AIG 2011 Annual Report Download - page 141

AIG believes that it has sufficient liquidity at the AIG Parent level to satisfy future liquidity requirements and
meet its obligations, including reasonably foreseeable contingencies or events. No assurance can be given, however,
that AIG’s cash needs will not exceed its projected liquidity. Additional collateral calls, deterioration in investment
portfolios or reserve strengthening affecting statutory surplus, higher surrenders of annuities and other policies,
further downgrades in AIG’s credit ratings, or catastrophic losses may result in significant additional cash needs,
loss of some sources of liquidity or both. Regulatory and other legal restrictions could limit AIG’s ability to
transfer funds freely, either to or from its subsidiaries.
Chartis
AIG currently expects that its Chartis subsidiaries will be able to continue to satisfy future liquidity
requirements and meet their obligations, including reasonably foreseeable contingencies or events, through cash
from operations and, to the extent necessary, asset dispositions. Chartis subsidiaries maintain substantial liquidity
in the form of cash and short-term investments, totaling $5.3 billion as of December 31, 2011. Further, Chartis
businesses maintain significant levels of investment-grade fixed maturity securities, including substantial holdings in
government and corporate bonds, which Chartis could monetize in the event liquidity levels are deemed
insufficient.
In the first quarter of 2011, Chartis received a capital contribution of $3.7 billion in cash from AIG Parent
following the reserve strengthening in the fourth quarter of 2010. Chartis used $1.8 billion of this amount to
purchase certain assets from the DIB. Chartis subsequently returned capital of $2.2 billion to AIG Parent in the
form of all of the outstanding stock of UGC in the first quarter of 2011. In 2011, Chartis paid dividends of
$1.5 billion to AIG Parent.
One or more large catastrophes may require AIG to provide additional support to the affected Chartis
operations. In addition, downgrades in AIG’s credit ratings could put pressure on the insurer financial strength
ratings of its subsidiaries, which could result in non-renewals or cancellations by policyholders and adversely affect
the relevant subsidiary’s ability to meet its own obligations, and require AIG to provide capital or liquidity support
to the subsidiary. Increases in market interest rates may adversely affect the financial strength ratings of Chartis
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 economic collapse of a nation or region
significant to Chartis operations, nationalization, catastrophic terrorist acts, pandemics or other events causing
economic or political upheaval.
In February 2011, AIG entered into CMAs with certain Chartis domestic property and casualty insurance
companies. Among other things, the CMAs provide that AIG will maintain the total adjusted capital of these
Chartis insurance companies at or above a specified minimum percentage of the companies’ projected total
authorized control level Risk-Based Capital (RBC) (as defined by National Association of Insurance
Commissioners (NAIC) guidelines and determined based on the companies’ statutory financial statements). In
addition, the CMAs also provide that if the total adjusted capital of these Chartis insurance companies is in excess
of a specified minimum percentage of their respective total authorized control level RBCs, subject to board and
regulatory approval, the companies would declare and pay ordinary dividends to their equity holders in amounts
representing the excess over that required to maintain the specified minimum percentage. In February 2012, AIG
and these Chartis insurance companies entered into a new, single CMA, which replaces the CMAs entered into in
February 2011. Under the new CMA, the total adjusted capital and total authorized control level RBC of these
Chartis insurance companies will be measured as a group (the Fleet) rather than on an individual company basis.
As a result, the new CMA provides that AIG will maintain the total adjusted capital of the Fleet at or above a
specified minimum percentage of the Fleet’s projected total authorized control level RBC (as determined based
on the companies’ statutory financial statements). In addition, the new CMA provides that if the total adjusted
capital of the Fleet is in excess of a specified minimum percentage of the Fleet’s total authorized control level
RBC, subject to board approval and regulatory requirements (including the maximum amount of ordinary
dividends permitted under applicable insurance law), these Chartis insurance companies would declare and pay
ordinary dividends to their equity holders in amounts representing the excess over that required to maintain the
specified minimum percentage of the Fleet’s projected total authorized control level RBC.
AIG 2011 Form 10-K 127