AIG 2011 Annual Report Download - page 149

Adverse ratings actions regarding our long-term debt ratings by the major rating agencies would require AIGFP
to post additional collateral payments pursuant to, and/or permit the termination of, derivative transactions to
which AIGFP is a party, which could adversely affect AIG’s business, its consolidated results of operations in a
reporting period or its liquidity. Credit ratings estimate a company’s ability to meet its obligations and may
directly affect the cost and availability to that company of financing. In the event of a further downgrade of AIG’s
long-term senior debt ratings, AIGFP would be required to post additional collateral, and certain of AIGFP’s
counterparties would be permitted to elect early termination of contracts.
The actual amount of collateral required to be posted to counterparties in the event of such downgrades, or the
aggregate amount of payments that AIG could be required to make, depends on market conditions, the fair value
of outstanding affected transactions and other factors prevailing at the time of the downgrade.
See Notes 12 and 15 to the Consolidated Financial Statements for further details on AIG’s derivative
transactions and GIA collateral arrangements.
Contractual Obligations
The following table summarizes contractual obligations in total, and by remaining maturity:
Payments due by Period
December 31, 2011 Total
(in millions) Payments 2012 2013 - 2014 2015 - 2016 Thereafter
Loss reserves $ 94,328 $ 20,941 $ 26,035 $ 14,564 $ 32,788
Insurance and investment contract liabilities 232,531 13,770 29,954 25,965 162,842
Aircraft purchase commitments 19,036 1,866 3,190 5,593 8,387
Borrowings 73,400 6,966 12,890 12,065 41,479
Interest payments on borrowings 46,442 4,233 7,877 6,717 27,615
Operating leases 1,748 422 566 332 428
Other long-term obligations(a) 169 43 24 3 99
Total(b) $ 467,654 $ 48,241 $ 80,536 $ 65,239 $ 273,638
(a) Primarily includes contracts to purchase future services and other capital expenditures.
(b) Does not reflect unrecognized tax benefits of $4.3 billion, the timing of which is uncertain. In addition, the majority of AIGFP’s credit default
swaps require AIGFP to provide credit protection on a designated portfolio of loans or debt securities. At December 31, 2011, the fair value
derivative liability was $3.1 billion, relating to AIGFP’s super senior multi-sector CDO credit default swap portfolio, realized in extinguishing
derivative obligations. Due to the long-term maturities of these credit default swaps, AIG is unable to make reasonable estimates of the periods
during which any payments would be made. However, at December 31, 2011 AIGFP had posted collateral of $2.7 billion with respect to these
swaps.
Loss Reserves
Loss reserves relate to the Chartis and the Mortgage Guaranty business, 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.
Management believes that adequate financial resources are maintained by the individual Chartis and UGC
subsidiaries to meet the actual required payments under these obligations. These subsidiaries maintain substantial
liquidity in the form of cash and short-term investments. Further, these businesses maintain significant levels of
investment-grade fixed income securities, including substantial holdings in government and corporate bonds (see
Investments herein), which Chartis and UGC could seek to monetize in the event operating cash flows are
insufficient. See Capital Resources and Liquidity — Analysis of Sources and Uses of Cash and Capital Resources
and Liquidity — Liquidity of Parent and Subsidiaries for matters that could affect operating cash flows and
liquidity of these subsidiaries.
AIG 2011 Form 10-K 135