AIG 2013 Annual Report Download - page 153

AIG Parent is party to CMAs with certain AIG Life and Retirement insurance subsidiaries. Among other things, the
CMAs provide that AIG Parent will maintain the total adjusted capital of each of these AIG Life and Retirement
insurance subsidiaries at or above a specified minimum percentage of the subsidiary’s projected NAIC Company
Action Level RBC. In addition, the CMAs provided that if the total adjusted capital of these AIG Life and Retirement
insurance subsidiaries is in excess of that same specified minimum percentage of their respective total company
action level RBC, subject to approval by their respective boards and compliance with applicable insurance laws, the
subsidiaries would declare and pay ordinary dividends to their respective equity holders up to an amount necessary
to reduce projected or actual total adjusted capital to a level equal to or not materially greater than such specified
minimum percentage. On February 18, 2014, the CMAs were recharacterized as capital support agreements and
amended to remove the dividend requirement of the AIG Life and Retirement insurance subsidiaries. The specified
minimum percentage in the CMAs remained at 385 percent, except for the CMA with AGC Life Insurance Company,
where the specified minimum percentage remained at 250 percent. AIG will continue to manage capital between AIG
Parent and these AIG Life and Retirement insurance subsidiaries through internal, Board-approved policies and
guidelines.
In 2013, AIG Life and Retirement provided $4.4 billion of liquidity to AIG Parent in the form of cash dividends and
loan repayments, including $1.3 billion of liquidity in the fourth quarter of 2013, which was funded by the payment of
cash dividends from AIG Life and Retirement’s insurance subsidiaries that were made under the CMAs. AIG Parent
was not required to make any capital contributions to AIG Life and Retirement subsidiaries in either period under the
CMAs then in place.
We expect that Mortgage Guaranty subsidiaries will be able to continue to satisfy reasonably foreseeable future
liquidity requirements and meet their obligations, including those arising from reasonably foreseeable contingencies
or events, through cash from operations and, to the extent necessary, monetization of invested assets. Mortgage
Guaranty’s liquidity resources are held in the form of cash, short-term investments and publicly traded, investment
grade rated, fixed maturity securities. These securities could be monetized in the event liquidity levels are insufficient
to meet obligations.
On July 1, 2013, AIG Parent entered into a CMA with a Mortgage Guaranty insurance subsidiary. Among other
things, the CMA provides that AIG Parent will maintain capital and surplus of this Mortgage Guaranty insurance
subsidiary at or above a specified minimum required capital based on a specified risk-to-capital ratio. In addition, the
CMA provides that if capital and surplus of this Mortgage Guaranty insurance subsidiary is in excess of that same
specified minimum required capital, subject to board approval and compliance with applicable insurance laws, this
Mortgage Guaranty insurance subsidiary would declare and pay ordinary dividends to its equity holders up to an
amount necessary to reduce projected or actual capital and surplus to a level equal to or not materially greater than
such specified minimum required capital. As structured, the CMA contemplates that the specified minimum required
capital would be reviewed and agreed upon at least annually. As of December 31, 2013, the minimum required
capital is based on a risk-to-capital ratio of 21 to 1.
In 2013, Mortgage Guaranty paid $90 million of cash dividends to AIG Parent. No dividends were paid, and AIG
Parent was not required to make any capital contributions, under the CMA in 2013.
Derivative transactions between AIG and its subsidiaries and third parties are generally centralized through GCM,
specifically AIG Markets. Commencing June 10, 2013, GCM was required to clear certain derivatives transactions
through central regulated clearing organizations pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank). To the extent a derivatives transaction is subject to a clearing obligation, GCM is
required to post collateral in amounts determined by the relevant clearing organization and GCM’s clearing
agreements with its futures commission merchants. To the extent a derivatives transaction is not subject to a clearing
obligation, these derivative transactions are governed by bilateral master agreements, the form of which is published
by the International Swaps and Derivatives Association, Inc. (ISDA). Many of these agreements, primarily between
GCM and third party financial institutions, require collateral postings. Many of GCM’s transactions with AIG and its
Other Operations
Mortgage Guaranty
Global Capital Markets
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AIG 2013 Form 10-K 135
ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES
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