AIG 2013 Annual Report Download - page 162

Investment strategies are based on considerations that include the local market, general market conditions, liability
duration and cash flow characteristics, rating agency and regulatory capital considerations, legal investment
limitations, tax optimization and diversification.
• While more of a focus is placed on asset-liability matching in AIG Life and Retirement, our fundamental strategy
across all of our investment portfolios is to match the duration characteristics of the liabilities with assets of
comparable duration, to the extent practicable.
• Fixed maturity securities held by the domestic insurance companies included in AIG Property Casualty consist of a
mix of tax-exempt municipal bonds and taxable instruments that meet our current risk-return, tax, liquidity, credit
quality, and diversification objectives.
• Outside of the U.S., fixed maturity securities held by AIG Property Casualty consist primarily of intermediate
duration high-grade securities generally denominated in the currencies of the countries in which we operate.
• AIG Parent’s liquidity resources are held in the form of cash, short- term investments and publicly traded,
intermediate duration investment grade rated fixed maturity securities. AIG Parent actively manages its assets and
liabilities in terms of products, counterparties and tenor. During 2013, upon an assessment of its immediate and
longer-term funding needs, AIG Parent purchased publicly traded, intermediate term, investment grade rated fixed
maturity securities that can be readily monetized through sales or repurchase agreements. These securities allow
us to diversify sources of liquidity while reducing the cost of maintaining sufficient liquidity.
At December 31, 2013, approximately 89 percent of fixed maturity securities were held by our domestic entities.
Approximately 17 percent of such securities were rated AAA by one or more of the principal rating agencies, and
approximately 16 percent were rated below investment grade or not rated. Our investment decision process relies
primarily on internally generated fundamental analysis and internal risk ratings. Third-party rating services’ ratings
and opinions provide one source of independent perspective for consideration in the internal analysis.
A significant portion of our foreign entities’ fixed maturity securities portfolio is rated by Moody’s, S&P or similar
foreign rating services. Rating services are not available for some foreign issued securities. Our Credit Risk
Management department closely reviews the credit quality of the foreign portfolio’s non-rated fixed maturity securities.
At December 31, 2013, approximately 15 percent of the foreign entities’ fixed maturity securities were either rated
AAA or, on the basis of our internal analysis, were equivalent from a credit standpoint to securities rated AAA, and
approximately 5 percent were rated below investment grade or not rated at that date. Approximately 45 percent of
the foreign entities’ fixed maturity securities portfolio is comprised of sovereign fixed maturity securities supporting
policy liabilities in the country of issuance.
With respect to our fixed maturity investments, the credit ratings in the table below and in subsequent tables reflect:
(a) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the rating
assigned by the NAIC Securities Valuations Office (SVO) (over 99 percent of total fixed maturity investments), or
(b) our equivalent internal ratings when these investments have not been rated by any of the major rating agencies
or the NAIC. The ‘‘Non-rated’’ category in those tables consists of fixed maturity securities spread among various
asset classes and issuers that have not been rated to date by any of the major rating agencies, the NAIC or us.
See Enterprise Risk Management herein for a discussion of credit risks associated with Investments.
Investment Strategies
Credit Ratings
Composite AIG Credit Ratings
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AIG 2013 Form 10-K144
ITEM 7 / INVESTMENTS
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