AIG 2011 Annual Report Download - page 172

AIG believes that the lack of demand for commercial and residential real estate collateral-based securities, low
contractual coupons and interest rate spreads, and the deterioration in the level of collateral support due to real
estate market conditions are the primary reasons for these securities trading at significant price discounts. Based
on its analysis, and taking into account the level of subordination below these securities, AIG continues to believe
that the expected cash flows from these securities will be sufficient to recover the amortized cost of its investment.
AIG continues to monitor these positions for potential credit impairments that could result from further
deterioration in commercial and residential real estate fundamentals.
See Note 7 to the Consolidated Financial Statements for further discussion of AIG’s investment portfolio.
Risk management is a key element of AIG’s approach to corporate governance. AIG has an integrated process
for managing risks throughout the organization. AIG’s Board of Directors has oversight responsibility for the
management of risk. AIG’s Enterprise Risk Management (ERM) Department supervises and integrates the risk
management functions in each of AIG’s major business units, providing senior management with a consolidated
view on the firm’s major risk positions. Within each business unit, senior leaders and executives approve
risk-taking policies and targeted risk tolerance within the framework provided by ERM.
AIG’s risk governance fosters the development and maintenance of a risk and control culture that encompasses
all significant risk categories. It is supported by committees at the AIG corporate-level and in each business unit.
AIG’s Board of Directors oversees management of risk through the complementary functioning of its Finance
and Risk Management Committee (the FRMC) and the Audit Committee, and interaction with other committees
of the Board. AIG’s 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 in order to protect AIG’s financial strength, optimize its intrinsic value, and protect its
reputation among key stakeholders. The GRC is chaired by AIG’s CRO and its membership includes AIG’s CEO,
Chief Financial Officer (CFO), General Counsel, and 11 additional executives from across AIG’s corporate
functions and business units. AIG’s 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 as follows:
• the Financial Risk Group (the FRG);
• the Transaction Approval and Business Practices Committee (the TABPC);
• the Operational Risk Committee (the ORC); and
• the Risk and Capital Committees of AIG’s major insurance business segments, SunAmerica, Chartis and
UGC.
The committees are comprised of senior executives and experienced business representatives from a range of
control functions and business units throughout AIG and its subsidiaries. These committees are charged with
identifying, analyzing and resolving specific risk matters within their respective mandate.
The FRG is responsible for the oversight of financial risks taken by AIG and its subsidiaries. The FRG’s
mandate includes oversight of the firm’s aggregate risks related to credit, asset-liability management and liquidity,
derivatives activity, and foreign exchange transactions. Membership of the FRG includes AIG’s Executive Vice
President — Investments and Financial Services and Executive Vice President and Treasurer, as well as its CFO,
and other senior executives from Finance and ERM. AIG’s CRO serves as Chair of the FRG.
158 AIG 2011 Form 10-K
ENTERPRISE RISK MANAGEMENT
OVERVIEW
RISK GOVERNANCE STRUCTURE