AIG 2011 Annual Report Download - page 182

($247 million). The decrease was partially offset by increases in other equity investments ($1.0 billion) and
common equity securities ($247 million).
• Foreign currency exchange rates net exposure increased 73.5 percent or $2.5 billion compared to 2010,
primarily due to: unrealized appreciation of $1.3 billion from certain foreign-denominated equity holdings;
goodwill translation adjustment of $812 million; and a reduction in foreign-denominated debt outstanding of
$463 million. The increase was partially offset by a net decrease in all other currencies of $65 million.
The above sensitivities of a 100 basis point increase in yield curves, a 20 percent decline in equities and
alternative assets, and a 10 percent depreciation of all foreign currency exchange rates against the U.S. dollar were
chosen solely for illustrative purposes. The selection of these specific events should not be construed as a
prediction, but only as a demonstration of the potential effects of such events. These scenarios should not be
construed as the only risks AIG faces; these events are shown as an indication of several possible losses AIG
could experience. In addition, losses from these and other risks could be materially higher than illustrated.
The sensitivity factors utilized for 2011 and presented above were selected based on historical data from 1991 to
2011, as follows (see the table below):
• a 100 basis point parallel shift in the yield curve is broadly consistent with a one standard deviation
movement of the benchmark ten-year treasury yield;
• a 20 percent drop for equity and alternative investments is broadly consistent with a one standard deviation
movement in the S&P 500; and
• a 10 percent depreciation of foreign currency exchange rates is consistent with a one standard deviation
movement in the U.S. dollar (USD)/Japanese Yen (JPY) exchange rate.
2011 as a Original 2010 Scenario
Suggested 2011 Scenario as 2011 Multiple of (based on Standard
Standard 2011 a Multiple of Change/ Standard Deviation for
Period Deviation Scenario Standard Deviation Return Deviation 1990-2010 Period)
10-Year Treasury 1991-2011 0.01 0.01 0.98 (0.01) 1.39 0.01
S&P 500 1991-2011 0.19 0.20 1.07 - - 0.20
USD/JPY 1991-2011 0.11 0.10 0.92 0.05 0.50 0.10
AIG’s Operational Risk Management department (ORM) oversees AIG’s operational risk management
practices. ORM is responsible for establishing and maintaining the framework, principles and guidelines of AIG’s
operational risk management program.
Each business unit is responsible for its operational risks and implementing the components of the operational
risk management program to effectively identify, assess, monitor and mitigate such risks. This responsibility
includes developing and implementing policies, procedures, management oversight processes, and other
governance-related activities consistent with AIG’s overall operational risk management process.
Senior operational risk executives in the businesses report to the Head of AIG ORM and to business
management. This reporting structure facilitates development of business-specific knowledge of operational risk
matters, while at the same time maintaining company-wide consistency in AIG’s overall approach to operational
risk management.
A strong operational risk management program facilitates escalation and resolution of operational risk issues. In
order to accomplish this, AIG’s operational risk management program is designed to:
• pro-actively address potential operational risk issues;
• create transparency at all levels of the organization; and
• assign clear ownership and accountability for addressing identified issues.
168 AIG 2011 Form 10-K
OPERATIONAL RISK MANAGEMENT