AIG 2011 Annual Report Download - page 56

of the super senior credit default swap (CDS) portfolio of AIGFP as of December 31, 2011, represented
derivatives written for financial institutions, principally in Europe against European corporate loans and residential
mortgage loans, primarily for the purpose of providing regulatory capital relief rather than for arbitrage purposes.
These portfolios have no direct exposure to any obligors in the five countries of the Euro-zone periphery (Spain,
Italy, Ireland, Greece and Portugal). The regulatory benefit of these transactions for AIGFP’s financial institution
counterparties was generally derived from the capital regulations promulgated by the Basel Committee on Banking
Supervision known as Basel I. In December 2010, the Basel Committee on Banking Supervision finalized a new
framework for international capital and liquidity standards known as Basel III, which, when fully implemented,
may reduce or eliminate the regulatory benefits to certain counterparties from these transactions and thus may
impact the period of time that such counterparties are expected to hold the positions. AIGFP continues to
reassess the expected maturity of this portfolio. As of December 31, 2011, AIGFP estimated that the weighted
average expected maturity of the portfolio was 0.86 years.
Given the current performance of the underlying portfolios, the level of subordination of credit protection
written by AIGFP and AIGFP’s own assessment of the credit quality of the underlying portfolios, as well as the
risk mitigants inherent in the transaction structures, AIGFP, after taking into consideration weakening economic
conditions in Europe, does not expect that it will be required to make payments pursuant to the contractual terms
of those transactions providing regulatory capital relief. AIGFP will continue to assess the valuation of this
portfolio and monitor developments in the marketplace. Depending on how and when the Basel I regulatory
requirements are phased out, we could also remain at risk for a longer period of time than currently anticipated.
AIG’s ability to achieve its long-term aspirational goals with respect to return on equity (ROE) and earnings per
share (EPS) and other long-term aspirational goals are based on significant assumptions, and AIG’s actual results may
differ, possibly materially and adversely, from these goals. In setting its long-term aspirational goals for ROE and
EPS, described in Item 2. MD&A — Long-Term Aspirational Goals in its Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2011, AIG made significant assumptions that include, among other things, the
general conditions of markets in which it operates, revenues and combined ratios of its subsidiaries, investment
yields, subsidiaries’ capacity to distribute dividends to AIG Parent, AIG’s ability to apply deployable capital to
share repurchases, dividend payments, acquisitions or organic growth, AIG’s ability to maintain financial leverage
commensurate with its current credit ratings, the exclusion of the impact on shareholders’ equity of the reversal of
the tax valuation allowance, the effectiveness of AIG’s cost rationalization measures, the approval of planned
actions (including with respect to any share repurchases, dividend payments or acquisitions) by AIG’s regulators,
the overall credit rating implications of AIG’s proposed strategic actions and general financial market and interest
rate conditions. These assumptions are not historical facts but instead represent only AIG’s expectations regarding
future events, many of which, by their nature, are inherently subject to significant uncertainties and contingencies
and are outside AIG’s control. It is very likely that one or more of the assumptions will not be met or that actual
results will deviate materially from what is assumed. While AIG remains committed to its long-term aspirational
goals, AIG’s actual results are likely to differ from these aspirational goals and the difference may be material and
adverse.
The aspirational goals and their underlying assumptions are forward-looking statements. AIG strongly cautions
its shareholders and other investors not to place undue reliance on any of these assumptions or aspirational goals.
AIG is not under any obligation (and expressly disclaims any obligation) to update or alter any assumptions, goals,
projections or other related statements, whether written or oral, that may be made from time to time, whether as
a result of new information, future events or otherwise. See Item 7. MD&A — Cautionary Statement Regarding
Forward Looking Information for additional information regarding the forward-looking statements.
42 AIG 2011 Form 10-K
LONG-TERM ASPIRATIONAL GOALS