AIG 2011 Annual Report Download - page 70

instruments, which meet Chartis’ liquidity, duration and credit quality objectives as well as current risk-return and
tax objectives. In addition, Chartis has redeployed cash in excess of operating needs and short term investments
into longer term, higher yielding securities.
Chartis makes determinations of other-than-temporary impairments based on the fundamental credit analyses of
individual securities. Life settlement contracts are evaluated on a contract-by-contract basis to assess impairment.
During the second quarter of 2011, Chartis implemented an enhanced process in which updated medical
information on individual insured lives is requested on a routine basis. In cases where updated information
indicates that an individual’s health has improved, an impairment loss may arise as a result of revised estimates of
net cash flows from the related contract. Chartis also revised its valuation table, which it uses in estimating future
net cash flows.
Recently, a number of courts have addressed various life settlement related issues in their decisions. Chartis
does not expect that the rulings in those cases will have a significant effect on its investment in life settlement
contracts.
See Segment Results — Chartis Operations — Chartis Results — Chartis Investing and Other Results and
Note 7 to the Consolidated Financial Statements for additional information.
SunAmerica
SunAmerica continues to pursue its goals of expanding the breadth and depth of its distribution relationships,
introducing competitive new products and product riders, maintaining a high quality investment portfolio and
strong statutory surplus, pro-actively managing expenses and, subject to regulatory approval, increasing payments
made to AIG Parent. SunAmerica made progress on all of these efforts during 2011, and expects this progress to
continue for 2012.
SunAmerica’s businesses and the life and annuity industry continue to be affected by the current economic
environment of low interest rates and equity market volatility. Continued low interest rates put pressure on
long-term investment returns, negatively affect future sales of interest rate-sensitive products and reduce future
profits. Also, products such as payout annuities and traditional life insurance that are not rate-adjustable may
require increases in reserves if future investment yields are insufficient to support current valuation interest rates.
Equity market volatility may result in higher reserves for variable annuity guarantee features, and both equity
market volatility and low interest rates can affect the recoverability and amortization rate of DAC assets.
SunAmerica’s insurance companies, like other insurers, are subject to regulation and supervision by the states
and jurisdictions in which they do business. State regulation relates primarily to financial condition as well as
corporate conduct and market conduct activities; in particular, states have also become increasingly aggressive in
using escheatment laws to seek recovery of unclaimed life insurance benefits. There are a number of proposals to
amend state insurance laws and regulations, and a review of insurance solvency regulation throughout the U.S.
regulatory system, which could significantly affect SunAmerica’s businesses. At the federal level, the Dodd-Frank
Wall Street Reform and Consumer Protection Act (Dodd-Frank) will subject SunAmerica’s insurers, investment
advisors, broker-dealers and their affiliates to additional federal regulation. In addition, regulators and lawmakers
around the world are developing recommendations to address such issues as financial group supervision, capital
and solvency standards, and related issues, which could potentially affect SunAmerica. See Item 1. Business —
Regulation for additional information.
Variable Annuities
SunAmerica experienced an increase in its variable annuity sales as various distribution partners resumed sales
of SunAmerica’s products during 2010 and 2011. SunAmerica’s largest pre-financial-crisis variable annuity
distribution partner resumed distribution of SunAmerica’s products in mid-2011. As a result of broader
distribution opportunities, SunAmerica expects variable annuity sales to remain strong in 2012.
SunAmerica has a dynamic hedging program designed to manage economic risk exposure associated with
changes in the fair value of embedded policy derivative liabilities contained in certain variable annuity contracts,
56 AIG 2011 Form 10-K