AIG 2011 Annual Report Download - page 138

• a $10.4 billion reduction in cash provided by operating activities attributable to foreign life subsidiaries that
were sold (i.e., AIA, ALICO, AIG Star, AIG Edison and Nan Shan), which subsidiaries generated
operational cash inflows of $3.4 billion, $13.8 billion and $7.4 billion in 2011, 2010 and 2009, respectively;
and
• the effect of catastrophes and the cession of the bulk of Chartis net asbestos liabilities in the United States
to NICO. Excluding the impact of the NICO cession and catastrophes, cash provided by AIG’s reportable
segments in 2011 is consistent with 2010, as increases in claims paid were offset by increases in premiums
collected at the insurance subsidiaries.
Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits,
but the ability of Chartis to generate positive cash flow is affected by the frequency and severity of losses under its
insurance policies, policy retention rates and operating expenses.
Cash provided by Chartis operations was $1.9 billion for 2010 compared to $2.8 billion in 2009 as a reduction in
claims paid was more than offset by declines in premiums collected, arising primarily from a decrease in U.S. and
Canada region production. Catastrophic events and significant casualty losses, the timing and effect of which are
inherently unpredictable, reduce operating cash flow for Chartis operations. Cash provided by AIG’s life insurance
subsidiaries, including entities presented as discontinued operations, was $15.5 billion for 2010 compared to
$9.1 billion in 2009 as growth in international markets was partially offset by a decrease in cash flows from U.S.
and Canada region operations.
Investing Cash Flow Activities
Net cash provided by investing activities in 2011 was primarily attributable to:
• the utilization of $26.4 billion of restricted cash generated from the AIA IPO and ALICO sale in connection
with the Recapitalization and $9.6 billion disposition of MetLife securities, described in Note 1 to the
Consolidated Financial Statements;
• 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 Chartis and
SunAmerica, which were partially offset by purchases of available for sale investments.
Net cash used in investing activities in 2010 primarily resulted from net purchases of fixed maturity securities,
resulting from AIG’s investment of cash generated from operating activities, and the redeployment of liquidity
that had been accumulated by the insurance companies in 2009. In 2009, Net cash provided by investing activities
reflected from the net proceeds from the sale and maturity of investments.
Financing Cash Flow Activities
Net cash used in financing activities was significantly higher in 2011 primarily due to the repayment of the
FRBNY Credit Facility and the $12.4 billion partial repayment of the SPV Preferred Interests in connection with
the Recapitalization described in Note 1 to the Consolidated Financial Statements and use of proceeds received
from the sales of foreign life insurance entities in 2011. Net cash used in financing activities was significantly lower
in 2010 than in 2009, primarily as a result of declines in policyholder contract withdrawals, reflecting improved
conditions for the life insurance and retirement services businesses was partially offset by the issuance of
long-term debt by ILFC, which is discussed in Liquidity of Parent and Subsidiaries — Aircraft Leasing below.
Liquidity of Parent and Subsidiaries
AIG Parent
The Recapitalization in January 2011 involved a series of integrated transactions which had a direct effect on
AIG’s liquidity activities and financial position. These transactions included the repayment of the FRBNY Credit
Facility, and the partial repayment of the liquidation preference of the SPV Preferred Interests. These transactions
124 AIG 2011 Form 10-K