increase in rates since the second half of 2013 has caused demand for fixed annuities products to improve, and
continued stable or modestly rising interest rates provide favorable market conditions for our fixed annuity sales and
future profitability.
We will continue to actively manage renewal crediting rates and use a disciplined approach to pricing new sales of
interest rate sensitive products, including minimum rate guarantees. Also, as market conditions change, we manage
our asset and liability interest rate exposures and strategic asset allocation to emphasize lower or higher durations in
our investment portfolio.
The life insurance marketplace continues to be highly competitive and driven by price and service, with key players in
this market acquiring an increasing market share. Industry sales of universal life have slowed, particularly sales of
guaranteed universal life products, which was expected following the implementation of regulatory changes that
increased minimum reserving requirements for these guaranteed products.
AIG LIFE AND RETIREMENT STRATEGIC INITIATIVES AND OUTLOOK
Market Conditions and Industry Trends
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AIG 2013 Form 10-K 67
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We expect to continue to expand our comprehensive portfolio of products by developing superior, differentiated
product solutions that meet consumer needs for financial and retirement security while incorporating volatility risk
controls. Our scale and capital base provide competitive advantages that enable us to pursue market opportunities
for growth.
AIG Life and Retirement has been able to meet the demand for guaranteed products and grow sales while managing
risk. We offer competitive products with strong de-risking features, such as volatility control funds, rider fees indexed
to a market volatility index and required minimum allocations to fixed accounts, and we employ a dynamic risk
hedging program. In addition to individual variable annuities, our Retirement Income Solutions product line is
expanding our offerings of index annuities, including those with guarantee features, to provide additional solutions for
consumers approaching retirement.
Sales of our fixed annuities are expected to benefit in 2014 from anticipated increasing interest rates and steepening
of the yield curve, as these market conditions make fixed annuity products more attractive compared to alternatives
such as bank deposits. Our Fixed Annuities product line is also introducing new delayed-income annuities, products
that are experiencing significant growth in the marketplace as they provide both flexibility and a guaranteed income
stream to consumers approaching retirement.
Our Institutional Markets product line is expected to continue contributing to growth in assets under management with
stable value wraps and utilizing a disciplined approach to growth and diversification of our business by pursuing
select opportunities in areas such as the terminal funding and pension buyout business.
In the highly competitive life insurance marketplace, we are continuing to execute our strategy of leveraging our scale
advantage, utilizing our expertise in risk selection and disciplined approach to pricing new business, and creating
differentiated product offerings based on consumer-focused research.
We intend to expand relationships with key distribution partners to fully realize the benefits of our diverse product
offerings across multiple channels, and implement a more uniform branding strategy. Our focus on ease of doing
business for consumers and producers includes enhancements to our Group Retirement platform and services and
other initiatives to improve the recruitment, training and productivity of our affiliated distribution partners, which are
expected to enhance sales and service through these channels.
Our investment strategy for AIG Life and Retirement is to maximize net investment income and portfolio value,
subject to liquidity requirements, capital constraints, diversification requirements, asset-liability matching and available
investment opportunities. Our objective is to maintain a diversified, high quality portfolio of fixed maturity securities
having weighted average durations that are matched to the duration and cash flow profile of our liabilities, to the
extent practicable.
We are continuing to invest in initiatives to enable a simpler and more agile low-cost operating model that provides
superior service and will position our operating platforms to accommodate significant future growth. For example, our
One Life initiative is focused on leveraging our most efficient systems environments and increased automation of our
underwriting processes.
We intend to continue to enhance profitability and capital efficiency within our insurance entities through disciplined
pricing and effective management of risk. Volatility risk controls within our product design and our comprehensive
dynamic hedging program are critical tools for managing volatility for products where we have significant exposure to
Strategic Initiatives
Product Diversity and Capacity for Growth
Integrated Distribution Strategy
Investment Portfolio
Operational Initiatives
Effective Risk and Capital Management
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AIG 2013 Form 10-K 68
I T EM 7 / EXECUT I VE SUMMARY
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equity market volatility and changes in interest rates. Additionally, our scale and the breadth of our product offerings
provide diversification of risk across our product portfolio.
See Results of Operations — Segment Results — AIG Life and Retirement Results for additional information.
Executive Overview
Risk Selection — Ensure the high quality of our new business through disciplined underwriting and our multi-
variant risk-based pricing model.
Innovation — Develop and enhance products, technology, and processes while addressing the needs of
stakeholders in the mortgage industry.
Ease of Use — Reduce complexity in the mortgage insurance process.
Expense Management — Streamline our processes through the use of technology and shared services.
Interest rate increases in late 2013 reduced the refinancing activity that drove much of the increased volume in the
mortgage loan industry during the year. As a result, UGC anticipates a decrease in new insurance written during
2014 compared to 2013. However, the majority of UGC’s new business written during 2013 was originated from
home purchases as opposed to refinancing, and we expect the growth in home purchase lending in 2014 to partially
offset the decline in refinancing activity. UGC believes the increase in home purchases will be driven by increased
buyer confidence arising from home price appreciation and interest rates remaining at low levels relative to historical
levels.
Although increasing interest rates may have an unfavorable impact on new mortgage loan volumes, UGC expects
that increasing interest rates will have a favorable impact on the persistency of business written over the last several
quarters since refinancing of mortgage loans would be unattractive to homeowners who originated mortgages at the
historically low interest rates prevalent during the last several periods. We expect that this higher persistency will
continue to benefit our results throughout 2014 and into 2015.
UGC expects cure rates to improve as a result of home value appreciation since such appreciation will encourage
homeowners with delinquent mortgages to sell and purchase another home, or to refinance their existing mortgages.
We believe the combination of higher persistency and improving cure rates, partially offset by changes in new
mortgage loan volumes, will continue to strengthen UGC’s operating results throughout 2014.
During 2014, UGC expects to continue to be a leading provider of mortgage insurance and will differentiate itself
from its competitors by providing superior products to our customers and utilizing its proprietary risk-based pricing
strategy. This pricing strategy provides UGC’s customers with mortgage insurance products that are priced
commensurate with the underwriting risk, which we believe will result in an appropriately priced, high-quality book of
business. UGC plans to continue to execute this strategy in 2014. The business generated under this strategy, which
was initiated during 2009, accounts for approximately 53 percent of net premiums earned in 2013.
OTHER OPERATIONS STRATEGIC INITIATIVES AND OUTLOOK
Mortgage Guaranty (UGC)
Market Conditions and Industry Trends
Strategic Initiatives
Risk Selection
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AIG 2013 Form 10-K 69
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AIG Markets acts as the derivatives intermediary between AIG and its subsidiaries and third parties to provide
hedging services for AIG entities. The derivative portfolio of AIG Markets consists primarily of interest rate and
currency derivatives.
The remaining derivatives portfolio of AIGFP consists primarily of hedges of the assets and liabilities of the DIB and
a portion of the legacy hedges for AIG and its subsidiaries. AIGFP’s derivative portfolio consists primarily of interest
rate, currency, credit, commodity and equity derivatives. Additionally, AIGFP has a credit default swap portfolio that is
being managed for economic benefit and with limited risk. The AIGFP portfolio continues to be wound down and is
managed consistent with our risk management objectives. Although the portfolio may experience periodic fair value
volatility, it consists predominantly of transactions that we believe are of low complexity, low risk or currently not
economically appropriate to unwind based on a cost versus benefit analysis.
The DIB consists of a portfolio of assets and liabilities held directly by AIG Parent in the MIP and certain
non-derivative assets and liabilities of AIGFP. The DIB portfolio is being wound down and is managed with the
objective of ensuring that at all times it maintains the liquidity we believe is necessary to meet all of its liabilities as
they come due, even under stress scenarios, and to maximize returns consistent with our risk management
objectives.
The DIB’s assets consist primarily of cash, short-term investments, fixed maturity securities issued by corporations,
U.S. government and government sponsored entities and mortgage and asset backed securities. The value of these
assets is impacted by macro-economic trends in U.S. and core European markets, including corporate credit
spreads, commercial and residential real estate markets, and to a lesser extent, interest rates and foreign exchange
rates, among other factors. The majority of these assets are carried at fair value with changes in fair value
recognized through earnings. The DIB’s liabilities consist primarily of notes and other borrowings supported by assets
as well as other short-term financing obligations. The DIB has both liabilities that are held at cost and liabilities that
are held at fair value. The liabilities held at fair value vary in price based on changes in AIG’s credit spreads with
changes in fair value reflected in earnings. Changes in the fundamental drivers of the fair value of DIB assets and
liabilities will create earnings volatility for the DIB on a period-to-period comparative basis.
Global Capital Markets
Direct Investment Book
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AIG 2013 Form 10-K 70
I T EM 7 / EXECUT I VE SUMMARY
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Results of Operations
The following section provides a comparative discussion of our Results of Operations on a reported basis for the
three-year period ended December 31, 2013. Factors that relate primarily to a specific business segment are
discussed in more detail within that business segment discussion. For a discussion of the Critical Accounting
Estimates that affect the Results of Operations, see the Critical Accounting Estimates section of this MD&A.
The following table presents our consolidated results of operations:
Revenues:
Premiums $ 38,047 $ 39,026 (2)% (3)%
Policy fees 2,349 2,309 8 2
Net investment income 20,343 14,755 (22) 38
Net realized capital gains 930 691 88 35
Aircraft leasing revenue 4,504 4,508 (2) –
Other income 4,848 3,816 41 27
Total revenues 71,021 65,105 (3) 9
Benefits, claims and expenses:
Policyholder benefits and claims incurred 32,036 33,523 (8) (4)
Interest credited to policyholder account balances 4,340 4,432 (10) (2)
Amortization of deferred policy acquisition costs 5,709 5,486 (10) 4
Other acquisition and insurance expenses 9,235 8,458 (1) 9
Interest expense 2,319 2,444 (8) (5)
Aircraft leasing expenses 4,138 5,401 10 (23)
Loss on extinguishment of debt 32 2,908 NM (99)
Net loss on sale of properties and divested businesses 6,736 74 (99) NM
Other expenses 3,585 3,280 17 9
Total benefits, claims and expenses 68,130 66,006 (13) 3
Income (loss) from continuing operations before income tax
expense (benefit) 2,891 (901) 224 NM
Income tax expense (benefit) (808) (19,764) NM 96
Income from continuing operations 3,699 18,863 144 (80)
Income from discontinued operations, net of income tax
expense (benefit) 1 2,467 NM (100)
Net income 3,700 21,330 146 (83)
Less: Net income attributable to noncontrolling interests 262 708 (97) (63)
Net income attributable to AIG $ 3,438 $ 20,622 164% (83)%
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AIG 2013 Form 10-K 71
I T EM 7 / RESUL T S OF OPERAT I ONS
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 37,350
2,535
15,810
1,744
4,420
6,819
68,678
29,503
3,892
5,157
9,166
2,142
4,549
651
48
4,202
59,310
9,368
360
9,008
84
9,092
7
$ 9,085
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Consolidated Comparison for 2013 and 2012
Income from continuing operations before income tax expense was $9.4 billion in 2013 compared to $2.9 billion in
2012, and reflected the following:
• pre-tax income from insurance operations of $5.1 billion, $6.5 billion
Continued Improvement in
and $213 million from AIG Property Casualty, AIG Life and Retirement
Insurance Operations
and Mortgage Guaranty in 2013, respectively, compared to pre-tax
income of $2.0 billion, $3.8 billion and $15 million for these operations
• For the fourth consecutive year we
in 2012. Net investment income, excluding gains recognized in 2012
posted a full year profit.
from our previous investments in ML II, ML III and AIA, improved in
• Our total AIG Property Casualty
2013 compared to 2012 due to higher returns on alternative
accident year loss ratio, as adjusted,
investments, primarily due to the performance of equity markets. In
improved each year during the past
addition, 2013 includes income from legal settlements related to the
four years.
financial crisis of $1.0 billion. Included in 2012 pre-tax income for AIG
Property Casualty were catastrophe losses of $2.7 billion, largely
• We enhanced spread income and
arising from Storm Sandy and severe losses of $326 million. See
actively managed through the low
Note 3 to the Consolidated Financial Statements for further
interest rate environment.
information;
• Our investment portfolio
performance, excluding gains
• loss on extinguishment of debt of $651 million in 2013 resulting from
recognized in 2012 from our
redemptions and repurchases of, and cash tender offers for, certain
previous investments in ML II, ML III
debt securities; and
and AIA, improved due to higher
• net investment income in 2012 reflected an increase in fair value of
returns on alternative investments,
AIG’s interests in AIA ordinary shares and ML III of $2.1 billion and
driven primarily by equity market
$2.9 billion, respectively.
gains.
For the year ended December 31, 2013, the effective tax rate on income from continuing operations was 3.8 percent.
The effective tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily
due to tax benefits of $2.8 billion related to a decrease in AIG Life and Retirement’s capital loss carryforward
valuation allowance, $396 million related to a decrease in certain other valuation allowances associated with foreign
jurisdictions and $298 million associated with tax exempt interest income. These items were partially offset by
charges of $632 million related to uncertain tax positions.
For the year ended December 31, 2012, the effective tax rate on income from continuing operations was (27.9)
percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 35 percent
primarily due to decreases in AIG Life and Retirement’s capital loss carryforward valuation allowance of $1.9 billion
related to the actual and projected gains from AIG Life and Retirement’s available-for-sale securities, and tax effects
associated with tax exempt interest income of $302 million. These items were partially offset by changes in uncertain
tax positions of $446 million.
Consolidated Comparison for 2012 and 2011
Income from continuing operations before income tax expense was $2.9 billion in 2012 compared to $(0.9) billion in
2011 and reflected the following:
• pre-tax income from insurance operations of $2.0 billion, $3.8 billion and $15 million from AIG Property Casualty,
AIG Life and Retirement and Mortgage Guaranty in 2012, respectively, compared to pre-tax income (loss) of
$2.1 billion, $3.0 billion and $(77) million for these operations in 2011. Included in 2012 pre-tax income for AIG
Property Casualty were catastrophe losses of $2.7 billion, largely arising from Storm Sandy, and severe losses of
$326 million. Included in 2011 pre-tax income for AIG Property Casualty were catastrophe losses of $3.3 billion,
largely arising from Hurricane Irene, U.S. tornadoes and the Great Tohoku Earthquake & Tsunami in Japan (the
Tohoku Catastrophe) and severe losses of $296 million. See Note 3 to the Consolidated Financial Statements for
further information;
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I T EM 7 / RESUL T S OF OPERAT I ONS
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• increases in fair value of AIG’s interest in AIA ordinary shares of $2.1 billion and $1.3 billion in 2012 and 2011,
respectively. The increase in fair value in 2012 included a gain on sale of AIA ordinary shares of approximately
$0.8 billion;
• an increase in fair value of AIG’s interest in ML III of $2.9 billion in 2012, compared to a decrease in fair value of
$646 million in 2011;
• an increase in estimated litigation liability of approximately $783 million for 2012 based on developments in several
actions;
• litigation settlement income of $210 million in 2012 from settlements with three financial institutions who
participated in the creation, offering and sale of RMBS from which AIG and its subsidiaries suffered losses either
directly on their own account or in connection with their participation in AIG’s securities lending program; and
• a $3.3 billion net loss in 2011, primarily consisting of the accelerated amortization of the remaining prepaid
commitment fee asset resulting from the termination of the credit facility provided by the FRBNY (the FRBNY
Credit Facility) in 2011. This was partially offset by a $484 million gain on extinguishment of debt due to the
exchange of subordinated debt.
For the year ended December 31, 2011, the effective tax rate on loss from continuing operations was not meaningful,
due to the significant effect of releasing approximately $18.4 billion of the deferred tax asset valuation allowance.
Other factors that contributed to the difference from the statutory rate included tax benefits of $454 million associated
with tax exempt interest income, $386 million associated with the effect of foreign operations, and $224 million
related to our investment in subsidiaries and partnerships.
The following table presents a reconciliation of net income attributable to AIG to after-tax operating income
(loss) attributable to AIG:
Net income attributable to AIG $ 3,438 $ 20,622
Income from discontinued operations (1) (2,448)
Loss from divested businesses, including Aircraft Leasing 4,039 663
Uncertain tax positions and other tax adjustments 543 –
Legal reserves (settlements) related to legacy crisis matters 353 13
Deferred income tax valuation allowance releases (1,911) (18,307)
Amortization of FRBNY prepaid commitment fee asset – 2,358
Changes in fair value of AIG Life and Retirement fixed maturity securities
designated to hedge living benefit liabilities, net of interest expense (24) –
Changes in benefit reserves and DAC, VOBA and SIA related to net realized
capital gains 781 202
AIG Property Casualty other (income) expense – net – –
Loss on extinguishment of debt 21 (480)
Net realized capital gains (586) (453)
Non-qualifying derivative hedging gains, excluding net realized capital gains (18) (84)
After-tax operating income attributable to AIG $ 6,635 $ 2,086
After-tax operating income attributable to AIG increased in 2013 compared to 2012 primarily due to increases in
income from insurance operations, discussed above, lower income tax expense and noncontrolling interests, partially
offset by fair value gains on AIG’s previously held interests in AIA ordinary shares, ML II, and ML III.
After-tax operating income attributable to AIG increased in 2012 compared to 2011 primarily due to increases in
income from insurance operations and in the fair value gains on AIG’s interests in AIA ordinary shares and AIG’s
interest in ML III, discussed above. This was partially offset by an increase in income tax expense in 2012 compared
to an income tax benefit in 2011.
For the year ended December 31, 2013, the effective tax rate on pre-tax operating income was 28.9 percent. The
significant factors that contributed to the difference from the statutory rate included tax benefits resulting from tax
exempt interest income and other permanent tax items, and the impact of discrete tax benefits.
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AIG 2013 Form 10-K 73
I T EM 7 / RESUL T S OF OPERAT I ONS
Years Ended December 31,
(in millions) 2013 2012 2011
$ 9,085
(84)
117
791
(460)
(3,237)
–
105
1,132
47
423
(1,157)
–
$ 6,762
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For the year ended December 31, 2012, the effective tax rate on pre-tax operating income was 31.6 percent. The
significant factors that contributed to the difference from the statutory rate was primarily due to tax exempt interest
income and other permanent tax items.
For the year ended December 31, 2011, the effective tax rate on pre-tax operating income was (9.6) percent. The
significant factors that contributed to the difference from the statutory rate included tax benefits resulting from tax
exempt interest income, tax benefits associated with noncontrolling interests, and the impact of discrete tax benefits.
Segment Results
We report the results of our operations through two reportable segments: AIG Property Casualty and AIG Life and
Retirement. The Other Operations category consists of businesses and items not allocated to our reportable
segments.
The following table summarizes the operations of each reportable segment and Other Operations. See also
Note 3 to the Consolidated Financial Statements.
Total revenues:
AIG Property Casualty $ 39,954 $ 40,977 (1)% (2)%
AIG Life and Retirement 17,645 16,163 17 9
Total reportable segments 57,599 57,140 5 1
Other Operations 14,563 8,526 (39) 71
Consolidation and eliminations (1,141) (561) 55 (103)
Total revenues $ 71,021 $ 65,105 (3) 9
Pre-tax income (loss):
AIG Property Casualty $ 2,023 $ 2,100 154 (4)
AIG Life and Retirement 3,780 2,956 72 28
Total reportable segments 5,803 5,056 101 15
Other Operations:
Mortgage Guaranty 15 (77) NM NM
Global Capital Markets 553 (7) 13 NM
Direct Investment book 1,632 622 (5) 162
Retained interests 4,957 486 NM NM
Corporate & Other (10,186) (6,007) 54 (70)
Aircraft Leasing 339 (1,005) NM NM
Consolidation and eliminations – – NM NM
Other Operations (2,690) (5,988) 9 55
Consolidation and eliminations (222) 31 NM NM
Total pre-tax income (loss) $ 2,891 $ (901) 224 NM
Pre-tax operating income (loss):
AIG Property Casualty $ 1,793 $ 1,148 168 56
AIG Life and Retirement 4,160 3,277 22 27
Total reportable segments 5,953 4,425 66 35
Other Operations:
Mortgage Guaranty 9 (97) NM NM
Global Capital Markets 557 (11) 12 NM
Direct Investment book 1,215 604 19 101
Retained interests 4,957 486 NM NM
Corporate & Other (2,591) (2,686) (8) 4
Consolidation and eliminations – – NM NM
Other Operations 4,147 (1,704) NM NM
Consolidations, eliminations and other adjustments (18) (181) NM 90
Total pre-tax operating income (loss) $ 10,082 $ 2,540 (5) 297
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 74
I T EM 7 / RESUL T S OF OPERAT I ONS
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 39,709
20,590
60,299
8,893
(514)
$ 68,678
$ 5,133
6,505
11,638
213
625
1,544
–
(4,706)
(129)
4
(2,449)
179
$ 9,368
$ 4,812
5,095
9,907
205
625
1,448
–
(2,793)
4
(511)
165
$ 9,561
..................................................................................................................................................................................
16FEB201411433493
TOTAL REVENUES
AI G PROPERTY CASUALTY AI G LI FE AND RETI REMENT
2013 2012 2011
$39,709 $39,954
$40,977
2013 2012 2011
$20,590
$17,645
$16,163
OTHER OPERATI ONS
2013 2012 2011
$8,893
$14,563
$8,526
A discussion of significant items affecting pre-tax segment income follows. Factors that affect pre-tax operating
income for a specific business segment are discussed in the detailed business segment analysis.
Pre-tax Income Comparison for 2013 and 2012
AIG Property Casualty — Pre-tax income increased in 2013 compared to 2012, primarily as a result of improved
underwriting results. The improved underwriting results are attributable to lower catastrophe losses, an improvement
in current year losses, reflecting the continued shift to higher value business, enhanced risk selection and improved
pricing. The improvement in pre-tax income also reflected higher net investment income in 2013 compared to 2012
due to the strong performance of alternative investments and income associated with the PICC P&C shares that are
accounted for under the fair value option.
AIG Life and Retirement — Pre-tax income increased in 2013 compared to 2012, primarily due to increased fee
income from growth in our variable annuity account value and continued active spread management related to our
interest rate sensitive businesses, income from legal settlements and alternative investments. These increases were
partially offset by the absence of fair value gains recognized in 2012 from our investment in ML II, which was
liquidated in March 2012. Net realized capital gains increased in 2013 compared to 2012, primarily due to gains in
connection with our program to utilize capital loss carryforwards, which were partially offset by the triggering of
additional loss recognition reserves, reflected in Policyholder benefits and claims incurred, from the subsequent
reinvestment of the proceeds from these sales at lower yields.
Other Operations — Other Operations reported a decline in pre-tax loss in 2013 compared to 2012. The pre-tax
loss in 2013 included impairment on investments in life settlements, a loss on extinguishment of debt resulting from
the redemptions and repurchases of, and cash tender offers, for certain debt securities, and severance expense,
partially
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 75
I T EM 7 / RESUL T S OF OPERAT I ONS
(in millions)
..................................................................................................................................................................................
offset by an increase in pre-tax income from GCM and Mortgage Guaranty. The pre-tax income in 2012 included fair
value gains from our previously held interests in AIA ordinary shares and ML III.
Mortgage Guaranty’s pre-tax operating income increased in 2013 compared to 2012 due to higher net premiums
earned in the first-lien business, a decline in newly reported delinquencies and improving cure rates.
The net loss on divested businesses in 2012 includes a loss associated with the announced sale of ILFC.
Pre-tax Income Comparison for 2012 and 2011
AIG Property Casualty — Pre-tax income decreased slightly in 2012 compared to 2011 due to higher acquisition
costs as a result of the change in business mix from Commercial Insurance to Consumer Insurance and higher
general operating expenses and lower net realized capital gains. Partially offsetting the decrease were lower
underwriting losses due to the impact of lower catastrophe losses, underwriting improvements related to rate
increases and enhanced risk selection, higher net investment income due to asset diversification by reducing the
concentration in tax-exempt municipal instruments and increasing investments in private placement debt and
structured securities.
AIG Life and Retirement — Pre-tax income increased in 2012 compared to 2011, principally due to efforts to
actively manage net investment spreads. Results benefited from higher net investment income, lower interest
credited, lower reserves for death claims and the impact of more favorable separate account performance on DAC
amortization and policyholder benefit reserves. These items were partially offset by significant proceeds from a legal
settlement in 2011, higher mortality costs and an increase in GIC reserves.
Other Operations — Other Operations recorded a decline in pre-tax loss in 2012 compared to 2011 due to fair
value and realized gains in our interest in AIA ordinary shares, and in our interest in ML III, partially offset by an
increase in estimated litigation liability, and a loss on extinguishment of debt of $3.3 billion in 2011 in connection with
the termination of the FRBNY Credit Facility.
Mortgage Guaranty recorded a pre-tax operating income in 2012 compared to a pre-tax operating loss in 2011 due to
a decrease in claims and claims adjustment expense.
The net loss on divested businesses in 2012 includes a loss associated with the announced sale of ILFC.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 76
I T EM 7 / RESUL T S OF OPERAT I ONS
..................................................................................................................................................................................
The following table presents reconciliations of pre-tax income (loss) to pre-tax operating income (loss) by
reportable segment and after-tax operating income attributable to AIG, which are non-GAAP measures. See
Use of Non-GAAP Measures for additional information.
AIG Property Casualty
Pre-tax income $ 2,023 $ 2,100
Net realized capital gains (211) (957)
Legal settlements
*
(17) –
Other (income) expense – net (2) 5
Pre-tax operating income $ 1,793 $ 1,148
AIG Life and Retirement
Pre-tax income $ 3,780 $ 2,956
Legal settlements
*
(154) –
Changes in fair value of fixed maturity securities designated to hedge living
benefit liabilities, net of interest expense (37) –
Changes in benefit reserves and DAC, VOBA and SIA related to net realized
capital gains 1,201 327
Net realized capital gains (630) (6)
Pre-tax operating income $ 4,160 $ 3,277
Other Operations
Pre-tax loss $ (2,690) $ (5,988)
Changes in benefit reserves and DAC, VOBA and SIA related to net realized
capital (gains) losses – –
Net realized capital (gains) losses (289) 348
Net loss on sale of divested businesses 6,717 74
Legal reserves 754 20
Legal settlements
*
(39) –
Deferred gain on FRBNY credit facility – (296)
Loss on extinguishment of debt 32 3,204
Aircraft Leasing (338) 934
Pre-tax operating income (loss) $ 4,147 $ (1,704)
Total
Pre-tax operating income of reportable segments and Other Operations $ 10,100 $ 2,721
Consolidations, eliminations and other adjustments (18) (181)
Pre-tax operating income 10,082 2,540
Income tax benefits (expense) (3,187) 243
Noncontrolling interests excluding net realized capital gains (260) (697)
After-tax operating income attributable to AIG $ 6,635 $ 2,086
* Reflects income from settlements with financial institutions that participated in the creation, offering and sale of RMBS from which AIG realized
losses during the financial crisis.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 77
I T EM 7 / RESUL T S OF OPERAT I ONS
Years Ended December 31,
(in millions) 2013 2012 2011
$ 5,133
(380)
(13)
72
$ 4,812
$ 6,505
(1,020)
161
1,486
(2,037)
$ 5,095
$ (2,449)
98
685
48
446
(119)
–
651
129
$ (511)
$ 9,396
165
9,561
(2,762)
(37)
$ 6,762
..................................................................................................................................................................................
14FEB201420521777
AI G PROPERTY CASUALTY AI G PROPERTY CASUALTY
PRE- TAX I NCOME ( LOSS)
(in millions)
PRE- TAX OPERATI NG I NCOME ( LOSS)
(in millions)
AI G LI FE AND RETI REMENT AI G LI FE AND RETI REMENT
2013 2012 2011
$5,133
$2,023 $2,100
2013 2012 2011
$4,812
$1,793
$1,148
2013 2012 2011 2013 2012 2011
$6,505
$3,780
$2,956
$5,095
$4,160
$3,277
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 78
I T EM 7 / RESUL T S OF OPERAT I ONS
..................................................................................................................................................................................
AIG Property Casualty presents its financial information in two operating segments — Commercial Insurance and
Consumer Insurance — as well as an Other category.
We are developing new value-based metrics that provide management with enhanced measures to evaluate our
profitability, such as a risk-adjusted profitability model. Along with underwriting results, this risk-adjusted profitability
model incorporates elements of capital allocations, costs of capital and net investment income. We believe that such
performance measures will allow us to better assess the true economic returns of our business.
Pre-tax Operating Income increased in 2013, compared to the prior year, due to lower catastrophe losses,
improvements in underwriting results and strong investment performance. AIG Property Casualty continued to shift its
mix of business to higher value products and regions, while benefiting from positive rate trends.
Net premiums written decreased slightly in 2013, compared to the prior year, due to the effect of foreign exchange
as a result of the strengthening of the U.S. dollar against the Japanese yen, which primarily impacted the Consumer
Insurance businesses. This decrease was largely offset by an increase in the Commercial Insurance net premiums
written due to rate increases, improved retention, growth in new business and changes in our reinsurance program.
Excluding the effect of foreign exchange, net premiums written increased by approximately 4 percent compared to
the prior year.
The loss ratio improved by 7.2 points in 2013, compared to the prior year, primarily due to positive pricing,
continued improvement from our change in business mix and lower catastrophe losses. These improvements were
partially offset by an increase in severe losses and adverse prior year development, which added 0.8 points and 0.1
point to the loss ratio, respectively, compared to the prior year. Additionally, an increase in discount for certain
workers’ compensation reserves improved the loss ratio by 1.0 points compared to the prior year.
The acquisition ratio decreased by 0.2 points in 2013, compared to the prior year. Decreases in the Commercial
Insurance acquisition ratio, related to changes in business mix and reinsurance structures, partially offset by
increased commission rates in Consumer Insurance, driven by increases in growth targeted lines of business.
The general operating expense ratio increased by 0.2 points in 2013, compared to the prior year. An increase in
the cost of our employee incentive plans was partially offset by the decrease in bad debt expense and reduced costs
for strategic initiatives. In addition, for 2013, the lower net premiums earned base contributed to the increase,
primarily due to the fixed expense base that generally does not vary with production.
Net investment income increased by 10 percent in 2013, compared to the prior year, primarily due to increases in
alternative investment returns and income associated with the PICC P&C shares that are accounted for under the fair
value option.
We provided $4.3 billion of dividends to AIG Parent during the year ended December 31, 2013, including non-cash
dividends of $222 million (including dividends of $1.8 billion related to restructuring activities).
AIG PROPERTY CASUALTY
AIG Property Casualty 2013 Highlights
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 79
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents AIG Property Casualty results
(*)
:
Commercial Insurance
Underwriting results:
Net premiums written $ 20,300 $ 21,055 3% (4)%
(Increase) decrease in unearned premiums 500 748 NM (33)
Net premiums earned 20,800 21,803 (1) (5)
Claims and claims adjustment expenses incurred 16,696 18,332 (11) (9)
Acquisition expenses 3,453 3,184 (4) 8
General operating expenses 2,543 2,136 2 19
Underwriting loss (1,892) (1,849) 95 (2)
Net investment income 2,769 3,118 (10) (11)
Pre-tax operating income $ 877 $ 1,269 173% (31)%
Consumer Insurance
Underwriting results:
Net premiums written $ 14,150 $ 13,762 (4)% 3%
Increase in unearned premiums (198) (7) (63) NM
Net premiums earned 13,952 13,755 (5) 1
Claims and claims adjustment expenses incurred 8,498 8,900 (8) (5)
Acquisition expenses 3,483 3,274 (3) 6
General operating expenses 2,130 1,979 (1) 8
Underwriting loss (159) (398) 65 60
Net investment income 451 354 (18) 27
Pre-tax operating income (loss) $ 292 $ (44) 9% NM%
Other
Underwriting results:
Net premiums written $ (14) $ 23 57% NM%
Decrease in unearned premiums 135 108 (31) 25
Net premiums earned 121 131 (28) (8)
Claims and claims adjustment expenses incurred 591 717 (98) (18)
Acquisition expenses – 6 NM NM
General operating expenses 466 266 (20) 75
Underwriting loss (936) (858) 68 (9)
Net investment income 1,560 781 54 100
Pre-tax operating income (loss) 624 (77) 236 NM
Net realized capital gains 211 957 80 (78)
Legal settlement 17 – (24) NM
Other income (expense) – net 2 (5) NM NM
Pre-tax income $ 854 $ 875 183% (2)%
Total AIG Property Casualty
Underwriting results:
Net premiums written $ 34,436 $ 34,840 –% (1)%
(Increase) decrease in unearned premiums 437 849 NM (49)
Net premiums earned 34,873 35,689 (3) (2)
Claims and claims adjustment expenses incurred 25,785 27,949 (12) (8)
Acquisition expenses 6,936 6,464 (3) 7
General operating expenses 5,139 4,381 (1) 17
Underwriting loss (2,987) (3,105) 85 4
Net investment income 4,780 4,253 10 12
Pre-tax operating income 1,793 1,148 168 56
Net realized capital gains 211 957 80 (78)
Legal settlement 17 – (24) NM
Other income (expense) – net 2 (5) NM NM
Pre-tax income $ 2,023 $ 2,100 154% (4)%
* Certain 2013 severance expenses totaling $263 million for AIG Property Casualty are included in AIG’s Other Operations. As these expenses are
related to an overall AIG initiative to centralize work streams into lower cost locations, and create a more streamlined organization, they have not
been allocated to the AIG Property Casualty segment.
AIG Property Casualty Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 80
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 20,842
(205)
20,637
14,828
3,329
2,582
(102)
2,500
$ 2,398
$ 13,552
(323)
13,229
7,799
3,376
2,109
(55)
372
$ 317
$ (6)
93
87
12
–
373
(298)
2,395
2,097
380
13
(72)
$ 2,418
$ 34,388
(435)
33,953
22,639
6,705
5,064
(455)
5,267
4,812
380
13
(72)
$ 5,133
..................................................................................................................................................................................
............................................................................................................................................................................................
19FEB201414081482
NET PREMI UMS WRI TTEN*
(in millions)
PRE- TAX OPERATI NG I NCOME ( LOSS)
(in millions)
2013 2011 2012
Commercial
Commercial
Consumer
Consumer
Other
2013 2011 2012
$20,842
$20,300 $21,055
$13,552 $14,150 $13,762
$2,398
$2,097
$317
$877
$624
$1,269
$292
* The operations reported as part of Other do not have meaningful levels of Net premiums written.
Pre-tax operating income increased in 2013, compared to the prior year, due to an improvement in underwriting
results and an increase in net investment income. The improvement in underwriting results reflected lower
catastrophe losses, an improvement in current accident year losses, and an increase in reserve discount compared
to the prior year. Net investment income increased due to increases in alternative investment returns and income
associated with the PICC P&C shares that are accounted for under the fair value option. The asset diversification
strategies that we executed during 2012 enabled us to maintain similar yields in the portfolio despite the continued
low interest rate environment in 2013. Catastrophe losses were $787 million and $2.7 billion for the years ended
December 31, 2013 and 2012, respectively. The net benefit in reserve discount was $309 million and $63 million for
the years ended December 31, 2013 and 2012, respectively. As discussed further in the Discounting of Reserves
section, we revised our estimate for discounting of loss reserves with the agreement of our Pennsylvania regulator.
We previously applied different Pennsylvania-prescribed discounting practices and factors to our primary and excess
workers’ compensation reserves in Commercial Insurance and Other. Our revised estimate provides a more
consistent approach that better aligns our discount rate with our future expected risk-adjusted yield on the underlying
assets and payout patterns.
Acquisition expenses decreased in 2013, compared to the prior year, primarily due to the timing of certain guaranty
funds and other assessments, and the change in reinsurance structures in Commercial Insurance, which were
partially offset by an increase in acquisition expenses in Consumer Insurance due to the change in business mix.
General operating expenses decreased in 2013, compared to the prior year, due to decreases in bad debt expense
and reduced costs for strategic initiatives. Bad debt expense decreased by $149 million from $134 million in the prior
year. The decrease in bad debt expense was primarily due to reductions in prior year reserves, as collections
exceeded the originally estimated recoveries. Strategic initiatives which include infrastructure project expenses and
those severance charges borne by AIG Property Casualty, decreased by $158 million from $455 million in the prior
year. These decreases were partially offset by an increase in the cost of our employee incentive plans of
$247 million. The increase in the cost of our employee incentive plans was primarily due to the alignment of
employee performance with the overall performance of the organization, including our stock performance, and
accelerated vesting provisions for retirement-eligible individuals in the 2013 share-based plan.
Pre-tax operating income increased in 2013, compared to the prior year, primarily due to a decrease in catastrophe
losses to $710 million from $2.3 billion in the prior year, partially offset by a decrease in allocated net investment
income as a result of a decrease in the risk-free rates used in our investment income allocation model. The lower
underwriting loss in 2013 compared to the prior year was primarily due to lower catastrophe losses, rate increases,
2013 and 2012 Comparison
AIG Property Casualty Results
Commercial Insurance Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 81
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
and enhanced risk selection and loss mitigation activities. As discussed further in the Discounting of Reserves
section, our 2013 results included a $322 million charge primarily for the change in reserve discount compared to a
$100 million benefit in 2012 from an increase in reserve discount. Prior year adverse development increased by
$58 million compared to 2012. The current accident year losses for 2013 included severe losses of $569 million
compared to the severe losses of $293 million incurred in the prior year. This increase was driven largely by a large
property loss and related contingent business interruption claims, totaling $131 million and by an increased frequency
of severe losses compared to prior periods. Net adverse development, including related premium adjustments was
$294 million in 2013, which includes $149 million of adverse development related to Storm Sandy, compared to
$236 million in the prior year. The adverse development related to Storm Sandy resulted from higher severities on a
small number of existing large and complex commercial claims. These increased severities were driven by a number
of factors, including the extensive damage caused to properties in the downtown New York metropolitan area.
Acquisition expenses decreased in 2013, compared to the prior year, due to changes in reinsurance, the timing of
guaranty funds and other assessments, as well as change in business mix.
General operating expenses increased slightly in 2013, compared to the prior year, primarily due to the increase in
employee incentive plan expense, as previously discussed, and strategic initiatives, which was partially offset by a
decrease in bad debt expense.
Pre-tax operating income increased in 2013, compared to the prior year, primarily due to a lower underwriting loss,
which is partially offset by a decrease in allocated net investment income. Underwriting results improved primarily
due to lower catastrophe losses and higher net favorable development, coupled with lower acquisition and general
operating expenses. Allocated net investment income decreased due to a decrease in the risk-free rates used in our
investment income allocation model. Catastrophe losses in 2013 were $77 million, compared to $382 million during
the prior year. Net favorable development was $155 million in 2013, compared to $20 million in the prior year. The
year ended December 31, 2013 included approximately $41 million of favorable development from Storm Sandy
driven primarily by the reduction of reserves for excess flood policies indicated from completed property inspections
and lower than expected severity on certain other policy claims.
Acquisition expenses decreased in 2013, compared to the prior year, primarily due to the change in business mix
which was partially offset by costs in growth-targeted lines of business. Direct marketing expenses, excluding
commissions, for the year ended December 31, 2013 were $440 million, compared to $452 million in the prior year.
These expenses, while not deferrable, are expected to generate business that has an average expected overall
persistency of approximately five years and, in Japan, approximately nine years. Excluding the effect of foreign
exchange, direct marketing expenses increased by approximately $46 million in 2013 compared to the prior year.
General operating expenses decreased in 2013, compared to the prior year, primarily due to reduced costs for
strategic initiatives, which were partially offset by the increase in employee incentive plan expense previously
discussed and the strategic expansion into growth economy nations.
Pre-tax operating income increased in 2013, compared to the prior year, primarily due to an increase in net
investment income and a decrease in underwriting loss. Net investment income increased due to improved overall
investment performance and a reduced allocation to Commercial Insurance and Consumer Insurance, resulting from
the use of lower risk-free rates in our investment income allocation model. As discussed further in the Discounting of
Reserves section, our 2013 results include a $649 million benefit, primarily related to a revision in state prescribed
discounting of excess workers’ compensation loss reserves that are reported in Other. Net adverse development was
$326 million in 2013, compared to $229 million in 2012.
General operating expenses decreased as a result of lower expenses related to strategic initiatives.
Pre-tax operating income increased in 2012, compared to the prior year, primarily due to a decrease in catastrophe
losses to $2.7 billion from $3.3 billion in the prior year. In addition, net investment income increased due to asset
Consumer Insurance Results
Other Results
2012 and 2011 Comparison
AIG Property Casualty Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 82
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
diversification, from concentration in tax-exempt municipal instruments into investments in private placement debt and
structured securities. Net prior year adverse development, including premium adjustments, was $445 million for 2012
compared to $39 million for 2011.
Acquisition expenses increased due to the change in business mix to higher value lines of business and the
change in business mix from Commercial Insurance to Consumer Insurance.
General operating expenses increased due to the continued investment in strategic initiatives and human
resources, as a result of AIG’s continued investment in its employees. For the year ended December 31, 2012,
investments in strategic initiatives totaled approximately $455 million, representing an increase of approximately
$233 million over the prior year. In addition, bad debt expense increased by approximately $143 million from the prior
year.
Pre-tax operating income decreased in 2012, compared to the prior year, primarily due to a decrease in allocated
net investment income reflecting a decrease in the risk-free rate. Underwriting losses increased slightly compared to
the prior year, reflecting higher acquisition and general operating expenses, and higher adverse prior year
development, partially offset by lower catastrophe and improved current accident year losses, the effect of rate
increases and enhanced risk selection, and an increase in reserve discount of $100 million.
Acquisition expenses increased primarily as a result of higher commission expense due to the restructuring of the
U.S. Casualty, primarily loss-sensitive business, as we move towards higher value lines of business.
General operating expenses increased due to an increase in bad debt expense of approximately $143 million and
investments in strategic initiatives.
Pre-tax operating income increased in 2012, compared to the prior year, reflecting a reduction in underwriting loss
as well as an increase in allocated net investment income resulting primarily from the strategic group benefits
partnership with AIG Life and Retirement. Underwriting results improved due to the combination of lower catastrophe
losses, favorable loss reserve development, the effect of rate increases, enhanced risk selection and portfolio
management. These improvements were offset in part by higher acquisition and general operating expenses.
Acquisition expenses increased in 2012, compared to the prior year, primarily due to an increase in warranty profit
sharing arrangements, increased investment in direct marketing, and a decrease of approximately $49 million in the
benefit from the amortization of VOBA liabilities recognized at the time of the Fuji acquisition.
General operating expenses increased in 2012, compared to the prior year, due to investments in infrastructure
and strategic expansion in growth economy nations.
We continued to invest in a number of strategic initiatives during 2012, including the implementation of global finance
and information systems, preparation for Solvency II compliance, readiness for regulation by the FRB, legal entity
restructuring, and underwriting and claims improvement initiatives. We also continued to streamline our finance,
policy and claims administration and human resources operations. The costs of these initiatives, which are not
specific to either Commercial Insurance or Consumer Insurance, are reported as part of the Other category. For the
year ended December 31, 2012, these costs totaled $391 million, representing an increase of approximately
$195 million over the prior year.
See AIG Property Casualty Underwriting Ratios below for further information on prior year development.
Commercial Insurance Results
Consumer Insurance Results
Other Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 83
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
16FEB201411434739
The following table presents AIG Property Casualty net premiums written by major line of business:
Commercial Insurance
Casualty $ 8,574 $ 9,820 (5)% (13)%
Property 4,191 3,811 12 10
Specialty 3,576 3,552 4 1
Financial lines 3,959 3,872 8 2
Total net premiums written $ 20,300 $ 21,055 3% (4)%
Consumer Insurance
Accident & Health $ 6,969 $ 6,762 (5)% 3%
Personal lines 7,181 7,000 (3) 3
Total net premiums written $ 14,150 $ 13,762 (4)% 3%
Other (14) 23 57 NM
Total AIG Property Casualty net premiums written $ 34,436 $ 34,840 –% (1)%
WORLDWI DE NET PREMI UMS WRI TTEN BY LI NE OF BUSI NESS
(in millions)
Commercial Insurance
2013 2011 2012
Accident & Health
Property
Casualty
Specialty
Financial lines
Personal lines
2013 2011 2012
$4,708
$8,145
$4,191
$3,811
$8,574 $9,820
$20,842
$20,300
$21,055
$13,552
$14,150
$13,762
$3,730
$3,576 $3,552
$4,259 $3,959 $3,872
$6,621
$6,931
$6,969
$6,762
$7,181 $7,000
Consumer Insurance
During 2013, Commercial Insurance continued to focus on the execution of its strategic objectives.
Casualty net premiums written decreased in 2013, compared to the prior year, primarily due to the execution of our
strategy to enhance risk selection, particularly in the Americas and EMEA, as well as to increase specific reinsurance
purchases to better manage our exposures. Changes in reinsurance strategy decreased net premiums written by
approximately $185 million in 2013, compared to the prior year. In line with our strategy, Casualty net premiums
written decreased 17.1 percent since 2011 due to the capital intensive nature of the long-tail Casualty book of
business. We implemented rate increases in retained business, especially in the U.S., that partially offset these
premium decreases.
Property net premiums written increased in 2013, compared to the prior year, primarily due to growth in new
business across all regions, favorable retention in renewal businesses and increases in coverage limits and changes
to our per-risk reinsurance program to retain more favorable risks, while continuing to manage aggregate exposure.
Catastrophe-exposed businesses in the Americas also benefitted from rate increases.
AIG Property Casualty Net Premiums Written
2013 and 2012 Comparison
Commercial Insurance Net Premiums Written
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 84
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 8,145
4,708
3,730
4,259
$ 20,842
$ 6,621
6,931
$ 13,552
(6)
$ 34,388
..................................................................................................................................................................................
............................................................................................................................................................................................
The increase in net premiums written was partially offset by the effect of catastrophe bond transactions which provide
coverage for several years with ceded written premium recognized at the inception of the transaction. In 2013, we
entered into two multi-year catastrophe bond transactions, which will provide $525 million of indemnity protection, in
the aggregate, against U.S., Caribbean and Gulf of Mexico named storms, and U.S. and Canadian earthquakes
through the end of 2018. These transactions reduced net premiums written in 2013 by $140 million. Our previous
catastrophe bond issuance occurred in the fourth quarter of 2011.
Specialty net premiums written increased in 2013 compared to the prior year, primarily due to rate increases in
environmental business, small-and medium-sized enterprise markets in the Americas region, new business growth in
EMEA, as well as the restructuring of our reinsurance program to retain more favorable risks while continuing to
manage aggregate exposure, which increased net premiums written by $144 million, compared to the prior year.
Financial lines net premiums written increased in 2013 compared to the prior year, reflecting growth in new
business related to targeted growth products, particularly in the EMEA region as well as an improved rate
environment globally. Global professional indemnity net premiums written increased by $86 million in 2013, due to
improved rates, strong new business growth and the restructuring of our reinsurance program, as part of our decision
to retain more favorable risks while continuing to manage aggregate exposure.
See Part I. Item 1 Business — Reinsurance Activities for further discussion on catastrophe bond transactions.
Consumer Insurance net premiums written decreased in 2013, compared to the prior year, primarily due to the
impact of foreign exchange as the U.S. dollar strengthened against the Japanese yen. Excluding the impact of
foreign exchange, net premiums written increased compared to the prior year as the business continued to build
momentum through multiple distribution channels and continued focus on direct marketing. In 2013, excluding the
impact of foreign exchange, net premiums written generated by direct marketing increased by approximately
5.1 percent compared to the prior year, and accounted for approximately 16.4 percent of Consumer Insurance net
premiums written.
A&H net premiums written, excluding the effect of foreign exchange, increased slightly compared to the prior year,
primarily due to our focus on the growth of Fuji Life products, direct marketing, individual A&H in Asia Pacific, and
travel business which continued to increase in most geographies across the globe.
Personal lines net premiums written, excluding the effects of foreign exchange, increased in 2013 compared to the
prior year. The increases were driven by growth in U.S. private client group and warranty business, automobile
products and the continued execution of our strategic initiative to grow higher value lines of business in
non-automobile products. In addition, the impact of the timing of recognizing the excess of loss ceded premiums
written in the second quarter and of the catastrophe bond issuances reduced net premiums written by approximately
$58 million compared to the prior year.
In 2012, Commercial Insurance focused on the execution of the previously announced strategic objectives. The
overall decrease in Casualty was partially offset by increases in all the other lines of business.
Casualty net premiums written decreased in 2012, compared to the prior year, as planned, primarily due to the
execution of our strategy to improve loss ratios. Our enhanced risk selection process, and adherence to pricing
targets resulted in the non-renewal of approximately $800 million of net premiums written, primarily within the
workers’ compensation business in the Americas, and within the Primary Casualty business in EMEA. In addition, the
restructuring of the loss-sensitive programs decreased Casualty net premiums written by approximately $260 million
in 2012. The additional premiums associated with prior year development in the loss-sensitive business also
decreased by approximately $120 million. We also entered into a quota share reinsurance treaty in the U.S. for the
Excess Casualty business that decreased net premiums written by approximately $60 million. We implemented rate
increases in retained business, especially in the U.S., that partially offset the premium decreases noted above.
Property net premiums written increased in 2012, compared to the prior year, due to rate increases, primarily in the
U.S., reduced catastrophe bond purchases in 2012, and the restructuring of the per-risk reinsurance program as part
Consumer Insurance Net Premiums Written
2012 and 2011 Comparison
Commercial Insurance Net Premiums Written
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 85
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
of our decision to retain more favorable risks while continuing to manage aggregate exposure. Catastrophe exposed
business retained in the Americas and Asia Pacific region also benefitted from rate increases.
During 2011, as part of the reinsurance strategy discussed above, we secured a three-year catastrophe bond with an
industry index, first occurrence trigger, providing for $575 million in protection for U.S. hurricanes and earthquakes.
The bond transaction reduced net premiums written by approximately $201 million in 2011. There were no
catastrophe bond purchases in 2012.
Specialty net premiums written increased in 2012, compared to the prior year, due to the restructuring of the
aerospace reinsurance program to retain more favorable risks while continuing to manage aggregate exposure. This
increase was slightly offset by our strategic initiatives related to improved risk selection, particularly within products
provided to small and medium sized enterprises in the Americas and EMEA regions. We continue to shift our
business mix towards higher value lines, particularly in aerospace.
Financial lines net premiums written increased in 2012, compared to the prior year, reflecting strong business
growth in all regions, despite targeted decreases where the business did not meet our risk selection and internal
performance criteria. Financial lines net premiums written for year ended December 31, 2011 benefited from a
multi-year Errors and Omissions policy in the Americas that produced net premiums written of $148 million.
The Consumer Insurance business continued to grow its net premiums written and build momentum through its
multiple distribution channels and continuing focus on direct marketing. Consumer Insurance is well-diversified across
the major lines of business and has global strategies that are executed across its regions to enhance customer
relationships and business performance. Consumer Insurance currently has direct marketing operations in over 50
countries, and we continued to emphasize the growth of this channel, which for the year ended December 31, 2012,
accounted for approximately 15 percent of our overall net premiums written.
A&H net premiums written increased in 2012, compared to the prior year, due to the growth of group personal
accident business in the Americas and Asia Pacific, strong growth of new business sales in Fuji Life, travel insurance
business, direct marketing programs in Japan and other Asia Pacific nations and growth in individual personal
accident in other Asia Pacific nations. This was partially offset by the continuing strategies to reposition U.S. direct
marketing operations, as well as pricing and underwriting actions in Europe.
Personal lines net premiums written increased in 2012, compared to the prior year, primarily due to the execution of
our strategic initiative to grow higher value lines of business in non-automobile products and rate increases in Japan
automobile products. Growth in non-automobile net premiums written outpaced growth in automobile net premiums
written, increasing its proportion to total net premiums written, due to our focus on diversifying the global product mix.
Consumer Insurance Net Premiums Written
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 86
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
16FEB201411434895
The following table presents AIG Property Casualty’s net premiums written by region:
Commercial Insurance:
Americas $ 13,717 $ 14,493 2% (5)% 3% (5)%
Asia Pacific 2,003 1,868 1 7 11 7
EMEA 4,580 4,694 4 (2) 4 1
Total net premiums written $ 20,300 $ 21,055 3% (4)% 4% (3)%
Consumer Insurance:
Americas $ 3,913 $ 3,628 –% 8% 1% 9%
Asia Pacific 8,443 8,194 (9) 3 4 2
EMEA 1,794 1,940 10 (8) 10 (2)
Total net premiums written $ 14,150 $ 13,762 (4)% 3% 4% 3%
Other:
Americas $ (16) $ 23 63% NM% NM% NM%
Asia Pacific 2 – NM NM NM NM
Total net premiums written $ (14) $ 23 57% NM% NM% NM%
Total AIG Property Casualty:
Americas $ 17,614 $ 18,144 2% (3)% 2% (3)%
Asia Pacific 10,448 10,062 (7) 4 5 3
EMEA 6,374 6,634 6 (4) 6 –
Total net premiums written $ 34,436 $ 34,840 –% (1)% 4% (1)%
WORLDWI DE NET PREMI UMS WRI TTEN BY REGI ON
(in millions)
2013 2011 2012
EMEA
$34,388
$34,436 $34,840
Asia Pacific
Americas
$6,750 $6,374 $6,634
$9,691 $10,448
$10,062
$17,947 $17,614 $18,144
AIG Property Casualty Net Premiums Written by Region
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 87
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
Percentage Change in Percentage Change in
U.S. dollars Original Currency
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011 2013 vs. 2012 2012 vs. 2011
$ 14,042
2,025
4,775
$ 20,842
$ 3,911
7,666
1,975
$ 13,552
$ (6)
–
$ (6)
$ 17,947
9,691
6,750
$ 34,388
..................................................................................................................................................................................
............................................................................................................................................................................................
AIG Property Casualty’s business is transacted in most major foreign currencies. The following table presents the
average of the quarterly weighted average exchange rates of the currencies that have the most significant impact to
our businesses:
Currency:
JPY 79.32 80.16 21% (1)%
EUR 0.78 0.72 (3)% 8%
GBP 0.63 0.62 2% 2%
The Americas net premiums written increased in 2013, compared to the prior year, primarily due to the rate
increases in Commercial Insurance and continued growth in the personal property and private client group and rate
actions for the warranty retail program in Consumer Insurance. This was partially offset by decreases in casualty
businesses reflecting the execution of our strategy to enhance risk selection and the effect of the timing of the
catastrophe bond issuances.
Asia Pacific net premiums written decreased in 2013, compared to the prior year, primarily due to the strengthening
of the U.S. dollar against the Japanese yen. Excluding the effect of foreign exchange, net premiums written
increased primarily due to growth in Consumer Insurance of Fuji Life products and direct marketing business in
Japan. The expansion of business in Asia Pacific countries outside of Japan also continued supported by growth in
individual personal accident insurance, direct marketing and personal lines products. Commercial Insurance net
premiums written increased in the Asia Pacific region primarily due to organic growth and rate increases in Property,
Specialty, and Casualty. In addition, our decision to retain more favorable risks in Property and Financial lines
increased net premiums written during 2013.
EMEA net premiums written increased in 2013, compared to the prior year, due to Commercial Insurance new
business growth, particularly in Property and Financial lines, a change in reinsurance strategies to retain more
favorable risks in those lines, and rate improvements on retained business, as well as growth in all lines of
Consumer Insurance.
The Americas net premiums written decreased primarily due to the restructuring of the Commercial Insurance
Casualty book of business primarily in workers’ compensation and loss-sensitive business, slightly offset by rate
increases. These decreases were partially offset by continued growth in Consumer Insurance, which was primarily
attributable to increases to group accident, personal property, and private client group and warranty lines. Additional
premium recognized on the loss-sensitive book of business was $54 million for the year ended December 31, 2012
compared to additional premium of $172 million in the prior year.
Asia Pacific net premiums written increased in 2012 primarily due to an increase in Consumer Insurance reflecting
growth of personal property business, group personal accident insurance, and direct marketing business in Japan.
The expansion in Asia Pacific countries outside Japan also continued in 2012, supported by growth in individual
personal accident insurance, direct marketing and personal lines products. Commercial Insurance increased in the
region primarily due to organic growth and rate increases in Property and moderate organic growth in Specialty and
Financial lines.
EMEA net premiums written decreased primarily due to the impact of foreign exchange. The continued execution of
underwriting discipline and the reduction in certain casualty lines that did not meet internal performance targets were
offset by rate strengthening initiatives on new and renewal business for Commercial Insurance. Consumer Insurance
experienced modest growth in travel, warranty, and specialty personal lines products while focused on re-building its
direct marketing programs that it previously shared with American Life Insurance Company (ALICO).
2013 and 2012 Comparison
2012 and 2011 Comparison
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 88
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
Percentage Change
Years Ended December 31,
Rate for 1 USD 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
95.86
0.76
0.64
..................................................................................................................................................................................
The following tables present the AIG Property Casualty combined ratios based on GAAP data and
reconciliation to the accident year combined ratio, as adjusted:
Commercial Insurance
Loss ratio 80.3 84.1 (8.4) (3.8)
Catastrophe losses and reinstatement premiums (10.9) (11.9) 7.4 1.0
Prior year development net of premium adjustments (1.2) 1.9 (0.3) (3.1)
Net reserve discount benefit (charge) 0.5 0.2 (2.1) 0.3
Accident year loss ratio, as adjusted 68.7 74.3 (3.4) (5.6)
Acquisition ratio 16.6 14.6 (0.5) 2.0
General operating expense ratio 12.2 9.8 0.3 2.4
Expense ratio 28.8 24.4 (0.2) 4.4
Combined ratio 109.1 108.5 (8.6) 0.6
Catastrophe losses and reinstatement premiums (10.9) (11.9) 7.4 1.0
Prior year development net of premium adjustments (1.2) 1.9 (0.3) (3.1)
Net reserve discount benefit (charge) 0.5 0.2 (2.1) 0.3
Accident year combined ratio, as adjusted 97.5 98.7 (3.6) (1.2)
Consumer Insurance
Loss ratio 60.9 64.7 (1.9) (3.8)
Catastrophe losses and reinstatement premiums (2.7) (5.2) 2.1 2.5
Prior year development net of premium adjustments 0.1 (0.6) 1.0 0.7
Accident year loss ratio, as adjusted 58.3 58.9 1.2 (0.6)
Acquisition ratio 25.0 23.8 0.5 1.2
General operating expense ratio 15.3 14.4 0.6 0.9
Expense ratio 40.3 38.2 1.1 2.1
Combined ratio 101.2 102.9 (0.8) (1.7)
Catastrophe losses and reinstatement premiums (2.7) (5.2) 2.1 2.5
Prior year development net of premium adjustments 0.1 (0.6) 1.0 0.7
Accident year combined ratio, as adjusted 98.6 97.1 2.3 1.5
Total AIG Property Casualty
Loss ratio 73.9 78.3 (7.2) (4.4)
Catastrophe losses and reinstatement premiums (7.5) (9.2) 5.2 1.7
Prior year development net of premium adjustments (1.4) (0.3) (0.1) (1.1)
Net reserve discount benefit (charge) 0.2 (0.1) 0.7 0.3
Accident year loss ratio, as adjusted 65.2 68.7 (1.4) (3.5)
Acquisition ratio 19.9 18.1 (0.2) 1.8
General operating expense ratio 14.7 12.3 0.2 2.4
Expense ratio 34.6 30.4 – 4.2
Combined ratio 108.5 108.7 (7.2) (0.2)
Catastrophe losses and reinstatement premiums (7.5) (9.2) 5.2 1.7
Prior year development net of premium adjustments (1.4) (0.3) (0.1) (1.1)
Net reserve discount benefit (charge) 0.2 (0.1) 0.7 0.3
Accident year combined ratio, as adjusted 99.8 99.1 (1.4) 0.7
AIG Property Casualty Underwriting Ratios
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 89
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
Increase (Decrease)
Years Ended December 31, 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
71.9
(3.5)
(1.5)
(1.6)
65.3
16.1
12.5
28.6
100.5
(3.5)
(1.5)
(1.6)
93.9
59.0
(0.6)
1.1
59.5
25.5
15.9
41.4
100.4
(0.6)
1.1
100.9
66.7
(2.3)
(1.5)
0.9
63.8
19.7
14.9
34.6
101.3
(2.3)
(1.5)
0.9
98.4
..................................................................................................................................................................................
............................................................................................................................................................................................
17FEB201414390947
17FEB201414390811
COMBI NED RATI O
Gener al oper at i ng
expense r at i o
Acqui si t i on r at i o
Sever e l osses
Cat ast r ophe
l osses
Loss
r at i o
2013 2012 2011
108.5 109.1
100.5
9.8
ACCI DENT YEAR COMBI NED RATI O, AS ADJUSTED
Gener al oper at i ng
expense r at i o
Acqui si t i on r at i o
Sever e l osses
Loss
r at i o
2013 2012 2011
98.7
97.5
93.9
COMMERCI AL I NSURANCE RATI OS
12.5
12.2
16.6
80.3
1.4
10.9 11.9
1.4
84.1
14.6
16.1
71.9
2.8
3.5
65.3
2.8
16.1
12.5
68.7
1.4
16.6
12.2
74.3
1.4
14.6
9.8
COMBI NED RATI O
Gener al oper at i ng
expense r at i o
Acqui si t i on r at i o
Sever e l osses
Cat ast r ophe
l osses
Loss
r at i o
2013 2012 2011
102.9
101.2
100.4
14.4
ACCI DENT YEAR COMBI NED RATI O, AS ADJUSTED
Gener al oper at i ng
expense r at i o
Acqui si t i on r at i o
Sever e l osses
Loss
r at i o
2013 2012 2011
97.1 98.6 100.9
CONSUMER I NSURANCE RATI OS
15.9
15.3
25.0
60.9
0.2
2.7 5.2
0.0
64.7
23.8
25.5
59.0
0.1
0.6
59.5
0.1
25.5
15.9
58.3
0.2
25.0
15.3
58.9
0.0
23.8
14.4
Given the nature of the lines of business and the expenses included in Other, we have determined that the traditional
underwriting measures of loss ratio, acquisition ratio, general operating expense ratio and combined ratio do not
provide an appropriate measure of underwriting performance. Therefore, these ratios are not presented for Other.
See Liability for Unpaid Claims and Claims Adjustment Expense for further discussion of discounting of reserves and
prior year development.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 90
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
The following tables present AIG Property Casualty accident year catastrophe losses by region and number
of events:
Catastrophes
(a)
Flooding
Windstorms and hailstorms
Wildfire
Tropical cyclone
Total catastrophe-related charges
Commercial Insurance
Consumer Insurance
Flooding 1 $ – $ – $ 23 $ 23
Windstorms and hailstorms 9 311 48 23 382
Wildfire – – – – –
Tropical cyclone
(b)
3 1,981 18 113 2,112
Drought 1 108 – – 108
Reinstatement premiums 27 – – 27
Total catastrophe-related charges 14 $ 2,427 $ 66 $ 159 $ 2,652
Commercial Insurance $ 2,072 $ 39 $ 159 $ 2,270
Consumer Insurance $ 355 $ 27 $ – $ 382
Flooding 5 $ 201 $ 225 $ 86 $ 512
Windstorms and hailstorms 9 552 17 56 625
Tropical cyclone 5 461 117 13 591
Earthquakes
(c)
3 388 971 209 1,568
Reinstatement premiums (5) 21 (5) 11
Total catastrophe-related charges 22 $ 1,597 $ 1,351 $ 359 $ 3,307
Commercial Insurance $ 1,486 $ 747 $ 359 $ 2,592
Consumer Insurance $ 111 $ 604 $ – $ 715
Severe Losses
(a)
23 $ 106 $ 94 $ 126 $ 326
21 $ 214 $ 11 $ 71 $ 296
(a) Events shown in the above table are catastrophic insured events having a net impact in excess of $10 million each. Severe losses are defined
as non-catastrophe individual first party losses and surety losses greater than $10 million, net of related reinsurance.
(b) On October 29, 2012, Storm Sandy, one of the largest Atlantic hurricanes on record, came ashore in the U.S. When the storm made landfall, it
was categorized as a tropical cyclone, not a hurricane. Storm Sandy was the second-costliest Atlantic hurricane in history, only surpassed by
Hurricane Katrina in 2005. Storm Sandy caused widespread flooding and wind damage across the mid-Atlantic states. In 2012, we recorded
$2,013 million in losses related to this event.
(c) On March 11, 2011, a major earthquake occurred near the northeast coast of Honshu, Japan, triggering a tsunami in the Pacific Ocean. This
disaster is referred to as the Tohoku Catastrophe. In 2011, we recorded $1,191 million in losses related to this event.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 91
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
# of Asia
(in millions) Events Americas Pacific EMEA Total
Year Ended December 31, 2013
8 $ 221 $ 8 $ 116 $ 345
10 216 – 83 299
1 40 – – 40
3 4 99 – 103
22 $ 481 $ 107 $ 199 $ 787
$ 444 $ 74 $ 192 $ 710
$ 37 $ 33 $ 7 $ 77
Year Ended December 31, 2012
Year Ended December 31, 2011
Years Ended December 31, # of Asia
(in millions) Events Americas Pacific EMEA Total
2013 28 $ 156 $ 184 $ 246 $ 586
2012
2011
..................................................................................................................................................................................
The accident year combined ratio, as adjusted, improved by 3.6 points for the year ended December 31, 2013.
The improvement in the accident year loss ratio, as adjusted, reflects the realization of benefits from the continued
execution of our multi-faceted strategy to enhance risk selection, pricing discipline, exposure management and claims
processing. Although the execution of these strategies resulted in a reduction of Casualty net premiums written in
both the Americas and EMEA regions, it also improved the accident year loss ratio, as adjusted. Severe losses
represented approximately 2.8 points compared to 1.4 points in the prior year, and are included in the accident year
loss ratio, as adjusted. In 2013, one single event, totaling $131 million, accounted for approximately 0.6 points of the
increase.
The acquisition ratio decreased by 0.5 points in the year ended December 31, 2013 primarily due to a change in
business mix and reinsurance structures.
The general operating expense ratio increased by 0.3 points in 2013, compared to the prior year. The increase in
employee incentive plan expense contributed approximately 1.0 point to the increase in the general operating
expense ratio. A reduction in bad debt expense in 2013 represented a decrease to the general operating ratio of
approximately 0.8 points compared to the prior year.
The accident year combined ratio, as adjusted, increased by 2.3 points for the year ended December 31, 2013.
The accident year loss ratio, as adjusted, increased by 1.2 points, primarily due to the effect of higher losses
associated with a warranty retail program, group accident, and travel business in the U.S. and Canada, which in the
aggregate increased the loss ratio by 1.6 points. This was partially offset by improvements in automobile and
personal property, as a result of rate and underwriting actions taken in current and prior years. The higher losses
associated with a warranty retail program were largely offset by a decrease in related profit sharing arrangement.
The acquisition ratio increased by 0.5 points, primarily due to the combined effect of a lower net premiums earned
base, change in business mix and higher costs in growth-targeted lines of business. This was partially offset by a
reduction in a profit sharing arrangement in a warranty retail program.
The general operating expense ratio increased by 0.6 points compared to the prior year. The general operating
expense ratio increased primarily due to the increase in employee incentive compensation expense previously
discussed, partially offset by lower infrastructure project costs.
The accident year combined ratio, as adjusted, improved by 1.2 points in 2012.
The improvement in the accident year loss ratio, as adjusted, in 2012, reflects the realization of benefits from the
continued execution of our multi-faceted strategy to enhance risk selection, pricing discipline, exposure management
and claims processing. Although the execution of these strategies resulted in a reduction of Casualty net premiums
written, it also improved the accident year loss ratio as we remediated our primary and excess Casualty books in
both the Americas and EMEA regions. Financial lines improved due to rate strengthening and restructuring and
re-underwriting of certain products. Property improved due to rate strengthening, enhanced engineering and exposure
management.
The acquisition ratio increased by 2.0 points primarily due to our strategy of growing higher value lines, which
typically incur higher acquisition costs, and the restructuring of our Casualty lines, especially the loss-sensitive
business in the U.S. In addition, ceding commissions decreased as a result of restructuring of the Property and
Specialty reinsurance program as part of the strategic decision to retain more profitable business while continuing to
manage aggregate exposures.
2013 and 2012 Comparison
Commercial Insurance Ratios
Consumer Insurance Ratios
2012 and 2011 Comparison
Commercial Insurance Ratios
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 92
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
The general operating expense ratio increased by 2.4 points due to increases in bad debt expense, investments in
strategic initiatives and human resources, coupled with a lower net premiums earned base. The lower net premiums
earned base contributed approximately 0.2 points to the increase in the general operating expense ratio. Bad debt
expense increased by approximately $143 million, which contributed approximately 0.7 points to the general
operating expense ratio increase in the year ended December 31, 2012. For the year ended December 31, 2012,
investments in strategic initiatives, commercial lines platform, our scientific group, underwriting and pricing tools
totaled approximately $51 million, representing an increase of approximately $41 million over the prior year. The
remainder of the general operating expense ratio increase was primarily due to higher personnel costs, as part of
AIG’s continued investment in its employees.
The accident year combined ratio, as adjusted, increased by 1.5 points for the year ended December 31, 2012.
The accident year loss ratio, as adjusted, in the year ended December 31, 2012 improved in both A&H and Personal
lines. The improvement in A&H is primarily attributable to favorable underwriting performance of individual personal
accident business in Asia Pacific, targeted underwriting actions, coupled with rate increases and risk selection of
group A&H in the U.S. and the overall travel business. The improvement in Personal lines is primarily attributable to
improved underwriting and risk selection in the warranty line of business, price sophistication and rate strengthening
for Japan, EMEA automobile and the U.S. private client group, and targeted business mix changes that resulted in
faster growth in non-automobile products than the automobile line of business. Included in the accident year loss
ratio, as adjusted, for the year ended December 31, 2012, are severe losses totaling $33 million. There were no
severe losses for the year ended December 31, 2011.
The acquisition ratio increased by 1.2 points primarily due to profit sharing arrangements in lines of business targeted
for growth, direct marketing expenses and the reduction in VOBA benefit. Overall direct marketing costs increased by
approximately 9 percent in 2012; total direct marketing spending outside the U.S. increased by approximately
18 percent in the same period. There was also a decrease of approximately $49 million in the benefit from the
amortization of VOBA liabilities recognized at the time of the Fuji acquisition.
The general operating expense ratio increased by 0.9 points as a result of incurring additional expenses to grow key
lines of business across a number of geographic areas and strategic expansion in growth economy nations. For the
year ended December 31, 2012, investments in strategic initiatives, including investments in an integrated consumer
lines platform and information systems infrastructure totaled approximately $44 million, representing an increase of
approximately $27 million or 0.2 points over the prior year. The remainder of the increase was primarily due to higher
personnel costs, as we continue our efforts to align employee performance across the globe with our strategic goals.
The following table presents AIG Property Casualty’s net investment income and net realized capital gains
(losses):
Net Investment Income by Component
Interest and dividends $ 4,215 $ 3,988 (2)% 6%
Alternative investments 484 371 80 30
Fair value option assets 110 (8) 158 NM
Other income (expense) – net (29) (98) 62 70
Total net investment income $ 4,780 $ 4,253 10% 12%
Net Investment Income by Operating Segment
Commercial Insurance $ 2,769 $ 3,118 (10)% (11)%
Consumer Insurance 451 354 (18) 27
Other 1,560 781 54 100
Total net investment income $ 4,780 $ 4,253 10% 12%
Net realized capital gains $ 211 $ 957 80% (78)%
Consumer Insurance Ratios
AIG Property Casualty Net Investment Income and Net Realized Capital Gains (Losses)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 93
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 4,124
870
284
(11)
$ 5,267
$ 2,500
372
2,395
$ 5,267
$ 380
..................................................................................................................................................................................
............................................................................................................................................................................................
We manage and account for our invested assets on a legal entity basis in conformity with regulatory requirements.
Within a legal entity, invested assets are available to pay claims and expenses of both Commercial Insurance and
Consumer Insurance operating segments as well as the Other category. Invested assets are not segregated or
otherwise separately identified for the Commercial Insurance and Consumer Insurance operating segments.
Investment income is allocated to the Commercial Insurance and Consumer Insurance operating segments based on
an internal investment income allocation model. The model estimates investable funds based primarily on loss
reserves, unearned premiums and a capital allocation for each segment. The investment income allocation is
calculated based on the estimated investable funds and risk-free yields (plus a liquidity premium) consistent with the
approximate duration of the liabilities. The actual yields in excess of the allocated amounts and the investment
income from the assets not attributable to the Commercial Insurance and the Consumer Insurance operating
segments are assigned to the Other category. Commencing in the first quarter of 2013, we began applying similar
duration and risk-free yields (plus a liquidity premium) to the allocated capital of Commercial Insurance and
Consumer Insurance as is applied to loss reserves.
Net realized capital gains (losses) and Other income (expense) — net are not allocated to Commercial Insurance
and Consumer Insurance, but are reported as part of the Other category.
Net investment income is influenced by a number of factors, including equity market performance, changes in overall
asset allocation, changes in the timing and amount of expected cash flows on certain structured securities, and the
movements of interest rates. Net investment income increased by $487 million or 10 percent in 2013, compared to
2012, primarily due to increased alternative investment income derived from equity market performance and income
associated with the PICC P&C shares that are accounted for under the fair value option. This alternative investment
performance was most visible in investments in hedge funds, which benefited from the equity market performance.
Fair value increases also contributed to the net investment income increase. The portion of our investment in PICC
P&C shares accounted for under the fair value option, contributed $110 million to net investment income. Although
interest rates remained at historically low levels, there were upward movements in rates throughout the year, with the
ten year U.S. Treasury yield increasing 126 basis points during the year. These increasing rates, coupled with
continued portfolio diversification, helped mitigate the effects of runoff rates on matured or sold investments
exceeding new investment yields. The combination of improving yield differential and above average alternative
investment returns increased the return on invested assets by approximately 0.4 points to 4.2 percent.
Corporate debt securities continued to be the largest asset category. We continued to focus on risk-weighted
opportunistic investments in higher yielding assets such as structured securities and commercial mortgage loans. In
addition we continued to maintain a defensive strategy on interest rates in the current rising rate environment by
increasing our mix of floating rate securities. This asset diversification has achieved an increase in average yields
while the overall credit ratings of our fixed maturity investments were largely unchanged. We expect to continue to
refine our investment strategy in 2014 to meet our liquidity, duration and credit quality objectives as well as current
risk-return and tax objectives.
Our invested asset portfolio decreased by approximately $8 billion, or 6 percent during the year, due to a decline in
unrealized appreciation from rising interest rates, foreign currency translation adjustment losses in our international
portfolio as the dollar strengthened against the yen, and approximately $4.3 billion in dividend remittances to AIG
Parent.
Net realized capital gains in 2013 were driven primarily by gains on the sales of fixed maturity securities, which were
accomplished in concert with our portfolio diversification and derisking strategy. Lower overall gains on sales of
securities, in combination with foreign exchange gains due to dollar strengthening more than offset losses from
derivatives used to economically hedge foreign currency positions compared to the prior year. We recognized
other-than-temporary impairment charges of $53 million, which was a significant improvement from the $377 million
in charges recognized in 2012, as market factors such as improved housing fundamentals resulted in structured
securities impairments well below those recognized in 2012.
2013 and 2012 Comparison
Net Investment Income
Net Realized Capital Gains (Losses)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 94
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
..................................................................................................................................................................................
Net investment income increased $527 million or 12 percent in 2012, compared to 2011, primarily due to the impact
of the overall diversification in the asset portfolio during the year. We adopted yield-enhancement initiatives in 2011,
and continued through 2012, which increased the average yield of our investment portfolio by 0.3 points to
4.0 percent during 2012.
Our invested asset portfolio grew by approximately $4.3 billion, or 3.0 percent during the year with declining interest
rates and narrowing spreads in both investment grade and higher yield asset classes contributing to higher
unrealized appreciation in our portfolio.
Net investment income from other investment categories increased by $231 million in 2012 compared to 2011, of
which $113 million was attributed to the strong performance of alternative investments, following a 16 percent
increase in the S&P 500 Index during 2012. Other investment income also increased by $69 million due to the
strategic group benefits partnership with AIG Life and Retirement, all of which is reported in Consumer Insurance.
Net realized capital gains in 2012 were driven by gains recognized on the sale of fixed maturity and equity securities,
which were partially offset by an other-than-temporary impairments charge attributed to a decrease in recoverable
values for structured securities, as well as alternative and equity security investments that were in an unrealized loss
position for 12 months. Net realized capital gains were less than 2011, due to fewer gains on sales in our fixed
maturity securities portfolio and derivative losses as opposed to derivative gains in 2011 resulting from long term
interest rate movements.
The following discussion of the consolidated liability for unpaid claims and claims adjustment expense (loss reserves)
presents loss reserves for AIG Property Casualty as well as the loss reserves pertaining to the Mortgage Guaranty
reporting unit, which is reported in Other Operations.
The following table presents the components of AIG’s gross loss reserves by major lines of business on a
U.S. statutory basis*:
Other liability occurrence (including asbestos and environmental) $ 21,533
International 17,453
Workers’ compensation (net of discount) 17,319
Other liability claims made 11,443
Property 4,961
Auto liability 3,060
Products liability 2,195
Medical malpractice 1,651
Mortgage guaranty / credit 1,957
Accident and health 1,518
Commercial multiple peril 1,310
Aircraft 1,065
Fidelity / surety 647
Other 1,879
Total $ 87,991
* Presented by lines of business pursuant to statutory reporting requirements as prescribed by the National Association of Insurance
Commissioners.
2012 and 2011 Comparison
Net Investment Income
Net Realized Capital Gains (Losses)
Liability for Unpaid Claims and Claims Adjustment Expense
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 95
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G PROPERT Y CASUAL T Y
At December 31,
(in millions) 2013 2012
$ 21,023
17,126
15,390
10,645
4,111
2,581
1,463
1,714
1,348
1,378
1,886
1,276
538
1,068
$ 81,547
..................................................................................................................................................................................
............................................................................................................................................................................................
AIG’s gross loss reserves represent the accumulation of estimates of ultimate losses, including estimates for incurred
but not reported (IBNR) and loss expenses, less applicable discount for future investment income. We regularly
review and update the methods and assumptions used to determine loss reserve estimates and to establish the
resulting reserves. Any adjustments resulting from this review are reflected in pre-tax operating income. Because loss
reserve estimates are subject to the outcome of future events, changes in estimates are unavoidable given that loss
trends vary and time is often required for changes in trends to be recognized and confirmed. Reserve changes that
increase prior years’ estimates of ultimate cost are referred to as unfavorable or adverse development or reserve
strengthening. Reserve changes that decrease prior years’ estimates of ultimate cost are referred to as favorable
development.
The net loss reserves represent loss reserves reduced by estimated salvage and subrogation, reinsurance
recoverable, net of an allowance for unrecoverable reinsurance, and applicable discount for future investment
income.
The following table presents the components of net loss reserves:
Gross loss reserves before reinsurance and discount $ 91,237
Less: discount (3,246)
Gross loss reserves, net of discount, before reinsurance 87,991
Less: reinsurance recoverable
*
(19,209)
Net liability for unpaid claims and claims adjustment expense $ 68,782
* Includes $1.6 billion of reinsurance recoverable under a retroactive reinsurance agreement at both December 31, 2013 and 2012.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due
from policyholders of approximately $12.0 billion and $11.7 billion at December 31, 2013 and 2012, respectively.
These recoverable amounts are related to certain policies with high deductibles (primarily for U.S. commercial
casualty business) where we manage and pay the entire claim on behalf of the insured and are reimbursed by the
insured for the deductible portion of the claim. At December 31, 2013 and 2012, we held collateral totaling
$9.0 billion and $8.3 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of
credit and trust agreements.
The following table classifies the components of net loss reserves by business unit:
AIG Property Casualty:
Commercial Insurance
Casualty $ 35,958
Financial lines 10,116
Specialty 6,259
Property 4,783
Total Commercial Insurance
(a)
57,116
Consumer Insurance
Personal lines 3,735
Accident and health 1,857
Total Consumer Insurance 5,592
Other
(a)(b)
4,241
Total AIG Property Casualty 66,949
Other Operations – Mortgage Guaranty 1,833
Net liability for unpaid claims and claims adjustment expense $ 68,782
(a) The 2012 amounts have been revised to conform the presentation of the total discount. The impact of this revision was an increase to
Commercial Insurance of $654 million and a corresponding decrease to Other of $654 million, with no income statement or balance sheet impact.
(b) Excludes future policyholder benefits of $3.5 billion.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 96
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
December 31,
(in millions) 2013 2012
$ 85,102
(3,555)
81,547
(17,231)
$ 64,316
December 31,
(in millions) 2013 2012
$ 35,179
9,607
5,385
4,229
54,400
3,350
1,804
5,154
3,475
63,029
1,287
$ 64,316
..................................................................................................................................................................................
The following table presents the components of AIG Property Casualty’s loss reserve discount included
above:
2012
Commercial
Insurance Other Total
U.S. workers’ compensation:
Tabular $ 588 $ 213 $ 801
Non-tabular 1,953 441 2,394
Asbestos – 51 51
Total reserve discount $ 2,541 $ 705 $ 3,246
See Note 12 to the Consolidated Financial Statements for additional information on discounting of loss reserves.
The following table presents the net reserve discount benefit (charge):
2012 2011
Commercial Commercial
Insurance Other Total Insurance Other Total
Change in loss reserve discount – current
accident year $ 348 $ – $ 348 $ 342 $ – $ 342
Change in loss reserve discount – prior year
development 100 (13) 87 24 (44) (20)
Accretion of reserve discount (348) (24) (372) (326) (30) (356)
Net reserve discount benefit (charge) $ 100 $ (37) $ 63 $ 40 $ (74) $ (34)
We discount loss reserves, in a manner consistent with rates and factors approved or prescribed by state regulatory
authorities. Effective for the fourth quarter of 2013, our Pennsylvania regulator approved use of a consistent discount
rate (U.S. Treasury rate plus a liquidity premium) for all of our workers’ compensation reserves in our Pennsylvania-
domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers’
compensation portfolios. Prior to this change, workers’ compensation reserves held by a Pennsylvania-domiciled
insurer were discounted as follows: i) for loss reserves associated with accident year 2001 and prior accident years,
a prescribed discount factor based on a rate of 6 percent and industry payout patterns, were applied, ii) for loss
reserves associated with accident year 2002 and subsequent accident years, a rate of 4.25 percent and our own
payout patterns were applied; and iii) for a portion of loss reserves comprising excess workers’ compensation
reserves that were assumed into Pennsylvania-domiciled insurers from New York-domiciled insurers during 2011, we
applied New York discounting rules, which include a prescribed rate of 5 percent on case reserves only (no
discounting of IBNR reserves). The new discount rates more closely approximate the expected risk-adjusted yield on
the underlying invested assets over the expected payout periods.
As a result of these changes, the total net discount for workers’ compensation reserves increased by $427 million.
This amount was partially offset by normal accretion expense of $100 million (associated with maturing reserves
partially offset by discounts applied to newly established reserves) for a full year net benefit of $327 million. The net
benefit consisted of a $322 million reduction within the Commercial Insurance operating segment, primarily from
application of a lower discount rate on primary workers’ compensation reserves, and a benefit of $649 million in
Other, primarily from increased payout patterns specific to excess workers’ compensation reserves (as opposed to
the prescribed discount factors), which were only partially offset by the lower U.S. Treasury-based discount rates. In
addition, this amount was offset by $18 million of amortization of asbestos reserves.
In addition, commencing January 1, 2014, we will be merging our two internal pooling arrangements into one pool,
and will be changing the participation percentages of the pool members. We expect that this will result in an
additional workers’ compensation loss reserve discount benefit of approximately $100 million to be recorded during
the first quarter of 2014. As a result of the participation percentages and domiciliary states of the participants of the
combined pool, a portion of the workers’ compensation reserves currently held net in New York subsidiaries and
discounted pursuant to New York discounting rules, will be transferred to Lexington Insurance Company (Lexington),
Discounting of Reserves
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 97
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
2013
Commercial December 31,
(in millions) Insurance Other Total
$ 597 $ 201 $ 798
1,622 1,102 2,724
– 33 33
$ 2,219 $ 1,336 $ 3,555
2013
Commercial Years Ended December 31,
(in millions) Insurance Other Total
$ 175 $ – $ 175
(249) 707 458
(248) (76) (324)
$ (322) $ 631 $ 309
..................................................................................................................................................................................
............................................................................................................................................................................................
domiciled in Delaware. New York discounting rules generally do not permit non-tabular discounting on IBNR and only
prescribes a 5 percent rate for application to case reserves. We also expect to receive a permitted practice from the
Delaware Department of Insurance to allow discounting on the same basis as Pennsylvania domiciled companies
described above. The $100 million anticipated impact arises from the application of non-tabular discount to the IBNR
transferred out of New York companies to Pennsylvania and Delaware companies, offset partially by a decrease in
the effective discount rate from the 5 percent prescribed rate in New York.
AIG net loss reserves represent our best estimate of our liability for net losses and loss expenses as of
December 31, 2013. While we regularly review the adequacy of established loss reserves, there can be no
assurance that our ultimate loss reserves will not develop adversely and materially exceed our loss reserves as of
December 31, 2013. In our opinion, such adverse development and resulting increase in reserves are not likely to
have a material adverse effect on our consolidated financial condition, although such events could have a material
adverse effect on our consolidated results of operations for an individual reporting period.
The following table presents the rollforward of net loss reserves:
Net liability for unpaid claims and claims adjustment expense at beginning of year $ 70,825 $ 71,507
Foreign exchange effect
(a)
(90) 353
Other, including dispositions (11) –
Change due to retroactive asbestos reinsurance transaction 90 (1,703)
Losses and loss expenses incurred:
Current year, undiscounted 25,385 27,931
Prior years unfavorable development, undiscounted
(b)
421 195
Change in discount (63) 34
Losses and loss expenses incurred 25,743 28,160
Losses and loss expenses paid:
Current year
(a)
8,450 11,534
Prior years 19,325 15,958
Losses and loss expenses paid 27,775 27,492
Net liability for unpaid claims and claims adjustment expense at end of year $ 68,782 $ 70,825
(a) For the 2012 amounts, $847 million was reclassified from ‘‘Foreign exchange effect’’ to ‘‘Losses and loss expenses paid (current year)’’. The
impact of this reclassification was a decrease of $847 million for foreign exchange and loss expenses paid (current year), with no income statement
or balance sheet impact.
(b) See tables below for details of prior year development by business unit, accident year and major class of business.
Annual Reserving Conclusion
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 98
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
Years Ended December 31,
(in millions) 2013 2012 2011
$ 68,782
(617)
(79)
22
22,171
557
(309)
22,419
7,431
18,780
26,211
$ 64,316
..................................................................................................................................................................................
The following table summarizes development, (favorable) or unfavorable, of incurred losses and loss
expenses for prior years, net of reinsurance, by major class of business:
Prior accident year development by major class of business:
Commercial Insurance U.S.:
Excess casualty $ 157 $ (588)
Financial lines including professional liability (283) (257)
On-going specialty, excluding pollution products 127 29
On-going pollution products 34 3
Primary casualty:
Loss-sensitive 54 172
Other 477 514
Healthcare 68 (45)
Property excluding natural catastrophes (95) (154)
Natural catastrophes (144) 9
All other, net 147 214
Total Commercial Insurance – U.S. 542 (103)
Commercial Insurance International:
Excess casualty (10) (14)
Primary casualty (36) (89)
Financial lines 33 –
Specialty (77) 7
Property excluding natural catastrophes (54) –
Natural catastrophes (105) (84)
All other, net (3) –
Total Commercial Insurance – International (252) (180)
Consumer Insurance – U.S.:
Natural catastrophes 11 6
All other, net 9 40
Total Consumer Insurance – U.S. 20 46
Consumer Insurance – International:
Natural catastrophes (26) –
All other, net (14) 39
Total Consumer Insurance – International (40) 39
Other – U.S.:
Asbestos and environmental (1986 and prior) 70 27
Run-off environmental (1987 to 2004) 166 382
Total all other, net – (1)
Total Other – U.S. 236 408
Other – International:
Asbestos and environmental (1986 and prior) 5 –
Total all other, net (12) 1
Total Other – International (7) 1
Total AIG Property Casualty 499 211
Other Operations – Mortgage Guaranty (78) (16)
Total prior year unfavorable development $ 421 $ 195
During 2013, the adverse prior year loss development net of premium accruals was $438 million. The increase was
primarily due to the increases in reserves by $108 million for Storm Sandy, $219 million for U.S. construction primary
general liability lines and $238 million for the run-off environmental (1987 to 2004) book.
In addition, we recognized additional premiums on loss-sensitive business of $89 million, $54 million and $172 million
for the years ended December 31, 2013, 2012 and 2011, respectively.
For the year ended December 31, 2013, we incurred reinstatement premiums of $27 million, compared to $0 for both
years 2012 and 2011.
In determining the loss development from prior accident years, we analyze and evaluate the change in estimated
ultimate loss for each accident year by class of business. For example, if loss emergence for a class of business is
different than expected for certain accident years, we examine the indicated effect such emergence would have on
Net Loss Development by Class of Business
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 99
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
Years Ended December 31,
(in millions) 2013 2012 2011
$ (144)
(113)
120
31
89
409
(54)
(80)
179
23
460
(15)
(25)
74
(51)
(3)
(71)
(14)
(105)
(69)
(46)
(115)
–
(40)
(40)
57
238
22
317
10
–
10
527
30
$ 557
..................................................................................................................................................................................
............................................................................................................................................................................................
the reserves of that class of business. In some cases, the higher or lower than expected emergence may result in no
clear change in the ultimate loss estimate for the accident years in question, and no adjustment would be made to
the reserves for the class of business for prior accident years. In other cases, the higher or lower than expected
emergence may result in a larger change, either favorable or unfavorable. As appropriate, we make adjustments for
the difference between the actual and expected loss emergence for each accident year. As part of our reserving
process, we also consider notices of claims received with respect to emerging and/or evolving issues.
The following is a discussion of the primary reasons for the development in 2013, 2012 and 2011 of those classes of
business that experienced significant prior accident year development during the three-year period. See Critical
Accounting Estimates for a description of our loss reserving process.
The excess casualty segment presents unique challenges for estimating the unpaid claims. Insureds are generally
required to provide notice of claims that exceed a threshold, either expressed as a proportion of the attachment
(e.g., 50 percent of the attachment) or as particular types of claims (e.g., death, quadriplegia). This threshold is
generally established well below our attachment point, to provide us with a precautionary notice of claims that could
potentially pierce our layer of coverage. This means that the majority of claims close without payment because the
claims never pierce our layer, while the claims that close with payment can be large and highly variable. Thus,
estimates of unpaid claims carry significant uncertainty. For reserve reporting purposes, we now combine the
Umbrella Excess casualty business with the high layer Catastrophic Casualty business that attaches when losses
exceed $50 million.
During 2013, Excess Casualty experienced $144 million of favorable emergence due to favorable outcomes on some
large cases from 2010 and lower than expected emergence in high layer Catastrophic Casualty business.
During 2012, the Excess Casualty class of business experienced $157 million of adverse development based on
worse than expected Umbrella Excess emergence, primarily from adverse outcomes relating to certain large claims
from older accident years, from the legacy public entity excess casualty class of business and from a refined analysis
applied to claims in excess of $10 million. This refined analysis considered the impact of changing attachment points
(primarily impacting frequency of excess claims) and limit structures (primarily impacting severity of excess claims)
throughout the loss development period.
During 2011, the Excess Casualty class of business experienced better than expected loss emergence. For Umbrella
Excess, the expected loss emergence was based on the shorter-termed loss development pattern from the year-end
2010 reserve analysis. However, accident year 2010 experienced some large catastrophic losses causing its results
to be worse than expected.
We maintain an active environmental insurance business related to pollution legal liability and general liability for
environmental consultants and engineers, as well as runoff business for certain environmental coverage which
provides cost overrun protection, in some cases over long time periods. We evaluate and report reserves associated
with this business separately from the 1986 and prior asbestos and environmental reserves associated with standard
General Liability and Umbrella policies discussed under ‘‘Asbestos and Environmental Reserves’’.
In 2013, our analysis of pollution products reflected an updated review of individual cases which indicated large
increases in the value of certain previously reported cases due to new developments such as the discovery of
additional contamination in certain sites, legislative changes, court rulings, expansion of plaintiff damages and
increased cost of remediation technologies. Additionally, the number and severity of newly reported claims was
higher than expected. As a result, we increased our estimate of ultimate losses by approximately $269 million with
approximately $201 million of this relating to policies written in 2003 and prior. Significant changes in underwriting
during 2004 changed the terms and conditions materially for policies written after 2003 to reduce our exposure to
these events.
Because of an increase in the frequency and severity of claims observed beginning in 2011, the 2012 loss reserve
review consisted of an intensive review of reported claims by a multi-disciplinary team including external specialists in
environmental law and engineering science, toxicologists and other specialists, our actuaries, claims managers and
underwriters to reassess our indicated loss reserve need. The review improved our understanding of factors that
Excess Casualty
Environmental and Pollution Products
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 100
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
..................................................................................................................................................................................
drive claim costs such as policy term, limit, pollution conditions covered, location of incident and applicable laws and
remediation standards. The analysis used these factors to segment and analyze the claim data to determine ultimate
costs, in some cases, on a claim by claim basis. As a result of this analysis, $200 million of prior year adverse
development was recognized during 2012, including $166 million for pollution products reported in the AIG Property
Casualty Other reporting unit related to lines that are now in runoff. The majority (81 percent) of the adverse
development related to accident years 2003 and prior, before significant underwriting changes were adopted.
Historically, we had used traditional actuarial methods to assess the reserves for the pollution products. The
comprehensive claims review provided a more refined approach for the development of actuarial estimates for toxic
tort claims (which were found to have a distinctly lengthier loss development pattern than other general liability claims
in the environmental portfolio) as well as a more appropriate methodology for incorporating case reserving based
estimates of ultimate loss costs for complex claims involving environmental remediation and/or from policies with high
policy limits (greater than $5 million per policy). Notwithstanding the refined methodology and approach applied in
2012 and subsequently, considerable uncertainty remains over the ultimate loss cost for this class of business,
especially for business written in accident years 2003 and prior.
We strengthened our Pollution Products reserves in 2011 by $385 million, partly due to large reserve increases on
several individual claims. Of this amount, $382 million was included in the AIG Property Casualty Other reporting
unit. Approximately 80 percent of the 2011 development was associated with accident years 2003 and prior.
In addition to reserving actions, we have made significant changes to the ongoing environmental business included in
Commercial with the goal of ensuring that the current policies are being written to earn an appropriate risk adjusted
profit. Underwriting guidelines have been revised to no longer cover known or expected clean up costs, which were a
significant driver of historical claims, and a ‘‘new emerging contaminants’’ team has been formed within the dedicated
environmental engineering staff to track any new cleanup standards that may be set by federal or state regulators.
Further, engineering reviews are required for specific business segments (such as oil and gas, and landfills) that
have traditionally generated higher losses.
Primary Casualty includes Workers’ Compensation and General Liability in Commercial Risk, Specialty Workers’
Compensation, Energy Business units, Worldsource and Non-Admitted business.
The Commercial Risk division writes casualty insurance for businesses with revenues of less than $700 million. The
majority of the business is workers’ compensation. The Energy division writes casualty insurance (including workers’
compensation) in the mining, oil and gas and power generation sectors. The Commercial Specialty Workers’
Compensation division writes small monoline guaranteed cost risks. Our Commercial Specialty Workers’
Compensation business unit grew significantly in the early to mid 2000s but has reduced premium writings by nearly
70 percent since 2007.
During 2013, we continued to refine the segmentation of our analyses of primary workers’ compensation, which
indicated that prior year development was flat after taking into account the initiatives that our claim function has
undertaken to manage high risk claims.
During 2013, for primary general liability, we increased our reserves for prior years by approximately $355 million.
Most of the increase was driven by construction-related primary general liability claims, especially construction defect
claims where we increased our ultimate loss estimates by $219 million to reflect the higher than expected frequency
and severity of these claims especially in states that experienced heavy increases in construction activity after the
2004 and 2005 hurricanes and during the housing boom prior to 2007. Due to the subsequent home price declines
observed in many of these states, the frequency of reported losses has increased as the losses subsequently
represented a larger percentage of the equity values of the affected homes, and homeowners increasingly looked to
insurance recoveries as a way to recoup some of that lost value.
During 2012, we significantly intensified our claims management efforts for those primary workers’ compensation
claims which are managed by AIG. These efforts include consulting with various specialists, including clinical and
public health professionals and other advisors. We also continued to refine our actuarial methodologies for estimating
ultimate loss costs incorporating a more refined segmentation by state (California and New York were analyzed
separately) and a more refined approach for business subject to deductibles as well as business subject to premium
adjustments (loss-sensitive business). Based on these enhanced reviews, we increased reserves by $46 million.
Primary Casualty
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 101
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
..................................................................................................................................................................................
In 2012, we also reviewed the general liability loss experience of the primary casualty classes of business using a
more refined segmentation for business subject to a deductible as well as loss-sensitive business. Our review
focused on applying actuarial loss development analyses to those general liability claims for which these techniques
are appropriate. As a result of this analysis, we determined that prior year reserves needed to be increased by
$235 million for the primary general liability class of business in 2012 to reflect the worse than expected emergence
of paid loss severities for both bodily injury and property damage claims from the more recent accident years (2008
and subsequent).
The Commercial Risk, Commercial Specialty Workers’ Compensation and Energy divisions contributed $265 million,
$145 million and $115 million, respectively, of adverse development in calendar year 2011. The vast majority of this
adverse development emanates from primary workers’ compensation exposure, which was largely from accident year
2010. In 2011, losses for accident year 2010 continued to emerge at higher levels than anticipated at prior year end.
A key driver was the effect of high unemployment on the frequency of higher severity lost time claims. The poor
economic environment precluded some employers from offering ‘‘light duty’’ return-to-work alternatives that might
otherwise have mitigated lost time claims. At the same time, the increased use of pain management strategies has
led to increased medical claims. The increase in lost time frequency and the adverse effects of medical cost trends
resulted in higher loss ratios than anticipated at prior year end. For each of the three classes, our conclusion that the
worsening experience necessitated a strengthening of the reserves was confirmed by an independent third-party
actuarial review during 2011.
During 2013, this class recognized $54 million of favorable prior year development due to lower than expected loss
emergence in many classes such as Excess Hospital Liability.
During 2012, this class recognized $68 million of adverse prior year development due to several large claims that
involved unusual coverage issues for this class. With the exception of these claims, this class experienced claim
activity in line with expectations.
Healthcare business written by AIG Property Casualty’s Americas region produced moderate favorable development
in 2011. Healthcare loss reserves have benefited from favorable market conditions and an improved legal
environment in accident years 2002 and subsequent, following a period of adverse loss trends and market conditions
that began in the mid 1990s.
This class of business has an extremely long tail and is one of the most challenging classes of business to reserve
for, particularly when the excess coverage is provided above a self-insured retention layer. The class 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.
During 2013, we updated our analysis of Excess Workers’ Compensation reserves and determined that no changes
to our carried reserves were needed. During the 2012 loss reserve review, we augmented traditional reserve
methodologies with an analysis of underlying claims cost drivers to inform our judgment of the ultimate loss costs for
open reported claims from accident years 2003 and prior (representing approximately 95 percent of all open reported
claims) and used the refined analysis to inform our judgment of the ultimate loss cost for claims that have not yet
been reported using a frequency/severity approach for these accident years.
This approach was deemed to be most suitable for injured workers whose medical conditions had largely stabilized
(i.e., at least 9 to 10 years have elapsed since the date of injury). The reserves for accident years 2004 and
subsequent (13 percent of total case and IBNR reserves for this class) were determined using traditional methods.
See Critical Accounting Estimates for additional information.
The refined analysis confirmed that significant uncertainty remains for this class of business, especially from
unreported claims and from the propensity for future medical deterioration. Based on the more refined analysis we
did not recognize any material development for accident years 2011 and prior.
During 2013, we experienced adverse development from Storm Sandy totaling $108 million, or 5.4 percent of the
December 31, 2012 estimate. This development resulted from higher severities on a small number of large and
Healthcare
Excess Workers’ Compensation — U.S.
Natural Catastrophes
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 102
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
..................................................................................................................................................................................
complex commercial claims driven by a number of factors including the extensive damage caused to properties in the
downtown New York metropolitan area.
During 2012, we experienced favorable development from the Tohoku Catastrophe due to commercial claim
severities being less than previously reserved.
See Item 7. MD&A — Critical Accounting Estimates — Liability for Unpaid Claims and Claims Adjustment Expense
for further discussion of our loss reserving process.
The following table summarizes development, (favorable) or unfavorable, of incurred losses and loss
expenses for prior years, net of reinsurance, by accident year:
Prior accident year development by accident year:
Accident Year
2012 $ – $ –
2011 (162) –
2010 (75) 402
2009 (45) 117
2008 (150) (294)
2007 157 (172)
2006 (20) (273)
2005 112 (164)
2004 33 (16)
2003 and prior 571 595
Total prior year unfavorable development $ 421 $ 195
For 2013, the favorable development from accident year 2012 was driven primarily by consumer lines and lower
losses in domestic commercial property, while the favorable development from accident year 2010 was primarily the
result of favorable claims emergence from domestic excess casualty and from liability and financial lines coverage
policies that are on a claims-made basis. The adverse development from accident year 2011 was driven by large
losses in financial lines and adverse development in primary casualty including loss-sensitive business. The adverse
development from accident year 2009 was driven by large losses in financial lines and adverse development in
primary casualty including loss-sensitive business. Also for the same periods, the adverse development from accident
years 2003 and prior was primarily driven by loss development on toxic claims tort construction general liability
claims and pollution product claims.
For 2012, the favorable development from accident year 2011 was driven primarily by the favorable development on
natural catastrophes, primarily the Tohoku Catastrophe, and the adverse development from accident years 2003 and
prior was primarily the result of the increase in reserves on runoff pollution product business (policies written between
1987and 2003).
For 2011, the adverse development from accident years 2003 and prior was largely driven by runoff pollution
products (written between 1987and 2003) and toxic tort claims. Adverse development from accident year 2010 was
largely driven by primary workers’ compensation and loss-sensitive primary business. Favorable development from
accident years 2005 to 2008 was driven by financial lines, claims-made excess classes and other casualty classes.
For certain categories of claims (e.g., construction defect claims and environmental claims) and for reinsurance
recoverables, losses may sometimes be reclassified to an earlier or later accident year as more information about the
date of occurrence becomes available to AIG. These reclassifications are shown as development in the respective
years in the table above.
Net Loss Development by Accident Year
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 103
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
Years Ended December 31,
(in millions) 2013 2012 2011
$ (181)
217
(350)
157
(1)
–
(75)
61
62
667
$ 557
..................................................................................................................................................................................
............................................................................................................................................................................................
We consider a number of factors and recent experience, in addition to the results of both external and internal
analyses, to estimate asbestos and environmental loss reserves. Nonetheless, we believe that significant uncertainty
remains as to our ultimate liability for asbestos and environmental claims, which is due to several factors, including:
• the long latency period between asbestos exposure and disease manifestation, leading to the potential for
involvement of multiple policy periods for individual claims;
• claims filed under the non-aggregate premises or operations section of general liability policies;
• the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• diverging legal interpretations; and
• the difficulty in estimating the allocation of remediation cost among various parties with respect to environmental
claims.
We engaged an independent third-party actuarial firm to assist in assessing asbestos exposures. This external study
was completed in early 2011, based on losses evaluated in 2010.The ground-up study conducted by this firm used a
proprietary model to calculate the loss exposure on an insured-by-insured basis. We believe that the accuracy of the
reserve estimate is greatly enhanced through the combination of the actuarial firm’s industry modeling techniques
and industry knowledge and our own specific account-level experience.
In 2011, in addition to this third-party ground-up asbestos study, we internally completed a top-down report year
projections as well as market share projections of our indicated asbestos and environmental loss reserves. These
projections consisted of a series of tests performed separately for asbestos and for environmental exposures.
For asbestos, these tests project the losses expected to be reported through 2027. This projection was based on the
actual losses reported through 2011 and the expected future loss emergence for these claims. Three scenarios were
tested, with a series of assumptions ranging from more optimistic to more conservative. For environmental claims, a
comparable series of frequency/severity tests were produced. As a result of the studies, we concluded that no
additional strengthening was required for asbestos and environmental in 2011.
In 2012, after we carefully considered the recent experience compared to the results of the 2010 ground-up analysis,
as well as all of the above factors related to uncertainty, no adjustment to gross and net asbestos reserves was
recognized in 2012. Additionally in 2012, a moderate amount of incurred loss pertaining to the asbestos loss reserve
discount is reflected in the table below and is related to the reserves not subject to the NICO reinsurance agreement.
Upon completion of a top-down analysis performed for environmental in the fourth quarter of 2012, we concluded that
the $150 million gross reserve strengthening and $75 million net reserve strengthening recognized in the first half of
2012 was adequate.
In 2013, we completed a ground-up review of all our remaining retained accounts for asbestos. In addition, a
subsidiary of the retrocessionaire for our retroactive reinsurance contract completed a ground-up asbestos study for
the largest accounts it assumed. After carefully considering the results of both ground-up studies, we increased gross
asbestos loss reserves by $220 million and net asbestos loss reserves by $110 million. These reserve increases also
reflect a small amount of estimated uncollectible reinsurance and accretion of discount. A significant portion of the
net loss reserve increase will be recoverable under our retroactive reinsurance arrangement. For environmental, we
increased gross environmental reserves by $98 million and net environmental reserves by $61 million as a result of
top-down actuarial analyses performed during the year as well as development on a number of large accounts.
In addition to the U.S. asbestos and environmental reserve amounts shown in the tables below, AIG Property
Casualty also has asbestos reserves relating to foreign risks written by non-U.S. entities of $134 million gross and
$108 million net as of December 31, 2013 compared to $140 million gross and $116 million net as of December 31,
2012.
Asbestos and Environmental Reserves
Asbestos and Environmental Loss Reserve Estimates
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 104
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table provides a summary of reserve activity, including estimates for applicable IBNR, relating
to asbestos and environmental claims:
Asbestos:
Liability for unpaid claims and claims adjustment expense
at beginning of year $ 5,226 $ 537 $ 5,526 $ 2,223
Change in net loss reserves due to retroactive reinsurance:
Paid losses recoverable under retroactive reinsurance
contracts – 111 – 111
Re-estimation of amounts recoverable under retroactive
reinsurance contracts
(a)
– (21) – (1,814)
Change in net loss reserves due to retroactive reinsurance – 90 – (1,703)
Dispositions (10) (10) – –
Loss and loss expenses incurred:
Undiscounted 1 1 2 2
Change in discount 83 37 190 74
Losses and loss expenses incurred
(b)
84 38 192 76
Losses and loss expenses paid
(b)
(404) (228) (492) (236)
Other changes – – – 177
Liability for unpaid claims and claims adjustment expense
at end of year $ 4,896 $ 427 $ 5,226 $ 537
Environmental:
Liability for unpaid claims and claims adjustment expense
at beginning of year $ 204 $ 119 $ 240 $ 127
Dispositions (1) (1) – –
Losses and loss expenses incurred 150 75 33 27
Losses and loss expenses paid (44) (30) (69) (35)
Liability for unpaid claims and claims adjustment expense
at end of year $ 309 $ 163 $ 204 $ 119
Combined:
Liability for unpaid claims and claims adjustment expense
at beginning of year $ 5,430 $ 656 $ 5,766 $ 2,350
Change in net loss reserves due to retroactive reinsurance:
Paid losses recoverable under retroactive reinsurance
contracts – 111 – 111
Re-estimation of amount recoverable under retroactive
reinsurance contracts – (21) – (1,814)
Change in net loss reserves due to retroactive reinsurance – 90 – (1,703)
Dispositions (11) (11) – –
Losses and loss expenses incurred:
Undiscounted 151 76 35 29
Change in discount 83 37 190 74
Losses and loss expenses incurred 234 113 225 103
Losses and loss expenses paid (448) (258) (561) (271)
Other changes – – – 177
Liability for unpaid claims and claims adjustment expense
at end of year $ 5,205 $ 590 $ 5,430 $ 656
(a) Re-estimation of amounts recoverable under retroactive reinsurance contracts includes effect of changes in reserve estimates and changes in
discount. Additionally, the 2011 Net amount includes the effect on net loss reserves of the initial cession to NICO.
(b) These amounts exclude benefit from retroactive reinsurance.
On June 17, 2011, we completed a transaction under which the bulk of AIG Property Casualty’s net domestic
asbestos liabilities were transferred to NICO, a subsidiary of Berkshire Hathaway, Inc. This was part of our ongoing
Transfer of Domestic Asbestos Liabilities Under a Retroactive Reinsurance Arrangement
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 105
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
2013 2012 2011
As of or for the Years Ended December 31,
(in millions) Gross Net Gross Net Gross Net
$ 4,896 $ 427
– 113
– (91)
– 22
(12) (12)
169 92
51 18
220 110
(444) (145)
60 127
$ 4,720 $ 529
$ 309 $ 163
(1) (1)
98 61
(93) (60)
$ 313 $ 163
$ 5,205 $ 590
– 113
– (91)
– 22
(13) (13)
267 153
51 18
318 171
(537) (205)
60 127
$ 5,033 $ 692
..................................................................................................................................................................................
strategy to reduce our overall loss reserve development risk. This transaction covers potentially volatile U.S.-related
asbestos exposures. It does not, however, cover asbestos accounts that we believe have already been reserved to
their limit of liability or certain other ancillary asbestos exposure assumed by AIG Property Casualty subsidiaries.
Upon the closing of this transaction, but effective as of January 1, 2011, we ceded the bulk of AIG Property
Casualty’s net domestic asbestos liabilities to NICO under a retroactive reinsurance agreement with an aggregate
limit of $3.5 billion. Within this aggregate limit, NICO assumed collection risk for existing third-party reinsurance
recoverable associated with these liabilities. AIG Property Casualty paid NICO approximately $1.67 billion as
consideration for this cession and NICO assumed approximately $1.82 billion of net U.S. asbestos liabilities. As a
result of this transaction, AIG Property Casualty recorded a deferred gain of $150 million in the second quarter of
2011, which is being amortized into income over the settlement period of the underlying claims.
Under retroactive reinsurance arrangements any recoveries for development associated with the ceded losses are
not recognized immediately; rather this development increases or decreases the deferred gain, and is amortized into
income as described above. During 2013, we recognized approximately $87 million of adverse loss development that
was ceded under this reinsurance arrangement, which was partially offset by $15 million of deferred gain
amortization. Prior years’ amounts were immaterial. This development, net of the deferred gain amortization, is being
reported in Other income/expense, consistent with the way we manage the business and assess performance and is
therefore excluded from net losses incurred and our loss ratios to avoid distortion related to our ongoing insurance
business.
The following table presents the estimate of the gross and net IBNR included in the Liability for unpaid
claims and claims adjustment expense, relating to asbestos and environmental claims:
Asbestos $ 3,193 $ 37 $ 3,685 $ 239
Environmental 75 35 57 28
Combined $ 3,268 $ 72 $ 3,742 $ 267
* Net IBNR includes the reduction due to the NICO reinsurance transaction of $1,284 million, $1,310 million and $1,414 million as of
December 31, 2013, 2012 and 2011, respectively. A significant part of the reduction in IBNR in 2012 is due to the reclassification of estimated
liabilities on a retained account from IBNR to case reserves.
The following table presents a summary of asbestos and environmental claims count activity:
Claims at beginning of year 5,443 3,782 9,225 4,933 4,087 9,020
Claims during year:
Opened 226 222 448 141 207 348
Settled (254) (179) (433) (183) (83) (266)
Dismissed or otherwise
resolved
(a)
(185) (2,211) (2,396) (289) (429) (718)
Other
(b)
– – – 841 – 841
Claims at end of year 5,230 1,614 6,844 5,443 3,782 9,225
(a) The number of environmental claims dismissed or otherwise resolved, increased substantially during 2012 as a result of AIG Property Casualty’s
determination that certain methyl tertiary-butyl ether (MTBE) claims presented no further potential for exposure since these underlying claims were
resolved through dismissal, settlement, or trial for all of the accounts involved. All of these accounts were fully reserved at the account level and
included adequate reserves for those underlying individual claims that contributed to the actual losses. These individual claim closings, therefore,
had no impact on AIG Property Casualty’s environmental reserves.
(b) Represents an administrative change to the method of determining the number of open claims, which had no effect on carried reserves.
The following table presents AIG’s survival ratios for asbestos and environmental claims at December 31, 2013, 2012
and 2011. The survival ratio is derived by dividing the current carried loss reserve by the average payments for the
three most recent calendar years for these claims. Therefore, the survival ratio is a simplistic measure estimating the
Survival Ratios — Asbestos and Environmental
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 106
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
2013 2012 2011
December 31,
(in millions) Gross Net
*
Gross Net
*
Gross Net
*
$ 3,190 $ 16
94 51
$ 3,284 $ 67
2013 2012 2011
As of or for the Years
Ended December 31, Asbestos Environmental Combined Asbestos Environmental Combined Asbestos Environmental Combined
5,230 1,614 6,844
83 306 389
(194) (154) (348)
(439) (249) (688)
– – –
4,680 1,517 6,197
..................................................................................................................................................................................
number of years it would take before the current ending loss reserves for these claims would be paid off using recent
year average payments.
Many factors, such as aggressive settlement procedures, mix of business and level of coverage provided, have a
significant effect on the amount of asbestos and environmental reserves and payments and the resulting survival
ratio. Additionally, we primarily base our determination of these reserves based on ground-up and top-down
analyses, and not on survival ratios.
The following table presents survival ratios for asbestos and environmental claims, separately and
combined, which were based upon a three-year average payment:
Survival ratios:
Asbestos 9.6 8.7 9.1 10.3
Environmental 4.5 4.4 3.0 3.1
Combined 9.0 8.1 8.4 9.3
* Survival ratios are calculated consistent with the basis on historical reserve excluding the effects of the NICO reinsurance transaction.
AIG Life and Retirement presents its operating results in two operating segments — Retail and Institutional.
Premiums and deposits improved significantly in 2013 compared to 2012, primarily from strong sales of annuities in
our Retirement Income Solutions and Fixed Annuities product lines and increased Retail Mutual Fund sales. The
improvement in Retirement Income Solutions resulted from our efforts to increase sales while managing risk by
meeting the strong market demand for guaranteed features with innovative variable annuity products and expanded
distribution. As a result of the 2013 increase in premiums and deposits, net flows on investment products improved in
2013 compared to 2012. Net flows from our Fixed Annuities product line, while still negative in 2013, improved
compared to 2012 as a result of the modest rise in interest rates in the second half of 2013, which has increased the
demand for fixed annuities.
Pre-tax operating income increased in 2013 compared to 2012 due to higher fee income from growth in variable
annuity assets under management and active spread management in our interest rate sensitive product lines. The
increase in net investment income in 2013 compared to 2012 reflected higher alternative investment income, partially
offset by fair value gains on ML II in 2012 that did not recur in 2013 and reinvestment of investment proceeds at
lower rates. Pre-tax operating income in 2013 also included a $153 million net increase from adjustments to update
certain estimated gross profit assumptions used to amortize DAC and related items in our investment-oriented
product lines. These adjustments increased 2013 pre-tax operating income in our Retail operating segment by
$198 million and decreased 2013 pre-tax operating income in our Institutional operating segment by $45 million. See
Critical Accounting Estimates — Estimated Gross Profits for Investment-Oriented Products (AIG Life and Retirement)
for additional discussion of updated estimated gross profit assumptions. Pre-tax operating income in 2012 also
included $234 million of expenses related to the resolution of multi-state regulatory examinations of death claims
practices and additional reserves for long-term care products and the GIC portfolio.
Pre-tax income increased in 2013 compared to 2012, reflecting the increases in pre-tax operating income as well as
increases in legal settlements with financial institutions that participated in the creation, offering and sale of RMBS
from which AIG and its subsidiaries realized losses during the financial crisis. Additionally, pre-tax income increased
due to net realized capital gains from continued investment sales to utilize capital loss carryforwards, which
increased in 2013 compared to 2012. However, reinvestment of these sales proceeds at lower current yields has
contributed to lower future investment returns, reducing spreads in interest-sensitive product lines, and resulting in
loss recognition for certain traditional products in 2013 and 2012, which was reported in Changes in benefit reserves
and DAC, VOBA and SIA related to net realized capital gains (losses). See AIG Life and Retirement Reserves and
DAC — Other Reserve Changes for additional discussion of loss recognition.
Dividends and loan repayments paid by AIG Life and Retirement subsidiaries to AIG Parent increased to
$4.4 billion in 2013 from $2.9 billion in 2012 from strong pre-tax income, as we continue to pursue capital efficiency
and leverage our streamlined legal structure. The increase in dividends in 2013 compared to 2012 is primarily due to
legal settlement proceeds in 2013.
AIG LIFE AND RETIREMENT
AIG Life and Retirement 2013 Highlights
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 107
I TEM 7 / RESULTS OF OPERATI ONS / LI ABI LI TY FOR UNPAI D CLAI MS AND CLAI MS ADJUSTMENT EXPENSE
2013 2012 2011
Years Ended December 31,
Gross Net* Gross Net
*
Gross Net
*
10.6 10.5
4.6 3.9
9.8 9.4
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents AIG Life and Retirement results:
Retail
Revenue:
Premiums $ 1,524 $ 1,546 –% (1)%
Policy fees 1,869 1,806 7 3
Net investment income 6,212 5,662 1 10
Other income 1,183 1,222 33 (3)
Operating expenses:
Policyholder benefits and claims incurred 2,791 2,786 (1) –
Interest credited to policyholder account balances 2,554 2,695 (11) (5)
Amortization of deferred policy acquisition costs 727 733 (26) (1)
Other acquisition and insurance expenses 2,274 2,178 15 4
Pre-tax operating income 2,442 1,844 29 32
Legal settlements 106 – NM NM
Changes in fair value of fixed maturity securities designated
to hedge living benefit liabilities, net of interest expense 37 – NM NM
Changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains (losses) (57) (305) (140) 81
Net realized capital gains (losses) (460) (157) NM (193)
Pre-tax income $ 2,068 $ 1,382 111% 50%
Institutional
Revenue:
Premiums $ 940 $ 1,003 14% (6)%
Policy fees 480 503 11 (5)
Net investment income 4,506 4,220 2 7
Other income 110 195 22 (44)
Operating expenses:
Policyholder benefits and claims incurred 1,801 1,901 9 (5)
Interest credited to policyholder account balances 1,786 1,737 (10) 3
Amortization of deferred policy acquisition costs 85 133 29 (36)
Other acquisition and insurance expenses 646 717 8 (10)
Pre-tax operating income 1,718 1,433 13 20
Legal settlements 48 – NM NM
Changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains (losses) (1,144) (22) (18) NM
Net realized capital gains (losses) 1,090 163 8 NM
Pre-tax income $ 1,712 $ 1,574 25% 9%
Total AIG Life and Retirement
Revenue:
Premiums $ 2,464 $ 2,549 5% (3)%
Policy fees 2,349 2,309 8 2
Net investment income 10,718 9,882 1 8
Other income 1,293 1,417 32 (9)
Operating expenses:
Policyholder benefits and claims incurred 4,592 4,687 3 (2)
Interest credited to policyholder account balances 4,340 4,432 (10) (2)
Amortization of deferred policy acquisition costs 812 866 (20) (6)
Other acquisition and insurance expenses 2,920 2,895 14 1
Pre-tax operating income 4,160 3,277 22 27
Legal settlements 154 – NM NM
Changes in fair value of fixed maturity securities designated
to hedge living benefit liabilities, net of interest expense 37 – NM NM
Changes in benefit reserves and DAC, VOBA and SIA
related to net realized capital gains (losses) (1,201) (327) (24) (267)
Net realized capital gains (losses) 630 6 223 NM
Pre-tax income $ 3,780 $ 2,956 72% 28%
AIG Life and Retirement Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 108
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 1,522
2,000
6,275
1,575
2,772
2,277
540
2,626
3,157
647
(161)
(137)
857
$ 4,363
$ 1,074
535
4,579
134
1,966
1,613
110
695
1,938
373
(1,349)
1,180
$ 2,142
$ 2,596
2,535
10,854
1,709
4,738
3,890
650
3,321
5,095
1,020
(161)
(1,486)
2,037
$ 6,505
..................................................................................................................................................................................
............................................................................................................................................................................................
16FEB201411433896
AI G LI FE AND RETI REMENT PRE- TAX OPERATI NG I NCOME
(i n mi l l i ons)
Ret ai l
I nst i t ut i onal
2013 2012 2011
$5,095
$4,160
$3,277
$1,433
$1,718
$2,442
$3,157
$1,938
$1,844
Pre-tax operating income increased in 2013 compared to 2012, reflecting higher fee income from variable annuities
driven by growth in assets under management, continued active spread management in interest rate sensitive
product lines and higher net investment income. Net investment income increased in 2013 compared to 2012, due to
higher income from alternative investments, partially offset by ML II fair value gains recognized in 2012 and
reinvestment of investment proceeds at lower rates. Pre-tax operating income in 2013 included a net increase of
$153 million from adjustments to update certain gross profit assumptions used to amortize DAC and related items in
our investment-oriented product lines.
The increase in pre-tax operating income in 2013 compared to the prior year also reflected additional expenses
recorded in 2012, which were related to the resolution of multi-state regulatory examinations of death claims
practices and additional reserves for long-term care products in the Retail operating segment, and a comprehensive
review of reserves for the GIC portfolio in the Institutional operating segment.
Pre-tax operating income for our Retail operating segment increased in 2013 compared to 2012, due in part to higher
fee income in the Retirement Income Solutions product line, which reflected growth in variable annuity assets under
management driven by strong sales and positive equity market performance. Base spreads (defined as net
investment income excluding alternative investments and yield-enhancement activities, less interest credited)
improved in 2013 compared to 2012, as a result of active spread management in our interest-sensitive product lines.
The impact of life insurance mortality on pre-tax operating income improved in 2013 compared to 2012. Pre-tax
operating income for the Retail operating segment in 2013 included $198 million of net favorable adjustments to
update estimated gross profit assumptions for annuity spreads, surrender rates and life insurance mortality. See
Critical Accounting Estimates — Estimated Gross Profits for Investment-Oriented Products (AIG Life and Retirement)
for additional discussion of estimated gross profit assumptions.
The increases in Other income and in Other acquisition and insurance expenses in 2013 compared to 2012 included
additional activity in our Brokerage Services product line principally due to the acquisition of Woodbury Financial in
November 2012.
2013 and 2012 Comparison
AIG Life and Retirement Results
Retail Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 109
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
The increase in pre-tax operating income in 2013 compared to the prior year also reflected additional expenses
recorded in 2012, which included $67 million of additional reserves for long-term care products and $57 million
related to the resolution of multi-state regulatory examinations of death claims practices, and higher general operating
expenses related to incentive compensation plans.
Pre-tax operating income for our Institutional operating segment increased in 2013 compared to 2012, due in part to
higher fee income in the Group Retirement product line, which benefited from growth in separate account assets
under management driven by favorable equity market performance. In addition, we continued active spread
management in our interest rate sensitive product lines, which included lowering renewal crediting rates and
disciplined new business pricing in our Group Retirement product line. Pre-tax operating income for the Institutional
operating segment in 2013 was reduced by $45 million of net unfavorable adjustments primarily to update estimated
gross profit assumptions for annuity spreads, partially offset by an increase in the assumption for separate account
asset long-term growth rates in the Group Retirement product line. See Critical Accounting Estimates — Estimated
Gross Profits for Investment-Oriented Products (AIG Life and Retirement) for additional discussion of estimated gross
profit assumptions. The increase in pre-tax operating income compared to 2012 also reflected $110 million of
expenses recorded in 2012 resulting from a comprehensive review of reserves for the GIC portfolio.
Pre-tax operating income increased in 2012 compared to 2011, reflecting active spread management in interest rate
sensitive product lines and higher net investment income. The increase in net investment income compared to 2011
included reinvestment of significant amounts of cash and short-term investments, higher fair value gains from ML II
and PICC Group, lower impairment charges on investments in leased commercial aircraft and higher income from
alternative investments. Benefit expense and DAC amortization expense for variable annuity products were lower in
2012 compared to 2011, primarily due to the favorable impact of separate account performance, which more than
offset higher life insurance mortality costs. Pre-tax operating income also increased due to lower expenses in 2012
compared to 2011 related to the resolution of multi-state regulatory examinations of death claims practices in the
Retail operating segment. Offsetting these increases in Pre-tax operating income were additional reserves for the
GIC portfolio in 2012, and a decrease due to legal settlement proceeds of $226 million received in resolution of a
litigation matter and included in Other income in 2011.
Pre-tax operating income for our Retail operating segment increased in 2012 compared to 2011, reflecting active
spread management in interest rate sensitive product lines and higher net investment income. The increase in net
investment income included reinvestment of significant amounts of cash and short-term investments, higher fair value
gains from ML II and PICC Group, lower impairment charges on investments in leased commercial aircraft and
higher income from alternative investments. Benefit expense and DAC amortization expense related to variable
annuity products in the Retirement Income Solutions product line were lower in 2012 than 2011, primarily due to the
favorable impact of separate account performance, which more than offset higher mortality costs in the Life
Insurance and A&H product line. Pre-tax operating income also increased due to lower expenses of $57 million in
2012 compared to $202 million in 2011 related to the resolution of multi-state regulatory examinations of death
claims practices. Offsetting these positive variances was a decrease due to legal settlement proceeds included in
Other income in 2011.
Pre-tax operating income for our Institutional operating segment increased in 2012 compared to 2011 due to active
spread management in our Group Retirement product line, which included lowering renewal crediting rates and
disciplined new business pricing. Net investment income increased in 2012 compared to 2011 due to reinvestment of
significant amounts of cash and short-term investments, higher fair value gains from ML II and PICC Group, lower
impairment charges on investments in leased commercial aircraft and higher income from alternative investments.
Offsetting these positive variances were decreases in pre-tax operating income compared to 2011 from legal
Institutional Results
2012 and 2011 Comparison
AIG Life and Retirement Results
Retail Results
Institutional Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 110
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
settlement proceeds included in Other income in 2011 and $110 million of expenses recorded in 2012 resulting from
a comprehensive review of reserves for the GIC portfolio.
Premiums represent amounts received on traditional life insurance policies, group benefit policies and deposits on
life-contingent payout annuities. Premiums and deposits is a non-GAAP financial measure that includes direct and
assumed premiums as well as deposits received on universal life insurance, investment-type annuity contracts, GICs
and mutual funds.
The following table presents a reconciliation of premiums and deposits to GAAP premiums:
Premiums and deposits $ 20,994 $ 24,392
Deposits (17,898) (21,302)
Other (632) (541)
Premiums $ 2,464 $ 2,549
Premiums increased slightly in 2013 compared to 2012, primarily from higher structured settlement and terminal
funding annuity premiums in the Institutional Markets product line and higher immediate annuity premiums in the
Fixed Annuities product line. Premiums decreased slightly in 2012 compared to 2011, due to lower Group Benefit
premiums partially offset by higher term life insurance premiums.
The following table presents premiums and deposits by operating segment and product line:
Retail
Life Insurance and A&H $ 3,350 $ 3,384 –% (1)%
Fixed Annuities 1,469 6,782 98 (78)
Retirement Income Solutions 4,828 3,470 78 39
Retail Mutual Funds 2,723 1,925 82 41
Closed blocks 142 174 (35) (18)
Total premiums and deposits $ 12,512 $ 15,735 59% (20)%
Institutional
Group Retirement $ 7,028 $ 7,312 3% (4)%
Institutional Markets 774 659 28 17
Group Benefits 680 686 (4) (1)
Total premiums and deposits 8,482 8,657 5 (2)
Total Life and Retirement premiums and deposits $ 20,994 $ 24,392 37% (14)%
Premiums and deposits improved significantly in 2013 compared to 2012, primarily from strong sales of annuities in
our Retirement Income Solutions and Fixed Annuities product lines and increased sales of Retail Mutual Funds and
Group Retirement mutual funds. Within the Group Retirement product line, the increase from mutual funds was
largely offset by lower variable annuity deposits, due in part to the historically low interest rate environment making
deposits into fixed options less attractive. Premiums and deposits decreased in 2012 compared to 2011, primarily
due to the impact of the historically low interest rate environment on fixed annuity sales and on Group Retirement
deposits into fixed options.
AIG Life and Retirement Premiums, Deposits and Net Flows
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 111
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Years Ended December 31,
(in millions) 2013 2012 2011
$ 28,809
(25,542)
(671)
$ 2,596
Percentage Change
Years Ended December 31, 2013 vs. 2012 vs.
(in millions) 2013 2012 2011 2012 2011
$ 3,342
2,914
8,608
4,956
92
$ 19,912
$ 7,251
991
655
8,897
$ 28,809
..................................................................................................................................................................................
............................................................................................................................................................................................
17FEB201414391079
Retail
Institutional
$2,596
$2,464
$2,549
TOTAL PREMIUMS BY OPERATING SEGMENT
(in millions)
TOTAL PREMIUMS AND DEPOSITS BY OPERATING
SEGMENT
(in millions)
$1,074
$1,522
$940
$1,524
$1,003
$1,546
2013 2012 2011
Retail
Institutional
$28,809
$20,994
$24,392
2013 2012 2011
$8,897
$19,912
$8,482
$12,512
$8,657
$15,735
Net flows are presented for our investment product lines, which include Fixed Annuities, Retirement Income
Solutions, Retail Mutual Funds and Group Retirement. Net flows from annuities, which are included in the Fixed
Annuities, Retirement Income Solutions and Group Retirement product lines, represent premiums and deposits less
death, surrender and other withdrawal benefits. Mutual fund net flows, which are included in the Retail Mutual Funds
and Group Retirement product lines, represent deposits less withdrawals.
The following table summarizes net flows for our investment product lines:
Net flows
Fixed Annuities $ (4,252) $ 1,406
Retirement Income Solutions 1,598 (48)
Retail Mutual Funds 1,018 478
Group Retirement 302 1,088
Total net flows* $ (1,334) $ 2,924
* Excludes activity related to closed blocks of fixed and variable annuities, which have reserves of approximately $6 billion at each of
December 31, 2013 and 2012.
Total net flows from annuities and mutual funds increased in 2013 compared to 2012, and decreased in 2012
compared to 2011. A discussion of the significant variances in net flows for each of these product lines follows,
including variances in premiums and deposits, a key component of net flows.
Fixed Annuities net flows and premiums and deposits showed improvement in 2013 compared to 2012, due to
modest increases in interest rates and steepening of the yield curve in the second half of 2013, which made fixed
annuity products more attractive in the marketplace compared to competing products such as bank deposits. The
relatively low level of deposits in 2013 and 2012 compared to 2011, however, resulted in negative net flows for this
product line in both 2013 and 2012, reflecting the challenges of the sustained low interest rate environment, as
consumers were reluctant to purchase these products at the relatively low crediting rates offered, which have been
priced to maintain our targeted spreads. Negative net flows have moderated since the second half of 2013 from the
increase in deposits.
Retirement Income Solutions premiums and deposits and net flows increased significantly in 2013 and 2012
compared to 2011, reflecting higher variable annuity sales, which have benefitted from innovative product
Net Flows
Retail Net Flows
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 112
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Years Ended December 31,
(in millions) 2013 2012 2011
$ (2,820)
5,092
2,780
(492)
$ 4,560
..................................................................................................................................................................................
enhancements and expanded distribution as well as a more favorable competitive environment. The surrender rate
for this product line improved in 2013 compared to 2012 due to the significant increase in average reserves driven by
strong sales and positive equity market performance.
Retail Mutual Fund deposits and net flows increased in 2013 and 2012 compared to 2011, driven primarily by sales
of our Focused Dividend Strategy product offerings.
Group Retirement net flows, which include net flows from mutual funds in group retirement plans, decreased in
2013 and 2012 compared to 2011, and were negative in 2013, primarily as a result of higher surrenders of individual
participant contracts as well as higher large group surrenders. As discussed above, premiums and deposits for this
product line included increases in mutual fund deposits largely offset by lower annuity deposits.
The following table presents reserves for selected product lines by surrender charge category at
December 31, 2013 and 2012, and surrender rates for 2013 and 2012:
No surrender charge
(b)
$ 56,047 $ 26,662 $ 1,909
0% – 2% 1,242 3,695 14,824
Greater than 2% – 4% 1,400 3,383 2,148
Greater than 4% 4,878 22,256 10,842
Non-surrenderable 693 3,066 1,343
Total reserves $ 64,260 $ 59,062 $ 31,066
Surrender rates 8.7% 6.3% 10.3%
(a) Excludes mutual fund assets under management of $15.1 billion and $11.8 billion at December 31, 2013 and 2012, respectively.
(b) Group Retirement Products include reserves of approximately $6.2 billion and $6.0 billion at December 31, 2013 and 2012, respectively, that are
subject to 20 percent annual withdrawal limitations.
We invest primarily in fixed maturity securities issued by corporations, municipalities and other governmental
agencies; structured securities collateralized by, among other assets, residential and commercial real estate; and
commercial mortgage loans. Income from these investments, as well as cash and short term investments, is included
in our measure of base net investment income, after excluding certain items such as call and tender income,
mortgage prepayment fees, change in accretion of discount for certain high credit quality structured securities and
impairment charges on investments in leased commercial aircraft.
In addition, we seek to enhance our returns through investments in a diversified portfolio of private equity funds,
hedge funds and affordable housing partnerships. Although these alternative investments are subject to periodic
earnings fluctuations, they have historically achieved yields in excess of the fixed maturity portfolio yields. Our
investment portfolio also includes, to a lesser extent, common and preferred stocks and yield-enhancement items,
such as our investment in PICC Group and securities for which the fair value option has been elected, as well as ML
II prior to its liquidation in 2012.
Our fundamental investment strategy is to maintain a diversified, high quality portfolio of fixed maturity securities with
the intent to largely match the characteristics of our liabilities, including duration, which is a measure of sensitivity to
changes in interest rates. The investment portfolio of each product line is tailored to the specific characteristics of its
insurance liabilities, and as a result, certain portfolios are shorter in duration and others are longer in duration. See
Investments for additional discussion of our asset liability management process.
Institutional Net Flows
AIG Life and Retirement Investments and Spread Management
Investments
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 113
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
2013 2012
Group Individual Retirement Group Individual Retirement
At December 31, Retirement Fixed Income Retirement Fixed Income
(in millions) Products
(a)
Annuities Solutions Products
(a)
Annuities Solutions
$ 60,962 $ 30,906 $ 2,065
1,508 2,261 16,839
1,967 4,349 2,734
5,719 16,895 19,039
315 2,758 67
$ 70,471 $ 57,169 $ 40,744
9.0% 6.6% 8.7%
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The Securities Valuation Office (SVO) of the NAIC evaluates the investments of U.S. insurers for statutory reporting
purposes and assigns fixed maturity securities to one of six categories called ‘NAIC Designations.’ In general, NAIC
Designations of ‘1’ highest quality, or ‘2’ high quality, include fixed maturity securities considered investment grade,
while NAIC Designations of ‘3’ through ‘6’ generally include fixed maturity securities referred to as below investment
grade. The NAIC has adopted revised rating methodologies for certain structured securities, including non-agency
RMBS and CMBS, which are intended to enable a more precise assessment of the value of such structured
securities and increase the accuracy in assessing expected losses to better determine the appropriate capital
requirement for such structured securities. These methodologies result in an improved NAIC Designation for such
securities compared to the rating typically assigned by the three major rating agencies. The following tables
summarize the ratings distribution of our fixed maturity security portfolio by NAIC Designation, and the distribution by
composite AIG credit rating, which is generally based on ratings of the three major rating agencies. See
Investments — Credit Ratings herein for a full description of the composite AIG credit ratings.
The following table presents the fixed maturity security portfolio of AIG Life and Retirement categorized by
NAIC Designation, at fair value:
Investment grade:
1
2
Subtotal investment grade
Below investment grade:
3
4
5
6
Subtotal below investment grade
Total
*
Excludes $449 million of fixed maturity securities for which no NAIC Designation is available because they are not held in legal entities within
AIG Life and Retirement that require a statutory filing.
The following table presents the fixed maturity security portfolio of AIG Life and Retirement categorized by
composite AIG credit rating, at fair value:
Investment grade:
AAA/AA/A
BBB
Subtotal investment grade
Below investment grade:
BB
B
CCC and Lower
Subtotal below investment grade
Total
*
Excludes $449 million of fixed maturity securities for which no NAIC Designation is available because they are not held in legal entities within
AIG Life and Retirement that require a statutory filing.
NAIC Designations
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 114
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Other Fixed Mortgage Backed,
December 31, 2013 Maturity Asset Backed and
(in millions) NAIC Designation Securities Collateralized Total
*
$ 45,561 $ 38,812 $ 84,373
62,070 1,458 63,528
107,631 40,270 147,901
4,345 635 4,980
2,194 347 2,541
380 229 609
108 581 689
7,027 1,792 8,819
$ 114,658 $ 42,062 $ 156,720
Other Fixed Mortgage Backed,
December 31, 2013 Maturity Asset Backed and
(in millions) Composite AIG Credit Rating Securities Collateralized Total
*
$ 45,490 $ 23,545 $ 69,035
62,479 3,068 65,547
107,969 26,613 134,582
4,120 1,879 5,999
2,075 1,848 3,923
494 11,722 12,216
6,689 15,449 22,138
$ 114,658 $ 42,062 $ 156,720
..................................................................................................................................................................................
............................................................................................................................................................................................
Overall, our yields declined in 2013 as investment purchases were made at yields lower than the weighted average
yield of the existing portfolio. In 2012, the impact of lower yields on new purchases was largely offset by
reinvestment of significant amounts of cash and short-term investments during 2011. During prolonged periods of low
or declining interest rates, we generally must invest new net flows and reinvest the cash flows from investment sales,
interest and maturities of our portfolio in lower yielding securities.
Opportunistic investments in structured securities, private placement corporate debt securities and commercial
mortgage loans continue to be made to improve yields, increase net investment income and help to offset the impact
of the lower interest rate environment.
We maintain investment portfolios for each product line which, to the extent practicable, match established duration
targets based on the characteristics of our liabilities. We allocate net investment income from assets that support
liabilities to the product line they support. Net investment income from investments in excess of liabilities, which
include the majority of our alternative investments, is allocated to the product lines using a capital-based internal
allocation model.
Net investment income increased slightly in 2013 compared to 2012, as reinvestment in the low interest rate
environment resulted in a 13 basis point decrease in the base portfolio yield in 2013, which was offset by growth in
average assets from positive net flows, a $613 million increase in alternative investment income and a $50 million
increase in call and tender income. The increase in alternative investment yield to almost 16 percent in 2013 from
approximately 10 percent in 2012 reflected higher hedge fund income due to favorable equity market conditions and
several large redemptions from hedge funds that are not accounted for using the equity method. This increase in
alternative investment income was partially offset by decreases in other investment income enhancement items in
2013, which included net fair value losses of $23 million in 2013 from our investment in PICC Group compared to
gains of $57 million in 2012; a $38 million decrease in accretion of discount for certain highly rated structured
securities, driven by recent increases in market interest rates; and fair value gains of $246 million recognized in 2012
on our investment in ML II, which was liquidated in March 2012 when we received a distribution of $1.6 billion from
the sale by the FRBNY of the securities held in ML II.
Net investment income increased in 2012 compared to 2011, reflecting higher base portfolio yields of 9 basis points
due to the reinvestment of significant amounts of cash and short-term investments during 2011, opportunistic
investments in structured securities, fair value gains on MLII and other structured securities, a fair value gain of
approximately $57 million on the investment in PICC Group, lower impairment charges on investments in leased
commercial aircraft and higher returns on alternative investments.
The contractual provisions for renewal of crediting rates and guaranteed minimum crediting rates included in our
products may have the effect, in a continued low interest rate environment, of reducing our spreads and thus
reducing future profitability. Although we partially mitigate this interest rate risk through our asset-liability management
process, product design elements and crediting rate strategies, a prolonged low interest rate environment may
negatively affect future profitability.
Disciplined pricing on new business resulted in lower new fixed annuity deposits in the first six months of 2013
relative to the same period in 2012, due to the relatively low crediting rates offered. However, deposits improved in
the latter half of 2013 due to the modest increases in market interest rates, resulting in an overall increase in
deposits for 2013 compared to 2012. In the historically low interest rate environment experienced in 2013 and 2012,
we have continued to pursue new sales of life and annuity products at targeted net investment spreads. We have a
dynamic product management process to ensure that new business offerings appropriately reflect the current interest
rate environment. To the extent that we cannot achieve targeted net investment spreads on new business, products
Yield and Net Investment Income
2013 and 2012 Comparison
Net Investment Income
2012 and 2011 Comparison
Spread Management
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 115
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
............................................................................................................................................................................................
are re-priced or no longer sold. Additionally, current products with higher minimum rate guarantees have been re-filed
with lower rates as permitted under state insurance product regulations.
• New sales of fixed annuity products generally have minimum interest rate guarantees of 1 percent.
• Universal life insurance interest rate guarantees are generally 2 to 3 percent on new non-indexed products and
zero to 2 percent on new indexed products, and are designed to be sufficient to meet targeted net investment
spreads. We are in the process of lowering the minimum guaranteed interest rates on new products, and expect
this process to be substantially completed in 2014.
Active management of renewal crediting rates is done under contractual provisions in our annuity and universal
life products that were designed to allow crediting rates to be reset at pre-established intervals subject to minimum
crediting rate guarantees. We have adjusted, and will continue to adjust, crediting rates to maintain targeted net
investment spreads on both new business and in-force business where crediting rates are above minimum
guarantees. In addition to annuity and universal life products, certain traditional long-duration products for which we
do not have the ability to adjust interest rates, such as payout annuities, are exposed to reduced earnings and
potential loss recognition reserve increases in a prolonged low interest rate environment. See AIG Life and
Retirement Reserves and DAC — Other Reserve Changes for additional discussion of loss recognition.
Included in 2012 was an additional $110 million of interest credited expense resulting from a comprehensive review
of reserves for the GIC portfolio.
As indicated in the table below, approximately 73 percent of our annuity and universal life account values were at
their minimum crediting rates as of December 31, 2013, an increase from 63 percent at December 31, 2012. These
products have minimum guaranteed interest rates as of December 31, 2013 ranging from 1 percent to 5.5 percent,
with the higher rates representing guarantees on older products.
The following table presents our universal life and fixed annuity account values by contractual minimum
guaranteed interest rate and current crediting rates:
Universal life insurance
1% $ 52 $ – $ 1 $ 53
> 1% – 2% 32 60 194 286
> 2% – 3% 374 255 1,313 1,942
> 3% – 4% 2,079 349 1,385 3,813
> 4% – 5% 4,164 196 – 4,360
> 5% – 5.5% 309 – – 309
Subtotal $ 7,010 $ 860 $ 2,893 $ 10,763
Fixed annuities
*
1% $ 2,922 $ 5,248 $ 7,430 $ 15,600
> 1% – 2% 13,266 3,118 5,580 21,964
> 2% – 3% 32,671 191 2,672 35,534
> 3% – 4% 13,676 93 60 13,829
> 4% – 5% 8,116 – 4 8,120
> 5% – 5.5% 232 – 5 237
Subtotal $ 70,883 $ 8,650 $ 15,751 $ 95,284
Total $ 77,893 $ 9,510 $ 18,644 $ 106,047
Percentage of total 73% 9% 18% 100%
*
Fixed annuities include fixed options within variable annuities sold in Group Retirement and Retirement Income Solutions product lines.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 116
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Current Crediting Rates
December 31, 2013 1-50 Basis More than 50
Contractual Minimum Guaranteed At Contractual Points Above Basis Points
Interest Rate Minimum Minimum Above Minimum
(in millions) Guarantee Guarantee Guarantee Total
..................................................................................................................................................................................
Changes in fair value of fixed maturity securities designated to hedge living benefit liabilities, which are excluded
from Pre-tax operating income, are a component of AIG Life and Retirement’s dynamic hedging program designed to
manage economic risk exposure associated with changes in equity markets, interest rates and volatilities related to
embedded derivative liabilities contained in guaranteed benefit features of variable annuities. We substantially hedge
our exposure to equity markets, and the majority of our interest rate exposure is hedged with derivative instruments
and, to a lesser extent, with U.S. Treasury bonds that we began purchasing in 2012 as a capital-efficient strategy to
reduce our interest rate risk exposure over time. As a result of increases in interest rates on U.S. Treasury bonds
during 2013, the fair value of the U.S. Treasury bonds used for hedging, net of financing costs, decreased by
$161 million in 2013, compared to an increase in fair value of $37 million in 2012.
Net realized capital gains increased in 2013 and 2012 compared to 2011 as a result of higher gains from sales
activity in connection with utilizing capital loss carryforwards, lower other-than-temporary impairments, and fair value
gains on embedded derivatives, net of hedges, which had net gains of $31 million in 2013, compared to net losses of
$799 million in 2012 and $242 million in 2011. The changes in the fair value of embedded derivatives, net of hedges,
were primarily due to changes in projected interest rates and equity market returns.
Changes in Fair Value of Fixed Maturity Securities Designated to Hedge Living Benefits Liabilities
Net Realized Capital Gains (Losses)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 117
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents AIG Life and Retirement insurance reserves and mutual fund assets under
management:
Retail
Balance at beginning of year, gross $ 120,396 $ 117,426
Premiums and deposits 12,512 15,735
Surrenders and withdrawals (9,268) (9,226)
Death, and other contract benefits (3,695) (3,203)
Subtotal (451) 3,306
Change in fair value of underlying assets and reserve accretion, net of
policy fees 2,428 (1,211)
Cost of funds 2,423 2,526
Other reserve changes
*
(1,097) (1,651)
Balance at end of year 123,699 120,396
Reserves related to unrealized appreciation of investments 456 360
Reinsurance ceded (1,514) (1,551)
Total insurance reserves and retail mutual funds assets under management $ 122,641 $ 119,205
Institutional
Balance at beginning of year, gross $ 103,315 $ 103,280
Premiums and deposits 8,482 8,657
Surrenders and withdrawals (7,509) (7,926)
Death, and other contract benefits (1,949) (1,959)
Subtotal (976) (1,228)
Change in fair value of underlying assets and reserve accretion, net of
policy fees 5,761 (173)
Cost of funds 1,785 1,741
Other reserve changes
*
609 (305)
Balance at end of year 110,494 103,315
Reserves related to unrealized appreciation of investments 2,359 1,938
Reinsurance ceded (229) (285)
Total insurance reserves and group mutual fund assets under management $ 112,624 $ 104,968
Total AIG Life and Retirement:
Balance at beginning of year, gross $ 223,711 $ 220,706
Premiums and deposits 20,994 24,392
Surrenders and withdrawals (16,777) (17,152)
Death, and other contract benefits (5,644) (5,162)
Subtotal (1,427) 2,078
Change in fair value of underlying assets and reserve accretion, net of
policy fees 8,189 (1,384)
Cost of funds 4,208 4,267
Other reserve changes
*
(488) (1,956)
Balance at end of year 234,193 223,711
Reserves related to unrealized appreciation of investments 2,815 2,298
Reinsurance ceded (1,743) (1,836)
Total insurance reserves and mutual fund assets under management $ 235,265 $ 224,173
*
Other reserve changes include loss recognition in Retail of $135 million and $189 million, and in Institutional of $1.3 billion and $1.0 billion, in
2013 and 2012, respectively.
AIG Life and Retirement Reserves and DAC
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 118
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Years Ended December 31,
(in millions) 2013 2012 2011
$ 123,699
19,912
(9,899)
(3,467)
6,546
5,221
2,222
(410)
137,278
9
(1,495)
$ 135,792
$ 110,494
8,897
(9,938)
(1,997)
(3,038)
9,973
1,569
894
119,892
–
(209)
$ 119,683
$ 234,193
28,809
(19,837)
(5,464)
3,508
15,194
3,791
484
257,170
9
(1,704)
$ 255,475
..................................................................................................................................................................................
............................................................................................................................................................................................
Other reserve changes in the table above include loss recognition, primarily on certain long-term payout annuity
contracts. In connection with our program to utilize capital loss carryforwards, we sold investment securities in 2013
and 2012. These and other investment sales with subsequent reinvestment at lower yields triggered recording of loss
recognition reserves of $1.5 billion and $1.2 billion on certain long-term payout annuity contracts in 2013 and 2012,
respectively. There were loss recognition reserves related to unrealized appreciation of investments as of
December 31, 2011, but no actual loss recognition recorded in 2011. Assumptions related to investment yields,
mortality experience and expenses are reviewed periodically and updated as appropriate, which could also result in
additional loss recognition reserves.
Loss recognition attributable to our program to utilize capital loss carryforwards is excluded from Pre-tax operating
income and reported within Changes in benefit reserves and DAC, VOBA and SIA related to net realized capital
gains (losses) in the AIG Life and Retirement Results table herein. See Note 9 to the Consolidated Financial
Statements and Critical Accounting Estimates — Future Policy Benefits for Life and Accident and Health Insurance
Contracts (AIG Life and Retirement) for additional information on loss recognition.
DAC for investment-oriented products is adjusted at each balance sheet date to reflect the change in DAC as if fixed
maturity and equity securities available for sale had been sold at their stated aggregate fair value and the proceeds
reinvested at current yields. The change in DAC related to unrealized appreciation of investments generally moves in
the opposite direction of the changes in unrealized appreciation of the available for sale securities portfolio. When
market interest rates rose in 2013, the fair value and unrealized appreciation of the portfolio decreased, resulting in
an increase in DAC. In 2012 and 2011, when interest rates were declining and unrealized gains in the portfolio
increased, DAC and reserves related to unrealized appreciation decreased.
The following table summarizes the major components of the changes in AIG Life and Retirement DAC:
Balance, beginning of year $ 6,502 $ 7,258
Acquisition costs deferred 724 869
Amortization expense (931) (1,142)
Change related to unrealized depreciation (appreciation) of investments (621) (486)
Increase (decrease) due to foreign exchange (2) 3
Balance, end of year
*
$ 5,672 $ 6,502
*
Balance excluding the amount related to unrealized appreciation of investments was $7.8 billion, $7.5 billion and $7.9 billion at December 31,
2013, 2012 and 2011, respectively.
Policy acquisition costs and policy issuance costs related to universal life and investment-type products (collectively,
investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of estimated
gross profits to be realized over a period that approximates the estimated lives of the contracts. Estimated gross
profits include net investment income and spreads, net realized investment gains and losses, fees, surrender
charges, expenses, and mortality gains and losses. If the assumptions used for estimated gross profits change
significantly, DAC and related reserves are recalculated using the new assumptions, and any resulting adjustment is
included in income. Updating such assumptions may result in acceleration of amortization in some products and
deceleration of amortization in other products. See Critical Accounting Estimates — Estimated Gross Profits for
Investment-Oriented Products (AIG Life and Retirement) for additional information on these assumptions.
Pre-tax operating income in 2013 included a net increase of $153 million from adjustments to update certain gross
profit assumptions used to amortize DAC and related items in our investment-oriented product lines. These
Other Reserve Changes
DAC and Reserves Related to Unrealized Appreciation of Investments
DAC Rollforward
Estimated Gross Profits for Investment-Oriented Products
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 119
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
Years Ended December 31,
(in millions) 2013 2012 2011
$ 5,672
930
(658)
784
(5)
$ 6,723
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
adjustments resulted from our comprehensive annual review and update of estimated gross profit assumptions, and
from a change in long-term asset growth rate assumptions for Group Retirement variable annuity products, which
was driven by sustained favorable equity market performance.
The result of the comprehensive annual review, which was completed in the third quarter of 2013, was a $118 million
net increase in Pre-tax operating income in 2013, which included a $198 million net increase in our Retail operating
segment and an $80 million decrease in our Institutional operating segment. The net increase in Retail pre-tax
operating income was primarily due to a favorable adjustment in our Fixed Annuities product line from updated
spread assumptions due to active management of crediting rates and higher future investment yields than those
previously assumed. In the Life Insurance and A&H, Retirement Income Solutions and Group Retirement product
lines, the update of assumptions for variable annuity spreads, surrender rates, and life insurance mortality had an
unfavorable impact on pre-tax operating income. The life insurance mortality assumptions, while unfavorable
compared to the previous assumption set, are still within pricing expectations.
The $118 million increase in pre-tax operating income to reflect updated assumptions was comprised of a $98 million
net decrease in DAC amortization expense, a $61 million decrease in SIA amortization expense within Interest
credited to policyholder account balances, and a $28 million increase in unearned revenue amortization within Policy
fees, partially offset by a $69 million increase in Future policy benefits for life and health insurance contracts.
In estimating future gross profits for variable annuity products, a long-term annual asset growth assumption is applied
to estimate the future growth in assets and related asset-based fees. In determining the asset growth rate, the effect
of short-term fluctuations in the equity markets is partially mitigated through the use of a ‘‘reversion to the mean’’
methodology, whereby short-term asset growth above or below the long-term annual rate assumption will impact the
growth assumption applied to the five-year period subsequent to the current balance sheet date. In the fourth quarter
of 2013, we revised the growth rate assumptions for the five-year reversion to the mean period for the Group
Retirement product line in our Institutional segment. This adjustment, which increased DAC by $31 million, increased
SIA by $2 million and reduced the GMDB liability by $2 million, was recorded as a decrease in current period
amortization expense and increased our Retail pre-tax operating income by $35 million in 2013. For variable
annuities in our Retirement Income Solutions product line, the assumed annual growth rate remained above zero
percent for the five-year reversion to the mean period and therefore did not meet our criteria for adjustment;
however, additional favorable equity market performance in excess of long-term assumptions could result in
‘‘unlocking’’ in this product line in the future with a positive effect on pre-tax income in the period of the unlocking.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 120
I T EM 7 / RESUL T S OF OPERAT I ONS / AI G L I F E AND RET I REMENT
..................................................................................................................................................................................
16FEB201411434307
The following table presents AIG’s Other Operations results:
Mortgage Guaranty $ 9 $ (97) NM% NM%
Global Capital Markets 557 (11) 12 NM
Direct Investment book 1,215 604 19 101
Retained interests:
Change in fair value of AIA securities, including
realized gain in 2012 2,069 1,289 NM 61
Change in fair value of ML III 2,888 (646) NM NM
Change in the fair value of the MetLife securities
prior to their sale – (157) NM NM
Corporate & Other:
Interest expense (1,597) (1,685) 12 5
Corporate expenses, net (900) (1,095) (12) 18
Severance expense
(a)
– – NM NM
Other non-core businesses (94) 94 (14) NM
Total Corporate & Other operating loss (2,591) (2,686) (8) 4
Consolidation and eliminations – – NM NM
Total Other operations pre-tax operating income
(loss) 4,147 (1,704) NM NM
Legal reserves (754) (20) 41 NM
Legal settlements
(b)
39 – 205 NM
Loss on extinguishment of debt (32) (3,204) NM 99
Aircraft Leasing 338 (934) NM NM
Net loss on sale of divested businesses (6,717) (74) 99 NM
Deferred gain on FRBNY credit facility – 296 NM NM
Changes in benefit reserves and DAC, VOBA and
SIA related to net realized gains (losses) – – NM NM
Net realized capital gains (losses) 289 (348) NM NM
Total Other Operations pre-tax loss $ (2,690) $ (5,988) 9% 55%
(a) Includes $263 million of severance expense attributable to AIG Property Casualty.
(b) Reflects income from settlements with financial institutions that participated in the creation, offering and sale of RMBS from which AIG and its
subsidiaries realized losses during the financial crisis.
TOTAL OTHER OPERATIONS PRE-TAX OPERATING INCOME (LOSS)
(in millions)
AIA/ML III
All other
2013 2012 2011
$4,957
$(810)
$(2,347)
$643
$(511)
OTHER OPERATIONS
Other Operations Results
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 121
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 205
625
1,448
–
–
–
(1,412)
(1,009)
(265)
(107)
(2,793)
4
(511)
(446)
119
(651)
(129)
(48)
–
(98)
(685)
$ (2,449)
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
16FEB201411434176
The following table presents Mortgage Guaranty results:
Underwriting results:
Net premiums written $ 858 $ 801 22% 7%
Increase in unearned premiums (143) (9) (67) NM
Net premiums earned 715 792 13 (10)
Claims and claims adjustment expenses incurred 659 834 (22) (21)
Underwriting expenses 193 187 15 3
Underwriting income (loss) (137) (229) NM 40
Net investment income 146 132 (10) 11
Pre-tax operating income (loss) 9 (97) NM NM
Net realized capital gains 6 20 33 (70)
Pre-tax income (loss) $ 15 $ (77) NM% NM%
Key metrics:
New insurance written $ 37,509 $ 18,792 33% 100%
Domestic first-lien:
Risk in force $ 28,967 $ 25,635
60+ day delinquency ratio on primary loans
(a)
8.8% 13.9%
Domestic second-lien:
Risk in force
(b)
$ 1,261 $ 1,504
(a) Based on number of policies.
(b) Represents the full amount of second-lien loans insured reduced for contractual aggregate loss limits on certain pools of loans, usually
10 percent of the full amount of loans insured in each pool. Certain second-lien pools have reinstatement provisions, which will expire as the loan
balances are repaid.
PRE- TAX OPERATI NG I NCOME ( LOSS)
(in millions)
NEW I NSURANCE WRI TTEN
(in millions)
2013 2012 2011 2013 2012 2011
$49,933
$37,509
$18,792
$9
$205
$(97)
Pre-tax operating income in 2013 increased compared to the prior year due to improved underwriting income as a
result of an increase in net premiums earned in the first-lien business, and decreases in claims and claims
adjustment expenses incurred. Partially offsetting these increases were declines in net premiums earned in
second-lien, student loan and international businesses, all of which were placed into run-off during 2008, and an
increase in underwriting expenses related to higher volumes of new business.
The first-lien net premiums earned increased $127 million resulting from a 32 percent growth of the book of business
and a decline in premium refunds as a result of lower rescissions during 2013 compared to 2012. The decline in
claims and claims adjustment expenses incurred reflected decreases in first-lien and student loan claims and claims
Mortgage Guaranty Results
2013 and 2012 Comparison
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 122
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
Percentage Change
Years Ended December 31,
(dollars in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 1,048
(239)
809
514
222
73
132
205
8
$ 213
$ 49,933
$ 36,367
5.9%
$ 1,026
..................................................................................................................................................................................
............................................................................................................................................................................................
adjustment expenses of $157 million and $22 million, respectively, which were partially offset by a $34 million
increase in second-lien and international claims and claims adjustment expenses. The decline in first-lien claims and
claims adjustment expenses incurred was primarily the result of lower newly reported delinquencies and higher cure
rates, which were partially offset by $46 million of unfavorable prior year development in 2013 compared to
unfavorable prior year development of $17 million in 2012. The decline in student loan claims and claims adjustment
expenses reflect recoveries on prior paid losses and the commutation of a significant portion of the business in early
2013. Second-lien claims and claims adjustment expenses increased primarily due to increased overturns of
previously denied claims. International claims adjustment expense increased due to increases to reserves as the
portfolio continued to run-off.
New insurance written, which represents the original principal balance of the insured mortgages, increased
33 percent due to elevated levels of refinancing activity during 2013 and the acceptance of UGC’s risk-based pricing
model by approximately 300 new lenders.
Mortgage Guaranty recorded pre-tax operating income in 2012 compared to a pre-tax operating loss in 2011. The
decrease in claims and claims adjustment expenses reflected decreases in first and second-lien businesses partially
offset by an increase in international claims and claims adjustment expenses. Claims and claims adjustment
expenses in 2012 included favorable prior year loss development in second liens, student loans, and international
business, partially offset by unfavorable development in first liens. The decrease in first-lien claims and claims
adjustment expenses reflected lower levels of newly reported delinquencies, an improvement in the cure rate and
lower unfavorable loss development in 2012 compared to 2011. The unfavorable development in 2012 resulted from
delinquencies for which claim requests were not made, partially offset by favorable development arising from the
claims requests sent to lenders. The decline in second-lien business claims and claims adjustment expenses
reflected a decrease in claims and claims adjustment expenses paid as more business reached the respective stop
loss limits. The increased claims and claims adjustment expenses in the international business reflected a reduction
in claim reserves in 2011 due to a settlement of certain delinquencies with a major European lender.
These items were partially offset by a decline in first-lien net premiums earned, reflecting higher premium refunds
due to the rescissions arising from the claims requests sent to lenders during the fourth quarter of 2011 and
continuing throughout 2012. Additionally, net premiums earned declined on second-lien and international businesses,
both of which were placed into run-off during 2008. Underwriting expenses increased driven primarily by an increase
in underwriting, sales and product initiatives, all of which supported the increase in new insurance written for the
year.
New insurance written was approximately $37 billion and $19 billion in 2012 and 2011, respectively. The increase in
new insurance written was the result of the market acceptance by lenders of UGC’s risk-based pricing model and
withdrawal of certain competitors from the market during 2011.
GCM’s pre-tax income and pre-tax operating income increased in 2013 compared to 2012 primarily due to an
improvement in net credit valuation adjustments on derivative assets and liabilities, partially offset by a decline in
unrealized market valuation gains related to the super senior credit default swap (CDS) portfolio and an increase in
operating expenses.
Net credit valuation adjustment gains of $195 million were recognized in 2013 compared to net credit valuation
adjustment losses of $30 million in 2012. The improvement resulted primarily from lower losses on derivative
liabilities due to less significant tightening of AIG’s credit spreads in 2013 compared to 2012 and higher gains on
derivative assets due to more significant tightening of counterparty credit spreads in 2013 compared to 2012.
Unrealized market valuation gains on the CDS portfolio of $550 million and $617 million were recognized in 2013 and
2012, respectively. The decline resulted primarily from amortization, price movements, terminations and maturities
within the CDS portfolio.
2012 and 2011 Comparison
Global Capital Markets Results
2013 and 2012 Comparison
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 123
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
..................................................................................................................................................................................
............................................................................................................................................................................................
GCM reported pre-tax income and pre-tax operating income in 2012 compared to pre-tax loss and pre-tax operating
loss in 2011 primarily due to improvement in unrealized market valuations related to the super senior CDS portfolio,
a decrease in operating expenses and lower costs related to the wind-down of AIGFP’s businesses and portfolios.
Unrealized market valuation gains on the CDS portfolio of $617 million and $339 million were recognized in 2012 and
2011, respectively. The improvement resulted primarily from amortization and price movements within the CDS
portfolio. For 2012, the remaining portfolio of AIGFP continued to be wound down and was managed consistent with
AIG’s risk management objectives. The active wind-down of the AIGFP derivatives portfolio was completed by the
end of the second quarter of 2011.
The following table presents Direct Investment book results:
Pre-tax operating income $ 1,215 $ 604 19% 101%
Legal settlements 26 – 73 NM
Loss on extinguishment of debt – – NM NM
Net realized capital gains 391 18 (83) NM
Pre-tax income $ 1,632 $ 622 (5)% 162%
DIB pre-tax income decreased in 2013 compared to 2012 primarily due to a one-time realized capital gain of
$426 million recorded in 2012 on the sale of 35.7 million common units of The Blackstone Group L.P., partially offset
by improvements in pre-tax operating income. DIB pre-tax operating income increased in 2013 compared to 2012
primarily due to fair value appreciation on ABS CDOs that were acquired in the fourth quarter of 2012, partially offset
by a decline in net credit valuation adjustments on assets and liabilities for which the fair value option was elected.
Fair value appreciation on ABS CDOs was $954 million for 2013 driven primarily by improved collateral pricing due to
improvements in home price indices and amortization of the underlying collateral.
Net credit valuation adjustment gains of $444 million and $789 million were recognized for 2013 and 2012,
respectively. The decrease resulted primarily from a decline in the portfolio size due to sales and maturities as well
as lower gains on assets due to less significant tightening of counterparty credit spreads, partially offset by lower
losses on liabilities due to less significant tightening of AIG’s credit spreads in 2013 compared to 2012.
DIB pre-tax income increased in 2012 compared to 2011 primarily due to a capital gain on the sale of common units
of The Blackstone Group L.P. mentioned above and improvements in pre-tax operating income. DIB pre-tax
operating income increased in 2012 compared to 2011 primarily due to improvement in net credit valuation
adjustments on assets and liabilities for which the fair value option was elected. Net credit valuation adjustment gains
of $789 million and $380 million were recognized for 2012 and 2011, respectively. The improvement resulted
primarily from gains on assets due to the tightening of counterparty credit spreads, partially offset by losses on
liabilities due to the tightening of AIG’s credit spreads.
2012 and 2011 Comparison
Direct Investment Book Results
2013 and 2012 Comparison
2012 and 2011 Comparison
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 124
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 1,448
45
(15)
66
$ 1,544
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents credit valuation adjustment gains (losses) for the DIB (excluding intercompany
transactions):
Counterparty Credit Valuation Adjustment on Assets:
Other bond securities $ 1,401 $ (71)
Loans and other assets 29 31
Increase (decrease) in assets 1,430 (40)
AIG’s Own Credit Valuation Adjustment on Liabilities:
Notes and bonds payable (526) 288
Guaranteed Investment Agreements (81) 112
Other liabilities (34) 20
(Increase) decrease in liabilities (641) 420
Net increase to pre-tax operating income $ 789 $ 380
We sold our remaining 33 percent interest in AIA ordinary shares for proceeds of $14.5 billion and a net gain of
$2.1 billion through three sale transactions on March 7, September 11 and December 20, 2012.
We recognized a $1.3 billion gain in 2011, representing a 12 percent increase in the value of AIG’s then 33 percent
interest in AIA, which was recorded in Other invested assets and accounted for under the fair value option.
The gains attributable to AIG’s interest in ML III for 2012 were based in part on the completion of the final auction of
ML III assets by the FRBNY, in the third quarter of 2012.
The loss attributable to AIG’s interest in ML III for 2011 was due to significant spread widening and reduced interest
rates.
We recognized a loss in 2011, representing the decline in the securities’ value, due to market conditions, from
December 31, 2010 through the date of their sale in the first quarter of 2011.
Corporate & Other reported an increase in pre-tax operating losses in 2013 compared to 2012 primarily due to
severance charges in 2013 of $265 million as a result of centralizing work streams to lower-cost locations and
creating a more streamlined organization, and higher incentive compensation costs. These increases were partially
offset by lower interest expense due to various debt reduction activities described in Liquidity and Capital Resources.
In addition, Corporate expenses, net in 2012 included reductions in expenses of $211 million, from the decrease in
the estimate of the liability for the Department of the Treasury’s underwriting fees in connection with the sales of AIG
Common Stock.
Corporate & Other reported lower operating losses in 2012 compared to 2011 primarily due to a reduction in expense
of $211 million in 2012 resulting from settlements of the liability for the Department of the Treasury’s underwriting
fees for the sale of AIG Common Stock at amounts lower than had been estimated at the time the accrual was
established, and AIG purchased a significant amount of shares for which no payment to the underwriters was
Retained Interests
Change in Fair Value of AIA Securities Prior to Their Sale
Change in Fair Value of ML III Prior to Liquidation
Change in the Fair Value of the MetLife Securities Prior to Their Sale
Corporate and Other Results
2013 and 2012 Comparison
2012 and 2011 Comparison
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 125
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
Years Ended December 31,
(in millions) 2013 2012 2011
$ 488
10
498
(88)
41
(7)
(54)
$ 444
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
required, and a decline in interest expense as a result of the repayment of the FRBNY Credit Facility and the
exchange of outstanding junior subordinated debentures for senior unsecured notes in 2011.
Other non-core businesses declined due to lower gains on real estate dispositions and higher equity losses on real
estate investments in 2012 compared to 2011.
Legal reserves relate to increased estimated litigation liability based on developments in several actions.
The increase in loss on extinguishment of debt in 2013 compared to the prior year resulted from redemptions and
repurchases of, and cash tender offers for, certain debt securities in 2013. The loss on extinguishment of debt in
2011 includes a $3.3 billion charge primarily consisting of the accelerated amortization of the remaining prepaid
commitment fee asset resulting from the termination of the FRBNY Credit Facility.
The following table presents Aircraft Leasing results:
Aircraft leasing revenues, excluding net realized
capital gains (losses):
Rental revenue $ 4,358 $ 4,447 (3)% (2)%
Interest and other revenues 141 20 27 NM
Total aircraft leasing revenues, excluding net realized
capital gains (losses) 4,499 4,467 (2) 1
Operating expenses:
Loss on extinguishment of debt 23 61 NM (62)
Aircraft leasing expense:
Depreciation expense 1,927 1,871 NM 3
Impairment charges, fair value adjustments and
lease-related charges 230 1,689 (53) (86)
Other expenses 1,981 1,841 124 8
Total aircraft leasing expense 4,138 5,401 10 (23)
Operating income (loss) 338 (995) NM NM
Net realized capital gains (losses) 1 (10) NM NM
Pre-tax income (loss) $ 339 $ (1,005) NM% NM%
Aircraft Leasing reported a pre-tax loss in 2013 compared to pre-tax income in 2012, primarily due to certain
adjustments to ILFC’s assets and liabilities classified as held for sale. See Note 4 to the Consolidated Financial
Statements for more information regarding Aircraft Leasing.
Aircraft Leasing reported pre-tax income in 2012 compared to a pre-tax loss in 2011 primarily due to a decrease in
impairment charges, fair value adjustments and lease-related charges on aircraft and lower losses on extinguishment
of debt. This was partially offset by lower lease revenue and increased costs due to early returns of aircraft by
lessees who ceased operations, lower lease revenue earned on re-leased aircraft in ILFC’s fleet, charges relating to
Legal Reserves
Loss on Extinguishment of Debt
Aircraft Leasing Results
2013 and 2012 Comparison
2012 and 2011 Comparison
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 126
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
Percentage Change
Years Ended December 31,
(in millions) 2013 2012 2011 2013 vs. 2012 2012 vs. 2011
$ 4,241
179
4,420
–
–
108
4,441
4,549
(129)
–
$ (129)
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
reserves recorded for potential exposure under aircraft assets value guarantees and an increase in depreciation
expense due to the change in depreciable lives and residual value of certain aircraft.
In 2012, we recognized a pre-tax loss of $6.7 billion associated with the announced sale of ILFC.
Includes impairments on investments in life settlements of $971 million, $309 million and $312 million in 2013, 2012,
and 2011, respectively. Also included in 2012 is a $426 million gain on the sale of common units of The Blackstone
Group L.P. Impairments on investments in life settlements increased in 2013 compared to 2012 as a result of
updated longevity assumptions in the valuation tables used to estimate future expected cash flows. These updates
were due to observed experience deviating significantly compared to prior expectations.
Income (loss) from Discontinued Operations is comprised of the following:
Foreign life insurance businesses $ – $ 1,170
Net gain on sale 1 2,338
Consolidation adjustments – (1)
Interest allocation – (2)
Income from discontinued operations 1 3,505
Income tax expense – 1,038
Income from discontinued operations, net of tax $ 1 $ 2,467
Significant items affecting the comparison of results from discontinued operations included the following:
• a pre-tax gain of $150 million for 2013 in connection with the sale of American Life Insurance Company (ALICO)
primarily attributable to the refund of taxes, interest and penalties, together with other matters;
• a gain on the sale of AIG Star Life Insurance Co., Ltd. (AIG Star) and AIG Edison Life Insurance Company (AIG
Edison) in 2011;
• tax effects of the above transactions, notably the impact of non-deductible goodwill impairment and the change in
investment in subsidiaries, which was principally related to changes in the estimated U.S. tax liability with respect
to the planned sales.
See Note 4 to the Consolidated Financial Statements for further discussion of discontinued operations.
Net Loss on Sale of Divested Businesses
Net Realized Capital Gains (Losses)
DISCONTINUED OPERATIONS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 127
I T EM 7 / RESUL T S OF OPERAT I ONS / OT HER OPERAT I ONS
Years Ended December 31,
(in millions) 2013 2012 2011
$ –
150
–
–
150
66
$ 84
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Liquidity and Capital Resources
Liquidity refers to the ability to generate sufficient cash resources to meet our payment obligations. It is defined as
cash and unencumbered assets that can be monetized in a short period of time at a reasonable cost. We manage
our liquidity prudently through various risk committees, policies and procedures, and a stress testing and liquidity
framework established by Enterprise Risk Management (ERM). Our liquidity framework is designed to measure both
the amount and composition of our liquidity to meet financial obligations in both normal and stressed markets. See
Enterprise Risk Management — Risk Appetite, Identification, and Measurement and — Enterprise Risk
Management — Liquidity Risk Management below for additional information.
Capital refers to the long-term financial resources available to support the operation of our businesses, fund
business growth, and cover financial and operational needs that arise from adverse circumstances. Our primary
source of ongoing capital generation is the profitability of our insurance subsidiaries. We and our insurance
subsidiaries must comply with numerous constraints on our minimum capital positions. These constraints drive the
requirements for capital adequacy for both AIG and the individual businesses and are based on internally-defined risk
tolerances, regulatory requirements, rating agency and creditor expectations and business needs. Actual capital
levels are monitored on a regular basis, and using ERM’s stress testing methodology, we evaluate the capital impact
of potential macroeconomic, financial and insurance stresses in relation to the relevant capital constraints of both AIG
and our insurance subsidiaries.
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our
obligations to policyholders, customers, creditors and debt-holders, including reasonably foreseeable contingencies or
events.
Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or readily
deployable capital resources. Additional collateral calls, deterioration in investment portfolios or reserve strengthening
affecting statutory surplus, higher surrenders of annuities and other policies, downgrades in credit ratings, or
catastrophic losses may result in significant additional cash or capital needs and loss of sources of liquidity and
capital. In addition, regulatory and other legal restrictions could limit our ability to transfer funds freely, either to or
from our subsidiaries.
Depending on market conditions, regulatory and rating agency considerations and other factors, we may take various
liability and capital management actions. Liability management actions may include, but are not limited, to
repurchasing or redeeming outstanding debt, issuing new debt or engaging in debt exchange offers. Capital
management actions may include, but are not limited to, paying dividends to our shareholders and share
repurchases.
Overview
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 128
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
..................................................................................................................................................................................
............................................................................................................................................................................................
Liquidity and Capital Resources Highlights 2013
Sources
• AIG Parent Funding from Subsidiaries
We collected $8.7 billion in cash dividends and loan repayments from our insurance subsidiaries — $4.1 billion
in cash dividends from AIG Property Casualty, $4.4 billion in cash dividends and loan repayments from AIG
Life and Retirement and $90 million in cash dividends from Mortgage Guaranty. Infrequent events at our
insurance subsidiaries including capital management initiatives at AIG Property Casualty and proceeds from
legal settlements at AIG Life and Retirement resulted in higher than usual dividends.
• Legal Settlements
On August 26, 2013, we agreed to the termination of an interest rate swap agreement with Brookfield Asset
Management, Inc. and Brysons International, Ltd, in exchange for a payment to AIGFP of $905 million.
We received $1.0 billion from settlements with financial institutions that participated in the creation, offering and
sale of RMBS from which we realized losses during the financial crisis.
• Debt Issuances
On August 9, 2013, we issued $1.0 billion aggregate principal amount of 3.375% senior notes due 2020. On
October 2, 2013, we issued $1.0 billion aggregate principal amount of 4.125% senior notes due 2024.
• ALICO Escrow Release
On May 1, 2013, $547 million held in escrow to secure indemnifications provided to MetLife, Inc. (MetLife)
under the ALICO stock purchase agreement was released to AIG.
Uses
• Debt Reduction*
We repaid approximately $9.7 billion of debt as follows.
We redeemed:
• $1.1 billion aggregate principal amount of our 7.70% Series A-5 Junior Subordinated Debentures and
$750 million aggregate principal amount of our 6.45% Series A-4 Junior Subordinated Debentures, in each
case for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest; and
• $500 million aggregate principal amount of our 3.650% senior notes due 2014 for a redemption price of
101.1 percent of the principal amount, plus accrued and unpaid interest.
We purchased, in cash tender offers:
• for an aggregate purchase price of approximately $1 billion, approximately 77 million British pounds
aggregate principal amount of our 8.625% Series A-8 Junior Subordinated Debentures, approximately
182 million Euro aggregate principal amount of our 8.000% Series A-7 Junior Subordinated Debentures,
approximately $79 million aggregate principal amount of our 6.25% Series A-1 Junior Subordinated
Debentures and approximately $366 million aggregate principal amount of our 8.175% Series A-6 Junior
Subordinated Debentures;
• for an aggregate purchase price of approximately $211 million, approximately $19 million liquidation amount
of 8
1
?2% Capital Trust Pass-Through Securities, approximately $114 million liquidation amount of 7.57%
Capital Securities, Series A and approximately $29 million liquidation amount of 8
1
?8% Capital Securities,
Series B, all of which were issued by statutory trusts controlled by AIG Life Holdings, Inc; and
• for an aggregate purchase price of approximately $61 million, approximately $62 million aggregate principal
amount of 5.60% Senior Debentures we had assumed that were originally issued by SunAmerica Inc.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 129
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
..................................................................................................................................................................................
We also made other repayments of approximately $6.3 billion. AIG Parent repaid $4.2 billion of debt, including
$1.1 billion of MIP and $300 million of Series AIGFP long-term debt, and made interest payments on our debt
instruments totaling $2.0 billion.
• Purchase of Warrants
We paid approximately $25 million in the first quarter 2013 in the aggregate to purchase a warrant issued to
the Department of the Treasury in 2008 that provided the right to purchase approximately 2.7 million shares of
AIG Common Stock at $50.00 per share and a warrant issued to the Department of the Treasury in 2009 that
provided the right to purchase up to 150 shares of AIG Common Stock at $0.00002 per share.
• Dividends
We paid cash dividends of $0.10 per share on AIG Common Stock in each of the third and fourth quarters of
2013.
• Repurchase of Common Stock
We repurchased a total of approximately 12 million shares of AIG Common Stock in the third and fourth
quarters of 2013, for an aggregate purchase price of approximately $597 million.
• AIG Parent Funding to Subsidiaries
We made $2.1 billion in net capital contributions to subsidiaries, including a contribution of approximately
$1.9 billion to AIG Capital Corporation related to the transfer of investments in life settlements from AIG
Property Casualty.
AIG Parent repaid $0.5 billion of its $1.1 billion outstanding loan from ILFC in the fourth quarter of 2013.
* In January 2014, AIG reduced DIB debt by $2.2 billion through a redemption of $1.2 billion aggregate principal amount of its 4.250% Notes due
2014 and a repurchase of $1.0 billion of its 8.25% Notes due 2018 using cash and short term investments allocated to the DIB.
The following table presents selected data from AIG’s Consolidated Statements of Cash Flows:
Sources:
Net cash provided by (used in) operating activities – continuing operations $ 3,676 $ (3,451)
Net cash provided by (used in) operating activities – discontinued operations – 3,370
Net cash provided by changes in restricted cash
(a)
414 27,244
Net cash provided by other investing activities 16,198 9,204
Changes in policyholder contract balances – 4,333
Issuance of long-term debt 8,612 7,762
Proceeds from drawdown on the Department of Treasury Commitment – 20,292
Issuance of Common Stock – 5,055
Net cash provided by (used in) other financing activities 4,251 –
Total sources 33,151 73,809
Uses:
Change in policyholder contract balances (690) –
Repayments of long-term debt (11,101) (17,810)
Federal Reserve Bank of New York credit facility repayments – (14,622)
Repayment of Department of Treasury SPV Preferred Interests (8,636) (12,425)
Repayment of Federal Reserve Bank of New York SPV Preferred Interests – (26,432)
Purchases of AIG Common Stock (13,000) (70)
Net cash used in other financing activities
(b)
– (3,009)
Total uses (33,427) (74,368)
Effect of exchange rate changes on cash 16 29
Increase (decrease) in cash $ (260) $ (530)
(a) Includes return of cash from ALICO escrow arrangement.
(b) Includes payment of two quarterly cash dividends.
Analysis of Sources and Uses of Cash
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AIG 2013 Form 10-K 130
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
Years Ended December 31,
(in millions) 2013 2012 2011
$ 5,865
–
1,244
5,855
–
5,235
–
–
–
18,199
(547)
(14,197)
–
–
–
(597)
(1,652)
(16,993)
(92)
$ 1,114
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents a summary of AIG’s Consolidated Statement of Cash Flows:
Summary:
Net cash provided by (used in) operating activities $ 3,676 $ (81)
Net cash provided by investing activities 16,612 36,448
Net cash used in financing activities (20,564) (36,926)
Effect of exchange rate changes on cash 16 29
Increase (decrease) in cash (260) (530)
Cash at beginning of year 1,474 1,558
Change in cash of businesses held for sale (63) 446
Cash at end of year $ 1,151 $ 1,474
Interest payments totaled $3.9 billion in 2013 compared to $4.0 billion in 2012. Excluding interest payments, AIG
generated positive operating cash flow of $9.7 billion and $7.7 billion in 2013 and 2012, respectively.
Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits. The
ability of insurance companies to generate positive cash flow is affected by the frequency and severity of losses
under their insurance policies, policy retention rates and operating expenses.
Cash provided by AIG Property Casualty operating activities was $0.4 billion in 2013 compared to $1.1 billion in
2012, primarily reflecting the timing of the payments related to catastrophe losses.
Cash provided by AIG Life and Retirement operating activities was $4.3 billion in 2013 compared to $2.9 billion in
2012, primarily due to higher pre-tax operating income and the receipt of approximately $800 million of legal
settlement proceeds in 2013.
Cash provided by operating activities of business held for sale was $2.9 billion for each of 2013 and 2012.
Net cash provided by operating activities improved in 2012 compared to 2011, principally due to cash paid for
interest in 2011 by AIG Parent of $6.4 billion in accrued compounded interest and fees under the FRBNY Credit
Facility, partially offset by a decline in cash provided by operating activities of foreign life subsidiaries of $3.4 billion
due to the sale of those subsidiaries (AIA, ALICO, AIG Star, AIG Edison and Nan Shan Life Insurance
Company, LTD. (Nan Shan)) in 2011.
Net cash provided by investing activities for 2013 includes approximately $0.9 billion of cash collateral received in
connection with the securities lending program launched during 2012 by AIG Life and Retirement.
Net cash provided by investing activities for 2012 includes:
• payments received relating to the sale of the underlying assets held by ML II of approximately $1.6 billion;
• payments of approximately $8.5 billion received in connection with the dispositions of ML III assets by the FRBNY;
• gross proceeds of approximately $14.5 billion from the sale of AIA ordinary shares; and
• approximately $2.1 billion of cash collateral received in connection with the securities lending program launched
during 2012 by AIG Life and Retirement.
Net cash provided by investing activities for 2011 includes:
• the utilization of $26.4 billion of restricted cash generated from the AIA initial public offering and ALICO sale in
connection with the Recapitalization and $9.6 billion from the disposition of MetLife securities;
• the sale of AIG Star, AIG Edison and Nan Shan in 2011 for total proceeds of $6.4 billion; and
• net sales of short term investments and maturities of available for sale investments, primarily at AIG Property
Casualty and AIG Life and Retirement, which were partially offset by purchases of available for sale investments.
Operating Cash Flow Activities
Investing Cash Flow Activities
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AIG 2013 Form 10-K 131
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
Years Ended December 31,
(in millions) 2013 2012 2011
$ 5,865
7,099
(11,758)
(92)
1,114
1,151
(24)
$ 2,241
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Net cash used in financing activities for 2013 includes:
• approximately $294 million in the aggregate to pay dividends of $0.10 per share on AIG Common Stock in each of
the third and fourth quarters of 2013;
• approximately $597 million to repurchase approximately 12 million shares of AIG Common Stock; and
• approximately $9.3 billion to repay long term debt; see Debt — Debt Maturities below.
• approximately $4.9 billion in repayments of long term debt of business held-for-sale.
Net cash used in financing activities for 2012 includes:
• $8.6 billion to pay down the Department of the Treasury’s preferred interests (AIA SPV Preferred Interests) in the
special purpose vehicle holding the AIA ordinary shares; and
• total payments of approximately $13.0 billion for the purchase of shares of AIG Common Stock.
Net cash used in financing activities for 2011 primarily includes repayment of the FRBNY Credit Facility and the
$12.4 billion partial repayment of the AIA SPV Preferred Interests and the ALICO SPV in connection with the
Recapitalization and use of proceeds received from the sales of foreign life insurance entities in 2011.
As of December 31, 2013, AIG Parent had approximately $17.6 billion in liquidity sources. AIG Parent’s liquidity
sources are held in the form of cash, short-term investments and publicly traded, intermediate-term investment grade
rated fixed maturity securities. Fixed maturity securities consist of U.S. government and government sponsored entity
securities, U.S. agency mortgage-backed securities, and corporate and municipal bonds. AIG Parent actively
manages its assets and liabilities in terms of products, counterparties and duration. During 2013, upon an
assessment of its immediate and longer-term funding needs, AIG Parent purchased publicly traded, intermediate-term
investment grade rated fixed maturity securities that can be readily monetized through sales or repurchase
agreements. These securities allow us to diversify sources of liquidity while reducing the cost of maintaining sufficient
liquidity. AIG Parent liquidity sources are monitored through the use of various internal liquidity risk measures. AIG
Parent’s primary sources of liquidity are dividends, distributions, loans, and other payments from subsidiaries, as well
as credit and contingent liquidity facilities. AIG Parent’s primary uses of liquidity are for debt service, capital and
liability management, operating expenses and subsidiary capital needs.
AIG Parent has unconditional capital maintenance agreements (CMAs) in place with certain AIG Property Casualty,
AIG Life and Retirement and Mortgage Guaranty subsidiaries to facilitate the transfer of capital and liquidity within
AIG. On February 18, 2014, certain of these CMAs were recharacterized as capital support agreements as a result of
our intention to manage capital flows between AIG Parent and its subsidiaries through internal, Board-approved
policies and guidelines rather than CMAs. See AIG Property Casualty, AIG Life and Retirement and Other
Operations — Mortgage Guaranty below for additional details regarding CMAs that we have entered into with our
insurance subsidiaries. Nevertheless, regulatory and other legal restrictions could limit our ability to transfer capital
freely, either to or from our subsidiaries.
We believe that we have sufficient liquidity and capital resources to satisfy our reasonably foreseeable future
requirements and meet our obligations to our creditors, debt-holders and insurance company subsidiaries. We expect
to access the debt markets from time to time to meet funding requirements as needed.
We utilize our capital resources to support our businesses, with the majority of capital allocated to our core insurance
operations. Should we have or generate more capital than is needed to support our business strategies (including
organic growth or acquisition opportunities) or mitigate risks inherent to our business, we may develop plans to
distribute such capital to shareholders via dividend or share repurchase authorizations or deploy such capital towards
liability management.
Financing Cash Flow Activities
Liquidity and Capital Resources of AIG Parent and Subsidiaries
AIG Parent
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AIG 2013 Form 10-K 132
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
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In the normal course, it is expected that a portion of the capital generated by our core insurance operations through
earnings or through the utilization of AIG’s deferred tax assets may be available for distribution to shareholders.
Additionally, it is expected that capital associated with businesses or investments that do not directly support our core
insurance operations may be available for distribution to shareholders or deployment towards liability management
upon their monetization.
In developing plans to distribute capital, AIG considers a number of factors, including, but not limited to: the capital
resources available to support our core insurance operations and business strategies, AIG’s funding capacity and
capital resources in comparison to internal benchmarks, expectations for capital generation, rating agency
expectations for capital, as well as regulatory standards for capital and capital distributions.
The following table presents AIG Parent’s liquidity sources:
Cash and short-term investments
(a)(b)
$ 12,586
Unencumbered fixed maturity securities
(c)
–
Total AIG Parent liquidity 12,586
Available capacity under syndicated credit facility
(d)
3,037
Available capacity under contingent liquidity facility
(e)
500
Total AIG Parent liquidity sources $ 16,123
(a) Cash and short-term investments include reverse repurchase agreements totaling $6.9 billion and $8.9 billion as of December 31, 2013 and
2012, respectively.
(b) $5.9 billion and $4.6 billion of cash and short-term investments as of December 31, 2013 and 2012, respectively, are allocated toward future
maturities of liabilities and contingent liquidity stress needs of DIB and GCM.
(c) Unencumbered securities consist of publicly traded, intermediate-term investment grade rated fixed maturity securities. Fixed maturity securities
consist of U.S. government and government sponsored entity securities, U.S. agency mortgage-backed securities, and corporate and municipal
bonds.
(d) For additional information relating to this syndicated credit facility, see Credit Facilities below.
(e) For additional information relating to the contingent liquidity facility, see Contingent Liquidity Facilities below.
We expect that AIG Property Casualty subsidiaries will be able to continue to satisfy reasonably foreseeable future
liquidity requirements and meet their obligations, including those arising from reasonably foreseeable contingencies
or events, through cash from operations, portfolio interest, scheduled investment maturities and, to the extent
necessary, monetization of invested assets. AIG Property Casualty’s subsidiaries’ liquidity resources are held in the
form of cash, short-term investments and publicly traded, investment grade rated fixed maturity securities.
National Union Fire Insurance Company of Pittsburgh, Pa. (NUFI) is a member of the Federal Home Loan Bank
(FHLB) of Pittsburgh, AIG Specialty Insurance Company (ASI) is a member of the FHLB of Chicago and Lexington
Insurance Company (Lexington) is a member of the FHLB of Boston. FHLB membership provides participants with
access to various services, including access to low-cost advances through pledging of certain mortgage-backed
securities, government and agency securities and other qualifying assets. These advances may be used to provide
an additional source of liquidity for balance sheet management or contingency funding purposes. As of December 31,
2013, there were no FHLB advances outstanding for NUFI, CSI or Lexington.
AIG Property Casualty’s subsidiaries may require additional funding to meet capital or liquidity needs under certain
circumstances.
Large catastrophes may require AIG to provide additional support to our affected operations. Downgrades in AIG’s
credit ratings could put pressure on the insurer financial strength ratings of AIG’s subsidiaries, which could result in
non-renewals or cancellations by policyholders and adversely affect the subsidiary’s ability to meet its own
obligations. Increases in market interest rates may adversely affect the financial strength ratings of our subsidiaries,
as rating agency capital models may reduce the amount of available capital relative to required capital. Other
potential events that could cause a liquidity strain include an economic collapse of a nation or region significant to
AIG Property Casualty
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AIG 2013 Form 10-K 133
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
As of As of
(In millions) December 31, 2013 December 31, 2012
$ 10,154
2,968
13,122
3,947
500
$ 17,569
..................................................................................................................................................................................
............................................................................................................................................................................................
our operations, nationalization, catastrophic terrorist acts, pandemics or other events causing economic or political
upheaval.
AIG Parent and Ascot Corporate Name Limited (ACNL), an AIG Property Casualty subsidiary, are parties to a
$625 million letter of credit facility. ACNL, as a member of the Lloyd’s of London insurance syndicate (Lloyd’s), is
required to hold capital at Lloyd’s, known as Funds at Lloyds (FAL). Under the facility, which supports the 2013,
2014 and 2015 years of account, the entire FAL requirement of $600 million, as of December 31, 2013, was satisfied
with a letter of credit issued under the facility.
AIG Parent, AIG Property Casualty Inc. and certain AIG Property Casualty domestic insurance subsidiaries are
parties to a consolidated CMA. Among other things, the CMA provides that AIG Parent will maintain the total
adjusted capital of these AIG Property Casualty insurance subsidiaries, measured as a group (the Fleet), at or above
the specified minimum percentage of the Fleet’s projected total authorized control level Risk-Based Capital (RBC). In
addition, the CMA provided that if the total adjusted capital of the Fleet exceeds that same specified minimum
percentage of the Fleet’s total authorized control level RBC, subject to approval by their respective boards, and
compliance with applicable insurance laws, the AIG Property Casualty insurance subsidiaries would declare and pay
ordinary dividends to their respective equity holders up to an amount necessary to reduce the Fleet’s projected or
actual total adjusted capital to a level equal to or not materially greater than such specified minimum percentage. On
February 18, 2014, the CMA was recharacterized as a capital support agreement and amended to remove the
exclusion of deferred tax assets from the calculation of total adjusted capital and remove the dividend requirement of
the Fleet. The specified minimum percentage in the CMA was also reduced from 325 percent to 300 percent. AIG
will continue to manage capital flows between AIG Parent and the AIG Property Casualty insurance subsidiaries
through internal, Board-approved policies and guidelines.
AIG Property Casualty paid cash and non-cash dividends totaling $4.3 billion to AIG Parent in 2013, including
$2.6 billion of cash dividends in the fourth quarter of 2013. For the years ended December 31, 2013 and 2012, AIG
Parent received approximately $4.3 billion and $2.3 billion, respectively, in dividends from AIG Property Casualty Inc.
that were made under the CMAs then in place, and AIG Parent was not required to make any capital contributions in
either period pursuant to the CMAs then in place.
We expect that AIG Life and Retirement subsidiaries will be able to continue to satisfy reasonably foreseeable future
liquidity requirements and meet their obligations, including those arising from reasonably foreseeable contingencies
or events, through cash from operations and, to the extent necessary, monetization of invested assets. AIG Life and
Retirement subsidiaries’ liquidity resources are held in the form of cash, short-term investments and publicly traded,
investment grade rated fixed maturity securities.
Certain AIG Life and Retirement insurance subsidiaries are members of the FHLBs in their respective districts. As of
December 31, 2013, AIG Life and Retirement had outstanding borrowings of $50 million from the FHLBs. Borrowings
from the FHLBs are used to supplement liquidity or for other general corporate purposes.
The need to fund product surrenders, withdrawals and maturities creates a potential liquidity requirement for AIG Life
and Retirement’s insurance subsidiaries. We believe that because of the size and liquidity of our investment
portfolios, AIG Life and Retirement does not face a significant liquidity risk due to normal deviations from projected
claim or surrender experience. Furthermore, AIG Life and Retirement’s products contain certain features that mitigate
surrender risk, including surrender charges. As part of its risk management framework, AIG Life and Retirement
continues to evaluate and, where appropriate, pursue strategies and programs to improve its liquidity position and
facilitate AIG Life and Retirement’s ability to maintain a fully invested asset portfolio. AIG Life and Retirement also
has developed a robust contingent liquidity plan to address any unforeseen liquidity needs.
AIG Life and Retirement executes programs, which began in 2012, that lend securities from its investment portfolio to
supplement liquidity or for other uses as deemed appropriate by management. Under these programs, AIG Life and
Retirement insurance subsidiaries lend securities to financial institutions and receive collateral equal to 102 percent
of the fair value of the loaned securities. Reinvestment of cash collateral received is restricted to liquid investments.
Additionally, the aggregate amount of securities that an AIG Life and Retirement insurance company may lend under
its program at any time is limited to five percent of its general account admitted assets. AIG Life and Retirement’s
liability to borrowers for collateral received was $4.0 billion as of December 31, 2013.
AIG Life and Retirement
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AIG 2013 Form 10-K 134
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
..................................................................................................................................................................................
............................................................................................................................................................................................
AIG Parent is party to CMAs with certain AIG Life and Retirement insurance subsidiaries. Among other things, the
CMAs provide that AIG Parent will maintain the total adjusted capital of each of these AIG Life and Retirement
insurance subsidiaries at or above a specified minimum percentage of the subsidiary’s projected NAIC Company
Action Level RBC. In addition, the CMAs provided that if the total adjusted capital of these AIG Life and Retirement
insurance subsidiaries is in excess of that same specified minimum percentage of their respective total company
action level RBC, subject to approval by their respective boards and compliance with applicable insurance laws, the
subsidiaries would declare and pay ordinary dividends to their respective equity holders up to an amount necessary
to reduce projected or actual total adjusted capital to a level equal to or not materially greater than such specified
minimum percentage. On February 18, 2014, the CMAs were recharacterized as capital support agreements and
amended to remove the dividend requirement of the AIG Life and Retirement insurance subsidiaries. The specified
minimum percentage in the CMAs remained at 385 percent, except for the CMA with AGC Life Insurance Company,
where the specified minimum percentage remained at 250 percent. AIG will continue to manage capital between AIG
Parent and these AIG Life and Retirement insurance subsidiaries through internal, Board-approved policies and
guidelines.
In 2013, AIG Life and Retirement provided $4.4 billion of liquidity to AIG Parent in the form of cash dividends and
loan repayments, including $1.3 billion of liquidity in the fourth quarter of 2013, which was funded by the payment of
cash dividends from AIG Life and Retirement’s insurance subsidiaries that were made under the CMAs. AIG Parent
was not required to make any capital contributions to AIG Life and Retirement subsidiaries in either period under the
CMAs then in place.
We expect that Mortgage Guaranty subsidiaries will be able to continue to satisfy reasonably foreseeable future
liquidity requirements and meet their obligations, including those arising from reasonably foreseeable contingencies
or events, through cash from operations and, to the extent necessary, monetization of invested assets. Mortgage
Guaranty’s liquidity resources are held in the form of cash, short-term investments and publicly traded, investment
grade rated, fixed maturity securities. These securities could be monetized in the event liquidity levels are insufficient
to meet obligations.
On July 1, 2013, AIG Parent entered into a CMA with a Mortgage Guaranty insurance subsidiary. Among other
things, the CMA provides that AIG Parent will maintain capital and surplus of this Mortgage Guaranty insurance
subsidiary at or above a specified minimum required capital based on a specified risk-to-capital ratio. In addition, the
CMA provides that if capital and surplus of this Mortgage Guaranty insurance subsidiary is in excess of that same
specified minimum required capital, subject to board approval and compliance with applicable insurance laws, this
Mortgage Guaranty insurance subsidiary would declare and pay ordinary dividends to its equity holders up to an
amount necessary to reduce projected or actual capital and surplus to a level equal to or not materially greater than
such specified minimum required capital. As structured, the CMA contemplates that the specified minimum required
capital would be reviewed and agreed upon at least annually. As of December 31, 2013, the minimum required
capital is based on a risk-to-capital ratio of 21 to 1.
In 2013, Mortgage Guaranty paid $90 million of cash dividends to AIG Parent. No dividends were paid, and AIG
Parent was not required to make any capital contributions, under the CMA in 2013.
Derivative transactions between AIG and its subsidiaries and third parties are generally centralized through GCM,
specifically AIG Markets. Commencing June 10, 2013, GCM was required to clear certain derivatives transactions
through central regulated clearing organizations pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank). To the extent a derivatives transaction is subject to a clearing obligation, GCM is
required to post collateral in amounts determined by the relevant clearing organization and GCM’s clearing
agreements with its futures commission merchants. To the extent a derivatives transaction is not subject to a clearing
obligation, these derivative transactions are governed by bilateral master agreements, the form of which is published
by the International Swaps and Derivatives Association, Inc. (ISDA). Many of these agreements, primarily between
GCM and third party financial institutions, require collateral postings. Many of GCM’s transactions with AIG and its
Other Operations
Mortgage Guaranty
Global Capital Markets
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AIG 2013 Form 10-K 135
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
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subsidiaries also include collateral posting requirements, the purpose of which are to provide collateral to GCM,
which in turn is used to satisfy posting requirements with third parties, including the margin requirements of clearing
organizations and futures commission merchants.
In addition, most of GCM’s CDSs within AIGFP are subject to collateral posting provisions. The collateral posting
provisions contained in the ISDA Master Agreements and related transaction documents with respect to CDSs differ
among counterparties and asset classes. The amount of future collateral posting requirements for super senior CDSs
is a function of our credit ratings, the rating of the relevant reference obligations and the market value of the relevant
reference obligations, with market value being the most significant factor. We estimate the amount of potential future
collateral postings associated with the super senior CDSs using various methodologies. The contingent liquidity
requirements associated with such potential future collateral postings are incorporated into our liquidity planning
assumptions.
As of December 31, 2013 and December 31, 2012, respectively, GCM had total assets of $7.7 billion and $8.0 billion
and total liabilities of $3.1 billion and $4.9 billion. GCM’s assets consist primarily of cash, short-term investments,
other receivables, net of allowance, and unrealized gains on swaps, options and forwards. GCM’s liabilities consist
primarily of trade payables and unrealized losses on swaps, options and forwards. Collateral posted by GCM to third
parties was $3.0 billion and $4.2 billion at December 31, 2013 and December 31, 2012, respectively. GCM obtained
collateral from third parties totaling $572 million and $846 million at December 31, 2013 and December 31, 2012,
respectively. The collateral amounts reflect counterparty netting adjustments available under ISDA Master
Agreements and are inclusive of collateral that exceeded the fair value of derivatives as of the reporting date.
The DIB portfolio is being wound down and is managed with the objective of ensuring that at all times it maintains
the liquidity we believe is necessary to meet all of its liabilities as they come due, even under stress scenarios, and
to maximize returns consistent with our risk management objectives. We are focused on meeting the DIB’s liquidity
needs, including the need for contingent liquidity arising from collateral posting for debt positions of the DIB, without
relying on resources beyond the DIB. As part of this program management, we may from time to time access the
capital markets, including issuing and repurchasing debt, and selling assets on an opportunistic basis, in each case
subject to market conditions. If the DIB’s risk target is breached, we expect to take appropriate actions to increase
the DIB’s liquidity sources or reduce liquidity requirements to maintain the risk target, although no assurance can be
given that this can be achieved under then-prevailing market conditions. Any additional liquidity shortfalls would need
to be funded by AIG Parent.
From time to time, we may utilize cash allocated to the DIB that is not required to meet the risk target for the DIB for
general corporate purposes unrelated to the DIB.
The DIB’s assets consist primarily of cash, short-term investments, fixed maturity securities issued by corporations,
U.S. government and government sponsored entities and mortgage and asset backed securities. The DIB’s liabilities
consist primarily of notes and other borrowings supported by assets as well as other short-term financing obligations.
As of December 31, 2013 and December 31, 2012, respectively, the DIB had total assets of $23.3 billion and
$28.5 billion and total liabilities of $20.0 billion and $23.8 billion.
The overall hedging activity for the assets and liabilities of the DIB is executed by GCM, The value of hedges related
to the non-derivative assets and liabilities of AIGFP in the DIB is included within the assets, liabilities and operating
results of GCM and is not included within the DIB’s assets, liabilities or operating results.
Collateral posted by operations included in the DIB to third parties was $4.2 billion at December 31, 2013 and
$4.3 billion December 31, 2012. This collateral primarily consists of securities of the U.S. government and
government sponsored entities and generally cannot be repledged or resold by the counterparties.
During 2013, the DIB funded maturities and repurchased debt in the open market in the amount of $2.5 billion. The
repurchased debt resulted in a loss on extinguishment of debt of $15 million.
We maintain a committed revolving four-year syndicated credit facility (the Four-Year Facility) as a potential source of
liquidity for general corporate purposes. The Four-Year Facility also provides for the issuance of letters of credit. We
Direct Investment Book
Credit Facilities
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AIG 2013 Form 10-K 136
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
..................................................................................................................................................................................
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currently expect to replace or extend the Four-Year Facility on or prior to its expiration in October 2016, although no
assurance can be given that the Four-Year Facility will be replaced on favorable terms or at all.
The Four-Year Facility provides for $4.0 billion of unsecured revolving loans, which includes a $2.0 billion letter of
credit sublimit. As of December 31, 2013, a total of approximately $3.9 billion remains available under the Four-Year
Facility, of which approximately $1.9 billion remains available for letters of credit. During each of the third and fourth
quarters of 2013, we reduced our utilization of letters of credit under the Four-Year Facility. Our ability to borrow
under the Four-Year Facility is not contingent on our credit ratings. However, our ability to borrow under the
Four-Year Facility is conditioned on the satisfaction of certain legal, operating, administrative and financial covenants
and other requirements contained in the Four-Year Facility. These include covenants relating to our maintenance of a
specified total consolidated net worth and total consolidated debt to total consolidated capitalization. Failure to satisfy
these and other requirements contained in the Four-Year Facility would restrict our access to the Four-Year Facility
and could have a material adverse effect on our financial condition, results of operations and liquidity. We expect to
borrow under the Four-Year Facility from time to time, and may use the proceeds for general corporate purposes.
AIG Parent has access to a contingent liquidity facility of up to $500 million as a potential source of liquidity for
general corporate purposes. Under this facility, we have the unconditional right, prior to December 15, 2015, to issue
up to $500 million in senior debt to the counterparty, based on a put option agreement between AIG Parent and the
counterparty.
Our ability to borrow under this facility is not contingent on our credit ratings.
The following table summarizes contractual obligations in total, and by remaining maturity:
Insurance operations
Loss reserves
Insurance and investment contract liabilities
Borrowings
Interest payments on borrowings
Operating leases
Other long-term obligations
Total
Other and Held for Sale
Borrowings
(a)
Interest payments on borrowings
Operating leases
Aircraft purchase commitments
Other long-term obligations
Total
Consolidated
Loss reserves
Insurance and investment contract liabilities
Borrowings
(a)
Interest payments on borrowings
Operating leases
Aircraft purchase commitments
Other long-term obligations
(b)
Total
(c)
(a) Includes $21.4 billion of borrowings related to ILFC, which is reported as held for sale.
(b) Primarily includes contracts to purchase future services and other capital expenditures.
(c) Does not reflect unrecognized tax benefits of $4.3 billion ($4.0 billion excluding ILFC), the timing of which is uncertain.
Contingent Liquidity Facilities
Contractual Obligations
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AIG 2013 Form 10-K 137
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
Payments due by Period
December 31, 2013 Total 2015 – 2017 –
(in millions) Payments 2014 2016 2018 Thereafter
$ 85,102 $ 21,993 $ 24,355 $ 12,574 $ 26,180
227,715 13,332 28,594 25,245 160,544
1,991 7 46 8 1,930
2,708 107 217 219 2,165
1,219 267 406 262 284
32 4 15 7 6
$ 318,767 $ 35,710 $ 53,633 $ 38,315 $ 191,109
$ 59,214 $ 6,369 $ 12,663 $ 17,432 $ 22,750
35,433 3,309 5,822 4,068 22,234
258 81 75 41 61
21,714 2,162 6,147 8,887 4,518
259 74 52 10 123
$ 116,878 $ 11,995 $ 24,759 $ 30,438 $ 49,686
$ 85,102 $ 21,993 $ 24,355 $ 12,574 $ 26,180
227,715 13,332 28,594 25,245 160,544
61,205 6,376 12,709 17,440 24,680
38,141 3,416 6,039 4,287 24,399
1,477 348 481 303 345
21,714 2,162 6,147 8,887 4,518
291 78 67 17 129
$ 435,645 $ 47,705 $ 78,392 $ 68,753 $ 240,795
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Loss reserves relate to the AIG Property Casualty and the Mortgage Guaranty businesses, and represent future loss
and loss adjustment expense payments estimated based on historical loss development payment patterns. Due to
the significance of the assumptions used, the payments by period presented above could be materially different from
actual required payments. We believe that AIG Property Casualty and Mortgage Guaranty subsidiaries maintain
adequate financial resources to meet the actual required payments under these obligations.
Insurance and investment contract liabilities, including GIC liabilities, relate to AIG Life and Retirement businesses.
These liabilities include various investment-type products with contractually scheduled maturities, including periodic
payments of a term certain nature. These liabilities also include benefit and claim liabilities, of which a significant
portion represents policies and contracts that do not have stated contractual maturity dates and may not result in any
future payment obligations. For these policies and contracts (i) we are currently not making payments until the
occurrence of an insurable event, such as death or disability, (ii) payments are conditional on survivorship or
(iii) payment may occur due to a surrender or other non-scheduled event out of our control.
We have made significant assumptions to determine the estimated undiscounted cash flows of these contractual
policy benefits. These assumptions include mortality, morbidity, future lapse rates, expenses, investment returns and
interest crediting rates, offset by expected future deposits and premiums on in-force policies. Due to the significance
of the assumptions, the periodic amounts presented could be materially different from actual required payments. The
amounts presented in this table are undiscounted and exceed the future policy benefits and policyholder contract
deposits included in the Consolidated Balance Sheets.
We believe that AIG Life and Retirement subsidiaries have adequate financial resources to meet the payments
actually required under these obligations. These subsidiaries have substantial liquidity in the form of cash and
short-term investments. In addition, AIG Life and Retirement businesses maintain significant levels of investment-
grade rated fixed maturity securities, including substantial holdings in government and corporate bonds, and could
seek to monetize those holdings in the event operating cash flows are insufficient. We expect liquidity needs related
to GIC liabilities to be funded through cash flows generated from maturities and sales of invested assets.
Our borrowings exclude those incurred by consolidated investments and include hybrid financial instrument liabilities
recorded at fair value. We expect to repay the long-term debt maturities and interest accrued on borrowings by AIG
through maturing investments and dispositions of invested assets, future cash flows from operations, cash flows
generated from invested assets, future debt issuance and other financing arrangements.
Loss Reserves
Insurance and Investment Contract Liabilities
Borrowings
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 138
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table summarizes Off-Balance Sheet Arrangements and Commercial Commitments in total, and
by remaining maturity:
Insurance operations
Guarantees:
Standby letters of credit
Guarantees of indebtedness
All other guarantees
(a)
Commitments:
Investment commitments
(b)
Commitments to extend credit
Letters of credit
Other commercial commitments
Total
(c)
Other and Held for Sale
Guarantees:
Liquidity facilities
(d)
Standby letters of credit
All other guarantees
(a)
Commitments:
Investment commitments
(b)
Commitments to extend credit
Letters of credit
Other commercial commitments
(e)
Total
(c)(f)
Consolidated
Guarantees:
Liquidity facilities
(d)
Standby letters of credit
Guarantees of indebtedness
All other guarantees
(a)
Commitments:
Investment commitments
(b)
Commitments to extend credit
Letters of credit
Other commercial commitments
(e)
Total
(c)(f)
(a) Includes residual value guarantees associated with aircraft and AIG Life and Retirement construction guarantees connected to affordable housing
investments. Excludes potential amounts for indemnification obligations included in asset sales agreements. See Note 15 to the Consolidated
Financial Statements for further information on indemnification obligations.
(b) Includes commitments to invest in private equity funds, hedge funds and mutual funds and commitments to purchase and develop real estate in
the United States and abroad. The commitments to invest in private equity funds, hedge funds and other funds are called at the discretion of each
fund, as needed for funding new investments or expenses of the fund. The expiration of these commitments is estimated in the table above based
on the expected life cycle of the related fund, consistent with past trends of requirements for funding. Investors under these commitments are
primarily insurance and real estate subsidiaries.
(c) Does not include guarantees, capital maintenance agreements or other support arrangements among AIG consolidated entities.
(d) Primarily represents liquidity facilities provided in connection with certain municipal swap transactions and collateralized bond obligations.
(e) Excludes commitments with respect to pension plans. The annual pension contribution for 2014 is expected to be approximately $177 million for
U.S. and non-U.S. plans
(f) Includes $333 million attributable to ILFC, which is reported as held for sale.
Off-Balance Sheet Arrangements and Commercial Commitments
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 139
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
Amount of Commitment Expiring
December 31, 2013 Total Amounts 2015 – 2017 –
(in millions) Committed 2014 2016 2018 Thereafter
$ 869 $ 8 $ 184 $ 600 $ 77
169 – – – 169
8 – – 1 7
2,078 1,454 496 123 5
1,090 1,001 89 – –
6 6 – – –
627 – – – 627
$ 4,847 $ 2,469 $ 769 $ 724 $ 885
$ 101 $ – $ – $ – $ 101
241 236 4 1 –
148 15 23 50 60
338 254 39 7 38
2 1 – – 1
24 24 – – –
4 5 – – (1)
$ 858 $ 535 $ 66 $ 58 $ 199
$ 101 $ – $ – $ – $ 101
1,110 244 188 601 77
169 – – – 169
156 15 23 51 67
2,416 1,708 535 130 43
1,092 1,002 89 – 1
30 30 – – –
631 5 – – 626
$ 5,705 $ 3,004 $ 835 $ 782 $ 1,084
..................................................................................................................................................................................
............................................................................................................................................................................................
We enter into various arrangements with variable interest entities (VIEs) in the normal course of business, and we
consolidate a VIE when we are the primary beneficiary of the entity. For a further discussion of our involvement with
VIEs, see Note 10 to the Consolidated Financial Statements.
We are subject to financial guarantees and indemnity arrangements in connection with our sales of businesses.
These arrangements may be triggered by declines in asset values, specified business contingencies, the realization
of contingent liabilities, litigation developments, or breaches of representations, warranties or covenants provided by
us. These arrangements are typically subject to time limitations, defined by the contract or by operation of law, such
as by prevailing statutes of limitation. Depending on the specific terms of the arrangements, the maximum potential
obligation may or may not be subject to contractual limitations. For additional information regarding our
indemnification agreements, see Note 15 to the Consolidated Financial Statements.
We have recorded liabilities for certain of these arrangements where it is possible to estimate them. These liabilities
are not material in the aggregate. We are unable to develop a reasonable estimate of the maximum potential payout
under some of these arrangements. Overall, we believe that it is unlikely we will have to make any material
payments under these arrangements.
The following table provides the rollforward of AIG’s total debt outstanding:
Debt issued or guaranteed by AIG:
AIG general borrowings:
Notes and bonds payable $ 14,084 $ 2,024 $ (2,148) $ 83 $ 19
Subordinated debt 250 – – – –
Junior subordinated debt 9,416 – (3,910) 21 6
Loans and mortgages payable 79 – (78) – –
AIGLH notes and bonds payable 298 – – – 1
AIGLH junior subordinated debt
(a)
1,339 – (286) – 1
Total AIG general borrowings 25,466 2,024 (6,422) 104 27
AIG/DIB borrowings supported by
assets:
(b)
MIP notes payable 9,296 – (1,082) (183) (68)
Series AIGFP matched notes and
bonds payable 3,544 – (300) – (25)
GIAs, at fair value 6,501 528 (927) – (572)
(c)
Notes and bonds payable, at fair
value 1,554 34 (613) – 242
(c)
Total AIG/DIB borrowings supported by
assets 20,895 562 (2,922) (183) (423)
Total debt issued or guaranteed by
AIG 46,361 2,586 (9,344) (79) (396)
Debt not guaranteed by AIG:
Other subsidiaries notes, bonds, loans
and mortgages payable 325 546 (207) (26) 18
Debt of consolidated investments
(d)
1,814 150 (126) 18 53
Total debt not guaranteed by AIG 2,139 696 (333) (8) 71
Total debt
(e)
$ 48,500 $ 3,282 $ (9,677) $ (87) $ (325)
(a) On July 11, 2013, AIGLH junior subordinated debentures with the same terms as the trust preferred securities were distributed to holders of the
trust preferred securities, and the trust preferred securities were cancelled.
Arrangements with Variable Interest Entities
Indemnification Agreements
Debt
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 140
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
Balance at Maturities Effect of Balance at
Year Ended December 31, 2013 December 31, and Foreign Other December 31,
(in millions) 2012 Issuances Repayments Exchange Changes 2013
$ 14,062
250
5,533
1
299
1,054
21,199
7,963
3,219
5,530
1,217
17,929
39,128
656
1,909
2,565
$ 41,693
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
17FEB201421132328
(b) AIG Parent guarantees all DIB debt, except for MIP notes payable and Series AIGFP matched notes and bonds payable, which are direct
obligations of AIG Parent.
(c) Primarily represents adjustments to the fair value of debt.
(d) At December 31, 2013, includes debt of consolidated investments primarily held through AIG Global Real Estate Investment Corp., AIG Property
Casualty U.S., AIG Credit Corp. and AIG Life and Retirement of $1.5 billion, $58 million, $111 million and $201 million, respectively.
(e) Excludes $21.4 billion and $24.3 billion related to ILFC as it is classified as a held-for-sale business at December 31, 2013 and 2012,
respectively.
TOTAL DEBT OUTSTANDING
(in millions)
Total AIG general
borrowings
Total AIG/DIB
borrowings supported
by assets
Total debt not
guaranteed by AIG
December 31, 2013 December 31, 2012
$41,693
$48,500
$17,929
$21,199
$20,895
$25,466
$2,565 $2,139
The decrease in total debt outstanding as of December 31, 2013 compared to December 31, 2012 was primarily due
to maturities and repayments of debt, including cash tender offers, redemptions and repurchases of certain debt
securities discussed above.
The following table summarizes maturing debt at December 31, 2013 of AIG (excluding $1.9 billion of
borrowings of consolidated investments) for the next four quarters:
AIG/DIB borrowings supported by assets
(b)
Other subsidiaries notes, bonds, loans and mortgages payable
Total
(a)
(a) There is no debt related to AIG general borrowings set to mature in 2014. This debt will begin maturing in 2015.
(b) In January 2014, AIG reduced DIB debt by $2.2 billion through a redemption of $1.2 billion aggregate principal amount of its 4.250% Notes due
2014 and a repurchase of $1.0 billion of its 8.25% Notes due 2018 using cash and short term investments allocated to the DIB.
See Note 14 to the Consolidated Financial Statements for additional details for debt outstanding.
Credit ratings estimate a company’s ability to meet its obligations and may directly affect the cost and
availability of financing to that company. The following table presents the credit ratings of AIG and certain of its
subsidiaries as of February 1, 2014. Figures in parentheses indicate the relative ranking of the ratings within the
Debt Maturities
Credit Ratings
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AIG 2013 Form 10-K 141
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in millions) 2014 2014 2014 2014 Total
$ 2,674 $ 506 $ 102 $ 41 $ 3,323
1 – 6 – 7
$ 2,675 $ 506 $ 108 $ 41 $ 3,330
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agency’s rating categories; that ranking refers only to the major rating category and not to the modifiers assigned by
the rating agencies.
AIG
AIG Financial Products Corp.
(d)
AIG Funding, Inc.
(d)
(a) Moody’s appends numerical modifiers 1, 2 and 3 to the generic rating categories to show relative position within the rating categories.
(b) S&P ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
(c) Fitch ratings may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
(d) AIG guarantees all obligations of AIG Financial Products Corp. and AIG Funding, Inc.
These credit ratings are current opinions of the rating agencies. They may be changed, suspended or withdrawn at
any time by the rating agencies as a result of changes in, or unavailability of, information or based on other
circumstances. Ratings may also be withdrawn at our request.
We are party to some agreements that contain ‘‘ratings triggers’’. Depending on the ratings maintained by one or
more rating agencies, these triggers could result in (i) the termination or limitation of credit availability or a
requirement for accelerated repayment, (ii) the termination of business contracts or (iii) a requirement to post
collateral for the benefit of counterparties.
In the event of adverse actions on our long-term debt ratings by the major rating agencies, AIGFP and certain other
GCM entities would be required to post additional collateral under some derivative transactions, or could experience
termination of the transactions. Such transactions could adversely affect our business, our consolidated results of
operations in a reporting period or our liquidity. In the event of a further downgrade of AIG’s long-term senior debt
ratings, AIGFP and certain other GCM entities would be required to post additional collateral, and certain of the
counterparties of AIGFP or of certain other GCM entities would be permitted to terminate their contracts early.
The actual amount of collateral that we would be required to post to counterparties in the event of such downgrades,
or the aggregate amount of payments that we could be required to make, depend on market conditions, the fair
value of outstanding affected transactions and other factors prevailing at the time of the downgrade.
For a discussion of the effects of downgrades in the financial strength ratings of our insurance companies or our
credit ratings, see Note 11 to the Consolidated Financial Statements and Part I, Item 1A. Risk Factors — Liquidity,
Capital and Credit.
For a discussion of our regulation and supervision by different regulatory authorities in the United States and abroad,
including with respect to our liquidity and capital resources, see Item 1. Business — Regulation and Item 1A. Risk
Factors — Regulation.
On August 1, 2013, our Board of Directors declared a cash dividend on AIG Common Stock of $0.10 per share,
which was paid on September 26, 2013 to shareholders of record on September 12, 2013.
On October 31, 2013, our Board of Directors declared a cash dividend on AIG Common Stock of $0.10 per share,
which was paid on December 19, 2013 to shareholders of record on December 5, 2013.
On February 13, 2014, our Board of Directors declared a cash dividend on AIG Common Stock of $0.125 per share,
payable on March 25, 2014 to shareholders of record on March 11, 2014. The payment of any future dividends will
be at the discretion of our Board of Directors and will depend on various factors, including the regulatory framework
applicable to us, as discussed further in Note 16 to the Consolidated Financial Statements.
Regulation and Supervision
Dividends and Repurchases of AIG Common Stock
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AIG 2013 Form 10-K 142
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
Short-Term Debt Senior Long-Term Debt
Moody’s S&P Moody’s
(a)
S&P
(b)
Fitch
(c)
P-2 (2nd of 3) A-2 (2nd of 8) Baa 1 (4th of 9) A- (3rd of 8) BBB (4th of 9)
Stable Outlook Stable Outlook Negative Outlook Stable Outlook
P-2 Baa 1 A-
Stable Outlook A-2 Stable Outlook Negative Outlook –
P-2 A-2 – – –
Stable Outlook
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............................................................................................................................................................................................
On August 1, 2013, our Board of Directors authorized the repurchase of shares of AIG Common Stock, with an
aggregate purchase price of up to $1.0 billion, from time to time in the open market, private purchases, through
forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise. As of December 31,
2013, we have repurchased approximately 12 million shares of AIG Common Stock for an aggregate purchase price
of approximately $597 million pursuant to this authorization. On February 13, 2014, our Board of Directors authorized
an increase to the August 1, 2013 repurchase authorization of AIG Common Stock by $1.0 billion, resulting in an
aggregate remaining authorization of approximately $1.4 billion of AIG Common Stock, which may be repurchased
from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or
automatic repurchase transactions or otherwise. The timing of such repurchases will depend on market conditions,
our financial condition, results of operations, liquidity and other factors.
Dividend payments to AIG Parent by our insurance subsidiaries are subject to certain restrictions imposed by
regulatory authorities. With respect to our domestic insurance subsidiaries, the payment of any dividend requires
formal notice to the insurance department in which the particular insurance subsidiary is domiciled. Foreign
jurisdictions may restrict the ability of our foreign insurance subsidiaries to pay dividends, and dividends from foreign
subsidiaries may also have unfavorable income tax consequences. There are also various local restrictions limiting
cash loans and advances to AIG Parent by our subsidiaries. See Note 19 to the Consolidated Financial Statements
for additional discussion of restrictions on payments of dividends by AIG and its subsidiaries.
Investments
Our investment strategies are tailored to the specific business needs of each operating unit. The investment
objectives are driven by the respective business models for AIG Property Casualty, AIG Life and Retirement, and
AIG Parent including the DIB. The primary objectives are generation of investment income, preservation of capital,
liquidity management and growth of surplus to support the insurance products. The majority of assets backing our
insurance liabilities consist of intermediate and long duration fixed maturity securities.
Investments Highlights in 2013
• An increase in interest rates on investment grade fixed maturity securities, partially offset by narrowing spreads
of high yield securities, resulted in net unrealized losses in the investment portfolio. Net unrealized gains in our
available-for-sale portfolio declined to approximately $12 billion as of December 31, 2013 from approximately
$25 billion as of December 31, 2012.
• We continued to make investments in structured securities, other fixed maturity securities and mortgage loans
with favorable risk versus return characteristics to improve yields and increase net investment income.
• Net investment income benefited from higher returns on alternative investments primarily due to strong equity
market performance.
• Blended investment yields on new AIG Life and Retirement and AIG Property Casualty investments were lower
than blended rates on investments that were sold, matured or called.
• Other-than-temporary-impairment charges on fixed maturity securities, equity securities, private equity funds
and hedge funds remained at low levels, with a small portion of impairments attributable to structured
securities.
• Impairments on investments in life settlements increased in 2013 compared to 2012 as a result of updated
longevity assumptions in the valuation tables used to estimate future expected cash flows.
Dividend Restrictions
OVERVIEW
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AIG 2013 Form 10-K 143
I T EM 7 / L I QUI DI T Y AND CAPI T AL RESOURCES
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Investment strategies are based on considerations that include the local market, general market conditions, liability
duration and cash flow characteristics, rating agency and regulatory capital considerations, legal investment
limitations, tax optimization and diversification.
• While more of a focus is placed on asset-liability matching in AIG Life and Retirement, our fundamental strategy
across all of our investment portfolios is to match the duration characteristics of the liabilities with assets of
comparable duration, to the extent practicable.
• Fixed maturity securities held by the domestic insurance companies included in AIG Property Casualty consist of a
mix of tax-exempt municipal bonds and taxable instruments that meet our current risk-return, tax, liquidity, credit
quality, and diversification objectives.
• Outside of the U.S., fixed maturity securities held by AIG Property Casualty consist primarily of intermediate
duration high-grade securities generally denominated in the currencies of the countries in which we operate.
• AIG Parent’s liquidity resources are held in the form of cash, short- term investments and publicly traded,
intermediate duration investment grade rated fixed maturity securities. AIG Parent actively manages its assets and
liabilities in terms of products, counterparties and tenor. During 2013, upon an assessment of its immediate and
longer-term funding needs, AIG Parent purchased publicly traded, intermediate term, investment grade rated fixed
maturity securities that can be readily monetized through sales or repurchase agreements. These securities allow
us to diversify sources of liquidity while reducing the cost of maintaining sufficient liquidity.
At December 31, 2013, approximately 89 percent of fixed maturity securities were held by our domestic entities.
Approximately 17 percent of such securities were rated AAA by one or more of the principal rating agencies, and
approximately 16 percent were rated below investment grade or not rated. Our investment decision process relies
primarily on internally generated fundamental analysis and internal risk ratings. Third-party rating services’ ratings
and opinions provide one source of independent perspective for consideration in the internal analysis.
A significant portion of our foreign entities’ fixed maturity securities portfolio is rated by Moody’s, S&P or similar
foreign rating services. Rating services are not available for some foreign issued securities. Our Credit Risk
Management department closely reviews the credit quality of the foreign portfolio’s non-rated fixed maturity securities.
At December 31, 2013, approximately 15 percent of the foreign entities’ fixed maturity securities were either rated
AAA or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated AAA, and
approximately 5 percent were rated below investment grade or not rated at that date. Approximately 45 percent of
the foreign entities’ fixed maturity securities portfolio is comprised of sovereign fixed maturity securities supporting
policy liabilities in the country of issuance.
With respect to our fixed maturity investments, the credit ratings in the table below and in subsequent tables reflect:
(a) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the rating
assigned by the NAIC Securities Valuations Office (SVO) (over 99 percent of total fixed maturity investments), or
(b) our equivalent internal ratings when these investments have not been rated by any of the major rating agencies
or the NAIC. The ‘‘Non-rated’’ category in those tables consists of fixed maturity securities spread among various
asset classes and issuers that have not been rated to date by any of the major rating agencies, the NAIC or us.
See Enterprise Risk Management herein for a discussion of credit risks associated with Investments.
Investment Strategies
Credit Ratings
Composite AIG Credit Ratings
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AIG 2013 Form 10-K 144
I T EM 7 / I NVEST MENT S
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The following table presents the composite AIG credit ratings of our fixed maturity securities calculated on
the basis of their fair value:
Rating:
Other fixed maturity
securities
AAA $ 21,433 $ 6,047 $ 27,480
AA 44,224 636 44,860
A 62,824 588 63,412
BBB 78,554 468 79,022
Below investment grade 9,775 265 10,040
Non-rated 290 112 402
Total $ 217,100 $ 8,116 $ 225,216
Mortgage-backed, asset-
backed and
collateralized
AAA $ 21,151 $ 2,843 $ 23,994
AA 3,162 2,889 6,051
A 5,533 928 6,461
BBB 3,497 807 4,304
Below investment grade 19,390 8,957 28,347
Non-rated 126 44 170
Total $ 52,859 $ 16,468 $ 69,327
Total
AAA $ 42,584 $ 8,890 $ 51,474
AA 47,386 3,525 50,911
A 68,357 1,516 69,873
BBB 82,051 1,275 83,326
Below investment grade 29,165 9,222 38,387
Non-rated 416 156 572
Total $ 269,959 $ 24,584 $ 294,543
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AIG 2013 Form 10-K 145
I T EM 7 / I NVEST MENT S
Available for Sale Other Total
December 31, December 31, December 31, December 31, December 31, December 31,
2013 2012 2013 2012 2013 2012
$ 17,437 $ 5,510 $ 22,947
39,478 261 39,739
56,838 445 57,283
75,668 478 76,146
9,904 321 10,225
311 – 311
$ 199,636 $ 7,015 $ 206,651
$ 21,982 $ 3,120 $ 25,102
3,404 2,357 5,761
6,906 660 7,566
3,973 679 4,652
22,333 8,683 31,016
40 109 149
$ 58,638 $ 15,608 $ 74,246
$ 39,419 $ 8,630 $ 48,049
42,882 2,618 45,500
63,744 1,105 64,849
79,641 1,157 80,798
32,237 9,004 41,241
351 109 460
$ 258,274 $ 22,623 $ 280,897
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The following tables summarize the composition of AIG’s investments by reportable segment:
Fixed maturity securities:
Bonds available for sale, at fair value
Other bond securities, at fair value
Equity securities:
Common and preferred stock available for
sale, at fair value
Other Common and preferred stock, at fair
value
Mortgage and other loans receivable, net of
allowance
Other invested assets
Short-term investments
Total investments
*
Cash
Total invested assets
Fixed maturity securities:
Bonds available for sale, at fair value $ 104,766 $ 163,550 $ 6,860 $ (5,217) $ 269,959
Other bond securities, at fair value 1,597 1,856 21,362 (231) 24,584
Equity securities:
Common and preferred stock available for
sale, at fair value 3,093 111 8 – 3,212
Other Common and preferred stock, at fair
value – 562 100 – 662
Mortgage and other loans receivable, net of
allowance 4,478 18,755 2,024 (5,775) 19,482
Other invested assets 8,365 12,737 7,635 380 29,117
Short-term investments 7,858 7,392 14,509 (951) 28,808
Total investments
*
130,157 204,963 52,498 (11,794) 375,824
Cash 649 297 205 – 1,151
Total invested assets $ 130,806 $ 205,260 $ 52,703 $ (11,794) $ 376,975
* At December 31, 2013, approximately 89 percent and 11 percent of investments were held by domestic and foreign entities, respectively,
compared to approximately 88 percent and 12 percent, respectively, at December 31, 2012.
For AIG Property Casualty, the duration of liabilities for long-tail casualty lines is greater than that for other lines. As
opposed to the focus in AIG Life and Retirement, the focus is not on asset-liability matching, but on preservation of
capital and growth of surplus.
Fixed maturity securities of AIG Property Casualty’s domestic operations, with an average duration of 3.9 years, are
currently comprised primarily of tax-exempt securities, which provide attractive risk-adjusted after-tax returns, as well
as taxable municipal bonds, government and agency bonds, and corporate bonds. The majority of these high quality
investments are rated A or higher based on composite ratings.
Investments by Segment
AIG Property Casualty
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 146
I T EM 7 / I NVEST MENT S
Reportable Segment
Consolidation
AIG Property AIG Life and Other and
(in millions) Casualty Retirement Operations Eliminations Total
December 31, 2013
$ 96,972 $ 154,763 $ 10,974 $ (4,435) $ 258,274
1,995 2,406 18,558 (336) 22,623
3,618 36 2 – 3,656
198 538 98 – 834
4,217 19,078 852 (3,382) 20,765
9,316 13,025 6,422 (104) 28,659
5,236 6,462 11,036 (1,117) 21,617
121,552 196,308 47,942 (9,374) 356,428
1,501 547 193 – 2,241
$ 123,053 $ 196,855 $ 48,135 $ (9,374) $ 358,669
December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Fixed maturity securities held in AIG Property Casualty’s foreign operations are of high quality being rated A or
higher based on composite ratings, and are of short to intermediate duration, averaging 4.3 years.
While invested assets backing reserves are primarily invested in conventional fixed maturity securities in AIG
Property Casualty’s domestic operations, a modest portion of surplus is allocated to alternative investments, including
private equity and hedge funds. These investments provide a combination of added diversification and attractive
long-term returns.
Our investment strategy is to maximize net investment income and portfolio value, subject to liquidity requirements,
capital constraints, diversification requirements, asset-liability matching and available investment opportunities.
We use asset-liability management as a primary tool to monitor and manage risk in our businesses. Our objective is
to maintain an investment portfolio with assets having weighted average durations that are matched to the duration
and cash flow profile of our liabilities, to the extent practicable. The investment portfolio of each product line is
tailored to the specific characteristics of its insurance liabilities, and as a result, certain portfolios are shorter in
duration and others are longer in duration. An extended low interest rate environment may result in a lengthening of
liability durations from initial estimates, primarily due to lower lapses.
AIG Life and Retirement monitors fixed income markets, including the level of interest rates, credit spreads and the
shape of the yield curve. AIG Life and Retirement frequently reviews its interest rate assumptions and actively
manages the crediting rates used for its new and in force business. Business strategies continue to evolve to
maintain profitability of the overall business in a historically low interest rate environment. The low interest rate
environment makes it more difficult to profitably price attractive guaranteed return products and puts margin pressure
on existing products, due to the challenge of investing recurring premiums and deposits and reinvesting investment
portfolio cash flows in the low rate environment while maintaining satisfactory investment quality and liquidity. In
addition, there is investment risk associated with future premium receipts from certain in-force business. That is, the
investment of these future premium receipts may be at a yield below that required to meet future policy liabilities.
A number of guaranteed benefits, such as living benefits and guaranteed minimum death benefits, are offered on
certain variable and indexed annuity products. The fair value of these benefits is measured based on actuarial and
capital market assumptions related to projected cash flows over the expected lives of the contracts. We manage our
exposure resulting from these long-term guarantees through reinsurance or capital market hedging instruments. We
actively review underlying assumptions of policyholder behavior and persistency related to these guarantees. We
have taken positions in certain derivative financial instruments to hedge the impact of changes in equity markets and
interest rates on these benefit guarantees. We execute listed futures and options contracts on equity indexes to
hedge certain guarantees of variable and indexed annuity products. We also enter into various types of futures and
options contracts, primarily to hedge changes in value of certain guarantees of variable and indexed annuities due to
fluctuations in interest rates. We use several instruments to hedge interest rate exposure, including listed futures on
government securities, listed options on government securities and the purchase of government securities.
With respect to over-the-counter derivatives, we deal with highly rated counterparties and do not expect the
counterparties to fail to meet their obligations under the contracts. We have controls in place to monitor credit
exposures by limiting transactions with specific counterparties within specified dollar limits and assessing the
creditworthiness of counterparties periodically. We generally use ISDA Master Agreements and Credit Support
Annexes (CSAs) with bilateral collateral provisions to reduce counterparty credit exposures.
Fixed maturity securities of AIG Life and Retirement, with an average duration of 6.4 years, are comprised of taxable
corporate bonds, as well as taxable municipal and government bonds, and agency and non-agency structured
securities. The majority of these investments are held in the available for sale portfolio and are rated investment
grade based on our composite ratings.
AIG Life and Retirement
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 147
I T EM 7 / I NVEST MENT S
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the fair value of our available-for-sale securities:
Bonds available for sale:
U.S. government and government sponsored entities $ 3,483
Obligations of states, municipalities and political subdivisions 35,705
Non-U.S. governments 26,800
Corporate debt 151,112
Mortgage-backed, asset-backed and collateralized:
RMBS 34,392
CMBS 9,915
CDO/ABS 8,552
Total mortgage-backed, asset-backed and collateralized 52,859
Total bonds available for sale
*
269,959
Equity securities available for sale:
Common stock 3,029
Preferred stock 78
Mutual funds 105
Total equity securities available for sale 3,212
Total $ 273,171
* At December 31, 2013 and December 31, 2012, bonds available for sale held by us that were below investment grade or not rated totaled
$32.6 billion and $29.6 billion, respectively.
The following table presents the fair value of our aggregate credit exposures to non-U.S. governments and
their agencies, financial institutions and local governments for our fixed maturity securities:
Japan $ 9,280
Canada 2,841
Germany 1,408
France 876
Netherlands 778
Norway 850
Mexico 655
South Korea 552
United Kingdom 742
Sweden 564
Other 8,256
Total $ 26,802
Available-for-Sale Investments
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 148
I T EM 7 / I NVEST MENT S
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 3,195
29,380
22,509
144,552
36,148
11,482
11,008
58,638
258,274
3,219
27
410
3,656
$ 261,930
December 31, December 31,
(in millions) 2013 2012
$ 6,350
2,714
1,281
1,005
759
682
622
538
510
488
7,562
$ 22,511
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the fair value of our aggregate United Kingdom and European credit exposures
by major sector for our fixed maturity securities:
Euro-Zone countries:
France $ 4,592
Germany 3,919
Netherlands 5,964
Spain 1,542
Italy 1,376
Belgium 469
Ireland 1,402
Finland 365
Austria 331
Luxembourg 410
Other Euro-Zone 1,051
Total Euro-Zone $ 21,421
Remainder of Europe
United Kingdom $ 16,720
Switzerland 1,554
Sweden 1,617
Other remainder of Europe 2,270
Total remainder of Europe $ 22,161
Total $ 43,582
At December 31, 2013, the U.S. municipal bond portfolio of AIG Property Casualty was composed primarily of
essential service revenue bonds and high quality tax-backed bonds with over 97 percent of the portfolio rated A or
higher.
Investments in Municipal Bonds
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 149
I T EM 7 / I NVEST MENT S
December 31, 2013
Non- December 31,
Financial Financial Structured 2012
(in millions) Sovereign Institution Corporates Products Total Total
$ 1,005 $ 1,353 $ 2,688 $ 112 $ 5,158
1,281 529 2,515 362 4,687
759 1,556 1,727 354 4,396
134 489 1,197 24 1,844
90 270 978 13 1,351
150 25 667 – 842
– 7 567 118 692
114 25 141 1 281
216 19 15 – 250
– – 182 24 206
629 76 194 3 902
$ 4,378 $ 4,349 $ 10,871 $ 1,011 $ 20,609
$ 510 $ 3,442 $ 7,990 $ 4,877 $ 16,819
74 1,219 1,605 – 2,898
488 859 258 – 1,605
1,105 227 714 50 2,096
$ 2,177 $ 5,747 $ 10,567 $ 4,927 $ 23,418
$ 6,555 $ 10,096 $ 21,438 $ 5,938 $ 44,027
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the fair values of our available for sale U.S. municipal bond portfolio by state
and municipal bond type:
State:
California
New York
Texas
Massachusetts
Washington
Illinois
Florida
Virginia
Georgia
Arizona
Maryland
Ohio
Wisconsin
All other states
Total
(a)(b)
(a) Excludes certain university and not- for- profit entities that issue their bonds in the corporate debt market. Includes industrial revenue bonds.
(b) Includes $6.1 billion of pre-refunded municipal bonds.
The following table presents the industry categories of our available for sale corporate debt securities:
Financial institutions:
Money Center /Global Bank Groups $ 12,300
Regional banks – other 885
Life insurance 4,180
Securities firms and other finance companies 636
Insurance non-life 5,429
Regional banks – North America 7,729
Other financial institutions 7,633
Utilities 24,993
Communications 11,744
Consumer noncyclical 17,307
Capital goods 9,697
Energy 11,275
Consumer cyclical 10,781
Basic 9,753
Other 16,770
Total
*
$ 151,112
* At December 31, 2013 and December 31, 2012, approximately 93 percent and 94 percent of these investments were rated investment grade,
respectively.
Investments in Corporate Debt Securities
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 150
I T EM 7 / I NVEST MENT S
State Local Total
December 31, 2013 General General Fair
(in millions) Obligation Obligation Revenue Value
$ 649 $ 999 $ 2,647 $ 4,295
27 774 3,392 4,193
226 2,081 1,797 4,104
712 – 746 1,458
562 192 626 1,380
151 540 686 1,377
287 9 834 1,130
87 113 780 980
434 155 365 954
– 146 690 836
404 76 158 638
169 54 401 624
288 29 294 611
1,344 888 4,568 6,800
$ 5,340 $ 6,056 $ 17,984 $ 29,380
Fair Value at Fair Value at
Industry Category December 31, December 31,
(in millions) 2013 2012
$ 11,250
594
3,918
458
4,899
6,875
7,900
22,645
10,590
17,420
9,082
12,072
10,787
9,855
16,207
$ 144,552
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents AIG’s RMBS available for sale investments by year of vintage:
Total RMBS
2013 $ –
2012 1,630
2011 7,545
2010 2,951
2009 378
2008 and prior
*
21,888
Total RMBS $ 34,392
Agency
2013 $ –
2012 1,395
2011 5,498
2010 2,812
2009 321
2008 and prior 3,548
Total Agency $ 13,574
Alt-A
2010 53
2008 and prior 7,871
Total Alt-A $ 7,924
Subprime
2008 and prior $ 2,151
Total Subprime $ 2,151
Prime non-agency
2013 $ –
2012 235
2011 2,047
2010 86
2009 58
2008 and prior 7,910
Total Prime non-agency $ 10,336
Total Other housing related $ 407
* Commencing in the second quarter of 2011, we began purchasing certain RMBS that had experienced deterioration in credit quality since their
origination. See Note 6 to the Consolidated Financial Statements, Investments — Purchased Credit Impaired (PCI) Securities, for additional
discussion. Includes approximately $11.3 billion and $8.8 billion at December 31, 2013 and 2012, respectively, of these securities.
Investments in RMBS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 151
I T EM 7 / I NVEST MENT S
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 2,371
2,375
5,736
1,843
198
23,625
$ 36,148
$ 2,259
2,164
3,860
1,797
157
1,979
$ 12,216
37
10,894
$ 10,931
$ 2,386
$ 2,386
$ 27
202
1,876
9
41
7,903
$ 10,058
$ 557
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents our RMBS available for sale investments by credit rating:
Rating:
Total RMBS
AAA $ 16,048
AA 795
A 411
BBB 744
Below investment grade
(a)
16,283
Non-rated 111
Total RMBS
(b)
$ 34,392
Agency RMBS
AAA $ 13,464
AA 110
Total Agency $ 13,574
Alt-A RMBS
AAA $ 57
AA 195
A 83
BBB 314
Below investment grade
(a)
7,275
Total Alt-A $ 7,924
Subprime RMBS
AAA $ 38
AA 170
A 129
BBB 185
Below investment grade
(a)
1,629
Total Subprime $ 2,151
Prime non-agency
AAA $ 2,487
AA 317
A 196
BBB 208
Below investment grade
(a)
7,017
Non-rated 111
Total prime non-agency $ 10,336
Total Other housing related $ 407
(a) Commencing in the second quarter of 2011, we began purchasing certain RMBS that had experienced deterioration in credit quality since their
origination. See Note 6 to the Consolidated Financial Statements, Investments — Purchased Credit Impaired (PCI) Securities, for additional
discussion.
(b) The weighted average expected life was 7 years at December 31, 2013 and 6 years at December 31, 2012.
Our underwriting practices for investing in RMBS, other asset-backed securities and CDOs take into consideration
the quality of the originator, the manager, the servicer, security credit ratings, underlying characteristics of the
mortgages, borrower characteristics, and the level of credit enhancement in the transaction.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 152
I T EM 7 / I NVEST MENT S
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 14,833
477
598
1,051
19,163
26
$ 36,148
$ 12,210
6
$ 12,216
$ 32
54
114
381
10,350
$ 10,931
$ 27
117
233
248
1,761
$ 2,386
$ 2,462
288
248
383
6,651
26
$ 10,058
$ 557
..................................................................................................................................................................................
The following table presents our CMBS available for sale investments:
CMBS (traditional) $ 7,880
Agency 1,486
Other 549
Total
*
$ 9,915
* The increase in value is primarily attributable to net purchases of approximately $3.0 billion of highly rated CMBS securities, partially offset by
changes in net unrealized losses.
The following table presents the fair value of our CMBS holdings by rating agency designation and by
vintage year:
Year:
2013
2012
2011
2010
2009
2008 and prior
Total
December 31, 2012
Year:
2012 $ 1,314 $ 46 $ 24 $ 28 $ – $ 15 $ 1,427
2011 1,220 81 24 22 – – 1,347
2010 265 501 41 – – – 807
2009 44 – – – – – 44
2008 and prior 1,433 963 719 1,178 1,997 – 6,290
Total $ 4,276 $ 1,591 $ 808 $ 1,228 $ 1,997 $ 15 $ 9,915
Investments in CMBS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 153
I T EM 7 / I NVEST MENT S
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 9,794
1,558
130
$ 11,482
Below
Investment
(in millions) AAA AA A BBB Grade Non-Rated Total
December 31, 2013
$ 2,490 $ 378 $ 79 $ 58 $ – $ – $ 3,005
1,064 57 26 35 – 14 1,196
1,112 19 36 20 – – 1,187
172 7 – – – – 179
5 – – – – – 5
1,098 819 688 1,115 2,190 – 5,910
$ 5,941 $ 1,280 $ 829 $ 1,228 $ 2,190 $ 14 $ 11,482
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents our CMBS available for sale investments by geographic region:
Geographic region:
New York $ 1,833
California 923
Texas 574
Florida 395
New Jersey 267
Virginia 319
Illinois 288
Georgia 185
Pennsylvania 198
Massachusetts 183
North Carolina 145
Nevada 173
All Other
*
4,432
Total $ 9,915
* Includes Non-U.S. locations.
The following table presents our CMBS available for sale investments by industry:
Industry:
Office $ 2,696
Multi-family
*
2,423
Retail 2,409
Lodging 1,215
Industrial 552
Other 620
Total $ 9,915
* Includes Agency-backed CMBS.
The fair value of CMBS holdings remained stable throughout 2013. The majority of our investments in CMBS are in
tranches that contain substantial protection features through collateral subordination. The majority of CMBS holdings
are traditional conduit transactions, broadly diversified across property types and geographical areas.
The following table presents our CDO available for sale investments by collateral type:
Collateral Type:
Bank loans (CLO) $ 2,579
Synthetic investment grade 25
Other 643
Subprime ABS 10
Total $ 3,257
Investments in CDOs
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 154
I T EM 7 / I NVEST MENT S
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 2,110
1,187
718
501
436
373
317
240
236
224
204
199
4,737
$ 11,482
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 3,205
2,643
3,146
1,023
621
844
$ 11,482
Fair value at Fair value at
December 31, December 31,
(in millions) 2013 2012
$ 4,613
–
529
–
$ 5,142
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents our CDO available for sale investments by credit rating:
Rating:
AAA $ 145
AA 543
A 1,303
BBB 524
Below investment grade 742
Total $ 3,257
At December 31, 2013, we had direct commercial mortgage loan exposure of $16.2 billion. At that date, over
99 percent of the loans were current.
The following table presents the commercial mortgage loan exposure by location and class of loan based on
amortized cost:
State:
California
New York
New Jersey
Florida
Texas
Connecticut
Pennsylvania
Ohio
Maryland
Massachusetts
Other states
Foreign
Total
*
December 31, 2012
State:
California 153 $ 119 $ 942 $ 286 $ 640 $ 394 $ 652 $ 3,033 22%
New York 85 268 1,320 176 98 101 120 2,083 15
New Jersey 57 477 283 302 8 19 65 1,154 8
Florida 93 52 175 255 99 20 231 832 6
Texas 58 37 294 154 208 101 32 826 6
Pennsylvania 57 48 99 171 119 17 13 467 3
Ohio 54 167 40 98 64 38 10 417 3
Colorado 19 11 198 1 – 97 58 365 3
Maryland 21 22 145 170 13 4 4 358 3
Virginia 25 38 186 50 10 17 – 301 2
Other states 333 359 1,253 1,010 397 345 465 3,829 28
Foreign 61 1 – – – – 122 123 1
Total
*
1,016 $ 1,599 $ 4,935 $ 2,673 $ 1,656 $ 1,153 $ 1,772 $ 13,788 100%
* Excludes portfolio valuation losses.
See Note 6 to the Consolidated Financial Statements for further discussion.
Commercial Mortgage Loans
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 155
I T EM 7 / I NVEST MENT S
Fair Value at Fair Value at
December 31, December 31,
(in millions) 2013 2012
$ 594
1,374
2,158
499
517
$ 5,142
Number Percent
Class
of of
(dollars in millions) Loans Apartments Offices Retails Industrials Hotels Others Total Total
December 31, 2013
142 $ 30 $ 804 $ 429 $ 515 $ 366 $ 697 $ 2,841 18%
88 662 1,472 243 68 100 152 2,697 17
53 510 326 297 7 31 42 1,213 6
94 87 170 377 123 137 165 1,059 7
54 32 184 165 182 150 62 775 5
22 279 143 5 44 – – 471 3
52 47 97 155 110 16 13 438 3
44 145 33 188 61 – 3 430 3
21 20 139 200 12 4 4 379 2
17 – 178 158 – – 34 370 2
345 666 1,203 1,158 416 525 490 4,458 27
63 361 139 – 69 102 393 1,064 7
995 $ 2,839 $ 4,888 $ 3,375 $ 1,607 $ 1,431 $ 2,055 $ 16,195 100%
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents impairments by investment type:
Fixed maturity securities, available for sale $ 723 $ 1,009
Equity securities, available for sale 106 39
Private equity funds and hedge funds 338 232
Subtotal 1,167 1,280
Investments in life settlements 309 312
Aircraft trusts – 168
Other investments 9 –
Real estate 7 30
Total $ 1,492 $ 1,790
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An
investment in life settlements is considered impaired if the undiscounted cash flows resulting from the expected
proceeds would not be sufficient to recover our estimated future carrying amount, which is the current carrying
amount for the investment in life settlements plus anticipated undiscounted future premiums and other capitalizable
future costs, if any. Impaired investments in life settlements are written down to their estimated fair value which is
determined on a discounted cash flow basis, incorporating current market longevity assumptions and market yields.
In 2011, we revised the valuation table for estimating the future net cash flows from investments in life settlements.
This resulted in an increase in the number of investments in life settlements identified as potentially impaired
compared to previous analyses. Since that time, we have continued to monitor the longevity experience of the
portfolio, new medical information as it becomes available regarding insureds, as well as U.S. industry experience
studies that have become available for portfolios with similar insureds. The cumulative mortality experience through
December 31, 2013, was sufficiently lower than the prior assumptions indicating that it was appropriate to revise our
future mortality assumptions, despite the small number of lives in the portfolio.
Our new mortality assumptions are based on an industry table that was supplemented with proprietary data on the
older age mortality of U.S. insured lives. In addition, mortality improvement factors were applied to our new
assumptions based on our view of future mortality improvements likely to apply to the U.S. insured lives population.
These mortality improvement assumptions were based on our analysis of various public industry sources and
proprietary research conducted by our specialist advisors. Using these new mortality assumptions coupled with the
adopted future mortality improvement rates, we revised our estimate of future net cash flows from the investments in
life settlements. This resulted in a significant increase in the number of investments in life settlements identified as
impaired as of December 31, 2013.
Additional impairments are expected to occur in the future due to the fact that continued payment of premiums
required to maintain policies will cause the expected lifetime undiscounted cash flows for some policies to become
negative in future reporting periods, even in the absence of future changes to the mortality assumptions. Impairments
may also occur due to our future sale or lapse of select policies at a value that is below carrying value.
To determine other-than-temporary impairments, we use fundamental credit analyses of individual securities without
regard to rating agency ratings. Based on this analysis, we expect to receive cash flows sufficient to cover the
amortized cost of all below investment grade securities for which credit impairments were not recognized.
Impairments
Other-Than-Temporary Impairments
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 156
I T EM 7 / I NVEST MENT S
Years Ended December 31,
(in millions) 2013 2012 2011
$ 173
14
140
327
971
–
–
19
$ 1,317
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following tables present other-than-temporary impairment charges recorded in earnings on fixed
maturity securities, equity securities, private equity funds and hedge funds.
Other-than-temporary impairment charges by reportable segment and impairment type:
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
For the Year Ended December 31, 2012
Impairment Type:
Severity $ 35 $ 9 $ – $ 44
Change in intent 4 20 38 62
Foreign currency declines 8 – – 8
Issuer-specific credit events 330 691 27 1,048
Adverse projected cash flows 1 4 – 5
Total $ 378 $ 724 $ 65 $ 1,167
For the Year Ended December 31, 2011
Impairment Type:
Severity $ 47 $ 4 $ – $ 51
Change in intent 1 11 – 12
Foreign currency declines 32 – – 32
Issuer-specific credit events 193 943 29 1,165
Adverse projected cash flows 1 19 – 20
Total $ 274 $ 977 $ 29 $ 1,280
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 157
I T EM 7 / I NVEST MENT S
Reportable Segment
AIG Property AIG Life and Other
(in millions) Casualty Retirement Operations Total
For the Year Ended December 31, 2013
$ 6 $ – $ – $ 6
2 44 2 48
1 – – 1
43 222 – 265
1 6 – 7
$ 53 $ 272 $ 2 $ 327
..................................................................................................................................................................................
Other-than-temporary impairment charges by investment type and impairment type:
Impairment Type:
Severity
Change in intent
Foreign currency declines
Issuer-specific credit events
Adverse projected cash flows
Total
For the Year Ended December 31, 2012
Impairment Type:
Severity $ – $ – $ – $ – $ 44 $ 44
Change in intent 4 – – 34 24 62
Foreign currency declines – – – 8 – 8
Issuer-specific credit events 433 7 208 24 376 1,048
Adverse projected cash flows 5 – – – – 5
Total $ 442 $ 7 $ 208 $ 66 $ 444 $ 1,167
For the Year Ended December 31, 2011
Impairment Type:
Severity $ – $ – $ – $ – $ 51 $ 51
Change in intent – – – 7 5 12
Foreign currency declines – – – 32 – 32
Issuer-specific credit events 769 20 150 11 215 1,165
Adverse projected cash flows 20 – – – – 20
Total $ 789 $ 20 $ 150 $ 50 $ 271 $ 1,280
* Includes other-than-temporary impairment charges on private equity funds, hedge funds and direct private equity investments.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 158
I T EM 7 / I NVEST MENT S
Other Fixed Equities/Other
(in millions) RMBS CDO/ABS CMBS Maturity Invested Assets* Total
For the Year Ended December 31, 2013
$ – $ – $ – $ – $ 6 $ 6
1 – – 46 1 48
– – – 1 – 1
36 5 50 27 147 265
7 – – – – 7
$ 44 $ 5 $ 50 $ 74 $ 154 $ 327
..................................................................................................................................................................................
Other-than-temporary impairment charges by investment type and credit rating:
Rating:
AAA
AA
A
BBB
Below investment grade
Non-rated
Total
For the Year Ended December 31, 2012
Rating:
AAA $ – $ – $ – $ 2 $ – $ 2
AA 10 – – – – 10
A – 2 – 4 – 6
BBB – – – – – –
Below investment grade 432 5 208 26 – 671
Non-rated – – – 34 444 478
Total $ 442 $ 7 $ 208 $ 66 $ 444 $ 1,167
For the Year Ended December 31, 2011
Rating:
AAA $ 3 $ – $ – $ 9 $ – $ 12
AA 24 – – 10 – 34
A 7 – – 15 – 22
BBB 6 5 – 1 – 12
Below investment grade 749 15 150 14 – 928
Non-rated – – – 1 271 272
Total $ 789 $ 20 $ 150 $ 50 $ 271 $ 1,280
* Includes other-than-temporary impairment charges on private equity funds, hedge funds and direct private equity investments.
We recorded other-than-temporary impairment charges in the years ended December 31, 2013, 2012 and 2011
related to:
• issuer-specific credit events;
• securities for which we have changed our intent from hold to sell;
• declines due to foreign exchange rates;
• adverse changes in estimated cash flows on certain structured securities; and
• securities that experienced severe market valuation declines;
In addition, impairments are also recorded on real estate and investments in life settlements.
There was no significant impact to our consolidated financial condition or results of operations from
other-than-temporary impairment charges for any one single credit. Also, no individual other-than-temporary
impairment charge exceeded 0.02 percent, 0.11 percent and 0.20 percent of total equity at December 31, 2013, 2012
or 2011, respectively.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed
maturity securities that is not foreign-exchange related, we generally prospectively accrete into earnings the
difference between the new amortized cost and the expected undiscounted recovery value over the remaining life of
the security. The accretion that was recognized for these securities in earnings was $774 million in 2013,
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 159
I T EM 7 / I NVEST MENT S
Other Fixed Equities/Other
(in millions) RMBS CDO/ABS CMBS Maturity Invested Assets* Total
For the Year Ended December 31, 2013
$ 1 $ – $ – $ – $ – $ 1
2 – – – – 2
1 – – – – 1
1 – – 44 – 45
39 5 50 29 – 123
– – – 1 154 155
$ 44 $ 5 $ 50 $ 74 $ 154 $ 327
..................................................................................................................................................................................
$915 million in 2012, and $542 million in 2011. For a discussion of AIG’s other-than-temporary impairment
accounting policy, see Note 6 to the Consolidated Financial Statements.
The following table shows the aging of the pre-tax unrealized losses of fixed maturity and equity securities,
the extent to which the fair value is less than amortized cost or cost, and the number of respective items in
each category:
Investment grade bonds
0 – 6 months
7 – 11 months
12 months or more
Total
Below investment grade
bonds
0 – 6 months
7 – 11 months
12 months or more
Total
Total bonds
0 – 6 months
7 – 11 months
12 months or more
Total
(e)
Equity securities
0 – 11 months
Total
(a) Represents the number of consecutive months that fair value has been less than cost by any amount.
(b) Represents the percentage by which fair value is less than cost at December 31, 2013.
(c) For bonds, represents amortized cost.
(d) The effect on Net income of unrealized losses after taxes will be mitigated upon realization because certain realized losses will result in current decreases
in the amortization of certain DAC.
(e) Item count is by CUSIP by subsidiary.
The change in net unrealized gains and losses on investments in 2013 were primarily attributable to decreases in the
fair value of bonds available for sale. Net unrealized gains related to fixed maturity and equity securities decreased
by $13.7 billion primarily due to the increase in U.S. Treasury rates, partially offset by the narrowing of credit spreads
and the realization of approximately $2.5 billion in gains from sales of securities.
The change in net unrealized gains and losses on investments in 2012 were primarily attributable to the appreciation
in the fair value of bonds available for sale due to continued improvements in financial market conditions and
significant narrowing of credit spreads partially offset by higher U.S. Treasury rates.
See also Note 6 to the Consolidated Financial Statements for further discussion of our investment portfolio.
Change in Unrealized Gains and Losses on Investments
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AIG 2013 Form 10-K 160
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Less Than or Equal Greater Than 20% Greater Than 50%
to 20% of Cost
(b)
to 50% of Cost
(b)
of Cost
(b)
Total
December 31, 2013
Aging
(a)
Unrealized Unrealized Unrealized Unrealized
(dollars in millions) Cost
(c)
Loss Items
(e)
Cost
(c)
Loss Items
(e)
Cost
(c)
Loss Items
(e)
Cost
(c)
Loss
(d)
Items
(e)
$ 25,831 $ 516 2,355 $ 6 $ 1 1 $ – $ – – $ 25,837 $ 517 2,356
35,609 2,603 3,146 478 107 60 – – – 36,087 2,710 3,206
7,069 665 439 841 198 37 11 9 2 7,921 872 478
$ 68,509 $ 3,784 5,940 $ 1,325 $ 306 98 $ 11 $ 9 2 $ 69,845 $ 4,099 6,040
$ 2,499 $ 52 744 $ 8 $ 2 3 $ 2 $ 2 2 $ 2,509 $ 56 749
3,339 155 484 106 29 7 1 1 2 3,446 185 493
2,332 200 303 297 88 58 31 20 9 2,660 308 370
$ 8,170 $ 407 1,531 $ 411 $ 119 68 $ 34 $ 23 13 $ 8,615 $ 549 1,612
$ 28,330 $ 568 3,099 $ 14 $ 3 4 $ 2 $ 2 2 $ 28,346 $ 573 3,105
38,948 2,758 3,630 584 136 67 1 1 2 39,533 2,895 3,699
9,401 865 742 1,138 286 95 42 29 11 10,581 1,180 848
$ 76,679 $ 4,191 7,471 $ 1,736 $ 425 166 $ 45 $ 32 15 $ 78,460 $ 4,648 7,652
$ 477 $ 29 103 $ 32 $ 10 23 $ – $ – – $ 509 $ 39 126
$ 477 $ 29 103 $ 32 $ 10 23 $ – $ – – $ 509 $ 39 126
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Enterprise Risk Management
Risk management includes the identification and measurement of various forms of risk, the establishment of risk
thresholds and the creation of processes intended to maintain risks within these thresholds while optimizing returns.
We consider risk management an integral part of managing our core businesses and a key element of our approach
to corporate governance.
We have an integrated process for managing risks throughout our
Enterprise Risk Management (ERM)
organization in accordance with our firm-wide risk appetite. Our Board of
Directors has oversight responsibility for the management of risk. Our
Enterprise Risk Management (ERM) Department supervises and
• Our ERM framework provides
integrates the risk management functions in each of our business units,
senior management with a
providing senior management with a consolidated view of the firm’s major
consolidated view of our risk
risk positions. Within each business unit, senior leaders and executives
appetite and major risk positions.
approve risk-taking policies and targeted risk tolerance within the
framework provided by ERM. ERM supports our businesses and
• In each of our business units,
management in the embedding of enterprise risk management in our key
senior leaders and executives
day-to-day business processes and in identifying, assessing, quantifying,
approve risk-taking policies and
managing and mitigating the risks taken by us and our businesses.
targeted risk tolerance within the
Nevertheless, our risk management efforts may not always be successful
ERM framework while working with
and material adverse effects on our business, results of operations, cash
ERM to mitigate risks across the
flows, liquidity or financial condition may occur.
firm.
• Risk management is an integral
part of how we manage our core
businesses.
Our risk governance structure fosters the development and maintenance of a risk and control culture that
encompasses all significant risk categories. Accountability for the implementation and oversight of risk policies is
aligned with individual corporate executives, with the risk committees receiving regular reports regarding compliance
with each policy to support risk governance at our corporate level as well as in each business unit.
Our Board of Directors oversees the management of risk through its Finance and Risk Management Committee
(FRMC) and Audit Committee. Those committees regularly interact with other committees of the Board. Our Chief
Risk Officer (CRO) reports to both the FRMC and AIG’s Chief Executive Officer (CEO).
The Group Risk Committee (the GRC) is the senior management group charged with assessing all significant risk
issues on a global basis to protect our financial strength, optimize our intrinsic value, and protect our reputation
among key stakeholders. The GRC is chaired by our CRO. Its membership includes our CEO, Chief Financial Officer
(CFO), General Counsel, and 15 other executives from across our corporate functions and business units. Our CRO
reports periodically on behalf of the GRC to both the FRMC and the Audit Committee of the Board.
Management committees that support the GRC are described below. These committees are comprised of senior
executives and experienced business representatives from a range of functions and business units throughout AIG
and its subsidiaries. These committees are charged with identifying, analyzing and reviewing specific risk matters
within their respective mandates.
Financial Risk Group (FRG): The FRG is responsible for the oversight of financial risks taken by AIG and its
subsidiaries. Its mandate includes overseeing our aggregate credit, market, interest rate, liquidity and model risks, as
well as asset-liability management, derivatives activity, and foreign exchange transactions. Membership of the FRG
includes our EVP — Investments, Deputy AIG Chief Investment Officer, as well as our CFO, and other senior
executives from Finance and ERM. Our CRO serves as Chair of the FRG.
Overview
Risk Governance Structure
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Transaction Approval and Business Practices Committee (TABPC): TABPC provides the primary corporate-
level review function for all proposed transactions and business practices that are significant in size, complex in
scope, or that present heightened legal, reputational, accounting or regulatory risks. Our Deputy General Counsel
serves as TABPC Chair and additional members include our CRO and CFO, and other senior executives from
Finance, Legal, Treasury, Investments and our business units.
Operational Risk Committee (ORC): This committee oversees operational risk management activities across
AIG’s businesses, functions, and geographic locations. The ORC reviews the enterprise-wide identification, escalation
and mitigation of operational risks that may arise from inadequate or failed internal processes, people, systems, or
external events. The ORC also monitors current and emerging operational risks, as well as management actions
taken to reduce risks to acceptable levels. The Committee approves the Operational Risk Management (ORM) Policy
and ORM Framework, which includes the identification, assessment, monitoring and measurement of risks. The
Committee ensures applicable governance structures are established to provide oversight of operational risk at each
business unit and corporate function. The ORC also reviews aggregate firm-wide operational risk reports and
provides a forum for senior management to assess our operational risk profile and to discuss operational risks that
may affect our strategic objectives.
Our Chief Administrative Officer is Chair of the ORC and our Head of Operational Risk Management serves as ORC
Secretary. Other ORC members include senior AIG executives with expertise in legal, compliance, technology,
human resources, finance and operational risk, as well as business continuity management and the chief risk officers
of our business units.
Business Unit Risk and Capital Committees: Each of our major insurance businesses has established a risk
and capital committee (BU RCC) that serves as the senior management committee responsible for risk oversight at
the individual business unit level. The BU RCCs are responsible for the identification, assessment and monitoring of
all sources of risk within their respective portfolios. Specific responsibilities include setting risk tolerances, approving
capital management strategies (including asset allocation and risk financing), insurance portfolio optimization, risk
management policies and providing oversight of economic capital models. In addition to its BU RCC, each major
insurance business has established subordinate committees which identify, assess and monitor the specific
operational, transactional and financial risks inherent in its respective business. Together, the BU RCCs and AIG
Risk Committees described above provide comprehensive risk oversight throughout the organization.
Risk oversight activities also continue to be coordinated with ILFC, a held for sale operation, until the pending ILFC
sale transaction is closed.
Group Risk Committee (GRC)
Chair: AIG Chief Risk Officer
Financial Risk Group (FRG)
Chair: AIG Chief Risk Officer
Transaction Approval &
Business Practices Committee
(TABPC)
Chair: Deputy General Counsel
Operational Risk Committee
(ORC)
Chair: Chief Administrative
Officer
Business Unit Risk & Capital
Committees (BU RCCs)
(AIG PC, AIG L&R, UGC)
Our Risk Appetite Framework integrates stakeholder interests, strategic business goals and available financial
resources. We intend to balance these by taking measured risks that are expected to generate repeatable,
sustainable earnings and produce long-term value for our shareholders. The framework includes a Statement of Risk
Appetite approved by the Board of Directors or a committee thereof and a set of supporting tools, including risk
tolerances, risk limits and policies, which we use to manage our risk profile and financial resources.
Risk Appetite, Identification, and Measurement
Risk Appetite Framework
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We articulate our aggregate risk-taking by setting risk tolerances on capital and liquidity measures. These measures
are set at the AIG Parent, as well as the business unit, level and cover consolidated and insurance company capital
and liquidity ratios. We must comply with standards for capital adequacy and maintain sufficient liquidity to meet all
our obligations as they come due in accordance with our internal capital management and liquidity policies. The risk
tolerances for our insurance operations inform the requirements for capital adequacy for individual businesses. Our
risk tolerances take into consideration regulatory requirements, rating agency expectations, and business needs. The
GRC routinely reviews the level of risk taken by the consolidated organization in relation to the established risk
tolerances. A consolidated risk report is also presented to the FRMC by our CRO.
A key component of our Risk Appetite Framework is setting appropriate limits on the material risks that are core to
our business. The monitoring and reporting of those risk limits serves as an early warning indicator to us and is
designed to provide timely oversight and enforceability to meet both internal and external stakeholders’ expectations.
We also have instituted other control measures, including policies and related procedures, to govern business
practices that may impact our risk profile.
One tool we use to inform our Risk Appetite Framework is risk identification. We conduct risk identification through a
number of processes at the business unit and corporate level focused on capturing our material risks and key areas
of focus for follow-up risk management actions. In 2013, we initiated a more formal and integrated bottom-up risk
identification and assessment process down to the product-line level. These processes are used as a critical input to
enhance and develop our analytics for measuring and assessing risks across the organization.
We employ various approaches to measure, monitor, and manage risk exposures, including the utilization of a variety
of metrics and early warning indicators. We use a proprietary stress testing framework to measure our quantifiable
risks. This framework is built on our existing ERM stress testing methodology for both insurance and non-insurance
operations. The framework measures risk over multiple time horizons and under different levels of stress. We
develop a range of stress scenarios based both on internal experience and regulatory guidance. The stress tests are
intended to ensure that sufficient resources for our insurance company subsidiaries and the consolidated company
are available under both idiosyncratic and systemic market stress conditions.
The stress testing framework assesses our aggregate exposure to our most significant financial and insurance risks,
including the risk in each of our insurance company subsidiaries in relation to its statutory capital needs under stress,
risks inherent in our non-insurance company subsidiaries, and risks to AIG consolidated capital. Using our stress
testing methodology, we evaluate the capital and earnings impact of potential stresses in relation to the relevant
capital constraint of each business operation. We use this information to determine the resources needed at the AIG
Parent level to support our subsidiaries and capital resources required to maintain consolidated company target
capitalization levels.
We evaluate and manage risk in material topics as shown below. These topics are
discussed in more detail in the following pages:
• Credit Risk Management • Liquidity Risk Management • Insurance Operations Risks
• Market Risk Management • Operational Risk Management • Other Operations Risks
Credit risk is defined as the risk that our customers or counterparties are unable or unwilling to repay their
contractual obligations when they become due. Credit risk may also result from a downgrade of a counterparty’s
credit ratings or a widening of its credit spreads.
Risk Identification and Measurement
Credit Risk Management
Overview
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We devote considerable resources to managing our direct and indirect credit exposures. These exposures may arise
from fixed income investments, equity securities, deposits, commercial paper investments, reverse repurchase
agreements and repurchase agreements, corporate and consumer loans, leases, reinsurance recoverables,
counterparty risk arising from derivatives activities, collateral extended to counterparties, insurance risk cessions to
third parties, financial guarantees and letters of credit.
Our credit risks are managed at the corporate level within ERM. ERM is assisted by credit functions headed by
highly experienced credit officers in the business units, whose primary role is to assure appropriate credit risk
management in accordance with our credit policies and procedures and relative to our credit risk parameters. Our
Chief Credit Officer (CCO) and credit executives are primarily responsible for the development and maintenance of
these credit risk policies and procedures.
Responsibilities of the CCO and credit executives include:
• developing and implementing our company-wide credit policies;
• approving delegated credit authorities to our credit executives;
• managing the approval process for requests for credit limits, program limits and credit transactions above
authorities or where concentrations of risk may exist or be incurred;
• aggregating globally all credit exposure data by counterparty, country, sector and industry and reporting risk
concentrations regularly to and reviewing with senior management;
• administering regular portfolio credit reviews of investment, derivative and credit risk-incurring business units and
recommending corrective actions where required;
• conducting credit research on countries, sectors and asset classes where risk concentrations may exist;
• developing methodologies for quantification and assessment of credit risks, including the establishment and
maintenance of our internal risk rating process; and
• approving appropriate credit reserves, credit-related other-than-temporary impairments and corresponding
methodologies in all credit portfolios.
We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive risk
accumulations, whether funded or unfunded. To minimize the level of credit risk in some circumstances, we may
require third-party guarantees, reinsurance or collateral, such as letters of credit and trust collateral accounts. We
treat these guarantees, reinsurance recoverables, letters of credit and trust collateral accounts as credit exposure
and include them in our risk concentration exposure data. We identify our aggregate credit exposures to our
underlying counterparty risks and report them regularly to senior management for review.
See Investments — Available for Sale Investments herein for further information on our credit concentrations and
credit exposures.
Market risk is defined as the potential loss arising from adverse fluctuations in equity and commodity prices,
residential and commercial real estate values, interest rates, credit spreads, foreign currencies, inflation, and their
levels of volatility.
We are exposed to market risks primarily within our insurance and capital markets businesses. The chief risk officer
within each such business is responsible for properly identifying these risks, then ensuring that they are appropriately
measured, monitored and managed in accordance with the written risk governance framework established by the
Chief Market Risk Officer (CMRO).
Our market risk management framework focuses on quantifying the financial repercussions of changes in these
broad market observables, distinct from the idiosyncratic risks associated with individual assets that are addressed
through our credit risk management function.
Governance
Market Risk Management
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Market risk quantifies the adverse impact on us due to broad, systemic movements in one or more of the following
market risk drivers:
Equity market prices. We are exposed to equity market prices affecting a variety of instruments. These include
direct investments in publicly-traded shares, investments in private equity, hedge funds and mutual funds, exchange-
traded funds and other equity-linked capital market instruments as well as other equity-linked insurance products,
including but not limited to equity-indexed annuities, variable annuities, universal life insurance, and variable universal
life insurance.
Residential and commercial real estate values. Our investment portfolios are exposed to the risk of changing
values in a variety of residential and commercial real estate investments. Residential investments include residential
mortgages, residential mortgage-backed securities and other structured securities with underlying assets that include
residential mortgages: trusts that include real estate and/or mortgages (REITs), and mortgage insurance contracts.
Commercial exposures include mortgage loans, commercial mortgage backed securities and other structured
securities with underlying assets that include commercial mortgages: trusts, REITs, and other investments.
Interest rates. Interest rate risk can arise from a mismatch in the interest rate exposure of assets versus liabilities.
Low interest rates mean less investment income and potentially less attractive insurance products. Conversely,
higher interest rates are typically beneficial for the opposite reasons. However, when rates rise quickly, there can be
a temporary asymmetric GAAP accounting effect where the existing securities lose market value, which is reported in
Other comprehensive income, and the offsetting decrease in the value of related liabilities may not be recognized.
Credit spread or risk premium. Credit spreads measure an instrument’s risk premium or yield relative to that of
a comparable duration, default-free instrument. Much like higher interest rates, wider credit spreads mean more
investment income in the long-term. In the short term, quickly rising spreads will cause a loss in the value of existing
securities, which is reported in Other comprehensive income. A precipitous rise in credit spreads may also signal a
fundamental weakness in the credit-worthiness of bond obligors, potentially resulting in default losses.
Foreign currency exchange rates. We are a globally diversified enterprise with significant income, assets and
liabilities denominated in, and significant capital deployed in, a variety of currencies.
Commodity Prices. Changes in the value of commodities can affect the valuation of publicly-traded commodities,
commodity indices and derivatives.
Inflation. Changes in inflation can affect the valuation of fixed maturity securities, including AIG-issued debt
obligations, linked to inflation index returns, derivatives on inflation indices, and insurance contracts where the claims
are linked to inflation either explicitly, via indexing, or implicitly, through medical costs or wage levels in our primary
casualty business.
Market risk is managed at the corporate level within ERM through the CMRO, which reports directly to the AIG CRO.
The CMRO is supported by a dedicated team of professionals within ERM who work in partnership with the senior
management of our finance, treasury and investment management corporate functions. The CMRO is primarily
responsible for the development and maintenance of a risk management framework that includes the following key
components:
• written policies, standards and procedures that define the rules for our market risk-taking activities and provide
clear guidance regarding their execution and management;
• a limit framework that aligns with our Board-approved Risk Appetite Statement;
• independent measurement, monitoring and reporting for line of business, business unit and enterprise-wide market
risks; and
• clearly defined authorities for all individuals and committee roles and responsibilities related to market risk
management.
Risk Identification
Governance
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These components facilitate the CMRO’s identification, measurement, monitoring, reporting and management of our
market risks.
Our market risk measurement framework was developed with the main objective of communicating the range and
scale of our market risk exposures. At the firm-wide level market risk is measured in a manner that is consistent with
AIG’s Risk Appetite Statement. This is designed to ensure that we remain within our stated risk tolerance levels and
can determine how much additional market risk taking capacity we have available within our framework. At the
market risk level, the framework measures our overall exposure to each systemic market risk change.
Our risk appetite is currently defined in terms of capital and liquidity levels under specified stress tests. In addition,
we continue to develop economic, U.S. GAAP accounting and statutory capital-based risk measures at the market
risk level, business-unit level and firm-wide levels. This process aims to ensure that we have a comprehensive view
of the impact of our market risk exposures.
We use a number of approaches to measure our market risk exposure, including:
Sensitivity analysis. Sensitivity analysis measures the impact from a unit change in a market risk input.
Examples of such sensitivities include a one basis point increase in yield on fixed maturity securities, a one basis
point increase in credit spreads on fixed maturity securities, and a one percent increase in price on equity
securities.
Scenario analysis. Scenario analysis uses historical, hypothetical, or forward-looking macroeconomic scenarios
to assess and report exposures. Examples of hypothetical scenarios include a 100 basis point parallel shift in the
yield curve or a 20 percent immediate and simultaneous decrease in world-wide equity markets.
Stress testing. Stress testing is a special form of scenario analysis in which the scenarios are designed to lead
to a material adverse outcome. Examples of such scenarios include the stock market crash of October 1987 or
the widening of yields or spread of RMBS or CMBS during 2008.
Risk Measurement
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The following table provides estimates of our sensitivity to changes in yield curves, equity prices and
foreign currency exchange rates:
Sensitivity factor 100 bps parallel increase in all
yield curves
Interest rate sensitive assets $ 284,646
(a)(b)
$ (15,199)
Sensitivity factor 20% decline in stock prices and
value of alternative investments
Equity and alternative investments
exposure:
Hedge funds 7,767 (1,553)
Private equity 11,223 (2,245)
Investment real estate 3,195 (639)
PICC
(c)
2,262 (452)
Common equity 1,526 (305)
Aircraft asset investments 984 (197)
Mutual funds 128 (26)
Other investments 963 (193)
Total equity and alternative investments
exposure $ 28,048
(b)
$ (5,610)
Sensitivity factor 10% depreciation of all foreign
currency exchange rates against
the U.S. dollar
Foreign currency denominated net asset
position
(d)
$ 9,106 $ (911)
(a) In 2013, the analysis covers $283 billion of $306 billion interest-rate sensitive assets. Excluded are $6 billion in DIB assets, $5 billion of loans,
and $4 billion of investments in life settlements. In addition, $8 billion of assets across various asset categories were excluded due to modeling
and/or data limitations. In 2012, the analysis covers $285 billion of $319 billion interest-rate sensitive assets. Excluded are $15 billion in DIB assets,
$5 billion of loans, and $4 billion of investments in life settlements. In addition, $10 billion of assets across various asset categories were excluded
due to modeling and/or data limitations.
(b) Prior period amounts have been revised to conform to the current period presentation.
(c) Includes PICC Group and PICC P&C.
(d) The majority of the foreign currency exposure is reported on a one quarter lag.
Exposures to yield curve movements include fixed maturity securities and loans and exclude consolidated separate
account assets and short-term investments. Total interest-rate sensitive assets decreased 0.6 percent or
approximately $1.8 billion compared to December 31, 2012, primarily due to a net decrease in fixed maturity
securities of $1.0 billion, and a decrease in mortgage and other loans receivable of $0.8 billion.
Exposures to equity and alternative investment prices include investments in common stock, preferred stocks, mutual
funds, hedge funds, private equity funds, commercial real estate and real estate funds and exclude consolidated
separate account assets, consolidated partnerships and consolidated funds. Total exposure in these areas at
December 31, 2013 increased 3.4 percent, or approximately $958 million, compared to exposure at December 31,
2012, primarily due to an increase of $2.1 billion related to hedge fund investments and an increase in common
equity securities of $401 million. These increases were partially offset by a decrease in private equity investments of
$1.4 billion and a decrease in aircraft asset investments of $221 million.
Foreign currency-denominated net asset position reflects our consolidated non-U.S. dollar assets less our
consolidated non-U.S dollar liabilities on a U.S. GAAP basis. We use a bottom-up approach in managing our foreign
Market Risk Sensitivities
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Exposure Effect
December 31, December 31, December 31, December 31,
(dollars in millions) 2013 2012 2013 2012
$ 282,878
(a)
$ (15,004)
9,900 (1,980)
9,810 (1,962)
3,113 (623)
2,536 (507)
1,927 (385)
763 (153)
85 (17)
872 (174)
$ 29,006 $ (5,801)
$ 10,350 $ (1,035)
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currency exchange rate exposures with the objective of protecting statutory capital at the regulated insurance entity
level. We manage cash flow risk on our foreign currency-denominated debt issued by AIG Parent, and use a variety
of techniques to mitigate this risk, including but not limited to the execution of cross-currency swaps and the issuance
of new foreign currency-denominated debt to replace equivalent maturing debt. At the AIG Parent level, we monitor
our foreign currency exposures against single currency and aggregate currency portfolio limits. As a matter of
general practice, we do not typically hedge our foreign currency exposures to net investments in subsidiaries.
However, we may utilize either cross-currency swaps or our foreign currency- denominated debt as a net investment
hedge of our capital in subsidiaries.
At December 31, 2013, our five largest foreign currency net asset positions were denominated in British pounds,
Canadian dollars, Euro, Hong Kong dollars and Japanese yen. Foreign currency-denominated net asset position at
December 31, 2013 increased 13.7 percent, or $1.2 billion, compared to December 31, 2012. This was primarily due
to an increase in our Hong Kong dollar position of $523 million and $337 million resulting from AIG Life and
Retirement’s and AIG Property Casualty’s investments in PICC Group and PICC P&C, respectively; an increase in
our British pound position of $730 million as a result of AIG Parent repurchasing outstanding British pound-
denominated debt; an increase in our Japanese yen position of $513 million resulting from AIG Property Casualty
Japan’s operations and unrealized appreciation of investments; and an increase in our Israeli shekel position of
$128 million resulting from the increase in our ownership of AIG Israel Insurance Company Limited. These increases
were partially offset by a decrease in our British pound position of $400 million resulting from AI Overseas
Association (AIOA) IBNR reserves adjustments; a decrease in our Canadian dollar position of $389 million, primarily
from the operations of AIG Insurance Company of Canada; and a decrease of $225 million, resulting from the
weakening of other currencies against the U.S. dollar.
For illustrative purposes, we modeled our sensitivities based on a 100 basis point increase in yield curves, a
20 percent decline in equities and alternative assets, and a 10 percent depreciation of all foreign currency exchange
rates against the U.S. dollar. This should not be taken as a prediction, but only as a demonstration of the potential
effects of such events.
The sensitivity factors utilized for 2013 and presented above were selected based on historical data from 1993 to
2013, as follows (see the table below):
• a 100 basis point parallel shift in the yield curve is consistent with a one standard deviation movement of the
benchmark ten-year treasury yield;
• a 20 percent drop for equity and alternative investments is broadly consistent with a one standard deviation
movement in the S&P 500; and
• a 10 percent depreciation of foreign currency exchange rates is consistent with a one standard deviation
movement in the U.S. dollar (USD)/Great Britain pound (GBP) exchange rate.
10-Year Treasury 1993 – 2013 0.01 0.01 0.96 0.01 1.21 0.01
S&P 500 1993 – 2013 0.19 0.20 1.04 0.30 1.53 0.20
USD/GBP 1993 – 2013 0.09 0.10 1.07 0.02 0.20 0.10
To control our exposure to market risk, we rely on a three-tiered system of limits that the CMRO closely monitors
and reports to our CRO, senior management and risk committees.
Our CRO and CMRO establish market risk limits that are consistent with our Risk Appetite Statement and approved
by each of the FRG and the GRC. These limits are tiered to accommodate product line, business unit and
enterprise-wide needs and risk profiles. Consolidated company-level limits define our aggregate maximum exposure
for the various market risk factors. Business unit limits are designed to control specific, material market risk activities
on a more granular level and additional limits are allocated into individual regions, lines of business and portfolios to
address idiosyncratic risks not captured by the higher-level limits, as well as to address the requirements of
Risk Monitoring and Limits
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2013 Scenario as 2013 2013 as a Multiple Original 2012 Scenario (based
Standard Suggested a Multiple of Change/ of Standard on Standard Deviation for
Period Deviation 2013 Scenario Standard Deviation Return Deviation 1992-2012 Period)
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regulators and rating agencies. All limits are reviewed by the FRG and GRC on a periodic basis and revisions, if
applicable, are proposed by our CRO and the CMRO for approval by those committees.
The individual product lines and business units are initially responsible for complying with all market risk limits. The
ERM teams and chief risk officers within each business unit monitor such compliance and coordinate with the CMRO
to provide regular, timely reporting to our senior management and risk committees. Limit breaches are required to be
reported in a timely manner and are documented and escalated in accordance with their level of severity or
materiality. Responsibility for addressing and/or remediating any breach rests with individual or individuals within the
specific unit that experienced the breach, who must report regularly on their progress to the ERM market risk team.
Liquidity risk is defined as the risk that our financial condition will be adversely affected by the inability or perceived
inability to meet our short-term cash, collateral or other financial obligations.
The failure to appropriately manage liquidity risk can result in reduced operating flexibility, increased costs, and
reputational harm. Because liquidity is critically important, our liquidity governance includes a number of liquidity and
funding policies and monitoring tools to address both AIG-specific, broader industry and market related liquidity
events.
Sources of Liquidity risk can include, but are not limited to:
• financial market movements — significant changes in interest rates can provide incentives for policyholders to
surrender their policies. Changes in markets can impact collateral posting requirements or limit our ability to sell
assets at reasonable values to meet liquidity needs due to unfavorable market conditions, inadequate market
depth, or other investors seeking to sell the same or similar assets;
• potential reputational events or credit downgrade — changes can have an impact on policyholder cancellations and
withdrawals or impact collateral posting requirements; and
• catastrophic events, including natural and man-made disasters, that can increase policyholder claims.
The principal objective of our liquidity risk framework is to protect our liquidity position and identify a diversity of
funding sources available to meet actual and contingent liabilities during both normal and stress periods. This
framework is guided by the liquidity risk tolerance. AIG Parent liquidity risk tolerance levels are established for base
and stress scenarios over a time horizon covering a period greater than one year. We maintain a liquidity buffer
designed to ensure that funding needs are met under varying market conditions. If we project that we will breach the
tolerance, we will assess and determine appropriate liquidity management actions. However, the market conditions in
effect at that time may not permit us to achieve an increase in liquidity sources or a reduction in liquidity
requirements.
We strive to manage our liquidity prudently at a legal entity level across AIG Parent and the operating companies.
Key components of the framework include effective corporate governance and policy, maintaining diversified sources
of liquidity, contingency funding plans, and regular review of liquidity metrics in both normal and stress conditions.
We view each component of the framework together to achieve our goal of sound liquidity risk management.
Operational risk is defined as the risk of loss, or other adverse consequences, resulting from inadequate or failed
internal processes, people, systems, or from external events. Operational risk includes legal risk, but excludes
business and strategy risks.
Operational risk is inherent in each of our business units and corporate functions. Operational risks may lead to the
following impacts: unintended economic losses or gains, reputational harm due to negative publicity, censure from
supervisory agencies, operational and business disruptions, and/or damage to customer relationships.
Our ORM function, which supports our ORC, has the responsibility to provide an aggregate view of our operational
risk profile. Our ORM function oversees the Operational Risk policy and framework, which includes risk identification,
assessment, monitoring and measurement.
Liquidity Risk Management
Operational Risk Management
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Each business unit is primarily responsible for managing its operational risks and implementing the components of
the operational risk management program. In addition, certain corporate control functions have been assigned
accountability for enterprise-wide risk management for their respective areas. These control functions include:
Sarbanes-Oxley (SOX), Business Continuity Management (BCM), Information Technology Security Risk, Compliance,
Model Validation and Vendor Management. Senior business operational risk executives report to their respective
business unit CRO and to the Head of our ORM. This reporting structure is designed to enable close alignment with
the businesses while ensuring consistent implementation of operational risk management practices.
A strong operational risk management program facilitates the identification and mitigation
of operational risk issues. To accomplish this, our operational risk management program is
designed to:
• pro-actively address potential operational risk issues;
• create transparency throughout the organization; and
• assign clear ownership and accountability for addressing identified operational risk issues.
As part of the ORM framework, we deploy an integrated risk assessment approach which includes top-down risk
assessments to identify our most significant operational risks, a Risk and Control Self Assessment (RCSA) process
to identify key operational risks conducted at the business units and corporate functions and the identification of
emerging risks through our Vulnerability Identification (VID) process which considers risks that have not yet fully
manifested but could become significant over time. Corrective action plans are developed to address identified
issues. Businesses are accountable for tracking and remediating these issues.
Operational risk management reporting to senior management and operational risk governance committees provides
awareness of operational risk exposures, identifies key risks and facilitates management decision making. Reporting
includes operational risk mitigation and monitoring, RCSA results and the status of issue resolution to senior
management.
Except as described above, we manage our business risk oversight activities through our insurance operations.
Our insurance businesses are conducted on a global basis and expose us to a wide variety of risks with different
time horizons. We manage these risks throughout the organization, both centrally and locally, through a number of
procedures:
• pre-launch approval of product design, development and distribution;
• underwriting approval processes and authorities;
• exposure limits with ongoing monitoring;
• modeling and reporting of aggregations and limit concentrations at multiple levels (policy, line of business, product
group, country, individual/group, correlation and catastrophic risk events);
• compliance with financial reporting and capital and solvency targets;
• use of reinsurance, both internal and third-party; and
• review and establishment of reserves.
We closely manage insurance risk by monitoring and controlling the nature and geographic location of the risks in
each line of business underwritten, the terms and conditions of the underwriting and the premiums we charge for
taking on the risk. We analyze concentrations of risk using various modeling techniques, including both probability
distributions (stochastic) and single-point estimates (deterministic) approaches.
Insurance Operations Risks
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Our major categories of insurance risks are:
• Property and Casualty (AIG Property Casualty) — risks covered include property, casualty, fidelity/surety,
accident and health, aviation and management liability. We manage risks in the general insurance segment
through aggregations and limitations of concentrations at multiple levels: policy, line of business, geography,
industry and legal entity.
• Life Insurance & Retirement Services (AIG Life and Retirement) — risks include mortality and morbidity in the
insurance-oriented products and insufficient cash flows to cover contract liabilities in the retirement savings-
oriented products. We manage risks through product design, sound medical underwriting, and external traditional
reinsurance programs.
• Mortgage Guaranty (United Guaranty Corporation) — We manage risks in the mortgage insurance business
through geographic location of the insured properties, the relative economic conditions in the local housing
markets, credit attributes of the borrowers, and the loan amount relative to the value of the respective collateral.
We purchase reinsurance for our insurance operations. Reinsurance facilitates insurance risk management
(retention, volatility, concentrations) and capital planning. We may purchase reinsurance on a pooled basis. Pooling
of our reinsurance risks enables us to purchase reinsurance more efficiently at a consolidated level, manage global
counterparty risk and relationships and manage global catastrophe risks, both for AIG Property Casualty and AIG Life
and Retirement.
A primary goal in managing our AIG Property Casualty operations is to achieve an acceptable return on equity. To
achieve this goal, we must be disciplined in risk selection, premium adequacy, and appropriate terms and conditions
to cover the risk accepted.
We manage insurance risks through risk review and selection processes, exposure limitations, exclusions,
deductibles, self-insured retentions, coverage limits, attachment points, and reinsurance. This management is
supported by sound underwriting practices, pricing procedures and the use of actuarial analysis to help determine
overall adequacy of provisions for insurance. Underwriting practices and pricing procedures incorporate historical
experience, current regulation and judicial decisions as well as proposed or anticipated regulatory changes.
For AIG Property Casualty, insurance risks primarily emanate from the following:
• Unpaid Loss and Loss Expense Reserves — The potential inadequacy of the liabilities we establish for unpaid
losses and loss expenses is a key risk faced by AIG Property Casualty. There is significant uncertainty in factors
that may drive the ultimate development of losses compared to our estimates of losses and loss expenses. We
manage this uncertainty through internal controls and oversight of the loss reserve setting process, as well as
reviews by external experts. See Item 1. Business — A review of Liability for unpaid claims and claims adjustment
expense herein for further details.
• Underwriting — The potential inadequacy of premiums charged for future risk periods on risks underwritten in our
portfolios can impact AIG Property Casualty’s ability to achieve an underwriting profit. We develop pricing based on
our estimates of losses and expenses, but factors such as market pressures and the inherent uncertainty and
complexity in estimating losses may result in premiums that are inadequate to generate underwriting profit.
• Catastrophe Exposure — Our business is exposed to various catastrophic events in which multiple losses can
occur and affect multiple lines of business in any calendar year. Natural disasters, such as hurricanes, earthquakes
and other catastrophes, have the potential to adversely affect our operating results. Other risks, such as
man-made catastrophes or pandemic disease, could also adversely affect our business and operating results to the
extent they are covered by our insurance products. Concentration of exposure in certain industries or geographies
may cause us to suffer disproportionate losses.
• Reinsurance — Since we use reinsurance to limit our losses, we are exposed to risks associated with reinsurance
including the unrecoverability of expected payments from reinsurers either due to an inability or unwillingness to
pay, contracts that do not respond properly to the event, or that actual reinsurance coverage is different than
anticipated.
AIG Property Casualty Key Insurance Risks
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We manage catastrophe exposure with multiple approaches such as setting risk limits based on aggregate Probable
Maximum Loss (PML) modeling, monitoring overall exposures and risk accumulations, and purchasing catastrophe
reinsurance through both traditional reinsurance markets and capital markets in addition to other reinsurance
protections.
We use third-party catastrophe risk models and other tools to evaluate and simulate frequency and severity of
catastrophic events and associated losses to our portfolios of exposures. We apply a proprietary multi-model
approach to account for relative strengths and weaknesses of vendor models, and make adjustments to modeled
losses to account for loss adjustment expenses, model biases, data quality and non-modeled risks.
In addition, we perform post-catastrophe event studies to identify model weaknesses, underwriting gaps and lessons,
and improvement opportunities. Lessons learned from post-catastrophe event studies are incorporated into the
modeling and underwriting process of risk pricing and selection. The majority of policies exposed to catastrophic risks
are one-year contracts which allow us to adjust our underwriting guidelines and exposures accumulation in a
relatively short period.
We recognize that climate change has implications for insurance industry exposure to natural catastrophe risk. With
multiple levels of risk management processes in place, we actively analyze the latest climate science and policy to
anticipate potential changes to our risk profile, pricing models and strategic planning. For example, we continually
consider changes in climate and weather patterns as an integral part of the underwriting process. In addition, we are
committed to providing innovative insurance products and services to help our clients be proactive against the threat
of climate change, including expanding natural disaster resilience, promoting adaptation, and reducing greenhouse
gas emissions. Our internal product development, underwriting, modeling, and sustainability practices will continue to
adapt to and evolve with the developing risk exposures attributed to climate change.
Our natural catastrophe exposure is primarily driven by the U.S. and Japan, though our overall exposure is
diversified across multiple countries. For example, we have exposures to additional perils such as European
windstorms and flood. Within the U.S., we have significant hurricane exposure in Florida, the Gulf of Mexico and the
Northeast U.S. and mid-Atlantic regions. Events impacting the Northeast U.S. and the mid-Atlantic may result in a
higher share of industry losses than other regions primarily due to our relative share of exposure in those regions.
Within the U.S., we have significant earthquake exposure in California and the Pacific Northwest and New Madrid
regions. Earthquakes impacting the Pacific Northwest region may result in a higher share of industry losses than
other regions primarily due to our relative share of exposure in that region.
The estimates below are the Occurrence Exceedance Probability (OEP) losses, which reflect losses that may occur
in any single year due to the defined peril. The 1-in-100 and 1-in-250 PMLs are the probable maximum losses from a
single natural catastrophe event with probability of 1 percent and 0.4 percent, respectively.
The following table presents an overview of modeled losses (OEP) for top perils and countries.
Exposures:
U.S. Hurricane (1-in-100)
(a)
$ 4,729 $ 2,661 $ 1,730 1.7%
U.S. Earthquake (1-in-250)
(b)
7,480 3,599 2,339 2.3
Japanese Wind (1-in-100) 1,293 708 460 0.5
Japanese Earthquake (1-in-250)
(c)
$ 942 $ 710 $ 462 0.5%
(a) The U.S. hurricane amount includes losses to property from hurricane hazards of wind and storm surge.
(b) U.S. earthquake loss estimates represent exposure to Property, Workers’ Compensation (U.S.) and A&H business lines.
(c) Japan Earthquake represents exposure to property and A&H business lines.
The OEP estimates provided above reflect our in-force portfolios at September 30, 2013, for U.S. exposures, and at
June 30, 2013 for Japan exposures. The catastrophe reinsurance program is as of January 1, 2014.
AIG Property Casualty natural catastrophe modeled losses relative to an industry benchmark over different return
periods are presented in the chart below. AIG Property Casualty natural catastrophe net modeled losses across all
Natural Catastrophe Risk
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At December 31, 2013 Net of 2014 Reinsurance, Percent of Total
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perils worldwide are higher than the industry benchmark in the case of more likely events, and lower in the case of
tail events.
AIG Property Casualty Natural Catastrophe exposure vs. Industry benchmark*, worldwide net aggregate
exceedance probability as a percentage of AIG Property Casualty statutory surplus:
5.3%
12.1%
21.3%
7.2%
12.8%
17.5%
1-in-10 1-in-100 1-in-250
Benchmark
AIG PC
Return Period
* Benchmark referenced is from the Moody’s P&C rating Methodology Update, May 2013.
AIG Property Casualty utilizes industry-recognized catastrophe models and applies its proprietary modeling processes
and assumptions to arrive at loss estimates. The use of different methodologies and assumptions could materially
change the projected losses. Since there is no industry standard for assumptions and preparation of insured data for
use in models, modeled losses may not be comparable to estimates made by other companies.
Also, the modeled results are based on the assumption that all reinsurers fulfill their obligations to us under the terms
of the reinsurance arrangements. However, reinsurance recoverable may not be fully collectible. In particular, the use
of catastrophe bonds may not provide commensurate levels of protection compared to traditional reinsurance
transactions. Some catastrophe bond transactions may be based on an industry loss index rather than on actual
losses incurred by us, which would result in residual risk. Therefore, these estimates are inherently uncertain and
may not accurately reflect our exposure to these events.
Our 2014 catastrophe reinsurance program includes coverage for natural catastrophes and some coverage for
terrorism events. It consists of a large North American occurrence cover (without reinstatement) to protect against a
large U.S. loss, and a worldwide aggregate cover to protect against multiple smaller losses. The attachment point for
this reinsurance program is at $3 billion.
Actual results in any period are likely to vary, perhaps materially, from the modeled scenarios. The occurrence of one
or more severe events could have a material adverse effect on our financial condition, results of operations and
liquidity. See also Item 1A. Risk Factors — Reserves and Exposures for additional information.
We actively monitor terrorism risk and manage exposures to losses from terrorist attacks. We have set risk limits
based on modeled losses from certain terrorism attack scenarios. Terrorism risks are modeled using third-party
vendor models and various terrorism attack models and scenarios. Adjustments are made to account for vendor
model gaps and the nature of AIG Property Casualty exposures. Examples of modeled scenarios are conventional
bombs of different sizes, anthrax attacks and nuclear attacks.
Our largest terrorism exposures are in New York City, and estimated losses are largely driven by the Property and
Workers’ Compensation lines of business. At our largest exposure location, modeled losses for a five-ton bomb
attack net of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) and reinsurance
recoveries are estimated to be $3.3 billion as of September 30, 2013. We also have smaller terrorism exposure in
Canadian cities and in London.
Terrorism Risk
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We also have exposure to terrorist attacks due to coverage at airport locations for airline hull, airline and airport
property. The exposure is expected to be less than the exposure in New York City to losses from a conventional
five-ton bomb attack.
Our exposure to terrorism risk is mitigated by TRIPRA in addition to limited private reinsurance protections. TRIPRA
covers terrorist attacks in the United States only and excludes certain lines of business as specified by applicable
law. TRIPRA covers 85 percent of insured losses above a deductible. The current estimate of our deductible is about
$2.8 billion for 2013. TRIPRA is set to expire on December 31, 2014. We are closely monitoring the legislative
developments related to TRIPRA renewal or expiration, and developing appropriate business strategies for potential
legislation outcomes, including non-renewal of TRIPRA.
We offer terrorism coverage in many other countries through various insurance products and participate in country
terrorism pools when applicable. International terrorism exposure is estimated using scenario-based modeling and
exposure concentration is monitored routinely. Targeted reinsurance purchases are made for some lines of business
to cover potential losses due to terrorist attacks.
AIG’s reinsurance recoverable assets are comprised of:
• Paid losses recoverable — balances due from reinsurers for losses and loss expenses paid by our subsidiaries
and billed, but not yet collected.
• Ceded loss reserves — ultimate ceded reserves for losses and loss expenses, including reserves for claims
reported but not yet paid and estimates for IBNR.
• Ceded reserves for unearned premiums.
At December 31, 2013, total reinsurance recoverable assets were $23.8 billion. These assets include general
reinsurance paid losses recoverable of $1.3 billion, ceded loss reserves of $17.3 billion including reserves for IBNR,
and ceded reserves for unearned premiums of $3.4 billion, as well as life reinsurance recoverables of $1.8 billion.
The methods used to estimate IBNR and to establish the resulting ultimate losses involve projecting the frequency
and severity of losses over multiple years. These methods are continually reviewed and updated by management.
Any adjustments are reflected in income. We believe that the amount recorded for ceded loss reserves at
December 31, 2013 reflect a reasonable estimate of the ultimate losses recoverable. Actual losses may, however,
differ, perhaps materially, from the reserves currently ceded.
The Reinsurance Credit Department (RCD) conducts periodic detailed assessments of the financial strength and
condition of current and potential reinsurers, both foreign and domestic. The RCD monitors both the financial
condition of reinsurers as well as the total reinsurance recoverable ceded to reinsurers, and set limits with regard to
the amount and type or exposure we are willing to take with reinsurers. As part of these assessments, we attempt to
identify whether a reinsurer is appropriately licensed, assess its financial capacity and liquidity; and evaluate the local
economic and financial environment in which a foreign reinsurer operates. The RCD reviews the nature of the risks
ceded and the need for measures, including collateral to mitigate credit risk. For example, in our treaty reinsurance
contracts, we frequently include provisions that require a reinsurer to post collateral or use other measures to reduce
exposure when a referenced event occurs. Furthermore, we limit our unsecured exposure to reinsurers through the
use of credit triggers such as insurer financial strength rating downgrades, declines in regulatory capital, or specified
declines in risk-based capital (RBC) ratios. We also set maximum limits for reinsurance recoverable exposure, which
in some cases is the recoverable amount plus an estimate of the maximum potential exposure from unexpected
events for a reinsurer. In addition, credit executives within ERM review reinsurer exposures and credit limits and
approve reinsurer credit limits above specified levels. Finally, even where we conclude that uncollateralized credit risk
is acceptable, we require collateral from active reinsurance counterparties where it is necessary for our subsidiaries
to recognize the reinsurance recoverable assets for statutory accounting purposes. At December 31, 2013, we held
$7.5 billion of collateral, in the form of funds withheld, securities in reinsurance trust accounts and/or irrevocable
letters of credit, in support of reinsurance recoverable assets from unaffiliated reinsurers. We believe that no
exposure to a single reinsurer represents an inappropriate concentration of risk to AIG, nor is our business
substantially dependent upon any single reinsurance contract.
Reinsurance Recoverable
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The following table presents information for each reinsurer representing in excess of five percent of our total
reinsurance recoverable assets:
Reinsurer:
Berkshire Hathaway Group of
Companies AA+ A++ $ 2,015
(d)
8.5% $ 1,383 $ 632
Munich Reinsurance Group of
Companies AA? A+ $ 1,474 6.2% $ 598 $ 876
Swiss Reinsurance Group of
Companies AA? A+ $ 1,454 6.1% $ 467 $ 987
(a) The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed as of February 11, 2014.
(b) Total reinsurance assets include both AIG Property Casualty and AIG Life and Retirement reinsurance recoverable.
(c) Excludes collateral held in excess of applicable treaty balances.
(d) Includes $1.6 billion recoverable under the 2011 retroactive reinsurance transaction pursuant to which a large portion of AIG Property
Casualty’s net domestic asbestos liabilities were transferred to NICO. Does not include reinsurance assets ceded to other reinsurers for which NICO
has assumed the collection risk. See Liability for Unpaid Claims and Claim Adjustment Expense — Transfer of Domestic Asbestos Liabilities.
At December 31, 2013, we had no significant general reinsurance recoverable due from any individual reinsurer that
was financially troubled. Reinsurance underwriting profits in 2013 generally have increased reinsurer capital levels
and therefore the industry’s underwriting capacity. This increased capacity has resulted in increased competition and
lower rates for 2014 renewals. Reduced profitability associated with lower rates could potentially result in reduced
capacity or rating downgrades for some reinsurers. The RCD, in conjunction with the credit executives within ERM,
reviews these developments, monitors compliance with credit triggers that may require the reinsurer to post collateral,
and seeks to use other appropriate means to mitigate any material risks arising from these developments.
See Item 7. MD&A — Critical Accounting Estimates — Reinsurance Assets for further discussion of reinsurance
recoverable.
For AIG Life and Retirement, the primary risks are the following:
• Mortality risk — represents the risk of loss arising from actual mortality rates being higher than expected mortality
rates. This risk could arise from pandemics or other events, including longer-term societal changes that cause
higher than expected mortality. This risk exists in a number of our product lines but is most significant for our life
insurance products.
• Longevity risk — represents the risk of a change in value of a policy arising from actual mortality rates being
lower than the expected mortality rates. This risk could arise from longer-term societal health changes as well as
other factors. This risk exists in a number of our product lines but is most significant for our retirement, institutional
and annuity products.
• Client behavioral risk including surrender/lapse risk — there are many assumptions made when products are
sold including how long the contracts will persist. Actual experience can vary significantly from these assumptions.
This risk is impacted by a number of factors including changes in market conditions and policyholder preferences.
This risk exists in the majority of our product lines.
• Interest rate risk — represents the potential for loss due to a change in interest rates. Interest rate risk is
measured with respect to assets, liabilities (both insurance-related and financial), and derivatives. This risk
manifests itself when interest rates move significantly in a short period of time (interest rate shock) but can also
manifest itself over a longer period of time such as a persistent low interest rate environment.
• Equity risk — represents the potential for loss due to changes in equity prices. It affects equity-linked insurance
products, including but not limited to equity-indexed annuities, variable annuities (and associated guaranteed living
and death benefits), universal life insurance, and variable universal life insurance. It also affects our equity
AIG Life and Retirement Key Insurance Risks
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A.M. Gross Percent of Uncollateralized
At December 31, 2013 S&P Best Reinsurance Reinsurance Collateral Reinsurance
(in millions) Rating
(a)
Rating
(a)
Assets Assets
(b)
Held
(c)
Assets
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investments and equity-related investments. In addition, changes in the volatility of equity prices can affect the
valuation of those insurance products that are accounted for in a manner similar to equity derivatives.
AIG Life and Retirement manages these risks through product design, experience monitoring, pricing actions, risk
limitations, reinsurance and active monitoring and management of the relationships between assets and liabilities,
including hedging. The emergence of significant adverse experience would require an adjustment to DAC and benefit
reserves which could have a material adverse effect on our consolidated results of operations for a particular period.
For a further discussion of this risk, see Item 1A. Risk Factors — Business and Operations.
For UGC, risks emanate primarily from the following:
• Mortgage Underwriting risk — represents the potential exposure to loss due to borrower default on a first-lien
residential mortgage; the primary drivers of this risk are home price depreciation, changes in the unemployment
rate, changes in mortgage rates, and a borrower’s willingness to pay.
• Pricing risk — represents the potential exposure to loss if actual policy experience emerges adversely in
comparison to the assumptions made in product pricing. This may be related to adverse economic conditions,
prepayment of policies, investment results, and expenses.
UGC manages the quality of the loans it insures through use of a proprietary risk quality index. UGC uses this index
to determine an insurability threshold as well as to manage the risk distribution of its new business. Along with
traditional mortgage underwriting variables, UGC’s risk-based pricing model uses rating factors such as geography
and the historical quality of a lender’s origination process to establish premium rates.
UGC’s risk appetite framework establishes various concentration limits on the business UGC insures (for example,
geography), and defines underwriting characteristics for which UGC will not insure loans.
GCM actively manages its exposures to limit potential economic losses, and in doing so, GCM must continually
manage a variety of exposures including credit, market, liquidity, operational and legal risks. The senior management
of AIG defines the policies and establishes general operating parameters for GCM’s operations. Our senior
management has established various oversight committees to regularly monitor various financial market, operational
and credit risks related to GCM’s operations. The senior management of GCM reports the results of its operations to
and reviews future strategies with AIG’s senior management.
A counterparty may default on any obligation to us, including a derivative contract. Credit risk is a consequence of
extending credit and/or carrying trading and investment positions. Credit risk exists for a derivative contract when that
contract has a positive fair value to AIG. The maximum potential exposure will increase or decrease during the life of
the derivative commitments as a function of maturity and market conditions. To help manage this risk, GCM’s credit
department operates within the guidelines set by the credit function within ERM. Transactions that fall outside these
pre-established guidelines require the specific approval of ERM. It is also AIG’s policy to record credit valuation
adjustments for potential counterparty default when necessary.
In addition, GCM utilizes various credit enhancements, including letters of credit, guarantees, collateral, credit
triggers, credit derivatives, margin agreements and subordination to reduce the credit risk relating to its outstanding
financial derivative transactions. GCM requires credit enhancements in connection with specific transactions based
on, among other things, the creditworthiness of the counterparties, and the transaction’s size and maturity.
Furthermore, GCM enters into certain agreements that have the benefit of set-off and close-out netting provisions;
such as ISDA Master Agreements, repurchase agreements and securities lending agreements. These provisions
provide that, in the case of an early termination of a transaction, GCM can set off its receivables from a counterparty
against its payables to the same counterparty arising out of all covered transactions. As a result, where a legally
Mortgage Guaranty Key Insurance Risks
Other Operations Risks
Global Capital Markets
GCM Derivative Transactions
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enforceable netting agreement exists, the fair value of the transaction with the counterparty represents the net sum of
estimated fair values.
The fair value of GCM’s interest rate, currency, credit, commodity and equity swaps, options, swaptions, and forward
commitments, futures, and forward contracts reported in Derivative assets, at fair value, was approximately
$1.4 billion at December 31, 2013 and $3.2 billion at December 31, 2012. Where applicable, these amounts have
been determined in accordance with the respective master netting agreements.
GCM evaluates the counterparty credit quality by reference to ratings from rating agencies or, where such ratings are
not available, by internal analysis consistent with the risk rating policies of ERM. In addition, GCM’s credit approval
process involves pre-set counterparty and country credit exposure limits subject to approval by ERM and, for
particularly credit-intensive transactions, requires approval from ERM.
The following table presents the fair value of GCM’s derivatives portfolios by counterparty credit rating:
Rating:
AAA $ 145
AA 168
A 745
BBB 1,907
Below investment grade 199
Total $ 3,164
See Critical Accounting Estimates below and Note 11 to the Consolidated Financial Statements for additional
discussion related to derivative transactions.
Risks inherent in ILFC’s business, which are managed at the business unit level, include the following:
• that there will be no market for the aircraft acquired;
• that aircraft cannot be placed with lessees;
• non-performance by lessees;
• that aircraft and related assets cannot be disposed of at the time and in a manner desired;
• losses on sales or impairment charges and fair value adjustments on older aircraft; and
• an inability of ILFC to access the capital markets to finance operations and meet contractual obligations due to
prevailing economic and market conditions.
ILFC uses security deposit requirements, repossession rights and overhaul requirements, while also closely
monitoring industry conditions, to manage the risk of nonperformance by its lessees. At December 31, 2013, more
than 93 percent of ILFC’s lease revenue came from non-U.S. carriers, and its fleet continues to be in high demand
from such carriers. Quarterly, ILFC’s management evaluates the need to perform a recoverability assessment of
aircraft in its fleet, including events and circumstances that may cause impairment of aircraft values, and performs
this assessment at least annually for all aircraft in its fleet. Management evaluates aircraft in the fleet as necessary
based on these events and circumstances. As new and more fuel-efficient aircraft enter the marketplace and
negatively affect the demand for older aircraft, lease rates on older aircraft may deteriorate and ILFC may incur
additional losses on sales or record impairment charges and fair value adjustments.
The major risk for investments in life settlements is longevity risk, which represents the risk of a change in the
carrying value of the contracts arising from actual mortality rates being lower than the expected mortality rates. This
risk could arise from longer term societal health changes as well as other factors.
Aircraft Leasing
Corporate & Other
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At December 31,
(in millions) 2013 2012
$ 129
156
291
687
114
$ 1,377
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Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires the application of accounting policies
that often involve a significant degree of judgment.
The accounting policies that we believe are most dependent on the application of estimates
and assumptions, which are critical accounting estimates, are related to the determination
of:
• classification of ILFC as held for sale and related fair value measurement;
• income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of
future tax operating profitability of the character necessary to realize the net deferred tax asset;
• liability for unpaid claims and claims adjustment expense;
• reinsurance assets;
• valuation of future policy benefit liabilities and timing and extent of loss recognition;
• valuation of liabilities for guaranteed benefit features of variable annuity products:
• estimated gross profits to value deferred acquisition costs for investment-oriented products;
• impairment charges, including other-than-temporary impairments on available for sale securities, impairments
on investments in life settlements and goodwill impairment;
• liability for legal contingencies; and
• fair value measurements of certain financial assets and liabilities.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the
time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial
condition, results of operations and cash flows could be materially affected.
The major assumptions used to establish each critical accounting estimate are discussed below.
We report a business as held for sale when management has approved or received approval to sell the business
and is committed to a formal plan, the business is available for immediate sale, the business is being actively
marketed, the sale is anticipated to occur during the next 12 months, which may require significant judgment, and
certain other specified criteria are met. A business classified as held for sale is recorded at the lower of its carrying
amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair
value, a loss is recognized.
On December 9, 2012, AIG Parent, AIG Capital Corporation (Seller), a wholly-owned direct subsidiary of AIG Parent
and the sole shareholder of ILFC, and Jumbo Acquisition Limited (Jumbo) entered into a definitive agreement (the
Jumbo Share Purchase Agreement) for the sale of 80.1 percent of the common stock of ILFC for approximately
$4.2 billion in cash (the ILFC Transaction). Jumbo was granted an option to purchase an additional 9.9 percent of
the common stock of ILFC for $522.5 million (the Option). We determined ILFC met the criteria for held for sale and
discontinued operations accounting at December 31, 2012 and, consequently, we recorded a $4.4 billion after-tax
loss for the year ended December 31, 2012. As of December 15, 2013, the closing of the ILFC Transaction had not
occurred and on December 16, 2013, AIG Parent and Seller terminated the amended Jumbo Share Purchase
Agreement.
On December 16, 2013, AIG Parent and Seller entered into a definitive agreement with AerCap Holdings N.V.
(AerCap) and AerCap Ireland Limited for the sale of 100 percent of the common stock of ILFC (the AerCap
Agreement) for consideration consisting of $3.0 billion of cash and approximately 97.6 million newly issued AerCap
Classification of ILFC as Held for Sale and Related Fair Value Measurement
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common shares. The consideration has a value of approximately $5.4 billion based on AerCap’s pre-announcement
closing price per share of $24.93 on December 13, 2013. Upon closing of the transaction, AIG will record the
97.6 million AerCap shares received at their then fair value and adjust the final gain (loss) on sale. The transaction is
subject to required regulatory approvals, including all applicable U.S. and foreign regulatory reviews and approvals,
as well as other customary closing conditions. The AerCap Transaction was approved by AerCap shareholders on
February 13, 2014. We determined ILFC met the criteria for held-for-sale accounting at December 31, 2013. Because
we expect to hold approximately 46 percent of the common stock of AerCap upon closing of the transaction,
however, ILFC does not qualify for discontinued operations presentation in the Consolidated Statements of Income.
Consequently, ILFC’s operating results are presented in continuing operations for all periods presented.
The evaluation of the recoverability of our net deferred tax asset and the need for a valuation allowance requires us
to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some
portion of the net deferred tax asset will not be realized. The weight given to the evidence is commensurate with the
extent to which it can be objectively verified. The more negative evidence that exists, the more positive evidence is
necessary and the more difficult it is to support a conclusion that a valuation allowance is not needed.
We consider a number of factors to reliably estimate future taxable income, so we can determine the extent of our
ability to realize net operating losses (NOLs), foreign tax credits (FTCs), capital loss and other carryforwards. These
factors include forecasts of future income for each of our businesses and actual and planned business and
operational changes, both of which include assumptions about future macroeconomic and AIG-specific conditions and
events. We subject the forecasts to stresses of key assumptions and evaluate the effect on tax attribute utilization.
We also apply stresses to our assumptions about the effectiveness of relevant prudent and feasible tax planning
strategies. Our income forecasts, coupled with our tax planning strategies and stress scenarios, all resulted in
sufficient taxable income to achieve realization of the tax attributes (other than capital loss carryforwards) prior to
their expiration.
See Note 23 to the Consolidated Financial Statements for a discussion of our framework for assessing the
recoverability of our deferred tax asset.
The U.S. federal income tax laws applicable to determining the amount of income taxes related to differences
between the book carrying values and tax bases of subsidiaries are complex. Determining the amount also requires
significant judgment and reliance on reasonable assumptions and estimates.
The estimate of the Liability for unpaid claims and claims adjustment expense consists of several key judgments:
• the determination of the actuarial models used as the basis for these estimates;
• the relative weights given to these models by class;
• the underlying assumptions used in these models; and
• the determination of the appropriate groupings of similar classes and, in some cases, the segmentation of
dissimilar claims within a class.
We use numerous assumptions in determining the best estimate of reserves for each class of business. The
importance of any specific assumption can vary by both class of business and accident year. Because actual
experience can differ from key assumptions used in establishing reserves, there is potential for significant variation in
Income Taxes
Recoverability of Net Deferred Tax Asset
U.S. Income Taxes on Earnings of Certain Foreign Subsidiaries
Insurance Liabilities
Liability for Unpaid Claims and Claims Adjustment Expense (AIG Property Casualty and Mortgage
Guaranty)
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the development of loss reserves. This is particularly true for long-tail casualty classes of business such as excess
casualty, asbestos, D&O, and primary or excess workers’ compensation.
All of our methods to calculate net reserves include assumptions about estimated reinsurance recoveries and their
collectability. Reinsurance collectability is evaluated independently of the reserving process and appropriate
allowances for uncollectible reinsurance are established.
In some of our estimation processes we rely on the claims department estimates of our case reserves as an input to
our best estimate of the ultimate loss cost.
Overview of Loss Reserving Process and Methods
AIG Property Casualty loss reserves can generally be categorized into two distinct groups. Short-tail classes of
business consist principally of property, personal lines and certain casualty classes. Long-tail casualty classes of
business include excess and umbrella liability, D&O, professional liability, medical malpractice, workers’
compensation, general liability, products liability and related classes.
Short-Tail Reserves
For operations writing short-tail coverages, such as property coverages, the process of recording quarterly loss
reserves is generally geared toward maintaining an appropriate reserve for the outstanding exposure, rather than
determining an expected loss ratio for current business. For example, the IBNR reserve required for a class of
property business might be expected to approximate 20 percent of the latest year’s earned premiums. This level of
reserve would generally be maintained regardless of the loss ratio emerging in the current quarter. The 20 percent
factor would be adjusted to reflect changes in rate levels, loss reporting patterns, known exposure to unreported
losses, or other factors affecting the particular class of business. For some classes, a loss development factor
method may be used.
Long-Tail Reserves
Estimation of ultimate net losses and loss expenses (net losses) for long-tail casualty classes of business is
a complex process and depends on a number of factors, including the class and volume of business, as well as
estimates of the reinsurance recoverable. Experience in the more recent accident years shows limited statistical
credibility in reported net losses on long-tail casualty classes of business. That is because a relatively low proportion
of net incurred losses represent reported claims and expenses, and an even smaller percentage represent net losses
paid. Therefore, IBNR constitutes a relatively high proportion of net losses.
To estimate net losses for long-tail casualty classes of business, we use a variety of actuarial methods and
assumptions and other analytical techniques as described below. A detailed reserve review is generally performed at
least once per year to allow for comprehensive actuarial evaluation and collaboration with claims, underwriting,
business unit management, risk management and senior management.
We generally make a number of actuarial assumptions in the review of reserves for each class of business.
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For longer-tail classes of business, we generally make actuarial assumptions with respect
to the following:
• Loss cost trend factors which are used to establish expected loss ratios for subsequent accident years
based on the projected loss ratios for prior accident years.
• Expected loss ratios for the latest accident year (i.e., accident year 2013 for the year-end 2013 loss reserve
analysis) and, in some cases for accident years prior to the latest accident year. The expected loss ratio
generally reflects the projected loss ratio from prior accident years, adjusted for the loss trend and the effect of
rate changes and other quantifiable factors on the loss ratio. For low-frequency, high-severity classes such as
excess casualty, expected loss ratios generally are used for at least the three most recent accident years.
• Loss development factors which are used to project the reported losses for each accident year to an
ultimate basis. Generally, the actual loss development factors observed from prior accident years would be
used as a basis to determine the loss development factors for the subsequent accident years.
We record quarterly changes in loss reserves for each of AIG Property Casualty’s classes of business. The
overall change in our loss reserves is based on the sum of the changes for all classes of business. For most long-tail
classes of business, the quarterly loss reserve changes are based on the estimated current loss ratio for each class
of coverage less any amounts paid. Also, any change in estimated ultimate losses from prior accident years deemed
to be necessary based on the results of our latest reserve studies or large loss analysis, either positive or negative,
is reflected in the loss reserve for the current quarter.
Details of the Loss Reserving Process
The process of determining the current loss ratio for each class of business is based on a variety of factors.
These include considerations such as: prior accident year and policy year loss ratios; rate changes; and changes in
coverage, reinsurance, or mix of business. Other considerations include actual and anticipated changes in external
factors such as trends in loss costs or in the legal and claims environment. The current loss ratio for each class of
business is intended to represent our best estimate of the current loss ratio after reflecting all of the relevant factors.
At the close of each quarter, the assumptions underlying the loss ratios are reviewed to determine if the loss ratios
remain appropriate. This process includes a review of the actual claims experience in the quarter, actual rate
changes achieved, actual changes in coverage, reinsurance or mix of business, and changes in other factors that
may affect the loss ratio. When this review suggests that the initially determined loss ratio is no longer appropriate,
the loss ratio for current business is changed to reflect the revised assumptions.
We conduct a comprehensive loss reserve review at least annually for each AIG Property Casualty
subsidiary and class of business. The reserve analysis for each class of business is performed by the actuarial
personnel who are most familiar with that class of business. In this process, the actuaries are required to make
numerous assumptions, including the selection of loss development factors and loss cost trend factors. They are also
required to determine and select the most appropriate actuarial methods for each business class. Additionally, they
must determine the segmentation of data that will enable the most suitable test of reserve adequacy. In the course of
these detailed reserve reviews an actuarial central estimate of the loss reserve is determined. The sum of these
central estimates for each class of business provides an overall actuarial central estimate of the loss reserve for that
class.
We continue to consult with third party environmental litigation and engineering specialists, third party toxic tort
claims professionals, third party clinical and public health specialists, third party workers’ compensation claims
adjusters and third party actuarial advisors to help inform our judgments. In 2013, the third party actuarial reviews
covered the majority of net reserves held for our Commercial long-tail classes of business, and run-off portfolios
reported in Other.
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In determining the actual carried reserves, we consider both the internal actuarial central
estimate and numerous other internal and external factors, including:
• an assessment of economic conditions;
• changes in the legal, regulatory, judicial and social environment including changes in road safety, public health
and cleanup standards;
• changes in medical cost trends (inflation, intensity and utilization of medical services) and wage inflation
trends;
• underlying policy pricing, terms and conditions including attachment points and policy limits;
• claims handling processes and enhancements;
• third-party claims reviews that are periodically performed for key classes of claims such as toxic tort,
environmental and other complex casualty claims and
• third-party actuarial reviews that are periodically performed for key classes of business.
Loss reserve development can also be affected by commutations of assumed and ceded reinsurance agreements.
In testing the reserves for each class of business, our actuaries determine the most appropriate actuarial
methods. This determination is based on a variety of factors including the nature of the claims associated with the
class of business, such as the frequency or severity of the claims. Other factors considered include the loss
development characteristics associated with the claims, the volume of claim data available for the applicable class,
and the applicability of various actuarial methods to the class. In addition to determining the actuarial methods, the
actuaries determine the appropriate loss reserve groupings of data. For example, we write many unique subclasses
of professional liability. For pricing or other purposes, it is appropriate to evaluate the profitability of each subclass
individually. However, for purposes of estimating the loss reserves for many classes of business, we believe it is
appropriate to combine the subclasses into larger groups to produce a greater degree of credibility in the claims
experience. This determination of data segmentation and actuarial methods is carefully considered for each class of
business. The segmentation and actuarial methods chosen are those which together are expected to produce the
most robust estimate of the loss reserves.
The actuarial methods we use for most long-tail casualty classes of business include loss development
methods, expected loss ratio methods, including ‘‘Bornhuetter Ferguson’’ methods described below, and
frequency/severity models. Loss development methods utilize the actual loss development patterns from prior
accident years to project the reported losses to an ultimate basis for subsequent accident years. Loss development
methods generally are most appropriate for classes of business which exhibit a stable pattern of loss development
from one accident year to the next, and for which the components of the classes have similar development
characteristics. For example, property exposures would generally not be combined into the same class as casualty
exposures, and primary casualty exposures would generally not be combined into the same class as excess casualty
exposures. In 2013, we continued to refine our loss reserving techniques for the domestic primary casualty classes of
business and adopted further segmentations based on our analysis of the differing emerging loss patterns for certain
classes of insureds. We generally use expected loss ratio methods in cases where the reported loss data lacks
sufficient credibility to utilize loss development methods, such as for new classes of business or for long-tail classes
at early stages of loss development. Frequency/severity models may be used where sufficient frequency counts are
available to apply such approaches.
Expected loss ratio methods rely on the application of an expected loss ratio to the earned premium for the
class of business to determine the loss reserves. For example, an expected loss ratio of 70 percent applied to an
earned premium base of $10 million for a class of business would generate an ultimate loss estimate of $7 million.
Subtracting any reported paid losses and loss expense would result in the indicated loss reserve for this class. Under
the ‘‘Bornhuetter Ferguson’’ methods, the expected loss ratio is applied only to the expected unreported portion of
Actuarial and Other Methods for Major Classes of Business
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the losses. For example, for a long-tail class of business for which only 10 percent of the losses are expected to be
reported at the end of the accident year, the expected loss ratio would be applied to the 90 percent of the losses still
unreported. The actual reported losses at the end of the accident year would be added to determine the total
ultimate loss estimate for the accident year. Subtracting the reported paid losses and loss expenses would result in
the indicated loss reserve. In the example above, the expected loss ratio of 70 percent would be multiplied by
90 percent. The result of 63 percent would be applied to the earned premium of $10 million resulting in an estimated
unreported loss of $6.3 million. Actual reported losses would be added to arrive at the total ultimate losses. If the
reported losses were $1 million, the ultimate loss estimate under the ‘‘Bornhuetter Ferguson’’ method would be
$7.3 million versus the $7 million amount under the expected loss ratio method described above. Thus, the
‘‘Bornhuetter Ferguson’’ method gives partial credibility to the actual loss experience to date for the class of
business. Loss development methods generally give full credibility to the reported loss experience to date. In the
example above, loss development methods would typically indicate an ultimate loss estimate of $10 million, as the
reported losses of $1 million would be estimated to reflect only 10 percent of the ultimate losses.
A key advantage of loss development methods is that they respond quickly to any actual changes in loss costs for
the class of business. Therefore, if loss experience is unexpectedly deteriorating or improving, the loss development
method gives full credibility to the changing experience. Expected loss ratio methods would be slower to respond to
the change, as they would continue to give more weight to the expected loss ratio, until enough evidence emerged to
modify the expected loss ratio to reflect the changing loss experience. On the other hand, loss development methods
have the disadvantage of overreacting to changes in reported losses if the loss experience is not credible. For
example, the presence or absence of large losses at the early stages of loss development could cause the loss
development method to overreact to the favorable or unfavorable experience by assuming it will continue at later
stages of development. In these instances, expected loss ratio methods such as ‘‘Bornhuetter Ferguson’’ have the
advantage of recognizing large losses without extrapolating unusual large loss activity onto the unreported portion of
the losses for the accident year.
Frequency/severity methods generally rely on the determination of an ultimate number of claims and an
average severity for each claim for each accident year. Multiplying the estimated ultimate number of claims for
each accident year by the expected average severity of each claim produces the estimated ultimate loss for the
accident year. Frequency/severity methods generally require a sufficient volume of claims in order for the average
severity to be predictable. Average severity for subsequent accident years is generally determined by applying an
estimated annual loss cost trend to the estimated average claim severity from prior accident years. In certain cases,
a structural approach may also be used to predict the ultimate loss cost. Frequency/severity methods have the
advantage that ultimate claim counts can generally be estimated more quickly and accurately than can ultimate
losses. Thus, if the average claim severity can be accurately estimated, these methods can more quickly respond to
changes in loss experience than other methods. However, for average severity to be predictable, the class of
business must consist of homogeneous types of claims for which loss severity trends from one year to the next are
reasonably consistent. Generally these methods work best for high frequency, low severity classes of business such
as personal auto.
Structural drivers analytics seek to explain the underlying drivers of frequency/severity. A structural drivers
analysis of frequency/severity is particularly useful for understanding the key drivers of uncertainty in the ultimate loss
cost. For example, for the excess workers’ compensation class of business, we have attempted to corroborate our
judgment by considering the impact on severity of the future propensity for deterioration of an injured worker’s
medical condition, the impact of price inflation on the various categories of medical expense and cost of living
adjustments on indemnity benefits, the impact of injured worker mortality and claim specific settlement and loss
mitigation strategies, etc., using the following:
• Claim by claim reviews to determine the stability and likelihood of settling an injured worker’s indemnity and
medical benefits — the claim file review was facilitated by third party specialists experienced in workers’
compensation claims;
• Analysis of the potential for future deterioration in medical condition unlikely to be picked up by a claim file review
and associated with potentially costly medical procedures (i.e., increases in both utilization and intensity of medical
care) over the course of the injured worker’s lifetime;
• Analysis of the cost of medical price inflation for each category of medical spend (services and devices) and for
cost of living adjustments in line with statutory requirements;
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• Portfolio specific mortality level and mortality improvement assumptions based on a mortality study conducted for
AIG’s primary and excess workers’ compensation portfolios and AIG’s opinion of future longevity trends for the
open reported cases;
• Ground-up consideration of the reinsurance recoveries expected for the class of business for reported claims with
extrapolation for unreported claims;
• The effects of various runoff claims management strategies that have been developed by AIG’s run-off unit.
Overall, our loss reserve reviews for long-tail classes typically utilize a combination of both loss
development and expected loss ratio methods, supplemented by structural drivers analysis of frequency/
severity where available. Loss development methods are generally given more weight for accident years and
classes of business where the loss experience is highly credible. Expected loss ratio methods are given more weight
where the reported loss experience is less credible, or is driven more by large losses. Expected loss ratio methods
require sufficient information to determine the appropriate expected loss ratio. This information generally includes the
actual loss ratios for prior accident years, and rate changes as well as underwriting or other changes which would
affect the loss ratio. Further, an estimate of the loss cost trend or loss ratio trend is required to allow for the effect of
inflation and other factors which may increase or otherwise change the loss costs from one accident year to the next.
The estimation of loss reserves relating to asbestos and environmental claims on insurance policies written
many years ago is subject to greater uncertainty than other types of claims. This is due to inconsistent court
decisions, as well as judicial interpretations and legislative actions that in some cases have tended to broaden
coverage beyond the original intent of such policies or have expanded theories of liability. In addition, reinsurance
recoverable balances relating to asbestos and environmental loss reserves are subject to greater uncertainty due to
the underlying age of the claim, underlying legal issues surrounding the nature of the coverage, and determination of
proper policy period. For these reasons, these balances tend to be subject to increased levels of disputes and legal
collection activity when actually billed. The insurance industry as a whole is engaged in extensive litigation over these
coverage and liability issues and is thus confronted with a continuing uncertainty in its efforts to quantify these
exposures.
We continue to receive claims asserting injuries and damages from toxic waste, hazardous substances, and other
environmental pollutants and alleged claims to cover the cleanup costs of hazardous waste dump sites, referred to
collectively as environmental claims, and indemnity claims asserting injuries from asbestos. The vast majority of
these asbestos and environmental claims emanate from policies written in 1984 and prior years. Commencing in
1985, standard policies contained an absolute exclusion for pollution-related damage. An absolute asbestos exclusion
was also implemented. The current AIG Property Casualty Environmental policies that we specifically price and
underwrite for environmental risks on a claims-made basis have been excluded from the analysis.
The majority of our exposures for asbestos and environmental claims are excess casualty coverages, not primary
coverages. The litigation costs are treated in the same manner as indemnity amounts, with litigation expenses
included within the limits of the liability we incur. Individual significant claim liabilities, where future litigation costs are
reasonably determinable, are established on a case-by-case basis.
Estimation of asbestos and environmental claims loss reserves is a subjective process. Reserves for asbestos and
environmental claims cannot be estimated using conventional reserving techniques such as those that rely on
historical accident year loss development factors. The methods used to determine asbestos and environmental loss
estimates and to establish the resulting reserves are continually reviewed and updated by management.
Various factors contribute to the complexity and difficulty in determining the future development of asbestos and
environmental claims. Significant factors that influence the asbestos and environmental claims estimation process
include court resolutions and judicial interpretations which broaden the intent of the policies and scope of coverage.
The current case law can be characterized as still evolving, and there is little likelihood that any firm direction will
develop in the near future. Additionally, the exposures for cleanup costs of hazardous waste dump sites involve
issues such as allocation of responsibility among potentially responsible parties and the government’s refusal to
release parties from liability. Future claims development also will be affected by the changes in Superfund and waste
dump site coverage and liability issues.
Reserve Estimation for Asbestos and Environmental Claims
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If the asbestos and environmental reserves develop deficiently, resulting deficiencies could have an adverse effect on
our future results of operations for an individual reporting period.
With respect to known environmental claims, we established over two decades ago a specialized environmental
claims unit, which investigates and adjusts all such environmental claims. This unit evaluates environmental claims
utilizing a claim-by-claim approach that involves a detailed review of individual policy terms and exposures. Because
each policyholder presents different liability and coverage issues, we generally evaluate exposure on a
policy-by-policy basis, considering a variety of factors such as known facts, current law, jurisdiction, policy language
and other factors that are unique to each policy. Quantitative techniques must be supplemented by subjective
considerations, including management judgment. Each claim is reviewed at least semi-annually utilizing the
aforementioned approach and adjusted as necessary to reflect the current information.
The environmental claims unit also actively manages and pursues early resolution with respect to these claims in an
attempt to mitigate its exposure to the unpredictable development of these claims. We attempt to mitigate our known
long-tail environmental exposures through a combination of proactive claim-resolution techniques, including policy
buybacks, complete environmental releases, compromise settlements, and, when appropriate, litigation.
Known asbestos claims are managed in a similar manner. Over two decades ago we established a specialized toxic
tort claims unit, which historically investigated and adjusted all such asbestos claims. As part of the above mentioned
NICO transaction, effective January 1, 2011, NICO assumed responsibility for claims handling related to the majority
of AIG’s domestic asbestos liabilities.
The following is a discussion of actuarial methods applied by major class of business:
We generally use a combination of loss development methods Expected loss ratio methods are generally used for at least
and expected loss ratio methods for excess casualty classes. the three latest accident years, due to the relatively low
credibility of the reported losses. The loss experience is
Frequency/severity methods are generally not used in isolation generally reviewed separately for lead umbrella classes and
to determine ultimate loss costs as the vast majority of for other excess classes, due to the relatively shorter tail for
reported claims do not result in claim payment. (However, lead umbrella business. Automobile-related claims are
frequency/severity methods assist in the regular monitoring of generally reviewed separately from non-auto claims, due to
the adequacy of carried reserves to support incurred but not the shorter-tail nature of the automobile-related claims. Claims
reported claims). In addition, the average severity varies relating to certain latent exposures such as construction
significantly from accident year to accident year due to large defects or exhaustion of underlying product aggregate limits
losses which characterize this class of business, as well as are reviewed separately due to the unique emergence
changing proportions of claims which do not result in a claim patterns of losses relating to these claims. The expected loss
payment. To gain more stability in the projection, the claims ratios used for recent accident years are based on the
amenable to loss development methods are analyzed in two projected ultimate loss ratios of prior years, adjusted for rate
layers: the layer capped at $10 million and the layer above changes, estimated loss cost trends and all other changes
$10 million. The expected loss ratio for the layer above that can be quantified.
$10 million is derived from the expected relationship between
the layers, reflecting the attachment point and limit by During 2013, we also completed a third party review of certain
accident year. insureds exposed to a specific class of toxic tort claims. That
review considered the prior claims history for each insured
In addition, we leverage case reserving based methodologies account, AIG’s exposed limits and the insured’s role with the
for complex claims/ latent exposures such as those involving specific toxicant reviewed as well as a legal analysis of the
toxic tort and other claims accumulations. exposures presented by these claims.
Excess Casualty
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Class of Business or Category and Actuarial Method Application of Actuarial Method
We generally use a combination of loss development methods These classes of business reflect claims made coverage, and
and expected loss ratio methods for D&O and related losses are characterized by low frequency and high severity.
management liability classes of business. Expected loss ratio methods are given more weight in the two
most recent accident years, whereas loss development
Frequency/severity methods are generally not used in isolation methods are given more weight in more mature accident
for these classes as the overall losses are driven by large years. For the year-end 2013 loss reserve review, claims
losses more than by claim frequency. Severity trends have projections for accident years 2012 and prior were used.
varied significantly from accident year to accident year and
care is required in analyzing these trends by claim type. We
also give weight to claim department ground-up projections of
ultimate loss on a claim by claim basis as these may be more
predictive of ultimate loss values especially for older accident
years.
We generally use a combination of loss development methods Expected loss ratio methods generally are given significant
and expected loss ratio methods for workers’ compensation. weight only in the most recent accident year. Workers’
We segment the data by state and industry class to the extent compensation claims are generally characterized by high
that meaningful differences are determined to exist. frequency, low severity, and relatively consistent loss
development from one accident year to the next. We
historically have been a leading writer of workers’
compensation, and thus have sufficient volume of claims
experience to use development methods. We generally
segregate California business from other business in
evaluating workers’ compensation reserves. In 2012, we
segmented out New York from the other states to reflect its
different development pattern and changing percentage of the
mix by state. We also revised our assumptions to reflect
changes in our claims management activities. Certain classes
of workers’ compensation, such as construction, are also
evaluated separately. Additionally, we write a number of very
large accounts which include workers’ compensation
coverage. These accounts are generally individually priced by
our actuaries, and to the extent appropriate, the indicated
losses based on the pricing analysis may be used to record
the initial estimated loss reserves for these accounts.
D&O and Related Management Liability Classes of Business
Workers’ Compensation
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Class of Business or Category and Actuarial Method Application of Actuarial Method
We historically have used a combination of loss development Excess workers’ compensation is an extremely long-tail class
methods and expected loss ratio methods for excess workers’ of business, with loss emergence extending for decades. The
compensation. For the year-end 2013 loss reserve review, our class is highly sensitive to small changes in assumptions — in
actuaries supplemented the methods used historically by the rate of medical inflation or the longevity of injured workers,
applying a structural drivers approach to inform their judgment for example — which can have a significant effect on the
of the ultimate loss costs for open reported claims from ultimate reserve estimate. Claims estimates for this line also
accident years 2003 and prior and used the refined analysis are highly sensitive to:
to help inform their judgment of the ultimate loss cost for
• the assumed future rate of inflation and other economic
claims that have not yet been reported using a frequency/
conditions in the United States;
severity approach for these accident years.
• 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 and management practices of
insureds and their third-party administrators;
• the cost of new and additional treatment specialties, such
as ‘‘pain management’’;
• the propensity for severely injured workers’ medical
conditions to deteriorate in the future;
• changes in injured worker longevity; and
• territorial experience differences (across states and within
regions in a state).
Expected loss ratio methods are given the greater weight for
the more recent accident years. For the year-end 2013 loss
reserve review, the structural drivers approach which was
applied to open reported claims from accident years 2003 and
prior, was deemed to be most suitable for informing our
judgment of the ultimate loss cost for injured workers whose
medical conditions had largely stabilized (i.e., at least 9 to
10 years have elapsed since the date of injury). The reserve
for accident years 2004 and subsequent was determined
using a Bornhuetter Ferguson expected loss ratio method.
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AIG 2013 Form 10-K 187
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
Excess Workers’ Compensation
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Class of Business or Category and Actuarial Method Application of Actuarial Method
We generally use a combination of loss development methods For certain classes of business with sufficient loss volume,
and expected loss ratio methods for primary general liability or loss development methods may be given significant weight for
products liability classes. We also supplement the standard all but the most recent one or two accident years. For smaller
actuarial techniques by using evaluations of the ultimate or more volatile classes of business, loss development
losses on unusual claims or claim accumulations by external methods may be given limited weight for the five or more
specialists on those classes of claims. The segmentation of most recent accident years. Expected loss ratio methods are
the data reflects state differences, industry classes, used for the more recent accident years for these classes.
deductible/non-deductible programs and type of claim. The loss experience for primary general liability business is
generally reviewed at a level that is believed to provide the
most appropriate data for reserve analysis. Additionally,
certain sub-classes, such as construction, are generally
reviewed separately from business in other subclasses. In
2013, we continued to refine our loss reserving techniques for
the domestic primary casualty classes of business and
adopted further segmentations based on our analysis of the
differing emerging loss patterns for certain classes of
insureds. Due to the fairly long-tail nature of general liability
business, and the many subclasses that are reviewed
individually, there is less credibility given to the reported
losses and increased reliance on expected loss ratio methods
for recent accident years.
We generally use loss development methods for all but the Expected loss ratio methods are generally given significant
most recent accident year for commercial automobile liability weight only in the most recent accident year.
classes of business.
We generally use a combination of loss development methods The largest component of the healthcare business consists of
and expected loss ratio methods for healthcare classes of coverage written for hospitals and other healthcare facilities.
business. We test reserves for excess coverage separately from those
for primary coverage. For primary coverages, loss
Frequency/severity methods are sometimes used for pricing development methods are generally given the majority of the
certain healthcare accounts or business. However, for loss weight for all but the latest three accident years, and are
reserve adequacy testing, the need to ensure sufficient given some weight for all years other than the latest accident
credibility generally results in segmentations that are not year. For excess coverages, expected loss methods are
sufficiently homogenous to utilize frequency/severity methods. generally given all the weight for the latest three accident
years, and are also given considerable weight for accident
We also supplement the standard actuarial techniques by years prior to the latest three years. For other classes of
using evaluations of the ultimate losses on unusual claims by healthcare coverage, an analogous weighting between loss
specialists on those classes of claims. development and expected loss ratio methods is used. The
weights assigned to each method are those that are believed
to result in the best combination of responsiveness and
credibility.
Commercial Automobile Liability
Healthcare
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AIG 2013 Form 10-K 188
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
General Liability
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Class of Business or Category and Actuarial Method Application of Actuarial Method
We generally use a combination of loss development methods Loss development methods are used for the more mature
and expected loss ratio methods for professional liability accident years. Greater weight is given to expected loss ratio
classes of business. methods in the more recent accident years. Reserves are
tested separately for claims made classes and classes written
Frequency/severity methods are used in pricing and on occurrence policy forms. Further segmentations are made
profitability analyses for some classes of professional liability; in a manner believed to provide an appropriate balance
however, for loss reserve adequacy testing, the need to between credibility and homogeneity of the data.
ensure sufficient credibility generally results in segmentations
that are not sufficiently homogenous to utilize frequency/
severity methods.
We also use claim department projections of the ultimate
value of each reported claim to supplement and inform the
standard actuarial approaches.
We use expected loss ratio methods for all accident years for The expected loss ratios and loss development assumptions
catastrophic casualty business. This class of business used are based upon the results of prior accident years for
consists of casualty or financial lines coverage that attach in this business as well as for similar classes of business written
excess of very high attachment points; thus the claims above lower attachment points. The business can be written
experience is marked by very low frequency and high severity. on a claims-made or occurrence basis. We use ground-up
Because of the limited number of claims, loss development claim projections provided by our claims staff to assist in
methods are not relied upon. developing the appropriate reserve.
We generally use a combination of loss development methods Expected loss ratio methods are used to determine the loss
and expected loss ratio methods for aviation exposures. reserves for the latest accident year. We also use ground-up
Aviation claims are not very long-tail in nature; however, they claim projections provided by our claims staff to assist in
are driven by claim severity. Thus a combination of both developing the appropriate reserve.
development and expected loss ratio methods are used for all
but the latest accident year to determine the loss reserves.
Frequency/severity methods are not employed due to the high
severity nature of the claims and different mix of claims from
year to year.
We generally use frequency/severity methods and loss For many classes of business, greater reliance is placed on
development methods for domestic personal auto classes. frequency/severity methods as claim counts emerge quickly
for personal auto and allow for more immediate analysis of
resulting loss trends and comparisons to industry and other
diagnostic metrics.
We generally use loss development methods for fidelity Expected loss ratio methods are also given weight for the
exposures for all but the latest accident year. For surety more recent accident years. For the latest accident year they
exposures, we generally use the same method as for short-tail may be given 100 percent weight.
classes (discussed below).
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AIG 2013 Form 10-K 189
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
Professional Liability
Catastrophic Casualty
Aviation
Personal Auto
Fidelity/Surety
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Class of Business or Category and Actuarial Method Application of Actuarial Method
We test mortgage guaranty reserves using loss development The reserve analysis projects ultimate losses for claims within
methods, supplemented by an internal claim analysis by each of several categories of delinquency based on actual
actuaries and staff who specialize in the mortgage guaranty historical experience, using primarily a frequency/severity loss
business. development approach. Additional reserve tests are also
employed, such as tests measuring losses as a percent of risk
in force. Reserves are reviewed separately for each line of
business considering the loss development characteristics,
volume of claim data available and applicability of various
actuarial methods to each line.
Reserves for mortgage guaranty insurance losses and loss
adjustment expenses are established for reported mortgage
loan delinquencies and estimates of delinquencies that have
been incurred but have not been reported by loan servicers,
based upon historical reporting trends. We establish reserves
using a percentage of the contractual liability (for each
delinquent loan reported) that is based upon projected claim
experience for each category of delinquency, consistent in
total with the overall reserve estimate.
Mortgage Guaranty losses and loss adjustment expenses
have been affected by macroeconomic events, such as
improving home prices and decreasing unemployment.
Because these macroeconomic events are subject to adverse
or favorable change, the determination of the ultimate losses
and loss adjustment expenses requires a high degree of
judgment. Responding to previous periods of adverse
macroeconomic influences, numerous government and lender
loan modification programs have been implemented to
mitigate mortgage losses. The loan modification programs
along with improving home values and declining
unemployment have produced higher cure rates of delinquent
loans in 2013, particularly in the most recent accident periods
that may not continue in 2014. In addition, these loan
modifications may re-default resulting in new losses for
Mortgage Guaranty if adverse economic conditions were to
return. In addition to improved cure rates, the favorable
economic conditions have resulted in a decline of newly
reported delinquencies. The declining new delinquencies and
improved cure rates have combined to reduce UGC’s first-lien
delinquency rate to 5.9 percent at year end 2013, which is the
lowest level reported since 2007. Offsetting these favorable
trends were lender’s efforts to overturn previously denied and
rescinded claims.
Occurrences of fraudulent loans, underwriting violations, and
other deviations from contractual terms, mostly related to the
2006 and 2007 blocks of business, resulted in historically high
levels of claim rescissions and denials (collectively referred to
as rescissions) during 2011 and 2012. As a result, many
lenders have increased their efforts to provide missing
documents or appeal rescissions. The lender’s success at
tracking down missing loan documents along with the
heightened focus on appeals of rescissions have significantly
reduced the future rescission rate (net of appeals) assumed in
the loss reserves to an immaterial level, particularly on the
older accident periods. As a result, UGC experienced some
unfavorable loss development on older accident periods
during the quarter. We believe we have provided appropriate
reserves for currently delinquent loans, consistent with
industry practices.
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AIG 2013 Form 10-K 190
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
Mortgage Guaranty
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Class of Business or Category and Actuarial Method Application of Actuarial Method
We generally use either loss development methods or IBNR Where a factor is used, it generally represents a percent of
factor methods to set reserves for short-tail classes such as earned premium or other exposure measure. The factor is
property coverages. determined based on prior accident year experience. For
example, the IBNR for a class of property coverage might be
expected to approximate 20 percent of the latest year’s
earned premium. The factor is continually reevaluated in light
of emerging claim experience as well as rate changes or other
factors that could affect the adequacy of the IBNR factor
being employed.
Business written by AIG Property Casualty internationally We maintain a database of detailed historical premium and
includes both long-tail and short-tail classes of business. For loss transactions in original currency for business written by
long-tail classes of business, the actuarial methods used are AIG Property Casualty internationally. This allows our
comparable to those described above. However, the majority actuaries to determine the current reserves without any
of business written by AIG Property Casualty internationally is distortion from changes in exchange rates over time. Our
short-tail, high frequency and low severity in nature. For this actuaries segment the international data by region, country or
business, loss development methods are generally employed class of business as appropriate to determine an optimal
to test the loss reserves. balance between homogeneity and credibility. The techniques
developed by our U.S. actuaries for certain commercial
classes of business are increasingly applied to our
International portfolios where the experience volume and data
segmentation is comparable to that of the U.S. portfolios. Our
actuaries work closely with the claims departments in each of
our major International locations to determine the most
appropriate methodology and assumptions.
We determine reserves for legal defense and cost We generally determine reserves for adjuster loss adjustment
containment loss adjustment expenses for each class of expenses based on calendar year ratios of adjuster expenses
business by one or more actuarial or structural driver paid to losses paid for the particular class of business. We
methods. The methods generally include development generally determine reserves for other unallocated loss
methods comparable to those described for loss development adjustment expenses based on the ratio of the calendar year
methods. The development could be based on either the paid expenses paid to overall losses paid. This determination is
loss adjustment expenses or the ratio of paid loss adjustment generally done for all classes of business combined, and
expenses to paid losses, or both. Other methods include the reflects costs of home office claim overhead as a percent of
utilization of expected ultimate ratios of paid loss expense to losses paid. We may supplement our judgments with an
paid losses, based on actual experience from prior accident analysis of loss and legal expense mix change and detailed
years or from similar classes of business. discussions with the claims department on the methods used
to allocate the costs of the claims initiatives to new and
in-force business and to different classes and sub-classes of
business.
We conduct special analyses in response to major These analyses may include a combination of approaches,
catastrophes and severe losses to estimate our gross and net including modeling estimates, ground-up claim analysis, loss
loss and loss expense liability from those events. evaluation reports from on-site field adjusters, and market
share estimates.
Loss Adjustment Expenses
Catastrophes and Severe Losses
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AIG 2013 Form 10-K 191
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
Other Short-Tail Classes
International
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Class of Business or Category and Actuarial Method Application of Actuarial Method
For classes of business other than the classes discussed below, there is generally some potential for deviation in
both the loss cost trend and loss development factor assumptions.
The effect of these deviations is expected to be smaller than the effect on the classes noted
below
• The percentage deviations noted in the table below are not considered the highest
possible deviations that might be expected, but rather what we consider to reflect a reasonably likely
range of potential deviation. Actual loss cost trends in the early 1990s were negative for several years
whereas actual loss cost trends exceeded the figures cited below for several other years. Loss trends may
deviate by more than the amounts noted above and discussed below.
• The percentage deviations noted in the table below are not considered the
highest possible deviations that might be expected, but rather what we consider to reflect a reasonably
likely range of potential deviation. While multiple scenarios are performed, the assumed loss development
factors are a key assumption. Generally, actual historical loss development factors are used to project
future loss development. Future loss development patterns may be different from those in the past, or may
deviate by more than the amounts noted above and discussed below.
AIG’s loss reserve analyses do not generally provide a range of loss reserve estimates. A large portion of the loss
reserves from AIG Property Casualty business relates to longer-tail casualty classes of business, such as excess
casualty and D&O, which are driven by severity rather than frequency of claims. Using the reserving methodologies
described above, our actuaries determine their actuarial central estimates of the loss reserves and advise
management on their final recommendation for management’s best estimate of the recorded reserves. Subject matter
experts from underwriting and claims play an important part in informing the actuarial assumptions and methods. The
governance process over the establishment of loss reserves also ensures robust considerations of the changes in
the loss trends, terms and conditions, claims handling practices, and large loss impact when determining the
methods, assumptions and the estimations. This multi-disciplinary process engages underwriting, claims, risk
management, business unit executives and senior management and involves several iterative levels of feedback and
response during the regular reserving process.
The sensitivity analysis below addresses each major class of business for which there is a possibility of a material
deviation from our overall reserve position. The analysis uses what we believe is a reasonably likely range of
potential deviation for each class. Actual reserve development may not be consistent with either the original or the
Alternative Loss Cost Trend and Loss Development Factor Assumptions by Class of Business
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AIG 2013 Form 10-K 192
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
Loss cost trends:
Loss development factors:
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adjusted loss trend or loss development factor assumptions, and other assumptions made in the reserving process
may materially affect reserve development for a particular class of business.
The assumed loss cost trend was After evaluating the historical loss
approximately five percent in the 2013 development factors from prior
reserve review. After evaluating the accident years since the early 1990s,
historical loss cost trends from prior in our judgment, it is reasonably likely
accident years since the early 1990s, that actual loss development factors
in our judgment, it is reasonably likely will range from approximately
that actual loss cost trends applicable 3.4 percent below those actually
to the year-end 2013 loss reserve utilized in the year-end 2013 reserve
review for excess casualty will range review to approximately 6.0 percent
from 0 percent to positive ten percent. above those factors actually utilized.
The loss cost trend assumption is Excess casualty is a long-tail class of
critical for the excess casualty class of business and any deviation in loss
business due to the long-tail nature of development factors might not be
the claims and therefore is applied discernible for an extended period of
across many accident years. Thus, time subsequent to the recording of the
there is the potential for the reserves initial loss reserve estimates for any
with respect to a number of accident accident year. Thus, there is the
years (the expected loss ratio years) to potential for the reserves with respect
be significantly affected by changes in to a number of accident years to be
loss cost trends that were initially relied significantly affected by changes in
upon in setting the reserves. These loss development factors that were
changes in loss trends could be initially relied upon in setting the
attributable to changes in inflation or in reserves. These changes in loss
the judicial environment, or in other development factors could be
social or economic conditions affecting attributable to changes in inflation or in
claims. the judicial environment, or in other
social or economic conditions affecting
claims.
The assumed loss cost trend was The assumed loss development factors
approximately half of one percent. are also an important assumption but
After evaluating the historical loss cost less critical than for excess casualty.
trends from prior accident years since Because these classes are written on
the early 1990s, including the potential a claims made basis, the loss reporting
effect of recent claims relating to the and development tail is much shorter
credit crisis, in our judgment, it is than for excess casualty. However, the
reasonably likely that actual loss cost high severity nature of the claims does
trends applicable to the year-end 2013 create the potential for significant
loss reserve review for these classes deviations in loss development
will range from approximately patterns from one year to the next.
28 percent lower or 25.5 percent After evaluating the historical loss
higher than the assumption actually development factors for these classes
utilized in the year-end 2013 reserve of business for accident years since
review. Because the D&O class of the early 1990s, in our judgment, it is
business has exhibited highly volatile reasonably likely that actual loss
loss trends from one accident year to development factors will range from
the next, there is the possibility of an approximately 8.5 percent lower to
exceptionally high deviation. 16 percent higher than those factors
actually utilized in the year-end 2013
loss reserve review for these classes.
Excess Casualty
D&O and Related Management Liability Classes of Business
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AIG 2013 Form 10-K 193
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
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Class of Business Loss Cost Trend Loss Development Factor
The loss cost trend assumption is not Generally, our actual historical workers’
believed to be material with respect to compensation loss development factors
our loss reserves. This is primarily would be expected to provide a
because our actuaries are generally reasonably accurate predictor of future
able to use loss development loss development. However, workers’
projections for all but the most recent compensation is a long-tail class of
accident year’s reserves, so there is business, and our business reflects a
limited need to rely on loss cost trend very significant volume of losses,
assumptions for primary workers’ particularly in recent accident years.
compensation business. After evaluating the actual historical
loss development since the 1980s for
this business, in our judgment, it is
reasonably likely that actual loss
development factors will fall within the
range of approximately 4.5 percent
below to 6.2 percent above those
actually utilized in the year-end 2013
loss reserve review.
Loss costs were trended at six percent Excess workers’ compensation is an
per annum. After reviewing actual extremely long-tail class of business,
industry loss trends for the past ten with a much greater than normal
years, in our judgment, it is reasonably uncertainty as to the appropriate loss
likely that actual loss cost trends development factors for the tail of the
applicable to the year-end 2013 loss loss development. After evaluating the
reserve review for excess workers’ historical loss development factors for
compensation will range five percent prior accident years since the 1980s as
lower or higher than this estimated loss well as the development over the past
trend. several years of the ground up claim
projections utilized to help select the
loss development factors in the tail for
this class of business, in our judgment,
it is reasonably likely that actual loss
development for excess workers’
compensation could increase the
current reserves by up to
approximately $1.3 billion or decrease
them by approximately $850 million.
Primary Workers’ Compensation
Excess Workers’ Compensation
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AIG 2013 Form 10-K 194
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
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Class of Business Loss Cost Trend Loss Development Factor
The following sensitivity analysis table summarizes the effect on the loss reserve position of using certain
alternative loss cost trend (for accident years where we use expected loss ratio methods) or loss
development factor assumptions rather than the assumptions actually used in determining our estimates in
the year-end loss reserve analyses in 2013.
5 percent increase $ 1,350 6.0 percent increase $ 1,250
5 percent decrease (1,100) 3.4 percent decrease (750)
25.5 percent increase 1,000 16 percent increase 950
28.0 percent decrease (800) 8.5 percent decrease (500)
5 percent increase 400 Increase
(b)
1,350
5 percent decrease (250) Decrease
(b)
(650)
(a)
:
6.2 percent increase 1,900
4.5 percent decrease (1,400)
(a) Loss cost trend assumption does not have a material impact for this line of business.
(b) Percentages not applicable due to extremely long-tailed nature of workers’ compensation.
The estimation of reinsurance recoverable involves a significant amount of judgment, particularly for latent exposures,
such as asbestos, due to their long-tail nature. Reinsurance assets include reinsurance recoverable on unpaid claims
and claim adjustment expenses that are estimated as part of our loss reserving process and, consequently, are
subject to similar judgments and uncertainties as the estimation of gross loss reserves.
We assess the collectability of reinsurance recoverable balances through either detailed reviews of the underlying
nature of the reinsurance balance or comparisons with historical trends of disputes and credit events. We record
adjustments to reflect the results of these assessments through an allowance for uncollectable reinsurance that
reduces the carrying value of reinsurance assets in the balance sheet. This estimate requires significant judgment for
which key considerations include:
• paid and unpaid amounts recoverable;
• whether the balance is in dispute or subject to legal collection;
• whether the reinsurer is financially troubled (i.e., liquidated, insolvent, in receivership or otherwise subject to formal
or informal regulatory restriction); and
• whether collateral and collateral arrangements exist.
At December 31, 2013, the allowance for estimated unrecoverable reinsurance was $276 million.
See Note 8 to the Consolidated Financial Statements for additional information on reinsurance.
Long-duration traditional products include whole life insurance, term life insurance, accident and health insurance,
long-term care insurance, and certain payout annuities for which the payment period is life-contingent, which include
certain of our single premium immediate annuities and structured settlements.
For long-duration traditional business, a ‘‘lock-in’’ principle applies. The assumptions used to calculate the
benefit liabilities and DAC are set when a policy is issued and do not change with changes in actual experience,
Excess casualty: Excess casualty:
D&O: D&O:
Excess workers’ compensation: Excess workers’ compensation:
Reinsurance Assets
Future Policy Benefits for Life and Accident and Health Insurance Contracts (AIG Life and Retirement)
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AIG 2013 Form 10-K 195
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
December 31, 2013 Effect on Loss Effect on Loss
(in millions) Reserves Reserves
Primary workers’ compensation Primary workers’ compensation:
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Loss cost trends: Loss development factors:
unless a loss recognition event occurs. The assumptions include mortality, morbidity, persistency, maintenance
expenses, and investment returns. These assumptions are typically consistent with pricing inputs. The assumptions
also include margins for adverse deviation, principally for key assumptions such as mortality and interest rates used
to discount cash flows, to reflect uncertainty given that actual experience might deviate from these assumptions.
Establishing margins at contract inception requires management judgment. The extent of the margin for adverse
deviation may vary depending on the uncertainty of the cash flows, which is affected by the volatility of the business
and the extent of our experience with the product.
Loss recognition occurs if observed changes in actual experience or estimates result in projected future losses under
loss recognition testing. To determine whether loss recognition exists, we determine whether a future loss is
expected based on updated current assumptions. If a loss recognition exists, we recognize the loss by first reducing
DAC through amortization expense, and, if DAC is depleted, record additional liabilities through a charge to
policyholder benefit expense. See Note 9 to the Consolidated Financial Statements for additional information on loss
recognition. Because of the long-term nature of many of our liabilities subject to the ‘‘lock-in’’ principle, small changes
in certain assumptions may cause large changes in the degree of reserve adequacy. In particular, changes in
estimates of future invested asset returns have a large effect on the degree of reserve deficiency.
Groupings for loss recognition testing are consistent with our manner of acquiring and servicing the business and
applied by product groupings. We perform separate loss recognition tests for traditional life products, payout
annuities, and long-term care insurance. Once loss recognition has been recorded for a block of business, the old
assumption set is replaced and the assumption set used for the loss recognition would then be subject to the lock-in
principle. Key judgments made in loss recognition tests include the following:
• To determine investment returns used in loss recognition tests, we typically segregate assets that match liabilities
and then project future cash flows on those assets. Our projections include a reasonable allowance for investment
expenses and expected credit losses over the projection horizon. A critical assumption in the projection of
expected investment income is the assumed net rate of investment return at which excess cash flows are to be
reinvested. For products in which asset and liability durations are matched relatively well, this is less of a
consideration since interest on excess cash flows are not a significant component of future cash flows. For the
reinvestment rate assumption, anticipated future changes to the yield curves could have a large effect. Given the
interest rate environment applicable at the date of our loss recognition tests, we assumed a modest and gradual
increase in long-term interest rates over time.
• For mortality assumptions, key judgments include the extent of industry versus own experience to base future
assumptions as well as the extent of expected mortality improvements in the future. The latter judgment is based
on a combination of historical mortality trends, advice from industry public health and demography specialists that
were consulted by AIG’s actuaries and published industry information.
• For surrender rates, a key judgment involves the correlation between expected increases/decreases in interest
rates and increases/decreases in surrender rates. To support this judgment, we compare crediting rates on our
products relative to expected rates on competing products under different interest scenarios.
• For in-force long-term care insurance, rate increases are allowed but must be approved by state insurance
regulators. Consequently, the extent of rate increases that may be assumed requires judgment. In establishing our
assumption for rate increases for long-term care insurance, we consider historical experience as to the frequency
and level of rate increases approved by state regulators.
In connection with our program to utilize capital loss carryforwards, we sold investment securities in 2013 and 2012.
These and other investment sales with subsequent reinvestment at lower yields triggered recording of loss
recognition reserves of $1.5 billion and $1.2 billion, primarily related to certain long-term payout annuity contracts, in
2013 and 2012, respectively.
Significant unrealized appreciation on investments in a prolonged low interest rate environment may cause DAC to
be adjusted and additional future policy benefit liabilities to be recorded through a charge directly to accumulated
other comprehensive income (‘‘shadow loss recognition’’). These charges are included, net of tax, with the change in
net unrealized appreciation of investments. See Note 9 to the Consolidated Financial Statements for additional
information on shadow loss recognition. In applying shadow loss recognition, the Company overlays unrealized gains
onto loss recognition tests without revising the underlying test. Accordingly, there is limited additional judgment in this
process.
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AIG 2013 Form 10-K 196
I T EM 7 / CRI T I CAL ACCOUNT I NG EST I MAT ES
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Variable annuity products offered by our Retirement Income Solutions and Group Retirement product lines offer
guaranteed benefit features. These guaranteed features include guaranteed minimum death benefits (GMDB) and
guaranteed minimum income benefits (GMIB) that are payable in the event of death, and living benefits that are
payable in the event of annuitization, or, in other instances, at specified dates during the accumulation period. Living
benefits include guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum account value benefits
(GMAV). See Note 13 to the Consolidated Financial Statements for additional information on these features. At
December 31, 2013, variable annuity account values subject to these features included $63 billion with GMDB,
$3 billion with GMIB, $28 billion with GMWB and $627 million with GMAV. For GMDB, our most widely offered
guaranteed benefit feature, the liabilities included in Future policyholder benefits at December 31, 2013 and 2012
were $355 million and $374 million, respectively.
The liabilities for GMDB and GMIB, which are recorded in Future policyholder benefits, represent the expected value
of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period
based on total expected assessments, through Policyholder benefits and claims. The liabilities for GMWB and GMAV,
which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured at fair
value, with changes in the fair value of the liabilities recorded in Other realized capital gains (losses).
Our exposure to the guaranteed amounts is equal to the amount by which the contract holder’s account balance is
below the amount provided by the guaranteed feature. A variable annuity contract may include more than one type of
guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can only
receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e. the
features are mutually exclusive, so the exposure to the guaranteed amount for each feature is not additive to that of
other features. A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity
markets, increased volatility and a sustained low interest rate environment increase our exposure to potential benefits
under the guaranteed features, leading to an increase in the liabilities for those benefits. See Critical Accounting
Estimates — Estimated Gross Profits for Investment-Oriented Products herein for sensitivity analysis which includes
the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for equity market returns,
volatility and mortality. For a further discussion of the risks related to guaranteed benefit features of variable
annuities, our dynamic hedging program and risks of AIG’s unhedged exposures, see Item 1A. — Risk Factors —
Business and Operations.
Guaranteed Benefit Features of Variable Annuity Products (AIG Life and Retirement)
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The reserving methodology and assumptions used to measure the liabilities of our two largest guaranteed benefit
features are presented in the following table:
We determine the GMDB liability at each balance sheet Key assumptions include:
date by estimating the expected value of death benefits
• Interest rates, which vary by year of issuance and
in excess of the projected account balance and
products
recognizing the excess ratably over the accumulation
period based on total expected fees. See Note 13 to the • Mortality rates, which are based upon actual
Consolidated Financial Statements for additional experience modified to allow for variations in policy
information on how we reserve for variable annuity form
products with guaranteed benefit features.
• Lapse rates, which are based upon actual experience
modified to allow for variations in policy form
• Investment returns, using assumptions from a
randomly generated model
• In applying asset growth assumptions for the valuation
of the GMDB liability, we use a ‘‘reversion to the
mean’’ methodology, similar to that applied for DAC.
For a description of this methodology, see Estimated
Gross Profits for Investment-Oriented Products (AIG
Life and Retirement) below.
GMWB living benefits are embedded derivatives that are The fair value of the embedded derivatives is based on
required to be bifurcated from the host contract and actuarial and capital market assumptions related to
carried at fair value. The fair value estimates of the living projected cash flows over the expected lives of the
benefit guarantees include assumptions such as equity contracts. Key assumptions include:
market returns, interest rates, market volatility, and
• Equity market returns
policyholder behavior. See Note 13 to the Consolidated
Financial Statements for additional information on how • Interest rates
we reserve for variable annuity products with guaranteed
• Market volatility
benefit features, and Note 5 to the Consolidated
Financial Statements for information on fair value
• Benefits and related fees assessed, when applicable
measurement of these embedded derivatives, including
• Policyholder behavior, including mortality, exercise of
how AIG incorporates its own non-performance risk.
guarantees and policy lapses. Estimates of future
policyholder behavior are subjective and based
primarily on our historical experience.
• In applying asset growth assumptions for the valuation
of GMWBs, we use market-consistent assumptions
consistent with fair value measurement.
Policy acquisition costs and policy issuance costs that are incremental and directly related to the successful
acquisition of new or renewal of existing insurance contracts related to universal life and investment-type products
(collectively, investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of
estimated gross profits to be realized over a period that approximates the estimated lives of the contracts. Estimated
gross profits include net investment income and spreads, net realized investment gains and losses, fees, surrender
charges, expenses, and mortality gains and losses. In estimating future gross profits, lapse assumptions require
GMDB
GMWB
Estimated Gross Profits for Investment — Oriented Products (AIG Life and Retirement)
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Reserving Methodology Assumptions and Accounting Judgments
judgment and can have a material impact on DAC amortization. For fixed deferred annuity contracts, the future
spread between investment income and interest credited to policyholders is a significant judgment, particularly in a
low interest rate environment.
If the assumptions used for estimated gross profits change significantly, DAC and related reserves, including VOBA,
SIA, guaranteed benefit reserves and unearned revenue reserves (URR), are recalculated using the new
assumptions, and any resulting adjustment is included in income. Updating such assumptions may result in
acceleration of amortization in some products and deceleration of amortization in other products. In the third quarter
of 2013, we completed our comprehensive annual review and update of estimated gross profit assumptions used to
amortize DAC and related items for our investment-oriented products. The result of this review was a $118 million
net increase in pre-tax operating income in 2013, which included a $198 million net increase in our Retail operating
segment and an $80 million decrease in our Institutional operating segment. The net increase in Retail pre-tax
operating income was primarily due to a favorable adjustment in our Fixed Annuities product line from updated
spread assumptions due to active management of crediting rates and higher future investment yields than those
previously assumed. In the Life Insurance and A&H, Retirement Income Solutions and Group Retirement product
lines, the update of assumptions for variable annuity spreads, surrender rates, and life insurance mortality had an
unfavorable impact on pre-tax operating income. The life insurance mortality assumptions, while unfavorable
compared to the previous assumption set, are still within pricing expectations.
The $118 million increase in pre-tax operating income to reflect updated assumptions was comprised of three
favorable developments, a $98 million net decrease in DAC amortization expense, a $61 million decrease in SIA
amortization expense within Interest credited to policyholder account balances, and a $28 million increase in
unearned revenue amortization within Policy fees; partially offset by a $69 million increase in Future policy benefits
for life and health insurance contracts.
In estimating future gross profits for variable annuity products, a long-term annual asset growth assumption of 8.5%
(before expenses that reduce the asset base from which future fees are projected) is applied to estimate the future
growth in assets and related asset-based fees. In determining the asset growth rate, the effect of short-term
fluctuations in the equity markets is partially mitigated through the use of a ‘‘reversion to the mean’’ methodology,
whereby short-term asset growth above or below the long-term annual rate assumption impact the growth
assumption applied to the five-year period subsequent to the current balance sheet date. The reversion to the mean
methodology allows us to maintain our long-term growth assumptions, while also giving consideration to the effect of
actual investment performance. When actual performance significantly deviates from the annual long-term growth
assumption, as evidenced by growth assumptions for the five-year reversion to the mean period falling below a
certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to revise or
‘‘unlock’’ the growth rate assumptions to be used for both the five-year reversion to the mean period as well as the
long-term annual growth assumption applied to subsequent periods. The use of a reversion to the mean assumption
is common within the industry; however, the parameters used in the methodology are subject to judgment and vary
within the industry.
In the fourth quarter of 2013, we revised the growth rate assumptions for the five-year reversion to the mean period
for the Group Retirement product line, because annual growth assumptions indicated for this period had fallen below
our floor of zero percent due to the recent favorable performance of equity markets. For this five-year reversion to
the mean period, the growth rate assumption was adjusted to a point between the long-term growth rate assumption
and zero percent. This adjustment, which increased DAC by $31 million, increased SIA by $2 million and reduced the
GMDB liability by $2 million, was recorded as a decrease in current period amortization expense, and increased
pre-tax income by $35 million in 2013. Had we readjusted the growth rate assumption for the five-year reversion to
the mean period to use the long-term rate assumption of 8.5%, pre-tax income would have been higher by
approximately $30 million. Conversely, had the growth rate assumption for the five-year reversion to the mean period
been readjusted to a floor of zero percent, pre-tax income would have been lower by approximately $30 million. For
variable annuities in our Retirement Income Solutions product line, the assumed annual growth rate remained above
zero percent for the five-year reversion to the mean period so it did not meet our criteria for adjustment; however,
additional favorable equity market performance in excess of long-term assumptions could also result in ‘‘unlocking’’ in
this product line in future periods with a positive effect on pre-tax income in the period of the unlocking.
The following table summarizes the sensitivity of changes in certain assumptions in the amortization of
DAC/SIA, guaranteed benefit reserves and unearned revenue liability and the related hypothetical impact on
year-end 2013 balances. The effect of changes in net investment spread primarily affects our Fixed Annuities
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product line. Changes in the equity markets and volatility primarily impact individual variable annuities in our
Retirement Income Solutions and Group Retirement product lines. The effect of changes in mortality
primarily impacts the universal life insurance business.
Assumptions:
Net Investment Spread
Effect of an increase by 10 basis points $ 139 $ (19) $ 8 $ 151
Effect of a decrease by 10 basis points (141) 19 (7) (153)
Equity Return
(a)
Effect of an increase by 1% 60 (22) – 82
Effect of a decrease by 1% (57) 55 – (112)
Volatility
(b)
Effect of an increase by 1% – 11 – (11)
Effect of a decrease by 1% – (11) – 11
Mortality
Effect of an increase by 1% (15) 21 (6) (30)
Effect of a decrease by 1% 9 (21) 4 26
(a) Represents the net impact of 1 percent increase or decrease in long-term equity returns for GMDB and GMIB reserves and negligible net impact
of 1 percent increase or decrease in the S&P 500 index for living benefit reserves.
(b) Represents the net impact of 1 percentage point increase or decrease in implied volatility.
The analysis of DAC, guaranteed benefits reserve and unearned revenue liability is a dynamic process that considers
all relevant factors and assumptions described above. We estimate each of the above factors individually, without the
effect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in any
single assumption would not necessarily be an indicator of future results.
At each balance sheet date, we evaluate our available for sale securities holdings with unrealized losses.
See the discussion in Note 6 to the Consolidated Financial Statements for additional information on the methodology
and significant inputs, by security type, that we use to determine the amount of other-than-temporary impairment on
fixed maturity and equity securities.
For a discussion of impairments on investments in life settlements, see Investments in this MD&A and Note 6 to the
Consolidated Financial Statements.
For a discussion of goodwill impairment, see Note 2 to the Consolidated Financial Statements. In 2013 and 2012,
AIG elected to bypass the qualitative assessment and therefore, performed quantitative assessments that supported
a conclusion that the fair value of each of the two reporting units tested exceeded their book value. In determining
fair value, we primarily use a discounted expected future cash flow analysis based on AIG’s business projections that
inherently include judgments regarding business trends.
Impairment Charges
Other-Than-Temporary Impairments on Available For Sale Securities
Impairments on Investments in Life Settlements
Goodwill Impairment
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Guaranteed Unearned Net
December 31, 2013 Benefits Revenue Pre-Tax
(in millions) DAC/SIA Reserve Liability Earnings
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We estimate and record a liability for potential losses that may arise from litigation and regulatory proceedings to the
extent such losses are probable and can be estimated. Determining a reasonable estimate of the amount of such
losses requires significant management judgment. In many cases, it is not possible to determine whether a liability
has been incurred or to estimate the ultimate or minimum amount of that liability until the matter is close to
resolution. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases that are in
the early stages of litigation or in which claimants seek substantial or indeterminate damages, we often cannot
predict the outcome or estimate the eventual loss or range of reasonably possible losses related to such matters.
See Note 15 to the Consolidated Financial Statements.
See Note 5 to the Consolidated Financial Statements for additional information about the measurement of fair value
of financial assets and financial liabilities and our accounting policy regarding the incorporation of credit risk in fair
value measurements.
The following table presents the fair value of fixed maturity and equity securities by source of value
determination:
Fair value based on external sources
(a)
$268 94%
Fair value based on internal sources 17 6
Total fixed maturity and equity securities
(b)
$285 100%
(a) Includes $26.5 billion for which the primary source is broker quotes.
(b) Includes available for sale and other securities.
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in a
hierarchy for disclosure purposes consisting of three ‘‘levels’’ based on the observability of inputs available in the
marketplace used to measure the fair value. See Note 5 to the Consolidated Financial Statements for additional
information.
The following table presents the amount of assets and liabilities measured at fair value on a recurring basis
and classified as Level 3:
Assets $ 40.5 7.4%
Liabilities 4.1 0.9
Level 3 fair value measurements are based on valuation techniques that use at least one significant input that is
unobservable. We consider unobservable inputs to be those for which market data is not available and that are
developed using the best information available about the assumptions that market participants would use when
valuing the asset or liability. Our assessment of the significance of a particular input to the fair value measurement in
its entirety requires judgment.
We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant
unobservable inputs in their valuation, including contractual terms, prices and rates, yield curves, credit curves,
measures of volatility, prepayment rates, default rates, mortality rates and correlations of such inputs.
Liability for Legal Contingencies
Fair Value Measurements of Certain Financial Assets and Liabilities
Level 3 Assets and Liabilities
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AIG 2013 Form 10-K 201
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December 31, 2013 Fair Percent
(in billions) Value of Total
December 31, Percentage December 31, Percentage
(in billions) 2013 of Total 2012 of Total
$ 46.7 8.6%
2.3 0.5
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The following paragraphs describe the methods we use to measure fair value on a recurring basis for super senior
credit default swaps classified in Level 3. See Note 5 to the Consolidated Financial Statements for discussion of the
valuation methodologies for other assets classified in Level 3, including certain fixed maturity securities and certain
other invested assets, as well as a discussion of transfers of Level 3 assets and liabilities.
Certain entities included in GCM wrote credit protection on the super senior risk layer of collateralized loan
obligations (CLOs), multi-sector CDOs and diversified portfolios of corporate debt and prime residential mortgages
through 2006. In these transactions, we are at risk of credit performance on the super senior risk layer related to
such assets.
See Notes 5 and 11 to the Consolidated Financial Statements for information about the regulatory capital, multi-
sector CDO, corporate debt/ CLO and other portfolios.
We utilize sensitivity analyses that estimate the effects of using alternative pricing and other key inputs on our
calculation of the unrealized market valuation loss related to the super senior credit default swap portfolio. For the
purposes of estimating sensitivities for the super senior multi-sector CDO credit default swap portfolio, the change in
valuation derived using the Binomial Expansion Technique (BET) model is used to estimate the change in the fair
value of the derivative liability. Of the total $3.3 billion net notional amount of CDS written on multi-sector CDOs
outstanding at December 31, 2013, a BET value is available for $2.2 billion net notional amount. No BET value is
determined for $1.1 billion of CDS written on European multi-sector CDOs because prices on the underlying
securities held by these CDOs are not provided by collateral managers; instead these CDS are valued using
counterparty prices. Therefore, sensitivities disclosed below apply only to the net notional amount of $2.2 billion.
The following table presents key inputs used in the BET model, and the potential increase (decrease) to the
fair value of the derivative liability by ABS category at December 31, 2013 corresponding to changes in these
key inputs:
Bond prices 50 points Increase of 5 points $ (99) $ (2) $ (5) $ (44) $ (32) $ (8) $ (8)
Decrease of 5
points 107 2 5 41 39 8 12
Weighted Increase of 1 year 7 – – 4 3 – –
average life 5.63 years Decrease of 1 year (8) – – (5) (2) – (1)
Recovery rates 17% Increase of 10% (7) – (1) (4) (1) (1) –
Decrease of 10% 9 – 1 5 1 1 1
Diversity score
(a)
13 Increase of 5 (3)
Decrease of 5 8
Discount curve
(b)
N/A Increase of 100bps 2
(a) The diversity score is an input at the CDO level. A calculation of sensitivity to this input by type of security is not possible.
(b) The discount curve is an input at the CDO level. A calculation of sensitivity to this input by type of security is not possible. Furthermore, for this
input it is not possible to disclose a weighted average input because a discount curve consists of a series of data points.
These results are calculated by stressing a particular assumption independently of changes in any other assumption.
No assurance can be given that the actual levels of the key inputs will not exceed, perhaps significantly, the ranges
assumed by us for purposes of the above analysis. No assumption should be made that results calculated from the
use of other changes in these key inputs can be interpolated or extrapolated from the results set forth above.
Super Senior Credit Default Swap Portfolio
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Increase (Decrease) to Fair Value of Derivative Liability
Average
Inputs Used at Entire RMBS RMBS RMBS
(dollars in millions) December 31, 2013 Change Portfolio Prime Alt-A Subprime CMBS CDOs Other
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Glossary
Accident year The annual calendar accounting period in which loss events occurred, regardless of when the losses
are actually reported, booked or paid.
Accident year combined ratio, as adjusted the combined ratio excluding catastrophe losses and related
reinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting.
Accident year loss ratio, as adjusted the loss ratio excluding catastrophe losses and related reinstatement
premiums, prior year development, net of premium adjustments, and the impact of reserve discounting.
Acquisition ratio acquisition costs divided by net premiums earned. Acquisition costs are those costs incurred to
acquire new and renewal insurance contracts and also include the amortization of value of business acquired
(VOBA) and deferred policy acquisition costs (DAC). Acquisition costs vary with sales and include, but are not limited
to, commissions, premium taxes, direct marketing costs, certain costs of personnel engaged in sales support
activities such as underwriting, and the change in DAC. Acquisition costs that are incremental and directly related to
successful sales efforts are deferred and recognized over the coverage periods of related insurance contracts.
Acquisition costs that are not incremental and directly related to successful sales efforts are recognized as incurred.
Additional premium/Return premium is a premium due either to or from an insured as a result of a change in
coverage (e.g. increase or decrease in limits or risk) or cancellation of an existing policy. In addition, certain policies
provide for adjustments to the original premium amount charged based on the experience of the policy, e.g. workers’
compensation policies and loss sensitive policies where changes to the original premium are based on variances of
the loss history against estimates built into the determination of the original premium.
AIG — After-tax operating income (loss) attributable to AIG is derived by excluding the following items from net
income (loss) attributable to AIG: income (loss) from discontinued operations, net loss (gain) on sale of divested
businesses and properties, income from divested businesses, legacy tax adjustments primarily related to certain
changes in uncertain tax positions and other tax adjustments, legal reserves (settlements) related to ‘‘legacy crisis
matters,’’ deferred income tax valuation allowance (releases) charges, changes in fair value of AIG Life and
Retirement fixed maturity securities designated to hedge living benefit liabilities (net of interest expense), changes in
benefit reserves and DAC, VOBA, and sales inducement assets (SIA) related to net realized capital (gains) losses,
AIG Property Casualty other (income) expense — net, (gain) loss on extinguishment of debt, net realized capital
(gains) losses, non-qualifying derivative hedging activities, excluding net realized capital (gains) losses, and bargain
purchase gain. ‘‘Legacy crisis matters’’ include favorable and unfavorable settlements related to events leading up to
and resulting from our September 2008 liquidity crisis and legal fees incurred by AIG as the plaintiff in connection
with such legal matters.
AIG Life and Retirement — Pre-tax operating income (loss) Pre-tax operating income (loss) is derived by
excluding the following items from pre-tax income (loss): legal settlements related to legacy crisis matters, changes in
fair values of fixed maturity securities designated to hedge living benefit liabilities (net of interest expense), net
realized capital (gains) losses, and changes in benefit reserves and DAC, VOBA, and SIA related to net realized
capital (gains) losses.
AIG Life and Retirement — Premiums and deposits includes direct and assumed amounts received on traditional
life insurance policies, group benefit policies and deposits on life-contingent payout annuities, as well as deposits
received on universal life, investment-type annuity contracts, guaranteed investment contracts and mutual funds.
AIG Life and Retirement — Surrender rate represents annualized surrenders and withdrawals as a percentage of
average reserves.
AIG Property Casualty — Net premiums written represent the sales of an insurer, adjusted for reinsurance
premiums assumed and ceded, during a given period. Net premiums earned are the revenue of an insurer for
covering risk during a given period. Net premiums written are a measure of performance for a sales period while Net
premiums earned are a measure of performance for a coverage period. From the period in which the premiums are
written until the period in which they are earned, the amount is presented as Unearned premium reserves in the
Consolidated Balance Sheets.
AIG Property Casualty — Pre-tax operating income (loss) includes both underwriting income (loss) and net
investment income, but excludes net realized capital (gains) losses, other (income) expense — net, legal settlements
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AIG 2013 Form 10-K 203
GL OSSARY
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related to legacy crisis matters and bargain purchase gain. Underwriting income (loss) is derived by reducing net
premiums earned by claims and claims adjustment expenses incurred, acquisition expenses and general operating
expenses.
BET Binomial Expansion Technique A model that generates expected loss estimates for CDO tranches and derives
a credit rating for those tranches.
Book Value Per Common Share Excluding Accumulated Other Comprehensive Income (loss) (AOCI) is a
non-GAAP measure and is used to show the amount of our net worth on a per-share basis. Book Value Per
Common Share Excluding AOCI is derived by dividing Total AIG shareholders’ equity, excluding AOCI, by Total
common shares outstanding.
Casualty insurance Insurance that is primarily associated with the losses caused by injuries to third persons,
i.e., not the insured, and the legal liability imposed on the insured as a result.
Catastrophe losses are generally weather or seismic events having a net impact on AIG Property Casualty in
excess of $10 million each.
Combined ratio Sum of the loss ratio and the acquisition and general operating expense ratios.
CSA Credit Support Annex A legal document that provides for collateral postings at various ratings and threshold
levels.
CVA Credit Valuation Adjustment The CVA adjusts the valuation of derivatives to account for nonperformance risk of
our counterparty with respect to all net derivative assets positions. Also, the CVA reflects the fair value movement in
the DIB’s asset portfolio that is attributable to credit movements only without the impact of other market factors such
as interest rates and foreign exchange rates. Finally, the CVA also accounts for our own credit risk, in the fair value
measurement of all net derivative liabilities positions and liabilities where AIG has elected the fair value option, when
appropriate.
DAC Deferred Policy Acquisition Costs Deferred costs that are incremental and directly related to the successful
acquisition of new business or renewal of existing business.
DAC Related to Unrealized Appreciation (Depreciation) of Investments An adjustment to DAC for investment-
oriented products, equal to the change in DAC amortization that would have been recorded if fixed maturity and
equity securities available for sale had been sold at their stated aggregate fair value and the proceeds reinvested at
current yields (also referred to as ‘‘shadow DAC’’). The change in this adjustment, net of tax, is included with the
change in net unrealized appreciation (depreciation) of investments that is credited or charged directly to Other
comprehensive income (loss).
Deferred Gain on Retroactive Reinsurance Retroactive reinsurance is a reinsurance contract in which an assuming
entity agrees to reimburse a ceding entity for liabilities incurred as a result of past insurable events. If the amount of
premium paid by the ceding reinsurer is less than the related ceded loss reserves, the resulting gain is deferred and
amortized over the settlement period of the reserves. Any related development on the ceded loss reserves
recoverable under the contract would increase the deferred gain if unfavorable, or decrease the deferred gain if
favorable.
Expense ratio Sum of acquisition expenses and general operating expenses, divided by net premiums earned.
First-Lien Priority over all other liens or claims on a property in the event of default on a mortgage.
General operating expense ratio general operating expenses divided by net premiums earned. General operating
expenses are those costs that are generally attributed to the support infrastructure of the organization and include
but are not limited to personnel costs, projects and bad debt expenses. General operating expenses exclude claims
adjustment expenses, acquisition expenses, and investment expenses.
GIC/GIA Guaranteed Investment Contract/Guaranteed Investment Agreement A contract whereby the seller provides
a guaranteed repayment of principal and a fixed or floating interest rate for a predetermined period of time.
G-SII Global Systemically Important Insurer An insurer that is deemed globally systemically important (that is, of such
size, market importance and global interconnectedness that the distress or failure of the insurer would cause
significant dislocation in the global financial system and adverse economic consequences across a range of
countries) by the Financial Stability Board, in consultation with and based on a methodology developed by the
International Association of Insurance Supervisors.
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High loss deductible policies A type of commercial insurance policy where we pay the full claim and then seek
reimbursement from the insured for the deductible. Losses are retained by the insured up to a specified deductible
amount (usually $25,000 or more per claim, subject to individual state approval) and we insure the claims in excess
of the deductible. Generally, the total claims (including the deductible portion) are managed and paid by us as part of
a loss control program, and we are reimbursed the deductible amount by the insured. In the case of unpaid claims,
we make estimates of the deductible portion of claims reported to us, and reduce our loss reserves accordingly. In
most cases, we obtain collateral in the form of cash, letters of credit or other funding arrangements to secure the
amounts of uncollected deductibles.
IBNR Incurred But Not Reported Estimates of claims that have been incurred but not reported to us.
LAE Loss Adjustment Expenses The expenses of settling claims, including legal and other fees and the portion of
general expenses allocated to claim settlement costs.
Loss Ratio Claims and claims adjustment expenses incurred divided by net premiums earned. Claims adjustment
expenses are directly attributed to settling and paying claims of insureds and include, but are not limited to, legal
fees, adjuster’s fees, and claims department personnel costs.
Loss Recognition Related to Unrealized Appreciation (Depreciation) of Investments An adjustment to DAC and
future policy benefits for long-duration traditional products, equal to the adjustments that would be required if fixed
maturity and equity securities available for sale had been sold at their stated aggregate fair value and the proceeds
reinvested at current yields, and such reinvestment would not be sufficient to recover DAC and meet policyholder
obligations (also referred to as ‘‘shadow loss recognition’’). The change in this adjustment, net of tax, is included with
the change in net unrealized appreciation (depreciation) of investments that is credited or charged directly to Other
comprehensive income (loss).
Loss reserve development The increase or decrease in incurred claims and claims adjustment expenses as a
result of the re-estimation of claims and claims adjustment expense reserves at successive valuation dates for a
given group of claims.
Loss reserves Liability for unpaid claims and claims adjustment expense. The estimated ultimate cost of settling
claims relating to insured events that have occurred on or before the balance sheet date, whether or not reported to
the insurer at that date.
LTV Loan-to-Value Ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.
Master netting agreement An agreement between two counterparties who have multiple derivative contracts with
each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment,
in a single currency, in the event of default on or upon termination of any one contract.
Net premiums written Represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded,
during a given period. Net premiums earned are the revenue of an insurer for covering risk during a given period.
Net premiums written are a measure of performance for a sales period while Net premiums earned are a measure of
performance for a coverage period. From the period in which the premiums are written until the period in which they
are earned, the amount is presented as Unearned premium reserves in the Consolidated Balance Sheets.
Noncontrolling interest The portion of equity ownership in a consolidated subsidiary not attributable to the
controlling parent company.
Other Operations — Pre-tax operating income (loss): pre-tax income (loss) excluding certain legal reserves
(settlements) related to legacy crisis matters, (gain) loss on extinguishment of debt, Net realized capital (gains)
losses, net loss (gain) on sale of divested businesses and properties, change in benefit reserves and DAC, VOBA,
and SIA related to net realized capital (gains) losses and income from divested businesses, including Aircraft
Leasing.
Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account,
to reflect the cost of issuing a policy, establishing the required records, sending premium notices and other related
expenses.
Pool A reinsurance arrangement whereby all of the underwriting results of the pool members are combined and then
shared by each member in accordance with its pool participation percentage. Our members in the admitted lines pool
are licensed to write standard lines of business by the individual state departments of insurance, and the policy forms
and rates are regulated by those departments. Our members in the surplus lines pool provide policyholders with
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AIG 2013 Form 10-K 205
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insurance coverage for risks which are generally not available in the standard insurance market. Surplus lines policy
forms and rates are not regulated by the insurance departments.
Prior year development Increase or decrease in estimates of losses and loss expenses for prior years that is
included in earnings.
RBC Risk-Based Capital A formula designed to measure the adequacy of an insurer’s statutory surplus compared to
the risks inherent in its business.
Reinstatement premium Additional premiums payable to reinsurers to restore coverage limits that have been
exhausted as a result of reinsured losses under certain excess of loss reinsurance treaties.
Reinsurance The practice whereby one insurer, the reinsurer, in consideration of a premium paid to that insurer,
agrees to indemnify another insurer, the ceding company, for part or all of the liability of the ceding company under
one or more policies or contracts of insurance which it has issued.
Rescission Denial of claims and termination of coverage on loans related to fraudulent or undocumented claims,
underwriting guideline violations and other deviations from contractual terms.
Retained Interest Category within AIG’s Other Operations that includes the fair value gains or losses, prior to their
sale, of the AIA ordinary shares retained following the AIA Group Limited initial public offering and the MetLife, Inc.
securities that were received as consideration from the sale of American Life Insurance Company and the fair value
gains or losses, prior to the FRBNY liquidation of Maiden Lane III LLC assets in 2012, on the retained interest in
Maiden Lane III LLC.
Retroactive Reinsurance See Deferred Gain on Retroactive Reinsurance.
Salvage The amount that can be recovered by us for the sale of damaged goods for which our policyholder has
been indemnified (and to which title was transferred to us).
Second-lien Subordinate in ranking to the first-lien holder claims on a property in the event of default on a
mortgage.
Severe losses Individual non-catastrophe first party losses and surety losses greater than $10 million, net of related
reinsurance. Severe losses include claims related to satellite explosions, plane crashes, and shipwrecks.
SIA Sales Inducement Asset Represents amounts that are credited to policyholder account balances related to the
enhanced crediting rates that a seller offers on certain of its annuity products.
SIFI Systemically Important Financial Institutions Financial institutions are deemed systemically important (that is, the
failure of the financial institution could pose a threat to the financial stability of the United States) by the Financial
Stability Oversight Council (FSOC) based on a three-stage analytical process.
SLHC Savings and Loan Holding Company A company (other than a bank holding company) that controls a savings
association or that controls another company that is a savings and loan holding company. Savings and loan holding
companies are subject to regulation and supervision by the Board of Governors of the Federal Reserve System.
Solvency II Legislation in the European Union which reforms the insurance industry’s solvency framework, including
minimum capital and solvency requirements, governance requirements, risk management and public reporting
standards. The Solvency II Directive (2009/138/EEC), was adopted on November 25, 2009 and is expected to
become effective in January 2016.
SSDMF Social Security Death Master File A database of deceased individuals, most of whom were issued a social
security number during their lifetimes, maintained by the U.S. Social Security Administration.
Subrogation The amount of recovery for claims we have paid our policyholders, generally from a negligent third
party or such party’s insurer.
Surrender charge A charge levied against an investor for the early withdrawal of funds from a life insurance or
annuity contract, or for the cancellation of the agreement.
Unearned premium reserve Liabilities established by insurers and reinsurers to reflect unearned premiums which
are usually refundable to policyholders if an insurance or reinsurance contract is canceled prior to expiration of the
contract term.
VOBA Value of Business Acquired Present value of projected future gross profits from in-force policies from acquired
businesses.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 206
GL OSSARY
..................................................................................................................................................................................
Acronyms
A&H Accident and Health Insurance GMWB Guaranteed Minimum Withdrawal Benefits
ABS Asset-Backed Security IFRS International Financial Reporting Standards
CDO Collateralized Debt Obligation ISDA International Swaps and Derivatives
Association, Inc.
CDS Credit Default Swap
NAIC National Association of Insurance Commissioners
CLO Collateralized Loan Obligations
NM Not Meaningful
CMA Capital Maintenance Agreement
OTC Over-the-Counter
CMBS Commercial Mortgage-Backed Securities
OTTI Other-Than-Temporary Impairment
FASB Financial Accounting Standards Board
RMBS Residential Mortgage-Backed Securities
FRBNY Federal Reserve Bank of New York
S&P Standard & Poor’s Financial Services LLC
GAAP Accounting principles generally accepted in the
United States of America SEC Securities and Exchange Commission
GMAV Guaranteed Minimum Account Value Benefits TARP Troubled Asset Relief Program of the Department
of the Treasury
GMDB Guaranteed Minimum Death Benefits
VIE Variable Interest Entity
GMIB Guaranteed Minimum Income Benefits
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 207
ACRONYMS
..................................................................................................................................................................................
The information required by this item is set forth in the Enterprise Risk Management section of Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 208
I T EM 7 A / QUANT I T AT I VE AND QUAL I T AT I VE DI SCL OSURES ABOUT MARKET RI SK
ITEM 7A / QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
..................................................................................................................................................................................
............................................................................................................................................................................................
Report of Independent Registered Public Accounting Firm 210
Consolidated Balance Sheets at December 31, 2013 and 2012 211
Consolidated Statements of Income for the years ended December 31, 2013, 2012 and 2011 212
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2013, 2012
and 2011 213
Consolidated Statements of Equity for the years ended December 31, 2013, 2012 and 2011 214
Consolidated Statements of Cash Flows for the years ended December 31, 2013, 2012 and 2011 215
Note 1. Basis of Presentation 216
Note 2. Summary of Significant Accounting Policies 217
Note 3. Segment Information 223
Note 4. Held-for-Sale Classification, Divested Businesses and Discontinued Operations 226
Note 5. Fair Value Measurements 229
Note 6. Investments 249
Note 7. Lending Activities 263
Note 8. Reinsurance 265
Note 9. Deferred Policy Acquisition Costs 267
Note 10. Variable Interest Entities 270
Note 11. Derivatives and Hedge Accounting 274
Note 12. Liability for Unpaid Claims and Claims Adjustment Expense, and Future Policy Benefits for Life
and Accident and Health Insurance Contracts, and Policyholder Contract Deposits 280
Note 13. Variable Life and Annuity Contracts 284
Note 14. Debt 286
Note 15. Contingencies, Commitments and Guarantees 289
Note 16. Equity 297
Note 17. Noncontrolling Interests 304
Note 18. Earnings Per Share 306
Note 19. Statutory Financial Data and Restrictions 307
Note 20. Share-based and Other Compensation Plans 309
Note 21. Employee Benefits 314
Note 22. Ownership 322
Note 23. Income Taxes 323
Note 24. Recapitalization 327
Note 25. Quarterly Financial Information (Unaudited) 329
Note 26. Information Provided in Connection With Outstanding Debt 331
Note 27. Subsequent Events 338
Schedule I Summary of Investments — Other than Investments in Related Parties at December 31, 2013 350
Schedule II Condensed Financial Information of Registrant at December 31, 2013 and 2012 and for the
years ended December 31, 2013, 2012 and 2011 351
Schedule III Supplementary Insurance Information at December 31, 2013, 2012 and 2011 and for the years
then ended 355
Schedule IV Reinsurance at December 31, 2013, 2012 and 2011 and for the years then ended 356
Schedule V Valuation and Qualifying Accounts at December 31, 2013, 2012 and 2011 and for the years
then ended 357
AMERICAN INTERNATIONAL GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 209
I T EM 8 / I NDEX T O F I NANCI AL ST AT EMENT AND SCHEDUL ES
ITEM 8 / FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SCHEDULES:
..................................................................................................................................................................................
............................................................................................................................................................................................
.......
..................................................................................................................................................................................
..................................................................................................................................................................................
..................................................................................................................................................................................
In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material
respects, the financial position of American International Group, Inc. and its subsidiaries (AIG) at December 31, 2013
and 2012, and the results of their operations and their cash flows for each of the three years in the period ended
December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedules listed in the accompanying index present fairly, in all
material respects, the information set forth therein when read in conjunction with the related consolidated financial
statements. Also in our opinion, AIG maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2013, based on criteria established in the 1992 Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). AIG’s
management is responsible for these financial statements and financial statement schedules, for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial
reporting, included in Management’s Report on Internal Control Over Financial Reporting appearing under Item 9A in
the 2013 Form 10-K. Our responsibility is to express opinions on these financial statements, on the financial
statement schedules, and on AIG’s internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 20, 2014
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of American International Group, Inc.:
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 210
I T EM 8 / REPORT OF I NDEPENDENT REGI ST ERED PUBL I C ACCOUNT I NG F I RM
..................................................................................................................................................................................
Assets:
Investments:
Fixed maturity securities:
Bonds available for sale, at fair value (amortized cost: 2013 – $248,531; 2012 – $246,149) $ 269,959
Other bond securities, at fair value (See Note 6) 24,584
Equity Securities:
Common and preferred stock available for sale, at fair value (cost: 2013 – $1,726; 2012 – $1,640) 3,212
Other common and preferred stock, at fair value (See Note 6) 662
Mortgage and other loans receivable, net of allowance (portion measured at fair value: 2013 – $0; 2012 – $134) 19,482
Other invested assets (portion measured at fair value: 2013 – $8,598; 2012 – $7,056) 29,117
Short-term investments (portion measured at fair value: 2013 – $6,313; 2012 – $8,056) 28,808
Total investments 375,824
Cash 1,151
Accrued investment income 3,054
Premiums and other receivables, net of allowance 13,989
Reinsurance assets, net of allowance 25,595
Deferred income taxes 17,466
Deferred policy acquisition costs 8,182
Derivative assets, at fair value 3,671
Other assets, including restricted cash of $865 in 2013 and $1,878 in 2012 (portion measured at fair value:
2013 – $418; 2012 – $696) 10,399
Separate account assets, at fair value 57,337
Assets held for sale 31,965
Total assets $ 548,633
Liabilities:
Liability for unpaid claims and claims adjustment expense $ 87,991
Unearned premiums 22,537
Future policy benefits for life and accident and health insurance contracts 40,523
Policyholder contract deposits (portion measured at fair value: 2013 – $384; 2012 – $1,257) 122,980
Other policyholder funds 6,267
Derivative liabilities, at fair value 4,061
Other liabilities (portion measured at fair value: 2013 – $933; 2012 – $1,080) 32,068
Long-term debt (portion measured at fair value: 2013 – $6,747; 2012 – $8,055) 48,500
Separate account liabilities 57,337
Liabilities held for sale 27,366
Total liabilities 449,630
Contingencies, commitments and guarantees (see Note 15)
Redeemable noncontrolling interests (see Note 17) 334
AIG shareholders’ equity:
Common stock, $2.50 par value; 5,000,000,000 shares authorized; shares issued: 2013 – 1,906,645,689 and
2012 – 1,906,611,680 4,766
Treasury stock, at cost; 2013 – 442,582,366; 2012 – 430,289,745 shares of common stock (13,924)
Additional paid-in capital 80,410
Retained earnings 14,176
Accumulated other comprehensive income 12,574
Total AIG shareholders’ equity 98,002
Non-redeemable noncontrolling interests (including $100 associated with businesses held for sale) 667
Total equity 98,669
Total liabilities and equity $ 548,633
See accompanying Notes to Consolidated Financial Statements.
AMERICAN INTERNATIONAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 211
December 31, December 31,
(in millions, except for share data) 2013 2012
$ 258,274
22,623
3,656
834
20,765
28,659
21,617
356,428
2,241
2,905
12,939
23,829
21,925
9,436
1,665
9,366
71,059
29,536
$ 541,329
$ 81,547
21,953
40,653
122,016
5,083
2,511
29,155
41,693
71,059
24,548
440,218
30
4,766
(14,520)
80,899
22,965
6,360
100,470
611
101,081
$ 541,329
Revenues:
Premiums $ 38,047 $ 39,026
Policy fees 2,349 2,309
Net investment income 20,343 14,755
Net realized capital gains:
Total other-than-temporary impairments on available for sale securities (448) (1,216)
Portion of other-than-temporary impairments on available for sale fixed maturity securities
recognized in Other comprehensive income (loss) (381) 168
Net other-than-temporary impairments on available for sale
securities recognized in net income (829) (1,048)
Other realized capital gains 1,759 1,739
Total net realized capital gains 930 691
Aircraft leasing revenue 4,504 4,508
Other income 4,848 3,816
Total revenues 71,021 65,105
Benefits, claims and expenses:
Policyholder benefits and claims incurred 32,036 33,523
Interest credited to policyholder account balances 4,340 4,432
Amortization of deferred policy acquisition costs 5,709 5,486
Other acquisition and insurance expenses 9,235 8,458
Interest expense 2,319 2,444
Aircraft leasing expenses 4,138 5,401
Loss on extinguishment of debt 32 2,908
Net loss on sale of properties and divested businesses 6,736 74
Other expenses 3,585 3,280
Total benefits, claims and expenses 68,130 66,006
Income (loss) from continuing operations before income tax expense (benefit) 2,891 (901)
Income tax expense (benefit):
Current 762 95
Deferred (1,570) (19,859)
Income tax expense (benefit) (808) (19,764)
Income from continuing operations 3,699 18,863
Income from discontinued operations, net of income tax expense 1 2,467
Net income 3,700 21,330
Less:
Net income from continuing operations attributable to noncontrolling interests:
Nonvoting, callable, junior and senior preferred interests 208 634
Other 54 55
Total net income from continuing operations attributable to noncontrolling interests 262 689
Net income from discontinued operations attributable to noncontrolling interests – 19
Total net income attributable to noncontrolling interests 262 708
Net income attributable to AIG $ 3,438 $ 20,622
Net income attributable to AIG common shareholders $ 3,438 $ 19,810
Income per common share attributable to AIG:
Basic:
Income from continuing operations $ 2.04 $ 9.65
Income from discontinued operations $ – $ 1.36
Net income attributable to AIG $ 2.04 $ 11.01
Diluted:
Income from continuing operations $ 2.04 $ 9.65
Income from discontinued operations $ – $ 1.36
Net income attributable to AIG $ 2.04 $ 11.01
Weighted average shares outstanding:
Basic 1,687,197,038 1,799,385,757
Diluted 1,687,226,641 1,799,458,497
Dividends declared per common share $ – $ –
See accompanying Notes to Consolidated Financial Statements.
AMERICAN INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 212
Years Ended December 31,
(dollars in millions, except per share data) 2013 2012 2011
$ 37,350
2,535
15,810
(165)
(22)
(187)
1,931
1,744
4,420
6,819
68,678
29,503
3,892
5,157
9,166
2,142
4,549
651
48
4,202
59,310
9,368
679
(319)
360
9,008
84
9,092
–
7
7
–
7
$ 9,085
$ 9,085
$ 6.11
$ 0.05
$ 6.16
$ 6.08
$ 0.05
$ 6.13
1,474,171,690
1,481,206,797
$ 0.20
Net income $ 3,700 $ 21,330
Other comprehensive income (loss), net of tax
Change in unrealized appreciation (depreciation) of fixed maturity investments
on which other-than-temporary credit impairments were taken 1,286 (74)
Change in unrealized appreciation (depreciation) of all other investments 4,880 (1,485)
Change in foreign currency translation adjustments – (992)
Change in net derivative gains arising from cash flow hedging activities 17 17
Change in retirement plan liabilities adjustment (87) (70)
Other comprehensive income (loss) 6,096 (2,604)
Comprehensive income 9,796 18,726
Comprehensive income attributable to noncontrolling nonvoting, callable, junior
and senior preferred interests 208 634
Comprehensive income (loss) attributable to other noncontrolling interests 57 (47)
Total comprehensive income (loss) attributable to noncontrolling interests 265 587
Comprehensive income attributable to AIG $ 9,531 $ 18,139
See accompanying Notes to Consolidated Financial Statements.
AMERICAN INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 213
Years Ended December 31,
(in millions) 2013 2012 2011
$ 9,092
361
(6,673)
(556)
–
631
(6,237)
2,855
–
(16)
(16)
$ 2,871
Balance, January 1, 2011 $ 71,983 $ 368 $ (873) $ 8,355 $ (9,848) $ 8,871 $ 78,856 $ 27,920 $ 106,776
Series F drawdown 20,292 – – – – – 20,292 – 20,292
Repurchase of SPV preferred
interests in connection with
Recapitalization
(a)
– – – – – – – (26,432) (26,432)
Exchange of consideration for
preferred stock in connection
with Recapitalization (92,275) 4,138 – 67,460 – – (20,677) – (20,677)
Common stock issued – 250 – 2,636 – – 2,886 – 2,886
Purchase of common stock – – (70) – – – (70) – (70)
Settlement of equity unit stock
purchase contract – 9 – 2,160 – – 2,169 – 2,169
Net income attributable to AIG or
other noncontrolling interests
(b)
– – – – 20,622 – 20,622 82 20,704
Net income attributable to
noncontrolling nonvoting,
callable, junior and senior
preferred interests – – – – – – – 74 74
Other comprehensive loss – – – – – (2,483) (2,483) (119) (2,602)
Deferred income taxes – – – 2 – – 2 – 2
Acquisition of noncontrolling
interest – – – (164) – 93 (71) (489) (560)
Net decrease due to
deconsolidation – – – – – – – (123) (123)
Contributions from noncontrolling
interests – – – – – – – 120 120
Distributions to noncontrolling
interests – – – – – – – (128) (128)
Other – 1 1 10 – – 12 (50) (38)
Balance, December 31, 2011 $ – $ 4,766 $ (942) $ 80,459 $ 10,774 $ 6,481 $ 101,538 $ 855 $ 102,393
Common stock issued under
stock plans – – 18 (15) – – 3 – 3
Purchase of common stock – – (13,000) – – – (13,000) – (13,000)
Net income attributable to AIG or
other noncontrolling interests
(b)
– – – – 3,438 – 3,438 40 3,478
Other comprehensive income
(loss) – – – – – 6,093 6,093 (1) 6,092
Deferred income taxes – – – (9) – – (9) – (9)
Net decrease due to
deconsolidation – – – – – – – (27) (27)
Contributions from noncontrolling
interests – – – – – – – 80 80
Distributions to noncontrolling
interests – – – – – – – (167) (167)
Other – – – (25) (36) – (61) (113) (174)
Balance, December 31, 2012 $ – $ 4,766 $ (13,924) $ 80,410 $ 14,176 $ 12,574 $ 98,002 $ 667 $ 98,669
Purchase of common stock
Net income attributable to AIG or
other noncontrolling interests
(b)
Dividends
Other comprehensive loss
Deferred income taxes
Contributions from noncontrolling
interests
Distributions to noncontrolling
interests
Other
Balance, December 31, 2013
(a) See Notes 17 and 24 to Consolidated Financial Statements.
(b) Excludes gains of $2 million, $222 million and $552 million in 2013, 2012 and 2011, respectively, attributable to redeemable noncontrolling
interests and net income attributable to noncontrolling nonvoting, callable, junior and senior preferred interests held by the Federal Reserve Bank of
New York (FRBNY) of $0, $0 and $74 million in 2013, 2012 and 2011, respectively.
See Accompanying Notes to Consolidated Financial Statements.
AMERICAN INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF EQUITY
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 214
Non-
Accumulated Total AIG redeemable
Additional Other Share- Non-
Preferred Common Treasury Paid-in Retained Comprehensive holders’ controlling Total
(in millions) Stock Stock Stock Capital Earnings Income Equity Interests Equity
– – (597) – – – (597) – (597)
– – – – 9,085 – 9,085 5 9,090
– – – – (294) – (294) – (294)
– – – – – (6,214) (6,214) (5) (6,219)
– – – 355 – – 355 – 355
– – – – – – – 33 33
– – – – – – – (81) (81)
– – 1 134 (2) – 133 (8) 125
$ – $ 4,766 $ (14,520) $ 80,899 $ 22,965 $ 6,360 $ 100,470 $ 611 $ 101,081
Cash flows from operating activities:
Net income $ 3,700 $ 21,330
Income from discontinued operations (1) (2,467)
Adjustments to reconcile net income to net cash provided by operating activities:
Noncash revenues, expenses, gains and losses included in income:
Net gains on sales of securities available for sale and other assets (3,219) (1,766)
Net losses on sales of divested businesses 6,736 74
Net losses on extinguishment of debt 32 2,908
Unrealized gains in earnings — net (6,091) (803)
Equity in income from equity method investments, net of dividends or distributions (911) (637)
Depreciation and other amortization 7,349 7,372
Amortization of costs and accrued interest and fees related to FRBNY Credit Facility – 48
Impairments of assets 1,747 3,482
Changes in operating assets and liabilities:
Property casualty and life insurance reserves (2,260) (202)
Premiums and other receivables and payables — net 1,678 1,828
Reinsurance assets and funds held under reinsurance treaties 1,407 (1,103)
Capitalization of deferred policy acquisition costs (5,613) (5,429)
Current and deferred income taxes — net (1,255) (20,480)
Payment of FRBNY Credit Facility accrued compounded interest and fees – (6,363)
Other, net 377 (1,243)
Total adjustments (23) (22,314)
Net cash provided by (used in) operating activities — continuing operations 3,676 (3,451)
Net cash provided by operating activities — discontinued operations – 3,370
Net cash provided by (used in) operating activities 3,676 (81)
Cash flows from investing activities:
Proceeds from (payments for)
Sales or distribution of:
Available for sale investments 39,818 43,961
Other securities 17,814 9,867
Other invested assets 19,012 7,936
Divested businesses, net – 587
Maturities of fixed maturity securities available for sale 21,449 20,062
Principal payments received on and sales of mortgage and other loans receivable 3,313 3,207
Purchases of:
Available for sale investments (53,536) (90,627)
Other securities (13,373) (1,253)
Other invested assets (6,402) (6,675)
Mortgage and other loans receivable (3,256) (2,600)
Net change in restricted cash 414 27,244
Net change in short-term investments (8,109) 19,988
Other, net (532) 273
Net cash provided by investing activities — continuing operations 16,612 31,970
Net cash provided by (used in) investing activities — discontinued operations – 4,478
Net cash provided by investing activities 16,612 36,448
Cash flows from financing activities:
Proceeds from (payments for)
Policyholder contract deposits 13,288 17,903
Policyholder contract withdrawals (13,978) (13,570)
FRBNY credit facility repayments – (14,622)
Issuance of long-term debt 8,612 7,762
Repayments of long-term debt (11,101) (17,810)
Proceeds from drawdown on the Department of the Treasury Commitment – 20,292
Repayment of Department of the Treasury SPV Preferred Interests (8,636) (12,425)
Repayment of FRBNY SPV Preferred Interests – (26,432)
Issuance of Common Stock – 5,055
Purchase of Common Stock (13,000) (70)
Dividends paid – –
Other, net 4,251 (1,067)
Net cash used in financing activities — continuing operations (20,564) (34,984)
Net cash provided by (used in) financing activities — discontinued operations – (1,942)
Net cash used in financing activities (20,564) (36,926)
Effect of exchange rate changes on cash 16 29
Net increase (decrease) in cash (260) (530)
Cash at beginning of year 1,474 1,558
Change in cash of businesses held for sale (63) 446
Cash at end of year $ 1,151 $ 1,474
Cash paid during the period for:
Interest
*
$ 4,037 $ 8,985
Taxes $ 447 $ 716
Non-cash investing/financing activities:
Interest credited to policyholder contract deposits included in financing activities $ 4,501 $ 4,750
Exchange of junior subordinated debentures for senior notes $ – $ (2,392)
Senior notes exchanged for junior subordinated debentures $ – $ 1,843
Debt assumed in acquisition $ – $ 299
* 2011 includes payment of the FRBNY credit facility accrued compounded interest of $4.7 billion, before the facility was terminated on January 14, 2011 in connection with
the Recapitalization.
See accompanying Notes to Consolidated Financial Statements.
AMERICAN INTERNATIONAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 215
Years Ended December 31,
(in millions) 2013 2012 2011
$ 9,092
(84)
(2,741)
48
651
(156)
(1,484)
4,713
–
1,332
(2,576)
43
2,131
(5,834)
(437)
–
1,167
(3,143)
5,865
–
5,865
36,050
5,134
6,442
–
26,048
3,420
(63,339)
(2,040)
(7,242)
(5,266)
1,244
7,842
(1,194)
7,099
–
7,099
15,772
(16,319)
–
5,235
(14,197)
–
–
–
–
(597)
(294)
(1,358)
(11,758)
–
(11,758)
(92)
1,114
1,151
(24)
$ 2,241
Supplementary Disclosure of Consolidated Cash Flow Information
$ 3,856
$ 796
$ 3,987
$ –
$ –
$ –
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in more
than 130 countries. AIG companies serve commercial, institutional and individual customers through one of the most
extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of
life insurance and retirement services in the United States. AIG Common Stock, par value $2.50 per share (AIG
Common Stock), is listed on the New York Stock Exchange (NYSE: AIG) and the Tokyo Stock Exchange. Unless the
context indicates otherwise, the terms ‘‘AIG,’’ ‘‘we,’’ ‘‘us’’ or ‘‘our’’ mean American International Group, Inc. and its
consolidated subsidiaries and the term ‘‘AIG Parent’’ means American International Group, Inc. and not any of its
consolidated subsidiaries.
The consolidated financial statements include the accounts of AIG Parent, our controlled subsidiaries (generally
through a greater than 50 percent ownership of voting rights of a voting interest entity), and variable interest entities
(VIEs) of which we are the primary beneficiary. Equity investments in entities that we do not consolidate, including
corporate entities in which we have significant influence and partnership and partnership-like entities in which we
have more than minor influence over operating and financial policies, are accounted for under the equity method
unless we have elected the fair value option.
Certain of our foreign subsidiaries included in the consolidated financial statements report on different annual fiscal
year bases, in most cases ending November 30. The effect on our consolidated financial condition and results of
operations of all material events occurring at these subsidiaries between such fiscal year end and December 31 for
all periods presented in these consolidated financial statements has been recorded.
The accompanying consolidated financial statements have been prepared in accordance with accounting principles
generally accepted in the United States (GAAP). All material intercompany accounts and transactions have been
eliminated.
Segment changes are discussed in Note 3 herein.
Advisory fee income, and the related commissions and advisory fee expenses of AIG Life and Retirement’s broker
dealer business, are now being presented on a gross basis within Other income and Other expenses, respectively.
Previously, these amounts were included on a net basis within Policy fees in AIG’s Consolidated Statements of
Income and in AIG Life and Retirement’s segment results.
In addition, policyholder benefits related to certain payout annuities, primarily with life contingent features, are now
being presented in the Consolidated Balance Sheets as Future policy benefits for life and accident and health
insurance contracts instead of as Policyholder contract deposits.
Prior period amounts were conformed to the current period presentation. These changes did not affect Income from
continuing operations before income tax expense, Net income attributable to AIG or Total liabilities.
On December 16, 2013, we entered into a definitive agreement with AerCap Holdings N.V. (AerCap) and AerCap
Ireland Limited (Purchaser), a wholly-owned subsidiary of AerCap for the sale of 100 percent of the common stock of
International Lease Finance Corporation (ILFC). Based on the terms of this agreement, notably AIG’s interest of
46 percent of the common shares of AerCap upon consummation of the sale of ILFC to AerCap, we determined
ILFC no longer met the criteria at December 31, 2013 to be presented as a discontinued operation. ILFC’s results
are reflected in Aircraft leasing revenue and Aircraft leasing expenses and the loss associated with the 2012
classification of ILFC as held for sale is included in Net loss on sale of properties and divested businesses in the
Consolidated Statements of Income. The assets and liabilities of ILFC are classified as held-for-sale at December 31,
2013 and 2012 in the Consolidated Balance Sheets. See Note 4 herein for further discussion.
1. BASIS OF PRESENTATION
AIG Life and Retirement
Sale of ILFC
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AIG 2013 Form 10-K 216
I T EM 8 / NOT E 1 . BASI S OF PRESENT AT I ON
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The preparation of financial statements in accordance with GAAP requires the application of accounting policies that
often involve a significant degree of judgment. Accounting policies that we believe are most dependent on the
application of estimates and assumptions are considered our critical accounting estimates and are related to the
determination of:
• classification of ILFC as held for sale and related fair value measurement;
• income tax assets and liabilities, including recoverability of our net deferred tax asset and the predictability of
future tax operating profitability of the character necessary to realize the net deferred tax asset;
• liability for unpaid claims and claims adjustment expense;
• reinsurance assets;
• valuation of future policy benefit liabilities and timing and extent of loss recognition;
• valuation of liabilities for guaranteed benefit features of variable annuity products;
• estimated gross profits to value deferred acquisition costs for investment-oriented products;
• impairment charges, including other-than-temporary impairments on available for sale securities, impairments on
investments in life settlements and goodwill impairment;
• liability for legal contingencies; and
• fair value measurements of certain financial assets and liabilities.
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the
time of estimation. To the extent actual experience differs from the assumptions used, our consolidated financial
condition, results of operations and cash flows could be materially affected.
The following table identifies our significant accounting policies presented in other Notes to these Consolidated
Financial Statements, with a reference to the Note where a detailed description can be found:
Note 4. Held-for-Sale Classification, Divested Businesses and Discontinued Operations
• Held-for-sale classification
• Discontinued operations
Note 6. Investments
• Fixed maturity and equity securities
• Other invested assets
• Short-term investments
• Net investment income
• Net realized capital gains (losses)
• Other-than-temporary impairments
Note 7. Lending Activities
• Mortgage and other loans receivable – net of allowance
Note 8. Reinsurance
• Reinsurance assets – net of allowance
Note 9. Deferred Policy Acquisition Costs
• Deferred policy acquisition costs
• Amortization of deferred policy acquisition costs
Note 11. Derivatives and Hedge Accounting
• Derivative assets and liabilities, at fair value
Use of Estimates
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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AIG 2013 Form 10-K 217
I T EM 8 / NOT E 1 . BASI S OF PRESENT AT I ON
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Note 12. Liability for Unpaid Claims and Claims Adjustment Expense, and Future Policy Benefits for
Life and Accident and Health Insurance Contracts, and Policyholder Contract Deposits
• Liability for unpaid claims and claims adjustment expense
• Future policy benefits
• Policyholder contract deposits
• Interest credited to policyholder account balances
Note 14. Debt
• Long-term debt
Note 15. Contingencies, Commitments and Guarantees
• Legal contingencies
Note 17. Noncontrolling Interests
Note 18. Earnings Per Share
Note 23. Income Taxes
Premiums for short-duration contracts are recorded as written on the inception date of the policy. Premiums are
earned primarily on a pro rata basis over the term of the related coverage. Sales of extended services contracts are
reflected as premiums written and earned on a pro rata basis over the term of the related coverage. The reserve for
unearned premiums includes the portion of premiums written relating to the unexpired terms of coverage.
Reinsurance premiums under a reinsurance contract are typically earned over the same period as the underlying
policies, or risks, covered by the contracts. As a result, the earnings pattern of a reinsurance contract may extend up
to 24 months, reflecting the inception dates of the underlying policies throughout the year.
Reinsurance premiums ceded are recognized as a reduction in revenues over the period the reinsurance coverage is
provided in proportion to the risks to which the premiums relate.
Premiums for long duration insurance products and life contingent annuities are recognized as revenues when due.
Estimates for premiums due but not yet collected are accrued.
Policy fees represent fees recognized from universal life and investment-type products consisting of policy charges
for the cost of insurance, policy administration charges, surrender charges and amortization of unearned revenue
reserves.
Aircraft leasing revenue from flight equipment under operating leases is recognized over the life of the leases as
rental payments become receivable under the provisions of the leases or, in the case of leases with varying
payments, under the straight-line method over the noncancelable term of the leases. In certain cases, leases provide
for additional payments contingent on usage. In those cases, rental revenue is recognized at the time such usage
occurs, net of estimated future contractual aircraft maintenance reimbursements. Gains on sales of flight equipment
are recognized when flight equipment is sold and the risk of ownership of the equipment is passed to the new owner.
Other income includes unrealized gains and losses on derivatives, including unrealized market valuation gains and
losses associated with the Global Capital Markets (GCM) super senior credit default swap (CDS) portfolio, advisory
fee income from AIG Life and Retirement’s broker dealer business, income from the Direct Investment book (DIB), as
well as legal settlements of $1.2 billion and $200 million from legacy crisis and other matters in 2013 and 2012,
respectively.
Other income from our Other Operations category consists of the following:
• Change in fair value relating to financial assets and liabilities for which the fair value option has been elected.
• Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds
with changes in the timing and the amount of expected principal and interest cash flows reflected in the yield, as
applicable.
• Dividend income from common and preferred stock and distributions from other investments.
• Changes in the fair value of other securities sold but not yet purchased, futures, hybrid financial instruments,
securities purchased under agreements to resell, and securities sold under agreements to repurchase.
Other significant accounting policies
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AIG 2013 Form 10-K 218
I T EM 8 / NOT E 2 . SUMMARY OF SI GNI F I CANT ACCOUNT I NG POL I CI ES
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• Income earned on real estate based investments and related realized gains and losses from sales, property level
impairments and financing costs.
• Exchange gains and losses resulting from foreign currency transactions.
• Reductions to the cost basis of securities available for sale for other-than-temporary impairments.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• Gains and losses recognized in earnings on derivatives for the effective portion and their related hedged items.
Aircraft leasing expenses consist of ILFC interest expense, depreciation expense, impairment charges, fair value
adjustments and lease-related charges on aircraft as well as selling, general and administrative expenses and other
expenses incurred by ILFC.
Cash represents cash on hand and non-interest bearing demand deposits.
Premiums and other receivables — net includes premium balances receivable, amounts due from agents and
brokers and policyholders, trade receivables for the DIB and GCM and other receivables. Trade receivables for GCM
include cash collateral posted to derivative counterparties that is not eligible to be netted against derivative liabilities.
The allowance for doubtful accounts on premiums and other receivables was $554 million and $619 million at
December 31, 2013 and 2012, respectively.
Other assets consists of sales inducement assets, prepaid expenses, deposits, other deferred charges, real estate,
other fixed assets, capitalized software costs, goodwill, intangible assets other than goodwill, and restricted cash.
We offer sales inducements, which include enhanced crediting rates or bonus payments to contract holders (bonus
interest) on certain annuity and investment contract products. Sales inducements provided to the contract holder are
recognized in Policyholder contract deposits in the Consolidated Balance Sheets. Such amounts are deferred and
amortized over the life of the contract using the same methodology and assumptions used to amortize DAC (see
Note 9 herein). To qualify for such accounting treatment, the bonus interest must be explicitly identified in the
contract at inception. We must also demonstrate that such amounts are incremental to amounts we credit on similar
contracts without bonus interest, and are higher than the contract’s expected ongoing crediting rates for periods after
the bonus period. The deferred bonus interest and other deferred sales inducement assets totaled $703 million and
$517 million at December 31, 2013 and 2012, respectively. The amortization expense associated with these assets is
reported within Interest credited to policyholder account balances in the Consolidated Statements of Income. Such
amortization expense totaled $102 million, $162 million and $239 million for the years ended December 31, 2013,
2012 and 2011, respectively.
The cost of buildings and furniture and equipment is depreciated principally on the straight-line basis over their
estimated useful lives (maximum of 40 years for buildings and 10 years for furniture and equipment). Expenditures
for maintenance and repairs are charged to income as incurred and expenditures for improvements are capitalized
and depreciated. We periodically assess the carrying value of our real estate for purposes of determining any asset
impairment. Capitalized software costs, which represent costs directly related to obtaining, developing or upgrading
internal use software, are capitalized and amortized using the straight-line method over a period generally not
exceeding five years. Real estate, fixed assets and other long-lived assets are assessed for impairment when
impairment indicators exist.
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are
not individually identified and separately recognized. Goodwill is tested for impairment annually, or more frequently if
circumstances indicate an impairment may have occurred. All of our goodwill was associated with and allocated to
the AIG Property Casualty’s Commercial Insurance and Consumer Insurance operating segments.
The impairment assessment involves an option to first assess qualitative factors to determine whether events or
circumstances exist that lead to a determination that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. If the qualitative assessment is not performed, or after assessing the totality of the
events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, the impairment assessment involves a two-step process in which a quantitative assessment for
potential impairment is performed.
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AIG 2013 Form 10-K 219
I T EM 8 / NOT E 2 . SUMMARY OF SI GNI F I CANT ACCOUNT I NG POL I CI ES
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If the qualitative test is not performed or if the test indicates a potential impairment is present, we estimate the fair
value of each reporting unit and compare the estimated fair value with the carrying amount of the reporting unit,
including allocated goodwill. The estimate of a reporting unit’s fair value involves management judgment and is
based on one or a combination of approaches including discounted expected future cash flows, market-based
earnings multiples of the unit’s peer companies, external appraisals or, in the case of reporting units being
considered for sale, third-party indications of fair value, if available. We consider one or more of these estimates
when determining the fair value of a reporting unit to be used in the impairment test.
If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value
of a reporting unit exceeds its estimated fair value, goodwill associated with that reporting unit potentially is impaired.
The amount of impairment, if any, is measured as the excess of the carrying value of the goodwill over the implied
fair value of the goodwill. The implied fair value of the goodwill is measured as the excess of the fair value of the
reporting unit over the amounts that would be assigned to the reporting unit’s assets and liabilities in a hypothetical
business combination. An impairment charge is recognized in earnings to the extent of the excess. AIG Property
Casualty manages its assets on an aggregate basis and does not allocate its assets, other than goodwill, between its
operating segments. Therefore, the carrying value of the reporting units was determined by allocating the carrying
value of AIG Property Casualty to those units based on an internal capital allocation model.
At December 31, 2013, we performed our annual goodwill impairment test. Based on the results of the goodwill
impairment test, we concluded that the remaining goodwill was not impaired.
The following table presents the changes in goodwill by reportable segment:
Balance at December 31, 2011:
Goodwill – gross $ 2,546 $ 2,304 $ 4,850
Accumulated impairments (1,196) (2,281) (3,477)
Net goodwill 1,350 23 1,373
Increase (decrease) due to:
Acquisition 119 – 119
Goodwill impairments – (23) (23)
Balance at December 31, 2012:
Goodwill – gross $ 2,665 $ 2,281 $ 4,946
Accumulated impairments (1,196) (2,281) (3,477)
Net goodwill $ 1,469 $ – $ 1,469
Increase (decrease) due to:
Other 6 – 6
Balance at December 31, 2013:
Goodwill – gross
Accumulated impairments
Net goodwill
Separate accounts represent funds for which investment income and investment gains and losses accrue directly to
the policyholders who bear the investment risk. Each account has specific investment objectives and the assets are
carried at fair value. The assets of each account are legally segregated and are not subject to claims that arise from
any of our other businesses. The liabilities for these accounts are equal to the account assets. For a more detailed
discussion of separate accounts, see Note 13 herein.
Other policyholder funds are reported at cost and include any policyholder funds on deposit that encompass
premium deposits and similar items, including liabilities for dividends arising out of participating business, reserves for
experience-rated group products and unearned revenue reserves (URR). URR consist of front end loads on interest-
sensitive contracts, representing those policy loads that are non-level and typically higher in initial policy years than
in later policy years. URR for interest-sensitive life insurance policies are generally deferred and amortized, with
interest, in relation to the incidence of estimated gross profits (EGPs) for investment-oriented products to be realized
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AIG 2013 Form 10-K 220
I T EM 8 / NOT E 2 . SUMMARY OF SI GNI F I CANT ACCOUNT I NG POL I CI ES
AIG Property
(in millions) Casualty Other Total
$ 2,671 $ 2,281 $ 4,952
(1,196) (2,281) (3,477)
$ 1,475 $ – $ 1,475
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over the estimated lives of the contracts and are subject to the same adjustments due to changes in the assumptions
underlying EGPs as DAC.
Other liabilities consist of other funds on deposit, other payables, securities sold under agreements to repurchase
and securities sold but not yet purchased. We have entered into certain insurance and reinsurance contracts,
primarily in our AIG Property Casualty segment, that do not contain sufficient insurance risk to be accounted for as
insurance or reinsurance. Accordingly, the premiums received on such contracts, after deduction for certain related
expenses, are recorded as deposits within Other liabilities in the Consolidated Balance Sheets. Net proceeds of
these deposits are invested and generate Net investment income. As amounts are paid, consistent with the
underlying contracts, the deposit liability is reduced. Also included in Other liabilities are trade payables for the DIB
and GCM, which include option premiums received and payables to counterparties that relate to unrealized gains and
losses on futures, forwards, and options and balances due to clearing brokers and exchanges. Trade payables for
GCM also include cash collateral received from derivative counterparties that contractually cannot be netted against
derivative assets.
Securities sold but not yet purchased represent sales of securities not owned at the time of sale. The obligations
arising from such transactions are recorded on a trade-date basis and carried at fair value. Fair values of securities
sold but not yet purchased are based on current market prices.
Foreign currency: Financial statement accounts expressed in foreign currencies are translated into U.S. dollars.
Functional currency assets and liabilities are translated into U.S. dollars generally using rates of exchange prevailing
at the balance sheet date of each respective subsidiary and the related translation adjustments are recorded as a
separate component of Accumulated other comprehensive income, net of any related taxes, in Total AIG
shareholders’ equity. Functional currencies are generally the currencies of the local operating environment. Financial
statement accounts expressed in currencies other than the functional currency of a consolidated entity are translated
into that entity’s functional currency. Income statement accounts expressed in functional currencies are translated
using average exchange rates during the period. The adjustments resulting from translation of financial statements of
foreign entities operating in highly inflationary economies are recorded in income. Exchange gains and losses
resulting from foreign currency transactions are recorded in income.
In July 2012, the Financial Accounting Standards Board (FASB) issued an accounting standard that allows a
company, as a first step in an impairment review, to assess qualitatively whether it is more likely than not that an
indefinite-lived intangible asset is impaired. We are not required to calculate the fair value of an indefinite-lived
intangible asset and perform a quantitative impairment test unless we determine, based on the results of the
qualitative assessment, that it is more likely than not the asset is impaired.
The standard became effective for annual and interim impairment tests performed for fiscal years beginning after
September 15, 2012. We adopted the standard on its required effective date of January 1, 2013. The adoption of this
standard had no material effect on our consolidated financial condition, results of operations or cash flows.
In July 2013, the FASB issued an accounting standard that permits the Federal Funds Effective Swap Rate (or
Overnight Index Swap Rate) to be used as a U.S. benchmark interest rate for hedge accounting purposes in addition
to U.S. Treasury rates and LIBOR. The standard also removes the prohibition on the use of differing benchmark
rates when entering into similar hedging relationships.
The standard became effective on a prospective basis for qualifying new or redesignated hedging relationships
entered into on or after July 17, 2013 to the extent the Federal Funds Effective Swap Rate is used as a U.S.
benchmark interest rate for hedge accounting purposes. We adopted the standard on its effective date of July 17,
2013. The adoption of this standard had no material effect on our consolidated financial condition, results of
operations or cash flows.
Accounting Standards Adopted During 2013
Testing Indefinite-Lived Intangible Assets for Impairment
Inclusion of the Federal Funds Effective Swap Rate as a Benchmark Interest Rate for Hedge Accounting
Purposes
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AIG 2013 Form 10-K 221
I T EM 8 / NOT E 2 . SUMMARY OF SI GNI F I CANT ACCOUNT I NG POL I CI ES
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In February 2013, the FASB issued an accounting standard that requires us to measure obligations resulting from
joint and several liability arrangements for which the total amount of the obligation is fixed at the reporting date as
the sum of (i) the amount we agreed to pay on the basis of our arrangement among our co-obligors and (ii) any
additional amount we expect to pay on behalf of our co-obligors.
The standard is effective for fiscal years and interim periods beginning after December 15, 2013, but earlier adoption
is permitted. Upon adoption, the standard should be applied retrospectively to all prior periods presented. We plan to
adopt the standard on its required effective date of January 1, 2014 and do not expect the adoption of the standard
to have a material effect on our consolidated financial condition, results of operations or cash flows.
In March 2013, the FASB issued an accounting standard addressing whether consolidation guidance or foreign
currency guidance applies to the release of the cumulative translation adjustment into net income when a parent sells
all or a part of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or net
assets that are a business (other than a sale of in-substance real estate) within a foreign entity. The guidance also
resolves the diversity in practice for the cumulative translation adjustment treatment in business combinations
achieved in stages involving foreign entities.
Under this standard, the entire amount of the cumulative translation adjustment associated with the foreign entity
should be released into earnings when there has been: (i) a sale of a subsidiary or group of net assets within a
foreign entity and the sale represents a complete or substantially complete liquidation of the foreign entity in which
the subsidiary or the net assets had resided; (ii) a loss of a controlling financial interest in an investment in a foreign
entity; or (iii) a change in accounting method from applying the equity method to an investment in a foreign entity to
consolidating the foreign entity.
The standard is effective for fiscal years and interim periods beginning after December 15, 2013, and will be applied
prospectively. We plan to adopt the standard on its required effective date of January 1, 2014 and do not expect the
adoption of the standard to have a material effect on our consolidated financial condition, results of operations or
cash flows.
In June 2013, the FASB issued an accounting standard that amends the criteria a company must meet to qualify as
an investment company, clarifies the measurement guidance, and requires new disclosures for investment
companies. An entity that is regulated by the Securities and Exchange Commission under the Investment Company
Act of 1940 (the 1940 Act) qualifies as an investment company. Entities that are not regulated under the 1940 Act
must have certain fundamental characteristics and must consider other characteristics to determine whether they
qualify as investment companies. An entity’s purpose and design must be considered when making the assessment.
The standard is effective for fiscal years and interim periods beginning after December 15, 2013. Earlier adoption is
prohibited. An entity that no longer meets the requirements to be an investment company as a result of this standard
should present the change in its status as a cumulative-effect adjustment to retained earnings as of the beginning of
the period of adoption. An entity that is an investment company should apply the guidance prospectively as an
adjustment to opening net assets as of the effective date. The adjustment to net assets represents both the
difference between the fair value and the carrying amount of the entity’s investments and any amount previously
recognized in Accumulated other comprehensive income. We plan to adopt the standard on its required effective
date of January 1, 2014 and do not expect the adoption of the standard to have a material effect on our consolidated
financial condition, results of operations or cash flows.
Future Application of Accounting Standards
Certain Obligations Resulting from Joint and Several Liability Arrangements
Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of an Investment
within a Foreign Entity or of an Investment in a Foreign Entity
Investment Company Guidance
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AIG 2013 Form 10-K 222
I T EM 8 / NOT E 2 . SUMMARY OF SI GNI F I CANT ACCOUNT I NG POL I CI ES
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In July 2013, the FASB issued an accounting standard that requires a liability related to unrecognized tax benefits to
be presented as a reduction to the related deferred tax asset for a net operating loss carryforward or a tax credit
carryforward. When the carryforwards are not available at the reporting date under the tax law of the applicable
jurisdiction or the tax law of the applicable jurisdiction does not require, and the entity does not intend to use, the
deferred tax asset for such purpose, the unrecognized tax benefit will be presented in the financial statements as a
liability and will not be combined with the related deferred tax asset.
The standard is effective for fiscal years and interim periods beginning after December 15, 2013, but earlier adoption
is permitted. Upon adoption, the standard should be applied prospectively to unrecognized tax benefits that existed at
the effective date. Retrospective application is permitted. We plan to adopt the standard prospectively on its required
effective date of January 1, 2014 and do not expect the adoption of the standard to have a material effect on our
consolidated financial condition, results of operations or cash flows.
We report the results of our operations consistent with the manner in which AIG’s chief operating decision makers
review the business to assess performance and to allocate resources through two reportable segments: AIG Property
Casualty and AIG Life and Retirement. We evaluate performance based on revenues and pre-tax income (loss),
excluding results from discontinued operations, because we believe this provides more meaningful information on
how our operations are performing. Prior to the fourth quarter of 2012, we also presented Aircraft Leasing as a
reportable segment, which included the results of ILFC. As a result of the proposed sale of ILFC discussed in
Note 4, Aircraft Leasing is no longer presented as a reportable segment in all periods presented.
In the fourth quarter of 2013, to reduce investment concentration, we transferred the holdings of investments in life
settlements from AIG Property Casualty operations to AIG’s Other Operations. AIG Property Casualty has retained
debt instruments associated with the investments in life settlements, repayment of which is expected to result from
cash flows from the investments in life settlements. To align our segment reporting with this change, the results of
the investments in life settlements, including investment income and impairment losses, were reclassified to AIG’s
Other Operations for all periods presented.
The AIG Property Casualty segment is presented as two operating segments — Commercial Insurance and
Consumer Insurance, in addition to an AIG Property Casualty Other category.
Our property and casualty operations are conducted through multiple-line companies writing substantially all
commercial and consumer lines both domestically and abroad. AIG Property Casualty offers its products through a
diverse, multi-channel distribution network that includes agents, wholesalers, global and local brokers, and
direct-to-consumer platforms.
Investment income is allocated to the Commercial Insurance and Consumer Insurance operating segments based on
an internal investment income allocation model. The model estimates investable funds based primarily on loss
reserves and allocated capital. Commencing in the first quarter of 2013, AIG Property Casualty began applying
similar duration and risk-free yields (plus a liquidity premium) to the allocated capital of Commercial Insurance and
Consumer Insurance as is applied to reserves.
In 2012, AIG Life and Retirement announced several key organizational structure and management changes
intended to better serve the organization’s distribution partners and customers. Key aspects of the new structure
include distinct product manufacturing divisions, shared annuity and life operations platforms and a unified all-channel
distribution organization with access to all AIG Life and Retirement products.
Presentation of Unrecognized Tax Benefits
3. SEGMENT INFORMATION
AIG Property Casualty
AIG Life and Retirement
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AIG 2013 Form 10-K 223
I T EM 8 / NOT E 2 . SUMMARY OF SI GNI F I CANT ACCOUNT I NG POL I CI ES
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AIG Life and Retirement fully implemented these changes during the first quarter of 2013 and now presents its
operating results in the following two operating segments:
Retail — product lines include Life Insurance and Accident and Health (A&H), Fixed Annuities, Retirement
Income Solutions (including variable and index annuities), Brokerage Services and Retail Mutual Funds.
Institutional — product lines include Group Retirement, Group Benefits and Institutional Markets. The
Institutional Markets product line consists of stable value wrap products, structured settlement and terminal
funding annuities, high net worth products, guaranteed investment contracts (GICs), and corporate- and
bank-owned life insurance.
Prior period amounts have been revised to reflect the new structure, which did not affect previously reported pre-tax
income from continuing operations for AIG Life and Retirement. Prior to the first quarter of 2013, AIG Life and
Retirement was presented as two operating segments: Life Insurance and Retirement Services.
Our Other Operations include results from:
• Mortgage Guaranty;
• Global Capital Markets;
• Direct Investment book;
• Retained Interests, which represents the fair value gains or losses, prior to their sale in 2012, of the AIA Group
Limited (AIA) ordinary shares retained following the AIA initial public offering, the MetLife, Inc. (MetLife) securities
that were received as consideration from the sale of American Life Insurance Company (ALICO), and the fair value
gains or losses, prior to the FRBNY liquidation of Maiden Lane III LLC (ML III) assets, on the retained interest in
ML III;
• Corporate & Other; and
• Aircraft Leasing.
AIG Other Operations
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AIG 2013 Form 10-K 224
I T EM 8 / NOT E 3 . SEGMENT I NF ORMAT I ON
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The following table presents AIG’s continuing operations by reportable segment:
AIG Property Casualty
Commercial Insurance
Consumer Insurance
Other
Total AIG Property Casualty
AIG Life and Retirement
Retail
Institutional
Total AIG Life and Retirement
Other Operations
Mortgage Guaranty
Global Capital Markets
Direct Investment book
Corporate & Other
Aircraft Leasing
Consolidation and elimination
Total Other Operations
AIG Consolidation and elimination
Total AIG Consolidated
AIG Property Casualty
Commercial Insurance $ 23,569 $ – $ – $ 5 $ 2,736 $ 877
Consumer Insurance 14,403 – – 4 2,121 292
Other 1,982 378 – 1 (1) 854
Total AIG Property Casualty 39,954 378 – 10 4,856 2,023
AIG Life and Retirement
Retail 10,471 469 – – 159 2,068
Institutional 7,174 255 – – 54 1,712
Total AIG Life and Retirement 17,645 724 – – 213 3,780
Other Operations
Mortgage Guaranty 867 – – – 44 15
Global Capital Markets 745 – – – – 553
Direct Investment book 2,024 60 – 369 (121) 1,632
Retained Interests 4,957 – – – – 4,957
Corporate & Other 1,522 5 6,717 2,264 317 (10,186)
Aircraft Leasing 4,500 – – – 2,042 339
Consolidation and elimination (52) – – (27) – –
Total Other Operations 14,563 65 6,717 2,606 2,282 (2,690)
AIG Consolidation and elimination (1,141) – 19 (297) (2) (222)
Total AIG Consolidated $ 71,021 $ 1,167 $ 6,736 $ 2,319 $ 7,349 $ 2,891
AIG Property Casualty
Commercial Insurance $ 24,921 $ – $ – $ 3 $ 2,865 $ 1,269
Consumer Insurance 14,109 – – 4 1,836 (44)
Other 1,947 274 – – – 875
Total AIG Property Casualty 40,977 274 – 7 4,701 2,100
AIG Life and Retirement
Retail 10,079 612 – – 515 1,382
Institutional 6,084 365 – – 176 1,574
Total AIG Life and Retirement 16,163 977 – – 691 2,956
Other Operations
Mortgage Guaranty 944 – – – 44 (77)
Global Capital Markets 266 – – – – (7)
Direct Investment book 1,004 25 – 367 (218) 622
Retained Interests 486 – – – – 486
Corporate & Other 1,405 4 74 2,388 206 (6,007)
Aircraft Leasing 4,457 – – – 1,948 (1,005)
Consolidation and elimination (36) – – (20) – –
Total Other Operations 8,526 29 74 2,735 1,980 (5,988)
AIG Consolidation and elimination (561) – – (298) – 31
Total AIG Consolidated $ 65,105 $ 1,280 $ 74 $ 2,444 $ 7,372 $ (901)
* Included in Total revenues presented above.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 225
I T EM 8 / NOT E 3 . SEGMENT I NF ORMAT I ON
Net
Other-Than- Loss on Sale Pre-Tax
Temporary of Properties Depreciation Income (Loss)
Impairment and Divested Interest and from Continuing
(in millions) Total Revenues Charges* Businesses Expense Amortization Operations
2013
$ 23,137 $ – $ – $ 7 $ 2,393 $ 2,398
13,601 – – 6 2,133 317
2,971 53 – 1 1 2,418
39,709 53 – 14 4,527 5,133
12,715 130 – 3 (76) 4,363
7,875 142 – 2 (58) 2,142
20,590 272 – 5 (134) 6,505
949 – – – 50 213
833 – – – – 625
1,937 3 – 353 (80) 1,544
792 (1) 48 2,112 300 (4,706)
4,420 – – – 76 (129)
(38) – – (14) – 4
8,893 2 48 2,451 346 (2,449)
(514) – – (328) (26) 179
$ 68,678 $ 327 $ 48 $ 2,142 $ 4,713 $ 9,368
2012
2011
..................................................................................................................................................................................
The following table presents AIG’s year-end identifiable assets and capital expenditures by reportable
segment:
AIG Property Casualty
Commercial Insurance $
(a)
$
(a)
Consumer Insurance
(a) (a)
Other
(a) (a)
Total AIG Property Casualty $ 178,726 $ 321
AIG Life and Retirement
Retail 157,855 45
Institutional 124,588 15
Consolidation and Elimination (6,769) –
Total AIG Life and Retirement $ 275,674 $ 60
Other Operations
Mortgage Guaranty 5,270 11
Global Capital Markets 7,050 –
Direct Investment book 28,528 –
Corporate & Other 91,772 680
Aircraft Leasing
(b)
39,812 1,779
Consolidation and Elimination 23,431 –
Total Other Operations $ 195,863 $ 2,470
AIG Consolidation and Elimination (101,630) –
Total Assets $ 548,633 $ 2,851
(a) AIG Property Casualty manages its assets on an aggregate basis and does not allocate its assets, other than goodwill, between its operating
segments.
(b) 2013 and 2012 include Aircraft Leasing assets classified as assets held-for-sale on the Consolidated Balance Sheets.
The following table presents AIG’s consolidated operations and long-lived assets by major geographic area:
U.S. $ 47,354 $ 41,082 $ 1,391 $ 1,330
Asia Pacific 9,429 8,119 516 591
Other Foreign 14,238 15,904 306 386
Consolidated $ 71,021 $ 65,105 $ 2,213 $ 2,307
* Revenues are generally reported according to the geographic location of the reporting unit.
We report a business as held for sale when management has approved or received approval to sell the business
and is committed to a formal plan, the business is available for immediate sale, the business is being actively
marketed, the sale is anticipated to occur during the next 12 months and certain other specified criteria are met. A
business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to
sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Depreciation and
amortization expense is not recorded on assets of a business after it is classified as held for sale. Assets and
liabilities related to a business classified as held for sale are segregated in the Consolidated Balance Sheets in the
period in which the business is classified as held for sale.
4. HELD-FOR-SALE CLASSIFICATION, DIVESTED BUSINESSES AND DISCONTINUED OPERATIONS
Held-For-Sale Classification
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AIG 2013 Form 10-K 226
I T EM 8 / NOT E 3 . SEGMENT I NF ORMAT I ON
Year-End Identifiable Assets Capital Expenditures
(in millions) 2013 2012 2013 2012
$
(a)
$
(a)
(a) (a)
(a) (a)
$ 167,874 $ 349
161,098 35
123,952 27
(1,593) –
$ 283,457 $ 62
4,361 25
6,406 –
23,541 –
88,270 413
39,313 1,883
33,992 –
$ 195,883 $ 2,321
(105,885) –
$ 541,329 $ 2,732
Real Estate and Other Fixed Assets,
Total Revenues
*
Net of Accumulated Depreciation
(in millions) 2013 2012 2011 2013 2012 2011
$ 46,031 $ 1,606
8,742 448
13,905 261
$ 68,678 $ 2,315
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............................................................................................................................................................................................
............................................................................................................................................................................................
The following table summarizes the components of ILFC assets and liabilities held-for-sale on the
Consolidated Balance Sheets as of December 31, 2013 and 2012:
Assets:
Equity securities $ 1
Mortgage and other loans receivable, net 117
Flight equipment primarily under operating leases, net of accumulated depreciation 34,468
Short-term investments 1,861
Cash 63
Premiums and other receivables, net of allowance 308
Other assets 1,864
Assets held for sale 38,682
Less: Loss accrual (6,717)
Total assets held for sale $ 31,965
Liabilities:
Other liabilities $ 3,043
Long-term debt 24,323
Total liabilities held for sale $ 27,366
On December 9, 2012, we entered into a definitive agreement (the Share Purchase Agreement) with Jumbo
Acquisition Limited (Jumbo) for the sale of 80.1 percent of the common stock of ILFC for approximately $4.2 billion in
cash. We determined ILFC met the criteria for held for sale and discontinued operations accounting at December 31,
2012 and, consequently, we recorded a $6.7 billion pre-tax loss and a $4.4 billion after tax loss for the year ended
December 31, 2012. ILFC’s operating results do not include depreciation and amortization expense because
depreciation and amortization expense is not recorded on the assets of a business after the business is classified as
held for sale. As of December 15, 2013, the sale of ILFC to Jumbo had not closed and on December 16, 2013, we
terminated the amended Share Purchase Agreement with Jumbo.
On December 16, 2013 we entered into a definitive agreement with AerCap and AerCap Ireland Limited (AerCap
Ireland), a wholly-owned subsidiary of AerCap, for the sale of 100 percent of the common stock of ILFC (the AerCap
Agreement) for consideration consisting of $3.0 billion of cash, a portion of which will be funded by a special dividend
of $600 million to be paid by ILFC to AIG upon consummation of the transaction, and approximately 97.6 million
newly-issued AerCap common shares. The consideration has a value of approximately $5.4 billion based on
AerCap’s pre-announcement closing price per share of $24.93 on December 13, 2013. In connection with the
AerCap Agreement, we entered into a credit agreement for a senior unsecured revolving credit facility between
AerCap Ireland as borrower and AIG as lender (the Revolving Credit Facility). The Revolving Credit Facility provides
for an aggregate commitment of $1 billion and permits loans for general corporate purposes after the closing of the
AerCap Transaction. The transaction is subject to required regulatory approvals, including all applicable U.S. and
foreign regulatory reviews and approvals, as well as other customary closing conditions. The AerCap Transaction
was approved by AerCap shareholders on February 13, 2014. We determined ILFC met the criteria for held-for-sale
accounting at December 31, 2013. Because we expect to hold approximately 46 percent of the common stock of
combined company upon closing of the transaction, ILFC no longer qualifies for discontinued operations presentation
in the Consolidated Statements of Income. Consequently, ILFC’s results are presented in continuing operations for all
periods presented.
ILFC recognized a $1.1 billion impairment charge related to flight equipment held for use in its separate-company
financial statements in the third quarter of 2013. ILFC concluded the net book values of certain four-engine widebody
aircraft in its fleet were no longer supportable based on the latest cash flow estimates because the estimated holding
period was not likely to be as long as previously anticipated. Sustained high fuel prices, the introduction of more
International Lease Finance Corporation
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 227
I T EM 8 / NOT E 4 . HEL D- F OR- SAL E CL ASSI F I CAT I ON, DI VEST ED BUSI NESSES AND DI SCONT I NUED
OPERAT I ONS
December 31, December 31,
(in millions) 2013 2012
$ 3
229
35,508
658
88
318
2,066
38,870
(9,334)
$ 29,536
$ 3,127
21,421
$ 24,548
..................................................................................................................................................................................
............................................................................................................................................................................................
fuel-efficient aircraft, and the success of competing aircraft models resulted in a contracting operator base for these
aircraft types. These factors, together with the latest updates to airline fleet plans and efforts to remarket these
aircraft resulted in the impairment charge. Approximately $1.0 billion of the $1.1 billion impairment charge related to
the four-engine widebody aircraft and, in particular, the Airbus A340-600s. This had no effect on our consolidated
financial condition, results of operations, or cash flows as a result of the loss on sale of ILFC we recognized for the
year ended December 31, 2012.
We report the results of operations of a business as discontinued operations if the business is classified as held for
sale, the operations and cash flows of the business have been or will be eliminated from our ongoing operations as a
result of a disposal transaction and we will not have any significant continuing involvement in the operations of the
business after the disposal transaction. The results of discontinued operations are reported in Discontinued
Operations in the Consolidated Statements of Income for current and prior periods commencing in the period in
which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing
or adjustment of the carrying amount to fair value less cost to sell.
The results of operations for the following businesses are presented as discontinued operations in our Consolidated
Statements of Income.
On January 12, 2011, we entered into an agreement to sell our 97.57 percent interest in Nan Shan Life Insurance
Company, Ltd. (Nan Shan) to a Taiwan-based consortium. The transaction was consummated on August 18, 2011
for net proceeds of $2.15 billion in cash. We recorded a pre-tax loss of $1.0 billion for the year ended December 31,
2011 largely offsetting Nan Shan operating results for the period, which is reflected in Income (loss) from
discontinued operations in the Consolidated Statements of Income. The net proceeds from the transaction were used
to pay down a portion of the liquidation preference of the Department of the Treasury’s preferred interests (AIA SPV
Preferred Interests) in the special purpose vehicle holding the proceeds of the AIA initial public offering (the AIA
SPV).
On September 30, 2010, we entered into a definitive agreement with Prudential Financial, Inc. for the sale of our
Japan-based insurance subsidiaries, AIG Star Life Insurance Co., Ltd. (AIG Star) and AIG Edison Life Insurance
Company (AIG Edison), for total consideration of $4.8 billion, including the assumption of certain outstanding debt
totaling $0.6 billion owed by AIG Star and AIG Edison. The transaction closed on February 1, 2011 and we
recognized a pre-tax gain of $3.5 billion on the sale that is reflected in Income (loss) from discontinued operations in
the Consolidated Statements of Income.
Nan Shan, AIG Star and AIG Edison previously were components of the AIG Life and Retirement reportable
segment. Results from discontinued operations for 2011 include the results of Nan Shan, AIG Star and AIG Edison
through the date of disposition.
Certain other sales completed during the periods presented were not classified as discontinued operations because
we continued to generate significant direct revenue-producing or cost-generating cash flows from the businesses or
because associated assets, liabilities and results of operations were not material, individually or in the aggregate, to
our consolidated financial position or results of operations for any period presented.
Discontinued Operations
Nan Shan Sale
AIG Star and AIG Edison Sale
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 228
I T EM 8 / NOT E 4 . HEL D- F OR- SAL E CL ASSI F I CAT I ON, DI VEST ED BUSI NESSES AND DI SCONT I NUED
OPERAT I ONS
..................................................................................................................................................................................
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The following table presents the components of income from discontinued operations:
Revenues:
Premiums $ – $ 5,012
Net investment income – 1,632
Net realized capital gains – 844
Other income – 5
Total revenues – 7,493
Benefits, claims and expenses – 6,324
Interest expense allocation – 2
Income from discontinued operations – 1,167
Gain on sale 1 2,338
Income from discontinued operations, before income tax expense 1 3,505
Income tax expense – 1,038
Income from discontinued operations, net of income tax expense $ 1 $ 2,467
We carry certain of our financial instruments at fair value. We define the fair value of a financial instrument as the
amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. We are responsible for the determination of the value of the
investments carried at fair value and the supporting methodologies and assumptions.
The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with
the level of observable valuation inputs. We maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally
have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments
for which no quoted prices are available have less observability and are measured at fair value using valuation
models or other pricing techniques that require more judgment. Pricing observability is affected by a number of
factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet
established, the characteristics specific to the transaction, liquidity and general market conditions.
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in
accordance with a fair value hierarchy consisting of three ‘‘levels’’ based on the observability of inputs available in
the marketplace used to measure the fair values as discussed below:
• Level 1: Fair value measurements that are based on quoted prices (unadjusted) in active markets that we have
the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or
dealer markets. We do not adjust the quoted price for such instruments.
• Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are
observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are
not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates
and yield curves that are observable at commonly quoted intervals.
5. FAIR VALUE MEASUREMENTS
Fair Value Measurements on a Recurring Basis
Fair Value Hierarchy
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 229
I T EM 8 / NOT E 4 . HEL D- F OR- SAL E CL ASSI F I CAT I ON, DI VEST ED BUSI NESSES AND DI SCONT I NUED
OPERAT I ONS
Years Ended December 31,
(in millions) 2013 2012 2011
$ –
–
–
–
–
–
–
–
150
150
66
$ 84
..................................................................................................................................................................................
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• Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable.
Both observable and unobservable inputs may be used to determine the fair values of positions classified in
Level 3. The circumstances for using these measurements include those in which there is little, if any, market
activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical
market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value
may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within
which the fair value measurement in its entirety falls is determined based on the lowest level input that is
significant to the fair value measurement in its entirety.
The following is a description of the valuation methodologies used for instruments carried at fair value. These
methodologies are applied to assets and liabilities across the levels discussed above, and it is the observability of the
inputs used that determines the appropriate level in the fair value hierarchy for the respective asset or liability.
• Our Own Credit Risk. Fair value measurements for certain liabilities incorporate our own credit risk by
determining the explicit cost for each counterparty to protect against its net credit exposure to us at the balance
sheet date by reference to observable AIG CDS or cash bond spreads. A derivative counterparty’s net credit
exposure to us is determined based on master netting agreements, when applicable, which take into consideration
all derivative positions with us, as well as collateral we post with the counterparty at the balance sheet date. We
calculate the effect of these credit spread changes using discounted cash flow techniques that incorporate current
market interest rates.
• Counterparty Credit Risk. Fair value measurements for freestanding derivatives incorporate counterparty credit
by determining the explicit cost for us to protect against our net credit exposure to each counterparty at the
balance sheet date by reference to observable counterparty CDS spreads, when available. When not available,
other directly or indirectly observable credit spreads will be used to derive the best estimates of the counterparty
spreads. Our net credit exposure to a counterparty is determined based on master netting agreements, which take
into consideration all derivative positions with the counterparty, as well as collateral posted by the counterparty at
the balance sheet date.
Fair values for fixed maturity securities based on observable market prices for identical or similar instruments
implicitly incorporate counterparty credit risk. Fair values for fixed maturity securities based on internal models
incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for
similar instruments or other observable information.
The cost of credit protection is determined under a discounted present value approach considering the market levels
for single name CDS spreads for each specific counterparty, the mid market value of the net exposure (reflecting the
amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided to us
by an independent third party. We utilize an interest rate based on the benchmark London Interbank Offered Rate
(LIBOR) curve to derive our discount rates.
While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential
future changes in valuation inputs, we believe this approach provides a reasonable estimate of the fair value of the
assets and liabilities, including consideration of the impact of non-performance risk.
Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to
measure fixed maturity securities at fair value. Market price data is generally obtained from dealer markets.
We employ independent third-party valuation service providers to gather, analyze, and interpret market information to
derive fair value estimates for individual investments, based upon market-accepted methodologies and assumptions.
The methodologies used by these independent third-party valuation services are reviewed and understood by
management, through periodic discussion with and information provided by the valuation services. In addition, as
Valuation Methodologies of Financial Instruments Measured at Fair Value
Incorporation of Credit Risk in Fair Value Measurements
Fixed Maturity Securities
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AIG 2013 Form 10-K 230
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
..................................................................................................................................................................................
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discussed further below, control processes are applied to the fair values received from third-party valuation services
to ensure the accuracy of these values.
Valuation service providers typically obtain data about market transactions and other key valuation model inputs from
multiple sources and, through the use of market-accepted valuation methodologies, which may utilize matrix pricing,
financial models, accompanying model inputs and various assumptions, provide a single fair value measurement for
individual securities. The inputs used by the valuation service providers include, but are not limited to, market prices
from completed transactions for identical securities and transactions for comparable securities, benchmark yields,
interest rate yield curves, credit spreads, currency rates, quoted prices for similar securities and other market-
observable information, as applicable. If fair value is determined using financial models, these models generally take
into account, among other things, market observable information as of the measurement date as well as the specific
attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and when
applicable, collateral quality and other security or issuer-specific information. When market transactions or other
market observable data is limited, the extent to which judgment is applied in determining fair value is greatly
increased.
We have control processes designed to ensure that the fair values received from third party valuation services are
accurately recorded, that their data inputs and valuation techniques are appropriate and consistently applied and that
the assumptions used appear reasonable and consistent with the objective of determining fair value. We assess the
reasonableness of individual security values received from valuation service providers through various analytical
techniques, and have procedures to escalate related questions internally and to the third party valuation services for
resolution. To assess the degree of pricing consensus among various valuation services for specific asset types, we
have conducted comparisons of prices received from available sources. We have used these comparisons to
establish a hierarchy for the fair values received from third party valuation services to be used for particular security
classes. We also validate prices for selected securities through reviews by members of management who have
relevant expertise and who are independent of those charged with executing investing transactions.
When our third-party valuation service providers are unable to obtain sufficient market observable information upon
which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are
knowledgeable about these securities to provide a price quote, which is generally non-binding, or by employing
market accepted valuation models. Broker prices may be based on an income approach, which converts expected
future cash flows to a single present value amount, with specific consideration of inputs relevant to particular security
types. For structured securities, such inputs may include ratings, collateral types, geographic concentrations,
underlying loan vintages, loan delinquencies and defaults, prepayments, and weighted average coupons and
maturities. When the volume or level of market activity for a security is limited, certain inputs used to determine fair
value may not be observable in the market. Broker prices may also be based on a market approach that considers
recent transactions involving identical or similar securities. Fair values provided by brokers are subject to similar
control processes to those noted above for fair values from third party valuation services, including management
reviews. For those corporate debt instruments (for example, private placements) that are not traded in active markets
or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and non-transferability, and such
adjustments generally are based on available market evidence. When observable price quotations are not available,
fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields
or price levels of comparable securities, adjusted for illiquidity and structure. Fair values determined internally are
also subject to management review to ensure that valuation models and related inputs are reasonable.
The methodology above is relevant for all fixed maturity securities including residential mortgage backed securities
(RMBS), commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO), other asset-backed
securities (ABS) and fixed maturity securities issued by government sponsored entities and corporate entities.
Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to
measure equity securities at fair value. Market price data is generally obtained from exchange or dealer markets.
Equity Securities Traded in Active Markets
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 231
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
..................................................................................................................................................................................
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We estimate the fair value of mortgage and other loans receivable that are measured at fair value by using dealer
quotations, discounted cash flow analyses and/or internal valuation models. The determination of fair value considers
inputs such as interest rate, maturity, the borrower’s creditworthiness, collateral, subordination, guarantees, past-due
status, yield curves, credit curves, prepayment rates, market pricing for comparable loans and other relevant factors.
We initially estimate the fair value of investments in certain hedge funds, private equity funds and other investment
partnerships by reference to the transaction price. Subsequently, we generally obtain the fair value of these
investments from net asset value information provided by the general partner or manager of the investments, the
financial statements of which are generally audited annually. We consider observable market data and perform
certain control procedures to validate the appropriateness of using the net asset value as a fair value measurement.
The fair values of other investments carried at fair value, such as direct private equity holdings, are initially
determined based on transaction price and are subsequently estimated based on available evidence such as market
transactions in similar instruments, other financing transactions of the issuer and other available financial information
for the issuer, with adjustments made to reflect illiquidity as appropriate.
For short-term investments that are measured at fair value, the carrying values of these assets approximate fair
values because of the relatively short period of time between origination and expected realization, and their limited
exposure to credit risk. Securities purchased under agreements to resell (reverse repurchase agreements) are
generally treated as collateralized receivables. We report certain receivables arising from securities purchased under
agreements to resell as Short-term investments in the Consolidated Balance Sheets. We use market-observable
interest rates for receivables measured at fair value. This methodology considers such factors as the coupon rate
and yield curves.
Separate account assets are composed primarily of registered and unregistered open-end mutual funds that
generally trade daily and are measured at fair value in the manner discussed above for equity securities traded in
active markets.
Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). We generally value
exchange-traded derivatives such as futures and options using quoted prices in active markets for identical
derivatives at the balance sheet date.
OTC derivatives are valued using market transactions and other market evidence whenever possible, including
market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or
alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a
particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in the
instrument, as well as the availability of pricing information in the market. We generally use similar models to value
similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates,
yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC
derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be
corroborated by observable market data by correlation or other means, and model selection does not involve
significant management judgment.
For certain OTC derivatives that trade in less liquid markets, where we generally do not have corroborating market
evidence to support significant model inputs and cannot verify the model to market transactions, the transaction price
may provide the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument,
Mortgage and Other Loans Receivable
Other Invested Assets
Short-term Investments
Separate Account Assets
Freestanding Derivatives
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 232
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
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the model is adjusted so the model value at inception equals the transaction price. We will update valuation inputs in
these models only when corroborated by evidence such as similar market transactions, third party pricing services
and/or broker or dealer quotations, or other empirical market data. When appropriate, valuations are adjusted for
various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based
on available market evidence. In the absence of such evidence, management’s best estimate is used.
Certain variable annuity and equity-indexed annuity and life contracts contain embedded policy derivatives that we
bifurcate from the host contracts and account for separately at fair value, with changes in fair value recognized in
earnings. We have concluded these contracts contain (i) written option guarantees on minimum accumulation value,
(ii) a series of written options that guarantee withdrawals from the highest anniversary value within a specific period
or for life, or (iii) equity-indexed written options that meet the criteria of derivatives that must be bifurcated.
The fair value of embedded policy derivatives contained in certain variable annuity and equity-indexed annuity and
life contracts is measured based on actuarial and capital market assumptions related to projected cash flows over the
expected lives of the contracts. These cash flow estimates primarily include benefits and related fees assessed,
when applicable, and incorporate expectations about policyholder behavior. Estimates of future policyholder behavior
are subjective and based primarily on our historical experience.
With respect to embedded policy derivatives in our variable annuity contracts, because of the dynamic and complex
nature of the expected cash flows, risk neutral valuations are used. Estimating the underlying cash flows for these
products involves judgments regarding expected market rates of return, market volatility, correlations of market index
returns to funds, fund performance, discount rates and policyholder behavior. With respect to embedded policy
derivatives in our equity-indexed annuity and life contracts, option pricing models are used to estimate fair value,
taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest
rates, and determinations on adjusting the participation rate and the cap on equity-indexed credited rates in light of
market conditions and policyholder behavior assumptions. These methodologies incorporate an explicit risk margin to
take into consideration market participant estimates of projected cash flows and policyholder behavior.
We also incorporate our own risk of non-performance in the valuation of the embedded policy derivatives associated
with variable annuity and equity-indexed annuity and life contracts. Historically, the expected cash flows were
discounted using the interest rate swap curve (swap curve), which is commonly viewed as being consistent with the
credit spreads for highly-rated financial institutions (S&P AA-rated or above). A swap curve shows the fixed-rate leg
of a non-complex swap against the floating rate (for example, LIBOR) leg of a related tenor. The swap curve was
adjusted, as necessary, for anomalies between the swap curve and the U.S. Treasury yield curve.
We value CDS transactions written on the super senior risk layers of designated pools of debt securities or loans
using internal valuation models, third-party price estimates and market indices. The principal market was determined
to be the market in which super senior credit default swaps of this type and size would be transacted, or have been
transacted, with the greatest volume or level of activity. We have determined that the principal market participants,
therefore, would consist of other large financial institutions who participate in sophisticated over-the-counter
derivatives markets. The specific valuation methodologies vary based on the nature of the referenced obligations and
availability of market prices.
The valuation of the super senior credit derivatives is complex because of the limited availability of market
observable information due to the lack of trading and price transparency in certain structured finance markets. These
market conditions have increased the reliance on management estimates and judgments in arriving at an estimate of
fair value for financial reporting purposes. Further, disparities in the valuation methodologies employed by market
participants and the varying judgments reached by such participants when assessing volatile markets have increased
the likelihood that the various parties to these instruments may arrive at significantly different estimates as to their
fair values.
Embedded Policy Derivatives
Super Senior Credit Default Swap Portfolio
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AIG 2013 Form 10-K 233
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
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Our valuation methodologies for the super senior credit default swap portfolio have evolved over time in response to
market conditions and the availability of market observable information. We have sought to calibrate the
methodologies to available market information and to review the assumptions of the methodologies on a regular
basis.
Multi-sector CDO portfolios: We use a modified version of the Binomial Expansion Technique (BET) model to
value our credit default swap portfolio written on super senior tranches of multi-sector CDOs of ABS. The BET model
was developed in 1996 by a major rating agency to generate expected loss estimates for CDO tranches and derive a
credit rating for those tranches, and remains widely used.
We have adapted the BET model to estimate the price of the super senior risk layer or tranche of the CDO. We
modified the BET model to imply default probabilities from market prices for the underlying securities and not from
rating agency assumptions. To generate the estimate, the model uses the price estimates for the securities
comprising the portfolio of a CDO as an input and converts those estimates to credit spreads over current LIBOR-
based interest rates. These credit spreads are used to determine implied probabilities of default and expected losses
on the underlying securities. This data is then aggregated and used to estimate the expected cash flows of the super
senior tranche of the CDO.
Prices for the individual securities held by a CDO are obtained in most cases from the CDO collateral managers, to
the extent available. CDO collateral managers provided market prices for 46 percent and 59 percent of the
underlying securities used in the valuation at December 31, 2013 and 2012. When a price for an individual security is
not provided by a CDO collateral manager, we derive the price through a pricing matrix using prices from CDO
collateral managers for similar securities. Matrix pricing is a mathematical technique used principally to value debt
securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the
relationship of the security to other benchmark quoted securities. Substantially all of the CDO collateral managers
who provided prices used dealer prices for all or part of the underlying securities, in some cases supplemented by
third-party pricing services.
The BET model also uses diversity scores, weighted average lives, recovery rates and discount rates. We employ a
Monte Carlo simulation to assist in quantifying the effect on the valuation of the CDO of the unique aspects of the
CDO’s structure such as triggers that divert cash flows to the most senior part of the capital structure. The Monte
Carlo simulation is used to determine whether an underlying security defaults in a given simulation scenario and, if it
does, the security’s implied random default time and expected loss. This information is used to project cash flow
streams and to determine the expected losses of the portfolio.
In addition to calculating an estimate of the fair value of the super senior CDO security referenced in the credit
default swaps using our internal model, we also consider the price estimates for the super senior CDO securities
provided by third parties, including counterparties to these transactions, to validate the results of the model and to
determine the best available estimate of fair value. In determining the fair value of the super senior CDO security
referenced in the credit default swaps, we use a consistent process that considers all available pricing data points
and eliminates the use of outlying data points. When pricing data points are within a reasonable range an averaging
technique is applied.
Corporate debt/Collateralized loan obligation (CLO) portfolios: For credit default swaps written on portfolios
of investment-grade corporate debt, we use a mathematical model that produces results that are closely aligned with
prices received from third parties. This methodology uses the current market credit spreads of the names in the
portfolios along with the base correlations implied by the current market prices of comparable tranches of the
relevant market traded credit indices as inputs.
We estimate the fair value of our obligations resulting from credit default swaps written on CLOs to be equivalent to
the par value less the current market value of the referenced obligation. Accordingly, the value is determined by
obtaining third-party quotations on the underlying super senior tranches referenced under the credit default swap
contract.
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AIG 2013 Form 10-K 234
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
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Policyholder contract deposits accounted for at fair value are measured using an earnings approach by taking into
consideration the following factors:
• Current policyholder account values and related surrender charges;
• The present value of estimated future cash inflows (policy fees) and outflows (benefits and maintenance expenses)
associated with the product using risk neutral valuations, incorporating expectations about policyholder behavior,
market returns and other factors; and
• A risk margin that market participants would require for a market return and the uncertainty inherent in the model
inputs.
The change in fair value of these policyholder contract deposits is recorded as Policyholder benefits and claims
incurred in the Consolidated Statements of Income.
The fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer
markets, when available, or discounting expected cash flows using the appropriate discount rate for the applicable
maturity. We determine the fair value of structured liabilities and hybrid financial instruments (where performance is
linked to structured interest rates, inflation or currency risks) using the appropriate derivative valuation methodology
(described above) given the nature of the embedded risk profile. In addition, adjustments are made to the valuations
of both non-structured and structured liabilities to reflect our own creditworthiness based on the methodology
described under the caption ‘‘Incorporation of Credit Risk in Fair Value Measurements — Our Own Credit Risk’’
above.
Borrowings under obligations of guaranteed investment agreements (GIAs), which are guaranteed by us, are
recorded at fair value using discounted cash flow calculations based on interest rates currently being offered for
similar contracts and our current market observable implicit credit spread rates with maturities consistent with those
remaining for the contracts being valued. Obligations may be called at various times prior to maturity at the option of
the counterparty. Interest rates on these borrowings are primarily fixed, vary by maturity and range up to 9.8 percent.
Other liabilities measured at fair value include certain securities sold under agreements to repurchase and certain
securities sold but not yet purchased. Liabilities arising from securities sold under agreements to repurchase are
generally treated as collateralized borrowings. We estimate the fair value of liabilities arising under these agreements
by using market-observable interest rates. This methodology considers such factors as the coupon rate, yield curves
and other relevant factors. Fair values for securities sold but not yet purchased are based on current market prices.
Policyholder Contract Deposits
Long-Term Debt
Other Liabilities
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AIG 2013 Form 10-K 235
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
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............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents information about assets and liabilities measured at fair value on a recurring
basis and indicates the level of the fair value measurement based on the observability of the inputs used:
Assets:
Bonds available for sale:
U.S. government and government sponsored entities
Obligations of states, municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
U.S. government and government sponsored entities
Obligations of states, municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Other equity securities
Mortgage and other loans receivable
Other invested assets
Derivative assets:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative assets
Short-term investments
Separate account assets
Other assets
Total
Liabilities:
Policyholder contract deposits
Derivative liabilities:
Interest rate contracts
Foreign exchange contracts
Equity contracts
Commodity contracts
Credit contracts
Other contracts
Counterparty netting and cash collateral
Total derivative liabilities
Long-term debt
Other liabilities
Total
Assets and Liabilities Measured at Fair Value on a Recurring Basis
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 236
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
December 31, 2013 Counterparty Cash
(in millions) Level 1 Level 2 Level 3 Netting
(a)
Collateral
(b)
Total
$ 133 $ 3,062 $ – $ – $ – $ 3,195
– 28,300 1,080 – – 29,380
508 21,985 16 – – 22,509
– 143,297 1,255 – – 144,552
– 21,207 14,941 – – 36,148
– 5,747 5,735 – – 11,482
– 4,034 6,974 – – 11,008
641 227,632 30,001 – – 258,274
78 5,645 – – – 5,723
– 121 – – – 121
– 2 – – – 2
– 1,169 – – – 1,169
– 1,326 937 – – 2,263
– 509 844 – – 1,353
– 3,158 8,834 – – 11,992
78 11,930 10,615 – – 22,623
3,218 – 1 – – 3,219
– 27 – – – 27
408 2 – – – 410
3,626 29 1 – – 3,656
750 84 – – – 834
– – – – – –
1 2,667 5,930 – – 8,598
14 3,716 41 – – 3,771
– 52 – – – 52
151 106 49 – – 306
– – 1 – – 1
– – 55 – – 55
– 1 33 – – 34
– – – (1,734) (820) (2,554)
165 3,875 179 (1,734) (820) 1,665
332 5,981 – – – 6,313
67,708 3,351 – – – 71,059
– 418 – – – 418
$ 73,301 $ 255,967 $ 46,726 $ (1,734) $ (820) $ 373,440
$ – $ 72 $ 312 $ – $ – $ 384
– 3,661 141 – – 3,802
– 319 – – – 319
– 101 – – – 101
– 5 – – – 5
– – 1,335 – – 1,335
– 25 142 – – 167
– – – (1,734) (1,484) (3,218)
– 4,111 1,618 (1,734) (1,484) 2,511
– 6,377 370 – – 6,747
42 891 – – – 933
$ 42 $ 11,451 $ 2,300 $ (1,734) $ (1,484) $ 10,575
..................................................................................................................................................................................
............................................................................................................................................................................................
Assets:
Bonds available for sale:
U.S. government and government sponsored entities $ – $ 3,483 $ – $ – $ – $ 3,483
Obligations of states, municipalities and political subdivisions – 34,681 1,024 – – 35,705
Non-U.S. governments 1,004 25,782 14 – – 26,800
Corporate debt – 149,625 1,487 – – 151,112
RMBS – 22,730 11,662 – – 34,392
CMBS – 5,010 4,905 – – 9,915
CDO/ABS – 3,492 5,060 – – 8,552
Total bonds available for sale 1,004 244,803 24,152 – – 269,959
Other bond securities:
U.S. government and government sponsored entities 266 6,528 – – – 6,794
Non-U.S. governments – 2 – – – 2
Corporate debt – 1,320 – – – 1,320
RMBS – 1,331 396 – – 1,727
CMBS – 1,424 803 – – 2,227
CDO/ABS – 3,969 8,545 – – 12,514
Total other bond securities 266 14,574 9,744 – – 24,584
Equity securities available for sale:
Common stock 3,002 3 24 – – 3,029
Preferred stock – 34 44 – – 78
Mutual funds 83 22 – – – 105
Total equity securities available for sale 3,085 59 68 – – 3,212
Other equity securities 578 84 – – – 662
Mortgage and other loans receivable – 134 – – – 134
Other invested assets 125 1,542 5,389 – – 7,056
Derivative assets:
Interest rate contracts 2 5,521 956 – – 6,479
Foreign exchange contracts – 104 – – – 104
Equity contracts 104 63 54 – – 221
Commodity contracts – 144 1 – – 145
Credit contracts – – 60 – – 60
Other contracts – – 38 – – 38
Counterparty netting and cash collateral – – – (2,467) (909) (3,376)
Total derivative assets 106 5,832 1,109 (2,467) (909) 3,671
Short-term investments 285 7,771 – – – 8,056
Separate account assets 54,430 2,907 – – – 57,337
Other assets – 696 – – – 696
Total $ 59,879 $ 278,402 $ 40,462 $ (2,467) $ (909) $ 375,367
Liabilities:
Policyholder contract deposits $ – $ – $ 1,257 $ – $ – $ 1,257
Derivative liabilities:
Interest rate contracts – 5,582 224 – – 5,806
Foreign exchange contracts – 174 – – – 174
Equity contracts – 114 7 – – 121
Commodity contracts – 146 – – – 146
Credit contracts – – 2,051 – – 2,051
Other contracts – 6 200 – – 206
Counterparty netting and cash collateral – – – (2,467) (1,976) (4,443)
Total derivative liabilities – 6,022 2,482 (2,467) (1,976) 4,061
Long-term debt – 7,711 344 – – 8,055
Other liabilities 30 1,050 – – – 1,080
Total $ 30 $ 14,783 $ 4,083 $ (2,467) $ (1,976) $ 14,453
(a) Represents netting of derivative exposures covered by qualifying master netting agreements.
(b) Represents cash collateral posted and received. Securities collateral posted for derivative transactions that is reflected in Fixed maturity securities in the
Consolidated Balance Sheet, and collateral received, not reflected in the Consolidated Balance Sheet, was $1.3 billion and $120 million, respectively, at
December 31, 2013 and $1.9 billion and $299 million, respectively, at December 31, 2012.
Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the
end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of
Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely,
assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active
market. During the years ended December 31, 2013 and 2012, we transferred $944 million and $464 million,
Transfers of Level 1 and Level 2 Assets and Liabilities
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 237
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
December 31, 2012 Counterparty Cash
(in millions) Level 1 Level 2 Level 3 Netting
(a)
Collateral
(b)
Total
..................................................................................................................................................................................
............................................................................................................................................................................................
respectively, of securities issued by Non-U.S. government entities from Level 1 to Level 2, because they are no
longer considered actively traded. For similar reasons, during the years ended December 31, 2013 and 2012, we
transferred $356 million and $888 million, respectively, of securities issued by the U.S. government and government-
sponsored entities from Level 1 to Level 2. We had no material transfers from Level 2 to Level 1 during the years
ended December 31, 2013 and 2012.
The following tables present changes during the years ended December 31, 2013 and 2012 in Level 3 assets
and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses)
related to the Level 3 assets and liabilities in the Consolidated Balance Sheets at December 31, 2013 and
2012:
December 31, 2013
Assets:
Bonds available for sale:
Obligations of states,
municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available
for sale:
Common stock
Preferred stock
Total equity securities
available for sale
Other invested assets
Total
Liabilities:
Policyholder contract
deposits
Derivative liabilities, net:
Interest rate contracts
Equity contracts
Commodity contracts
Credit contracts
Other contracts
Total derivative liabilities, net
Long-term debt
Total
Changes in Level 3 Recurring Fair Value Measurements
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AIG 2013 Form 10-K 238
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Net Changes in
Realized and Unrealized Gains
Unrealized Purchases, (Losses) Included
Fair Value Gains (Losses) Other Sales, Gross Gross Fair Value in Income on
Beginning of Included Comprehensive Issues and Transfers Transfers End Instruments Held
(in millions) Year
(a)
in Income Income (Loss) Settlements, Net In Out of Year at End of Year
$ 1,024 $ 29 $ (175) $ 403 $ – $ (201) $ 1,080 $ –
14 – (1) 3 1 (1) 16 –
1,487 8 (19) (176) 450 (495) 1,255 –
11,662 867 466 1,818 186 (58) 14,941 –
5,124 24 100 375 161 (49) 5,735 –
4,841 161 9 1,946 901 (884) 6,974 –
24,152 1,089 380 4,369 1,699 (1,688) 30,001 –
396 66 – 208 267 – 937 (2)
812 67 – (200) 279 (114) 844 29
8,536 1,527 – (2,044) 843 (28) 8,834 681
9,744 1,660 – (2,036) 1,389 (142) 10,615 708
24 7 (8) (22) – – 1 –
44 – 3 (47) – – – –
68 7 (5) (69) – – 1 –
5,389 208 237 64 344 (312) 5,930 –
$ 39,353 $ 2,964 $ 612 $ 2,328 $ 3,432 $ (2,142) $ 46,547 $ 708
$ (1,257) $ 744 $ (1) $ 202 $ – $ – $ (312) $ 104
732 19 – (851) – – (100) 35
47 74 – (20) 1 (53) 49 30
1 – – – – – 1 (1)
(1,991) 567 – 144 – – (1,280) 711
(162) 42 15 (2) (2) – (109) 7
(1,373) 702 15 (729) (1) (53) (1,439) 782
(344) (137) – 38 (2) 75 (370) (30)
$ (2,974) $ 1,309 $ 14 $ (489) $ (3) $ 22 $ (2,121) $ 856
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............................................................................................................................................................................................
December 31, 2012
Assets:
Bonds available for sale:
Obligations of states,
municipalities and political
subdivisions $ 960 $ 48 $ 12 $ 84 $ 70 $ (150) $ 1,024 $ –
Non-U.S. governments 9 1 (1) 1 4 – 14 –
Corporate debt 1,935 (44) 145 24 664 (1,237) 1,487 –
RMBS 10,877 522 2,121 (316) 952 (2,494) 11,662 –
CMBS 3,955 (135) 786 636 44 (162) 5,124 –
CDO/ABS 4,220 334 289 10 691 (703) 4,841 –
Total bonds available for sale 21,956 726 3,352 439 2,425 (4,746) 24,152 –
Other bond securities:
Corporate debt 7 – – (7) – – – –
RMBS 303 76 2 (109) 128 (4) 396 42
CMBS 554 70 2 (159) 446 (101) 812 87
CDO/ABS 8,432 3,683 3 (3,968) 386 – 8,536 2,547
Total other bond securities 9,296 3,829 7 (4,243) 960 (105) 9,744 2,676
Equity securities available for
sale:
Common stock 57 22 (28) (33) 6 – 24 –
Preferred stock 99 17 (35) (36) 11 (12) 44 –
Total equity securities available for
sale 156 39 (63) (69) 17 (12) 68 –
Mortgage and other loans
receivable 1 – – (1) – – – –
Other invested assets 6,618 (95) 290 (257) 1,204 (2,371) 5,389 –
Total $ 38,027 $ 4,499 $ 3,586 $ (4,131) $ 4,606 $ (7,234) $ 39,353 $ 2,676
Liabilities:
Policyholder contract deposits $ (918) $ (275) $ (72) $ 8 $ – $ – $ (1,257) $ (276)
Derivative liabilities, net:
Interest rate contracts 785 (11) – (42) – – 732 (56)
Foreign exchange contracts 2 – – (2) – – – –
Equity contracts 28 10 – 12 (3) – 47 10
Commodity contracts 2 5 – (6) – – 1 6
Credit contracts (3,273) 638 – 644 – – (1,991) 1,172
Other contracts 33 (76) (18) 15 (116) – (162) (46)
Total derivatives liabilities, net (2,423) 566 (18) 621 (119) – (1,373) 1,086
Long-term debt (508) (411) (77) 242 (14) 424 (344) (105)
Total $ (3,849) $ (120) $ (167) $ 871 $ (133) $ 424 $ (2,974) $ 705
* Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.
Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities
shown above are reported in the Consolidated Statements of Income as follows:
December 31, 2013
Bonds available for sale
Other bond securities
Equity securities available for sale
Other invested assets
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
December 31, 2012
Bonds available for sale $ 906 $ (395) $ 215 $ 726
Other bond securities 3,303 – 526 3,829
Equity securities available for sale – 39 – 39
Other invested assets 54 (210) 61 (95)
Policyholder contract deposits – (275) – (275)
Derivative liabilities, net 3 26 537 566
Long-term debt – – (411) (411)
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AIG 2013 Form 10-K 239
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Net Changes in
Realized and Unrealized Gains
Unrealized Purchases, (Losses) Included
Fair Value Gains (Losses) Other Sales, Gross Gross Fair Value in Income on
Beginning Included Comprehensive Issues and Transfers Transfers End Instruments Held
(in millions) of Year
*
in Income Income (Loss) Settlements, Net In Out of Year at End of Year
Net Net Realized
Investment Capital Other
(in millions) Income Gains (Losses) Income Total
$ 997 $ (17) $ 109 $ 1,089
187 9 1,464 1,660
– 7 – 7
210 (42) 40 208
– 744 – 744
39 43 620 702
– – (137) (137)
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The following table presents the gross components of purchases, sales, issues and settlements, net, shown
above:
December 31, 2013
Assets:
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Other bond securities:
RMBS
CMBS
CDO/ABS
Total other bond securities
Equity securities available for sale
Other invested assets
Total assets
Liabilities:
Policyholder contract deposits
Derivative liabilities, net
Long-term debt
(c)
Total liabilities
December 31, 2012
Assets:
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions $ 477 $ (219) $ (174) $ 84
Non-U.S. governments 5 (3) (1) 1
Corporate debt 283 (75) (184) 24
RMBS 2,308 (723) (1,901) (316)
CMBS 1,137 (318) (183) 636
CDO/ABS 1,120 (4) (1,106) 10
Total bonds available for sale 5,330 (1,342) (3,549) 439
Other bond securities:
Corporate debt – – (7) (7)
RMBS – (45) (64) (109)
CMBS 225 (106) (278) (159)
CDO/ABS
(b)
7,382 (21) (11,329) (3,968)
Total other bond securities 7,607 (172) (11,678) (4,243)
Equity securities available for sale 67 (56) (80) (69)
Mortgage and other loans receivable – – (1) (1)
Other invested assets 900 (100) (1,057) (257)
Total assets $ 13,904 $ (1,670) $ (16,365) $ (4,131)
Liabilities:
Policyholder contract deposits $ – $ (25) $ 33 $ 8
Derivative liabilities, net 11 (2) 612 621
Long-term debt
(c)
– – 242 242
Total liabilities $ 11 $ (27) $ 887 $ 871
(a) There were no issuances during year ended December 31, 2013 and 2012.
(b) Includes $7.1 billion of securities purchased through the FRBNY’s auction of ML III assets.
(c) Includes GIAs, notes, bonds, loans and mortgages payable.
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AIG 2013 Form 10-K 240
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Purchases,
Sales, Issues and
(in millions) Purchases Sales Settlements Settlements, Net
(a)
$ 541 $ (138) $ – $ 403
9 – (6) 3
487 (114) (549) (176)
4,424 (266) (2,340) 1,818
1,023 (188) (460) 375
2,662 (159) (557) 1,946
9,146 (865) (3,912) 4,369
350 (12) (130) 208
24 (71) (153) (200)
353 (72) (2,325) (2,044)
727 (155) (2,608) (2,036)
58 (12) (115) (69)
882 (9) (809) 64
$ 10,813 $ (1,041) $ (7,444) $ 2,328
$ – $ (26) $ 228 $ 202
10 (1) (738) (729)
– – 38 38
$ 10 $ (27) $ (472) $ (489)
..................................................................................................................................................................................
Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3
in the tables above. As a result, the unrealized gains (losses) on instruments held at December 31, 2013 and 2012
may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates)
and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
We record transfers of assets and liabilities into or out of Level 3 at their fair values as of the end of each reporting
period, consistent with the date of the determination of fair value. As a result, the Net realized and unrealized gains
(losses) included in income or other comprehensive income and as shown in the table above excludes $15 million
and $143 million of net losses related to assets and liabilities transferred into Level 3 during 2013 and 2012,
respectively, and includes $44 million and $92 million of net gains related to assets and liabilities transferred out of
Level 3 during 2013 and 2012, respectively.
During the years ended December 31, 2013 and 2012, transfers into Level 3 assets primarily included certain
investments in private placement corporate debt, RMBS, CMBS, CDO, ABS, and investments in hedge funds and
private equity funds.
• The transfer of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to
decreases in market transparency and liquidity for individual security types.
• Transfers of private placement corporate debt and certain ABS into Level 3 assets were primarily the result of
limited market pricing information that required us to determine fair value for these securities based on inputs that
are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated
market liquidity.
• Certain investments in hedge funds were transferred into Level 3 as a result of limited market activity due to
fund-imposed redemption restrictions.
• Certain private equity fund investments were transferred into Level 3 due to these investments being carried at fair
value and no longer being accounted for using the equity method of accounting.
Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated
with market observable data. This may be due to a significant increase in market activity for the asset, a specific
event, one or more significant input(s) becoming observable or a long-term interest rate significant to a valuation
becoming short-term and thus observable. In addition, transfers out of Level 3 assets also occur when investments
are no longer carried at fair value as the result of a change in the applicable accounting methodology, given changes
in the nature and extent of our ownership interest.
During the years ended December 31, 2013 and 2012, transfers out of Level 3 assets primarily related to certain
investments in municipal securities, private placement corporate debt, RMBS, CMBS, CDO/ABS, and investments in
hedge funds and private equity funds.
• Transfers of certain investments in municipal securities, RMBS, CMBS, CDO and certain ABS out of Level 3
assets were based on consideration of market liquidity as well as related transparency of pricing and associated
observable inputs for these investments.
• Transfers of private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of
using observable pricing information that reflects the fair value of those securities without the need for adjustment
based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the
market.
• The removal or easing of fund-imposed redemption restrictions, as well as certain fund investments becoming
subject to the equity method of accounting resulted in the transfer of certain hedge fund and private equity fund
investments out of Level 3 assets.
Transfers of Level 3 Assets and Liabilities
Transfers of Level 3 Assets
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AIG 2013 Form 10-K 241
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
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There were no significant transfers of derivative or other liabilities into or out of Level 3 for the year ended
December 31, 2013.
Because we present carrying values of our derivative positions on a net basis in the table above, transfers into
Level 3 liabilities for the year ended December 31, 2012 primarily related to certain derivative assets transferred out
of Level 3 because of the presence of observable inputs on certain forward commitments and options. During the
year ended December 31, 2012, certain notes payable were transferred out of Level 3 liabilities because input
parameters for the pricing of these liabilities became more observable as a result of market movements and portfolio
aging. There were no significant transfers of derivative liabilities out of Level 3 for the year ended December 31,
2012.
We use various hedging techniques to manage risks associated with certain positions, including those classified
within Level 3. Such techniques may include the purchase or sale of financial instruments that are classified within
Level 1 and/or Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities classified
within Level 3 presented in the table above do not reflect the related realized or unrealized gains (losses) on hedging
instruments that are classified within Level 1 and/or Level 2.
The table below presents information about the significant unobservable inputs used for recurring fair value
measurements for certain Level 3 instruments, and includes only those instruments for which information
about the inputs is reasonably available to us, such as data from third-party valuation service providers and
from internal valuation models. Because input information from third-parties with respect to certain Level 3
instruments (primarily CDO/ABS) may not be reasonably available to us, balances shown below may not
equal total amounts reported for such Level 3 assets and liabilities:
Assets:
Corporate debt Discounted cash flow Yield
(b)
0.00% – 14.29% (6.64%)
RMBS Discounted cash flow Constant prepayment rate
(c)
0.00% – 10.35% (4.97%)
Loss severity
(c)
42.60% – 79.07% (60.84%)
Constant default rate
(c)
3.98% – 12.22% (8.10%)
Yield
(c)
2.54% – 7.40% (4.97%)
Certain CDO/ABS Discounted cash flow Constant prepayment rate
(c)
5.20% – 10.80% (8.20%)
Loss severity
(c)
48.60% – 63.40% (56.40%)
Constant default rate
(c)
3.20% – 16.20% (9.00%)
Yield
(c)
5.20% – 11.50% (9.40%)
CMBS Discounted cash flow Yield
(b)
0.00% – 14.69% (5.58%)
CDO/ABS – Direct Binomial Expansion Recovery rate
(b)
6.00% – 63.00% (25.00%)
Investment Book Technique (BET) Diversity score
(b)
5 – 35 (12)
Weighted average life
(b)
1.07 – 9.47 years (4.86 years)
Liabilities:
Policyholder contract deposits – GMWB Discounted cash flow Equity implied volatility
(b)
6.00% – 39.00%
Base lapse rate
(b)
1.00% – 40.00%
Dynamic lapse rate
(b)
0.20% – 60.00%
Mortality rate
(b)
0.50% – 40.00%
Utilization rate
(b)
0.50% – 25.00%
Derivative Liabilities – Credit contracts BET Recovery rate
(b)
5.00% – 34.00% (17.00%)
Diversity score
(b)
9 – 32 (13)
Weighted average life
(b)
4.50 – 9.47 years (5.63 years)
Transfers of Level 3 Liabilities
Quantitative Information about Level 3 Fair Value Measurements
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AIG 2013 Form 10-K 242
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Fair Value at
December 31, Valuation Range
(in millions) 2013 Technique Unobservable Input
(a)
(Weighted Average)
(a)
$ 788
14,419
5,414
5,847
557
312
996
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Assets:
Corporate debt $ 775 Discounted cash flow Yield
(b)
0.08% – 6.55% (3.31%)
RMBS 10,650 Discounted cash flow Constant prepayment rate
(c)
0.00% – 10.76% (5.03%)
Loss severity
(c)
43.70% – 78.72% (61.21%)
Constant default rate
(c)
4.21% – 13.30% (8.75%)
Yield
(c)
2.23% – 9.42% (5.82%)
Certain CDO/ABS
(d)
7,844 Discounted cash flow Constant prepayment rate
(c)
0.00% – 32.25% (11.82%)
Loss severity
(c)
0.00% – 29.38% (6.36%)
Constant default rate
(c)
0.00% – 4.05% (1.18%)
Yield
(c)
5.41% – 10.67% (8.04%)
CMBS 3,251 Discounted cash flow Yield
(b)
0.00% – 19.95% (7.76%)
CDO/ABS – Direct Binomial Expansion Recovery rate
(b)
3.00% – 63.00% (27.00%)
Investment Book 1,205 Technique (BET) Diversity score
(b)
4 – 44 (13)
Weighted average life
(b)
1.27 – 9.11 years (4.91 years)
Liabilities:
Policyholder contract deposits – GMWB 1,257 Discounted cash flow Equity implied volatility
(b)
6.00% – 39.00%
Base lapse rate
(b)
1.00% – 40.00%
Dynamic lapse rate
(b)
0.20% – 60.00%
Mortality rate
(b)
0.50% – 40.00%
Utilization rate
(b)
0.50% – 25.00%
Derivative Liabilities – Credit contracts 1,436 BET Recovery rate
(b)
3.00% – 37.00% (17.00%)
Diversity score
(b)
9 – 38 (14)
Weighted average life
(b)
5.10 – 8.45 years (5.75 years)
(a) The unobservable inputs and ranges for the constant prepayment rate, loss severity and constant default rate relate to each of the individual
underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the
securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the
tranches purchased by us because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to,
purchase price, position in the waterfall, senior versus subordinated position and attachment points.
(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and
liabilities.
(c) Information received from third-party valuation service providers.
(d) Yield was the only input available for $6.6 billion of total fair value at December 31, 2012.
The ranges of reported inputs for Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow
technique consist of plus/minus one standard deviation in either direction from the value-weighted average. The
preceding table does not give effect to our risk management practices that might offset risks inherent in these
investments.
Sensitivity to Changes in Unobservable Inputs
We consider unobservable inputs to be those for which market data is not available and that are developed using the
best information available to us about the assumptions that market participants would use when pricing the asset or
liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following
is a general description of sensitivities of significant unobservable inputs along with interrelationships between and
among the significant unobservable inputs and their impact on the fair value measurements. The effect of a change
in a particular assumption in the sensitivity analysis below is considered independently of changes in any other
assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs
discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships
have not been included in the discussion below. For each of the individual relationships described below, the inverse
relationship would also generally apply.
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AIG 2013 Form 10-K 243
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Fair Value at
December 31, Valuation Range
(in millions) 2012 Technique Unobservable Input
(a)
(Weighted Average)
(a)
..................................................................................................................................................................................
............................................................................................................................................................................................
Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active
markets or that are subject to transfer restrictions. Fair value measurements consider illiquidity and
non-transferability. When observable price quotations are not available, fair value is determined based on discounted
cash flow models using discount rates based on credit spreads, yields or price levels of publicly-traded debt of the
issuer or other comparable securities, considering illiquidity and structure. The significant unobservable input used in
the fair value measurement of corporate debt is the yield. The yield is affected by the market movements in credit
spreads and U.S. Treasury yields. In addition, the migration in credit quality of a given security generally has a
corresponding effect on the fair value measurement of the security. For example, a downward migration of credit
quality would increase spreads. Holding U.S. Treasury rates constant, an increase in corporate credit spreads would
decrease the fair value of corporate debt.
The significant unobservable inputs used in fair value measurements of RMBS and certain CDO/ABS valued by third-
party valuation service providers are constant prepayment rates (CPR), loss severity, constant default rates (CDR),
and yield. A change in the assumptions used for the probability of default will generally be accompanied by a
corresponding change in the assumption used for the loss severity and an inverse change in the assumption used for
prepayment rates. In general, increases in CPR, loss severity, CDR, and yield, in isolation, would result in a
decrease in the fair value measurement. Changes in fair value based on variations in assumptions generally cannot
be extrapolated because the relationship between the directional change of each input is not usually linear.
The significant unobservable input used in fair value measurements for CMBS is the yield. Prepayment assumptions
for each mortgage pool are factored into the yield. CMBS generally feature a lower degree of prepayment risk than
RMBS because commercial mortgages generally contain a penalty for prepayment. In general, increases in the yield
would decrease the fair value of CMBS.
The significant unobservable inputs used for certain CDO/ABS securities valued using the BET are recovery rates,
diversity score, and the weighted average life of the portfolio. An increase in recovery rates and diversity score will
increase the fair value of the portfolio. An increase in the weighted average life will decrease the fair value.
Embedded derivatives within Policyholder contract deposits relate to guaranteed minimum withdrawal benefits
(GMWB) within variable annuity products and certain enhancements to interest crediting rates based on market
indices within equity-indexed annuities and guaranteed investment contracts (GICs). GMWB represents our largest
exposure of these embedded derivatives, although the carrying value of the liability fluctuates based on the
performance of the equity markets and therefore, at a point in time, can be low relative to the exposure. The principal
unobservable input used for GMWBs and embedded derivatives in equity-indexed annuities measured at fair value is
equity implied volatility. For GMWBs, other significant unobservable inputs include base and dynamic lapse rates,
mortality rates, and utilization rates. Lapse, mortality, and utilization rates may vary significantly depending upon age
groups and duration. In general, increases in volatility and utilization rates will increase the fair value of the liability
associated with GMWB, while increases in lapse rates and mortality rates will decrease the fair value of the liability.
Significant unobservable inputs used in valuing embedded derivatives within GICs include long-term forward interest
rates and foreign exchange rates. Generally, the embedded derivative liability for GICs will increase as interest rates
decrease or if the U.S. dollar weakens compared to the euro.
Corporate Debt
RMBS and Certain CDO/ABS
CMBS
CDO/ABS — Direct Investment book
Policyholder contract deposits
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AIG 2013 Form 10-K 244
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
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The significant unobservable inputs used for Derivatives liabilities — credit contracts are recovery rates, diversity
scores, and the weighted average life of the portfolio. AIG non-performance risk is also considered in the
measurement of the liability.
An increase in recovery rates and diversity score will decrease the fair value of the liability. An increase in the
weighted average life will increase the fair value measurement of the liability.
The following table includes information related to our investments in certain other invested assets,
including private equity funds, hedge funds and other alternative investments that calculate net asset value
per share (or its equivalent). For these investments, which are measured at fair value on a recurring basis,
we use the net asset value per share as a practical expedient to measure fair value.
Investment Category
Private equity funds:
Leveraged buyout Debt and/or equity investments made as part of a $ 2,529 $ 669
transaction in which assets of mature companies
are acquired from the current shareholders, typically
with the use of financial leverage
Real Estate / Investments in real estate properties and 251 52
Infrastructure infrastructure positions, including power plants and
other energy generating facilities
Venture capital Early-stage, high-potential, growth companies 157 16
expected to generate a return through an eventual
realization event, such as an initial public offering or
sale of the company
Distressed Securities of companies that are in default, under 184 36
bankruptcy protection, or troubled
Other Includes multi-strategy and mezzanine strategies 112 100
Total private equity funds 3,233 873
Hedge funds:
Event-driven Securities of companies undergoing material 788 2
structural changes, including mergers, acquisitions
and other reorganizations
Long-short Securities that the manager believes are 1,318 –
undervalued, with corresponding short positions to
hedge market risk
Macro Investments that take long and short positions in 320 –
financial instruments based on a top-down view of
certain economic and capital market conditions
Distressed Securities of companies that are in default, under 316 –
bankruptcy protection or troubled
Emerging markets Investments in the financial markets of developing – –
countries
Other Includes multi-strategy and relative value strategies 66 –
Total hedge funds 2,808 2
Total $ 6,041 $ 875
Private equity fund investments included above are not redeemable, as distributions from the funds will be received
when underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year
lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one or two-year
Derivative liabilities — credit contracts
Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share
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AIG 2013 Form 10-K 245
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
December 31, 2013 December 31, 2012
Fair Value Fair Value
Using Net Using Net
Asset Value Asset Value
Per Share (or Unfunded Per Share (or Unfunded
(in millions) Investment Category Includes its equivalent) Commitments its equivalent) Commitments
$ 2,544 $ 578
346 86
140 13
183 34
134 238
3,347 949
976 2
1,759 11
612 –
594 15
287 –
157 –
4,385 28
$ 7,732 $ 977
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increments. At December 31, 2013, assuming average original expected lives of 10 years for the funds, 62 percent of
the total fair value using net asset value per share (or its equivalent) presented above would have expected
remaining lives of three years or less, 34 percent between four and six years and 4 percent between seven and
10 years.
The hedge fund investments included above are generally redeemable monthly (14 percent), quarterly (44 percent),
semi-annually (22 percent) and annually (20 percent), with redemption notices ranging from one day to 180 days. At
December 31, 2013, however, investments representing approximately 57 percent of the total fair value of the hedge
fund investments cannot be redeemed, either in whole or in part, because the investments include various
contractual restrictions. The majority of these contractual restrictions, which may have been put in place at the fund’s
inception or thereafter, have pre-defined end dates and are generally expected to be lifted by the end of 2015. The
fund investments for which redemption is restricted only in part generally relate to certain hedge funds that hold at
least one investment that the fund manager deems to be illiquid.
Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not
otherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported in
earnings. We elect the fair value option for certain hybrid securities given the complexity of bifurcating the economic
components associated with the embedded derivatives. Refer to Note 11 for additional information related to
embedded derivatives.
Additionally, beginning in the third quarter of 2012 we elected the fair value option for investments in certain private
equity funds, hedge funds and other alternative investments when such investments are eligible for this election. We
believe this measurement basis is consistent with the applicable accounting guidance used by the respective
investment company funds themselves. Refer to Note 6 herein for additional information.
The following table presents the gains or losses recorded related to the eligible instruments for which we
elected the fair value option:
Assets:
Mortgage and other loans receivable $ 47 $ 11
Bond and equity securities 2,339 1,273
Other securities – ML II interest 246 42
Other securities – ML III interest 2,888 (646)
Retained interest in AIA 2,069 1,289
Alternative investments
(a)
36 2
Other, including Short-term investments 20 33
Liabilities:
Long-term debt
(b)
(681) (966)
Other liabilities (33) (67)
Total gain $ 6,931 $ 971
(a) Includes certain hedge funds, private equity funds and other investment partnerships.
(b) Includes GIAs, notes, bonds and mortgage payable.
Interest income and dividend income on assets measured under the fair value option are recognized and included in
Net investment income in the Consolidated Statements of Income with the exception of activity within AIG’s Other
Operations, which is included in Other income. Interest on liabilities measured under the fair value option is
recognized in interest expense in the Consolidated Statements of Income. See Note 6 herein for additional
information about our policies for recognition, measurement, and disclosure of interest and dividend income and
interest expense.
Fair Value Option
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AIG 2013 Form 10-K 246
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Gain (Loss)
Years Ended December 31,
(in millions) 2013 2012 2011
$ 3
1,667
–
–
–
360
11
327
(15)
$ 2,353
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During 2013, 2012 and 2011, we recognized losses of $54 million, losses of $641 million and gains of $420 million,
respectively, attributable to the observable effect of changes in credit spreads on our own liabilities for which the fair
value option was elected. We calculate the effect of these credit spread changes using discounted cash flow
techniques that incorporate current market interest rates, our observable credit spreads on these liabilities and other
factors that mitigate the risk of nonperformance such as cash collateral posted.
The following table presents the difference between fair values and the aggregate contractual principal
amounts of mortgage and other loans receivable and long-term borrowings for which the fair value option
was elected:
Assets:
Mortgage and other loans receivable $ 134 $ 141 $ (7)
Liabilities:
Long-term debt
*
$ 8,055 $ 5,705 $ 2,350
* Includes GIAs, notes, bonds, loans and mortgages payable.
There were no mortgage or other loans receivable for which the fair value option was elected that were 90 days or
more past due or in non-accrual status at December 31, 2013 and 2012.
We measure the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or
changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets
include cost and equity-method investments, investments in life settlements, collateral securing foreclosed loans and
real estate and other fixed assets, goodwill and other intangible assets. See Note 6 herein for additional information
about how we test various asset classes for impairment.
The following table presents assets measured at fair value on a non-recurring basis at the time of
impairment and the related impairment charges recorded during the periods presented:
December 31, 2013
Investment real estate $ – $ 18
Other investments 151 327
Investments in life settlements 309 312
Other assets 11 3
Total $ 471 $ 660
December 31, 2012
Other investments $ – $ – $ 1,930 $ 1,930
Investments in life settlements – – 120 120
Other assets – 3 18 21
Total $ – $ 3 $ 2,068 $ 2,071
Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding
insurance contracts and lease contracts) is discussed below:
• Mortgage and other loans receivable: Fair values of loans on real estate and other loans receivable were
estimated for disclosure purposes using discounted cash flow calculations based on discount rates that we believe
market participants would use in determining the price that they would pay for such assets. For certain loans, our
current incremental lending rates for similar types of loans are used as the discount rates, because we believe this
FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS
FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE
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AIG 2013 Form 10-K 247
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
December 31, 2013 December 31, 2012
Outstanding Outstanding
(in millions) Fair Value Principal Amount Difference Fair Value Principal Amount Difference
$ – $ – $ –
$ 6,747 $ 5,231 $ 1,516
Assets at Fair Value Impairment Charges
Non-Recurring Basis December 31,
(in millions) Level 1 Level 2 Level 3 Total 2013 2012 2011
$ – $ – $ – $ – $ –
– – 1,615 1,615 112
– – 896 896 971
– 11 48 59 31
$ – $ 11 $ 2,559 $ 2,570 $ 1,114
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rate approximates the rates market participants would use. The fair values of policy loans are generally estimated
based on unpaid principal amount as of each reporting date or, in some cases, based on the present value of the
loans using a discounted cash flow model. No consideration is given to credit risk because policy loans are
effectively collateralized by the cash surrender value of the policies.
• Other invested assets: The majority of Other invested assets that are not measured at fair value represent
investments in life settlements. The fair value of investments in life settlements is determined using a discounted
cash flow methodology that incorporates best available market assumptions for longevity as well as market yields
based on reported transactions. Due to the individual life nature of each investment in life settlements and the
illiquidity of the existing market, significant inputs to the fair value are unobservable.
• Cash and short-term investments: The carrying values of these assets approximate fair values because of the
relatively short period of time between origination and expected realization, and their limited exposure to credit risk.
• Policyholder contract deposits associated with investment-type contracts: Fair values for policyholder
contract deposits associated with investment-type contracts not accounted for at fair value were estimated using
discounted cash flow calculations based on interest rates currently being offered for similar contracts with
maturities consistent with those of the contracts being valued. When no similar contracts are being offered, the
discount rate is the appropriate swap rate (if available) or current risk-free interest rate consistent with the currency
in which the cash flows are denominated.
• Other liabilities: The majority of Other liabilities that are financial instruments not measured at fair value represent
secured financing arrangements, including repurchase agreements. The carrying values of these liabilities
approximate fair value, because the financing arrangements are short-term and are secured by cash or other liquid
collateral.
• Long-term debt: Fair values of these obligations were determined by reference to quoted market prices, when
available and appropriate, or discounted cash flow calculations based upon our current market-observable implicit-
credit-spread rates for similar types of borrowings with maturities consistent with those remaining for the debt being
valued.
The following table presents the carrying values and estimated fair values of our financial instruments not
measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value
measurement based on the observability of the inputs used:
Assets:
Mortgage and other loans receivable
Other invested assets
Short-term investments
Cash
Liabilities:
Policyholder contract deposits associated with investment-type contracts
Other liabilities
Long-term debt
December 31, 2012
Assets:
Mortgage and other loans receivable $ – $ 823 $ 19,396 $ 20,219 $ 19,348
Other invested assets – 237 3,521 3,758 4,932
Short-term investments – 20,752 – 20,752 20,752
Cash 1,151 – – 1,151 1,151
Liabilities:
Policyholder contract deposits associated with investment-type contracts – 245 123,860 124,105 105,979
Other liabilities – 3,981 818 4,799 4,800
Long-term debt – 43,966 1,925 45,891 40,445
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AIG 2013 Form 10-K 248
I T EM 8 / NOT E 5 . F AI R VAL UE MEASUREMENT S
Estimated Fair Value
Carrying
(in millions) Level 1 Level 2 Level 3 Total Value
December 31, 2013
$ – $ 219 $ 21,418 $ 21,637 $ 20,765
– 529 2,705 3,234 4,194
– 15,304 – 15,304 15,304
2,241 – – 2,241 2,241
– 199 114,361 114,560 105,093
– 4,869 1 4,870 4,869
– 36,239 2,394 38,633 34,946
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Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these
securities until maturity. When we do not have the ability or positive intent to hold bonds until maturity, these
securities are classified as available for sale or are measured at fair value at our election. None of our fixed maturity
securities met the criteria for held to maturity classification at December 31, 2013 or 2012.
Fixed maturity and equity securities classified as available for sale are carried at fair value. Unrealized gains and
losses from available for sale investments in fixed maturity and equity securities are reported as a separate
component of Accumulated other comprehensive income, net of deferred policy acquisition costs and deferred
income taxes, in shareholders’ equity. Realized and unrealized gains and losses from fixed maturity and equity
securities measured at fair value at our election are reflected in Net investment income (for insurance subsidiaries) or
Other income (for Other Operations). Investments in fixed maturity and equity securities are recorded on a trade-date
basis.
Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield
adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in certain
RMBS, CMBS and CDO/ABS, (collectively, structured securities), recognized yields are updated based on current
information regarding the timing and amount of expected undiscounted future cash flows. For high credit quality
structured securities, effective yields are recalculated based on actual payments received and updated prepayment
expectations, and the amortized cost is adjusted to the amount that would have existed had the new effective yield
been applied since acquisition with a corresponding charge or credit to net investment income. For structured
securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on
changes in expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition,
the difference between the undiscounted expected future cash flows and the recorded investment in the securities
represents the initial accretable yield, which is to be accreted into net investment income over the securities’
remaining lives on a level-yield basis. Subsequently, effective yields recognized on PCI securities are recalculated
and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities
and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest
rate changes.
6. INVESTMENTS
Fixed Maturity and Equity Securities
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AIG 2013 Form 10-K 249
I T EM 8 / NOT E 6 . I NVEST MENT S
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The following table presents the amortized cost or cost and fair value of our available for sale securities:
Bonds available for sale:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Corporate debt
Mortgage-backed, asset-backed and collateralized:
RMBS
CMBS
CDO/ABS
Total mortgage-backed, asset-backed and collateralized
Total bonds available for sale
(b)
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
Bonds available for sale:
U.S. government and government sponsored entities $ 3,161 $ 323 $ (1) $ 3,483 $ –
Obligations of states, municipalities and political subdivisions 33,042 2,685 (22) 35,705 2
Non-U.S. governments 25,449 1,395 (44) 26,800 –
Corporate debt 135,728 15,848 (464) 151,112 115
Mortgage-backed, asset-backed and collateralized:
RMBS 31,330 3,379 (317) 34,392 1,330
CMBS 9,449 770 (304) 9,915 (79)
CDO/ABS 7,990 806 (244) 8,552 82
Total mortgage-backed, asset-backed and collateralized 48,769 4,955 (865) 52,859 1,333
Total bonds available for sale
(b)
246,149 25,206 (1,396) 269,959 1,450
Equity securities available for sale:
Common stock 1,492 1,574 (37) 3,029 –
Preferred stock 55 23 – 78 –
Mutual funds 93 12 – 105 –
Total equity securities available for sale 1,640 1,609 (37) 3,212 –
Total $ 247,789 $ 26,815 $ (1,433) $ 273,171 $ 1,450
(a) Represents the amount of other-than-temporary impairment losses recognized in Accumulated other comprehensive income. Amount includes
unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement
date.
(b) At December 31, 2013 and 2012, bonds available for sale held by us that were below investment grade or not rated totaled $32.6 billion and
$29.6 billion, respectively.
Securities Available for Sale
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 250
I T EM 8 / NOT E 6 . I NVEST MENT S
Other-Than-
Amortized Gross Gross Temporary
Cost or Unrealized Unrealized Fair Impairments
(in millions) Cost Gains Losses Value in AOCI
(a)
December 31, 2013
$ 3,084 $ 150 $ (39) $ 3,195 $ –
28,704 1,122 (446) 29,380 (15)
22,045 822 (358) 22,509 –
139,461 7,989 (2,898) 144,552 74
33,520 3,101 (473) 36,148 1,670
11,216 558 (292) 11,482 125
10,501 649 (142) 11,008 62
55,237 4,308 (907) 58,638 1,857
248,531 14,391 (4,648) 258,274 1,916
1,280 1,953 (14) 3,219 –
24 4 (1) 27 –
422 12 (24) 410 –
1,726 1,969 (39) 3,656 –
$ 250,257 $ 16,360 $ (4,687) $ 261,930 $ 1,916
December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table summarizes the fair value and gross unrealized losses on our available for sale
securities, aggregated by major investment category and length of time that individual securities have been
in a continuous unrealized loss position:
Bonds available for sale:
U.S. government and government sponsored
entities
Obligations of states, municipalities and political
subdivisions
Non-U.S. governments
Corporate debt
RMBS
CMBS
CDO/ABS
Total bonds available for sale
Equity securities available for sale:
Common stock
Preferred stock
Mutual funds
Total equity securities available for sale
Total
Bonds available for sale:
U.S. government and government sponsored
entities $ 153 $ 1 $ – $ – $ 153 $ 1
Obligations of states, municipalities and political
subdivisions 692 11 114 11 806 22
Non-U.S. governments 1,555 19 442 25 1,997 44
Corporate debt 8,483 201 3,229 263 11,712 464
RMBS 597 28 1,661 289 2,258 317
CMBS 404 8 1,481 296 1,885 304
CDO/ABS 393 3 1,624 241 2,017 244
Total bonds available for sale 12,277 271 8,551 1,125 20,828 1,396
Equity securities available for sale:
Common stock 247 36 18 1 265 37
Mutual funds 3 – – – 3 –
Total equity securities available for sale 250 36 18 1 268 37
Total $ 12,527 $ 307 $ 8,569 $ 1,126 $ 21,096 $ 1,433
At December 31, 2013, we held 7,652 and 126 individual fixed maturity and equity securities, respectively, that were
in an unrealized loss position, of which 848 individual fixed maturity securities were in a continuous unrealized loss
position for longer than 12 months. We did not recognize the unrealized losses in earnings on these fixed maturity
securities at December 31, 2013, because we neither intend to sell the securities nor do we believe that it is more
likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed
maturity securities with significant declines, we performed fundamental credit analysis on a security-by-security basis,
which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant
industry analyst reports and forecasts and other available market data.
Securities Available for Sale in a Loss Position
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 251
I T EM 8 / NOT E 6 . I NVEST MENT S
Less than 12 Months 12 Months or More Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
(in millions) Value Losses Value Losses Value Losses
December 31, 2013
$ 1,101 $ 34 $ 42 $ 5 $ 1,143 $ 39
6,134 379 376 67 6,510 446
4,102 217 710 141 4,812 358
38,495 2,251 4,926 647 43,421 2,898
8,543 349 1,217 124 9,760 473
3,191 176 1,215 116 4,406 292
2,845 62 915 80 3,760 142
64,411 3,468 9,401 1,180 73,812 4,648
96 14 – – 96 14
5 1 – – 5 1
369 24 – – 369 24
470 39 – – 470 39
$ 64,881 $ 3,507 $ 9,401 $ 1,180 $ 74,282 $ 4,687
December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the amortized cost and fair value of fixed maturity securities available for sale
by contractual maturity:
Due in one year or less
Due after one year through five years
Due after five years through ten years
Due after ten years
Mortgage-backed, asset-backed and collateralized
Total
Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay
certain obligations with or without call or prepayment penalties.
The following table presents the gross realized gains and gross realized losses from sales or maturities of
our available for sale securities:
Fixed maturity securities $ 2,778 $ 171 $ 2,042 $ 129
Equity securities 515 31 199 35
Total $ 3,293 $ 202 $ 2,241 $ 164
For the year ended December 31, 2013, 2012 and 2011, the aggregate fair value of available for sale securities sold
was $35.9 billion, $40.3 billion and $44.0 billion, which resulted in net realized capital gains of $2.5 billion, $3.1 billion
and $2.1 billion, respectively.
Contractual Maturities of Fixed Maturity Securities Available for Sale
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 252
I T EM 8 / NOT E 6 . I NVEST MENT S
Fixed Maturity Securities
Total Fixed Maturity Available for Sale
Securities Available for Sale in a Loss Position
December 31, 2013
(in millions) Amortized Cost Fair Value Amortized Cost Fair Value
$ 10,470 $ 10,678 $ 739 $ 726
50,698 53,410 7,620 7,471
70,096 72,386 22,534 21,445
62,030 63,162 28,734 26,244
55,237 58,638 18,833 17,926
$ 248,531 $ 258,274 $ 78,460 $ 73,812
Years Ended December 31,
2013 2012 2011
Gross Gross Gross Gross Gross
Realized Realized Realized Realized Gross Realized
(in millions) Gains Losses Gains Losses Gains Losses
$ 2,634 $ 202
130 19
$ 2,764 $ 221
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the fair value of other securities measured at fair value based on our election of
the fair value option:
Fixed maturity securities:
U.S. government and government sponsored entities $ 6,794 27%
Obligations of states, territories and political subdivisions – –
Non-U.S. governments 2 –
Corporate debt 1,320 5
Mortgage-backed, asset-backed and collateralized:
RMBS 1,727 7
CMBS 2,227 9
CDO/ABS and other collateralized
*
12,506 50
Total mortgage-backed, asset-backed and collateralized 16,460 66
Other 8 –
Total fixed maturity securities 24,584 98
Equity securities 662 2
Total $ 25,246 100%
* Includes $1.0 billion and $0.9 billion of U.S. Government agency backed ABS at December 31, 2013 and 2012, respectively.
The following table summarizes the carrying values of other invested assets:
Alternative investments
(a)
$ 18,990
Mutual funds 128
Investment real estate
(b)
3,195
Aircraft asset investments
(c)
984
Investments in life settlements 4,357
All other investments 1,463
Total $ 29,117
(a) Includes hedge funds, private equity funds, affordable housing partnerships, investments in life settlements and other investment partnerships.
(b) Net of accumulated depreciation of $513 million and $469 million in 2013 and 2012, respectively.
(c) Consist primarily of AIG Life and Retirement investments in aircraft equipment held in consolidated trusts.
Certain hedge funds, private equity funds, affordable housing partnerships and other investment partnerships for
which we have elected the fair value option are reported at fair value with changes in fair value recognized in Net
investment income with the exception of investments of AIG’s Other Operations, for which such changes are reported
in Other income. Other investments in hedge funds, private equity funds, affordable housing partnerships and other
investment partnerships in which our insurance operations do not hold aggregate interests sufficient to exercise more
than minor influence over the respective partnerships are reported at fair value with changes in fair value recognized
as a component of Accumulated other comprehensive income. These investments are subject to
other-than-temporary impairment evaluations (see discussion below on evaluating equity investments for
other-than-temporary impairment). The gross unrealized loss recorded in Other comprehensive income on such
Other Securities Measured at Fair Value
Other Invested Assets
Other Invested Assets Carried at Fair Value
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 253
I T EM 8 / NOT E 6 . I NVEST MENT S
December 31, 2013 December 31, 2012
Fair Percent Fair Percent
(in millions) Value of Total Value of Total
$ 5,723 24%
121 1
2 –
1,169 5
2,263 10
1,353 6
11,985 51
15,601 67
7 –
22,623 97
834 3
$ 23,457 100%
December 31,
(in millions) 2013 2012
$ 19,709
85
3,113
763
3,601
1,388
$ 28,659
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
investments was $15 million and $68 million at December 31, 2013 and 2012, respectively, the majority of which
pertains to investments in private equity funds and hedge funds that have been in continuous unrealized loss
positions for less than 12 months.
We account for hedge funds, private equity funds, affordable housing partnerships and other investment partnerships
using the equity method of accounting unless our interest is so minor that we may have virtually no influence over
partnership operating and financial policies, or we have elected the fair value option. Under the equity method of
accounting, our carrying value generally is our share of the net asset value of the funds or the partnerships, and
changes in our share of the net asset values are recorded in Net investment income with the exception of
investments of AIG’s Other Operations, for which such changes are reported in Other income. In applying the equity
method of accounting, we consistently use the most recently available financial information provided by the general
partner or manager of each of these investments, which is one to three months prior to the end of our reporting
period. The financial statements of these investees are generally audited annually.
Direct private equity investments entered into for strategic purposes and not solely for capital appreciation or for
income generation are also accounted for under the equity method. Dividends received from our other strategic
investments were $80 million, $8 million and $17 million for the years ended December 31, 2013, 2012, and 2011,
respectively. The undistributed earnings of other strategic investments in which our ownership interest is less than
50 percent were $17 million, $51 million and $9 million at December 31, 2013, 2012, and 2011, respectively.
On October 29, 2010, we completed an IPO of 8.08 billion ordinary shares of AIA for aggregate gross proceeds of
approximately $20.5 billion. Upon completion of the IPO, we owned 33 percent of AIA’s outstanding shares.
Accordingly, we deconsolidated AIA and recorded a pre-tax gain of $16.3 billion in 2010. On March 7, 2012, we sold
approximately 1.72 billion ordinary shares of AIA for gross proceeds of approximately $6.0 billion. On September 11,
2012, we sold approximately 600 million ordinary shares of AIA for gross proceeds of approximately $2.0 billion. On
December 20, 2012, we sold approximately 1.65 billion ordinary shares of AIA for gross proceeds of approximately
$6.5 billion. As a result of these sales, we retained no interest in AIA as of December 31, 2012. We accounted for
our investment in AIA under the fair value option with gains and losses recorded in Net investment income. We
recorded fair value option gains from our investment in AIA of $2.1 billion and $1.3 billion for the years ended
December 31, 2012 and 2011.
The following is summarized financial information of AIA:
Operating results:
Total revenues $ 13,802
Total expenses (12,436)
Net income $ 1,366
Other Invested Assets — Equity Method Investments
Summarized Financial Information of AIA
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 254
I T EM 8 / NOT E 6 . I NVEST MENT S
Year Ended December 31,
(in millions) 2011
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following is the aggregated summarized financial information of our equity method investees, including
those for which the fair value option has been elected:
Operating results:
Total revenues $ 9,438 $ 12,749
Total expenses (5,183) (3,530)
Net income $ 4,255 $ 9,219
Balance sheet:
Total assets $ 139,681
Total liabilities $ (26,529)
The following table presents the carrying value and ownership percentage of equity method investments:
All other equity method investments $ 11,544 Various
Summarized financial information for these equity method investees may be presented on a lag, due to the
unavailability of information for the investees at the respective balance sheet date, and is included for the periods in
which we held an equity method ownership interest.
Also included in Other invested assets are real estate held for investment and aircraft asset investments held by
non-Aircraft Leasing subsidiaries. These investments are reported at cost, less depreciation and subject to
impairment review, as discussed below.
Investments in life settlements are accounted for under the investment method. Under the investment method, we
recognize our initial investment in life settlements at the transaction price plus all initial direct external costs.
Continuing costs to keep the policy in force, primarily life insurance premiums, increase the carrying value of the
investment. We recognize income on individual investments in life settlements when the insured dies, at an amount
equal to the excess of the investment proceeds over the carrying amount of the investment at that time. These
investments are subject to impairment review, as discussed below.
During 2013, 2012 and 2011, income recognized on investments in life settlements was $334 million, $253 million
and $320 million, respectively, and is included in Net investment income in the Consolidated Statements of Income.
Summarized Financial Information of Other Equity Method Investees
Other Investments
Investments in Life Settlements
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 255
I T EM 8 / NOT E 6 . I NVEST MENT S
Years Ended December 31,
(in millions) 2013 2012 2011
$ 19,181
(5,515)
$ 13,666
At December 31,
(in millions) 2013 2012
$ 150,586
$ (25,134)
2013 2012
Carrying Ownership Carrying Ownership
(in millions, except percentages) Value Percentage Value Percentage
$ 12,921 Various
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents further information regarding investments in life settlements:
Remaining Life Expectancy of Insureds:
0 – 1 year
1 – 2 years
2 – 3 years
3 – 4 years
4 – 5 years
Thereafter
Total
Remaining life expectancy for year 0-1 references policies whose current life expectancy is less than 12 months as
of the valuation date. Remaining life expectancy is not an indication of expected maturity. Actual maturity dates in
any category may vary significantly (either earlier or later) from the remaining life expectancies reported above.
At December 31, 2013, management’s best estimate of the life insurance premiums required to keep the investments
in life settlements in force, payable in the 12 months ending December 31, 2014 and the four succeeding years
ending December 31, 2018 are $549 million, $575 million, $590 million, $613 million and $638 million, respectively.
Net investment income represents income primarily from the following sources:
• Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds
with changes in the timing and the amount of expected principal and interest cash flows reflected in the yield, as
applicable.
• Dividend income from common and preferred stock and distributions from other investments.
• Realized and unrealized gains and losses from investments in other securities and investments for which we
elected the fair value option.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• The difference between the carrying amount of an investment in life settlements and the life insurance proceeds of
the underlying life insurance policy recorded in income upon the death of the insured.
• Changes in the fair values of our interests in ML II, AIA and MetLife securities prior to sale and change in the fair
value of our interests in ML III prior to the FRBNY liquidation of ML III assets.
Net Investment Income
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 256
I T EM 8 / NOT E 6 . I NVEST MENT S
December 31, 2013
Number of Carrying Face Value
(dollars in millions) Contracts Value (Death Benefits)
1 $ – $ –
9 5 10
26 14 29
72 41 84
138 119 289
5,030 3,422 16,328
5,276 $ 3,601 $ 16,740
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the components of Net investment income:
Fixed maturity securities, including short-term investments $ 12,592 $ 11,814
Change in fair value of ML II 246 42
Change in fair value of ML III 2,888 (646)
Change in fair value of AIA securities including realized gain 2,069 1,289
Change in the fair value of MetLife securities prior to their sale – (157)
Equity securities 162 92
Interest on mortgage and other loans 1,083 1,065
Alternative investments
*
1,769 1,622
Real estate 127 107
Other investments 11 36
Total investment income 20,947 15,264
Investment expenses 604 509
Net investment income $ 20,343 $ 14,755
* Includes hedge funds, private equity funds, affordable housing partnerships, investments in life settlements and other investment partnerships.
Net realized capital gains and losses are determined by specific identification. The net realized capital gains and
losses are generated primarily from the following sources:
• Sales of available for sale fixed maturity securities, available for sale equity securities and real estate.
• Reductions to the cost basis of available for sale fixed maturity securities, available for sale equity securities and
certain other invested assets for other-than-temporary impairments.
• Impairments on investments in life settlements.
• Changes in fair value of derivatives except for (1) those instruments at AIGFP that are not intermediated on behalf
of other AIG subsidiaries and (2) those instruments that are designated as hedging instruments when the change
in the fair value of the hedged item is not reported in Net realized capital gains (losses).
• Exchange gains and losses resulting from foreign currency transactions.
The following table presents the components of Net realized capital gains (losses):
Sales of fixed maturity securities $ 2,607 $ 1,913
Sales of equity securities 484 164
Other-than-temporary impairments:
Severity (44) (51)
Change in intent (62) (12)
Foreign currency declines (8) (32)
Issuer-specific credit events (1,048) (1,165)
Adverse projected cash flows (5) (20)
Provision for loan losses 104 48
Change in the fair value of MetLife securities prior to their sale – (191)
Foreign exchange transactions (233) (96)
Derivative instruments (685) 447
Impairments of investments in life settlements (309) (312)
Other 129 (2)
Net realized capital gains $ 930 $ 691
Net Realized Capital Gains and Losses
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 257
I T EM 8 / NOT E 6 . I NVEST MENT S
Years Ended December 31,
(in millions) 2013 2012 2011
$ 12,044
–
–
–
–
178
1,144
2,803
128
61
16,358
548
$ 15,810
Years Ended December 31,
(in millions) 2013 2012 2011
$ 2,432
111
(6)
(48)
(1)
(265)
(7)
(26)
–
151
92
(971)
282
$ 1,744
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available
for sale securities and other investments:
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturities $ 10,599
Equity securities (232)
Other investments 343
Total increase (decrease) in unrealized appreciation (depreciation) of investments
*
$ 10,710
* Excludes net unrealized gains attributable to businesses held for sale.
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity
security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an
other-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with a
corresponding charge to realized capital losses. When assessing our intent to sell a fixed maturity security, or
whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its
amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions
to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take
advantage of favorable pricing.
For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the
estimated recovery value with a corresponding charge to realized capital losses. The estimated recovery value is the
present value of cash flows expected to be collected, as determined by management. The difference between fair
value and amortized cost that is not related to a credit impairment is recognized in unrealized appreciation
(depreciation) of fixed maturity securities on which other-than-temporary credit impairments were taken (a separate
component of accumulated other comprehensive income).
When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS)
management considers historical performance of underlying assets and available market information as well as
bond-specific structural considerations, such as credit enhancement and priority of payment structure of the security.
In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs,
which vary by asset class:
• Current delinquency rates;
• Expected default rates and the timing of such defaults;
• Loss severity and the timing of any recovery; and
• Expected prepayment speeds.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management
considers the fair value as the recovery value when available information does not indicate that another value is
more relevant or reliable. When management identifies information that supports a recovery value other than the fair
value, the determination of a recovery value considers scenarios specific to the issuer and the security, and may be
based upon estimates of outcomes of corporate restructurings, political and macroeconomic factors, stability and
financial strength of the issuer, the value of any secondary sources of repayment and the disposition of assets.
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model
inputs when we determine that price movements in certain sectors are indicative of factors not captured by the cash
flow models.
Change in Unrealized Appreciation (Depreciation) of Investments
Evaluating Investments for Other-Than-Temporary Impairments
Fixed Maturity Securities
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 258
I T EM 8 / NOT E 6 . I NVEST MENT S
Years Ended
December 31,
(in millions) 2013 2012
$ (14,066)
360
101
$ (13,605)
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed
maturity securities that is not foreign exchange related, we prospectively accrete into earnings the difference between
the new amortized cost and the expected undiscounted recovery value over the remaining expected holding period of
the security.
The following table presents a rollforward of the cumulative credit losses in other-than-temporary
impairments recognized in earnings for available for sale fixed maturity securities:
Balance, beginning of year $ 6,504 $ 6,786
Increases due to:
Credit impairments on new securities subject to impairment losses 194 235
Additional credit impairments on previously impaired securities 483 735
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or
requirement to sell (1,105) (529)
Credit impaired securities for which there is a current intent or anticipated
requirement to sell (5) –
Accretion on securities previously impaired due to credit
*
(915) (544)
Hybrid securities with embedded credit derivatives reclassified to other bond
securities – (179)
Other 8 –
Balance, end of year $ 5,164 $ 6,504
* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit
impaired securities and the accretion due to the passage of time.
We evaluate our available for sale equity securities, equity method and cost method investments for impairment by
considering such securities as candidates for other-than-temporary impairment if they meet any of the following
criteria:
• The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine
consecutive months or longer);
• A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation;
(ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws intended for court-
supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant
to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower
than the par value of their claims; or
• We have concluded that we may not realize a full recovery on our investment, regardless of the occurrence of one
of the foregoing events.
The determination that an equity security is other-than-temporarily impaired requires the judgment of management
and consideration of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and
circumstances. In addition to the above criteria, all equity securities that have been in a continuous decline in value
below cost over twelve months are impaired. We also consider circumstances of a rapid and severe market valuation
decline (50 percent or more) discount to cost, in which we could not reasonably assert that the impairment period
would be temporary (severity losses).
Our investments in private equity funds and hedge funds are evaluated for impairment similar to the evaluation of
equity securities for impairments as discussed above. Such evaluation considers market conditions, events and
Credit Impairments
Equity Securities
Other Invested Assets
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 259
I T EM 8 / NOT E 6 . I NVEST MENT S
Years Ended December 31,
(in millions) 2013 2012 2011
$ 5,164
47
78
(643)
–
(774)
–
–
$ 3,872
..................................................................................................................................................................................
............................................................................................................................................................................................
volatility that may impact the recoverability of the underlying investments within these private equity funds and hedge
funds and is based on the nature of the underlying investments and specific inherent risks. Such risks may evolve
based on the nature of the underlying investments.
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An
investment in life settlements is considered impaired if the undiscounted cash flows resulting from the expected
proceeds from the investment in life settlements would not be sufficient to recover our estimated future carrying
amount of the investment in life settlements, which is the current carrying amount for the investment in life
settlements plus anticipated undiscounted future premiums and other capitalizable future costs, if any. Impaired
investments in life settlements are written down to their estimated fair value which is determined on a discounted
cash flow basis, incorporating current market longevity assumptions and market yields.
In general, fair value estimates for the investments in life settlements are calculated using cash flows based on
medical underwriting ratings of the policies from a third-party underwriter, applied to an industry mortality table. Our
new mortality assumptions are based on an industry table that was supplemented with proprietary data on the older
age mortality of U.S. insured lives. In addition, mortality improvement factors were applied to our new assumptions
based on our view of future mortality improvements likely to apply to the U.S. insured lives population. These
mortality improvement assumptions were based on our analysis of various public industry sources and proprietary
research. Using these new mortality assumptions coupled with the adopted future mortality improvement rates, we
revised our estimate of future net cash flows from the investments in life settlements. This resulted in a significant
increase in the number of investments in life settlements identified as impaired as of December 31, 2013.
Our investments in aircraft assets and real estate are periodically evaluated for recoverability whenever changes in
circumstances indicate the carrying amount of an asset may be impaired. When impairment indicators are present,
we compare expected investment cash flows to carrying value. When the expected cash flows are less than the
carrying value, the investments are written down to fair value with a corresponding charge to earnings.
We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We
determine, based on our expectations as to the timing and amount of cash flows expected to be received, whether it
is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including
both principal and interest after considering the effects of prepayments. At acquisition, the timing and amount of the
undiscounted future cash flows expected to be received on each PCI security is determined based on our best
estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the
difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in
the securities represents the initial accretable yield, which is accreted into Net investment income over their
remaining lives on a level-yield basis. Additionally, the difference between the contractually required payments on the
PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at
acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments
received and changes in estimates of undiscounted expected future cash flows, which are discussed further below.
On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated
based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit
deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an
other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for
other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in
the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively.
Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are
recognized prospectively as adjustments to the accretable yield.
Purchased Credit Impaired (PCI) Securities
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 260
I T EM 8 / NOT E 6 . I NVEST MENT S
..................................................................................................................................................................................
............................................................................................................................................................................................
The following tables present information on our PCI securities, which are included in bonds available for
sale:
Contractually required payments (principal and interest) $ 25,374
Cash flows expected to be collected
*
20,037
Recorded investment in acquired securities 13,077
* Represents undiscounted expected cash flows, including both principal and interest.
Outstanding principal balance $ 11,791
Amortized cost 7,718
Fair value 8,823
The following table presents activity for the accretable yield on PCI securities:
Balance, beginning of year $ 4,135
Newly purchased PCI securities 1,620
Disposals (298)
Accretion (672)
Effect of changes in interest rate indices (213)
Net reclassification from non-accretable difference, including effects of prepayments 194
Balance, end of year $ 4,766
We enter into financing transactions whereby certain securities are transferred to financial institutions in exchange for
cash or other liquid collateral. Securities transferred by us under these financing transactions may be sold or
repledged by the counterparties. As collateral for the securities transferred by us, counterparties transfer assets to
us, such as cash or high quality fixed maturity securities. Collateral levels are monitored daily and are generally
maintained at an agreed-upon percentage of the fair value of the transferred securities during the life of the
transactions. Where we receive fixed maturity securities as collateral, we do not have the right to sell or repledge this
collateral unless an event of default occurs by the counterparties. At the termination of the transactions, we and our
counterparties are obligated to return the collateral provided and the securities transferred, respectively. We treat
these transactions as secured financing arrangements.
Secured financing transactions also include securities sold under agreements to repurchase (repurchase
agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same
or substantially similar securities. In the majority of these repurchase agreements, the securities transferred by us
may be sold or repledged by the counterparties. Repurchase agreements entered into by the DIB are carried at fair
value based on market-observable interest rates. All other repurchase agreements are recorded at their contracted
repurchase amounts plus accrued interest.
The following table presents the fair value of securities pledged to counterparties under secured financing
transactions:
Securities available for sale $ 8,180
Other securities 2,985
Pledged Investments
Secured Financing and Similar Arrangements
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 261
I T EM 8 / NOT E 6 . I NVEST MENT S
(in millions) At Date of Acquisition
(in millions) December 31, 2013 December 31, 2012
$ 14,741
10,110
11,338
Years Ended December 31,
(in millions) 2013 2012
$ 4,766
1,773
(60)
(719)
302
878
$ 6,940
(in millions) December 31, 2013 December 31, 2012
$ 3,907
2,766
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Prior to January 1, 2012, in the case of repurchase agreements where we did not obtain collateral sufficient to fund
substantially all of the cost of purchasing identical replacement securities during the term of the contract (generally
less than 90 percent of the security value), we accounted for the transaction as a sale of the security and reported
the obligation to repurchase the security as a derivative contract. The fair value of securities transferred under
repurchase agreements accounted for as sales was $2.1 billion at December 31, 2011. Effective January 1, 2012,
the level of collateral received by the transferor in a repurchase agreement or similar arrangement is no longer
relevant in determining whether the transaction should be accounted for as a sale. There were no repurchase
agreements accounted for as sales as of December 31, 2013.
We also enter into agreements in which securities are purchased by us under agreements to resell (reverse
repurchase agreements), which are accounted for as secured financing transactions and reported as short-term
investments or other assets, depending on their terms. These agreements are recorded at their contracted resale
amounts plus accrued interest, other than those that are accounted for at fair value. Such agreements entered into
by the DIB are carried at fair value based on market observable interest rates. In all reverse repurchase transactions,
we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledge
this collateral received.
The following table presents information on the fair value of securities pledged to us under reverse
repurchase agreements:
Securities collateral pledged to us $ 11,039
Amount repledged by us 33
Total carrying values of cash and securities deposited by our insurance subsidiaries under requirements of regulatory
authorities or other insurance-related arrangements, including certain annuity-related obligations and certain
reinsurance agreements, were $6.7 billion and $8.9 billion at December 31, 2013 and 2012, respectively.
Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the
members to own stock in these FHLBs. We owned an aggregate of $57 million and $84 million of stock in FHLBs at
December 31, 2013 and December 31, 2012, respectively. To the extent an AIG subsidiary borrows from the FHLB,
its ownership interest in the stock of FHLBs will be pledged to the FHLB. In addition, our subsidiaries have pledged
securities available for sale with a fair value of $80 million and $341 million at December 31, 2013 and 2012,
respectively, associated with advances from the FHLBs.
Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade
of our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the event
of such downgrades, and the aggregate amount of payments that we could be required to make, depend on market
conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the
downgrade. The fair value of securities pledged as collateral with respect to these obligations approximated
$4.2 billion and $4.4 billion at December 31, 2013 and December 31, 2012, respectively. This collateral primarily
consists of securities of the U.S. government and government sponsored entities and generally cannot be repledged
or resold by the counterparties.
Insurance — Statutory and Other Deposits
Other Pledges
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 262
I T EM 8 / NOT E 6 . I NVEST MENT S
(in millions) December 31, 2013 December 31, 2012
$ 8,878
71
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Mortgage and other loans receivable include commercial mortgages, life insurance policy loans, commercial loans,
and other loans and notes receivable. Commercial mortgages, commercial loans, and other loans and notes
receivable are carried at unpaid principal balances less credit allowances and plus or minus adjustments for the
accretion or amortization of discount or premium. Interest income on such loans is accrued as earned.
Direct costs of originating commercial mortgages, commercial loans, and other loans and notes receivable, net of
nonrefundable points and fees, are deferred and included in the carrying amount of the related receivables. The
amount deferred is amortized to income as an adjustment to earnings using the interest method.
Life insurance policy loans are carried at unpaid principal amount. There is no allowance for policy loans because
these loans serve to reduce the death benefit paid when the death claim is made and the balances are effectively
collateralized by the cash surrender value of the policy.
The following table presents the composition of Mortgages and other loans receivable:
Commercial mortgages
*
$ 13,788
Life insurance policy loans 2,952
Commercial loans, other loans and notes receivable 3,147
Total mortgage and other loans receivable 19,887
Allowance for losses (405)
Mortgage and other loans receivable, net $ 19,482
* Commercial mortgages primarily represent loans for office, retail and industrial properties, with exposures in California and New York
representing the largest geographic concentrations (18 percent and 17 percent, respectively, at December 31, 2013 and 22 percent and 15 percent,
respectively, at December 31, 2012).
The following table presents the credit quality indicators for commercial mortgage loans:
Credit Quality Indicator:
In good standing
Restructured
(a)
90 days or less delinquent
>90 days delinquent or in process of
foreclosure
Total
(b)
Allowance for losses
Credit Quality Indicator:
In good standing 998 $ 1,549 $ 4,698 $ 2,640 $ 1,654 $ 1,153 $ 1,671 $ 13,365 97%
Restructured
(a)
8 50 207 7 2 – 22 288 2
90 days or less delinquent 4 – 17 – – – – 17 –
>90 days delinquent or in process of
foreclosure 6 – 13 26 – – 79 118 1
Total
(b)
1,016 $ 1,599 $ 4,935 $ 2,673 $ 1,656 $ 1,153 $ 1,772 $ 13,788 100%
Allowance for losses $ 5 $ 74 $ 19 $ 19 $ 1 $ 41 $ 159 1%
(a) Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. See discussion of
troubled debt restructurings below.
(b) Does not reflect allowance for losses.
(c) Approximately 99 percent of the commercial mortgages held at such respective dates were current as to payments of principal and interest.
7. LENDING ACTIVITIES
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 263
I T EM 8 / NOT E 7 . L ENDI NG ACT I VI T I ES
(in millions) December 31, 2013 December 31, 2012
$ 16,195
2,830
2,052
21,077
(312)
$ 20,765
Number
Class
of Percent
December 31, 2013
(dollars in millions) Loans Apartments Offices Retail Industrial Hotel Others Total
(c)
of Total $
978 $ 2,786 $ 4,636 $ 3,364 $ 1,607 $ 1,431 $ 1,970 $ 15,794 98%
9 53 210 6 – – 85 354 2
2 – – 5 – – – 5 –
6 – 42 – – – – 42 –
995 $ 2,839 $ 4,888 $ 3,375 $ 1,607 $ 1,431 $ 2,055 $ 16,195 100%
$ 10 $ 109 $ 9 $ 19 $ 3 $ 51 $ 201 1%
December 31, 2012
(dollars in millions)
..................................................................................................................................................................................
............................................................................................................................................................................................
Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual
terms is not probable. For commercial mortgage loans in particular, the impairment is measured based on the fair
value of underlying collateral, which is determined based on the present value of expected net future cash flows of
the collateral, less estimated costs to sell. For other loans, the impairment may be measured based on the present
value of expected future cash flows discounted at the loan’s effective interest rate or based on the loan’s observable
market price, where available. 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 past due status, 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. Interest income on impaired loans is recognized as cash is received.
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
us 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:
Allowance, beginning of year $ 305 $ 435 $ 740 $ 470 $ 408 $ 878
Loans charged off (23) (21) (44) (78) (47) (125)
Recoveries of loans previously charged off 13 4 17 37 1 38
Net charge-offs (10) (17) (27) (41) (46) (87)
Provision for loan losses (136) 33 (103) (69) 51 (18)
Other – – – (55) – (55)
Activity of discontinued operations – (205) (205) – 22 22
Allowance, end of year $ 159
*
$ 246 $ 405 $ 305
*
$ 435 $ 740
* Of the total allowance at the end of the year, $93 million and $47 million relates to individually assessed credit losses on $264 million and
$286 million of commercial mortgage loans as of December 31, 2013 and 2012, respectively.
We modify loans to optimize their returns and improve their collectability, among other things. When we undertake
such a modification with a borrower that is experiencing financial difficulty and the modification involves us granting a
concession to the troubled debtor, the modification is a troubled debt restructuring (TDR). We assess whether a
borrower is experiencing financial difficulty based on a variety of factors, including the borrower’s current default on
any of its outstanding debt, the probability of a default on any of its debt in the foreseeable future without the
modification, the insufficiency of the borrower’s forecasted cash flows to service any of its outstanding debt (including
both principal and interest), and the borrower’s inability to access alternative third-party financing at an interest rate
that would be reflective of current market conditions for a non-troubled debtor. Concessions granted may include
extended maturity dates, interest rate changes, principal forgiveness, payment deferrals and easing of loan
covenants.
As of December 31, 2013 and 2012, we held no significant loans that had been modified in a TDR during those
respective years.
Methodology Used to Estimate the Allowance for Losses
Troubled Debt Restructurings
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 264
I T EM 8 / NOT E 7 . L ENDI NG ACT I VI T I ES
2013 2012 2011
Commercial Other Commercial Other Commercial Other
Years Ended December 31,
(in millions) Mortgages Loans Total Mortgages Loans Total Mortgages Loans Total
$ 159 $ 246 $ 405
(12) (104) (116)
3 6 9
(9) (98) (107)
52 (32) 20
(1) (5) (6)
– – –
$ 201
*
$ 111 $ 312
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
In the ordinary course of business, our insurance companies may use both treaty and facultative reinsurance to
minimize their net loss exposure to any single catastrophic loss event or to an accumulation of losses from a number
of smaller events or to provide greater diversification of our businesses. In addition, our general insurance
subsidiaries assume reinsurance from other insurance companies. We determine the portion of the incurred but not
reported (IBNR) loss that will be recoverable under our reinsurance contracts by reference to the terms of the
reinsurance protection purchased. This determination is necessarily based on the estimate of IBNR and accordingly,
is subject to the same uncertainties as the estimate of IBNR. Reinsurance assets include the balances due from
reinsurance and insurance companies under the terms of our reinsurance agreements for paid and unpaid losses
and loss expenses, ceded unearned premiums and ceded future policy benefits for life and accident and health
insurance contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and benefits and loss
expenses with respect to these reinsurance agreements are substantially collateralized. We remain liable to the
extent that our reinsurers do not meet their obligation under the reinsurance contracts, and as such, we regularly
evaluate the financial condition of our reinsurers and monitor concentration of our credit risk. The estimation of the
allowance for doubtful accounts requires judgment for which key inputs typically include historical trends regarding
uncollectible balances, disputes and credit events as well as specific reviews of balances in dispute or subject to
credit impairment. The allowance for doubtful accounts on reinsurance assets was $276 million and $338 million at
December 31, 2013 and 2012, respectively. Changes in the allowance for doubtful accounts on reinsurance are
reflected in Policyholder benefits and claims incurred within the Consolidated Statements of Income.
The following table provides supplemental information for loss and benefit reserves, gross and net of ceded
reinsurance:
Liability for unpaid claims and claims adjustment expense
(a)
$ (87,991) $ (68,782)
Future policy benefits for life and accident and health insurance
contracts (40,523) (39,591)
Reserve for unearned premiums (22,537) (18,934)
Reinsurance assets
(b)
23,744 –
(a) In both 2013 and 2012, the Net of Reinsurance amount reflects the cession under the June 17, 2011 transaction with National Indemnity
Company (NICO) of $1.6 billion.
(b) Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.
Short-duration reinsurance is effected under reinsurance treaties and by negotiation on individual risks. Certain of
these reinsurance arrangements consist of excess of loss contracts that protect us against losses above stipulated
amounts. Ceded premiums are considered prepaid reinsurance premiums and are recognized as a reduction of
premiums earned over the contract period in proportion to the protection received. Amounts recoverable from
reinsurers on short-duration contracts are estimated in a manner consistent with the claims liabilities associated with
the reinsurance and presented as a component of Reinsurance assets. Assumed reinsurance premiums are earned
primarily on a pro-rata basis over the terms of the reinsurance contracts and the portion of premiums relating to the
unexpired terms of coverage is included in the reserve for unearned premiums. For both ceded and assumed
reinsurance, risk transfer requirements must be met for reinsurance accounting to apply. If risk transfer requirements
are not met, the contract is accounted for as a deposit, resulting in the recognition of cash flows under the contract
through a deposit asset or liability and not as revenue or expense. To meet risk transfer requirements, a reinsurance
contract must include both insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility
of a significant loss for the assuming entity. Similar risk transfer criteria are used to determine whether directly written
insurance contracts should be accounted for as insurance or as a deposit.
8. REINSURANCE
Short-Duration Reinsurance
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 265
I T EM 8 / NOT E 8 . REI NSURANCE
2013 2012
At December 31, As Net of As Net of
(in millions) Reported Reinsurance Reported Reinsurance
$ (81,547) $ (64,316)
(40,653) (39,619)
(21,953) (18,532)
21,686 –
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents short-duration insurance premiums written and earned:
Premiums written:
Direct $ 40,428 $ 41,710 $ 938 $ 898 $ – $ – $ 41,366 $ 42,608
Assumed 3,428 3,031 (10) – 7 2 3,425 3,033
Ceded (9,420) (9,901) (70) (97) (7) (2) (9,497) (10,000)
Net $ 34,436 $ 34,840 $ 858 $ 801 $ – $ – $ 35,294 $ 35,641
Premiums earned:
Direct $ 40,954 $ 42,878 $ 754 $ 835 $ – $ – $ 41,708 $ 43,713
Assumed 3,254 3,294 31 55 (30) (46) 3,255 3,303
Ceded (9,335) (10,483) (70) (98) 30 46 (9,375) (10,535)
Net $ 34,873 $ 35,689 $ 715 $ 792 $ – $ – $ 35,588 $ 36,481
For the years ended December 31, 2013, 2012 and 2011, reinsurance recoveries, which reduced loss and loss
expenses incurred, amounted to $3.3 billion, $4.5 billion and $6.1 billion, respectively.
Long-duration reinsurance is effected principally under yearly renewable term treaties. The premiums with respect to
these treaties are earned over the contract period in proportion to the protection provided. Amounts recoverable from
reinsurers on long-duration contracts are estimated in a manner consistent with the assumptions used for the
underlying policy benefits and are presented as a component of Reinsurance assets.
The following table presents premiums for our long-duration insurance and retirement services operations:
Gross premiums $ 3,066 $ 3,140 $ 11 $ 17 $ 3,077 $ 3,157
Ceded premiums (602) (591) – (6) (602) (597)
Net $ 2,464 $ 2,549 $ 11 $ 11 $ 2,475 $ 2,560
Long-duration reinsurance recoveries, which reduced Policyholder benefits and claims incurred, were approximately
$714 million, $758 million and $611 million, respectively, for the years ended December 31, 2013, 2012 and 2011.
The following table presents long-duration insurance in force ceded to other insurance companies:
Long-duration insurance in force ceded $129,159 $140,156
* Excludes amounts related to held-for-sale entities.
Long-duration insurance in force assumed represented 0.05 percent of gross long-duration insurance in force at
December 31, 2013, 0.05 percent at December 31, 2012 and 0.07 percent at December 31, 2011, and premiums
assumed by AIG Life and Retirement represented 0.4 percent, 0.6 percent and 0.7 percent of gross premiums for the
years ended December 31, 2013, 2012 and 2011, respectively.
AIG Life and Retirement utilizes internal and third-party reinsurance relationships to manage insurance risks and to
facilitate capital management strategies. As a result of these reinsurance arrangements, AIG Life and Retirement is
able to minimize the use of letters of credit and utilize capital more efficiently. Pools of highly-rated third-party
reinsurers are utilized to manage net amounts at risk in excess of retention limits.
AIG Life and Retirement manages the capital impact on its insurance subsidiaries of statutory reserve requirements
under Regulation XXX and Guideline AXXX through intercompany reinsurance transactions. Under GAAP, these
intercompany reinsurance transactions are eliminated in consolidation. Under one of these intercompany
arrangements, AIG Life and Retirement obtains letters of credit to support statutory recognition of the ceded
reinsurance. As of December 31, 2013, AIG Life and Retirement had obtained for this purpose a $260 million
syndicated letter of credit facility and a $190 million bilateral letter of credit. As of December 31, 2013, all of the
$450 million of letters of credit were due to mature on December 31, 2015. On February 7, 2014, these letters of
Long-Duration Reinsurance
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 266
I T EM 8 / NOT E 8 . REI NSURANCE
AIG Property Casualty Mortgage Guaranty Eliminations Total
Years Ended December 31,
(in millions) 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011
$ 39,545 $ 1,099 $ – $ 40,644
3,659 (13) 3 3,649
(8,816) (38) (3) (8,857)
$ 34,388 $ 1,048 $ – $ 35,436
$ 38,996 $ 840 $ – $ 39,836
3,521 7 (18) 3,510
(8,564) (38) 18 (8,584)
$ 33,953 $ 809 $ — $ 34,762
AIG Life and Retirement Divested Businesses Total
Years Ended December 31,
(in millions) 2013 2012 2011 2013 2012 2011 2013 2012 2011
$ 3,269 $ 9 $ 3,278
(673) – (673)
$ 2,596 $ 9 $ 2,605
At December 31,
(in millions) 2013 2012 2011
*
$122,012
..................................................................................................................................................................................
............................................................................................................................................................................................
credit were replaced with two new, renegotiated bilateral letters of credit totaling $450 million. These new letters of
credit expire on February 7, 2018, but will be automatically extended without amendment by one year on each
anniversary of the issuance date, unless the issuer provides notice of non-renewal. See Note 19 for additional
information on the use of affiliated reinsurance for Regulation XXX and Guideline AXXX reserves.
Our third-party reinsurance arrangements do not relieve us from our direct obligations to our beneficiaries. Thus, a
credit exposure exists with respect to both short-duration and long-duration reinsurance ceded to the extent that any
reinsurer fails to meet the obligations assumed under any reinsurance agreement. We hold substantial collateral as
security under related reinsurance agreements in the form of funds, securities, and/or letters of credit. A provision
has been recorded for estimated unrecoverable reinsurance.
Deferred policy acquisition costs (DAC) represent those costs that are incremental and directly related to the
successful acquisition of new or renewal of existing insurance contracts. We defer incremental costs that result
directly from, and are essential to, the acquisition or renewal of an insurance contract. Such deferred policy
acquisition costs generally include agent or broker commissions and bonuses, premium taxes, and medical and
inspection fees that would not have been incurred if the insurance contract had not been acquired or renewed. Each
cost is analyzed to assess whether it is fully deferrable. We partially defer costs, including certain commissions, when
we do not believe that the entire cost is directly related to the acquisition or renewal of insurance contracts.
We also defer a portion of employee total compensation and payroll-related fringe benefits directly related to time
spent performing specific acquisition or renewal activities, including costs associated with the time spent on
underwriting, policy issuance and processing, and sales force contract selling. The amounts deferred are derived
based on successful efforts for each distribution channel and/or cost center from which the cost originates.
Policy acquisition costs are deferred and amortized over the period in which
the related premiums written are earned, generally 12 months. DAC is grouped consistent with the manner in which
the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based
on the profitability of the underlying insurance contracts. Investment income is anticipated in assessing the
recoverability of DAC. We assess the recoverability of DAC on an annual basis or more frequently if circumstances
indicate an impairment may have occurred. This assessment is performed by comparing recorded net unearned
premiums and anticipated investment income on in-force business to the sum of expected claims, claims adjustment
expenses, unamortized DAC and maintenance costs. If the sum of these costs exceeds the amount of recorded net
unearned premiums and anticipated investment income, the excess is recognized as an offset against the asset
established for DAC. This offset is referred to as a premium deficiency charge. Increases in expected claims and
claims adjustment expenses can have a significant impact on the likelihood and amount of a premium deficiency
charge.
Policy acquisition costs for participating life, traditional life and accident and
health insurance products are generally deferred and amortized, with interest, over the premium paying period. The
assumptions used to calculate the benefit liabilities and DAC for these traditional products are set when a policy is
issued and do not change with changes in actual experience, unless a loss recognition event occurs. These
‘‘locked-in’’ assumptions include mortality, morbidity, persistency, maintenance expenses and investment returns, and
include margins for adverse deviation to reflect uncertainty given that actual experience might deviate from these
assumptions. Loss recognition exists when there is a shortfall between the carrying amounts of future policy benefit
liabilities net of DAC and the amount the future policy benefit liabilities net of DAC would be when applying updated
current assumptions. When we determine a loss recognition exists, we first reduce any DAC related to that block of
business through amortization of acquisition expense, and after DAC is depleted, record additional liabilities through
a charge to Policyholder benefits and claims incurred. Groupings for loss recognition testing are consistent with our
manner of acquiring and servicing the business and applied by product groupings. We perform separate loss
recognition tests for traditional life products, payout annuities and long-term care products. Once loss recognition has
been recorded for a block of business, the old assumption set is replaced and the assumption set used for the loss
recognition would then be subject to the lock-in principle.
Reinsurance Security
9. DEFERRED POLICY ACQUISITION COSTS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 267
I T EM 8 / NOT E 8 . REI NSURANCE
Short-duration insurance contracts:
Long-duration insurance contracts:
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Policy acquisition costs and policy issuance costs related to universal life and
investment-type products (collectively, investment-oriented products) are deferred and amortized, with interest, in
relation to the incidence of estimated gross profits to be realized over the estimated lives of the contracts. Estimated
gross profits include net investment income and spreads, net realized investment gains and losses, fees, surrender
charges, expenses, and mortality gains and losses. In each reporting period, current period amortization expense is
adjusted to reflect actual gross profits. If estimated gross profits change significantly, DAC is recalculated using the
new assumptions, and any resulting adjustment is included in income. If the new assumptions indicate that future
estimated gross profits are higher than previously estimated, DAC will be increased resulting in a decrease in
amortization expense and increase in income in the current period; if future estimated gross profits are lower than
previously estimated, DAC will be decreased resulting in an increase in amortization expense and decrease in
income in the current period. Updating such assumptions may result in acceleration of amortization in some products
and deceleration of amortization in other products. DAC is grouped consistent with the manner in which the
insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on
the current and projected future profitability of the underlying insurance contracts.
To estimate future estimated gross profits for variable annuity products, a long-term annual asset growth assumption
is applied to determine the future growth in assets and related asset-based fees. In determining the asset growth
rate, the effect of short-term fluctuations in the equity markets is partially mitigated through the use of a ‘‘reversion to
the mean’’ methodology whereby short-term asset growth above or below long-term annual rate assumptions impact
the growth assumption applied to the five-year period subsequent to the current balance sheet date. The reversion to
the mean methodology allows us to maintain our long-term growth assumptions, while also giving consideration to
the effect of actual investment performance. When actual performance significantly deviates from the annual
long-term growth assumption, as evidenced by growth assumptions in the five-year reversion to the mean period
falling below a certain rate (floor) or above a certain rate (cap) for a sustained period, judgment may be applied to
revise or ‘‘unlock’’ the growth rate assumptions to be used for both the five-year reversion to the mean period as well
as the long-term annual growth assumption applied to subsequent periods.
DAC held for investment-oriented products is also adjusted to
reflect the effect of unrealized gains or losses on fixed maturity and equity securities available for sale on estimated
gross profits, with related changes recognized through Other comprehensive income (shadow DAC). The adjustment
is made at each balance sheet date, as if the securities had been sold at their stated aggregate fair value and the
proceeds reinvested at current yields. Similarly, for long-duration traditional insurance contracts, if the assets
supporting the liabilities maintain a temporary net unrealized gain position at the balance sheet date, loss recognition
testing assumptions are updated to exclude such gains from future cash flows by reflecting the impact of
reinvestment rates on future yields. If a future loss is anticipated under this basis, any additional shortfall indicated by
loss recognition tests is recognized as a reduction in accumulated other comprehensive income (shadow loss
recognition). Similar to other loss recognition on long-duration insurance contracts, such shortfall is first reflected as a
reduction in DAC and secondly as an increase in liabilities for future policy benefits. The change in these
adjustments, net of tax, is included with the change in net unrealized appreciation of investments that is credited or
charged directly to Other comprehensive income.
For some products, policyholders
can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by
amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These
transactions are known as internal replacements. If the modification does not substantially change the contract, we
do not change the accounting and amortization of existing DAC and related actuarial balances. If an internal
replacement represents a substantial change, the original contract is considered to be extinguished and any related
DAC or other policy balances are charged or credited to income whereas any new deferrable costs associated with
the replacement contract are deferred.
Value of Business Acquired (VOBA) is determined at the time of acquisition and is reported in the Consolidated
Balance Sheets with DAC. This value is based on the present value of future pre-tax profits discounted at yields
applicable at the time of purchase. For participating life, traditional life and accident and health insurance products,
VOBA is amortized over the life of the business in a manner similar to that for DAC based on the assumptions at
purchase. For investment-oriented products, VOBA is amortized in relation to estimated gross profits and adjusted for
the effect of unrealized gains or losses on fixed maturity and equity securities available for sale in a manner similar
to DAC.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 268
I T EM 8 / NOT E 9 . DEF ERRED POL I CY ACQUI SI T I ON COST S
Investment-oriented contracts:
Shadow DAC and Shadow Loss Recognition:
Internal Replacements of Long-duration and Investment-oriented Products:
..................................................................................................................................................................................
The following table presents a rollforward of DAC:
AIG Property Casualty:
Balance, beginning of year $ 2,375 $ 2,099
Acquisition costs deferred 4,861 4,548
Amortization expense (4,761) (4,324)
Increase (decrease) due to foreign exchange and other (34) 52
AIG Property Casualty other – –
Balance, end of year $ 2,441 $ 2,375
AIG Life and Retirement:
Balance, beginning of year $ 6,502 $ 7,258
Acquisition costs deferred 724 869
Amortization expense (931) (1,142)
Change in net unrealized gains (losses) on securities (621) (486)
Increase (decrease) due to foreign exchange (2) 3
Other – –
Balance, end of year $ 5,672 $ 6,502
Mortgage Guaranty:
Balance, beginning of year $ 25 $ 32
Acquisition costs deferred 36 14
Amortization expense (17) (20)
Increase (decrease) due to foreign exchange – 1
Other – (2)
Balance, end of year $ 44 $ 25
Consolidation and eliminations 25 35
Total deferred policy acquisition costs
*
$ 8,182 $ 8,937
* Includes $1.1 billion, $1.8 billion, and $1.4 billion for AIG Life and Retirement at December 31, 2013, 2012 and 2011, respectively, and
$34 million for Divested businesses at December 31, 2011, related to the effect of net unrealized gains and losses on available for sale securities.
VOBA amortization expense included in the table above was $21 million, $53 million and $34 million in 2013, 2012
and 2011, respectively, while the unamortized balance of VOBA was $351 million, $339 million and $430 million at
December 31, 2013, 2012 and 2011, respectively. The percentage of the unamortized balance of VOBA at
December 31, 2013 expected to be amortized in 2014 through 2018 by year is: 4.6 percent, 6.3 percent, 5.6 percent,
5.3 percent and 5.3 percent, respectively, with 72.8 percent being amortized after five years. These projections are
based on current estimates for investment income and spreads, persistency, mortality and morbidity assumptions.
The DAC amortization expense charged to income includes the increase or decrease of amortization related to Net
realized capital gains (losses), primarily in AIG Life and Retirement. In 2013, 2012 and 2011, amortization expense
related to Net realized capital gains (losses) increased by $23 million, $119 million and $274 million, respectively.
DAC, VOBA and SIA for insurance-oriented and investment-oriented products are reviewed for recoverability, which
involves estimating the future profitability of current business. This review involves significant management judgment.
If actual future profitability is substantially lower than estimated, AIG’s DAC, VOBA and SIA may be subject to an
impairment charge and AIG’s results of operations could be significantly affected in future periods.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 269
I T EM 8 / NOT E 9 . DEF ERRED POL I CY ACQUI SI T I ON COST S
Years Ended December 31,
(in millions) 2013 2012 2011
$ 2,441
4,866
(4,479)
(168)
(37)
$ 2,623
$ 5,672
930
(658)
787
(5)
(3)
$ 6,723
$ 44
42
(20)
–
1
$ 67
23
$ 9,436
..................................................................................................................................................................................
A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activities
without additional subordinated financial support or is structured such that equity investors lack the ability to make
significant decisions relating to the entity’s operations through voting rights or do not substantively participate in the
gains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority voting
interest, but is based on other criteria discussed below.
We enter into various arrangements with VIEs in the normal course of business and consolidate the VIE when we
determine we are the primary beneficiary. This analysis includes a review of the VIE’s capital structure, contractual
relationships and terms, nature of the VIE’s operations and purpose, nature of the VIE’s interests issued and our
involvement with the entity. When assessing the need to consolidate a VIE, we evaluate the design of the VIE as
well as the related risks the entity was designed to expose the variable interest holders to.
For VIEs with attributes consistent with that of an investment company or a money market fund, the primary
beneficiary is the party or group of related parties that absorbs a majority of the expected losses of the VIE, receives
the majority of the expected residual returns of the VIE, or both.
For all other VIEs, the primary beneficiary is the entity that has both (1) the power to direct the activities of the VIE
that most significantly affect the entity’s economic performance and (2) the obligation to absorb losses or the right to
receive benefits that could be potentially significant to the VIE. While also considering these factors, the consolidation
conclusion depends on the breadth of our decision-making ability and our ability to influence activities that
significantly affect the economic performance of the VIE.
10. VARIABLE INTEREST ENTITIES
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 270
I T EM 8 / NOT E 1 0 . VARI ABL E I NT EREST ENT I T I ES
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the total assets and total liabilities associated with our variable interests in
consolidated VIEs, as classified in the Consolidated Balance Sheets:
Assets:
Bonds available for sale
Other bond securities
Mortgage and other loans receivable
Other invested assets
Other assets
Total assets
(a)(b)
Liabilities:
Long-term debt
Other liabilities
Total liabilities
Assets:
Bonds available for sale $ 198 $ 2,422 $ – $ – $ 324 $ 2,944
Other bond securities 15 8,406 792 – 204 9,417
Mortgage and other loans receivable – – – – 398 398
Other invested assets 1,122 – – 2,230 1,023 4,375
Other assets 59 719 183 33 2,013 3,007
Total assets
(a)(b)
$ 1,394 $ 11,547 $ 975 $ 2,263 $ 3,962 $ 20,141
Liabilities:
Long-term debt $ 157 $ 25 $ 9 $ 133 $ 424 $ 748
Other liabilities 20 43 – 68 1,044 1,175
Total liabilities $ 177 $ 68 $ 9 $ 201 $ 1,468 $ 1,923
(a) The assets of each VIE can be used only to settle specific obligations of that VIE.
(b) At December 31, 2013 and 2012, includes approximately $21.4 billion and $12.8 billion, respectively, of investment-grade debt securities, loans
and other assets held by certain securitization vehicles that issued beneficial interests in these investments. The majority of the beneficial interests
issued are held by AIG.
(c) At December 31, 2013 and 2012, off-balance sheet exposure primarily consisting of commitments to real estate and investments funds was
$50.8 million and $48.7 million, respectively.
We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the
notional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as
the referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored
by us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, except
in limited circumstances when we have provided a guarantee to the VIE’s interest holders.
Balance Sheet Classification and Exposure to Loss
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 271
I T EM 8 / NOT E 1 0 . VARI ABL E I NT EREST ENT I T I ES
Real Estate
and Structured Affordable
Investment Securitization Investment Housing
(in millions) Funds
(c)
Vehicles Vehicles Partnerships Other Total
December 31, 2013
$ – $ 11,028 $ – $ – $ 70 $ 11,098
– 7,449 748 – 113 8,310
– 1,508 – – 189 1,697
849 – – 1,986 793 3,628
49 481 93 41 615 1,279
$ 898 $ 20,466 $ 841 $ 2,027 $ 1,780 $ 26,012
$ 71 $ 494 $ 87 $ 188 $ 154 $ 994
31 74 – 83 367 555
$ 102 $ 568 $ 87 $ 271 $ 521 $ 1,549
December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents total assets of unconsolidated VIEs in which we hold a variable interest, as well
as our maximum exposure to loss associated with these VIEs:
Real estate and investment funds
Affordable housing partnerships
Other
Total
Real estate and investment funds $ 16,662 $ 1,881 $ 169 $ 2,050
Affordable housing partnerships 498 498 – 498
Other 1,018 79 – 79
Total $ 18,178 $ 2,458 $ 169 $ 2,627
* At December 31, 2013 and 2012, $2.8 billion and $2.5 billion, respectively, of our total unconsolidated VIE assets were recorded as Other
invested assets.
Through our insurance operations and AIG Global Real Estate, we are an investor in various real estate investment
entities, some of which are VIEs. These investments are typically with unaffiliated third-party developers via a
partnership or limited liability company structure. The VIEs’ activities consist of the development or redevelopment of
commercial, industrial and residential real estate. Our involvement varies from being a passive equity investor or
finance provider to actively managing the activities of the VIEs.
Our insurance operations participate as passive investors in the equity issued by certain third-party-managed hedge
and private equity funds that are VIEs. Our insurance operations typically are not involved in the design or
establishment of these VIEs, nor do they actively participate in the management of the VIEs.
We created VIEs that hold investments, primarily in investment-grade debt securities, and issued beneficial interests
in these investments. The majority of these beneficial interests are owned by our insurance operations and we
maintain the power to direct the activities of the VIEs that most significantly impacts their economic performance and
bear the obligation to absorb losses or receive benefits from the entities that could potentially be significant to the
entities. Accordingly, we consolidate these entities and those beneficial interests issued to third-parties are reported
as Long-term debt.
Through DIB, we sponsor Nightingale Finance Ltd, a structured investment vehicle (SIV), which is a VIE. Nightingale
Finance Ltd. invests in variable rate, investment-grade debt securities, the majority of which are ABS. We have no
equity interest in the SIV, but we maintain the power to direct the activities of the SIV that most significantly impact
the entity’s economic performance and bear the obligation to absorb economic losses that could potentially be
significant to the SIV. We are the primary beneficiary and consolidate the assets of the SIV, which were
approximately $0.8 billion and $1.0 billion as of December 31, 2013 and 2012, respectively. Related liabilities have
increased during 2013 and totaled close to $0.1 billion.
SunAmerica Affordable Housing Partners, Inc. (SAAHP) organizes and invests in limited partnerships that develop
and operate affordable housing qualifying for federal tax credits, in addition to a few market rate properties across
the United States. The general partners in the operating partnerships are generally unaffiliated third-party developers.
Real Estate and Investment Funds
Securitization Vehicles
Structured Investment Vehicles
Affordable Housing Partnerships
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 272
I T EM 8 / NOT E 1 0 . VARI ABL E I NT EREST ENT I T I ES
Maximum Exposure to Loss
Total VIE On-Balance Off-Balance
(in millions) Assets Sheet
*
Sheet Total
December 31, 2013
$ 17,572 $ 2,343 $ 289 $ 2,632
478 477 – 477
708 37 – 37
$ 18,758 $ 2,857 $ 289 $ 3,146
December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
We do not consolidate an operating partnership if the general partner is an unaffiliated entity. Through approximately
1,000 partnerships, SAAHP has investments in developments with approximately 130,000 apartment units
nationwide, and as of December 31, 2013, has syndicated approximately $7.7 billion in partnership equity to other
investors who will receive, among other benefits, tax credits under certain sections of the Internal Revenue Code.
The pre-tax income of SAAHP is reported, along with other AIG Life and Retirement partnership income, as a
component of the AIG Life and Retirement segment.
We created two VIEs for the purpose of acquiring, owning, leasing, maintaining, operating and selling aircraft. Our
subsidiaries hold beneficial interests, including all the equity interests in these entities. These beneficial interests
include passive investments by our insurance operations in non-voting preferred equity interests and in the majority
of the debt issued by these entities. We maintain the power to direct the activities of the VIEs that most significantly
impact the entities’ economic performance, and bear the obligation to absorb economic losses or receive economic
benefits that could potentially be significant to the VIEs. As a result, we have determined that we are the primary
beneficiary and we consolidate the assets and liabilities of these entities, which totaled $0.9 billion and $0.2 billion,
respectively at December 31, 2013 and $1.2 billion and $0.3 billion at December 31, 2012, respectively. The debt of
these entities is not an obligation of, or guaranteed by, us or any of our subsidiaries. Under a servicing agreement,
ILFC acts as servicer for the aircraft owned by these entities.
We sponsor one VIE that has issued a variable funding note backed by a commercial loan collateralized by individual
life insurance assets. As of December 31, 2013, total consolidated assets and liabilities for this entity were
$360 million and $117 million, respectively; our maximum exposure, representing the carrying value of the consumer
loan, was $330 million. As of December 31, 2012, total consolidated assets and liabilities for this entity were
$412 million and $188 million, respectively; our maximum exposure, representing the carrying value of the consumer
loan, was $389 million.
Through our insurance operations, we are a passive investor in RMBS, CMBS, other ABS and CDOs primarily issued
by domestic special-purpose entities. We generally do not sponsor or transfer assets to, or act as the servicer to
these asset-backed structures, and were not involved in the design of these entities.
Through the DIB, we also invest in CDOs and similar structures, which can be cash-based or synthetic and are
managed by third parties. The role of DIB is generally limited to that of a passive investor in structures we do not
manage.
Our maximum exposure in these types of structures is limited to our investment in securities issued by these entities.
Based on the nature of our investments and our passive involvement in these types of structures, we have
determined that we are not the primary beneficiary of these entities. We have not included these entities in the above
tables; however, the fair values of our investments in these structures are reported in Notes 5 and 6 herein.
ILFC created wholly-owned subsidiaries for the purpose of purchasing aircraft and obtaining financing secured by
such aircraft. A portion of the secured debt has been guaranteed by the European Export Credit Agencies and the
Export-Import Bank of the United States. These entities are VIEs because they do not have sufficient equity to
operate without ILFC’s subordinated financial support in the form of intercompany notes which serve as equity. ILFC
fully consolidates the entities, controls all the activities of the entities and guarantees the activities of the entities. AIG
has not included these entities in the above table as they are wholly-owned and there are no other variable interests
other than those of ILFC and the lenders.
Other
Aircraft Trusts
Commercial Loans Vehicles
RMBS, CMBS, Other ABS and CDOS
Variable Interest Entities of Business Held for Sale
Financing Vehicles
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 273
I T EM 8 / NOT E 1 0 . VARI ABL E I NT EREST ENT I T I ES
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
ILFC created wholly-owned subsidiaries for the purpose of facilitating aircraft leases with airlines. The entities are
VIEs because they do not have sufficient equity to operate without ILFC’s subordinated financial support in the form
of intercompany notes which serve as equity. ILFC consolidates the entities, controls all the activities of the entities
and fully guarantees the activities of the entities. AIG has not included these entities in the above table as they are
wholly owned and there are no other variable interests in the entities other than those of ILFC.
We use derivatives and other financial instruments as part of our financial risk management programs and as part of
our investment operations. Interest rate, currency, equity and commodity swaps, credit contracts (including the super
senior credit default swap portfolio), swaptions, options and forward transactions are accounted for as derivatives,
recorded on a trade-date basis and carried at fair value. Unrealized gains and losses are reflected in income, when
appropriate. In certain instances, a contract’s transaction price is the best indication of initial fair value. Aggregate
asset or liability positions are netted on the Consolidated Balance Sheets only to the extent permitted by qualifying
master netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in
conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the
corresponding net derivative liability, while cash collateral received in conjunction with transactions supported by
qualifying master netting arrangements is reported as a reduction of the corresponding net derivative asset.
Derivatives, with the exception of bifurcated embedded derivatives, are reflected in the Consolidated Balance Sheets
in Derivative assets, at fair value and Derivative liabilities, at fair value. A bifurcated embedded derivative is
measured at fair value and accounted for in the same manner as a free standing derivative contract. The
corresponding host contract is accounted for according to the accounting guidance applicable for that instrument. A
bifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheets.
See Note 5 herein for additional information on embedded policy derivatives.
The following table presents the notional amounts and fair values of our derivative instruments:
Derivatives designated as hedging
instruments:
Interest rate contracts
(b)
$ – $ – $ – $ –
Foreign exchange contracts – – – –
Derivatives not designated as
hedging instruments:
Interest rate contracts
(b)
63,463 6,479 63,482 5,806
Foreign exchange contracts 8,325 104 10,168 174
Equity contracts
(c)
4,990 221 25,626 1,377
Commodity contracts 625 145 622 146
Credit contracts 70 60 16,244 2,051
Other contracts
(d)
20,449 38 1,488 206
Total derivatives not designated as
hedging instruments 97,922 7,047 117,630 9,760
Total derivatives, gross $ 97,922 $ 7,047 $ 117,630 $ 9,760
(a) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(b) Includes cross currency swaps.
(c) Notional amount of derivative assets and fair value of derivative assets include $23.2 billion and $107 million, respectively, at December 31, 2013 related to
bifurcated embedded derivatives. There were no bifurcated embedded derivative assets at December 31, 2012. Notional amount of derivative liabilities and fair
values of derivative liabilities include $6.7 billion and $424 million, respectively, at December 31, 2013 and $23 billion and $1.3 billion, respectively at
December 31, 2012 related to bifurcated embedded derivatives. A bifurcated embedded derivative is generally presented with the host contract in the
Consolidated Balance Sheets.
(d) Consist primarily of contracts with multiple underlying exposures.
Leasing Entities
11. DERIVATIVES AND HEDGE ACCOUNTING
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 274
I T EM 8 / NOT E 1 0 . VARI ABL E I NT EREST ENT I T I ES
December 31, 2013 December 31, 2012
Gross Derivative Assets Gross Derivative Liabilities Gross Derivative Assets Gross Derivative Liabilities
Notional Fair Notional Fair Notional Fair Notional Fair
(in millions) Amount Value
(a)
Amount Value
(a)
Amount Value
(a)
Amount Value
(a)
$ – $ – $ 112 $ 15
– – 1,857 190
50,897 3,771 59,585 3,849
1,774 52 3,789 129
29,296 413 9,840 524
17 1 13 5
70 55 15,459 1,335
32,440 34 1,408 167
114,494 4,326 90,094 6,009
$ 114,494 $ 4,326 $ 92,063 $ 6,214
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the fair values of derivative assets and liabilities in the Consolidated Balance
Sheets:
Global Capital Markets derivatives:
AIG Financial Products $ 59,854 $ 4,725 $ 66,717 $ 5,506
AIG Markets 14,028 1,308 18,774 1,818
Total Global Capital Markets derivatives 73,882 6,033 85,491 7,324
Non-Global Capital Markets derivatives
(a)
24,040 1,014 32,139 2,436
Total derivatives, gross $ 97,922 7,047 $ 117,630 9,760
Counterparty netting
(b)
(2,467) (2,467)
Cash collateral
(c)
(909) (1,976)
Total derivatives, net 3,671 5,317
Less: Bifurcated embedded derivatives – 1,256
Total derivatives on consolidated balance sheet $ 3,671 $ 4,061
(a) Represents derivatives used to hedge the foreign currency and interest rate risk associated with insurance as well as embedded derivatives included in
insurance contracts. Assets and liabilities include bifurcated embedded derivatives, which are recorded in Policyholder contract deposits.
(b) Represents netting of derivative exposures covered by a qualifying master netting agreement.
(c) Represents cash collateral posted and received that is eligible for netting.
We engage in derivative transactions that are not subject to a clearing requirement directly with unaffiliated third
parties, in most cases, under International Swaps and Derivatives Association, Inc. (ISDA) agreements. Many of the
ISDA agreements also include Credit Support Annex (CSA) provisions, which generally provide for collateral postings
at various ratings and threshold levels. We attempt to reduce our risk with certain counterparties by entering into
agreements that enable collateral to be obtained from a counterparty on an upfront or contingent basis. We minimize
the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring
counterparty credit exposure and collateral value and generally requiring additional collateral to be posted upon the
occurrence of certain events or circumstances. In addition, certain derivative transactions have provisions that require
collateral to be posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate
the transaction. In the case of some of the derivative transactions, upon a downgrade of our long-term debt ratings,
as an alternative to posting collateral and subject to certain conditions, we may assign the transaction to an obligor
with higher debt ratings or arrange for a substitute guarantee of our obligations by an obligor with higher debt ratings
or take other similar action. The actual amount of collateral required to be posted to counterparties in the event of
such downgrades, or the aggregate amount of payments that we could be required to make, depends on market
conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the
downgrade.
Collateral posted by us to third parties for derivative transactions was $3.2 billion and $4.5 billion at December 31,
2013 and December 31, 2012, respectively. In the case of collateral posted under derivative transactions that are not
subject to clearing, this collateral can generally be repledged or resold by the counterparties. Collateral provided to
us from third parties for derivative transactions was $1 billion and $1.4 billion at December 31, 2013 and
December 31, 2012, respectively. We generally can repledge or resell this collateral to the extent it is posted under
derivative transactions that are not subject to clearing.
We have elected to present all derivative receivables and derivative payables, and the related cash collateral
received and paid, on a net basis on our Condensed Consolidated Balance Sheets when a legally enforceable ISDA
Master Agreement exists between us and our derivative counterparty. An ISDA Master Agreement is an agreement
between two counterparties, which may have multiple derivative transactions with each other governed by such
agreement, and such ISDA Master Agreement generally provides for the net settlement of all or a specified group of
these derivative transactions, as well as cash collateral, through a single payment, in a single currency, in the event
Collateral
Offsetting
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 275
I T EM 8 / NOT E 1 1 . DERI VAT I VES AND HEDGE ACCOUNT I NG
December 31, 2013 December 31, 2012
Derivative Assets Derivative Liabilities Derivative Assets Derivative Liabilities
Notional Fair Notional Fair Notional Fair Notional Fair
(in millions) Amount Value Amount Value Amount Value Amount Value
$ 41,942 $ 2,567 $ 52,679 $ 3,506
12,531 964 23,716 1,506
54,473 3,531 76,395 5,012
60,021 795 15,668 1,202
$ 114,494 4,326 $ 92,063 6,214
(1,734) (1,734)
(820) (1,484)
1,772 2,996
107 485
$ 1,665 $ 2,511
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group
of, derivative transactions.
We designated certain derivatives entered into by GCM with third parties as fair value hedges of available-for-sale
investment securities held by our insurance subsidiaries. The fair value hedges include foreign currency forwards
designated as hedges of the change in fair value of foreign currency denominated available-for-sale securities
attributable to changes in foreign exchange rates. We previously designated certain interest rate swaps entered into
by GCM with third parties as cash flow hedges of certain floating rate debt issued by ILFC, specifically to hedge the
changes in cash flows on floating rate debt attributable to changes in the benchmark interest rate. We de-designated
such cash flow hedges in December 2012 in connection with ILFC being classified as held-for-sale.
We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investment
hedge relationships to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currency
foreign subsidiaries. We assess the hedge effectiveness and measure the amount of ineffectiveness for these hedge
relationships based on changes in spot exchange rates. For the years ended December 31, 2013, 2012, and 2011
we recognized losses of $38 million, $74 million and $13 million, respectively, included in Change in foreign currency
translation adjustment in Other comprehensive income related to the net investment hedge relationships.
A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while regression
analysis is employed for all other hedges.
The following table presents the gain (loss) recognized in earnings on our derivative instruments in fair
value hedging relationships in the Consolidated Statements of Income:
Interest rate contracts:
Gain (loss) recognized in earnings on derivatives
(a)
$ – $ (4)
Gain recognized in earnings on hedged items
(b)
124 153
Gain (loss) recognized in earnings for ineffective portion
(c)
– (1)
Foreign exchange contracts:
(c)
Loss recognized in earnings on derivatives (2) (1)
Gain recognized in earnings on hedged items 2 1
Gain (loss) recognized in earnings for amounts excluded from effectiveness testing – –
(a) Includes $1 million gain recorded in Interest credited to policyholder account balances and $6 million loss recorded in Net realized capital gains
(losses).
(b) Includes gains of $99 million, $124 million and $149 million for the years ended December 31, 2013, 2012 and 2011, respectively, representing
the amortization of debt basis adjustment recorded in Other income and Net realized capital gains (losses) following the discontinuation of hedge
accounting. Includes a $2 million loss, for the year ended December 31, 2013, recorded in Interest credited to policyholder account balances,
representing the accretion on GIC contracts that had a fair value different than par at inception of the hedge relationship.
(c) Gains and losses recognized in earnings for the ineffective portion and amounts excluded from effectiveness testing, if any, are recorded in Net
realized capital gains (losses).
Hedge Accounting
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 276
I T EM 8 / NOT E 1 1 . DERI VAT I VES AND HEDGE ACCOUNT I NG
Years ended December 31,
(in millions) 2013 2012 2011
$ (5)
102
–
(187)
204
17
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the effect of our derivative instruments in cash flow hedging relationships in the
Consolidated Statements of Income:
Interest rate contracts
(a)
:
Loss recognized in Other comprehensive income on derivatives $ (2) $ (5)
Gain (loss) reclassified from Accumulated other comprehensive income into earnings
(b)
(35) 55
(a) Hedge accounting was discontinued in December 2012 in connection with ILFC being classified as held-for-sale. Gains and losses recognized in
earnings are recorded in Income from continuing operations. Previously the effective portion of the change in fair value of a derivative qualifying as a
cash flow hedge was recorded in Accumulated other comprehensive income until earnings were affected by the variability of cash flows in the
hedged item. Gains and losses reclassified from Accumulated other comprehensive income were previously recorded in Other income. Gains or
losses recognized in earnings on derivatives for the ineffective portion were previously recorded in Net realized capital gains (losses).
(b) Includes $19 million for the year ended December 2012, representing the reclassification from Accumulated other comprehensive income into
earnings following the discontinuation of cash flow hedges of ILFC debt.
The following table presents the effect of our derivative instruments not designated as hedging instruments
in the Consolidated Statements of Income:
By Derivative Type:
Interest rate contracts
(a)
$ (241) $ 601
Foreign exchange contracts 96 137
Equity contracts
(b)
(641) (263)
Commodity contracts (1) 4
Credit contracts 641 337
Other contracts 6 47
Total $ (140) $ 863
By Classification:
Policy fees $ 160 $ 113
Net investment income 5 8
Net realized capital gains (losses) (672) 246
Other income 367 496
Policyholder benefits and claims incurred – –
Total $ (140) $ 863
(a) Includes cross currency swaps.
(b) Includes embedded derivative gains (losses) of $1.2 billion, $(166) million and $(397) million for the years ended December 31, 2013, 2012 and
2011, respectively.
Derivative transactions between AIG and its subsidiaries and third parties are generally centralized through GCM,
specifically AIG Markets. The portfolio of this entity consists primarily of interest rate and currency derivatives and
also includes legacy credit derivatives that have been novated to this entity. Another of GCM’s entities, AIGFP, also
enters into derivatives to mitigate market risk in its exposures (interest rates, currencies, credit, commodities and
equities) arising from its transactions.
GCM follows a policy of minimizing interest rate, currency, commodity, and equity risks associated with investment
securities by entering into offsetting positions, thereby offsetting a significant portion of the unrealized appreciation
and depreciation.
Derivatives Not Designated as Hedging Instruments
Global Capital Markets Derivatives
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 277
I T EM 8 / NOT E 1 1 . DERI VAT I VES AND HEDGE ACCOUNT I NG
Years Ended December 31,
(in millions) 2013 2012 2011
$ –
–
Gains (Losses)
Recognized in Earnings
Years Ended December 31,
(in millions) 2013 2012 2011
$ (331)
41
676
(4)
567
85
$ 1,034
$ 207
28
62
750
(13)
$ 1,034
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Credit default swap transactions were entered into with the intention of earning revenue on credit exposure. In the
majority of these transactions, we sold credit protection on a designated portfolio of loans or debt securities.
Generally, such credit protection was provided on a ‘‘second loss’’ basis, meaning we would incur credit losses only
after a shortfall of principal and/or interest, or other credit events, in respect of the protected loans and debt
securities, exceeded a specified threshold amount or level of ‘‘first losses.’’
The following table presents the net notional amount, fair value of derivative (asset) liability and unrealized
market valuation gain (loss) of the super senior credit default swap portfolio, including credit default swaps
written on mezzanine tranches of certain regulatory capital relief transactions, by asset class:
Regulatory Capital:
Prime residential mortgages $ 97 $ – $ –
Other – – 9
Total 97 – 9
Arbitrage:
Multi-sector CDOs
(d)
3,944 1,910 538
Corporate debt/CLOs
(e)
11,832 60 67
Total 15,776 1,970 605
Mezzanine tranches – – 3
Total $ 15,873 $ 1,970 $ 617
(a) Net notional amounts presented are net of all structural subordination below the covered tranches. The decrease in the total net notional amount
from December 31, 2012 to December 31, 2013 was due to amortization of $1.0 billion and terminations and maturities of $69 million, partially offset
by increases due to foreign exchange rate movement of $313 million.
(b) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(c) Includes credit valuation adjustment losses of $5 million and $39 million for the years ended December 31, 2013 and 2012, respectively,
representing the effect of changes in our credit spreads on the valuation of the derivatives liabilities.
(d) During 2013, we paid $143 million to counterparties with respect to multi-sector CDOs, which was previously included in the fair value of the
derivative liability as an unrealized market valuation loss. Multi-sector CDOs also include $2.8 billion and $3.4 billion in net notional amount of credit
default swaps written with cash settlement provisions at December 31, 2013 and December 31, 2012, respectively. Collateral postings with regards
to multi-sector CDOs were $1.1 billion and $1.6 billion at December 31, 2013 and December 31, 2012, respectively.
(e) Corporate debt/Collateralized Loan Obligations (CLOs) include $1.0 billion and $1.2 billion in net notional amount of credit default swaps written
on the super senior tranches of CLOs at December 31, 2013 and 2012, respectively. Collateral postings with regards to corporate debt/CLOs were
$353 million and $420 million at December 31, 2013 and December 31, 2012, respectively.
The expected weighted average maturity of the super senior credit derivative portfolios as of December 31, 2013 was
six years for the multi-sector CDO arbitrage portfolio and two years for the corporate debt/CLO portfolio.
Because of long-term maturities of the CDSs in the arbitrage portfolio, we are unable to make reasonable estimates
of the periods during which any payments would be made. However, the net notional amount represents the
maximum exposure to loss on the super senior credit default swap portfolio.
We have legacy credit default swap contracts referencing single-name exposures written on corporate, index and
asset-backed credits with the intention of earning spread income on credit exposure. Some of these transactions
were entered into as part of a long-short strategy to earn the net spread between CDSs written and purchased. At
December 31, 2013 and 2012, the net notional amounts of these written CDS contracts were $373 million and
$410 million, respectively, including ABS CDS transactions purchased from a liquidated multi-sector super senior
CDS transaction. These exposures were partially hedged by purchasing offsetting CDS contracts of $50 million and
Super Senior Credit Default Swaps
Written Single Name Credit Default Swaps
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 278
I T EM 8 / NOT E 1 1 . DERI VAT I VES AND HEDGE ACCOUNT I NG
Fair Value of Derivative Unrealized Market Valuation
Net Notional Amount at
(a)
Liability at
(b)
Gain for the years ended
(c)
December 31, December 31, December 31, December 31, December 31, December 31,
(in millions) 2013 2012 2013 2012 2013 2012
$ – $ – $ –
– – –
– – –
3,257 1,249 518
11,832 28 32
15,089 1,277 550
– – –
$ 15,089 $ 1,277 $ 550
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
$51 million in net notional amounts at December 31, 2013 and 2012, respectively. The net unhedged positions of
$323 million and $359 million at December 31, 2013 and 2012, respectively, represent the maximum exposure to
loss on these CDS contracts. The average maturity of the written CDS contracts was three years and four years at
December 31, 2013 and 2012, respectively. At December 31, 2013 and 2012, the fair values of derivative liabilities
(which represents the carrying value) of the portfolio of CDS was $32 million and $48 million, respectively.
Upon a triggering event (e.g., a default) with respect to the underlying reference obligations, settlement is generally
effected through the payment of the notional amount of the contract to the counterparty in exchange for the related
principal amount of securities issued by the underlying credit obligor (physical settlement) or, in some cases,
payment of an amount associated with the value of the notional amount of the reference obligations through a market
quotation process (cash settlement).
These CDS contracts were written under ISDA Master Agreements. The majority of these ISDA Master Agreements
include credit support annexes (CSAs) that provide for collateral postings at various ratings and threshold levels. At
December 31, 2013 and 2012, net collateral posted by us under these contracts was $38 million and $64 million,
respectively, prior to offsets for other transactions.
Our businesses, other than GCM, also use derivatives and other instruments as part of their financial risk
management. Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated
with embedded derivatives contained in insurance contract liabilities, fixed maturity securities, outstanding medium-
and long-term notes as well as other interest rate sensitive assets and liabilities. Foreign exchange derivatives
(principally foreign exchange forwards and options) are used to economically mitigate risk associated with non-U.S.
dollar denominated debt, net capital exposures, and foreign currency transactions. Equity derivatives are used to
mitigate financial risk embedded in certain insurance liabilities. The derivatives are effective economic hedges of the
exposures that they are meant to offset.
In addition to hedging activities, we also enter into derivative instruments with respect to investment operations,
which include, among other things, credit default swaps and purchasing investments with embedded derivatives, such
as equity-linked notes and convertible bonds.
The aggregate fair value of our derivative instruments that contain credit risk-related contingent features that were in
a net liability position at December 31, 2013 and 2012, was approximately $2.6 billion and $3.9 billion, respectively.
The aggregate fair value of assets posted as collateral under these contracts at December 31, 2013 and 2012, was
3.1 billion and $4.3 billion, respectively.
We estimate that at December 31, 2013, based on our outstanding financial derivative transactions, a one-notch
downgrade of our long-term senior debt ratings to BBB+ by Standard & Poor’s Financial Services LLC, a subsidiary
of The McGraw-Hill Companies, Inc. (S&P), would permit counterparties to make additional collateral calls and permit
certain counterparties to elect early termination of contracts, resulting in a negligible amount of corresponding
collateral postings and termination payments; a one-notch downgrade to Baa2 by Moody’s Investors’ Service, Inc.
(Moody’s) and an additional one-notch downgrade to BBB by S&P would result in approximately $65 million in
additional collateral postings and termination payments, and a further one-notch downgrade to Baa3 by Moody’s and
BBB- by S&P would result in approximately $111 million in additional collateral postings and termination payments.
Additional collateral postings upon downgrade are estimated based on the factors in the individual collateral posting
provisions of the CSA with each counterparty and current exposure as of December 31, 2013. Factors considered in
estimating the termination payments upon downgrade include current market conditions, the complexity of the
derivative transactions, historical termination experience and other observable market events such as bankruptcy and
downgrade events that have occurred at other companies. Our estimates are also based on the assumption that
counterparties will terminate based on their net exposure to us. The actual termination payments could significantly
differ from our estimates given market conditions at the time of downgrade and the level of uncertainty in estimating
both the number of counterparties who may elect to exercise their right to terminate and the payment that may be
triggered in connection with any such exercise.
All Other Derivatives
Credit Risk-Related Contingent Features
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 279
I T EM 8 / NOT E 1 1 . DERI VAT I VES AND HEDGE ACCOUNT I NG
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
We invest in hybrid securities (such as credit-linked notes) with the intent of generating income, and not specifically
to acquire exposure to embedded derivative risk. As is the case with our other investments in RMBS, CMBS, CDOs
and ABS, our investments in these hybrid securities are exposed to losses only up to the amount of our initial
investment in the hybrid security. Other than our initial investment in the hybrid securities, we have no further
obligation to make payments on the embedded credit derivatives in the related hybrid securities.
We elect to account for our investments in these hybrid securities with embedded written credit derivatives at fair
value, with changes in fair value recognized in Net investment income and Other income. Our investments in these
hybrid securities are reported as Other bond securities in the Consolidated Balance Sheets. The fair values of these
hybrid securities were $6.4 billion and $6.7 billion at December 31, 2013 and 2012, respectively. These securities
have par amounts of $13.4 billion and $15 billion at December 31, 2013 and 2012, respectively, and both have
remaining stated maturity dates that extend to 2052.
The liability for unpaid claims and claims adjustment expense represents the accumulation of estimates of unpaid
claims, including estimates for claims incurred but not reported and claim adjustments expenses, less applicable
discount for future investment income. We continually review and update the methods used to determine loss reserve
estimates and to establish the resulting reserves. Any adjustments resulting from this review are reflected currently in
pre-tax income. Because these estimates are subject to the outcome of future events, changes in estimates are
common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed.
Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse
development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are
referred to as favorable development.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due
from policyholders of approximately $12.0 billion and $11.7 billion at December 31, 2013 and 2012, respectively.
These recoverable amounts are related to certain policies with high deductibles (primarily for U.S. commercial
casualty business) where we manage and pay the entire claim on behalf of the insured and are reimbursed by the
insured for the deductible portion of the claim. At December 31, 2013 and 2012, we held collateral totaling
$9.0 billion and $8.3 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of
credit and trust agreements.
Hybrid Securities with Embedded Credit Derivatives
12. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE, FUTURE POLICY
BENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS, AND
POLICYHOLDER CONTRACT DEPOSITS
Liability for Unpaid Claims and Claims Adjustment Expense
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 280
I T EM 8 / NOT E 1 1 . DERI VAT I VES AND HEDGE ACCOUNT I NG
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the reconciliation of activity in the Liability for unpaid claims and claims
adjustment expense:
Liability for unpaid claims and claims adjustment expense, beginning of year $ 91,145 $ 91,151
Reinsurance recoverable (20,320) (19,644)
Net liability for unpaid claims and claims adjustment expense, beginning of
year 70,825 71,507
Foreign exchange effect
(a)
(90) 353
Dispositions (11) –
Changes in net loss reserves due to retroactive asbestos reinsurance
transaction 90 (1,703)
Total 70,814 70,157
Losses and loss expenses incurred:
Current year 25,385 27,931
Prior years, other than accretion of discount
(b)
421 195
Prior years, accretion of discount (63) 34
Total 25,743 28,160
Losses and loss expenses paid
(c)
:
Current year 8,450 11,534
Prior years 19,325 15,958
Total 27,775 27,492
Balance, end of year:
Net liability for unpaid claims and claims adjustment expense 68,782 70,825
Reinsurance recoverable 19,209 20,320
Total $ 87,991 $ 91,145
(a) For the 2012 amounts, $847 million was reclassified from ‘‘Foreign exchange effect’’ to ‘‘Losses and loss expenses paid (current year)’’. The
impact of this reclassification was a decrease of $847 million for foreign exchange and loss expenses paid (current year), with no income statement
or balance sheet impact.
(b) In 2013, includes $144 million, $269 million, $498 million and $54 million related to excess casualty, environmental and pollution, primary
casualty and healthcare, respectively. In 2012, includes $157 million, $200 million, $531 million and $68 million related to excess casualty,
environmental and pollution, primary casualty and healthcare, respectively. In 2011, includes $(588) million, $385 million, $686 million and
$45 million related to excess casualty, environmental and pollution, primary casualty and healthcare, respectively
(c) Includes amounts related to dispositions through the date of disposition.
The net adverse development includes loss-sensitive business, for which we recognized $89 million, $54 million and
$172 million loss-sensitive premium adjustments for the years ended December 31, 2013, 2012 and 2011,
respectively.
At December 31, 2013, the liability for unpaid claims and claims adjustment expense reflects a net loss reserve
discount of $3.6 billion, including tabular and non-tabular calculations based upon the following assumptions:
• Certain asbestos business that was written by AIG Property Casualty is discounted, when allowed by the regulator
and when payments are fixed and determinable, based on the investment yields of the companies and the payout
pattern for this business.
• The tabular workers’ compensation discount is calculated using a 3.5 percent interest rate and the 1979 –
81 Decennial Mortality Table.
Discounting of Reserves
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 281
I T EM 8 / NOT E 1 2 . L I ABI L I T Y F OR UNPAI D CL AI MS AND CL AI MS ADJ UST MENT EXPENSE, F UT URE
POL I CY BENEF I T S F OR L I F E AND ACCI DENT AND HEAL T H I NSURANCE CONT RACT S, AND
POL I CYHOL DER CONT RACT DEPOSI T S
Years Ended December 31,
(in millions) 2013 2012 2011
$ 87,991
(19,209)
68,782
(617)
(79)
22
68,108
22,171
557
(309)
22,419
7,431
18,780
26,211
64,316
17,231
$ 81,547
..................................................................................................................................................................................
............................................................................................................................................................................................
• The non-tabular workers’ compensation discount is calculated separately for companies domiciled in New York and
Pennsylvania, and follows the statutory regulations (prescribed or approved) for each state. For New York
companies, the discount is based on a five percent interest rate and the companies’ own payout patterns. In 2012,
for Pennsylvania companies, the statute has specified discount factors for accident years 2001 and prior, which are
based on a six percent interest rate and an industry payout pattern. For accident years 2002 and subsequent, the
discount is based on the payout patterns and investment yields of the companies.
• Effective for the fourth quarter of 2013, our Pennsylvania regulator approved use of a consistent discount rate
(U.S. Treasury rate plus a liquidity premium) to all of our workers’ compensation reserves in our Pennsylvania-
domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers’
compensation portfolios. Prior to this change, workers’ compensation reserves held by a Pennsylvania-domiciled
insurer were discounted as follows: i) For loss reserves associated with accident year 2001 and prior accident
years, a prescribed discount factor based on a rate of 6 percent and industry payout patterns, were applied, ii) For
loss reserves associated with accident year 2002 and subsequent accident years, a rate of 4.25 percent and our
own payout patterns were applied; and iii) For a portion of loss reserves comprising excess workers’ compensation
reserves that were assumed into a Pennsylvania-domiciled insurer from New York-domiciled insurers during 2011,
we applied New York discounting rules, which include a prescribed rate of 5 percent on case reserves only (no
discounting of IBNR reserves). As a result of these changes, the total net discount increased by $427 million.
The discount consists of the following: $798 million of tabular discount for workers’ compensation in the domestic
operations of AIG Property Casualty and $2.7 billion of non-tabular discount for workers’ compensation in the
domestic operations of AIG Property Casualty; and $33 million — non-tabular discount for asbestos for AIG Property
Casualty.
Future policy benefits primarily include reserves for traditional life and annuity payout contracts, which represent an
estimate of the present value of future benefits less the present value of future net premiums. Included in Future
policy benefits are liabilities for annuities issued in structured settlement arrangements whereby a claimant has
agreed to settle a general insurance claim in exchange for fixed payments over a fixed determinable period of time
with a life contingency feature. Future policy benefits also include certain guaranteed benefits of variable annuity
products that are not considered embedded derivatives, primarily guaranteed minimum death benefits. See Note 13
for additional information on liabilities for guaranteed benefits included in Future policy benefits.
The liability for long duration future policy benefits has been established on the basis of the following assumptions:
• Interest rates (exclusive of immediate/terminal funding annuities), which vary by year of issuance and products,
range from 3.0 percent to 10.0 percent within the first 20 years. Interest rates on immediate/terminal funding
annuities are at a maximum of 13.5 percent and grade to not less than zero percent.
• Mortality and surrender rates are generally based on actual experience when the liability is established.
The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net
transfers from separate accounts, plus accrued interest, less withdrawals and assessed fees). Deposits collected on
investment-oriented products are not reflected as revenues, because they are recorded directly to Policyholder
contract deposits upon receipt. Policyholder contract deposits also include our liability for (a) certain guaranteed
benefits and indexed features accounted for as embedded derivatives at fair value, (b) annuities issued in a
structured settlement arrangement with no life contingency and (c) certain contracts we have elected to account for
at fair value. See Note 13 herein for additional information on guaranteed benefits accounted for as embedded
derivatives.
Future Policy Benefits
Policyholder Contract Deposits
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 282
I T EM 8 / NOT E 1 2 . L I ABI L I T Y F OR UNPAI D CL AI MS AND CL AI MS ADJ UST MENT EXPENSE, F UT URE
POL I CY BENEF I T S F OR L I F E AND ACCI DENT AND HEAL T H I NSURANCE CONT RACT S, AND
POL I CYHOL DER CONT RACT DEPOSI T S
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents Policyholder contract deposits by product type:
Policyholder contract deposits:
Life Insurance and A&H $ 12,201
Fixed Annuities 55,985
Retirement Income Solutions 5,451
Group Retirement 36,778
Institutional Markets 12,056
All other Institutional 509
Total Policyholder contract deposits $ 122,980
The products for which reserves are included in Policyholder contract deposits at December 31, 2013 had the
following characteristics:
• Interest rates credited on deferred annuities, which vary by year of issuance, range from 1.0 percent to, including
bonuses, 8.4 percent. Current declared interest rates are generally guaranteed to remain in effect for a period of
one year though some are guaranteed for longer periods. Withdrawal charges generally range from zero percent to
15 percent grading to zero over a period of zero to 20 years.
• Guaranteed investment contracts (GICs) have market value withdrawal provisions for any funds withdrawn other
than benefit responsive payments. Interest rates credited generally range from 0.3 percent to 8.3 percent. The
majority of these GICs mature within seven years.
• Interest rates on corporate life insurance products are guaranteed at 3.0 percent and the weighted average rate
credited in 2013 was 4.4 percent.
• The universal life products have credited interest rates of 1.0 percent to 8.0 percent and guarantees ranging from
1.0 percent to 5.5 percent depending on the year of issue. Additionally, universal life funds are subject to surrender
charges that amount to 8.7 percent of the aggregate fund balance grading to zero over a period not longer than
20 years.
• For variable products and investment contracts, policy values are expressed in terms of investment units. Each unit
is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked asset
portfolio. The current liability at any time is the sum of the current unit value of all investment units plus any
liabilities for guaranteed minimum death or guaranteed minimum withdrawal benefits.
Other policyholder funds include provisions for future dividends to participating policyholders, accrued in accordance
with all applicable regulatory or contractual provisions. Participating life business represented approximately
2.1 percent of the gross insurance in force at December 31, 2013 and 3.7 percent of gross Premiums and other
considerations in 2013. The amount of annual dividends to be paid is approved locally by the boards of directors of
the insurance companies. Provisions for future dividend payments are computed by jurisdiction, reflecting local
regulations. The portions of current and prior net income and of current unrealized appreciation of investments that
can inure to our benefit are restricted in some cases by the insurance contracts and by the local insurance
regulations of the jurisdictions in which the policies are in force.
Certain products are subject to experience adjustments. These include group life and group medical products, credit
life contracts, accident and health insurance contracts/riders attached to life policies and, to a limited extent,
reinsurance agreements with other direct insurers. Ultimate premiums from these contracts are estimated and
recognized as revenue, and the unearned portions of the premiums recorded as liabilities. Experience adjustments
vary according to the type of contract and the territory in which the policy is in force and are subject to local
regulatory guidance.
Other Policyholder Funds
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 283
I T EM 8 / NOT E 1 2 . L I ABI L I T Y F OR UNPAI D CL AI MS AND CL AI MS ADJ UST MENT EXPENSE, F UT URE
POL I CY BENEF I T S F OR L I F E AND ACCI DENT AND HEAL T H I NSURANCE CONT RACT S, AND
POL I CYHOL DER CONT RACT DEPOSI T S
At December 31,
(in millions) 2013 2012
$ 13,081
54,515
6,729
37,694
9,433
564
$ 122,016
..................................................................................................................................................................................
............................................................................................................................................................................................
We report variable contracts within the separate accounts when investment income and investment gains and losses
accrue directly to, and investment risk is borne by, the contract holder and the separate account meets additional
accounting criteria to qualify for separate account treatment. The assets supporting the variable portion of variable
annuity and variable universal life contracts that qualify for separate account treatment are carried at fair value and
reported as separate account assets, with an equivalent summary total reported as separate account liabilities.
Amounts assessed against the contract holders for mortality, administrative, and other services are included in
revenue. Net investment income, net investment gains and losses, changes in fair value of assets, and policyholder
account deposits and withdrawals related to separate accounts are excluded from the Consolidated Statements of
Income, Comprehensive Income and Cash Flows.
Variable annuity contracts may include certain contractually guaranteed benefits to the contract holder. These
guaranteed features include guaranteed minimum death benefits (GMDB) that are payable in the event of death, and
living benefits that are payable in the event of annuitization, or, in other instances, at specified dates during the
accumulation period. Living benefits include guaranteed minimum income benefits (GMIB), guaranteed minimum
withdrawal benefits (GMWB) and guaranteed minimum account value benefits (GMAV). A variable annuity contract
may include more than one type of guaranteed benefit feature; for example, it may have both a GMDB and a
GMWB. However, a policyholder can only receive payout from one guaranteed feature on a contract containing a
death benefit and a living benefit, i.e. the features are mutually exclusive. A policyholder cannot purchase more than
one living benefit on one contract. The net amount at risk for each feature is calculated irrespective of the existence
of other features; as a result, the net amount at risk for each feature is not additive to that of other features.
Depending on the contract, the GMDB feature may provide a death benefit of either (a) total deposits made to the
contract less any partial withdrawals plus a minimum return (and in rare instances, no minimum return) or (b) the
highest contract value attained, typically on any anniversary date minus any subsequent withdrawals following the
contract anniversary. GMIB guarantees a minimum level of periodic income payments upon annuitization. GMDB is
our most widely offered benefit; our contracts also include GMIB to a lesser extent.
The liabilities for GMDB and GMIB, which are recorded in Future policyholder benefits, represent the expected value
of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period
based on total expected assessments, through Policyholder benefits and claims incurred. The net amount at risk for
GMDB represents the amount of benefits in excess of account value if death claims were filed on all contracts on the
balance sheet date.
The following table presents details concerning our GMDB exposures, by benefit type:
Account value $ 64 $ 13
Net amount at risk 2 1
Average attained age of contract holders by
product 59 – 73 years 66 – 75 years
Range of guaranteed minimum return rates 3 – 10%
The following summarizes GMDB and GMIB liabilities related to variable annuity contracts:
Balance, beginning of year $ 445
Reserve increase 43
Benefits paid (75)
Balance, end of year $ 413
13. VARIABLE LIFE AND ANNUITY CONTRACTS
GMDB and GMIB
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 284
I T EM 8 / NOT E 1 3 . VARI ABL E L I F E AND ANNUI T Y CONT RACT S
2013 2012
Net Deposits Net Deposits
Plus a Minimum Highest Contract Plus a Minimum Highest Contract At December 31,
(dollars in billions) Return Value Attained Return Value Attained
$ 78 $ 15
1 1
60 – 72 years 65 – 75 years
3 – 10%
Years Ended December 31,
(in millions) 2013 2012
$ 413
32
(51)
$ 394
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
We regularly evaluate estimates used to determine the GMDB liability and adjust the additional liability balance, with
a related charge or credit to Policyholder benefits and claims incurred, if actual experience or other evidence
suggests that earlier assumptions should be revised.
The following assumptions and methodology were used to determine the GMDB liability at December 31, 2013:
• Data used was up to 1,000 stochastically generated investment performance scenarios.
• Mean investment performance assumptions ranged from three percent to approximately ten percent depending on
the block of business.
• Volatility assumption was 16 percent.
• Mortality was assumed to be between 50 percent and 88 percent of the 1994 variable annuity minimum
guaranteed death benefit table for recent experience.
• Lapse rates vary by contract type and duration and ranged from zero percent to 37 percent.
• The discount rate ranged from 3.75 percent to 10 percent and is based on the growth rate assumption for the
underlying contracts in effect at the time of policy issuance.
Certain of our variable annuity contracts offer optional GMWB and GMAV benefits. The contract holder can monetize
the excess of the guaranteed amount over the account value of the contract only through a series of withdrawals that
do not exceed a specific percentage per year of the guaranteed amount. If, after the series of withdrawals, the
account value is exhausted, the contract holder will receive a series of annuity payments equal to the remaining
guaranteed amount, and, for lifetime GMWB products, the annuity payments can continue beyond the guaranteed
amount. The account value can also fluctuate with equity market returns on a daily basis resulting in increases or
decreases in the excess of the guaranteed amount over account value.
The liabilities for GMWB and GMAV, which are recorded in Policyholder contract deposits, are accounted for as
embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in Other
realized capital gains (losses). The fair value of these embedded derivatives was a net asset of $37 million at
December 31, 2013 and a net liability of $997 million at December 31, 2012. See Note 5 herein for discussion of the
fair value measurement of guaranteed benefits that are accounted for as embedded derivatives. We had account
values subject to GMWB and GMAV that totaled $28.6 billion and $19.8 billion at December 31, 2013 and 2012,
respectively. The net amount at risk for GMWB represents the present value of minimum guaranteed withdrawal
payments, in accordance with contract terms, in excess of account value. The net amount at risk for GMAV
represents the present value of minimum guaranteed account value in excess of the current account balance,
assuming no lapses. The net amount at risk related to these guarantees was $63 million and $753 million at
December 31, 2013 and 2012, respectively. We use derivative instruments to mitigate a portion of our exposure that
arises from GMWB and GMAV benefits.
GMWB and GMAV
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 285
I T EM 8 / NOT E 1 3 . VARI ABL E L I F E AND ANNUI T Y CONT RACT S
..................................................................................................................................................................................
............................................................................................................................................................................................
AIG’s long-term debt is denominated in various currencies, with both fixed and variable interest rates. Long-term debt
is carried at the principal amount borrowed, including unamortized discounts, hedge accounting valuation adjustments
and fair value adjustments, where applicable. The interest rates presented in the following table reflect the range of
contractual rates in effect at year end, including fixed and variable rate issuances.
The following table lists our total debt outstanding at December 31, 2013 and 2012. The interest rates
presented in the following table are the range of contractual rates in effect at year end, including fixed and
variable-rates:
Debt issued or guaranteed by AIG:
AIG General borrowings:
Notes and bonds payable 1.24% – 8.13% 2015 – 2097 $ 14,084
Subordinated debt 2.38% 2015 250
Junior subordinated debt 4.88% – 8.63% 2037 – 2058 9,416
Loans and mortgages payable 9.00% 2015 79
AIGLH notes and bonds payable 6.63% – 7.50% 2025 – 2029 298
AIGLH junior subordinated debt
(a)
7.57% – 8.50% 2030 – 2046 1,339
Total AIG general borrowings – – 25,466
AIG/DIB borrowings supported by assets:
(b)
MIP notes payable 2.28% – 8.59% 2014 – 2018 9,296
Series AIGFP matched notes and bonds payable 0.01% – 8.25% 2014 – 2047 3,544
GIAs, at fair value 3.00% – 9.80% 2014 – 2047 6,501
Notes and bonds payable, at fair value 0.18% – 10.00% 2014 – 2047 1,554
Total AIG/DIB borrowings supported by assets – – 20,895
Total debt issued or guaranteed by AIG – – 46,361
Debt not guaranteed by AIG:
Other subsidiaries notes, bonds, loans and
mortgages payable 0.20% – 8.29% 2014 – 2060 325
Debt of consolidated investments
(c)
0.03% – 10.00% 2014 – 2052 1,814
Total debt not guaranteed by AIG – – 2,139
Total long term debt
(d)
– – $ 48,500
(a) On July 11, 2013. AIGLH junior subordinated debentures with the same terms as the trust preferred securities were distributed to holders of the
trust preferred securities, and the trust preferred securities were cancelled.
(b) AIG Parent guarantees all DIB debt, except for MIP notes payable and Series AIGFP matched notes and bonds payable, which are direct
obligations to AIG Parent.
(c) At December 31, 2013, includes debt of consolidated investments held through AIG Global Real Estate Investment Corp., AIG Credit Corp., AIG
Life and Retirement and AIG Property Casualty U.S. of $1.5 billion, $111 million, $201 million and $58 million, respectively. At December 31, 2012,
includes debt of consolidated investments held through AIG Global Real Estate Investment Corp., AIG Credit Corp. and AIG Life and Retirement of
$1.5 billion, $176 million and $133 million, respectively.
(d) Excludes $21.4 billion and $24.3 billion related to ILFC as it is classified as a held-for-sale business at December 31, 2013 and 2012,
respectively.
14. DEBT
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 286
I T EM 8 / NOT E 1 4 . DEBT
Balance at Balance at
At December 31, 2013 Range of Maturity December 31, December 31,
(in millions) Interest Rate(s) Date(s) 2013 2012
$ 14,062
250
5,533
1
299
1,054
21,199
7,963
3,219
5,530
1,217
17,929
39,128
656
1,909
2,565
$ 41,693
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents maturities of long-term debt (including unamortized original issue discount,
hedge accounting valuation adjustments and fair value adjustments, when applicable), excluding $1.9 billion
in borrowings of debt of consolidated investments:
General borrowings:
Notes and bonds payable $ 14,062 $ – $ 999 $ 1,781 $ 1,374 $ 2,494 $ 7,414
Subordinated debt 250 – 250 – – – –
Junior subordinated debt 5,533 – – – – – 5,533
Loans and mortgages payable 1 – 1 – – – –
AIGLH notes and bonds payable 299 – – – – – 299
AIGLH junior subordinated debt 1,054 – – – – – 1,054
AIG general borrowings $ 21,199 $ – $ 1,250 $ 1,781 $ 1,374 $ 2,494 $ 14,300
AIG/DIB borrowings supported by assets:
MIP notes payable 7,963 1,575 900 1,215 3,866 407 –
Series AIGFP matched notes and
bonds payable 3,219 1,000 – – 10 1,983 226
GIAs, at fair value 5,530 632 597 311 249 655 3,086
Notes and bonds payable, at fair value 1,217 116 223 220 141 164 353
AIG/DIB borrowings supported by assets 17,929 3,323 1,720 1,746 4,266 3,209 3,665
Other subsidiaries notes, bonds, loans and
mortgages payable 656 7 44 3 5 3 594
Total $ 39,784 $ 3,330 $ 3,014 $ 3,530 $ 5,645 $ 5,706 $ 18,559
Uncollateralized and collateralized notes, bonds, loans and mortgages payable consisted of the following:
AIG general borrowings $ 1 $ – $ 1
Other subsidiaries notes, bonds, loans and mortgages payable
*
83 573 656
Total $ 84 $ 573 $ 657
* AIG does not guarantee any of these borrowings.
During 2007 and 2008, we issued an aggregate of $12.5 billion of junior subordinated debentures denominated in
U.S. dollars, British pounds and euros in eight series of securities. In November 2011, we exchanged certain of our
outstanding U.S. dollar, British pound and euro junior subordinated debentures for newly issued senior notes in
equivalent currencies pursuant to an exchange offer. This exchange resulted in a pre-tax gain on extinguishment of
debt of approximately $484 million, which is reflected in Loss on extinguishment of debt in the Consolidated
Statements of Income and a deferred gain of $65 million, which is being amortized as a reduction to future interest
expense.
In connection with the issuance of the eight series of junior subordinated debentures, we had entered into
replacement capital covenants (the Original RCCs) for the benefit of the holders of ‘‘covered debt’’ (a designated
series of our notes). The Original RCCs provided that we would not repay, redeem, or purchase the applicable series
of junior subordinated debentures on or before a specified date, unless we issued certain replacement capital
securities. In August 2012, we issued an aggregate of $250 million of 2.375% Subordinated Notes due 2015 (the
Subordinated Notes), which upon their issuance became the ‘‘covered debt’’ under the Original RCCs. The holders of
the newly issued Subordinated Notes, as the holders of the ‘‘covered debt’’ under the Original RCCs, consented to
Junior Subordinated Debt
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 287
I T EM 8 / NOT E 1 4 . DEBT
Year Ending
December 31, 2013
(in millions) Total 2014 2015 2016 2017 2018 Thereafter
Uncollateralized Collateralized
At December 31, 2013 Notes/Bonds/Loans Loans and
(in millions) Payable Mortgages Payable Total
..................................................................................................................................................................................
............................................................................................................................................................................................
amendments to each of those Original RCCs that deleted all of the covenants that restricted our ability to repay,
redeem or purchase the applicable series of the junior subordinated debentures.
We also entered into new replacement capital covenants (the New RCCs) for the initial benefit of the holders of the
Subordinated Notes, in connection with our 5.75% Series A-2 Junior Subordinated Debentures and our 4.875%
Series A-3 Junior Subordinated Debentures. We covenanted in each New RCC that, subject to certain exceptions,
we would not repay, redeem or purchase, and that none of our subsidiaries would purchase, the applicable series of
junior subordinated debentures prior to the scheduled termination date of that New RCC, unless since the date
360 days prior to the date of that repayment, redemption or purchase, we have received a specified amount of net
cash proceeds from the sale of common stock or certain other qualifying securities that have certain characteristics
that are at least as equity-like as the applicable characteristics of the applicable series of junior subordinated
debentures, or we or our subsidiaries have issued a specified amount of common stock in connection with the
conversion or exchange of certain convertible or exchangeable securities. In the first quarter of 2013, our obligations
under the new RCCs were effectively terminated because one of the termination provisions set forth in the new
RCCs was triggered when it was determined that neither series of junior subordinated debentures received equity
credit any longer for rating agency purposes.
In 2013, we redeemed $1.1 billion aggregate principal amount of our 7.70% Series A-5 Junior Subordinated
Debentures and $750 million aggregate principal amount of our 6.45% Series A-4 Junior Subordinated Debentures,
in each case for a redemption price of 100 percent of the principal amount, plus accrued and unpaid interest.
In connection with our acquisition of AIG Life Holdings, Inc. (AIGLH) in 2001, we entered into arrangements with
AIGLH with respect to outstanding AIGLH capital securities. In 1996, AIGLH issued capital securities through a trust
to institutional investors and funded the trust with AIGLH junior subordinated debentures issued to the trust with the
same terms as the capital securities. AIG Parent guaranteed the debentures pursuant to a guarantee that is
expressly subordinated to certain AIGLH senior debt securities. Under the AIG Parent guarantee, AIG Parent was not
required to make any payments in respect of the debentures if such payment would be prohibited by the
subordination provisions of the debentures. As a result, AIG Parent would never be required to make a payment
under its guarantee of the debentures for so long as AIGLH was prohibited from making a payment on the
debentures.
On July 11, 2013, the AIGLH junior subordinated debentures were distributed to holders of the capital securities, the
capital securities were cancelled and the trusts were dissolved. At December 31, 2013, the junior subordinated
debentures outstanding consisted of $300 million of 8.5 percent junior subordinated debentures due July 2030,
$500 million of 8.125 percent junior subordinated debentures due March 2046 and $500 million of 7.57 percent junior
subordinated debentures due December 2045, each guaranteed by AIG Parent as described above.
The four-year syndicated credit facility that we entered into on October 5, 2012 (the Four-Year Facility) provides for
$4.0 billion of unsecured revolving loans, which includes a $2.0 billion letter of credit sublimit. As of December 31,
2013, a total of approximately $3.9 billion remains available under the Four-Year Facility, of which approximately
$1.9 billion remains available for letters of credit. We expect that we may draw down on the Four-Year Facility from
time to time, and may use the proceeds for general corporate purposes. The Four Year Facility also provides for the
issuance of letters of credit. The Four-Year Facility is summarized in the following table.
Four-Year Syndicated Credit Facility $ 4,000 $ 3,947 October 2016 10/5/2012
AIGLH Junior Subordinated Debentures (Formerly, Liabilities Connected To Trust Preferred Stock)
Credit Facilities
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 288
I T EM 8 / NOT E 1 4 . DEBT
At December 31, 2013 Available Effective
(in millions) Size Amount Expiration Date
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
In the normal course of business, various contingent liabilities and commitments are entered into by AIG and our
subsidiaries. In addition, AIG Parent guarantees various obligations of certain subsidiaries.
Although AIG cannot currently quantify its ultimate liability for unresolved litigation and investigation matters, including
those referred to below, it is possible that such liability could have a material adverse effect on AIG’s consolidated
financial condition or its consolidated results of operations or consolidated cash flows for an individual reporting
period.
Overview. In the normal course of business, AIG and our subsidiaries are, like others in the insurance and
financial services industries in general, subject to litigation, including claims for punitive damages. In our insurance
and mortgage guaranty operations, litigation arising from claims settlement activities is generally considered in the
establishment of our liability for unpaid claims and claims adjustment expense. However, the potential for increasing
jury awards and settlements makes it difficult to assess the ultimate outcome of such litigation. AIG is also subject to
derivative, class action and other claims asserted by its shareholders and others alleging, among other things,
breach of fiduciary duties by its directors and officers and violations of insurance laws and regulations, as well as
federal and state securities laws. In the case of any derivative action brought on behalf of AIG, any recovery would
accrue to the benefit of AIG.
Various regulatory and governmental agencies have been reviewing certain transactions and practices of AIG and
our subsidiaries in connection with industry-wide and other inquiries into, among other matters, certain business
practices of current and former operating insurance subsidiaries. We have cooperated, and will continue to
cooperate, in producing documents and other information in response to subpoenas and other requests.
AIG, AIGFP and certain directors and officers of AIG, AIGFP and other AIG subsidiaries have been named in various
actions relating to our exposure to the U.S. residential subprime mortgage market, unrealized market valuation losses
on AIGFP’s super senior credit default swap portfolio, losses and liquidity constraints relating to our securities lending
program and related disclosure and other matters (Subprime Exposure Issues).
Consolidated 2008 Securities Litigation. Between May 21, 2008 and January 15, 2009, eight purported
securities class action complaints were filed against AIG and certain directors and officers of AIG and AIGFP, AIG’s
outside auditors, and the underwriters of various securities offerings in the United States District Court for the
Southern District of New York (the Southern District of New York), alleging claims under the Securities Exchange Act
of 1934, as amended (the Exchange Act), or claims under the Securities Act of 1933, as amended (the Securities
Act). On March 20, 2009, the Court consolidated all eight of the purported securities class actions as In re American
International Group, Inc. 2008 Securities Litigation (the Consolidated 2008 Securities Litigation).
On May 19, 2009, the lead plaintiff in the Consolidated 2008 Securities Litigation filed a consolidated complaint on
behalf of purchasers of AIG Common Stock during the alleged class period of March 16, 2006 through
September 16, 2008, and on behalf of purchasers of various AIG securities offered pursuant to AIG’s shelf
registration statements. The consolidated complaint alleges that defendants made statements during the class period
in press releases, AIG’s quarterly and year-end filings, during conference calls, and in various registration statements
and prospectuses in connection with the various offerings that were materially false and misleading and that
artificially inflated the price of AIG Common Stock. The alleged false and misleading statements relate to, among
other things, the Subprime Exposure Issues. The consolidated complaint alleges violations of Sections 10(b) and
20(a) of the Exchange Act and Sections 11, 12(a)(2), and 15 of the Securities Act. On August 5, 2009, defendants
filed motions to dismiss the consolidated complaint, and on September 27, 2010, the Court denied the motions to
dismiss.
On April 1, 2011, the lead plaintiff in the Consolidated 2008 Securities Litigation filed a motion to certify a class of
plaintiffs. On November 2, 2011, the Court terminated the motion without prejudice to an application for restoration.
On March 30, 2012, the lead plaintiff filed a renewed motion to certify a class of plaintiffs.
15. CONTINGENCIES, COMMITMENTS AND GUARANTEES
Legal Contingencies
AIG’s Subprime Exposure, AIGFP Credit Default Swap Portfolio and Related Matters
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 289
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
On April 26, 2013, the Court granted a motion for judgment on the pleadings brought by the defendants. The Court’s
order dismissed all claims against the outside auditors in their entirety, and it also reduced the scope of the
Securities Act claims against AIG and defendants other than the outside auditors.
On September 23, 2013, at the request of the parties, the Court terminated lead plaintiff’s motion for class
certification without prejudice to reinstatement.
On January 30, 2014, the Court stayed proceedings in the Consolidated 2008 Securities Litigation pending a decision
in Halliburton Co. v. Erica P. John Fund, Inc., No. 13-317 (U.S. Nov. 15, 2013), in which the U.S. Supreme Court will
consider the validity of, and what is needed to invoke or rebut, the fraud-on-the-market presumption of reliance
necessary for certification of a class of claims under Section 10(b) of the Exchange Act. We have accrued our
current estimate of probable loss with respect to this litigation.
Individual Securities Litigations. On November 18, 2011, January 20, 2012, June 11, 2012, August 8, 2012 and
May 17, 2013, September 13, 2013, and September 16, 2013, seven separate, though similar, securities actions
were filed in the Southern District of New York by the Kuwait Investment Authority, various Oppenheimer Funds,
eight foreign funds and investment entities led by the British Coal Staff Superannuation Scheme, Pacific Life Funds
and Pacific Select Fund, the Teachers Retirement System of the State of Illinois, 12 foreign funds and management
companies, and GIC Private Limited against AIG and certain directors and officers of AIG and AIGFP (the action by
the British Coal Staff Superannuation Scheme also names as defendants AIG’s outside auditors and the underwriters
of various securities offerings; the action by GIC Private Limited only names AIG as a defendant). The parties have
agreed to stay discovery in these actions until the earlier of (i) the Court deciding the motion for class certification
pending in the Consolidated 2008 Securities Litigation following 30 days’ notice from any party in their respective
action, (ii) the preliminary approval of any settlement in the Consolidated 2008 Securities Litigation, (iii) February 27,
2014, or (iv) such earlier or other date as the Court may order.
On August 6, 2013, two separate, though similar, securities actions were brought by 25 funds (collectively, the
Dow 30
SM
plaintiffs) and the Regents of the University of California, against AIG and certain officers of AIG and
AIGFP. The Dow 30
SM
action was filed in the Northern District of Illinois and the action filed by the Regents of the
University of California was filed in the Northern District of California. On February 18, 2014, the parties in each case
filed stipulations to transfer the Dow 30
SM
and the Regents of the University of California actions to the Southern
District of New York, which transfers are pending court approval. We have accrued our current estimate of probable
loss with respect to these litigations.
ERISA Actions — Southern District of New York. Between June 25, 2008, and November 25, 2008, AIG,
certain directors and officers of AIG, and members of AIG’s Retirement Board and Investment Committee were
named as defendants in eight purported class action complaints asserting claims on behalf of participants in certain
pension plans sponsored by AIG or its subsidiaries. The Court subsequently consolidated these eight actions as In re
American International Group, Inc. ERISA Litigation II. On September 4, 2012, lead plaintiffs’ counsel filed a second
consolidated amended complaint. The action purports to be brought as a class action under the Employee
Retirement Income Security Act of 1974, as amended (ERISA), on behalf of all participants in or beneficiaries of
certain benefit plans of AIG and its subsidiaries that offered shares of AIG Common Stock. In the second
consolidated amended complaint, plaintiffs allege, among other things, that the defendants breached their fiduciary
responsibilities to plan participants and their beneficiaries under ERISA, by continuing to offer the AIG Stock Fund as
an investment option in the plans after it allegedly became imprudent to do so. The alleged ERISA violations relate
to, among other things, the defendants’ purported failure to monitor and/or disclose certain matters, including the
Subprime Exposure Issues.
On November 20, 2012, defendants filed motions to dismiss the second consolidated amended complaint. On
May 24, 2013, the parties informed the Court of a mediation scheduled for August 21-22, 2013, and requested that
the Court defer consideration of defendants’ motions pending the outcome of the mediation. On the same day, the
Court granted the parties’ request, terminating defendants’ motions without prejudice to reinstatement on request
following the August mediation, if necessary. On August 26, 2013, the parties informed the Court that the mediation
did not result in a resolution of the action, and defendants requested that the Court reinstate their motions to dismiss.
On September 4, 2013, the Court reinstated defendants’ motions to dismiss.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 290
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
..................................................................................................................................................................................
As of February 20, 2014, discovery is ongoing, and the Court has not determined if a class action is appropriate or
the size or scope of any class. As a result, we are unable to reasonably estimate the possible loss or range of
losses, if any, arising from the litigation.
Canadian Securities Class Action — Ontario Superior Court of Justice. On November 12, 2008, an
application was filed in the Ontario Superior Court of Justice for leave to bring a purported class action against AIG,
AIGFP, certain directors and officers of AIG and Joseph Cassano, the former Chief Executive Officer of AIGFP,
pursuant to the Ontario Securities Act. If the Court grants the application, a class plaintiff will be permitted to file a
statement of claim against defendants. The proposed statement of claim would assert a class period of March 16,
2006 through September 16, 2008 and would allege that during this period defendants made false and misleading
statements and omissions in quarterly and annual reports and during oral presentations in violation of the Ontario
Securities Act.
On April 17, 2009, defendants filed a motion record in support of their motion to stay or dismiss for lack of jurisdiction
and forum non conveniens. On July 12, 2010, the Court adjourned a hearing on the motion pending a decision by
the Supreme Court of Canada in a pair of actions captioned Club Resorts Ltd. v. Van Breda 2012 SCC 17 (Van
Breda). On April 18, 2012, the Supreme Court of Canada clarified the standard for determining jurisdiction over
foreign and out-of-province defendants, such as AIG, by holding that a defendant must have some form of ‘‘actual,’’
as opposed to a merely ‘‘virtual,’’ presence to be deemed to be ‘‘doing business’’ in the jurisdiction. The Supreme
Court of Canada also suggested that in future cases, defendants may contest jurisdiction even when they are found
to be doing business in a Canadian jurisdiction if their business activities in the jurisdiction are unrelated to the
subject matter of the litigation. The matter has been stayed pending further developments in the Consolidated 2008
Securities Litigation.
In plaintiff’s proposed statement of claim, plaintiff alleged general and special damages of $500 million and punitive
damages of $50 million plus prejudgment interest or such other sums as the Court finds appropriate. As of
February 20, 2014, the Court has not determined whether it has jurisdiction or granted plaintiff’s application to file a
statement of claim, no merits discovery has occurred and the action has been stayed. As a result, we are unable to
reasonably estimate the possible loss or range of losses, if any, arising from the litigation.
On November 21, 2011, Starr International Company, Inc. (SICO) filed a complaint against the United States in the
United States Court of Federal Claims (the Court of Federal Claims), bringing claims, both individually and on behalf
of the classes defined below and derivatively on behalf of AIG (the SICO Treasury Action). The complaint challenges
the government’s assistance of AIG, pursuant to which AIG entered into a credit facility with the Federal Reserve
Bank of New York (the FRBNY, and such credit facility, the FRBNY Credit Facility) and the United States received an
approximately 80 percent ownership in AIG. The complaint alleges that the interest rate imposed on AIG and the
appropriation of approximately 80 percent of AIG’s equity was discriminatory, unprecedented, and inconsistent with
liquidity assistance offered by the government to other comparable firms at the time and violated the Equal
Protection, Due Process, and Takings Clauses of the U.S. Constitution.
On November 21, 2011, SICO also filed a second complaint in the Southern District of New York against the FRBNY
bringing claims, both individually and on behalf of all others similarly situated and derivatively on behalf of AIG (the
SICO New York Action). This complaint also challenges the government’s assistance of AIG, pursuant to which AIG
entered into the FRBNY Credit Facility and the United States received an approximately 80 percent ownership in
AIG. The complaint alleges that the FRBNY owed fiduciary duties to AIG as our controlling shareholder, and that the
FRBNY breached these fiduciary duties by ‘‘divert[ing] the rights and assets of AIG and its shareholders to itself and
favored third parties’’ through transactions involving Maiden Lane III LLC (ML III), an entity controlled by the FRBNY,
and by ‘‘participating in, and causing AIG’s officers and directors to participate in, the evasion of AIG’s existing
Common Stock shareholders’ right to approve the massive issuance of the new Common Shares required to
complete the government’s taking of a nearly 80 percent interest in the Common Stock of AIG.’’ SICO also alleges
that the ‘‘FRBNY has asserted that in exercising its control over, and acting on behalf of, AIG it did not act in an
official, governmental capacity or at the direction of the Department of Treasury,’’ but that ‘‘[t]o the extent the proof at
or prior to trial shows that the FRBNY did in fact act in a governmental capacity, or at the direction of the
Department of Treasury, the improper conduct . . . constitutes the discriminatory takings of the property and property
rights of AIG without due process or just compensation.’’
Starr International Litigation
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 291
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
..................................................................................................................................................................................
............................................................................................................................................................................................
On January 31, 2012 and February 1, 2012, amended complaints were filed in the Court of Federal Claims and the
Southern District of New York, respectively.
In rulings dated July 2, 2012 and September 17, 2012, the Court of Federal Claims largely denied the United States’
motion to dismiss in the SICO Treasury Action. Discovery is proceeding.
On November 19, 2012, the Southern District of New York granted the FRBNY’s motion to dismiss the SICO New
York Action. On December 21, 2012, SICO filed a notice of appeal in the United States Court of Appeals for the
Second Circuit. On January 29, 2014, the Second Circuit affirmed the Southern District of New York’s dismissal of
the SICO New York Action.
In both of the actions commenced by SICO, the only claims naming AIG as a party (as a nominal defendant) are
derivative claims on behalf of AIG. On September 21, 2012, SICO made a pre-litigation demand on our Board
demanding that we pursue the derivative claims in both actions or allow SICO to pursue the claims on our behalf. On
January 9, 2013, our Board unanimously refused SICO’s demand in its entirety and on January 23, 2013, counsel for
the Board sent a letter to counsel for SICO describing the process by which our Board considered and refused
SICO’s demand and stating the reasons for our Board’s determination.
On March 11, 2013, SICO filed a second amended complaint in the SICO Treasury Action alleging that its demand
was wrongfully refused. On June 26, 2013, the Court of Federal Claims granted AIG’s and the United States’ motions
to dismiss SICO’s derivative claims in the SICO Treasury Action and denied the United States’ motion to dismiss
SICO’s direct claims.
On March 11, 2013, the Court of Federal Claims in the SICO Treasury Action granted SICO’s motion for class
certification of two classes with respect to SICO’s non-derivative claims: (1) persons and entities who held shares of
AIG Common Stock on or before September 16, 2008 and who owned those shares on September 22, 2008; and
(2) persons and entities who owned shares of AIG Common Stock on June 30, 2009 and were eligible to vote those
shares at AIG’s June 30, 2009 annual meeting of shareholders. SICO has provided notice of class certification to
potential members of the classes, who, pursuant to a court order issued on April 25, 2013, had to return opt-in
consent forms by September 16, 2013 to participate in either class. On November 15, 2013, SICO informed the
Court that 286,892 holders of AIG Common Stock during the two class periods had opted into the classes.
While no longer a party to these actions, AIG understands that SICO is seeking significant damages.
The United States has alleged, as an affirmative defense in its answer, that AIG is obligated to indemnify the FRBNY
and its representatives, including the Federal Reserve Board of Governors and the United States (as the FRBNY’s
principal), for any recovery in the SICO Treasury Action, and seeks a contingent offset or recoupment for the value
of net operating loss benefits the United States alleges that we received as a result of the government’s assistance.
On November 8, 2013, the Court denied a motion by SICO to strike the United States’ affirmative defenses of
indemnification and contingent offset or recoupment.
The FRBNY has also requested indemnification in connection with the SICO New York Action from AIG under the
FRBNY Credit Facility and from ML III under the Master Investment and Credit Agreement and the Amended and
Restated Limited Liability Company Agreement of ML III.
On December 9, 2009, AIG Global Real Estate Investment Corporation’s (AIGGRE) former President, Kevin P.
Fitzpatrick, several entities he controls, and various other single purpose entities (the SPEs) filed a complaint in the
Supreme Court of the State of New York, New York County against AIG and AIGGRE (the Defendants). The case
was removed to the Southern District of New York, and an amended complaint was filed on March 8, 2010. The
amended complaint asserted that the Defendants violated fiduciary duties to Fitzpatrick and his controlled entities and
breached Fitzpatrick’s employment agreement and agreements of SPEs that purportedly entitled him to carried
interest arising out of the sale or disposition of certain real estate. Fitzpatrick has also brought derivative claims on
behalf of the SPEs, purporting to allege that the Defendants breached contractual and fiduciary duties in failing to
fund the SPEs with various amounts allegedly due under the SPE agreements. Fitzpatrick also requested injunctive
relief, an accounting, and that a receiver be appointed to manage the affairs of the SPEs. He further alleged that the
SPEs were subject to a constructive trust. Fitzpatrick also alleged a violation of ERISA relating to retirement benefits
purportedly due. Fitzpatrick claimed that he was owed damages totaling approximately $274 million (inclusive of
Employment Litigation against AIG and AIG Global Real Estate Investment Corporation
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I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
..................................................................................................................................................................................
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interest as of September 3, 2013). Fitzpatrick also sought a declaratory judgment that he would be entitled to
unspecified profit interests whenever AIG sold eight buildings (one of which AIG contends it never owned and
another of which AIG has already sold). In addition, Fitzpatrick claimed punitive damages for the alleged breaches of
fiduciary duties, and he applied to the Court on August 15, 2013 for attorneys’ fees in light of discovery sanctions
that the Court ordered against AIG in May.
On November 21, 2013, the parties executed a definitive and final settlement agreement. The matter was dismissed
with prejudice effective December 5, 2013. AIG has made or accrued for payments required under the settlement
agreement.
On February 25, 2010, a complaint was filed in the United States District Court for the Southern District of California
by two individuals (Relators) seeking to assert claims on behalf of the United States against AIG and certain other
defendants, including Goldman Sachs and Deutsche Bank, under the False Claims Act. Relators filed a first
amended complaint on September 30, 2010, adding certain additional defendants, including Bank of America and
Soci ´ et ´ e G´ en´ erale. The first amended complaint alleged that defendants engaged in fraudulent business practices in
respect of their activities in the over-the-counter market for collateralized debt obligations, and submitted false claims
to the United States in connection with the FRBNY Credit Facility and Maiden Lane II LLC (ML II) and ML III entities
(the Maiden Lane Interests) through, among other things, misrepresenting AIG’s ability and intent to repay amounts
drawn on the FRBNY Credit Facility, and misrepresenting the value of the securities that the Maiden Lane Interests
acquired from AIG and certain of its counterparties. The first amended complaint sought unspecified damages
pursuant to the False Claims Act in the amount of three times the damages allegedly sustained by the United States
as well as interest, attorneys’ fees, costs and expenses. The complaint and the first amended complaint were initially
filed and maintained under seal while the United States considered whether to intervene in the action. On or about
April 28, 2011, after the United States declined to intervene, the District Court lifted the seal, and Relators served the
first amended complaint on AIG on July 11, 2011. On April 19, 2013, the Court granted AIG’s motion to dismiss,
dismissing the first amended complaint in its entirety, without prejudice, giving the Relators the opportunity to file a
second amended complaint. On May 24, 2013, the Relators filed a second amended complaint, which attempted to
plead the same claims as the prior complaints and did not specify an amount of alleged damages. AIG and its
co-defendants filed motions to dismiss the second amended complaint on August 9, 2013. As a result of the absence
of a statement of damages and the early stage of this litigation, we are unable to reasonably estimate the possible
loss or range of losses, if any, arising from the litigation.
Caremark. AIG and certain of its subsidiaries have been named defendants in two putative class actions in state
court in Alabama that arise out of the 1999 settlement of class and derivative litigation involving Caremark Rx, Inc.
(Caremark). The plaintiffs in the second-filed action intervened in the first-filed action, and the second-filed action was
dismissed. An excess policy issued by a subsidiary of AIG with respect to the 1999 litigation was expressly stated to
be without limit of liability. In the current actions, plaintiffs allege that the judge approving the 1999 settlement was
misled as to the extent of available insurance coverage and would not have approved the settlement had he known
of the existence and/or unlimited nature of the excess policy. They further allege that AIG, its subsidiaries, and
Caremark are liable for fraud and suppression for misrepresenting and/or concealing the nature and extent of
coverage.
The complaints filed by the plaintiffs and the intervenors request compensatory damages for the 1999 class in the
amount of $3.2 billion, plus punitive damages. AIG and its subsidiaries deny the allegations of fraud and suppression,
assert that information concerning the excess policy was publicly disclosed months prior to the approval of the
settlement, that the claims are barred by the statute of limitations, and that the statute cannot be tolled in light of the
public disclosure of the excess coverage. The plaintiffs and intervenors, in turn, have asserted that the disclosure
was insufficient to inform them of the nature of the coverage and did not start the running of the statute of limitations.
On August 15, 2012, the trial court entered an order granting plaintiffs’ motion for class certification. AIG and the
other defendants have appealed that order to the Alabama Supreme Court, and the case in the trial court will be
False Claims Act Complaint
Litigation Matters Relating to AIG’s Insurance Operations
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 293
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
stayed until that appeal is resolved. General discovery has not commenced and AIG is unable to reasonably estimate
the possible loss or range of losses, if any, arising from the litigation.
Our life insurance companies have received and responded to industry-wide regulatory inquiries, including a multi-
state audit and market conduct examination covering compliance with unclaimed property laws and a directive from
the New York Insurance Department regarding claims settlement practices and other related state regulatory
inquiries. The inquiries concern the use of the Social Security Death Master File (SSDMF) to identify potential claims
not yet presented to us in the normal course of business. In connection with the resolution of the multi-state
examination relating to these matters in the third quarter of 2012, we paid an $11 million regulatory assessment to
the various state insurance departments that are parties to the regulatory settlement to defray costs of their
examinations and monitoring. Although we have enhanced our claims practices to include use of the SSDMF, it is
possible that the settlement remediation requirements, remaining inquiries, other regulatory activity or litigation could
result in the payment of additional amounts. AIG has also received a demand letter from a purported AIG
shareholder requesting that the Board of Directors investigate these matters, and bring appropriate legal proceedings
against any person identified by the investigation as engaging in misconduct. On January 8, 2014, the independent
members of our Board unanimously refused the demand in its entirety, and on February 19, 2014, counsel for the
Board sent a letter to counsel for the purported AIG shareholder describing the process by which our Board
considered and refused its demand. AIG believes it has adequately reserved for such claims, but there can be no
assurance that the ultimate cost will not vary, perhaps materially, from its estimate.
In connection with the previously disclosed multi-state examination of certain accident and health products, including
travel products, issued by National Union Fire Insurance Company of Pittsburgh, Pa. (National Union), Chartis Inc.,
on behalf of itself, National Union, and certain of Chartis Inc.’s insurance and non-insurance companies (collectively,
the Chartis parties) entered into a Regulatory Settlement Agreement with regulators from 50 U.S. jurisdictions
effective November 29, 2012. Under the agreement, and without admitting any liability for the issues raised in the
examination, the Chartis parties (i) paid a civil penalty of $50 million, (ii) entered into a corrective action plan
describing agreed-upon specific steps and standards for evaluating the Chartis parties’ ongoing compliance with laws
and regulations governing the issues identified in the examination, and (iii) agreed to pay a contingent fine in the
event that the Chartis parties fail to satisfy certain terms of the corrective action plan. National Union and other AIG
companies are also currently subject to civil litigation relating to the conduct of their accident and health business,
and may be subject to additional litigation relating to the conduct of such business from time to time in the ordinary
course. There can be no assurance that any regulatory action resulting from the issues identified will not have a
material adverse effect on our ongoing operations of the business subject to the agreement, or on similar business
written by other AIG carriers.
Industry-wide examinations conducted by the Minnesota Department of Insurance and the Department of Housing
and Urban Development (HUD) on captive reinsurance practices by lenders and mortgage insurance companies,
including UGC, have been ongoing for several years. In 2011, the Consumer Financial Protection Bureau (CFPB)
assumed responsibility for violations of the Real Estate Settlement Procedures Act from HUD, and assumed HUD’s
aforementioned ongoing investigation. In June 2012, the CFPB issued a Civil Investigative Demand (CID) to UGC
and other mortgage insurance companies, requesting the production of documents and answers to written questions.
The CFPB agreed to toll the deadlines associated with the CID pending discussions that could resolve the
investigation. UGC and the CFPB reached a settlement, entered on April 8, 2013 by the United States District Court
for the Southern District of Florida, where UGC consented to discontinue its remaining captive reinsurance practices
and to pay a civil monetary penalty of $4.5 million to the CFPB. The settlement includes a release for all liability
related to UGC’s captive reinsurance practices and resolves the CFPB’s investigation. UGC has received a proposed
consent order from the Minnesota Commissioner of Commerce (the MN Commissioner) which alleges that UGC
violated the Real Estate Settlement Procedures Act, the Fair Credit Reporting Act and other state and federal laws in
connection with its practices with captive reinsurance companies owned by lenders. UGC is engaged in discussions
with the MN Commissioner with respect to the terms of the proposed consent order. UGC cannot predict if or when a
consent order may be entered into or, if entered into, what the terms of the final consent order will be. UGC is also
currently subject to civil litigation relating to its placement of reinsurance with captives owned by lenders, and may be
subject to additional litigation relating to the conduct of such business from time to time in the ordinary course.
Regulatory and Related Matters
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 294
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
..................................................................................................................................................................................
AIG is responding to requests for information and documents by the New York Department of Financial Services
(NYDFS), the Manhattan District Attorney’s Office, and other governmental authorities relating to AIG’s formerly
wholly owned subsidiaries, ALICO and Delaware American Life Insurance Company (DelAm), and other related
business units, which were sold by AIG to MetLife in November 2010. The inquiries relate to whether ALICO, DelAm
and their representatives conducted insurance business in New York over an extended period of time without a
license, and whether certain representations by ALICO concerning its activities in New York were accurate. See
Guarantees — Asset Dispositions — ALICO Sale below.
Although we regularly review the adequacy of the established Liability for unpaid claims and claims adjustment
expense, there can be no assurance that our loss reserves will not develop adversely and have a material adverse
effect on our results of operations. Estimation of ultimate net losses, loss expenses and loss reserves is a complex
process, particularly for long-tail casualty lines of business, which include, but are not limited to, general liability,
commercial automobile liability, environmental, workers’ compensation, excess casualty and crisis management
coverages, insurance and risk management programs for large corporate customers and other customized structured
insurance products, as well as excess and umbrella liability, directors and officers and products liability. Generally,
actual historical loss development factors are used to project future loss development. However, there can be no
assurance that future loss development patterns will be the same as in the past. Moreover, any deviation in loss cost
trends or in loss development factors might not be identified for an extended period of time subsequent to the
recording of the initial loss reserve estimates for any accident year. There is the potential for reserves with respect to
a number of years to be significantly affected by changes in loss cost trends or loss development factors that were
relied upon in setting the reserves. These changes in loss cost trends or loss development factors could be
attributable to changes in global economic conditions, changes in the legal, regulatory, judicial and social
environment, changes in medical cost trends (inflation, intensity and utilization of medical services), underlying policy
pricing, terms and conditions, and claims handling practices.
We occupy leased space in many locations under various long-term leases and have entered into various leases
covering the long-term use of data processing equipment.
The following table presents the future minimum lease payments under operating leases:
2014 $ 348
2015 264
2016 217
2017 176
2018 127
Remaining years after 2018 345
Total $ 1,477
Rent expense was $414 million, $445 million and $482 million for the years ended December 31, 2013, 2012 and
2011, respectively. These amounts include $15 million, $16 million and $13 million attributable to businesses held for
sale for the years ended December 31, 2013, 2012 and 2011, respectively. The year ended December 31, 2011
includes $24 million for discontinued operations.
At December 31, 2013, ILFC had committed to purchase 335 new aircraft with aggregate estimated total remaining
payments of approximately $21.7 billion, which includes 12 aircraft through sale-leaseback transactions with airlines,
deliverable from 2014 through 2022. ILFC had also committed to purchase one used aircraft and nine new spare
engines. ILFC will be required to find lessees for any aircraft acquired and to arrange financing for a substantial
Other Contingencies
Liability for unpaid claims and claims adjustment expense
Commitments
Flight Equipment Related to Business Held for Sale
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 295
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
(in millions)
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
portion of the purchase price. These commitments are related to businesses held for sale. See Note 4 for a
discussion of the ILFC transaction.
The following table presents the minimum future rental income on noncancelable operating leases of flight
equipment that has been delivered:
2014 $ 3,648
2015 3,034
2016 2,474
2017 1,857
2018 1,194
Remaining years after 2018 2,328
Total $ 14,535
Flight equipment is leased under operating leases with remaining terms ranging from one to thirteen years.
In the normal course of business, we enter into commitments to invest in limited partnerships, private equity funds
and hedge funds and to purchase and develop real estate in the U.S. and abroad. These commitments totaled
$2.4 billion at December 31, 2013.
We have issued unconditional guarantees with respect to the prompt payment, when due, of all present and future
payment obligations and liabilities of AIG Financial Products Corp. and AIG Trading Group Inc. and their respective
subsidiaries (collectively, AIGFP) and of AIG Markets, Inc. (AIG Markets) arising from transactions entered into by
AIG Markets.
In connection with AIGFP’s business activities, AIGFP has issued, in a limited number of transactions, standby letters
of credit or similar facilities to equity investors in an amount equal to the termination value owing to the equity
investor by the lessee in the event of a lessee default (the equity termination value). The total amount outstanding at
December 31, 2013 was $240 million. In those transactions, AIGFP has agreed to pay such amount if the lessee
fails to pay. The amount payable by AIGFP is, in certain cases, partially offset by amounts payable under other
instruments typically equal to the present value of scheduled payments to be made by AIGFP. In the event that
AIGFP is required to make a payment to the equity investor, the lessee is unconditionally obligated to reimburse
AIGFP. To the extent that the equity investor is paid the equity termination value from the standby letter of credit
and/or other sources, including payments by the lessee, AIGFP takes an assignment of the equity investor’s rights
under the lease of the underlying property. Because the obligations of the lessee under the lease transactions are
generally economically defeased, lessee bankruptcy is the most likely circumstance in which AIGFP would be
required to pay without reimbursement.
We are subject to financial guarantees and indemnity arrangements in connection with the completed sales of
businesses pursuant to our asset disposition plan. The various arrangements may be triggered by, among other
things, declines in asset values, the occurrence of specified business contingencies, the realization of contingent
liabilities, developments in litigation or breaches of representations, warranties or covenants provided by us. These
arrangements are typically subject to various time limitations, defined by the contract or by operation of law, such as
statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in
other cases such limitations are not specified or are not applicable.
Other Commitments
Guarantees
Subsidiaries
Asset Dispositions
General
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 296
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
(in millions)
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
We are unable to develop a reasonable estimate of the maximum potential payout under certain of these
arrangements. Overall, we believe that it is unlikely we will have to make any material payments related to completed
sales under these arrangements, and no material liabilities related to these arrangements have been recorded in the
Consolidated Balance Sheets. See Note 4 herein for additional information on sales of businesses and asset
dispositions.
Pursuant to the terms of the ALICO stock purchase agreement, we agreed to provide MetLife with certain
indemnities. The most significant remaining indemnities include indemnifications related to specific product,
investment, litigation and other matters that are excluded from the general representations and warranties indemnity.
These indemnifications provide for various deductible amounts, which in certain cases are zero, and maximum
exposures, which in certain cases are unlimited, and may extend for various periods after the completion of the sale.
In connection with the indemnity obligations described above, approximately $19 million of proceeds from the sale of
ALICO remained in escrow as of December 31, 2013.
• See Note 10 for commitments and guarantees associated with VIEs.
• See Note 11 for disclosures about derivatives.
• See Note 26 for additional disclosures about guarantees of outstanding debt.
The following table presents a rollforward of outstanding shares:
Shares, beginning of year 400,000 300,000 100,000 – 147,124,067 (6,660,908) 140,463,159
Issuances – – – 20,000 100,799,653 – 100,799,653
Settlement of equity unit
stock purchase contracts – – – – 3,606,417 – 3,606,417
Shares exchanged (400,000) (300,000) (100,000) – 1,655,037,962 (11,678) 1,655,026,284
Shares purchased – – – – – (3,074,031) (3,074,031)
Shares cancelled – – – (20,000) – – –
Shares, end of year – – – – 1,906,568,099 (9,746,617) 1,896,821,482
Shares, beginning of year 1,906,568,099 (9,746,617) 1,896,821,482
Issuances 43,581 685,727 729,308
Shares purchased – (421,228,855) (421,228,855)
Shares, end of year 1,906,611,680 (430,289,745) 1,476,321,935
Shares, beginning of year
Shares issued
Shares repurchased
Shares, end of year
ALICO Sale
Other
16. EQUITY
Shares Outstanding
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 297
I T EM 8 / NOT E 1 5 . CONT I NGENCI ES, COMMI T MENT S AND GUARANT EES
Preferred Stock
Common Treasury Common Stock
AIG Series E AIG Series F AIG Series C AIG Series G Stock Issued Stock Outstanding
Year Ended December 31,
2011
Year Ended December 31,
2012
Year Ended December 31,
2013
1,906,611,680 (430,289,745) 1,476,321,935
34,009 24,778 58,787
– (12,317,399) (12,317,399)
1,906,645,689 (442,582,366) 1,464,063,323
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
On January 14, 2011, we completed the Recapitalization in which the Series C Perpetual, Convertible, Participating
Preferred Stock, par value $5.00 per share (the Series C Preferred Stock), Series E Fixed Rate Non-Cumulative
Perpetual Preferred Stock, par value $5.00 per share (the Series E Preferred Stock) and the Series F Preferred
Stock were exchanged for AIG Common Stock and the Series G Cumulative Mandatory Convertible Preferred Stock,
par value $5.00 per share (the Series G Preferred Stock) was issued. In connection with the Recapitalization, we
repaid all amounts outstanding under the FRBNY Credit Facility. In connection with the May 2011 AIG Common
Stock Offering (described below under AIG Common Stock Offerings by the Department of the Treasury and AIG
Purchases of AIG Common Stock in 2012), the Series G Preferred Stock was cancelled.
The following table presents the principal Consolidated Balance Sheet line items affected by the
Recapitalization on January 14, 2011, further described in Note 24 herein:
Other assets $ (24,297) $ (6,140)
(b)
$ – $ (30,437)
Other liabilities (325) – – (325)
Federal Reserve Bank of New York credit
facility (20,689) – – (20,689)
Redeemable noncontrolling nonvoting,
callable, junior preferred interests held by
Department of Treasury – 20,292 – 20,292
AIG shareholders’ equity:
Preferred stock
Series C preferred stock – – (23,000) (23,000)
Series E preferred stock – – (41,605) (41,605)
Series F preferred stock – 20,292 (7,378) (7,378)
(20,292)
Series G preferred stock; 20,000 shares
issued; liquidation value $0
(d)
– – – –
Common stock – – 4,138 4,138
Additional paid-in capital – – 67,845 67,845
Retained Earnings (3,283) – – (3,283)
Noncontrolling nonvoting, callable, junior and
senior preferred interests held by Federal
Reserve Bank of New York – (26,432) – (26,432)
Shares outstanding 1,655,037,962 1,655,037,962
(a) Repayment and Termination of the FRBNY Credit Facility — Funds held in escrow and included in Other assets from the AIA IPO and the
ALICO sale were used to repay the FRBNY Credit Facility. The adjustments to Other assets and Accumulated deficit reflects the write-off of the
unamortized portion of the net prepaid commitment fee asset.
(b) Repurchase and Exchange of SPV Preferred Interests — We used remaining net cash proceeds from the AIA IPO and the ALICO sale to pay
down a portion of the liquidation preference on the SPV Preferred Interests held by the FRBNY and drew down approximately $20.3 billion under
the Department of the Treasury Commitment (Series F) to repurchase the FRBNY’s remaining SPV Preferred Interests, which we then transferred to
the Department of the Treasury as part of the consideration for the exchange of the Series F Preferred Stock.
(c) Exchange of our Series C, E and F Preferred Stock for AIG Common Stock. The adjustments represent the exchange of Series C Preferred
Stock, Series E Preferred Stock, and Series F Preferred Stock for AIG Common Stock. As a result of the Recapitalization, the Department of the
Treasury acquired 1,655,037,962 shares of newly issued AIG Common Stock.
(d) In connection with the May 2011 AIG Common Stock offering and sale, the Series G Preferred Stock was cancelled.
Preferred Stock and Recapitalization
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 298
I T EM 8 / NOT E 1 6 . EQUI T Y
Effect of Recapitalization
Repayment Repurchase Exchange
and and Exchange of Preferred
Termination of SPV Stock for
Increase (Decrease) of FRBNY Preferred Common Total Effect of
(in millions) Credit Facility
(a)
Interests Stock
(c)
Recapitalization
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents a rollforward of preferred stock:
Balance, January 1, 2011 $ 41,605 $ 7,378 $ 23,000 $ 71,983
Shares Exchanged (41,605) (7,378) (23,000) (71,983)
Balance, December 31, 2011 $ – $ – $ – $ –
Payment of future dividends to our shareholders and repurchases of AIG Common Stock depends in part on the
regulatory framework that we are currently subject to and that will ultimately be applicable to us, including as a
savings and loan holding company, a systemically important financial institution under the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank) and a global systemically important insurer. In addition, dividends
are payable on AIG Common Stock only when, as and if declared by our Board of Directors in its discretion, from
funds legally available therefor. In considering whether to pay a dividend or purchase shares of AIG Common Stock,
our Board of Directors considers such matters as the performance of our businesses, our consolidated financial
condition, results of operations and liquidity, available capital, the existence of investment opportunities, contractual,
legal and regulatory restrictions on the payment of dividends by our subsidiaries, rating agency considerations,
including the potential effect on our debt ratings, and such other factors as our Board of Directors may deem
relevant.
AIG paid a dividend of $0.10 per share on AIG Common Stock on each of September 26, 2013 and December 19,
2013.
On August 1, 2013, our Board of Directors authorized the repurchase of shares of AIG Common Stock, with an
aggregate purchase price of up to $1.0 billion, from time to time in the open market, private purchases, through
forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise. The timing of such
repurchases will depend on market conditions, our financial condition, results of operations, liquidity and other
factors. For the year ended December 31, 2013, we repurchased approximately 12 million shares of AIG Common
Stock for an aggregate purchase price of approximately $597 million pursuant to this authorization.
Through registered public offerings, the Department of the Treasury has disposed of all of its ownership of AIG
Common Stock as of December 31, 2012, from ownership of approximately 92 percent (1.7 billion shares) prior to
the completion of the first registered public offering initiated by the Department of the Treasury as selling shareholder
in May 2011. During 2012, the Department of the Treasury, as selling shareholder, completed registered public
offerings of AIG Common Stock on March 13 (the March Offering), May 10 (the May Offering), August 8 (the August
Offering), September 14 (the September Offering) and December 14 (the December Offering). We participated as a
purchaser in the first four 2012 offerings. Each of these purchases was authorized by our Board of Directors.
Dividends and Repurchase of AIG Common Stock
Share Issuances and Purchases
AIG Common Stock Offerings by the Department of the Treasury and AIG Purchases of AIG Common
Stock in 2012
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 299
I T EM 8 / NOT E 1 6 . EQUI T Y
Total
Preferred
(in millions) AIG Series E AIG Series F AIG Series C Stock
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents certain information relating to these offerings:
May 2011 Offering $ 29.00 200,000,000 $ 5,800 – $ –
2012 Offerings:
March Offering 29.00 206,896,552 6,000 103,448,276 3,000
May Offering 30.50 188,524,589 5,750 65,573,770 2,000
August Offering 30.50 188,524,590 5,750 98,360,656 3,000
September Offering 32.50 636,923,075 20,700 153,846,153 5,000
December Offering 32.50 234,169,156 7,610 – –
1,655,037,962 $ 51,610 421,228,855 $ 13,000
*
Shares purchased by us in each of the 2012 offerings were purchased pursuant to AIG Board of Directors authorization. In connection with the
May 2011 Offering, AIG issued and sold 100 million shares of AIG Common Stock for aggregate net proceeds of approximately $2.9 billion.
In November 2011, our Board of Directors authorized the purchase of shares of AIG Common Stock, with an
aggregate purchase amount of up to $1 billion from time to time in the open market, through derivative or automatic
purchase contracts or otherwise. This authorization replaced all prior AIG Common Stock purchase authorizations.
We purchased a total of 3,074,031 shares of AIG Common Stock for approximately $70 million in 2011.
In 2011, we remarketed the three series of debentures (the Series B-1, B-2 and B-3 junior subordinated debentures)
included in the Equity Units. The Equity Units also included a stock purchase contract obligating the holder of an
Equity Unit to purchase, and obligating AIG to sell, a variable number of shares of AIG Common Stock for $25 per
share in cash. We purchased and retired all of the Series B-1, B-2 and B-3 junior subordinated debentures
representing $2.2 billion in aggregate principal and as of December 31, 2011, we had issued approximately
1.8 billion shares of AIG Common Stock in connection with the settlement of the stock purchase contracts underlying
the Equity Units.
AIG Common Stock Purchases in 2011
Equity Units
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 300
I T EM 8 / NOT E 1 6 . EQUI T Y
U.S. Treasury AIG
*
(dollars in millions, except share-price data) Price Shares Sold Amount Shares Purchased Amount
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents a rollforward of Accumulated other comprehensive income:
Balance, January 1, 2011 $ (634) $ 9,855 $ 553 $ (34) $ (869) $ 8,871
Change in unrealized appreciation of
investments 55 5,463 – – – 5,518
Change in deferred policy acquisition
costs adjustment and other 11 (641) – – – (630)
Change in future policy benefits
*
– (2,302) – – – (2,302)
Change in foreign currency translation
adjustments – – (97) – – (97)
Change in net derivative gains arising
from cash flow hedging activities – – – 51 – 51
Net actuarial loss – – – – (752) (752)
Prior service credit – – – – 387 387
Change attributable to divestitures and
deconsolidations 23 (3,643) (1,681) – 260 (5,041)
Deferred tax asset (liability) (163) (362) 786 (34) 35 262
Total other comprehensive income (loss) (74) (1,485) (992) 17 (70) (2,604)
Acquisition of noncontrolling interests – 45 66 – (18) 93
Noncontrolling interests 3 (160) 36 – – (121)
Balance, December 31, 2011 $ (711) $ 8,575 $ (409) $ (17) $ (957) $ 6,481
Change in unrealized appreciation of
investments 2,306 8,404 – – – 10,710
Change in deferred policy acquisition
costs adjustment and other (49) (840) – – – (889)
Change in future policy benefits (85) (432) – – – (517)
Change in foreign currency translation
adjustments – – (33) – – (33)
Change in net derivative gains arising
from cash flow hedging activities – – – 33 – 33
Net actuarial loss – – – – (273) (273)
Prior service credit – – – – (46) (46)
Deferred tax asset (liability) (886) (2,252) 33 (16) 232 (2,889)
Total other comprehensive income (loss) 1,286 4,880 – 17 (87) 6,096
Noncontrolling interests – 9 (6) – – 3
Balance, December 31, 2012
Change in unrealized appreciation
(depreciation) of investments
Change in deferred policy acquisition
costs adjustment and other
Change in future policy benefits
Change in foreign currency translation
adjustments
Net actuarial gain
Prior service cost
Deferred tax asset (liability)
Total other comprehensive income (loss)
Noncontrolling interests
Balance, December 31, 2013
* The adjustment to policyholder benefit reserves assumes that the unrealized appreciation on available for sale securities is actually realized and
that the proceeds are reinvested at lower yields.
Accumulated Other Comprehensive Income
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 301
I T EM 8 / NOT E 1 6 . EQUI T Y
Unrealized Appreciation
(Depreciation) of Fixed Net Derivative
Maturity Investments Unrealized Gains (Losses) Change in
on Which Other-Than- Appreciation Foreign Arising from Retirement
Temporary Credit (Depreciation) Currency Cash Flow Plan
Impairments of All Other Translation Hedging Liabilities
(in millions) Were Recognized Investments Adjustments Activities Adjustment Total
$ 575 $ 13,446 $ (403) $ – $ (1,044) $ 12,574
464 (14,069) – – – (13,605)
(127) 1,000 – – – 873
79 2,658 – – – 2,737
– – (454) – – (454)
– – – – 1,012 1,012
– – – – (51) (51)
(55) 3,738 (102) – (330) 3,251
361 (6,673) (556) – 631 (6,237)
– (16) (7) – – (23)
$ 936 $ 6,789 $ (952) $ – $ (413) $ 6,360
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the other comprehensive income (loss) reclassification adjustments for the
years ended December 31, 2013, 2012 and 2011:
Unrealized change arising during
period $ 84 $ 4,222 $ (97) $ (5) $ (440) $ 3,764
Less: Reclassification adjustments
included in net income (5) 5,345 1,681 (56) (335) 6,630
Total other comprehensive income
(loss), before income tax expense
(benefit) 89 (1,123) (1,778) 51 (105) (2,866)
Less: Income tax expense (benefit) 163 362 (786) 34 (35) (262)
Total other comprehensive income
(loss), net of income tax expense
(benefit) $ (74) $ (1,485) $ (992) $ 17 $ (70) $ (2,604)
Unrealized change arising during
period $ 2,236 $ 8,896 $ (33) $ (2) $ (406) $ 10,691
Less: Reclassification adjustments
included in net income 64 1,764 – (35) (87) 1,706
Total other comprehensive income
(loss), before income tax expense
(benefit) 2,172 7,132 (33) 33 (319) 8,985
Less: Income tax expense (benefit) 886 2,252 (33) 16 (232) 2,889
Total other comprehensive income
(loss), net of income tax expense
(benefit) $ 1,286 $ 4,880 $ – $ 17 $ (87) $ 6,096
Unrealized change arising during
period
Less: Reclassification adjustments
included in net income
Total other comprehensive income
(loss), before income tax expense
(benefit)
Less: Income tax expense (benefit)
Total other comprehensive income
(loss), net of income tax expense
(benefit)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 302
I T EM 8 / NOT E 1 6 . EQUI T Y
Unrealized Appreciation
(Depreciation) of Fixed Net Derivative
Maturity Investments Unrealized Gains (Losses) Change in
on Which Other-Than- Appreciation Foreign Arising from Retirement
Temporary Credit (Depreciation) Currency Cash Flow Plan
Impairments Were of All Other Translation Hedging Liabilities
(in millions) Recognized Investments Adjustments Activities Adjustment Total
December 31, 2011
December 31, 2012
December 31, 2013
$ 507 $ (9,556) $ (454) $ – $ 851 $ (8,652)
91 855 – – (110) 836
416 (10,411) (454) – 961 (9,488)
55 (3,738) 102 – 330 (3,251)
$ 361 $ (6,673) $ (556) $ – $ 631 $ (6,237)
..................................................................................................................................................................................
The following table presents the effect of the reclassification of significant items out of Accumulated other
comprehensive income on the respective line items in the Consolidated Statements of Income:
Unrealized appreciation (depreciation) of
fixed maturity investments on which
other-than-temporary credit impairments
were recognized
Investments Other realized capital gains
Total
Unrealized appreciation (depreciation) of all
other investments
Investments Other realized capital gains
Deferred acquisition costs adjustment Amortization of deferred acquisition costs
Future policy benefits Policyholder benefits and claims incurred
Total
Change in retirement plan liabilities
adjustment
Prior-service costs
*
Actuarial gains/(losses)
*
Total
Deferred tax asset (liability)
Total reclassifications for the period
* These Accumulated other comprehensive income components are included in the computation of net periodic pension cost. See Note 21 to the
Consolidated Financial Statements.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 303
I T EM 8 / NOT E 1 6 . EQUI T Y
Amount Reclassified
from Accumulated Other
Comprehensive Income
Year Ended Affected Line Item in the
(in millions) December 31, 2013 Consolidated Statements of Income
$ 91
91
2,452
(28)
(1,569)
855
47
(157)
(110)
–
$ 836
..................................................................................................................................................................................
The following table presents a rollforward of noncontrolling interests:
Balance, beginning of year
Contributions from noncontrolling interests
Distributions to noncontrolling interests
Consolidation (deconsolidation)
Comprehensive income (loss):
Net income
Other comprehensive income (loss), net of tax:
Unrealized losses on investments
Foreign currency translation adjustments
Total other comprehensive income (loss), net of tax
Total comprehensive income (loss)
Other
Balance, end of year
Balance, beginning of year $ 8,427 $ 96 $ 8,523 $ – $ 855 $ 855
Repayment to Department of the Treasury (8,635) – (8,635) – – –
Contributions from noncontrolling interests – 36 36 – (87) (87)
Distributions to noncontrolling interests – 68 68 – (27) (27)
Consolidation (deconsolidation) – – – – – –
Comprehensive income:
Net income 208 14 222 – 40 40
Other comprehensive income (loss), net of tax:
Unrealized gains on investments – 4 4 – 5 5
Foreign currency translation adjustments – – – – (6) (6)
Total other comprehensive income (loss), net of tax – 4 4 – (1) (1)
Total comprehensive income 208 18 226 – 39 39
Other – 116 116 – (113) (113)
Balance, end of year $ – $ 334 $ 334 $ – $ 667 $ 667
Balance, beginning of year $ – $ 434 $ 434 $ 26,358 $ 1,562 $ 27,920
Repurchase of SPV preferred interests in connection
with Recapitalization – – – (26,432) – (26,432)
Exchange of consideration for preferred stock in
connection with Recapitalization 20,292 – 20,292 – – –
Repayment to Department of the Treasury (12,425) – (12,425) – – –
Contributions from noncontrolling interests – – – – – –
Distributions to noncontrolling interests – (21) (21) – (8) (8)
Deconsolidation – (307) (307) – (123) (123)
Acquisition of noncontrolling interest – – – – (489) (489)
Comprehensive income (loss):
Net income (loss) 560 (8) 552 74 82 156
Other comprehensive income (loss), net of tax:
Unrealized losses on investments – (2) (2) – (155) (155)
Foreign currency translation adjustments – – – – 36 36
Total other comprehensive income (loss), net of tax – (2) (2) – (119) (119)
Total comprehensive income (loss) 560 (10) 550 74 (37) 37
Other – – – – (50) (50)
Balance, end of year $ 8,427 $ 96 $ 8,523 $ – $ 855 $ 855
17. NONCONTROLLING INTERESTS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 304
I T EM 8 / NOT E 1 7 . NONCONT ROL L I NG I NT EREST S
Redeemable Non-redeemable
Noncontrolling interests Noncontrolling interests
Held by
Department Held by
(in millions) of Treasury Other Total FRBNY Other Total
Year Ended December 31, 2013
$ – $ 334 $ 334 $ – $ 667 $ 667
– 48 48 – 33 33
– (167) (167) – (81) (81)
– (169) (169) – – –
– 2 2 – 5 5
– (16) (16) – – –
– (2) (2) – (5) (5)
– (18) (18) – (5) (5)
– (16) (16) – – –
– – – – (8) (8)
$ – $ 30 $ 30 $ – $ 611 $ 611
Year Ended December 31, 2012
Year Ended December 31, 2011
..................................................................................................................................................................................
............................................................................................................................................................................................
Nonvoting, callable, junior preferred interests held by the Department of Treasury represented preferred
interests in the AIA SPV and ALICO SPV. In connection with the execution of our orderly asset disposition plan, as
well as the repayment of the FRBNY Credit Facility, we transferred two of our wholly-owned businesses, AIA and
ALICO, to two newly created SPVs in exchange for all the common and preferred interests (the SPV Preferred
Interests) of those SPVs. On December 1, 2009, AIG transferred the SPV Preferred Interests to the FRBNY in
consideration for a $25 billion reduction of the outstanding loan balance and of the maximum amount of credit
available under the FRBNY Credit Facility and amended the terms of the FRBNY Credit Facility. As part of the
closing of the Recapitalization, the remaining SPV Preferred Interests, with an aggregate liquidation preference of
approximately $20.3 billion at January 14, 2011, were purchased from the FRBNY by AIG and transferred to the
Department of the Treasury as part of the consideration for the exchange of Series F Preferred Stock.
The common interests, which we retained, entitled us to 100 percent of the voting power of the SPVs. The voting
power allowed us to elect the boards of managers of the SPVs, who oversaw the management and operation of the
SPVs. Primarily due to the substantive participation rights of the SPV Preferred Interests, the SPVs were determined
to be VIEs. As the primary beneficiary of the SPVs, we consolidated the SPVs.
As a result of the closing of the Recapitalization on January 14, 2011, the SPV Preferred Interests held by the
Department of the Treasury were no longer considered permanent equity on our Consolidated Balance Sheets, and
were classified as redeemable noncontrolling interests. As part of the Recapitalization, we used approximately
$6.1 billion of the cash proceeds from the sale of ALICO to pay down a portion of the liquidation preference of the
SPV Preferred Interests. The liquidation preference of the SPV Preferred Interests was further reduced by
approximately $12.4 billion using proceeds from the sale of AIG Star, AIG Edison, Nan Shan, and MetLife securities
received in the sale of ALICO. During the first quarter of 2011, the remaining liquidation preference of the ALICO
SPV Preferred Interests was paid in full.
The SPV Preferred Interests were measured at fair value on their issuance date. The SPV Preferred Interests initially
had a liquidation preference of $25 billion and had a preferred return of five percent per year compounded quarterly
through September 22, 2013 and nine percent thereafter. The preferred return is reflected in Net income from
continuing operations attributable to noncontrolling interests — Nonvoting, callable, junior and senior preferred
interests in the Consolidated Statements of Income. The difference between the SPV Preferred Interests’ fair value
and the initial liquidation preference was amortized and included in Net income from continuing operations
attributable to noncontrolling interests — Nonvoting, callable, junior and senior preferred interests.
During the first quarter of 2012, the liquidation preference of the AIA SPV Preferred Interests was paid down in full.
Non-redeemable noncontrolling interests include the equity interests of third-party shareholders in our
consolidated subsidiaries and includes the preferred shareholders’ equity in outstanding preferred stock of ILFC, a
wholly-owned subsidiary that is held for sale at December 31, 2013 and 2012. The preferred stock in ILFC consists
of 1,000 shares of market auction preferred stock (MAPS) in two series (Series A and B) of 500 shares each. Each
of the MAPS shares has a liquidation value of $100,000 per share and is not convertible. Dividends on the MAPS
are accounted for as a reduction of the noncontrolling interest. The dividend rate, other than the initial rate, for each
dividend period for each series is reset approximately every seven weeks (49 days) on the basis of orders placed in
an auction, provided such auctions are able to occur. At December 31, 2013, there is no ability to conduct such
auctions; therefore, the MAPS certificate of determination dictates that a maximum applicable rate, as defined in the
certificate of determination, be paid on the MAPS. At December 31, 2013, the dividend rate for each of the Series A
and Series B MAPS was 0.50 percent and 0.36 percent respectively.
For the years ended December 31, 2013 and 2012, the Noncontrolling interests balance declined by $56 million and
$188 million, respectively, primarily caused by distributions to noncontrolling interest and, in 2012, an adjustment for
the reclassification of noncontrolling interest from permanent to temporary and acquisitions of noncontrolling interests.
In 2011, the decline in noncontrolling interest balance was primarily due to the acquisition of Fuji’s noncontrolling
interest.
Redeemable noncontrolling interest
Non-redeemable noncontrolling interests
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 305
I T EM 8 / NOT E 1 7 . NONCONT ROL L I NG I NT EREST S
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The basic EPS computation is based on the weighted average number of common shares outstanding, adjusted to
reflect all stock dividends and stock splits. The diluted EPS computation is based on those shares used in the basic
EPS computation plus shares that would have been outstanding assuming issuance of common shares for all dilutive
potential common shares outstanding and adjusted to reflect all stock dividends and stock splits.
In connection with the issuance of the Series C Preferred Stock, we applied the two-class method for calculating
EPS. The two-class method is an earnings allocation method for computing EPS when a company’s capital structure
includes either two or more classes of common stock or common stock and participating securities. This method
determines EPS based on dividends declared on common stock and participating securities (i.e., distributed
earnings), as well as participation rights of participating securities in any undistributed earnings. The Series C
Preferred Stock was retired as part of the Recapitalization on January 14, 2011. Subsequent to January 14, 2011,
we have not had any outstanding participating securities that would subject us to the two-class method.
The following table presents the computation of basic and diluted EPS:
Numerator for EPS:
Income from continuing operations $ 3,699 $ 18,863
Less: Net income from continuing operations attributable to
noncontrolling interests:
Nonvoting, callable, junior and senior preferred interests 208 634
Other 54 55
Total net income from continuing operations attributable to
noncontrolling interests 262 689
Deemed dividends to AIG Series E and F Preferred Stock – (812)
Income attributable to AIG common shareholders from
continuing operations 3,437 17,362
Income from discontinued operations 1 2,467
Less: Net income from discontinued operations attributable to
noncontrolling interests – 19
Income attributable to AIG common shareholders from
discontinued operations 1 2,448
Net income attributable to AIG common shareholders $ 3,438 $ 19,810
Denominator for EPS:
Weighted average shares outstanding – basic 1,687,197,038 1,799,385,757
Dilutive shares 29,603 72,740
Weighted average shares outstanding – diluted
*
1,687,226,641 1,799,458,497
Income per common share attributable to AIG:
Basic:
Income from continuing operations $ 2.04 $ 9.65
Income from discontinued operations $ – $ 1.36
Net Income attributable to AIG $ 2.04 $ 11.01
Diluted:
Income from continuing operations $ 2.04 $ 9.65
Income from discontinued operations $ – $ 1.36
Net Income attributable to AIG $ 2.04 $ 11.01
* Dilutive shares are calculated using the treasury stock method and include dilutive shares from share-based employee compensation plans, a
weighted average portion of the warrants issued to AIG shareholders as part of the recapitalization in January 2011 and a weighted average portion
of the warrants issued to the Department of the Treasury in 2009 that we repurchased in the first quarter of 2013. The number of shares excluded
from diluted shares outstanding were 38 million, 78 million and 76 million for the years ended December 31, 2013, 2012 and 2011, respectively,
because the effect of including those shares in the calculation would have been anti-dilutive.
Deemed dividends resulted from the Recapitalization and represent the excess of:
• the fair value of the consideration transferred to the Department of the Treasury, which consisted of 1,092,169,866
shares of AIG Common Stock, $20.2 billion of AIA SPV Preferred Interests and ALICO SPV Preferred Interests,
and a liability for a commitment by us to pay the Department of the Treasury’s costs to dispose of all of its shares,
over
• the carrying value of the Series E Preferred Stock and Series F Preferred Stock.
18. EARNINGS PER SHARE (EPS)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 306
I T EM 8 / NOT E 1 8 . EARNI NGS PER SHARE ( EPS)
Years Ended December 31,
(dollars in millions, except per share data) 2013 2012 2011
$ 9,008
–
7
7
–
9,001
84
–
84
$ 9,085
1,474,171,690
7,035,107
1,481,206,797
$ 6.11
$ 0.05
$ 6.16
$ 6.08
$ 0.05
$ 6.13
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents statutory capital and surplus and net income for our AIG Property Casualty and
AIG Life and Retirement operations in accordance with statutory accounting practices:
Years Ended December 31,
Statutory net income
(a)(b)(c)
:
Property Casualty $ 4,792 2,330
Life and Retirement 3,827 797
At December 31,
Statutory capital and surplus
(a)(b)
:
Property Casualty $ 42,208
Life and Retirement 14,683
Aggregate minimum required statutory capital and surplus
(b)
:
Domestic Property Casualty $ 5,800
Foreign Property Casualty 10,100
Life and Retirement 4,276
(a) Excludes discontinued operations and other divested businesses. Statutory capital and surplus and net income with respect to foreign operations
are as of November 30.
(b) The 2013 amounts are subject to change based on final statutory filings. The 2012 Property Casualty statutory net income and statutory capital
and surplus amounts increased by $937 million and $2.1 billion, respectively, compared to the amounts previously reported in our Annual Report on
Form 10-K for the year ended December 31, 2012, due to finalization of statutory filings.
(c) Property Casualty includes approximately $8.0 billion and $3.0 billion of recognized statutory gains related to legal entity simplification
(restructuring) in 2013 and 2012, respectively. These recognized gains were largely offset by reductions in unrealized gains; therefore, there was no
material impact to total surplus.
Our insurance subsidiaries file financial statements prepared in accordance with statutory accounting practices
prescribed or permitted by domestic and foreign insurance regulatory authorities. The principal differences between
statutory financial statements and financial statements prepared in accordance with U.S. GAAP for domestic
companies are that statutory financial statements do not reflect DAC, some bond portfolios may be carried at
amortized cost, investment impairments are determined in accordance with statutory accounting practices, assets and
liabilities are presented net of reinsurance, policyholder liabilities are generally valued using more conservative
assumptions and certain assets are non-admitted.
At December 31, 2013 and 2012, the aggregate minimum required statutory capital and surplus of our domestic AIG
Property Casualty insurance subsidiaries was approximately $5.4 billion and $5.8 billion, respectively. At
December 31, 2013 and 2012, the aggregate minimum required statutory (or equivalent) capital and surplus of our
foreign AIG Property Casualty foreign insurance subsidiaries was approximately $8.8 billion and $10.1 billion,
respectively. Capital and surplus requirements of our foreign subsidiaries differ from those prescribed in the U.S., and
can vary significantly by jurisdiction. At both December 31, 2013 and 2012, the aggregate minimum required
statutory capital and surplus of our AIG Life and Retirement insurance subsidiaries was approximately $4.3 billion.
For domestic insurance subsidiaries, minimum required statutory capital and surplus is based on the greater of the
RBC level that would trigger regulatory action or minimum requirements per state insurance regulation. At both
December 31, 2013 and 2012, all domestic and foreign insurance subsidiaries individually exceeded the minimum
required statutory capital and surplus requirements and all domestic insurance subsidiaries individually exceeded
RBC minimum required levels.
At December 31, 2013 and 2012, the use of prescribed or permitted statutory accounting practices by our AIG
Property Casualty and AIG Life and Retirement insurance subsidiaries did not result in reported statutory surplus or
risk-based capital that is significantly different from the statutory surplus or risk-based capital that would have been
reported had National Association of Insurance Commissioners’ statutory accounting practices or the prescribed
regulatory accounting practices of their respective foreign regulatory authority been followed in all respects for
domestic and foreign insurance entities. As described further in Note 12, our domestic Property Casualty insurance
subsidiaries domiciled in New York and Pennsylvania discount non tabular workers’ compensation reserves based on
the prescribed or approved regulations in each of those states. While these practices differ from applicable National
Association of Insurance Commissioners’ statutory accounting practices, such practices do not have a material
impact on AIG Property Casualty’s statutory surplus and statutory net income or risk based capital.
19. STATUTORY FINANCIAL DATA AND RESTRICTIONS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 307
I T EM 8 / NOT E 1 9 . ST AT UT ORY F I NANCI AL DAT A AND REST RI CT I ONS
(in millions) 2013 2012 2011
$ 12,441
3,741
$ 39,988
14,329
$ 5,425
8,821
4,336
..................................................................................................................................................................................
............................................................................................................................................................................................
The NAIC Model Regulation ‘‘Valuation of Life Insurance Policies’’ (Regulation XXX) requires U.S. life insurers to
establish additional statutory reserves for term life insurance policies with long-term premium guarantees and
universal life policies with secondary guarantees (ULSGs). In addition, NAIC Actuarial Guideline 38 (Guideline AXXX)
clarifies the application of Regulation XXX as to these guarantees, including certain ULSGs.
On September 11, 2013, the NYDFS announced it would no longer implement a modified principles-based reserving
approach for certain in-force ULSGs, which had been developed by a Joint Working Group of the NAIC. As a result,
New York-licensed insurers are required to record additional reserves on a statutory basis for ULSG products issued
between July 1, 2005 and December 31, 2012. The decision from the NYDFS does not affect reserves for products
issued on or after January 1, 2013. AIG Life and Retirement does not currently offer individual level term life
insurance or ULSGs in the state of New York. AIG Life and Retirement recorded approximately $200 million of
additional reserves on a statutory basis at December 31, 2013 to fully comply with the NYDFS decision. Our AIG Life
and Retirement insurance subsidiaries, including our New York-domiciled insurance subsidiary, continue to maintain
capital well in excess of regulatory minimum required capital and surplus levels. In 2013, our AIG Life and
Retirement New York-domiciled insurance subsidiary paid dividends totaling $404 million, which were ultimately
distributed to AIG Parent.
AIG Life and Retirement manages the capital impact on its life insurers of statutory reserve requirements under
Regulation XXX and Guideline AXXX through intercompany reinsurance transactions. The affiliated life insurers
providing reinsurance capacity to AIG Life and Retirement are fully licensed insurance companies and are not formed
under captive insurance laws. Under one of these intercompany reinsurance arrangements, certain Regulation XXX
and Guideline AXXX reserves related to new and in-force business are ceded to an affiliated U.S. life insurer, which
is a licensed life insurer in the state of Missouri and an accredited reinsurer in the state of Texas. As an accredited
reinsurer, this affiliated life insurer is not required to post any collateral such as letters of credit or assets in trust.
Under the other intercompany reinsurance arrangement, certain Regulation XXX and Guideline AXXX reserves
related to a closed block of in-force business are ceded to an affiliated off-shore life insurer, which is licensed as a
class E insurer under Bermuda law. Bermuda law permits the off-shore life insurer to record an asset that effectively
reduces the statutory reserves for the assumed reinsurance to the level that would be required under U.S. GAAP.
Letters of credit are used to support the credit for reinsurance provided by the affiliated off-shore life insurer. The
letters of credit are subject to reimbursement by AIG Parent in the event of a drawdown. See Note 8 for additional
information regarding these letters of credit.
Payments of dividends to us by our insurance subsidiaries are subject to certain restrictions imposed by regulatory
authorities. With respect to our domestic insurance subsidiaries, the payment of any dividend requires formal notice
to the insurance department in which the particular insurance subsidiary is domiciled. For example, unless permitted
by the Superintendent of Financial Services, property casualty companies domiciled in New York generally may not
pay dividends to shareholders that, in any 12-month period, exceed the lesser of 10 percent of such company’s
statutory policyholders’ surplus or 100 percent of its ‘‘adjusted net investment income,’’ for the previous year, as
defined. Generally, less severe restrictions applicable to both property casualty and life insurance companies exist in
most of the other states in which our insurance subsidiaries are domiciled. Under the laws of many states, an insurer
may pay a dividend without prior approval of the insurance regulator when the amount of the dividend is below
certain regulatory thresholds. Other foreign jurisdictions may restrict the ability of our foreign insurance subsidiaries to
pay dividends. Various other regulatory restrictions also limit cash loans and advances to us by our subsidiaries.
Largely as a result of these restrictions, approximately $47.6 billion of the statutory capital and surplus of our
consolidated insurance subsidiaries were restricted from transfer to AIG Parent without prior approval of state
insurance regulators at December 31, 2013.
To our knowledge, no AIG insurance company is currently on any regulatory or similar ‘‘watch list’’ with regard to
solvency.
Our ability to pay dividends has not been subject to any contractual restrictions since the cancellation of our Series G
Preferred Stock in May 2011. See Note 16 herein for additional information about our ability to pay dividends to our
shareholders.
Subsidiary Dividend Restrictions
Parent Company Dividend Restrictions
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 308
I T EM 8 / NOT E 1 9 . ST AT UT ORY F I NANCI AL DAT A AND REST RI CT I ONS
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents our share-based compensation expense:
Share-based compensation expense – pre-tax
*
$ 286 $ (16)
Share-based compensation expense – after tax 186 (10)
*
For the year ended December 31, 2013, $315 million of pre-tax compensation expense and substantially all of prior years’ compensation
expense were attributed to unsettled liability-classified awards, the values of which are based on our share price at the reporting date. Our share
price was $51.05, $35.30 and $23.20 at December 31, 2013, 2012 and 2011, respectively, and is the primary driver of the volatility in share-based
compensation expense.
During 2013, our employees were issued awards under the AIG 2010 Stock Incentive Plan, as amended (2010 Plan),
and the AIG 2013 Omnibus Incentive Plan (2013 Plan). The 2013 Plan replaced the 2010 Plan as of May 15, 2013,
but does not affect the terms or conditions of any award issued under the 2010 Plan, and is currently the only plan
under which share-based awards can be made.
As of December 31, 2013, the Starr International Company, Inc. Deferred Compensation Profit Participation Plans
(the SICO Plans) are the only legacy plans for which awards remain unvested.
Our share-settled awards are settled with newly-issued shares of AIG Common Stock. Share awards made by SICO
are settled by SICO.
The 2013 Plan was adopted at the 2013 Annual Meeting of Shareholders and provides for the grants of share-based
awards to our employees and non-employee directors. The total number of shares that may be granted under the
2013 Plan (the reserve) is the sum of 1) 45 million shares of AIG Common Stock, plus 2) the number of authorized
shares that remained available for issuance under the 2010 Plan when the 2013 Plan became effective, plus 3) the
number of shares of AIG Common Stock relating to outstanding awards under the 2010 Plan at the time the 2013
Plan became effective that subsequently are forfeited, expired, terminated or otherwise lapse or are settled in cash.
Each share-based unit granted under the 2013 Plan reduces the number of shares available for future grants by one
share. However, shares with respect to awards that are forfeited, expired or settled for cash, and shares withheld for
taxes on awards (other than options and stock appreciation rights (SARs) awards) are returned to the reserve.
During 2013, performance share units (PSUs) and deferred stock units (DSUs) were granted under the 2013 Plan
and 55,618,617 shares are available for future grants as of December 31, 2013. PSUs were issued for off cycle
grants, which are made from time to time during the year as sign-on awards to new hires or as a result of a change
in employee status.
The 2010 Plan was adopted at the 2010 Annual Meeting of Shareholders. The total number of shares of AIG
Common Stock that could be granted under the 2010 Plan was 60 million. During 2013, 2012 and 2011, we granted
PSUs, DSUs, restricted stock units (RSUs), restricted stock and SARs under the 2010 Plan. Each PSU, DSU, RSU,
SAR and restricted stock awarded reduced the number of shares available for future grants by one share.
Subsequent to the adoption of the 2013 Plan in May 2013, no additional grants were made under the 2010 Plan.
The 2013 Long Term Incentive Plan (2013 LTIP), adopted in March 2013, provides for the grant of performance
share units to certain employees, including our senior executive officers and other highly compensated employees.
Each recipient of an award is granted a number of PSUs (the target) that provides the opportunity to earn shares of
20. SHARE-BASED AND OTHER COMPENSATION PLANS
Employee Plans
AIG 2013 Omnibus Incentive Plan
AIG 2010 Stock Incentive Plan
Share-settled Awards
AIG 2013 Long Term Incentive Plan
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 309
I T EM 8 / NOT E 2 0 . SHARE- BASED AND OT HER COMPENSAT I ON PL ANS
Years Ended December 31,
(in millions) 2013 2012 2011
$ 457
297
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AIG Common Stock based on AIG achieving specified performance measures at the end of the three-year
performance period. These performance measures are based on AIG’s total shareholder return (TSR) and growth in
tangible book value per share (TBVPS) (excluding Accumulated other comprehensive income) relative to a specified
peer group, and are weighted at 50 percent each. The actual number of PSUs earned can vary from zero to
150 percent of the target depending on AIG’s performance relative to the peer group. Vesting occurs in three equal
installments beginning on January 1 of the year immediately following the end of the performance period and
January 1 of each of the next two years, resulting in a graded vesting schedule of up to five years. Dividends do not
accrue on awards until the shares are delivered. Recipients must be employed at each vesting date to be entitled to
share delivery, except upon the occurrence of an accelerated vesting event, such as an involuntary termination
without cause, disability, retirement or retirement eligibility during the vesting period. Awards made under the 2013
LTIP prior to May 2013 were issued under the 2010 Plan; awards made subsequently were issued under the 2013
Plan.
The SICO Plans provide that shares of AIG Common Stock currently held by SICO are set aside for the benefit of
the participant and distributed upon retirement. The SICO Board of Directors currently may permit an early payout of
shares under certain circumstances. Prior to payout, the participant is not entitled to vote, dispose of or receive
dividends with respect to such shares, and shares are subject to forfeiture under certain conditions, including but not
limited to the participant’s termination of employment with us prior to normal retirement age. A significant portion of
the awards under the SICO Plans vest the year after the participant reaches age 65, provided that the participant
remains employed by us through age 65. The portion of the awards for which early payout is available vests on the
applicable payout date.
SICO Plan awards issued in the form of restricted stock were valued based on the closing price of AIG’s Common
Stock on the grant date. Although none of the costs of the various benefits provided under the SICO Plans have
been paid by us, we have recorded compensation expense for the deferred compensation amounts payable to our
employees by SICO, with an offsetting amount credited to Additional paid-in capital reflecting amounts deemed
contributed by SICO.
Our non-employee directors, who serve on AIG’s Board of Directors, receive share-based compensation in the form
of deferred stock units (DSUs) with delivery deferred until retirement from the Board. In 2013, we granted to
non-employee directors 25,735 DSUs under the 2013 Plan, and in 2012 and 2011, we granted 19,434 and 21,203
DSUs, respectively, under the 2010 Plan.
The fair value of a PSU that will be earned based on AIG’s achieving growth in TBVPS relative to a specified peer
group was based on the closing price of AIG Common Stock on the grant date; off cycle grants issued after
August 1, 2013 were discounted because PSUs are not entitled to dividends during the vesting periods. The fair
value of a PSU that will be earned based on AIG’s TSR relative to a specified peer group was determined on the
grant date using a Monte Carlo simulation.
The following table presents the assumptions used to estimate the fair value of PSUs based on AIG’s TSR:
Expected dividend yield
(a)
0.38%
Expected volatility
(b)
30.79%
Risk-free interest rate
(c)
0.50%
(a) The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.
(b) The expected volatility is equal to the interpolated value between the implied volatilities of actively traded stock options with maturities that are
closest to the PSU term to maturity.
(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and maturity date that is
assumed to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the
valuation date.
SICO Plans
Non-Employee Plans
Performance Share Unit Valuation
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 310
I T EM 8 / NOT E 2 0 . SHARE- BASED AND OT HER COMPENSAT I ON PL ANS
2013
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table summarizes outstanding share-settled awards
*
:
Unvested, beginning of year 39,249 119,944 $ 48.29 $ 1,197.96
Granted 8,451,368 – 36.50 –
Vested (2,910,475) (17,977) 36.00 524.12
Forfeited (384,734) (16,018) 35.73 1,178.71
Unvested, end of year 5,195,408 85,949 $ 36.92 $ 1,195.05
*
Excludes DSUs and options, which are discussed under the Non-Employee Plans and Stock Options sections, respectively.
The total unrecognized compensation cost (net of expected forfeitures) for the unvested PSUs and unvested
restricted stock were $121 million and $30 million, respectively, and the weighted-average and expected period of
years over which those costs are expected to be recognized are 1.38 years and 4 years for the PSUs, and
5.17 years and 26 years for the restricted stock, respectively.
Options granted under the AIG 2007 Stock Incentive Plan and the 1999 Stock Option Plan generally vested over four
years (25 percent vesting per year) and expire 10 years from the date of grant. All outstanding options are vested
and out of the money at December 31, 2013. There were no stock options granted since 2008 and no shares were
issued in 2013 in connection with previous exercises of options with delivery deferred until 2013. The aggregate
intrinsic value for all unexercised options is zero.
The following table provides a roll forward of stock option activity:
Options:
Exercisable at beginning of year 514,245 $ 1,129.42 2.49
Expired (224,455) $ 1,149.34
Exercisable at end of year 289,790 $ 1,113.99 2.58
During the period we were subject to Troubled Asset Relief Program (TARP) restrictions (under the purview of the
Special Master), we issued various cash-settled share-based grants, including RSUs, linked to AIG Common Stock,
to certain of our most highly compensated employees and executive officers. After the repayment of our TARP
obligations in December 2012, we no longer issue awards under these plans.
Share-based cash-settled awards are recorded as liabilities until the final payout is made or the award is replaced
with a stock-settled award. Compensation expense is recognized over the vesting periods, unless the award is fully
vested on the grant date in which case the entire award value is immediately recognized as expense.
Unlike stock-settled awards, which generally have a fixed grant-date fair value (unless the award is subsequently
modified), the fair value of unsettled or unvested cash-settled awards is remeasured at the end of each reporting
period based on the change in fair value of one share of AIG Common Stock. The liability and corresponding
expense are adjusted accordingly until the award is settled.
Stock Options
Cash-settled Awards
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 311
I T EM 8 / NOT E 2 0 . SHARE- BASED AND OT HER COMPENSAT I ON PL ANS
Weighted Average
Number of PSUs/Shares Grant-Date Fair Value
As of or for the Year AIG SICO AIG SICO
Ended December 31, 2013 Plans Plans Plans Plans
Weighted
Average
Remaining
Weighted Average Contractual
As of or for the Year Ended December 31, 2013 Shares Exercise Price Life
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In 2009, we established a program of regular grants of vested stock or units that is generally referred to as ‘‘Stock
Salary.’’ Stock Salary is determined as a dollar amount through the date that salary is earned and accrued at the
same time or times as the salary would otherwise be paid in cash. Stock Salary was granted to any individual
qualifying as a senior executive officer or one of our next twenty most highly compensated employees (the Top 25).
Stock Salary for a Top 25 employee (other than our CEO) is settled in three equal installments on the first, second
and third anniversary of grant. Stock Salary was also granted to individuals qualifying as an executive officer or one
of our next 75 most highly compensated employees (Top 26-100), and is generally settled on either the first or third
anniversary of grant in accordance with the terms of an employee’s award. Stock Salary grants were generally
issued in the form of immediately vested RSUs, and the number of units awarded was based on the value of AIG
Common Stock on the grant date.
RSUs are settled in cash based on the value of AIG Common Stock on the applicable settlement date. During 2013,
2012 and 2011, we paid $180 million, $111 million and $35 million, respectively, to settle awards. For those awards
that were vested and unsettled at the end of each year, we recognized charges of $73 million and $173 million in
compensation expense for the years ended December 31, 2013 and 2012, respectively, to reflect fluctuations in the
value of AIG Common Stock. At December 31, 2013, the number of vested but unsettled RSUs totaled 2,433,501.
TARP RSUs awarded require the achievement of objective performance metrics as a condition to entitlement. When
vested and transferable, an award would be settled in 25 percent installments in proportion to the settlement of our
TARP obligations. Prior to December 2011, TARP RSUs granted to the Top 25 (other than our CEO) vested on the
third anniversary of grant, while TARP RSUs granted to the Top 26-100 vested on the second anniversary of grant
and are subject to transferability restrictions for an additional year after vesting. TARP RSUs granted December 2011
and thereafter vest in two 50 percent installments on the second and third anniversary of the date of grant. With the
repayment of our TARP obligations in December 2012, 100 percent of outstanding TARP RSUs will vest when the
service requirements are satisfied.
Fully-vested performance-based RSUs were issued to certain employees in the Top 26-100 in March 2011. The
RSUs will be cash-settled three years after the date of issuance based on the value of AIG Common Stock on each
settlement date. For the vested and unsettled awards at year-end, we recognized charges of $3 million, $2 million,
and a reduction of $2 million in compensation expense for the years ended December 31, 2013, 2012, 2011,
respectively, to reflect fluctuations in the value of AIG Common Stock.
During 2013 and 2012, cash-settled performance-based RSUs granted and issued in March 2013 and 2012 to
certain highly compensated employees will vest in two 50 percent installments on the second and third anniversary of
the date of grant.
Certain employees were offered the opportunity to receive additional compensation in the form of cash and
cash-settled SARs for the 2009, 2010 and 2011 LTIP or 100 percent cash for the 2012 LTIP if certain performance
measures were met. The ultimate value of these awards was contingent on AIG achieving performance measures
over a two-year performance period and such value could range from zero to twice the target amount. Subsequent to
the performance period, the earned awards are subject to an additional time-vesting period. This results in a graded
vesting schedule for the cash portion of up to two years, while the SARs portion cliff-vests two years after the
performance period ends.
The cash portion of the awards expensed in 2013, 2012 and 2011 totaled approximately $249 million, $189 million,
and $199 million, respectively.
Restricted Stock Units
Stock Salary Awards
TARP RSUs
Other RSUs
Long Term Incentive Plans
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AIG 2013 Form 10-K 312
I T EM 8 / NOT E 2 0 . SHARE- BASED AND OT HER COMPENSAT I ON PL ANS
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The following table presents a roll forward of SARs and cash-settled RSUs (excluding stock salary) as well
as the related expenses:
Unvested, beginning of year 686,290 1,889,434 12,356,573
Granted
(a)
1,149,626 – 1,738,691
Vested
(b)
(149,346) (824,098) (4,400,053)
Forfeited (122,883) (207,757) (728,965)
Unvested, end of year
(c)
1,563,687 857,579 8,966,246
Net compensation expense for the year (in millions) $ 43 $ 37 $ 154
(a) Represents additional SARs earned as a result of the completion of the performance period for the 2011 LTIP.
(b) Also includes SARs for which vesting was accelerated for employees who became retirement eligible or were deceased.
(c) Includes 4,773,976 SARs from the 2010 LTIP that vested on January 1, 2014.
The total unrecognized compensation cost (net of expected forfeitures) related to unvested SARs and
cash-settled RSUs (excluding stock salary) and the weighted-average periods over which those costs are
expected to be recognized are as follows:
SARs $ 14 0.62 1
TARP RSUs 15 0.76 2
RSUs 41 0.95 2
We use a Monte Carlo simulation approach, which incorporates a range of input parameters that is consistently
applied, to determine the fair value of SARs at each reporting period.
The table below presents the assumptions used to estimate the fair value of SARs:
Expected dividend yield
(a)
1.08%
Expected volatility
(b)
29.45 – 49.22%
Weighted-average volatility 30.04%
Risk-free interest rate
(c)
0.31%
Expected term
(d)
1.0 year
(a) The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.
(b) The expected volatilities are the implied volatilities with the nearest maturity and strike price as of the valuation date from actively traded stock
options on AIG Common Stock.
(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and maturity date that is
assumed to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the
valuation date.
(d) The term to maturity is specified in the agreement for each SAR grant.
Stock Appreciation Rights Valuation
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AIG 2013 Form 10-K 313
I T EM 8 / NOT E 2 0 . SHARE- BASED AND OT HER COMPENSAT I ON PL ANS
Number of Units
Year Ended December 31, 2013 Other RSUs TARP RSUs SARs
Unrecognized Weighted- Expected
At December 31, 2013 Compensation Average Period Period
(in millions) Cost (years) (years)
2013
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We offer various defined benefit plans to eligible employees.
The U.S. AIG Retirement Plan (the qualified plan) is a noncontributory defined benefit plan, which is subject to the
provisions of ERISA. U.S. salaried employees who are employed by a participating company and who have
completed 12 months of continuous service are eligible to participate in the plan. Effective April 1, 2012, the qualified
plan was converted to a cash balance formula comprised of pay credits based on six percent of a plan participant’s
annual compensation (subject to IRS limitations) and annual interest credits. In addition, employees can take their
vested benefits when they leave AIG as a lump sum or an annuity option after completing at least three years of
service. However, employees satisfying certain age and service requirements (i.e. grandfathered employees) remain
covered under the old plan formula, which is based upon a percentage of final average compensation multiplied by
years of credited service, up to 44 years. Grandfathered employees will receive the higher of the benefits under the
cash balance or final average pay formula at retirement. Non-U.S. defined benefit plans are generally either based
on the employee’s years of credited service and compensation in the years preceding retirement or on points
accumulated based on the employee’s job grade and other factors during each year of service.
We also sponsor several non-qualified unfunded defined benefit plans for certain employees, including key
executives, designed to supplement pension benefits provided by the qualified plan. These include the AIG
Non-Qualified Retirement Income Plan (AIG NQRIP), which provides a benefit equal to the reduction in benefits
under the qualified plan as a result of federal tax limitations on compensation and benefits payable, and the
Supplemental Executive Retirement Plan (Supplemental), which provides additional retirement benefits to designated
executives. Under the Supplemental Plan, an annual benefit accrues at a percentage of final average pay multiplied
by each year of credited service, not greater than 60 percent of final average pay, reduced by any benefits from the
current and any predecessor retirement plans (including the AIG NQRIP Plan), Social Security, and any benefits
accrued under a Company sponsored foreign deferred compensation plan.
We also provide postretirement medical care and life insurance benefits in the U.S. and in certain non-U.S. countries.
Eligibility in the various plans is generally based upon completion of a specified period of eligible service and
attaining a specified age. Overseas, benefits vary by geographic location.
U.S. postretirement medical and life insurance benefits are based upon the employee attaining the age of 55 and
having a minimum of ten years of service. Eligible employees who have medical coverage can enroll in retiree
medical upon termination. Medical benefits are contributory, while the life insurance benefits are generally
non-contributory. Retiree medical contributions vary from none for pre-1989 retirees to actual premium payments
reduced by certain subsidies for post-1992 retirees. These contributions are subject to adjustment annually. Other
cost sharing features of the medical plan include deductibles, coinsurance and Medicare coordination. Effective
April 1, 2012, the retiree medical employer subsidy for the AIG Postretirement plan was eliminated for employees
who were not grandfathered. Additionally, new employees hired after December 31, 2012 are not eligible for retiree
life insurance.
The following table presents the funded status of the plans reconciled to the amount reported in the
Consolidated Balance Sheets. The measurement date for most of the non-U.S. defined benefit pension and
21. EMPLOYEE BENEFITS
Pension Plans
Postretirement Plans
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AIG 2013 Form 10-K 314
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
..................................................................................................................................................................................
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postretirement plans is November 30, consistent with the fiscal year end of the sponsoring companies. For
all other plans, measurement occurs as of December 31.
Change in projected benefit
obligation:
Benefit obligation, beginning of year $ 4,438 $ 1,137 $ 236 $ 52
Service cost 154 53 5 3
Interest cost 200 34 11 2
Actuarial (gain) loss 536 69 22 11
Benefits paid:
AIG assets (12) (7) (11) (1)
Plan assets (150) (35) – –
Plan amendment – 4 (8) –
Curtailments (5) (3) – (1)
Settlements – (20) – –
Foreign exchange effect – (32) – –
Other – 5 – –
Projected benefit obligation, end of
year $ 5,161 $ 1,205 $ 255 $ 66
Change in plan assets:
Fair value of plan assets, beginning of
year $ 3,432 $ 683 $ – $ –
Actual return on plan assets, net of
expenses 438 34 – –
AIG contributions 12 86 11 1
Benefits paid:
AIG assets (12) (7) (11) (1)
Plan assets (150) (35) – –
Settlements – (20) – –
Foreign exchange effect – (15) – –
Other – 1 – –
Fair value of plan assets, end of year $ 3,720 $ 727 $ – $ –
Funded status, end of year $ (1,441) $ (478) $ (255) $ (66)
Amounts recognized in the
consolidated balance sheet:
Assets $ – $ 65 $ – $ –
Liabilities (1,441) (543) (255) (66)
Total amounts recognized $ (1,441) $ (478) $ (255) $ (66)
Pre-tax amounts recognized in
Accumulated other comprehensive
income:
Net gain (loss) (1,764) $ (302) $ (40) $ (13)
Prior service (cost) credit 267 21 46 1
Total amounts recognized $ (1,497) $ (281) $ 6 $ (12)
(a) We do not currently fund postretirement benefits.
(b) Includes non-qualified unfunded plans of which the aggregate projected benefit obligation was $276 million and $238 million for the U.S. and
$265 million and $299 million for the non-U.S. at December 31, 2013 and 2012, respectively.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 315
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
Pension Postretirement
(a)
U.S. Plans
(b)
Non-U.S. Plans
(b)
U.S. Plans Non-U.S. Plans
As of or for the Years Ended December 31,
(in millions) 2013 2012 2013 2012 2013 2012 2013 2012
$ 5,161 $ 1,205 $ 255 $ 66
205 47 5 3
201 29 8 2
(454) 13 (41) (15)
(14) (13) (10) (1)
(217) (27) – –
– – – –
– (1) – (3)
– (35) – –
– (126) – (1)
– (20) – 1
$ 4,882 $ 1,072 $ 217 $ 52
$ 3,720 $ 727 $ – $ –
520 92 – –
15 87 10 1
(14) (13) (10) (1)
(217) (27) – –
– (35) – –
– (93) – –
– – – –
$ 4,024 $ 738 $ – $ –
$ (858) $ (334) $ (217) $ (52)
$ – $ 91 $ – $ –
(858) (425) (217) (52)
$ (858) $ (334) $ (217) $ (52)
$ (908) $ (204) $ 1 $ 3
234 14 35 1
$ (674) $ (190) $ 36 $ 4
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The following table presents the accumulated benefit obligations for U.S. and non-U.S. pension benefit plans:
U.S. pension benefit plans $ 4,827
Non-U.S. pension benefit plans $ 1,125
Defined benefit pension plan obligations in which the projected benefit obligation was in excess of the
related plan assets and the accumulated benefit obligation was in excess of the related plan assets were as
follows:
Projected benefit obligation $ 5,161 $ 1,028 $ 5,161 $ 1,018
Accumulated benefit obligation 4,827 964 4,827 959
Fair value of plan assets 3,720 485 3,720 478
The following table presents the components of net periodic benefit cost with respect to pensions and other
postretirement benefits:
Components of net periodic benefit
cost:
Service cost $ 154 $ 150 $ 53 $ 66 $ 5 $ 8 $ 3 $ 4
Interest cost 200 207 34 37 11 13 2 2
Expected return on assets (240) (250) (20) (25) – – – –
Amortization of prior service credit (33) (7) (4) (4) (10) (2) – –
Amortization of net loss 118 65 13 15 – – – –
Curtailment (gain) loss (2) – 1 – – – (1) –
Settlement loss – – 4 8 – – – –
Other – – – – – – – –
Net periodic benefit cost $ 197 $ 165 $ 81 $ 97 $ 6 $ 19 $ 4 $ 6
Total recognized in Accumulated other
comprehensive income (loss) $ (250) $ (396) $ (36) $ 261 $ (23) $ 56 $ (11) $ (6)
Total recognized in net periodic benefit
cost and other comprehensive
income (loss) $ (447) $ (561) $ (117) $ 164 $ (29) $ 37 $ (15) $ (12)
The estimated net loss and prior service credit that will be amortized from Accumulated other comprehensive income
into net periodic benefit cost over the next fiscal year are $51 million and $36 million, respectively, for our combined
defined benefit pension plans. For the defined benefit postretirement plans, the estimated amortization from
Accumulated other comprehensive income for net gain and prior service credit that will be amortized into net periodic
benefit cost over the next fiscal year will be less than $11 million in the aggregate.
The annual pension expense in 2014 for the AIG U.S. and non-U.S. defined benefit pension plans is expected to be
approximately $194 million. A 100 basis point increase in the discount rate or expected long-term rate of return would
decrease the 2014 expense by approximately $60 million and $46 million, respectively, with all other items remaining
the same. Conversely, a 100 basis point decrease in the discount rate or expected long-term rate of return would
increase the 2014 expense by approximately $92 million and $46 million, respectively, with all other items remaining
the same.
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AIG 2013 Form 10-K 316
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
At December 31,
(in millions) 2013 2012
$ 4,683
$ 1,000
PBO Exceeds Fair Value of Plan Assets ABO Exceeds Fair Value of Plan Assets
U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans
At December 31,
(in millions) 2013 2012 2013 2012 2013 2012 2013 2012
$ 4,882 $ 806 $ 4,882 $ 752
4,683 704 4,683 703
4,024 330 4,024 327
Pension Postretirement
U.S. Plans Non-U.S. Plans U.S. Plans Non-U.S. Plans
(in millions) 2013 2012 2011 2013 2012 2011 2013 2012 2011 2013 2012 2011
$ 205 $ 47 $ 5 $ 3
201 29 8 2
(257) (19) – –
(33) (3) (11) –
138 13 1 –
– (1) – (2)
– 5 – –
– 1 – –
$ 254 $ 72 $ 3 $ 3
$ 823 $ 103 $ 30 $ 16
$ 569 $ 31 $ 27 $ 13
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The following table summarizes the weighted average assumptions used to determine the benefit
obligations:
December 31, 2013
Discount rate
Rate of compensation increase
December 31, 2012
Discount rate 3.93% 2.62% 3.67% 3.45%
Rate of compensation increase 4.00% 2.86% N/A 3.55%
* The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of each of the subsidiaries
providing such benefits.
The following table summarizes assumed health care cost trend rates for the U.S. plans:
Following year:
Medical (before age 65) 7.39%
Medical (age 65 and older) 6.82%
Ultimate rate to which cost increase is assumed to decline 4.50%
Year in which the ultimate trend rate is reached:
Medical (before age 65) 2027
Medical (age 65 and older) 2027
A one percent point change in the assumed healthcare cost trend rate would have the following effect on our
postretirement benefit obligations:
U.S. plans $ 5 $ (4)
Non-U.S. plans $ 15 $ (11)
Our postretirement plans provide benefits primarily in the form of defined employer contributions rather than defined
employer benefits. Changes in the assumed healthcare cost trend rate have a minimal impact for U.S. plans because
for post-1992 retirees, benefits are fixed dollar amounts based on service at retirement. Our non-U.S. postretirement
plans are not subject to caps.
Assumptions
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AIG 2013 Form 10-K 317
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
Pension Postretirement
U.S. Plans Non-U.S. Plans
*
U.S. Plans Non-U.S. Plans
*
4.83% 2.77% 4.59% 4.77%
3.50% 2.89% N/A 3.34%
At December 31, 2013 2012
7.21%
6.80%
4.50%
2027
2027
One Percent One Percent
Increase Decrease
At December 31,
(in millions) 2013 2012 2013 2012
$ 6 $ (3)
$ 11 $ (7)
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The following table presents the weighted average assumptions used to determine the net periodic benefit
costs:
2013
Discount rate
Rate of compensation increase
Expected return on assets
2012
Discount rate 4.62% 3.02% 4.51% 4.19%
Rate of compensation increase 4.00% 2.94% N/A 3.61%
Expected return on assets 7.25% 2.91% N/A N/A
2011
Discount rate 5.50% 2.25% 5.25% 4.00%
Rate of compensation increase 4.00% 3.00% N/A 3.00%
Expected return on assets 7.50% 3.14% N/A N/A
* The non-U.S. plans reflect those assumptions that were most appropriate for the local economic environments of the subsidiaries providing such
benefits.
The projected benefit cash flows under the U.S. AIG Retirement plan were discounted using the spot rates derived
from the Mercer Pension Discount Yield Curve at December 31, 2013 and 2012, which resulted in a single discount
rate that would produce the same liability at the respective measurement dates. The discount rates were
4.84 percent at December 31, 2013 and 3.94 percent at December 31, 2012. The methodology was consistently
applied for the respective years in determining the discount rates for the other U.S. plans.
In general, the discount rates for non-U.S. pension plans were developed based on the duration of liabilities on a
plan by plan basis and were selected by reference to high quality corporate bonds in developed markets or local
government bonds where developed markets are not as robust or are nonexistent.
The projected benefit obligation for Japan represents approximately 51 percent and 57 percent of the total projected
benefit obligations for our non-U.S. pension plans at December 31, 2013 and 2012, respectively. The weighted
average discount rate of 1.39 percent and 1.54 percent at December 31, 2013 and 2012 respectively for Japan was
selected by reference to the AA rated corporate bonds reported by Rating and Investment Information, Inc. based on
the duration of the plans’ liabilities.
The investment strategy with respect to assets relating to our U.S. and non-U.S. pension plans is designed to
achieve investment returns that will (a) provide for the benefit obligations of the plans over the long term (b) limit the
risk of short-term funding shortfalls and (c) maintain liquidity sufficient to address cash needs. Accordingly, the asset
allocation strategy is designed to maximize the investment rate of return while managing various risk factors,
including but not limited to, volatility relative to the benefit obligations, diversification and concentration, and the risk
and rewards profile applicable to each asset class. The assessment of the expected rate of return for all our plans is
long-term and thus is not expected to change annually; however, significant changes in investment strategy or
economic conditions may warrant such a change.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at
December 31, 2013 or 2012.
The long-term strategic asset allocation is reviewed and revised approximately every three years. The plan’s assets
are monitored by the investment committee of our Retirement Board and the investment managers, which includes
allocating the plan’s assets among approved asset classes within pre-approved ranges permitted by the strategic
allocation.
Discount Rate Methodology
Plan Assets
U.S. Pension Plan
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 318
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
Pension Postretirement
At December 31, U.S. Plans Non-U.S. Plans
*
U.S. Plans Non-U.S. Plans
*
3.93% 2.62% 3.67% 3.45%
4.00% 2.86% N/A 3.55%
7.25% 2.60% N/A N/A
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents the asset allocation percentage by major asset class for the U.S. qualified plan
and the target allocation:
Asset class:
Equity securities 43% 52%
Fixed maturity securities 28% 26%
Other investments 29% 22%
Total 100% 100%
The expected long-term rate of return for the plan was 7.25 percent for both 2013 and 2012. The expected rate of
return is an aggregation of expected returns within each asset class category and incorporates the current and target
asset allocations. The combination of the expected asset return and any contributions made by us are expected to
maintain the plan’s ability to meet all required benefit obligations. The expected asset return for each asset class was
developed based on an approach that considers key fundamental drivers of the asset class returns in addition to
historical returns, current market conditions, asset volatility and the expectations for future market returns.
The assets of the non-U.S. pension plans are held in various trusts in multiple countries and are invested primarily in
equities and fixed maturity securities to maximize the long-term return on assets for a given level of risk.
The following table presents the asset allocation percentage by major asset class for Non-U.S. pension plans
and the target allocation:
Asset class:
Equity securities 34% 36%
Fixed maturity securities 44% 43%
Other investments 11% 6%
Cash and cash equivalents 11% 15%
Total 100% 100%
The assets of AIG’s Japan pension plans represent approximately 60 percent and 66 percent of total non-U.S. assets
at December 31, 2013 and 2012 respectively. The expected long term rate of return was 1.15 percent and
1.76 percent, for 2013 and 2012, respectively, and is evaluated by the Japanese Pension Investment Committee on
a quarterly and annually basis along with various investment managers, and is revised to achieve the optimal
allocation to meet targeted funding levels if necessary. In addition, the funding policy is revised in accordance with
local regulation every five years.
The expected weighted average long-term rate of return for all our non-U.S. pension plans was 2.60 percent and
2.91 percent for the years ended December 31, 2013 and 2012, respectively. It is an aggregation of expected returns
within each asset class that was generally developed based on the building block approach that considers historical
returns, current market conditions, asset volatility and the expectations for future market returns.
Non-U.S. Pension Plans
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 319
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
Target Actual Actual
At December 31, 2014 2013 2012
56%
25%
19%
100%
Target Actual Actual
At December 31, 2014 2013 2012
45%
37%
6%
12%
100%
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents information about our plan assets and indicates the level of the fair value
measurement based on the observability of the inputs used. The inputs and methodology used in
determining the fair value of these assets are consistent with those used to measure our assets as noted in
Note 5 herein.
At December 31, 2013
Assets:
Cash and cash equivalents
Equity securities:
U.S.
(a)
International
(b)
Fixed maturity securities:
U.S. investment grade
(c)
International investment grade
(c)
U.S. and international high yield
(d)
Mortgage and other asset-backed securities
(e)
Other fixed maturity securities
Other investment types:
Hedge funds
(f)
Futures
Private equity
(g)
Insurance contracts
Total
At December 31, 2012
Assets:
Cash and cash equivalents $ 229 $ – $ – $ 229 $ 113 $ – $ – $ 113
Equity securities:
U.S.
(a)
1,597 31 – 1,628 21 1 – 22
International
(b)
290 18 – 308 240 – – 240
Fixed maturity securities:
U.S. investment grade
(c)
– 763 11 774 – – – –
International investment grade
(c)
– – – – – 169 – 169
U.S. and international high yield
(d)
– 134 – 134 – 96 – 96
Mortgage and other asset-backed securities
(e)
– 59 – 59 – – – –
Other fixed maturity securities – – – – – 17 27 44
Other investment types:
Hedge funds
(f)
– 334 – 334 – – – –
Private equity
(g)
– – 225 225 – – – –
Insurance contracts – 29 – 29 – – 43 43
Total $ 2,116 $ 1,368 $ 236 $ 3,720 $ 374 $ 283 $ 70 $ 727
(a) Includes index funds that primarily track several indices including S&P 500 and S&P Small Cap 600 as well as other actively managed accounts
composed of investments in large cap companies.
(b) Includes investments in companies in emerging and developed markets.
(c) Represents investments in U.S. and non-U.S. government issued bonds, U.S. government agency or sponsored agency bonds, and investment
grade corporate bonds.
(d) Consists primarily of investments in securities or debt obligations that have a rating below investment grade.
(e) Comprised primarily of investments in U.S. government agency or U.S. government sponsored agency bonds.
(f) Includes funds composed of macro, event driven, long/short equity, and controlled risk hedge fund strategies and a separately managed
controlled risk strategy.
(g) Includes funds that are diverse by geography, investment strategy, sector and vintage year.
Assets Measured at Fair Value
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 320
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
U.S. Plans Non-U.S. Plans
(in millions) Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
$ 137 $ – $ – $ 137 $ 92 $ – $ – $ 92
1,840 220 – 2,060 26 – – 26
189 18 – 207 254 47 – 301
– 702 9 711 – – – –
– – – – 1 163 – 164
– 281 – 281 – 82 – 82
– 7 – 7 – – – –
– – – – – 10 19 29
– 297 35 332 – – – –
14 – – 14 – – – –
– – 248 248 – – – –
– 27 – 27 – – 44 44
$ 2,180 $ 1,552 $ 292 $ 4,024 $ 373 $ 302 $ 63 $ 738
..................................................................................................................................................................................
............................................................................................................................................................................................
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with
investing in these securities. Based on our investment strategy, we had no significant concentrations of risks at
December 31, 2013.
The U.S. pension plan holds a group annuity contract with U.S. Life, one of our subsidiaries, which totaled
$27 million and $29 million at December 31, 2013 and 2012, respectively.
The following table presents changes in our U.S. and non-U.S. Level 3 plan assets measured at fair value:
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade
Hedge funds
Private equity
Total
Non-U.S. Plan Assets:
Other fixed maturity securities
Insurance contracts
Total
U.S. Plan Assets:
Fixed maturity securities
U.S. investment grade $ 1 $ 5 $ 9 $ (29) $ – $ (10) $ 36 $ (1) $ 11 $ 1
Mortgage and other asset-
backed securities 36 – – – – – – (36) – –
Private equity 223 9 23 (26) – – 4 (8) 225 (14)
Total $ 260 $ 14 $ 32 $ (55) $ – $ (10) $ 40 $ (45) $ 236 $ (13)
Non-U.S. Plan Assets:
Other fixed maturity securities $ 1 $ – $ – $ (1) $ – $ – $ 27 $ – $ 27 $ –
Insurance contracts 39 2 2 – – – – – 43 –
Total $ 40 $ 2 $ 2 $ (1) $ – $ – $ 27 $ – $ 70 $ –
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each
reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1
when they are no longer transacted with sufficient frequency and volume in an active market. Conversely, assets are
transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. We
had no material transfers between Level 1 and Level 2 during the years ended December 31, 2013 and 2012.
We record transfers of assets into or out of Level 3 at their fair values as of the end of each reporting period,
consistent with the date of the determination of fair value. During the year ended December 31, 2013, we transferred
Changes in Level 3 fair value measurements
Transfers of Level 1 and Level 2 Assets
Transfers of Level 3 Assets
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 321
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
Changes in
Unrealized
Net Gains
Realized and (Losses) on
Balance Unrealized Balance Instruments
At December 31, 2013 Beginning Gains Transfers Transfers at End Held at
(in millions) of year (Losses) Purchases Sales Issuances Settlements In Out of year End of year
$ 11 $ (2) $ 2 $ (2) $ – $ – $ – $ – $ 9 $ (3)
– – – – – – 35 – 35 –
225 7 44 (26) – (2) – – 248 (14)
$ 236 $ 5 $ 46 $ (28) $ – $ (2) $ 35 $ – $ 292 $ (17)
$ 27 $ 1 $ – $ (8) $ – $ – $ – $ (1) $ 19 $ –
43 3 1 (1) – – – (2) 44 –
$ 70 $ 4 $ 1 $ (9) $ – $ – $ – $ (3) $ 63 $ –
Changes in
Unrealized
Net Gains
Realized and (Losses) on
Balance Unrealized Balance Instruments
At December 31, 2012 Beginning Gains Transfers Transfers at End Held at
(in millions) of year (Losses) Purchases Sales Issuances Settlements In Out of year End of year
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
certain investments in hedge funds into Level 3 as a result of limited market activity due to fund-imposed redemption
restrictions. During the year ended December 31, 2012, transfers of assets into Level 3 included certain other fixed
maturity securities. These transfers were due to a decrease in market transparency, downward credit migration and
an overall increase in price disparity.
Funding for the U.S. pension plan ranges from the minimum amount required by ERISA to the maximum amount that
would be deductible for U.S. tax purposes. Contributed amounts in excess of the minimum amounts are deemed
voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible
under the Internal Revenue Code. There are no minimum required cash contributions for the AIG Retirement Plan in
2014. Supplemental Plan, or AIG NQRIP, and postretirement plan payments are deductible when paid.
Our annual pension contribution in 2014 is expected to be approximately $177 million for our U.S. and non-U.S.
plans. Included in this amount is $100 million in contributions to the AIG Retirement Plan. These estimates are
subject to change, since contribution decisions are affected by various factors including our liquidity, market
performance and management’s discretion.
The expected future benefit payments, net of participants’ contributions, with respect to the defined benefit
pension plans and other postretirement benefit plans, are as follows:
2014 $ 311 $ 41 $ 15 $ 1
2015 320 40 16 1
2016 330 40 16 1
2017 348 44 17 2
2018 350 49 18 2
2019 – 2023 1,871 260 99 11
We sponsor several defined contribution plans for U.S. employees that provide for pre-tax salary reduction
contributions by employees. The most significant plan is the AIG Incentive Savings Plan, for which the Company’s
matching contribution is 100 percent of the first six percent of a participant’s contributions, subject to the
IRS-imposed limitations. In 2011, company contributions of up to seven percent of annual salary were made
depending on the employee’s years of service subject to certain compensation limits. Our pre-tax expenses
associated with these plans were $155 million, $133 million and $99 million in 2013, 2012 and 2011 respectively.
Through registered public offerings and AIG repurchase transactions, the Department of the Treasury disposed of all
of its ownership of AIG Common Stock during 2012 and 2011. In the first quarter of 2013, we paid approximately
$25 million to purchase two series of warrants issued in 2008 and 2009 to the Department of the Treasury. For
discussion of the Recapitalization, see Note 24 herein.
A Schedule 13G/A filed February 14, 2014 reports aggregate ownership of 104,002,195 shares, or approximately
6.9 percent (based on the AIG Common Stock outstanding, as adjusted to reflect the warrants owned), of AIG
Common Stock and warrants (79,752,186 shares plus 24,250,009 warrants) as of December 31, 2013, including
securities beneficially owned by The Fairholme Fund and other funds and investment vehicles managed by Fairholme
Capital Management and securities owned by Mr. Bruce Berkowitz personally. A Schedule 13G filed on February 12,
2014 reports aggregate ownership of 84,112,893 shares, or approximately 5.7 percent (based on the AIG Common
Stock outstanding) of AIG Common Stock as of December 31, 2013, by various subsidiaries of Blackrock, Inc. The
calculation of ownership interest for purposes of the AIG Tax Asset Protection Plan and Article 13 of our Restated
Certificate of Incorporation is different than beneficial ownership for Schedule 13G.
Expected Cash Flows
Defined Contribution Plans
22. OWNERSHIP
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 322
I T EM 8 / NOT E 2 1 . EMPL OYEE BENEF I T S
Pension Postretirement
U.S. Non-U.S. U.S. Non-U.S.
(in millions) Plans Plans Plans Plans
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents income (loss) from continuing operations before income tax expense (benefit)
by U.S. and foreign location in which such pre-tax income (loss) was earned or incurred.
U.S. $ (948) $ (1,626)
Foreign 3,839 725
Total $ 2,891 $ (901)
The following table presents the income tax expense (benefit) attributable to pre-tax income (loss) from
continuing operations:
Foreign and U.S. components of actual income tax expense:
Foreign:
Current $ 484 $ 303
Deferred (275) 48
U.S.:
Current 278 (208)
Deferred (1,295) (19,907)
Total $ (808) $ (19,764)
Our actual income tax (benefit) expense differs from the statutory U.S. federal amount computed by applying
the federal income tax rate due to the following:
U.S. federal income tax at
statutory rate adjustments: $ 2,891 $ 1,012 35.0% $ 2,604 $ 911 35.0%
Tax exempt interest (302) (10.4) (454) (17.4)
Investment in subsidiaries
and partnerships (26) (0.9) (224) (8.6)
Uncertain tax positions 446 15.4 (25) (1.0)
Dividends received deduction (58) (2.0) (52) (2.0)
Effect of foreign operations 171 5.9 (386) (14.8)
State income taxes (48) (1.7) (87) (3.3)
Other (96) (3.3) 88 5.0
Effect of discontinued
operations – – (190) (7.3)
Valuation allowance:
Continuing operations (1,907) (65.9) (18,307) NM
Consolidated total amounts 2,891 (808) (27.9) 2,604 (18,726) NM
Amounts attributable to
discontinued operations – – – 3,505 1,038 29.6
Amounts attributable to
continuing operations $ 2,891 $ (808) (27.9)% $ (901) $ (19,764) NM%
For the year ended December 31, 2013, the effective tax rate on income from continuing operations was 3.8 percent.
The effective tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily
due to tax benefits of $2.8 billion related to a decrease in AIG Life and Retirement’s capital loss carryforward
valuation allowance, $396 million related to a decrease in certain other valuation allowances associated with foreign
23. INCOME TAXES
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 323
I T EM 8 / NOT E 2 3 . I NCOME T AXES
Years Ended December 31,
(in millions) 2013 2012 2011
$ 8,058
1,310
$ 9,368
Years Ended December 31,
(in millions) 2013 2012 2011
$ 548
(442)
131
123
$ 360
2013 2012 2011
Percent of Percent of
Pre-Tax Tax Pre-Tax Pre-Tax Tax Pre-Tax Tax Percent of
Years Ended December 31, Income Expense/ Income Income Expense/ Income Pre-Tax Expense/ Pre-Tax
(dollars in millions) (Loss) (Benefit) (Loss) (Loss) (Benefit) (Loss) Income (Benefit) Income
$ 9,518 $ 3,331 35.0%
(298) (3.1)
– –
632 6.6
(75) (0.8)
(5) –
(21) (0.2)
13 0.1
14 0.2
(3,165) (33.3)
9,518 426 4.5
150 66 44.0
$ 9,368 $ 360 3.8%
..................................................................................................................................................................................
............................................................................................................................................................................................
jurisdictions and $298 million associated with tax exempt interest income. These items were partially offset by
charges of $632 million related to uncertain tax positions.
For the year ended December 31, 2012, the effective tax rate on income from continuing operations was (27.9)
percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 35 percent
primarily due to decreases in AIG Life and Retirement’s capital loss carryforward valuation allowance of $1.9 billion
related to the actual and projected gains from AIG Life and Retirement’s available-for-sale securities, and tax effects
associated with tax exempt interest income of $302 million. These items were partially offset by changes in uncertain
tax positions of $446 million.
For the year ended December 31, 2011, the effective tax rate on loss from continuing operations was not meaningful,
due to the significant effect of releasing approximately $18.4 billion of the deferred tax asset valuation allowance.
Other factors that contributed to the difference from the statutory rate included tax benefits of $454 million associated
with tax exempt interest income, $386 million associated with the effect of foreign operations, and $224 million
related to our investment in subsidiaries and partnerships.
The following table presents the components of the net deferred tax assets (liabilities):
Deferred tax assets:
Losses and tax credit carryforwards $ 25,359
Unrealized loss on investments 3,365
Accruals not currently deductible, and other 4,499
Investments in foreign subsidiaries and joint ventures 1,435
Loss reserve discount 1,235
Loan loss and other reserves 547
Unearned premium reserve reduction 1,145
Employee benefits 1,483
Total deferred tax assets 39,068
Deferred tax liabilities:
Adjustment to life policy reserves (1,817)
Deferred policy acquisition costs (2,816)
Flight equipment, fixed assets and intangible assets (2,015)
Unrealized gains related to available for sale debt securities (7,464)
Other (225)
Total deferred tax liabilities (14,337)
Net deferred tax assets before valuation allowance 24,731
Valuation allowance (8,036)
Net deferred tax assets (liabilities) $ 16,695
The following table presents our U.S. consolidated income tax group tax losses and credits carryforwards as
of December 31, 2013 on a tax return basis.
Net operating loss carryforwards $ 34,233 $ 11,981 2028 – 2031
Capital loss carryforwards – Life 1,117 391 2014
Capital loss carryforwards – Non-Life – – N/A
Foreign tax credit carryforwards – 5,796 2016 – 2023
Other carryforwards and other – 513 Various
Total AIG U.S. consolidated income tax group tax losses and credits carryforwards $ 18,681
The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires us to
weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion
of the deferred tax asset will not be realized. The weight given to the evidence is commensurate with the extent to
Assessment of Deferred Tax Asset Valuation Allowance
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 324
I T EM 8 / NOT E 2 3 . I NCOME T AXES
December 31,
(in millions) 2013 2012
$ 20,825
4,843
2,935
1,035
1,164
888
1,451
1,217
34,358
445
(3,396)
(2,354)
(3,693)
(571)
(9,569)
24,789
(3,596)
$ 21,193
December 31, 2013 Tax Expiration
(in millions) Gross Effected Periods
..................................................................................................................................................................................
............................................................................................................................................................................................
which it can be objectively verified. The more negative evidence that exists, the more positive evidence is necessary
and the more difficult it is to support a conclusion that a valuation allowance is not needed.
Our framework for assessing the recoverability of deferred tax assets requires us to consider all available evidence,
including:
• the nature, frequency, and amount of cumulative financial reporting income and losses in recent years;
• the sustainability of recent operating profitability of our subsidiaries;
• the predictability of future operating profitability of the character necessary to realize the net deferred tax asset;
• the carryforward periods for the net operating loss, capital loss and foreign tax credit carryforwards, including the
effect of reversing taxable temporary differences; and,
• prudent and feasible actions and tax planning strategies that would be implemented, if necessary, to protect
against the loss of the deferred tax asset.
As a result of sales in the ordinary course of business to manage the investment portfolio and the implementation of
prudent and feasible tax planning strategies during the year ended December 31, 2013, certain capital loss
carryforwards primarily related to AIG Life and Retirement were realized prior to their expiration. Therefore, for the
year ended December 31, 2013, we recognized a decrease of $3.5 billion of capital loss carryforward valuation
allowance associated with AIG Life and Retirement, of which $3.3 billion was allocated to income from continuing
operations and $200 million was allocated to other comprehensive income. Included in the $3.3 billion allocated to
continuing operations was a decrease in deferred tax asset valuation allowance of $552 million related to a portion of
AIG Life and Retirement’s capital loss carryforward that expired in 2013. During the year ended December 31, 2013,
we also recognized a $1.0 billion decrease to our deferred tax asset valuation allowance associated with certain
state, local and foreign jurisdictions, primarily attributable to our ability to demonstrate sustainability of recent
operating profitability within those jurisdictions over the relevant carryforward periods as well as routine business
operations in the current year. Included in the $1.0 billion was a decrease in deferred tax asset valuation allowance
of $377 million related to tax attributes that expired.
The following table presents the net deferred tax assets (liabilities) at December 31, 2013 and 2012 on a
U.S. GAAP basis:
Net U.S. consolidated return group deferred tax assets $ 29,550
Net deferred tax assets (liabilities) in accumulated other comprehensive income (7,174)
Valuation allowance (5,068)
Subtotal 17,308
Net foreign, state and local deferred tax assets 3,126
Valuation allowance (2,968)
Subtotal 158
Subtotal – Net U.S, foreign, state and local deferred tax assets 17,466
Net foreign, state and local deferred tax liabilities (771)
Total AIG net deferred tax assets (liabilities) $ 16,695
At December 31, 2013, and 2012, our U.S. consolidated income tax group had net deferred tax assets after valuation
allowance of $21.3 billion and $17.3 billion, respectively. At December 31, 2013, and 2012, our U.S. consolidated
income tax group had valuation allowances of $1.7 billion and $5.1 billion, respectively.
At December 31, 2013 and 2012, we had net deferred tax liabilities of $116 million and $613 million, respectively,
related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax
returns.
Deferred Tax Asset Valuation Allowance of U.S. Consolidated Income Tax Group
Deferred Tax Liability — Foreign, State and Local
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 325
I T EM 8 / NOT E 2 3 . I NCOME T AXES
December 31,
(in millions) 2013 2012
$ 26,296
(3,337)
(1,650)
21,309
2,563
(1,947)
616
21,925
(732)
$ 21,193
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
At December 31, 2013 and 2012, we had deferred tax asset valuation allowances of $2.0 billion and $2.9 billion,
respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file
separate tax returns. We maintained these valuation allowances following our conclusion that we could not
demonstrate that it was more likely than not that the related deferred tax assets will be realized. This was primarily
due to factors such as cumulative losses in recent years and the inability to demonstrate profits within the specific
jurisdictions over the relevant carryforward periods.
We file a consolidated U.S. federal income tax return with our eligible U.S. subsidiaries. Several U.S. subsidiaries
included in the consolidated financial statements previously filed separate U.S. federal income tax returns and were
not part of our U.S. consolidated income tax group. Income earned by subsidiaries operating outside the U.S. is
taxed, and income tax expense is recorded, based on applicable U.S. and foreign law.
The statute of limitations for all tax years prior to 2000 has expired for our consolidated federal income tax return.
We are currently under examination for the tax years 2000 through 2006.
On March 20, 2008, we received a Statutory Notice of Deficiency (Notice) from the IRS for years 1997 to 1999. The
Notice asserted that we owe additional taxes and penalties for these years primarily due to the disallowance of
foreign tax credits associated with cross-border financing transactions. The transactions that are the subject of the
Notice extend beyond the period covered by the Notice, and the IRS is challenging the later periods. It is also
possible that the IRS will consider other transactions to be similar to these transactions. We have paid the assessed
tax plus interest and penalties for 1997 to 1999. On February 26, 2009, we filed a complaint in the United States
District Court for the Southern District of New York seeking a refund of approximately $306 million in taxes, interest
and penalties paid with respect to its 1997 taxable year. We allege that the IRS improperly disallowed foreign tax
credits and that our taxable income should be reduced as a result of the 2005 restatement of our consolidated
financial statements.
We also filed an administrative refund claim on September 9, 2010 for our 1998 and 1999 tax years.
On March 29, 2011, the U.S. District Court for the Southern District of New York, ruled on a motion for partial
summary judgment that we filed on July 30, 2010 related to the disallowance of foreign tax credits associated with
cross-border financing transactions. The court denied our motion with leave to renew following the completion of
discovery regarding certain transactions referred to in our motion, which we believe may be significant to the
outcome of the action.
On August 1, 2012, we filed a motion for partial summary judgment related to the disallowance of foreign tax credits
associated with cross border financing transactions. On March 29, 2013, the U.S. District Court for the Southern
District of New York (the Southern District of New York) denied our motion. On April 17, 2013, we initiated a process
for immediate appeal to the U.S. Court of Appeals for the Second Circuit (the Second Circuit) and on November 5,
2013, the Southern District of New York certified our request. We are presently awaiting a decision from the Second
Circuit on whether to accept our immediate appeal to review the decision of the Southern District of New York.
We will vigorously defend our position and continue to believe that we have adequate reserves for any liability that
could result from the IRS actions.
We continue to monitor legal and other developments in this area and evaluate the effect, if any, on our position,
including recent decisions adverse to other taxpayers.
Tax Examinations and Litigation
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 326
I T EM 8 / NOT E 2 3 . I NCOME T AXES
..................................................................................................................................................................................
............................................................................................................................................................................................
The following table presents a reconciliation of the beginning and ending balances of the total amounts of
gross unrecognized tax benefits:
Gross unrecognized tax benefits, beginning of year $ 4,279 $ 5,296
Increases in tax positions for prior years 336 239
Decreases in tax positions for prior years (264) (1,046)
Increases in tax positions for current year 47 48
Lapse in statute of limitations (8) (7)
Settlements (5) (259)
Activity of discontinued operations – 8
Gross unrecognized tax benefits, end of year $ 4,385 $ 4,279
At December 31, 2013, 2012 and 2011, our unrecognized tax benefits, excluding interest and penalties, were
$4.3 billion, $4.4 billion and $4.3 billion, respectively. The decrease from December 31, 2012 was primarily due to
certain benefits realized due to the partial completion of the IRS examination covering the years 2003-2005 and
foreign exchange translation, partially offset by increases related to foreign tax credits associated with cross border
financing transactions. At December 31, 2013, 2012 and 2011, our unrecognized tax benefits related to tax positions
that, if recognized, would not affect the effective tax rate because they relate to such factors as the timing, rather
than the permissibility, of the deduction were $0.1 billion, $0.2 billion and $0.7 billion, respectively. Accordingly, at
December 31, 2013, 2012 and 2011, the amounts of unrecognized tax benefits that, if recognized, would favorably
affect the effective tax rate were $4.2 billion, $4.2 billion and $3.5 billion, respectively.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At December 31,
2013 and 2012, we had accrued liabilities of $1.1 billion and $935 million, respectively, for the payment of interest
(net of the federal benefit) and penalties. For the years ended December 31, 2013, 2012 and 2011, we accrued
expense (benefits) of $142 million, $192 million and $(170) million, respectively, for the payment of interest (net of
the federal benefit) and penalties.
We regularly evaluate adjustments proposed by taxing authorities. At December 31, 2013, such proposed
adjustments would not have resulted in a material change to our consolidated financial condition, although it is
possible that the effect could be material to our consolidated results of operations for an individual reporting period.
Although it is reasonably possible that a change in the balance of unrecognized tax benefits may occur within the
next 12 months, based on the information currently available, we do not expect any change to be material to our
consolidated financial condition.
Listed below are the tax years that remain subject to examination by major tax jurisdictions:
Major Tax Jurisdiction
United States 2000 – 2012
Australia 2009 – 2012
France 2011 – 2012
Japan 2008 – 2012
Korea 2008 – 2012
Singapore 2011 – 2012
United Kingdom 2012
On January 14, 2011 (the Closing), we completed a series of integrated transactions to recapitalize AIG (the
Recapitalization) with the Department of the Treasury, the FRBNY and AIG Credit Facility Trust (the Trust), including
the repayment of all amounts owed under the FRBNY Credit Facility. At the Closing, we recognized a net loss on
extinguishment of debt, primarily representing $3.3 billion in accelerated amortization of the remaining prepaid
commitment fee asset resulting from the termination of the FRBNY Credit Facility.
Accounting For Uncertainty in Income Taxes
24. RECAPITALIZATION
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 327
I T EM 8 / NOT E 2 3 . I NCOME T AXES
Years Ended December 31,
(in millions) 2013 2012 2011
$ 4,385
680
(796)
43
(20)
(2)
50
$ 4,340
At December 31, 2013 Open Tax Years
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
At the Closing, we repaid to the FRBNY approximately $21 billion in cash, representing complete repayment of all
amounts owed under the FRBNY Credit Facility, and the FRBNY Credit Facility was terminated. The funds for the
repayment came from the net cash proceeds from our sale of 67 percent of the ordinary shares of AIA in its initial
public offering and from our sale of ALICO in 2010.
At the Closing, we drew down approximately $20.3 billion (the Series F Closing Drawdown Amount) under the
Department of the Treasury Commitment (Series F) pursuant to the Series F Securities Purchase Agreement (SPA).
The Series F Closing Drawdown Amount was the full amount remaining under the Department of the Treasury
Commitment (Series F), less $2 billion that we designated to be available after the closing for general corporate
purposes under a commitment relating to our Series G Preferred Stock described below (the Series G Drawdown
Right). Our right to draw on the Department of the Treasury Commitment (Series F) (other than the Series G
Drawdown Right) was terminated.
We used the Series F Closing Drawdown Amount to repurchase all of the FRBNY’s AIA SPV Preferred Interests and
the ALICO SPV Preferred Interests. We transferred the SPV Preferred Interests to the Department of the Treasury as
part of the consideration for the exchange of the Series F Preferred Stock (described below).
During the first quarter of 2011, the liquidation preference of the ALICO SPV Preferred Interests was paid down in
full. During the first quarter of 2012, the liquidation preference of the AIA SPV Preferred Interests was paid down in
full.
At the Closing, we and the Department of the Treasury amended and restated the Series F SPA to provide for the
issuance of 20,000 shares of Series G Preferred Stock by AIG to the Department of the Treasury. The Series G
Preferred Stock was issued with a liquidation preference of zero. Because the net proceeds to us from the
completion of the registered public offering of AIG Common Stock in May 2011 of $2.9 billion exceeded the
$2.0 billion Series G Drawdown Right, the Series G Drawdown Right was terminated and the Series G Preferred
Stock was cancelled immediately thereafter.
At the Closing:
• the shares of our Series C Preferred Stock held by the Trust were exchanged for 562,868,096 shares of newly
issued AIG Common Stock, which were subsequently transferred by the Trust to the Department of the Treasury;
• the shares of our Series E Preferred Stock held by the Department of the Treasury were exchanged for
924,546,133 newly issued shares of AIG Common Stock; and
• the shares of the Series F Preferred Stock held by the Department of the Treasury, were exchanged for (a) the
SPV Preferred Interests, (b) 20,000 shares of the Series G Preferred Stock (subsequently cancelled) and
(c) 167,623,733 shares of newly issued AIG Common Stock.
For a discussion of the Department of the Treasury’s sale of all of its ownership of AIG Common Stock, see Note 16
herein.
On January 19, 2011, as part of the Recapitalization, we issued to the holders of record of AIG Common Stock as of
January 13, 2011, by means of a dividend, ten-year warrants to purchase a total of 74,997,778 shares of AIG
Common Stock at an exercise price of $45.00 per share. We retained 67,650 of these warrants for tax withholding
purposes. No warrants were issued to the Trust, the Department of the Treasury or the FRBNY.
Repayment and Termination of the FRBNY Credit Facility
Repurchase and Exchange of SPV Preferred Interests
Issuance and Cancellation of Our Series G Preferred Stock
Exchange of Our Series C, E and F Preferred Stock for AIG Common Stock and Series G Preferred
Stock
Issuance of Warrants to Purchase AIG Common Stock
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 328
I T EM 8 / NOT E 2 4 . RECAPI T AL I Z AT I ON
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Total revenues $ 18,649 $ 17,338 $ 17,865 $ 17,169
Income (loss) from continuing
operations before income taxes 4,584 1,751 2,595 (6,039)
Income (loss) from discontinued
operations, net of income taxes 13 (5) 1 (8)
Net income (loss) 3,449 2,339 1,861 (3,949)
Net income (loss) from continuing
operations attributable to
noncontrolling interests:
Nonvoting, callable, junior, and senior
preferred interests 208 – – –
Other 33 7 5 9
Total net income (loss) attributable to
noncontrolling interests 241 7 5 9
Net income (loss) attributable to AIG
*
$ 3,208 $ 2,332 $ 1,856 $ (3,958)
Earnings (loss) per common share
attributable to AIG common
shareholders:
Basic:
Income (loss) from continuing
operations $ 1.70 $ 1.33 $ 1.13 $ (2.68)
Income (loss) from discontinued
operations $ 0.01 $ – $ – $ –
Diluted:
Income (loss) from continuing
operations $ 1.70 $ 1.33 $ 1.13 $ (2.68)
Income (loss) from discontinued
operations $ 0.01 $ – $ – $ –
Weighted average shares
outstanding:
Basic 1,875,972,970 1,756,689,067 1,642,472,814 1,476,457,586
Diluted 1,876,002,775 1,756,714,475 1,642,502,251 1,476,457,586
Noteworthy quarterly items — income
(expense):
Other-than-temporary impairments (618) (216) (114) (219)
Net (gain) loss on sale of divested
businesses 3 – – 6,733
Adjustment to federal deferred tax
valuation allowance 347 1,239 205 116
Net gain (loss) on extinguishment
of debt (21) (11) – –
Change in fair value of AIA
securities 1,795 (493) 527 240
Change in fair value of Maiden
Lane Interests 1,498 1,306 330 –
* Net income attributable to AIG for the three-month period ended December 31, 2013 includes $327 million of net charges primarily related to
income taxes to correct prior 2013 quarters presented. Such amounts are not material to any period presented.
25. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Consolidated Statements of Income (Loss)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 329
I T EM 8 / NOT E 2 5 . QUART ERL Y F I NANCI AL I NF ORMAT I ON ( UNAUDI T ED)
Three Months Ended
March 31, June 30, September 30, December 31,
(dollars in millions, except per share
data) 2013 2012 2013 2012 2013 2012 2013 2012
$ 16,962 $ 18,426 $ 15,944 $ 17,346
2,875 3,165 1,178 2,150
73 18 (18) 11
2,231 2,758 2,130 1,973
– – – –
25 27 (40) (5)
25 27 (40) (5)
$ 2,206 $ 2,731 $ 2,170 $ 1,978
$ 1.44 $ 1.84 $ 1.48 $ 1.34
$ 0.05 $ 0.01 $ (0.01) $ 0.01
$ 1.44 $ 1.83 $ 1.47 $ 1.33
$ 0.05 $ 0.01 $ (0.01) $ 0.01
1,476,471,097 1,476,512,720 1,475,053,126 1,468,725,573
1,476,678,931 1,482,246,618 1,485,322,858 1,480,654,482
(74) (86) (56) (111)
– 47 – 1
761 509 1,154 741
(340) (38) (81) (192)
– – – –
– – – –
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
The following tables present amounts previously reported and adjusted amounts presented in the above
table. See Note 1 herein for a description of the changes.
Total revenues $ 15,888 $ 16,962 $ 17,315 $ 18,426 $ 14,826 $ 15,944
Income (loss) from continuing
operations before income taxes 2,832 2,875 3,147 3,165 1,179 1,178
Income (loss) from discontinued
operations, net of income taxes 93 73 33 18 (42) (18)
Earnings (loss) per common share
attributable to AIG common
shareholders:
Basic:
Income (loss) from continuing
operations $ 1.43 $ 1.44 $ 1.83 $ 1.84 $ 1.50 $ 1.48
Income (loss) from
discontinued operations $ 0.06 $ 0.05 $ 0.02 $ 0.01 $ (0.03) $ (0.01)
Diluted:
Income (loss) from continuing
operations $ 1.43 $ 1.44 $ 1.82 $ 1.83 $ 1.49 $ 1.47
Income (loss) from
discontinued operations $ 0.06 $ 0.05 $ 0.02 $ 0.01 $ (0.03) $ (0.01)
Total revenues $ 17,497 $ 18,649 $ 16,221 $ 17,338 $ 16,722 $ 17,865 $ 15,854 $ 17,169
Income (loss) from continuing
operations before income taxes 4,466 4,584 1,669 1,751 2,558 2,595 629 (6,039)
Income (loss) from discontinued
operations, net of income taxes 64 13 179 (5) 37 1 (4,332) (8)
Earnings (loss) per common share
attributable to AIG common
shareholders:
Basic:
Income (loss) from continuing
operations $ 1.68 $ 1.70 $ 1.23 $ 1.33 $ 1.11 $ 1.13 $ 0.25 $ (2.68)
Income (loss) from discontinued
operations $ 0.03 $ 0.01 $ 0.10 $ – $ 0.02 $ – $ (2.93) $ –
Diluted:
Income (loss) from continuing
operations $ 1.68 $ 1.70 $ 1.23 $ 1.33 $ 1.11 $ 1.13 $ 0.25 $ (2.68)
Income (loss) from discontinued
operations $ 0.03 $ 0.01 $ 0.10 $ – $ 0.02 $ – $ (2.93) $ –
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 330
I T EM 8 / NOT E 2 5 . QUART ERL Y F I NANCI AL I NF ORMAT I ON ( UNAUDI T ED)
Three Months Ended
March 31, 2013 June 30, 2013 September 30, 2013
(dollars in millions, except per As Previously As Currently As Previously As Currently As Previously As Currently
share data) Reported Reported Reported Reported Reported Reported
Three Months Ended
March 31, 2012 June 30, 2012 September 30, 2012 December 31, 2012
(dollars in millions, except per share As Previously As Currently As Previously As Currently As Previously As Currently As Previously As Currently
data) Reported Reported Reported Reported Reported Reported Reported Reported
..................................................................................................................................................................................
The following condensed consolidating financial statements reflect the results of AIG Life Holdings, Inc. (AIGLH), a
holding company and a wholly owned subsidiary of AIG. AIG provides a full and unconditional guarantee of all
outstanding debt of AIGLH.
Assets:
Short-term investments
Other investments
(a)
Total investments
Cash
Loans to subsidiaries
(b)
Investment in consolidated subsidiaries
(b)
Other assets, including deferred income taxes
Assets held for sale
Total assets
Liabilities:
Insurance liabilities
Long-term debt
Other liabilities, including intercompany balances
(a)(c)
Loans from subsidiaries
(b)
Liabilities held for sale
Total liabilities
Redeemable noncontrolling interests (see Note 17)
Total AIG shareholders’ equity
Non-redeemable noncontrolling interests
Total equity
Total liabilities and equity
Assets:
Short-term investments $ 14,764 $ – $ 17,061 $ (3,017) $ 28,808
Other investments
(a)
3,902 – 343,114 – 347,016
Total investments 18,666 – 360,175 (3,017) 375,824
Cash 81 73 997 – 1,151
Loans to subsidiaries
(b)
35,064 – (2,251) (32,813) –
Investment in consolidated subsidiaries
(b)
70,781 43,891 – (114,672) –
Other assets, including deferred income taxes 23,153 150 120,575 (4,185) 139,693
Assets held for sale – – 31,965 – 31,965
Total assets $ 147,745 $ 44,114 $ 511,461 $ (154,687) $ 548,633
Liabilities:
Insurance liabilities $ – $ – $ 280,434 $ (136) $ 280,298
Long-term debt 36,366 1,638 10,496 – 48,500
Other liabilities, including intercompany balances
(a)(c)
12,375 261 84,761 (3,931) 93,466
Loans from subsidiaries
(b)
1,002 472 34,500 (35,974) –
Liabilities held for sale – – 27,366 – 27,366
Total liabilities 49,743 2,371 437,557 (40,041) 449,630
Redeemable noncontrolling interests (see Note 17) – – 334 – 334
Total AIG shareholders’ equity 98,002 41,743 72,903 (114,646) 98,002
Non-redeemable noncontrolling interests – – 667 – 667
Total equity 98,002 41,743 73,570 (114,646) 98,669
Total liabilities and equity $ 147,745 $ 44,114 $ 511,461 $ (154,687) $ 548,633
(a) Includes intercompany derivative positions, which are reported at fair value before credit valuation adjustment.
(b) Eliminated in consolidation.
(c) For December 31, 2013 and December 31, 2012, includes intercompany tax payable of $1.4 billion and $6.1 billion, respectively, and
intercompany derivative liabilities of $249 million and $602 million, respectively, for American International Group, Inc. (As Guarantor) and
intercompany tax receivables of $98 million and $120 million, respectively, for AIGLH.
26. INFORMATION PROVIDED IN CONNECTION WITH OUTSTANDING DEBT
Condensed Consolidating Balance Sheets
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 331
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American
International Reclassifications
Group, Inc. Other and Consolidated
(in millions) (As Guarantor) AIGLH Subsidiaries Eliminations AIG
December 31, 2013
$ 11,965 $ – $ 11,404 $ (1,752) $ 21,617
7,561 – 327,250 – 334,811
19,526 – 338,654 (1,752) 356,428
30 51 2,160 – 2,241
31,220 – 854 (32,074) –
66,201 39,103 – (105,304) –
21,606 112 132,492 (1,086) 153,124
– – 29,536 – 29,536
$ 138,583 $ 39,266 $ 503,696 $ (140,216) $ 541,329
$ – $ – $ 271,252 $ – $ 271,252
30,839 1,352 9,502 – 41,693
6,422 161 98,908 (2,766) 102,725
852 200 31,173 (32,225) –
– – 24,548 – 24,548
38,113 1,713 435,383 (34,991) 440,218
– – 30 – 30
100,470 37,553 67,672 (105,225) 100,470
– – 611 – 611
100,470 37,553 68,283 (105,225) 101,081
$ 138,583 $ 39,266 $ 503,696 $ (140,216) $ 541,329
December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Revenues:
Equity in earnings of consolidated subsidiaries
*
Other income
Total revenues
Expenses:
Interest expense
Loss on extinguishment of debt
Other expenses
Total expenses
Income (loss) from continuing operations before income tax
expense (benefit)
Income tax expense (benefit)
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of
income taxes
Net income (loss)
Less:
Total net income attributable to noncontrolling interests
Net income (loss) attributable to AIG
Revenues:
Equity in earnings of consolidated subsidiaries
*
$ 1,970 $ 2,315 $ – $ (4,285) $ –
Change in fair value of ML III 2,287 – 601 – 2,888
Other income 1,911 49 66,556 (383) 68,133
Total revenues 6,168 2,364 67,157 (4,668) 71,021
Expenses:
Interest expense 2,257 174 271 (383) 2,319
Loss on extinguishment of debt 9 – 23 – 32
Other expenses 1,602 – 64,177 – 65,779
Total expenses 3,868 174 64,471 (383) 68,130
Income (loss) from continuing operations before income tax
expense (benefit) 2,300 2,190 2,686 (4,285) 2,891
Income tax expense (benefit) (1,137) (17) 346 – (808)
Income (loss) from continuing operations 3,437 2,207 2,340 (4,285) 3,699
Income from discontinued operations, net of income
taxes 1 – – – 1
Net income (loss) 3,438 2,207 2,340 (4,285) 3,700
Less:
Net income from continuing operations attributable to
noncontrolling interests:
Nonvoting, callable, junior and senior preferred interests – – – 208 208
Other – – 54 – 54
Total net income attributable to noncontrolling interests – – 54 208 262
Net income (loss) attributable to AIG $ 3,438 $ 2,207 $ 2,286 $ (4,493) $ 3,438
Condensed Consolidating Statements of Income (Loss)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 332
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American
International Reclassifications
Group, Inc. Other and Consolidated
(in millions) (As Guarantor) AIGLH Subsidiaries Eliminations AIG
Year Ended December 31, 2013
$ 7,638 $ 4,075 $ – $ (11,713) $ –
1,487 1 67,502 (312) 68,678
9,125 4,076 67,502 (12,025) 68,678
1,938 126 233 (155) 2,142
580 – 71 – 651
1,520 75 55,081 (159) 56,517
4,038 201 55,385 (314) 59,310
5,087 3,875 12,117 (11,711) 9,368
(4,012) (58) 4,454 (24) 360
9,099 3,933 7,663 (11,687) 9,008
(14) – 98 – 84
9,085 3,933 7,761 (11,687) 9,092
– – 7 – 7
$ 9,085 $ 3,933 $ 7,754 $ (11,687) $ 9,085
Year Ended December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
Revenues:
Equity in earnings of consolidated subsidiaries
*
$ 6,260 $ 1,586 $ – $ (7,846) $ –
Change in fair value of ML III (723) – 77 – (646)
Other income 1,088 189 65,663 (1,189) 65,751
Total revenues 6,625 1,775 65,740 (9,035) 65,105
Expenses:
Interest expense on FRBNY Credit Facility 72 – – (2) 70
Other interest expense 2,845 281 437 (1,189) 2,374
Loss on extinguishment of debt 2,847 – 61 – 2,908
Other expenses 867 – 59,787 – 60,654
Total expenses 6,631 281 60,285 (1,191) 66,006
Income (loss) from continuing operations before
income tax expense (benefit) (6) 1,494 5,455 (7,844) (901)
Income tax expense (benefit) (19,695) (103) 34 – (19,764)
Income (loss) from continuing operations 19,689 1,597 5,421 (7,844) 18,863
Income (loss) from discontinued operations, net of
income taxes 933 – 1,536 (2) 2,467
Net income (loss) 20,622 1,597 6,957 (7,846) 21,330
Less:
Net income from continuing operations attributable
to noncontrolling interests:
Nonvoting, callable, junior and senior preferred
interests – – – 634 634
Other – – 55 – 55
Total net income from continuing operations
attributable to noncontrolling interests – – 55 634 689
Net Income from discontinued operations
attributable to noncontrolling interests – – 19 – 19
Total net income attributable to noncontrolling
interests – – 74 634 708
Net income (loss) attributable to AIG $ 20,622 $ 1,597 $ 6,883 $ (8,480) $ 20,622
* Eliminated in consolidation.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 333
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American
International Reclassifications
Group, Inc. Other and Consolidated
(in millions) (As Guarantor) AIGLH Subsidiaries Eliminations AIG
Year Ended December 31, 2011
..................................................................................................................................................................................
Net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Total comprehensive loss attributable to
noncontrolling interests
Comprehensive income (loss) attributable to AIG
Net income (loss) $ 3,438 $ 2,207 $ 2,340 $ (4,285) $ 3,700
Other comprehensive income (loss) 6,093 3,973 7,158 (11,128) 6,096
Comprehensive income (loss) 9,531 6,180 9,498 (15,413) 9,796
Total comprehensive income attributable to
noncontrolling interests – – 57 208 265
Comprehensive income (loss) attributable to AIG $ 9,531 $ 6,180 $ 9,441 $ (15,621) $ 9,531
Net income (loss) $ 20,622 $ 1,597 $ 6,957 $ (7,846) $ 21,330
Other comprehensive income (loss) (2,483) 1,101 (2,674) 1,452 (2,604)
Comprehensive income (loss) 18,139 2,698 4,283 (6,394) 18,726
Total comprehensive income (loss) attributable to
noncontrolling interests – – (47) 634 587
Comprehensive income (loss) attributable to AIG $ 18,139 $ 2,698 $ 4,330 $ (7,028) $ 18,139
Condensed Consolidating Statements of Comprehensive Income (Loss)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 334
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American
International Reclassifications
Group, Inc. Other and Consolidated
(in millions) (As Guarantor) AIGLH Subsidiaries Eliminations AIG
Year Ended December 31, 2013
$ 9,085 $ 3,933 $ 7,761 $ (11,687) $ 9,092
(6,214) (4,689) (6,719) 11,385 (6,237)
2,871 (756) 1,042 (302) 2,855
– – (16) – (16)
$ 2,871 $ (756) $ 1,058 $ (302) $ 2,871
Year Ended December 31, 2012
Year Ended December 31, 2011
..................................................................................................................................................................................
............................................................................................................................................................................................
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Sales of investments
Purchase of investments
Loans to subsidiaries – net
Contributions to subsidiaries – net
Net change in restricted cash
Net change in short-term investments
Other, net
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Issuance of long-term debt
Repayments of long-term debt
Purchase of Common Stock
Intercompany loans – net
Cash dividends paid
Other, net
Net cash (used in) financing activities
Effect of exchange rate changes on cash
Change in cash
Cash at beginning of year
Change in cash of businesses held for sale
Cash at end of year
Net cash (used in) provided by operating activities (825) 2,682 1,819 3,676
Cash flows from investing activities:
Sales of investments 16,874 – 84,532 101,406
Purchase of investments (4,406) – (72,161) (76,567)
Loans to subsidiaries – net 5,126 – (5,126) –
Contributions to subsidiaries – net (152) – 152 –
Net change in restricted cash (377) – 791 414
Net change in short-term investments (2,029) – (6,080) (8,109)
Other, net 259 – (791) (532)
Net cash provided by investing activities 15,295 – 1,317 16,612
Cash flows from financing activities:
Issuance of long-term debt 3,754 – 4,858 8,612
Repayments of long-term debt (3,238) – (7,863) (11,101)
Intercompany loans – net (2,032) (2,622) 4,654 –
Purchase of common stock (13,000) – – (13,000)
Other, net (49) – (5,026) (5,075)
Net cash (used in) financing activities (14,565) (2,622) (3,377) (20,564)
Effect of exchange rate changes on cash – – 16 16
Change in cash (95) 60 (225) (260)
Cash at beginning of year 176 13 1,285 1,474
Reclassification to assets held for sale – – (63) (63)
Cash at end of year $ 81 $ 73 $ 997 $ 1,151
Condensed Consolidating Statements of Cash Flows
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 335
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American Other
International Subsidiaries
Group, Inc. and Consolidated
(in millions) (As Guarantor) AIGLH Eliminations AIG
Year Ended December 31, 2013
6,422 4,488 (5,045) 5,865
1,425 – 75,669 77,094
(5,506) – (72,381) (77,887)
3,660 – (3,660) –
(2,081) (1) 2,082 –
493 – 751 1,244
2,361 – 5,481 7,842
130 – (1,324) (1,194)
482 (1) 6,618 7,099
2,015 – 3,220 5,235
(7,439) (245) (6,513) (14,197)
(597) – – (597)
(123) (273) 396 –
(294) (3,991) 3,991 (294)
(517) – (1,388) (1,905)
(6,955) (4,509) (294) (11,758)
– – (92) (92)
(51) (22) 1,187 1,114
81 73 997 1,151
– – (24) (24)
$ 30 $ 51 $ 2,160 $ 2,241
Year Ended December 31, 2012
..................................................................................................................................................................................
............................................................................................................................................................................................
Net cash (used in) provided by operating activities $ (5,600) $ 1,277 $ 872 $ (3,451)
Net cash provided by operating activities – discontinued operations – – 3,370 3,370
Net cash (used in) provided by operating activities (5,600) 1,277 4,242 (81)
Cash flows from investing activities:
Sales of investments 2,565 – 82,468 85,033
Sales of divested businesses, net 1,075 – (488) 587
Purchase of investments (19) – (101,136) (101,155)
Loans to subsidiaries – net 3,757 – (3,757) –
Contributions to subsidiaries – net (15,973) (2) 15,975 –
Net change in restricted cash 1,945 – 25,299 27,244
Net change in short-term investments (7,130) – 27,118 19,988
Other, net 1,543 – (1,270) 273
Net cash (used in) provided by investing activities (12,237) (2) 44,209 31,970
Net cash provided by investing activities – discontinued operations – – 4,478 4,478
Net cash (used in) provided by investing activities (12,237) (2) 48,687 36,448
Cash flows from financing activities:
FRBNY credit facility repayments (14,622) – – (14,622)
Issuance of long-term debt 2,135 – 5,627 7,762
Repayments of long-term debt (6,181) – (11,629) (17,810)
Proceeds from drawdown on the Department of the Treasury Commitment
*
20,292 – – 20,292
Issuance of common stock 5,055 – – 5,055
Intercompany loans – net 11,519 (1,262) (10,257) –
Purchase of common stock (70) – – (70)
Other, net (164) – (35,427) (35,591)
Net cash (used in) provided by financing activities 17,964 (1,262) (51,686) (34,984)
Net cash (used in) financing activities – discontinued operations – – (1,942) (1,942)
Net cash (used in) provided by financing activities 17,964 (1,262) (53,628) (36,926)
Effect of exchange rate changes on cash – – 29 29
Change in cash 127 13 (670) (530)
Cash at beginning of year 49 – 1,509 1,558
Change in cash of businesses held for sale – – 446 446
Cash at end of year $ 176 $ 13 $ 1,285 $ 1,474
* Includes activities related to the Recapitalization. See Note 24 herein.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 336
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American Other
International Subsidiaries
Group, Inc. and Consolidated
(in millions) (As Guarantor) AIGLH Eliminations AIG
Year Ended December 31, 2011
..................................................................................................................................................................................
Cash (paid) received during the year ended December 31,
2013 for:
Interest:
Third party
Intercompany
Taxes:
Income tax authorities
Intercompany
Cash (paid) received during the year ended December 31,
2012 for:
Interest:
Third party $ (2,089) $ (128) $ (1,820) $ (4,037)
Intercompany (133) (56) 189 –
Taxes:
Income tax authorities $ (7) $ – $ (440) $ (447)
Intercompany 230 (41) (189) –
Cash (paid) received during the year ended December 31,
2011 for:
Interest:
Third party* $ (6,909) $ (128) $ (1,948) $ (8,985)
Intercompany (311) (169) 480 –
Taxes:
Income tax authorities $ 13 $ – $ (729) $ (716)
Intercompany (335) 1 334 –
* Includes payment of FRBNY Credit Facility accrued compounded interest of $4.7 billion in the first quarter of 2011.
Intercompany non-cash financing and investing activities:
Capital contributions
in the form of bond available for sale securities $ 4,078 $ –
to subsidiaries through forgiveness of loans – –
Return of capital and dividend received
in the form of cancellation of intercompany loan 9,303 –
in the form of other bond securities 3,320 3,668
Intercompany loan receivable offset by intercompany payable – 18,284
Other capital contributions – net 579 523
Supplementary Disclosure of Condensed Consolidating Cash Flow Information
American International Group, Inc (As Guarantor) supplementary disclosure of non-cash activities:
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 337
I T EM 8 / NOT E 2 6 . I NF ORMAT I ON PROVI DED I N CONNECT I ON WI T H OUT ST ANDI NG DEBT
American Other
International Subsidiaries
Group, Inc. and Consolidated
(in millions) (As Guarantor) AIGLH Eliminations AIG
$ (1,963) $ (111) $ (1,782) $ (3,856)
(12) (21) 33 –
$ (161) $ – $ (635) $ (796)
288 (78) (210) –
Years Ended December 31,
(in millions) 2013 2012 2011
$ –
341
–
–
–
523
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
In January 2014, AIG reduced DIB debt by $2.2 billion through a redemption of $1.2 billion aggregate principal
amount of its 4.250% Notes due 2014 and a repurchase of $1.0 billion of its 8.25% Notes due 2018 using cash and
short term investments allocated to the DIB.
On February 13, 2014, our Board of Directors declared a cash dividend on AIG Common Stock of $0.125 per share,
payable on March 25, 2014 to shareholders of record on March 11, 2014. The payment of any future dividends will
be at the discretion of our Board of Directors and will depend on various factors, including the regulatory framework
applicable to us.
On February 13, 2014, our Board of Directors increased the aggregate purchase amount authorized under AIG’s
August 1, 2013 AIG Common Stock share repurchase authorization by $1.0 billion, resulting in an aggregate
remaining authorization of approximately $1.4 billion.
See Note 16 for further discussion.
27. SUBSEQUENT EVENTS
Debt Redemption
Increase in Dividends Declared and Share Repurchase Authorization
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 338
I T EM 8 / NOT E 2 7 . SUBSEQUENT EVENT S
..................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
None.
Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed
or submitted under the Securities Exchange Act of 1934, as amended (the Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in SEC rules and forms and that such information is
accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to
allow timely decisions regarding required disclosures. In connection with the preparation of this Annual Report on
Form 10-K, an evaluation was carried out by AIG management, with the participation of AIG’s Chief Executive Officer
and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of December 31, 2013. Based on this evaluation, AIG’s
Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2013.
Management of AIG is responsible for establishing and maintaining adequate internal control over financial reporting.
AIG’s internal control over financial reporting is a process, under the supervision of AIG’s Chief Executive Officer and
Chief Financial Officer, designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of AIG’s financial statements for external purposes in accordance with U.S. GAAP.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
AIG management conducted an assessment of the effectiveness of our internal control over financial reporting as of
December 31, 2013 based on the criteria established in the 1992 Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
AIG management has concluded that, as of December 31, 2013, our internal control over financial reporting was
effective based on the criteria articulated in the 1992 Internal Control — Integrated Framework issued by the COSO.
The effectiveness of our internal control over financial reporting as of December 31, 2013 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which is
included in this Annual Report on Form 10-K.
We continue our implementation of new technology solutions, which began in 2010, to mitigate the reliance on
manual controls and to improve internal controls relating to the period-end financial reporting and consolidation
process, income taxes and reporting for non-standard transactions. As a result, we have updated our internal
controls to accommodate the modifications to our business processes and accounting procedures. We have
evaluated the effect on our internal control over financial reporting of this implementation for the quarter ended
December 31, 2013, and determined that this conversion has not materially affected, and is not reasonably likely to
materially affect, our internal control over financial reporting. There have been no other changes in our internal
control over financial reporting that have occurred during the quarter ended December 31, 2013 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Management’s Report on Internal Control Over Financial Reporting
Changes in Internal Control Over Financial Reporting
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 339
ITEM 9 / CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A / CONTROLS AND PROCEDURES
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Except for the information provided in Part 1, Item 1. Business under the heading ‘‘Directors and Executive Officers
of AIG’’, all information required by Items 10, 11, 12, 13 and 14 of this Form 10-K is incorporated by reference from
the definitive proxy statement for AIG’s 2014 Annual Meeting of Shareholders, which will be filed with the SEC not
later than 120 days after the close of the fiscal year pursuant to Regulation 14A.
See Item 10 herein.
See Item 10 herein.
See Item 10 herein.
See Item 10 herein.
(a) Financial Statements and Schedules. See accompanying Index to Financial Statements.
(b) Exhibits. See accompanying Exhibit Index.
PART III
PART IV
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 340
ITEM 10 / DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
ITEM 11 / EXECUTIVE COMPENSATION
ITEM 12 / SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
ITEM 13 / CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14 / PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 15 / EXHIBITS, FINANCIAL STATEMENT SCHEDULES
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
............................................................................................................................................................................................
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the
Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 20th of February, 2014.
AMERICAN INTERNATIONAL GROUP, INC.
By /s/ ROBERT H. BENMOSCHE
(Robert H. Benmosche, President and
Chief Executive Officer)
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints Robert H. Benmosche and David L. Herzog, and each of them severally, his or her true and lawful
attorney-in-fact, with full power of substitution and resubstitution, to sign in his or her name, place and stead, in any
and all capacities, to do any and all things and execute any and all instruments that such attorney may deem
necessary or advisable under the Securities Exchange Act of 1934, as amended, and any rules, regulations and
requirements of the U.S. Securities and Exchange Commission in connection with this Annual Report on Form 10-K
and any and all amendments hereto, as fully for all intents and purposes as he or she might or could do in person,
and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K
has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the
20th of February, 2014.
Signature Title
/s/ ROBERT H. BENMOSCHE
President, Chief Executive Officer and Director
(Principal Executive Officer)
(Robert H. Benmosche)
/s/ DAVID L. HERZOG
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
(David L. Herzog)
/s/ DON W. CUMMINGS
Vice President — Controller
(Principal Accounting Officer)
(Don W. Cummings)
/s/ W. DON CORNWELL
Director
(W. Don Cornwell)
/s/ JOHN H. FITZPATRICK
Director
(John H. Fitzpatrick)
/s/ WILLIAM G. JURGENSEN
Director
(William G. Jurgensen)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 341
SIGNATURES
Signature Title
/s/ CHRISTOPHER S. LYNCH
Director
(Christopher S. Lynch)
/s/ ARTHUR C. MARTINEZ
Director
(Arthur C. Martinez)
/s/ GEORGE L. MILES, JR.
Director
(George L. Miles, Jr.)
/s/ HENRY S. MILLER
Director
(Henry S. Miller)
/s/ ROBERT S. MILLER
Director
(Robert S. Miller)
/s/ SUZANNE NORA JOHNSON
Director
(Suzanne Nora Johnson)
/s/ RONALD A. RITTENMEYER
Director
(Ronald A. Rittenmeyer)
/s/ DOUGLAS M. STEENLAND
Director
(Douglas M. Steenland)
/s/ THERESA M. STONE
Director
(Theresa M. Stone)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 342
2 Plan of acquisition, reorganization, arrangement,
liquidation or succession
(1) Master Transaction Agreement, dated as of Incorporated by reference to Exhibit 2.1 to AIG’s
December 8, 2010, among AIG, ALICO Holdings LLC, Current Report on Form 8-K filed with the SEC on
AIA Aurora LLC, the Federal Reserve Bank of New December 8, 2010 (File No. 1-8787).
York, the United States Department of the Treasury
and the AIG Credit Facility Trust
3 Articles of incorporation and by-laws
3(i) Restated Certificate of Incorporation of AIG Incorporated by reference to Exhibit 3.2 to AIG’s
Current Report on Form 8-K filed with the SEC on
July 13, 2011 (File No. 1-8787).
3(ii) AIG By-laws, amended August 10, 2009 Incorporated by reference to Exhibit 3(ii) to AIG’s
Current Report on Form 8-K filed with the SEC on
August 14, 2009 (File No. 1-8787).
4 Instruments defining the rights of security holders, Certain instruments defining the rights of holders of
including indentures long-term debt securities of AIG and its subsidiaries
are omitted pursuant to Item 601(b)(4)(iii) of
Regulation S-K. AIG hereby undertakes to furnish to
the Commission, upon request, copies of any such
instruments.
(1) Credit Agreement, dated as of September 22, Incorporated by reference to Exhibit 99.1 to AIG’s
2008, between AIG and Federal Reserve Bank of New Current Report on Form 8-K filed with the SEC on
York September 26, 2008 (File No. 1-8787).
(2) Warrant Agreement (including Form of Warrant), Incorporated by reference to Exhibit 10.1 to AIG’s
dated as of January 6, 2011, between AIG and Wells Current Report on Form 8-K filed with the SEC on
Fargo Bank, N.A., as Warrant Agent January 7, 2011 (File No. 1-8787).
(3) Tax Asset Protection Plan, dated as of March 9, Incorporated by reference to Exhibit 4.1 to AIG’s
2011, between AIG and Wells Fargo Bank, N.A., as Current Report on Form 8-K filed with the SEC on
Rights Agent, including as Exhibit A the forms of March 9, 2011 (File No. 1-8787).
Rights Certificate and of Election to Exercise
(4) Amendment No. 1, dated as of January 8, 2014, to Incorporated by reference to Exhibit 4.1 to AIG’s
Tax Asset Protection Plan, between AIG and Wells Current Report on Form 8-K filed with the SEC on
Fargo Bank, National Association, as Rights Agent. January 8, 2014 (File No. 1-8787).
(5) Subordinated Debt Indenture, dated as of Incorporated by reference to Exhibit 4.1 to AIG’s
August 23, 2012, between AIG and The Bank of New Current Report on Form 8-K filed with the SEC on
York Mellon, as Trustee August 23, 2012 (File No. 1-8787).
(6) Amendment to the Replacement Capital Incorporated by reference to Exhibit 99.1 to AIG’s
Covenants, dated as of August 23, 2012, by AIG in Current Report on Form 8-K filed with the SEC on
favor of and for the benefit of each Covered August 23, 2012 (File No. 1-8787).
Debtholder
9 Voting Trust Agreement None.
10 Material contracts
(1) AIG Amended and Restated 1999 Stock Option Filed as to AIG’s Definitive Proxy Statement dated
Plan* April 4, 2003 (File No. 1-8787) and incorporated herein
by reference.
(2) Form of Stock Option Grant Agreement under the Incorporated by reference to Exhibit 10(a) to AIG’s
AIG Amended and Restated 1999 Stock Option Plan* Quarterly Report on Form 10-Q for the quarter ended
September 30, 2004 (File No. 1-8787).
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 343
EXHIBIT INDEX
Exhibit
Number Description Location
(3) AIG Executive Deferred Compensation Plan* Incorporated by reference to Exhibit 4(a) to AIG’s
Registration Statement on Form S-8 (File
No. 333-101640).
(4) AIG Supplemental Incentive Savings Plan* Incorporated by reference to Exhibit 4(b) to AIG’s
Registration Statement on Form S-8 (File
No. 333-101640).
(5) AIG Director Stock Plan* Filed as an exhibit to AIG’s Definitive Proxy Statement
dated April 5, 2004 (File No. 1-8787) and incorporated
herein by reference.
(6) Amended and Restated American General Incorporated by reference to Exhibit 10.15 to American
Supplemental Thrift Plan (December 31, 1998)* General Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2000 (File No. 1-7981).
(7) Letter Agreement, dated August 16, 2009, between Incorporated by reference to Exhibit 99.1 to AIG’s
AIG and Robert H. Benmosche* Current Report on Form 8-K filed with the SEC on
August 17, 2009 (File No. 1-8787).
(8) AIG Amended and Restated Executive Severance Incorporated by reference to Exhibit 10.1 to AIG’s
Plan* Current Report on Form 8-K filed with the SEC on
September 26, 2008 (File No. 1-8787).
(9) Assurance Agreement, by AIG in favor of eligible Incorporated by reference to Exhibit 10(6) to AIG’s
employees, dated as of June 27, 2005, relating to Quarterly Report on Form 10-Q for the quarter ended
certain obligations of Starr International Company, Inc.* March 31, 2005 (File No. 1-8787).
(10) Final Judgment and Consent with the Securities Incorporated by reference to Exhibit 10.2 to AIG’s
and Exchange Commission, including the related Current Report on Form 8-K filed with the SEC on
complaint, dated February 9, 2006 February 9, 2006 (File No. 1-8787).
(11) Agreement between the Attorney General of the Incorporated by reference to Exhibit 10.3 to AIG’s
State of New York and AIG and its Subsidiaries, dated Current Report on Form 8-K filed with the SEC on
January 18, 2006 February 9, 2006 (File No. 1-8787).
(12) AIG Senior Partners Plan (amended and restated Incorporated by reference to Exhibit 10.59 to AIG’s
effective December 31, 2008)* Annual Report on Form 10-K for the year ended
December 31, 2008 (File No. 1-8787).
(13) AIG Amended and Restated 2007 Stock Incentive Incorporated by reference to Exhibit 10.62 to AIG’s
Plan* Annual Report on Form 10-K for the year ended
December 31, 2008 (File No. 1-8787).
(14) AIG Form of Stock Option Award Agreement* Incorporated by reference to Exhibit 10.A to AIG’s
Registration Statement on Form S-8 (File
No. 333-148148).
(15) AIG Amended and Restated Form of Incorporated by reference to Exhibit 10.69 to AIG’s
Non-Employee Director Deferred Stock Units Award Annual Report on Form 10-K for the year ended
Agreement * December 31, 2008 (File No. 1-8787).
(16) Form of AIG 2009 TARP RSU Award Agreement Incorporated by reference to Exhibit 10.2 to AIG’s
(Top 25)* Current Report on Form 8-K filed with the SEC on
December 31, 2009 (File No. 1-8787).
(17) Form of AIG 2009 TARP RSU Award Agreement Incorporated by reference to Exhibit 10.63 to AIG’s
(Top 100)* Annual Report on Form 10-K for the year ended
December 31, 2009 (File No. 1-8787).
(18) Form of AIG Stock Salary Award Agreement* Incorporated by reference to Exhibit 10.2 to AIG’s
Current Report on Form 8-K filed with the SEC on
December 31, 2009 (File No. 1-8787).
(19) Memorandum of Understanding, dated Incorporated by reference to Exhibit 10.1 to AIG’s
November 25, 2009, between AIG, Maurice R. Current Report on Form 8-K filed with the SEC on
Greenberg, Howard I. Smith, C.V. Starr and Star November 25, 2009 (File No. 1-8787).
International Company, Inc.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 344
Exhibit
Number Description Location
(20) Second Amended and Restated Limited Liability Incorporated by reference to Exhibit 10.2 to AIG’s
Company Agreement of ALICO Holdings LLC, dated Current Report on Form 8-K filed with the SEC on
as of December 1, 2009, between AIG and the Federal December 1, 2009 (File No. 1-8787).
Reserve Bank of New York
(21) Master Investment and Credit Agreement, dated Incorporated by reference to Exhibit 10.1 to AIG’s
as of November 25, 2008, among Maiden Lane Current Report on Form 8-K filed with the SEC on
III LLC, the Federal Reserve Bank of New York, AIG December 2, 2008 (File No. 1-8787).
and the Bank of New York Mellon
(22) Asset Purchase Agreement, dated as of Incorporated by reference to Exhibit 10.1 to AIG’s
December 12, 2008, among the Sellers party thereto, Current Report on Form 8-K filed with the SEC on
AIF Securities Lending Corp., AIG, Maiden Lane II LLC December 15, 2008 (File No. 1-8787).
and the Federal Reserve Bank of New York
(23) AIG Credit Facility Trust Agreement, dated as of Incorporated by reference to Exhibit 10.1 to AIG’s
January 16, 2009, among the Federal Reserve Bank of Current Report on Form 8-K filed with the SEC on
New York and Jill M. Considine, Chester B. Feldberg January 23, 2009 (File No. 1-8787).
and Douglas L. Foshee, as Trustees
(24) 2009-2010 Stock Salary Award Agreement Incorporated by reference to Exhibit 10.1 to AIG’s
between AIG and Robert H. Benmosche, dated Current Report on Form 8-K filed with the SEC on
November 24, 2009* November 25, 2009 (File No. 1-8787).
(25) Restrictive Covenant Agreement between AIG and Incorporated by reference to Exhibit 10.1 to AIG’s
Robert H. Benmosche, dated November 24, 2009* Current Report on Form 8-K filed with the SEC on
November 25, 2009 (File No. 1-8787).
(26) Form of Reimbursement Agreement for Use of Incorporated by reference to Exhibit 10.1 to AIG’s
Corporate Aircraft* Current Report on Form 8-K filed with the SEC on
January 25, 2010 (File No. 1-8787).
(27) First Amended and Restated Credit Agreement, Incorporated by reference to Exhibit 10.1 to AIG’s
dated as of October 5, 2012, among AIG, the Current Report on Form 8-K filed with the SEC on
subsidiary borrowers party thereto, the lenders party October 5, 2012 (File No. 1-8787)
thereto, JPMorgan Chase Bank, N.A., as
Administrative Agent, and each Several L/C Agent
party thereto.
(28) Purchase Agreement, dated as of September 30, Incorporated by reference to Exhibit 2.1 to AIG’s
2010, between American International Group, Inc. and Current Report on Form 8-K filed with the SEC on
Prudential Financial, Inc. (excluding certain exhibits October 4, 2010 (File No. 1-8787).
and schedules)
(29) American International Group, Inc. 2010 Stock Incorporated by reference to AIG’s Definitive Proxy
Incentive Plan* Statement, dated April 12, 2010 (Filed No. 1-8787).
(30) AIG Amended Form of 2010 Stock Incentive Plan Incorporated by reference to Exhibit 10.14 to AIG’s
DSU Award Agreement* Quarterly Report on Form 10-Q for the quarter ended
March 31, 2012 (File No. 1-8787).
(31) Form of Award Letter for LTPU-based stock Incorporated by reference to Exhibit 10.2 to AIG’s
salary* Current Report on Form 8-K filed with the SEC on
May 28, 2010 (File No. 1-8787).
(32) Determination Memorandum, dated March 23, Incorporated by reference to Exhibit 10.1 to AIG’s
2010, from the Office of the Special Master for TARP Current Report on Form 8-K filed with the SEC on
Executive Compensation to AIG* April 2, 2010 (File No. 1-8787).
(33) Stock Purchase Agreement, dated as of March 7, Incorporated by reference to Exhibit 2.1 to AIG’s
2010, among American International Group, Inc., Current Report on Form 8-K filed with the SEC on
ALICO Holdings LLC and MetLife, Inc. March 11, 2010 (File No. 1-8787).
(34) Supplemental Determination Memorandum, dated Incorporated by reference to Exhibit 99.2 to AIG’s
February 5, 2010, from the Office of the Special Current Report on Form 8-K filed with the SEC on
Master for TARP Executive Compensation to AIG* February 8, 2010 (File No. 1-8787).
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 345
Exhibit
Number Description Location
(35) Release and Restrictive Covenant Agreement Incorporated by reference to Exhibit 99.3 to AIG’s
between AIG and Peter Hancock* Current Report on Form 8-K filed with the SEC on
February 8, 2010 (File No. 1-8787).
(36) Non-Competition and Non-Solicitation Agreement Incorporated by reference to Exhibit 99.4 to AIG’s
between AIG and Peter Hancock, dated February 8, Current Report on Form 8-K filed with the SEC on
2010* February 8, 2010 (File No. 1-8787).
(37) Determination Memorandum, dated April 16, 2010, Incorporated by reference to Exhibit 10.2 to AIG’s
from the Office of the Special Master for TARP Quarterly Report on Form 10-Q for the quarter ended
Executive Compensation to AIG* March 31, 2010 (File No. 1-8787).
(38) Supplemental Determination Memorandum, dated Incorporated by reference to Exhibit 10(103) to AIG’s
August 3, 2010, from the Office of the Special Master Annual Report on Form 10-K for the year ended
for TARP Executive Compensation to AIG* December 31, 2010 (File No. 1-8787).
(39) Supplemental Determination Memorandum, dated Incorporated by reference to Exhibit 10(104) to AIG’s
December 20, 2010, from the Office of the Special Annual Report on Form 10-K for the year ended
Master for TARP Executive Compensation to AIG* December 31, 2010 (File No. 1-8787).
(40) Supplemental Determination Memorandum, dated Incorporated by reference to Exhibit 10(105) to AIG’s
May 18, 2010, from the Office of the Special Master Annual Report on Form 10-K for the year ended
for TARP Executive Compensation to AIG* December 31, 2010 (File No. 1-8787).
(41) Amendment No. 1, dated as of March 7, 2010, to Incorporated by reference to Exhibit 10(106) to AIG’s
the Second Amended and Restated Limited Liability Annual Report on Form 10-K for the year ended
Company Agreement of ALICO Holdings LLC December 31, 2010 (File No. 1-8787).
(42) Determination Memorandum, dated April 1, 2011, Incorporated by reference to Exhibit 10.1 to AIG’s
from the Office of the Special Master for TARP Current Report on Form 8-K filed with the SEC on
Executive Compensation to AIG* April 1, 2011 (File No. 1-8787).
(43) Determination Memorandum, dated April 8, 2011, Incorporated by reference to Exhibit 10.109 to AIG’s
from the Office of the Special Master for TARP Annual Report on Form 10-K for the year ended
Executive Compensation to AIG* December 31, 2011 (File No. 1-8787).
(44) Supplemental Determination Memorandum, dated Incorporated by reference to Exhibit 10.110 to AIG’s
October 21, 2011, from the Office of the Special Annual Report on Form 10-K for the year ended
Master for TARP Executive Compensation to AIG* December 31, 2011 (File No. 1-8787).
(45) Supplemental Determination Memorandum, dated Incorporated by reference to Exhibit 10.111 to AIG’s
August 19, 2011, from the Office of the Special Master Annual Report on Form 10-K for the year ended
for TARP Executive Compensation to AIG* December 31, 2011 (File No. 1-8787).
(46) Determination Memorandum, dated April 6, 2012, Incorporated by reference to Exhibit 10.1 to AIG’s
from the Office of the Special Master for TARP Current Report on Form 8-K filed with the SEC on
Executive Compensation to AIG* April 10, 2012 (File No. 1-8787).
(47) Determination Memorandum, dated May 9, 2012, Incorporated by reference to Exhibit 10.66 to AIG’s
from the Office of the Special Master for TARP Annual Report on Form 10-K for the year ended
Executive Compensation to AIG* December 31, 2012 (File No. 1-8787).
(48) AIG Non-Qualified Retirement Income Plan* Incorporated by reference to Exhibit 10.69 to AIG’s
Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
(49) AIG Supplemental Executive Retirement Plan* Incorporated by reference to Exhibit 10.70 to AIG’s
Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
(50) Amendment to the AIG Supplemental Executive Incorporated by reference to Exhibit 10.71 to AIG’s
Retirement Plan* Annual Report on Form 10-K for the year ended
December 31, 2012 (File No. 1-8787).
(51) American General Corporation Supplemental Incorporated by reference to Exhibit 10.1 to American
Executive Retirement Plan* General Corporation’s Quarterly Report on Form 10-Q
for the quarter ended September 30, 1998 (File
No. 1-7981).
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 346
Exhibit
Number Description Location
(52) Amendment Number One to the American Incorporated by reference to Exhibit 10.73 to AIG’s
General Corporation Supplemental Executive Annual Report on Form 10-K for the year ended
Retirement Plan* December 31, 2012 (File No. 1-8787).
(53) Amendment Number Two to the American Incorporated by reference to Exhibit 10.74 to AIG’s
General Corporation’ Supplemental Executive Annual Report on Form 10-K for the year ended
Retirement Plan* December 31, 2012 (File No. 1-8787).
(54) Master Transaction Agreement, dated as of Incorporated by reference to Exhibit 10.6 to AIG’s
April 19, 2011, by and among American Home Quarterly Report on Form 10-Q for the quarter ended
Assurance Company, Chartis Casualty Company (f/k/a March 31, 2011 (File No. 1-8787).
American International South Insurance Company),
Chartis Property Casualty Company (f/k/a AIG
Casualty Company), Commerce and Industry
Insurance Company, Granite State Insurance
Company, Illinois National Insurance Co., National
Union Fire Insurance Company of Pittsburgh, Pa., New
Hampshire Insurance Company, The Insurance
Company of the State of Pennsylvania, Chartis Select
Insurance Company (f/k/a AIG Excess Liability
Insurance Company Ltd.), Chartis Specialty Insurance
Company (f/k/a American International Specialty Lines
Insurance Company), Landmark Insurance Company,
Lexington Insurance Company, AIU Insurance
Company, American International Reinsurance
Company, Ltd. and American Home Assurance
Company, National Union Fire Insurance Company of
Pittsburgh, Pa., New Hampshire Insurance Company
and Chartis Overseas Limited acting as members of
the Chartis Overseas Association as respects business
written or assumed by or from affiliated companies of
Chartis Inc. (collectively, the Reinsureds), Eaglestone
Reinsurance Company and National Indemnity
Company
(55) Amended and Restated Unconditional Capital Filed herewith.
Maintenance Agreement, dated as of February 18,
2014, between American International Group, Inc. and
American General Life Insurance Company
(56) Amended and Restated Unconditional Capital Filed herewith.
Maintenance Agreement, dated as of February 18,
2014, between American International Group, Inc. and
The United States Life Insurance Company in the City
of New York
(57) Amended and Restated Unconditional Capital Filed herewith.
Maintenance Agreement, dated as of February 18,
2014, among American International Group, Inc., AIG
Property Casualty Inc., AIU Insurance Company,
American Home Assurance Company, AIG Assurance
Company, AIG Property Casualty Company, AIG
Specialty Insurance Company, Commerce and Industry
Insurance Company, Granite State Insurance
Company, Illinois National Insurance Co., Lexington
Insurance Company, National Union Fire Insurance
Company of Pittsburgh, Pa., New Hampshire
Insurance Company and The Insurance Company of
the State of Pennsylvania
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 347
Exhibit
Number Description Location
(58) Amended and Restated Unconditional Capital Filed herewith.
Maintenance Agreement, dated as of February 18,
2014, between American International Group, Inc. and
AGC Life Insurance Company
(59) Amended and Restated Unconditional Capital Filed herewith.
Maintenance Agreement, dated as of February 18,
2014, between American International Group, Inc. and
The Variable Annuity Life Insurance Company
(60) Unconditional Capital Maintenance Agreement, Incorporated by reference to Exhibit 10.7 to AIG’s
dated as of July 1, 2013, between American Quarterly Report on Form 10-Q for the quarter ended
International Group, Inc. and United Guaranty June 30, 2013 (File No. 1-8787).
Residential Insurance Company
(61) AIG 2013 Long-Term Incentive Plan* Incorporated by reference to Exhibit 10.1 to AIG’s
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
(62) Form of 2013 Long-Term Incentive Plan Incorporated by reference to Exhibit 10.2 to AIG’s
Performance Share Units Award Agreement* Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
(63) AIG Clawback Policy* Incorporated by reference to Exhibit 10.3 to AIG’s
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
(64) AIG 2013 Short-Term Incentive Plan* Incorporated by reference to Exhibit 10.4 to AIG’s
Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
(65) Form of 2013 Short-Term Incentive Plan Award Incorporated by reference to Exhibit 10.5 to AIG’s
Letter* Current Report on Form 8-K filed with the SEC on
March 27, 2013 (File No. 1-8787).
(66) AIG 2013 Omnibus Incentive Plan* Incorporated by reference to Appendix B in AIG’s
Definitive Proxy Statement on Schedule 14A, dated
April 4, 2013 (File No. 1-8787).
(67) Description of Non-Management Director Incorporated by reference to ‘‘Compensation of
Compensation* Directors’’ in AIG’s Definitive Proxy Statement on
Schedule 14A, dated April 4, 2013 (File No. 1-8787).
(68) Description of Named Executive Officer Incorporated by reference to AIG’s Current Report on
Compensation* Form 8-K filed with the SEC on April 4, 2013 (File
No. 1-8787).
(69) AIG 2012 Executive Severance Plan (as Filed herewith.
amended)*
(70) Share Purchase Agreement, dated as of Incorporated by reference to Exhibit 2.1 to AIG’s
December 9, 2012, by and among AIG Capital Current Report on Form 8-K filed with the SEC on
Corporation, AIG and Jumbo Acquisition Limited December 10, 2012 (File No. 1-8787).
(71) Amendment No.1 to the Share Purchase Incorporated by reference to Exhibit 2.1 to AIG’s
Agreement, dated as of May 10, 2013, among AIG, Current Report on Form 8-K filed with the SEC on
AIG Capital Corporation and Jumbo Acquisition Limited May 13, 2013 (File No. 1-8787).
(72) Amendment No.2 to the Share Purchase Incorporated by reference to Exhibit 2.1 to AIG’s
Agreement, dated as of June 15, 2013, among AIG, Current Report on Form 8-K filed with the SEC on
AIG Capital Corporation and Jumbo Acquisition Limited June 17, 2013 (File No. 1-8787).
(73) AerCap Share Purchase Agreement, dated as of Incorporated by reference to Exhibit 2.1 to AIG’s
December 16, 2013, by and among AIG Capital Current Report on Form 8-K filed with the SEC on
Corporation, AIG, AerCap Holdings N.V., and AerCap December 16, 2013 (File No. 1-8787).
Ireland Limited
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 348
Exhibit
Number Description Location
(74) Revolving Credit Agreement, dated as of Incorporated by reference to Exhibit 10.1 to AIG’s
December 16, 2013 by and among AIG, AerCap Current Report on Form 8-K filed with the SEC on
Ireland Capital Limited, AerCap Holdings N.V., AerCap December 16, 2013 (File No. 1-8787).
Ireland Limited and certain subsidiaries of AerCap
Holdings N.V., as guarantors.
11 Statement re: Computation of Per Share Earnings Included in Note 18 to Consolidated Financial
Statements.
12 Computation of Ratios of Earnings to Fixed Charges Filed herewith.
21 Subsidiaries of Registrant Filed herewith.
23 Consent of Independent Registered Public Accounting Filed herewith.
Firm
23.1 Consent of Independent Accountants Filed herewith.
24 Powers of attorney Included on signature page and filed herewith.
31 Rule 13a-14(a)/15d-14(a) Certifications Filed herewith.
32 Section 1350 Certifications** Filed herewith.
99.02 Securities Registered pursuant to Section 12(b) of the Filed herewith.
Act
99.1 AIA Group Limited Consolidated Financial Statements Filed herewith.
for the year ended November 30, 2011
101 Interactive data files pursuant to Rule 405 of Filed herewith.
Regulation S-T: (i) the Consolidated Balance Sheets
as of December 31, 2013 and December 31, 2012,
(ii) the Consolidated Statements of Income for the
three years ended December 31, 2013, (iii) the
Consolidated Statements of Equity for the three years
ended December 31, 2013, (iv) the Consolidated
Statements of Cash Flows for the three years ended
December 31, 2013, (v) the Consolidated Statements
of Comprehensive Income (Loss) for the three years
ended December 31, 2013 and (vi) the Notes to the
Consolidated Financial Statements.
* This exhibit is a management contract or a compensatory plan or arrangement.
** This information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities
Exchange Act of 1934.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 349
Exhibit
Number Description Location
Schedule I
Fixed maturities:
U.S. government and government sponsored entities
Obligations of states, municipalities and political subdivisions
Non-U.S. governments
Public utilities
All other corporate debt securities
Mortgage-backed, asset-backed and collateralized
Total fixed maturity securities
Equity securities and mutual funds:
Common stock:
Public utilities
Banks, trust and insurance companies
Industrial, miscellaneous and all other
Total common stock
Preferred stock
Mutual funds
Total equity securities and mutual funds
Mortgage and other loans receivable, net of allowance
Other invested assets
Short-term investments, at cost (approximates fair value)
Derivative assets
Total investments
* Original cost of equity securities and fixed maturities is reduced by other-than-temporary impairment charges, and, as to fixed maturity securities,
reduced by repayments and adjusted for amortization of premiums or accretion of discounts.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 350
Summary of Investments — Other than Investments in Related Parties
Amount at
At December 31, 2013 which shown in
(in millions) Cost
*
Fair Value the Balance Sheet
$ 8,807 $ 8,918 $ 8,918
28,825 29,501 29,501
22,047 22,511 22,511
21,714 22,630 22,630
118,916 123,091 123,091
70,845 74,246 74,246
271,154 280,897 280,897
14 17 17
1,646 3,388 3,388
453 647 647
2,113 4,052 4,052
24 27 27
423 411 411
2,560 4,490 4,490
20,765 21,637 20,765
27,343 27,699 28,659
21,617 21,617 21,617
1,665 1,665 1,665
$ 345,104 $ 358,005 $ 358,093
Schedule II
Assets:
Short-term investments $ 14,764
Other investments 3,902
Total investments 18,666
Cash 81
Loans to subsidiaries
*
35,064
Due from affiliates – net
*
422
Deferred income taxes 20,601
Investments in consolidated subsidiaries
*
70,781
Other assets 2,130
Total assets $ 147,745
Liabilities:
Intercompany tax payable
*
$ 6,078
Notes and bonds payable 14,334
Junior subordinated debt 9,416
MIP notes payable 9,287
Series AIGFP matched notes and bonds payable 3,329
Loans from subsidiaries
*
1,002
Other liabilities (includes intercompany derivative liabilities of $249 in 2013 and $602 in
2012) 6,297
Total liabilities 49,743
AIG Shareholders’ equity:
Common stock 4,766
Treasury stock (13,924)
Additional paid-in capital 80,410
Retained earnings 14,176
Accumulated other comprehensive income 12,574
Total AIG shareholders’ equity 98,002
Total liabilities and equity $ 147,745
* Eliminated in consolidation.
See Accompanying Notes to Condensed Financial Information of Registrant.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 351
Condensed Financial Information of Registrant
Balance Sheets — Parent Company Only
December 31,
(in millions) 2013 2012
$ 11,965
7,561
19,526
30
31,220
765
19,352
66,201
1,489
$ 138,583
$ 1,419
14,312
5,533
7,963
3,031
852
5,003
38,113
4,766
(14,520)
80,899
22,965
6,360
100,470
$ 138,583
Schedule II
Revenues:
Equity in undistributed net income (loss) of consolidated subsidiaries
*
$ (8,740) $ 432
Dividend income from consolidated subsidiaries
*
10,710 5,828
Interest income 358 596
Change in fair value of ML III 2,287 (723)
Net realized capital gains 747 213
Other income 806 279
Expenses:
Interest expense 2,257 2,917
Net loss on extinguishment of debt 9 2,847
Other expenses 1,602 867
Income (loss) from continuing operations before income tax expense (benefit) 2,300 (6)
Income tax benefit (1,137) (19,695)
Net income 3,437 19,689
Income (loss) from discontinued operations 1 933
Net income attributable to AIG Parent Company $ 3,438 $ 20,622
* Eliminated in consolidation.
See Accompanying Notes to Condensed Financial Information of Registrant.
Schedule II
Net income $ 3,438 $ 20,622
Other comprehensive income 6,093 (2,483)
Total comprehensive income attributable to AIG $ 9,531 $ 18,139
See accompanying Notes to Condensed Financial Information of Registrant
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 352
Condensed Financial Information of Registrant (Continued)
Statements of Income — Parent Company Only
Years Ended December 31,
(in millions) 2013 2012 2011
$ (2,226)
9,864
387
–
169
931
1,938
580
1,520
5,087
(4,012)
9,099
(14)
$ 9,085
Condensed Financial Information of Registrant (Continued)
Statements of Income — Parent Company Only
Years Ended December 31,
(in millions) 2013 2012 2011
$ 9,085
(6,214)
$ 2,871
Schedule II
Net cash provided by (used in) operating activities $ (825) $ (5,600)
Cash flows from investing activities:
Sales and maturities of investments 16,546 2,224
Sales of divested businesses – 1,075
Purchase of investments (4,406) (19)
Net change in restricted cash (377) 1,945
Net change in short-term investments (2,029) (7,130)
Contributions to subsidiaries – net (152) (15,973)
Payments received on mortgages and other loan receivables 328 341
Loans to subsidiaries – net 5,126 3,757
Other, net 259 1,543
Net cash provided by (used in) investing activities 15,295 (12,237)
Cash flows from financing activities:
Federal Reserve Bank of New York credit facility repayments – (14,622)
Issuance of long-term debt 3,754 2,135
Repayment of long-term debt (3,238) (6,181)
Proceeds from drawdown on the Department of the Treasury Commitment – 20,292
Issuance of Common Stock – 5,055
Cash dividends paid – –
Loans from subsidiaries – net (2,032) 11,519
Purchase of Common Stock (13,000) (70)
Other, net (49) (164)
Net cash provided by (used in) financing activities (14,565) 17,964
Change in cash (95) 127
Cash at beginning of year 176 49
Cash at end of year $ 81 $ 176
Supplementary disclosure of cash flow information:
Cash (paid) received during the period for:
Interest:
Third party* $ (2,089) $ (6,909)
Intercompany (133) (311)
Taxes:
Income tax authorities (7) 13
Intercompany 230 (335)
Intercompany non-cash financing and investing activities:
Capital contributions in the form of available for sale securities 4,078 –
Capital contributions to subsidiaries through forgiveness of loans – –
Other capital contributions – net 579 523
Intercompany loan receivable offset by intercompany payable – 18,284
Return of capital and dividend received in the form of cancellation of intercompany loan 9,303 –
Return of capital and dividend received in the form of other bonds securities 3,320 3,668
See Accompanying Notes to Condensed Financial Information of Registrant.
* 2011 includes payment of the FRBNY credit facility accrued compounded interest of $4.7 billion, before the facility was terminated on January 14, 2011 in
connection with the Recapitalization.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 353
Condensed Financial Information of Registrant (Continued)
Statements of Cash Flows — Parent Company Only
Years Ended December 31,
(in millions) 2013 2012 2011
$ 6,422
1,074
–
(5,506)
493
2,361
(2,081)
351
3,660
130
482
–
2,015
(7,439)
–
–
(294)
(123)
(597)
(517)
(6,955)
(51)
81
$ 30
Years Ended December 31,
(in millions) 2013 2012 2011
$ (1,963)
(12)
(161)
288
–
341
523
–
–
–
American International Group, Inc.’s (the Registrant) investments in consolidated subsidiaries are stated at cost plus
equity in undistributed income of consolidated subsidiaries. The accompanying condensed financial statements of the
Registrant should be read in conjunction with the consolidated financial statements and notes thereto of American
International Group, Inc. and subsidiaries included in the Registrant’s 2013 Annual Report on Form 10-K for the year
ended December 31, 2013 (2013 Annual Report on Form 10-K) filed with the Securities and Exchange Commission
on February 20, 2014.
The Registrant includes in its statement of income dividends from its subsidiaries and equity in undistributed income
(loss) of consolidated subsidiaries, which represents the net income (loss) of each of its wholly-owned subsidiaries.
On December 1, 2009, the Registrant and the Federal Reserve Bank of New York (FRBNY) completed two
transactions that reduced the outstanding balance and the maximum amount of credit available under the FRBNY
Credit Facility by $25 billion. In connection with one of those transactions, the Registrant assigned $16 billion of its
obligation under the FRBNY Credit Agreement to a subsidiary. The Registrant subsequently settled its obligation to
the subsidiary with a $15.5 billion non-cash dividend from the subsidiary. The difference was recognized over the
remaining term of the FRBNY Credit Agreement as a reduction to interest expense. The remaining difference was
derecognized by AIG through earnings due to the repayment in January 2011 of all amounts owed under, and the
termination of, the FRBNY Credit Facility.
Certain prior period amounts have been reclassified to conform to the current period presentation.
The five-year debt maturity schedule is incorporated by reference from Note 14 to Consolidated Financial
Statements.
The Registrant files a consolidated federal income tax return with certain subsidiaries and acts as an agent for the
consolidated tax group when making payments to the Internal Revenue Service. The Registrant and its subsidiaries
have adopted, pursuant to a written agreement, a method of allocating consolidated Federal income taxes. Amounts
allocated to the subsidiaries under the written agreement are included in Due from affiliates in the accompanying
Condensed Balance Sheets.
Income taxes in the accompanying Condensed Balance Sheets are composed of the Registrant’s current and
deferred tax assets, the consolidated group’s current income tax receivable, deferred taxes related to tax attribute
carryforwards of AIG’s U.S. consolidated income tax group and a valuation allowance to reduce the consolidated
deferred tax asset to an amount more likely than not to be realized. See Note 23 to the Consolidated Financial
Statements for additional information.
The consolidated U.S. deferred tax asset for net operating loss, capital loss and tax credit carryforwards and
valuation allowance are recorded by the Parent Company, which files the consolidated U.S. Federal income tax
return, and are not allocated to its subsidiaries. Generally, as, and if, the consolidated net operating losses and other
tax attribute carryforwards are utilized, the intercompany tax balance will be settled with the subsidiaries.
Notes to Condensed Financial Information of Registrant
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 354
............................................................................................................................................................................................
Schedule III
At December 31, 2013, 2012 and 2011 and for the years then ended
AIG Property Casualty
AIG Life and Retirement
Mortgage Guaranty
Other
AIG Property Casualty $ 2,441 $ 90,011 $ 22,161 $ 24 $ 34,873 $ 4,780 $ 25,785 $ 4,761 $ 7,304 $ 34,436
AIG Life and Retirement 5,672 36,471 – 856 4,813 10,755 10,014 931 2,079 –
Mortgage Guaranty 44 1,957 376 – 715 146 659 17 177 858
Other 25 75 – 9 (5) 4,662 (82) – (325) –
$ 8,182 $ 128,514 $ 22,537 $ 889 $ 40,396 $ 20,343 $ 36,376 $ 5,709 $ 9,235 $ 35,294
AIG Property Casualty $ 2,375 $ 91,686 $ 23,236 $ 26 $ 35,689 $ 4,253 $ 27,949 $ 4,324 $ 6,514 $ 34,840
AIG Life and Retirement 6,502 34,300 – 880 4,858 9,882 9,170 1,142 2,085 –
Mortgage Guaranty 25 3,104 229 – 792 132 834 20 167 801
Other 35 65 – 5 (4) 488 2 – (308) –
$ 8,937 $ 129,155 $ 23,465 $ 911 $ 41,335 $ 14,755 $ 37,955 $ 5,486 $ 8,458 $ 35,641
(a) Liability for unpaid claims and claims adjustment expense with respect to the General Insurance operations are net of discounts of $3.56 billion,
$3.25 billion and $3.18 billion at December 31, 2013, 2012 and 2011, respectively.
(b) Reflected in insurance balances payable in the accompanying Consolidated Balance Sheet.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 355
Supplementary Insurance Information
Liability
for Unpaid
Claims and
Claims Losses Amortization
Deferred Adjustment Reserve Policy Premiums and Loss of Deferred
Policy Expense, for and and Net Expenses Policy Other Net
Acquisition Future Policy Unearned Contract Policy Investment Incurred, Acquisition Operating Premiums
Segment (in millions) Costs Benefits
(a)
Premiums Claims
(b)
Fees Income Benefits Costs Expenses Written
2013
$ 2,623 $ 83,742 $ 21,341 $ 23 $ 33,953 $ 5,267 $ 22,639 $ 4,479 $ 7,275 $ 34,388
6,723 36,914 – 773 5,131 10,693 10,106 658 2,187 –
67 1,348 612 – 809 132 514 20 202 1,048
23 196 – 10 (8) (282) 136 – (498) –
$ 9,436 $ 122,200 $ 21,953 $ 806 $ 39,885 $ 15,810 $ 33,395 $ 5,157 $ 9,166 $ 35,436
2012
2011
Schedule IV
At December 31, 2013, 2012 and 2011 and for the years then ended
Long-duration insurance in force
Premiums:
AIG Property Casualty
AIG Life and Retirement
Mortgage Guaranty
Divested businesses
Eliminations
Total premiums
Long-duration insurance in force $ 918,260 $ 129,159 $ 458 $ 789,559 0.1%
Premiums:
AIG Property Casualty $ 40,428 $ 9,420 $ 3,428 $ 34,436 10.0%
AIG Life and Retirement 3,049 602 17 2,464 0.7
Mortgage Guaranty 938 70 (10) 858 (1.2)
Divested businesses 11 – – 11 –
Eliminations – 7 7 – –
Total premiums $ 44,426 $ 10,099 $ 3,442 $ 37,769 9.1%
Long-duration insurance in force $ 891,145 $ 140,156 $ 1,220 $ 752,209 0.2%
Premiums:
AIG Property Casualty $ 41,710 $ 9,901 $ 3,031 $ 34,840 8.7%
AIG Life and Retirement 3,121 591 19 2,549 0.7
Mortgage Guaranty 898 97 – 801 –
Divested businesses 15 6 2 11
(b)
18.2
Eliminations – (5) (5) – –
Total premiums $ 45,744 $ 10,590 $ 3,047 $ 38,201 8.0%
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 356
Reinsurance
Percent of
Ceded to Assumed Amount
Gross Other from Other Assumed
(in millions) Amount Companies Companies Net Amount to Net
2013
$ 947,170 $ 122,012 $ 427 $ 825,585 0.1%
$ 39,545 $ 8,816 $ 3,659 $ 34,388 10.6%
3,256 673 13 2,596 0.5
1,099 38 (13) 1,048 (1.2)
9 – – 9 –
– 3 3 – –
$ 43,909 $ 9,530 $ 3,662 $ 38,041 9.6%
2012
2011
Schedule V
For the years ended December 31, 2013, 2012 and 2011
Allowance for mortgage
and other loans
receivable
Allowance for premiums
and insurances
balances receivable
Allowance for
reinsurance assets
Federal and foreign
valuation allowance for
deferred tax assets
Allowance for mortgage
and other loans
receivable $ 740 $ (103) $ (43) $ (205) $ – $ – $ 16 $ 405
Allowance for premiums
and insurances
balances receivable 484 174 (36) – – – 2 624
Allowance for
reinsurance assets 364 (4) (1) – – – (21) 338
Federal and foreign
valuation allowance for
deferred tax assets 11,047 (1,907) – – – – (1,104) 8,036
Allowance for mortgage
and other loans
receivable $ 878 $ (18) $ (125) $ 22 $ – $ (55) $ 38 $ 740
Allowance for premiums
and insurances
balances receivable 515 63 (94) – – – – 484
Allowance for
reinsurance assets 492 (116) (63) – – – 51 364
Federal and foreign
valuation allowance for
deferred tax assets 27,548 (18,307) – – – – 1,806 11,047
* Includes recoveries of amounts previously charged off and reclassifications to/from other accounts.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 357
Valuation and Qualifying Accounts
Additions
Reclassified
Balance, Charged to Activity of to Assets of
Beginning Costs and Charge Discontinued Businesses Divested Other Balance,
(in millions) of year Expenses Offs Operations Held for Sale Businesses Changes
*
End of year
2013
$ 405 $ 20 $ (116) $ – $ – $ (6) $ 9 $ 312
624 14 (74) – – – (4) 560
338 (42) (31) – – – 11 276
8,036 (3,165) – (40) – – (1,235) 3,596
2012
2011
Exhibit 12
Earnings:
Pre-tax income (loss)
(a)
: $ 433 $ (2,836) $ 19,666 $ (14,125)
Add – Fixed charges 4,717 4,644 8,811 16,592
Adjusted Pre-tax income (loss) $ 5,150 $ 1,808 $ 28,477 $ 2,467
Fixed charges:
Interest expense $ 3,605 $ 3,576 $ 7,613 $ 15,136
Portion of rent expense representing interest 148 161 196 244
Interest credited to policy and contract holders 964 907 1,002 1,212
Total fixed charges $ 4,717 $ 4,644 $ 8,811 $ 16,592
Preferred stock dividend requirements $ – $ – $ – $ 1,204
Total fixed charges and preferred stock dividend
requirements $ 4,717 $ 4,644 $ 8,811 $ 17,796
Total fixed charges, excluding interest credited to policy
and contract holders $ 3,753 $ 3,737 $ 7,809 $ 15,380
Ratio of earnings to fixed charges:
Ratio 1.09 n/a 3.23 n/a
Coverage deficiency n/a $ (2,836) n/a $ (14,125)
Ratio of earnings to fixed charges and preferred stock
dividends:
Ratio 1.09 n/a 3.23 n/a
Coverage deficiency n/a $ (2,836) n/a $ (15,329)
Ratio of earnings to fixed charges, excluding interest
credited to policy and contract holders
(b)
: 1.37 n/a 3.65 n/a
Coverage deficiency n/a $ (1,929) n/a $ (12,913)
(a) From continuing operations, excluding undistributed earnings (loss) from equity method investments and capitalized interest.
(b) The Ratio of earnings to fixed charges excluding interest credited to policy and contract holders removes interest credited to guaranteed
investment contract (GIC) policyholders and guaranteed investment agreement (GIA) contract holders. Such interest expenses are also removed
from earnings used in this calculation. GICs and GIAs are entered into by AIG’s subsidiaries. The proceeds from GICs and GIAs are invested in a
diversified portfolio of securities, primarily investment grade bonds. The assets acquired yield rates greater than the rates on the related
policyholders obligation or contract, with the intent of earning a profit from the spread.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 358
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Years Ended December 31,
(in millions, except ratios) 2013 2012 2011 2010 2009
$ 7,942
4,279
$ 12,221
$ 3,292
138
849
$ 4,279
$ –
$ 4,279
$ 3,430
2.86
n/a
2.86
n/a
3.56
n/a
American International Group, Inc., and Subsidiaries
Exhibit 21
Percentage
of Voting
Securities
held by
Jurisdiction of Immediate
Incorporation or Immediate
As of December 31, 2013 Organization Parent
(1)
American International Group, Inc. Delaware
(2)
AIA Aurora LLC Delaware 100
AIG Capital Corporation Delaware 100
AIG Consumer Finance Group, Inc. Delaware 100
AIG Global Asset Management Holdings Corp. Delaware 100
AIG Asset Management (Europe) Limited England 100
AIG Asset Management (U.S.), LLC Delaware 100
AIG Global Real Estate Investment Corp. Delaware 100
AIG Securities Lending Corp. Delaware 100
International Lease Finance Corporation California 100
Fleet Solutions Holdings Inc. Delaware 100
AeroTurbine, Inc. Delaware 100
AIG Federal Savings Bank The United States 100
AIG Financial Products Corp. Delaware 100
AIG-FP Matched Funding Corp. Delaware 100
AIG Management France S.A. France 89.999986
(3)
AIG Matched Funding Corp. Delaware 100
AIG Funding, Inc. Delaware 100
AIG Global Services, Inc. New Hampshire 100
AIG Shared Services Corporation New York 100
AIG Life Insurance Company (Switzerland) Ltd. Switzerland 100
AIG Markets, Inc. Delaware 100
AIG Trading Group Inc. Delaware 100
AIG International Inc. Delaware 100
AIUH LLC Delaware 100
AIG Property Casualty Inc. Delaware 100
AIG Global Claims Services, Inc. Delaware 100
AIG Claims, Inc. Delaware 100
Health Direct, Inc. Delaware 100
AIG PC Global Services, Inc. Delaware 100
AIG North America, Inc. New York 100
AIG Property Casualty International, LLC Delaware 100
AIG APAC HOLDINGS PTE. LTD. Singapore 100
AIG Asia Pacific Insurance Pte. Ltd. Singapore 100
AIG Australia Limited Australia 100
AIG Insurance Hong Kong Limited Hong Kong 100
AIG Insurance New Zealand Limited New Zealand 100
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 359
Significant Subsidiaries
Percentage
of Voting
Securities
held by
Jurisdiction of Immediate
Incorporation or Immediate
As of December 31, 2013 Organization Parent
(1)
AIG Malaysia Insurance Berhad Malaysia 100
AIG Philippines Insurance, Inc. Philippines 100
AIG Taiwan Insurance Co., Ltd. Taiwan 100
AIG Vietnam Insurance Company Limited Vietnam 100
Thai CIT Holding Co., Ltd Thailand 49
AIG Insurance (Thailand) Public Company Limited Thailand 51
(4)
PT AIG Insurance Indonesia Indonesia 61.21
(5)
AIG Central Europe & CIS Insurance Holdings Corporation Delaware 100
UBB-AIG Insurance Company AD Bulgaria 40
AIG Egypt Insurance Company S.A.E. Egypt 95.08
AIG Europe Holdings Limited England 100
AIG Europe Financing Limited England 100
AIG Europe Sub Holdings Limited England 100
AIG Europe Limited England 100
AIG Germany Holding GmbH Germany 100
AIG Israel Insurance Company Limited Israel 100
Fuji International Insurance Company Limited England 100
AIG Japan Holdings Kabushiki Kaisha Japan 100
American Home Assurance Co., Ltd. Japan 100
AIU Insurance Company, Ltd. Japan 100
JI Accident & Fire Insurance Company, Ltd. Japan 50
The Fuji Fire and Marine Insurance Company, Limited Japan 100
AIG Fuji Life Insurance Company, Limited Japan 100
AIG MEA Holdings Limited United Arab Emirates 100
AIG CIS Investments, LLC Russian Federation 100
AIG Insurance Company, CJSC Russian Federation 100
AIG Insurance Limited Sri Lanka 100
AIG Sigorta A.S. Turkey 100
AIG PC European Insurance Investments Inc. Delaware 100
Ascot Corporate Name Limited England 100
AIU Insurance Company New York 100
AIG Insurance Company China Limited China 100
American International Overseas Limited Bermuda 100
AIG Chile Compania de Seguros Generales S.A. Chile 100
AIG Cyprus Limited Cyprus 100
AIG Insurance (Guernsey) PCC Limited Guernsey 100
AIG Seguros Colombia S.A. Colombia 96.30
(6)
AIG Seguros, El Salvador, Sociedad Anonima El Salvador 99.99
(7)
AIG Vida, Sociedad Anonima, Seguros de Personas El Salvador 100.00
AIG Seguros Uruguay S.A. Uruguay 100
AIG Uganda Limited Uganda 100
CHARTIS Takaful-Enaya B.S.C. (c) Bahrain 100
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 360
Percentage
of Voting
Securities
held by
Jurisdiction of Immediate
Incorporation or Immediate
As of December 31, 2013 Organization Parent
(1)
Chartis Uzbekistan Insurance Company Joint Venture LLC Uzbekistan 51
C.A. de Seguros American International Venezuela 93.72
Johannesburg Insurance Holdings (Proprietary) Limited South Africa 100
AIG Life South Africa Limited South Africa 100
AIG South Africa Limited South Africa 100
La Meridional Compania Argentina de Seguros S.A. Argentina 95.43
(8)
Underwriters Adjustment Company, Inc. (Panama) Panama 100
American International Reinsurance Company, Ltd. Bermuda 100
AIG Seguros Mexico, S.A. de C.V. Mexico 100
Chartis Latin America Investments, LLC Delaware 100
AIG Insurance Company-Puerto Rico Puerto Rico 100
AIG Latin America I.I. Puerto Rico 100
AIG Brazil Holding I, LLC Delaware 100
AIG Seguros Brasil S.A. Brazil 99.9999999
(9)
AIG Seguros Guatemala, S.A. Guatemala 100
American International Underwriters del Ecuador S.A. Ecuador 100
AIG-Metropolitana Cia de Seguros y Reaseguros S.A. Ecuador 32.06
(10)
Inversiones Segucasai, C.A. Venezuela 100
Chartis Memsa Holdings, Inc. Delaware 100
AIG Lebanon SAL Lebanon 100
AIG MEA Limited United Arab Emirates 100
AIG Kenya Insurance Company Limited Kenya 66.67
CHARTIS Investment Holdings (Private) Limited Sri Lanka 100
Chartis Kazakhstan Insurance Company Joint Stock Company Kazakhstan 100
Tata AIG General Insurance Company Limited India 26
Private Joint-Stock Company AIG Ukraine Insurance Company Ukraine 94.221
(11)
Travel Guard Worldwide, Inc. Delaware 100
AIG Travel Assist, Inc. Delaware 100
Travel Guard Americas LLC Wisconsin 100
Travel Guard Asia Pacific Pte. Ltd. Singapore 100
Travel Guard EMEA Limited England 100
AIG Travel Insurance Agency, Inc. Texas 100
Livetravel, Inc. Wisconsin 100
Travel Guard Group Canada, Inc./Groupe Garde Voyage du Canada, Inc. Canada 100
Travel Guard Group, Inc. Wisconsin 100
WINGS International SAS France 100
AIG Property Casualty U.S., Inc. Delaware 100
AIG Aerospace Insurance Services, Inc. Georgia 100
AIG Specialty Insurance Company Illinois 100
American Home Assurance Company New York 100
American International Realty Corp. Delaware 31.47
(12)
Pine Street Real Estate Holdings Corp. New Hampshire 31.47
(13)
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 361
Percentage
of Voting
Securities
held by
Jurisdiction of Immediate
Incorporation or Immediate
As of December 31, 2013 Organization Parent
(1)
Chartis Canada Holdings Inc. Canada 100
AIG Insurance Company of Canada Canada 100
AIG Property Casualty Insurance Agency, Inc. New Jersey 100
AIG Property Casualty Company Pennsylvania 100
Commerce and Industry Insurance Company New York 100
Eaglestone Reinsurance Company Pennsylvania 100
Lexington Insurance Company Delaware 100
Chartis Excess Limited Ireland 100
Morefar Marketing, Inc. Delaware 100
National Union Fire Insurance Company of Pittsburgh, Pa. Pennsylvania 100
American International Overseas Association Bermuda 78
(14)
Mt. Mansfield Company, Inc. Vermont 100
National Union Fire Insurance Company of Vermont Vermont 100
New Hampshire Insurance Company Pennsylvania 100
AIG Assurance Company Pennsylvania 100
Granite State Insurance Company Pennsylvania 100
Illinois National Insurance Co. Illinois 100
New Hampshire Insurance Services, Inc. New Hampshire 100
Risk Specialists Companies, Inc. Delaware 100
Risk Specialists Companies Insurance Agency, Inc. Massachusetts 100
Agency Management Corporation Louisiana 100
The Gulf Agency, Inc. Alabama 100
Design Professionals Association Risk Purchasing Group, Inc. Illinois 100
The Insurance Company of the State of Pennsylvania Pennsylvania 100
AM Holdings LLC Delaware 100
American Security Life Insurance Company Limited Liechtenstein 100
Chartis Azerbaijan Insurance Company Open Joint Stock Company Azerbaijan 51
(15)
MG Reinsurance Limited Vermont 100
SAFG Retirement Services, Inc. Delaware 100
AIG Life Holdings, Inc. Texas 100
AGC Life Insurance Company Missouri 100
AIG Life of Bermuda, Ltd. Bermuda 100
American General Life Insurance Company Texas 100
AIG Advisor Group, Inc. Maryland 100
Financial Service Corporation Georgia 100
FSC Securities Corporation Delaware 100
Royal Alliance Associates, Inc. Delaware 100
SagePoint Financial, Inc. Delaware 100
Woodbury Financial Services, Inc. Minnesota 100
SunAmerica Asset Management, LLC Delaware 100
The United States Life Insurance Company in the City of New York New York 100
The Variable Annuity Life Insurance Company Texas 100
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 362
Percentage
of Voting
Securities
held by
Jurisdiction of Immediate
Incorporation or Immediate
As of December 31, 2013 Organization Parent
(1)
Valic Retirement Services Company Texas 100
SunAmerica Life Reinsurance Company Missouri 100
United Guaranty Corporation North Carolina 100
AIG United Guaranty Agenzia di Assicurazione S.R.L. Italy 100
AIG United Guaranty Insurance (Asia) Limited Hong Kong 100
AIG United Guaranty Mexico, S.A. Mexico 99.999999
(16)
AIG United Guaranty Re Limited Ireland 100
United Guaranty Insurance Company North Carolina 100
United Guaranty Mortgage Insurance Company North Carolina 100
United Guaranty Mortgage Insurance Company of North Carolina North Carolina 100
United Guaranty Partners Insurance Company Vermont 100
United Guaranty Residential Insurance Company North Carolina 75.03
(17)
United Guaranty Commercial Insurance Company of North Carolina North Carolina 100
United Guaranty Credit Insurance Company North Carolina 100
United Guaranty Mortgage Indemnity Company North Carolina 100
United Guaranty Residential Insurance Company of North Carolina North Carolina 100
United Guaranty Services, Inc. North Carolina 100
(1) Percentages include directors’ qualifying shares.
(2) Substantially all subsidiaries listed are consolidated in the accompanying financial statements. Certain subsidiaries have been omitted from the
tabulation. The omitted subsidiaries, when considered in the aggregate, do not constitute a significant subsidiary.
(3) Also owned 10 percent by AIG Matched Funding Corp., 0.000005 percent by AIG-FP Capital Preservation Corp., 0.000002 percent by AIG-FP
Pinestead Holdings Corp., and 0.000002 percent by AIG-FP Matched Funding Corp.
(4) Also owned 48.987 percent by AIG Asia Pacific Insurance Pte. Ltd.
(5) Also owned 38.79 percent by PT Tiara Citra Cemerlang.
(6) Also owned 3.70 percent by AIG Insurance Company-Puerto Rico.
(7) Also owned 0.01 percent by Chartis Latin America Investments, LLC.
(8) Also owned 4.56 percent by AIG Global Management Company Ltd.
(9) Also owned 0.0000001 percent by AIG Brazil Holding II, LLC.
(10) Also owned 19.72 percent by Chartis Latin America Investments, LLC.
(11) Also owned 5.734 percent by Limited Liability Company with Foreign Investments Steppe Securities, and 0.023 percent by AIG Central
Europe & CIS Insurance Holdings Corporation.
(12) Also owned 27 percent by New Hampshire Insurance Company, 22.06 percent by National Union Fire Insurance Company of Pittsburgh, Pa.,
5.75 percent by AIU Insurance Company, 5.05 percent by Commerce and Industry Insurance Company, 4.05 percent by The Insurance Company of
the State of Pennsylvania, 1.67 percent by Lexington Insurance Company, 1.62 percent by AIG Property Casualty Company, 0.73 percent by Illinois
National Insurance Co., and 0.6 percent by Granite State Insurance Company.
(13) Also owned 27 percent by New Hampshire Insurance Company, 22.06 percent by National Union Fire Insurance Company of Pittsburgh, Pa.,
5.75 percent by AIU Insurance Company, 5.05 percent by Commerce and Industry Insurance Company, 4.05 percent by The Insurance Company of
the State of Pennsylvania, 1.67 percent by Lexington Insurance Company, 1.62 percent by AIG Property Casualty Company, 0.73 percent by Illinois
National Insurance Co., and 0.6 percent by Granite State Insurance Company.
(14) Also owned 12 percent by New Hampshire Insurance Company and 10 percent by American Home Assurance Company.
(15) Also owned 49 percent by AIG Property Casualty International, LLC.
(16) Also owned 0.000001 percent by United Guaranty Services, Inc.
(17) Also owned 24.97 percent by United Guaranty Residential Insurance Company of North Carolina.
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 363
Exhibit 23
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 2-45346,
No. 2-75875, No. 2-78291, No. 2-91945, No. 33-18073, No. 33-57250, No. 333-48639, No. 333-58095,
No. 333-70069, No. 333-83813, No. 333-31346, No. 333-39976, No. 333-45828, No. 333-50198, No. 333-52938,
No. 333-68640, No. 333-101640, No. 333-101967, No. 333-108466, No. 333-111737, No. 333-115911,
No. 333-148148, No. 333-168679 and 333-188634) and Form S-3 (No. 333-182469, No. 333-160645,
No. 333-74187, No. 333-106040, No. 333-132561, No. 333-150865 and No. 333-143992) of American International
Group, Inc. of our report dated February 20, 2014 relating to the financial statements, financial statement schedules
and the effectiveness of internal control over financial reporting, which appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
New York, New York
February 20, 2014
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 364
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23.1
We hereby consent to the incorporation by reference in the Registration Statement on Form S-8 (No.2-45346,
No. 2-75875, No. 2-78291, No. 2-91945, No. 33-18073, No. 33-57250, No. 333-48639, No. 333-58095,
No. 333-70069, No. 333-83813, No. 333-31346, No. 333-39976, No. 333-45828, No. 333-50198, No. 333-52938,
No. 333-68640, No. 333-101640, No. 333-101967, No. 333-108466, No. 333-111737, No. 333-115911,
No. 333-148148, No. 333-168679 and No. 333-188634) and Form S-3 (No. 333-182469, No. 333-160645,
No. 333-74187, No. 333-106040, No. 333-132561, No. 333-150865 and No. 333-143992) of American International
Group, Inc. of our report dated 24 February 2012 relating to the consolidated financial statements of AIA Group
Limited, which appears in this Annual Report on Form 10-K.
/s/ PricewaterhouseCoopers LLP
Hong Kong
20 February 2014
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 365
CONSENT OF INDEPENDENT ACCOUNTANTS
Exhibit 31
I, Robert H. Benmosche, certify that:
1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 20, 2014
/s/ ROBERT H. BENMOSCHE
Robert H. Benmosche
President and Chief Executive Officer
CERTIFICATIONS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 366
I, David L. Herzog, certify that:
1. I have reviewed this Annual Report on Form 10-K of American International Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over
financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 20, 2014
/s/ DAVID L. HERZOG
David L. Herzog
Executive Vice President
and Chief Financial Officer
CERTIFICATIONS
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 367
Exhibit 32
In connection with this Annual Report on Form 10-K of American International Group, Inc. (the ‘‘Company’’) for the
year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, Robert H. Benmosche, President and Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 20, 2014
/s/ ROBERT H. BENMOSCHE
Robert H. Benmosche
President and Chief Executive Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part
of the Report or as a separate disclosure document.
CERTIFICATION
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 368
In connection with this Annual Report on Form 10-K of American International Group, Inc. (the ‘‘Company’’) for the
year ended December 31, 2013, as filed with the Securities and Exchange Commission on the date hereof (the
‘‘Report’’), I, David L. Herzog, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
Date: February 20, 2014
/s/ DAVID L. HERZOG
David L. Herzog
Executive Vice President and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part
of the Report or as a separate disclosure document.
CERTIFICATION
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 369
Exhibit 99.02
Common Stock, Par Value $2.50 Per Share New York Stock Exchange
Warrants (expiring January 19, 2021) New York Stock Exchange
5.75% Series A-2 Junior Subordinated Debentures New York Stock Exchange
4.875% Series A-3 Junior Subordinated Debentures New York Stock Exchange
Stock Purchase Rights New York Stock Exchange
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 370
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Corporate Headquarters
American International Group, Inc.
175 Water Street
New York, NY 10038
(212) 770-7000
Listings and Certifications
Stock Market Listings
New York and Tokyo Stock Exchanges
NYSE common stock trading symbol: AIG
SEC Certifications
The certifications by the Chief Executive Officer
and the Chief Financial Of?cer of AIG, required
under Section 302 of the Sarbanes-Oxley
Act of 2002, were ?led as exhibits to AIG’s
Annual Report on Form 10-K for the year ended
December 31, 2013, and are included herein.
NYSE Certification
The Chief Executive Of?cer of AIG made an
unquali?ed certi?cation to the NYSE with respect
to AIG’s compliance with the NYSE Corporate
Governance Listing Standards in June 2013.
Annual Meeting of Shareholders
The 2014 Annual Meeting of Shareholders
will be held on Monday, May 12, 2014, at
9:00 a.m., at 175 Water Street, New York, NY.
Shareholder Assistance
Visit the AIG corporate website at
www.aig.com. Requests for copies of the Annual
Report to Shareholders and Annual Report on
Form 10-K for the year ended December 31,
2013, should be directed to:
Investor Relations
American International Group, Inc.
175 Water Street
New York, NY 10038
(212) 770-6293
Transfer Agent and Registrar
Wells Fargo Bank, N.A.
Shareowner Services
PO Box 64854
St. Paul, MN 55164-0854
(888) 899-8293
shareowneronline.com
Courier Service Address
Wells Fargo Bank, N.A.
Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100
Duplicate Mailings/Householding
A shareholder who receives multiple copies of
AIG’s proxy materials and Annual Report may
eliminate duplicate report mailings by contacting
AIG’s transfer agent.
Shareholder Information
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www.aig.com
American International Group, Inc.

doc_421825221.pdf