AIG 2011 Annual Report Download - page 33

A significant portion of the revenues of Chartis and SunAmerica operations is derived from AIG’s insurance
investment activities. As insurance companies, Chartis and SunAmerica generally receive premiums and deposits
well in advance of paying covered claims or benefits. In the intervening periods, these premiums and deposits are
invested to generate net investment income and fee income that is available to pay claims or benefits.
AIG’s worldwide insurance investment policy places primary emphasis on investments in fixed income securities
of corporations, municipal bonds and government issuances in all of its portfolios, and, to a lesser extent,
investments in high-yield bonds, common stocks, real estate, hedge funds and other alternative investments.
The majority of assets backing insurance liabilities at AIG consist of intermediate and long duration fixed
maturity securities.
In the case of SunAmerica, the fundamental investment strategy is, as nearly as is practicable, to match the
duration characteristics of the liabilities with assets of comparable duration. SunAmerica also invests in a
diversified portfolio of private equity funds, hedge funds and affordable housing partnerships. Although subject to
periodic volatility, these investments, to date, have achieved yields in excess of SunAmerica’s base portfolio yield.
SunAmerica’s expectation is that these alternative investments will continue to outperform the base portfolio yield
over the long-term.
Fixed maturity securities held by the insurance companies included in Chartis domestic operations historically
have consisted primarily of laddered holdings of tax-exempt municipal bonds, which provided attractive after-tax
returns and limited credit risk. In order to meet the Chartis domestic operations’ current risk/return and tax
objectives, the domestic property and casualty companies have begun to shift investment allocations away from
tax-exempt municipal bonds towards taxable instruments meeting the companies’ liquidity, duration and quality
objectives as well as current risk-return and tax objectives. Fixed maturity securities held by Chartis operations
internationally consist primarily of intermediate duration high-grade securities.
See Item 7. MD&A — Investments — Investment Strategies for discussion of AIG’s investment strategy.
The following table summarizes the investment results of AIG’s insurance operations, excluding the results of
discontinued operations:
Annual Net
Years Ended December 31, Average Investment Pre-tax Return on
(in millions) Investments(a) Income Average Investments(b)
Chartis:
2011 $113,405 $ 4,348 3.8%
2010 100,583 4,392 4.4
2009 89,236 3,292 3.7
SunAmerica:
2011 $172,846 $ 9,882 5.7%
2010 154,167 10,768 7.0
2009 148,202 9,553 6.4
(a) Includes real estate investments and excludes cash and short-term investments.
(b) Net investment income divided by the annual average investments.
AIG 2011 Form 10-K 19
INSURANCE INVESTMENT ACTIVITIES