AIG 2011 Annual Report Download - page 53

AIG Parent’s ability to access funds from our subsidiaries is limited. As a holding company, AIG Parent depends
on dividends, distributions and other payments from our subsidiaries to fund payments due on its obligations,
including its outstanding debt. Further, the majority of its investments are held by our regulated subsidiaries. Our
subsidiaries may be limited in their ability to make dividend payments or advance funds to AIG Parent in the
future because of the need to support their own capital levels.
AIG Parent’s ability to support our subsidiaries is limited. Historically, AIG Parent has provided capital and
liquidity to our subsidiaries to maintain regulatory capital ratios, comply with rating agency requirements and meet
unexpected cash flow obligations, in some cases under support or capital maintenance agreements. If AIG Parent
is unable to provide support to a subsidiary having an immediate capital or liquidity need, the subsidiary could
become insolvent or, in the case of an insurance subsidiary or other regulated entity, could be seized by its
regulator. In the event of a catastrophe, reserve strengthening or other event, AIG Parent may be required to
provide capital to one or more of our regulated subsidiaries. AIG Parent has entered into capital maintenance
agreements with certain of our U.S. insurance subsidiaries that will require it to contribute capital if specific
risk-based capital (RBC) thresholds are triggered.
Certain of the investments held by our subsidiaries are illiquid and/or are difficult to sell, or to sell in significant
amounts or at acceptable prices, to generate cash to meet their needs. Our subsidiaries’ investments in certain
securities, including certain fixed income securities and certain structured securities, private equity securities,
private equity funds and hedge funds, mortgage loans, flight equipment, finance receivables and real estate, which
had a collective fair value of $96 billion at December 31, 2011, are illiquid or may not be disposed of quickly.
Further, we have a significant remaining stake in AIA, one-half of which is subject to restrictions on transfer and
hedging. In addition, the steep decline in the U.S. real estate markets and tight credit markets have materially
adversely affected the liquidity of our other securities portfolios, including our residential and commercial
mortgage-related securities and investment portfolios. In the event additional liquidity is required by one or more
of our subsidiaries and AIG Parent is unable to provide liquidity, it may be difficult to generate additional
liquidity by selling, pledging or otherwise monetizing the less liquid investments described above.
We have pledged equity interests in certain of our businesses and other assets to secure intercompany loans made in
connection with the Recapitalization and granted other control rights with respect to certain businesses and assets. We
have pledged equity interests in certain of our businesses and other assets as security for the repayment of the
intercompany loans extended to AIG Parent by the special purpose vehicles that held the proceeds of the AIA
initial public offering and the ALICO sale (the SPVs, and such loans, the SPV Intercompany Loans). Although
the loan from the ALICO SPV was repaid in full in 2011, the loan from the AIA SPV, which remains outstanding,
is secured by the assets that continue to be held by the AIA SPV, including the ordinary shares of AIA and our
equity interest in ILFC (the Designated Entity). If we are unable to satisfy our obligations under the AIA SPV
Intercompany Loan, the secured parties may have the right to foreclose upon and sell the assets that secure this
loan, which could have a material adverse effect on the operations of the Designated Entity and could adversely
affect the value of the Designated Entity.
Furthermore, so long as the Department of the Treasury holds the preferred interests in the AIA SPV (the AIA
SPV Preferred Interests), the Department of the Treasury will have the right, subject to existing contractual
restrictions, to require us to dispose of the remaining AIA ordinary shares held by the AIA SPV to the extent
necessary to fully repay the liquidation preference on the Department of the Treasury’s AIA SPV Preferred
Interests. In addition, the consent of the Department of the Treasury, so long as it holds AIA SPV Preferred
Interests or the preferred interests in the ALICO SPV (together, the SPV Preferred Interests), will also be
required for us to take specified significant actions with respect to the Designated Entity, including initial public
offerings, sales of the business and significant acquisitions or dispositions and incurrence of indebtedness above
specified levels. If any SPV Preferred Interests are outstanding on May 1, 2013, the Department of the Treasury
will have the right to compel the sale of all or a portion of the Designated Entity on terms that it will determine.
AIG 2011 Form 10-K 39
SPECIAL PURPOSE VEHICLE INTERCOMPANY LOANS AND PLEDGE OF
DESIGNATED ENTITY