AIG 2011 Annual Report Download - page 142

Chartis continues to identify cost-effective opportunities to allocate its capital through the use of intercompany
reinsurance.
During September 2011, a $725 million letter of credit facility was put in place, under which Chartis and Ascot
Corporate Name Limited (ACNL) acted as co-obligors. ACNL, a Chartis subsidiary and 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 new facility, which supports the 2012 and 2013 years of account, the entire FAL requirement of
$583 million as of December 31, 2011 was satisfied with a letter of credit.
SunAmerica
Management considers the sources of liquidity for SunAmerica subsidiaries adequate to satisfy future liquidity
requirements and meet foreseeable liquidity requirements, including reasonably foreseeable contingencies or
events, through cash from operations and, to the extent necessary, asset dispositions. The SunAmerica companies
continue to maintain substantial liquidity in the form of cash and short-term investments, totaling $3.8 billion as of
December 31, 2011. These subsidiaries generally have been lengthening their investment maturity profile by
purchasing investment grade fixed maturity securities in order to reduce the levels of cash, cash equivalents and
other short-term instruments that had been maintained during 2009 and 2010. In 2011, the SunAmerica life
insurance companies paid dividends and surplus note interest totaling approximately $2.0 billion to their respective
holding companies, of which $1.4 billion was used to provide liquidity to AIG Parent through the repayment of
intercompany loans. In addition, $125 million from litigation settlement proceeds received by SunAmerica in 2011
was used to provide liquidity to AIG Parent.
The most significant potential liquidity requirements of the SunAmerica companies are the funding of product
surrenders, withdrawals and maturities. Given the size and liquidity profile of SunAmerica’s investment portfolios,
AIG believes that normal deviations from projected claim or surrender experience would not constitute a
significant liquidity risk. As part of its risk management framework, SunAmerica is evaluating and will implement
programs to enhance its liquidity position and facilitate SunAmerica’s ability to maintain a fully invested asset
portfolio, including securities lending programs structured to increase liquidity. During 2012, SunAmerica began
utilizing securities lending programs, primarily as an additional source of liquidity. In addition, in 2011, certain
SunAmerica insurance companies became members of the FHLBs in their respective districts, primarily as an
additional source of liquidity. This membership allows them to pledge certain mortgage-backed securities,
government and agency securities and other qualifying assets to secure advances obtained from the FHLBs. As of
December 31, 2011, SunAmerica had no outstanding borrowings from any of the FHLBs. In January 2012,
however, SunAmerica borrowed $36 million from the FHLBs to confirm its ability to access this source of
liquidity. Upon any potential event of default by SunAmerica, the FHLBs’ recovery would be limited to the
amount of SunAmerica’s liability under advances borrowed.
In March 2011, AIG entered into CMAs with certain SunAmerica insurance companies. Among other things,
the CMAs provide that AIG will maintain the total adjusted capital of these SunAmerica insurance companies at
or above a specified minimum percentage of the companies’ projected company action level RBCs. In addition,
the CMAs also provide that if the total adjusted capital of these SunAmerica insurance companies is in excess of a
specified minimum percentage of their respective total company action level RBCs, subject to board and
regulatory approval, the companies would declare and pay ordinary dividends to their respective equity holders in
amounts representing the excess over that required to maintain the specified minimum percentage. As structured,
the CMAs contemplate that the specified minimum percentage would be reviewed and agreed upon at least
annually.
128 AIG 2011 Form 10-K