AIG 2011 Annual Report Download - page 188

and unpaid recoverables, whether the balance is in dispute or a legal collection status, whether the reinsurer is
financially troubled (i.e., liquidated, insolvent, in receivership or otherwise subject to formal or informal regulatory
restriction), whether collateral and collateral arrangements exist, and the credit quality of the underlying reinsurer.
Detailed reviews of the underlying receivables are particularly important when assessing recoverables attributable
to long-tail exposures. Under the terms and conditions of the reinsurance agreement between Chartis and NICO,
NICO assumed the collection risk on Chartis’ third party reinsurance recoverables related to the covered asbestos
risks. Adjustments to reflect the results of the detailed review are recorded through an allowance for uncollectable
general reinsurance. At December 31, 2011, the allowance for estimated unrecoverable general reinsurance was
$365 million. At December 31, 2011, AIG had no significant general reinsurance recoverables due from any
individual reinsurer that was financially troubled. In the current environment of weaker economic conditions and
strained financial markets, certain reinsurers are reporting losses and could be subject to rating downgrades. AIG’s
general reinsurance recoverable exposures are primarily to the regulated subsidiaries of such companies which are
subject to minimum regulatory capital requirements. The RCD, in conjunction with AIG credit executives within
corporate ERM, is reviewing these developments, is monitoring compliance with credit triggers that may require
the reinsurer to post collateral, and, as appropriate, will seek to use other means to mitigate any material risks
arising from these developments.
SunAmerica
For SunAmerica, the primary risks are the following:
• Pricing risk, which represents the potential exposure to loss resulting from actual policy experience emerging
adversely in comparison to the assumptions made in product pricing associated with investment results,
mortality, morbidity, surrenders and expenses;
• Investment risk, which represents the exposure to loss resulting from the cash flows from the invested assets
being less than cash flows required to meet the obligations of the expected policy and contract liabilities and
the necessary return on investments;
• Interest rate risk, which represents the exposure to loss due to the sensitivity of the liabilities and assets to
changes in interest rates; and
• Equity market risk, which represents the potential exposure to higher claim costs for guaranteed benefits
associated with variable annuities and the potential reduction in expected fee revenue.
SunAmerica’s businesses manage these risks through product design, exposure limitations and the active
management of the asset-liability relationship in their operations. The emergence of significant adverse experience
would require an adjustment to DAC and benefit reserves that could have a material adverse effect on AIG’s
consolidated results of operations for a particular period. For a further discussion of this risk, see Item 1A. Risk
Factors — Adjustments to Deferred Policy Acquisition Costs and Future Policy Benefits.
SunAmerica companies generally limit their maximum underwriting exposure on life insurance of a single life to
$15 million or less of coverage, in certain circumstances by using yearly renewable term reinsurance. For
SunAmerica companies, the reinsurance programs provide risk mitigation per life for individuals and group and
for catastrophic risk events.
Aircraft Leasing
AIG’s Aircraft Leasing operations represent the operations of ILFC, which generates its revenues primarily
from leasing new and used commercial jet aircraft to foreign and domestic airlines. Aircraft Leasing operations
also include gains and losses that result from the re-marketing of commercial jet aircraft for ILFC’s own account
and re-marketing and fleet management services for airlines and financial institutions. Risks inherent in this
business, which are managed at the business unit level, include the following:
• the risk that there will be no market for the aircraft acquired;
• the risk that aircraft cannot be placed with lessees;
174 AIG 2011 Form 10-K