AIG 2013 Annual Report Download - page 182

We devote considerable resources to managing our direct and indirect credit exposures. These exposures may arise
from fixed income investments, equity securities, deposits, commercial paper investments, reverse repurchase
agreements and repurchase agreements, corporate and consumer loans, leases, reinsurance recoverables,
counterparty risk arising from derivatives activities, collateral extended to counterparties, insurance risk cessions to
third parties, financial guarantees and letters of credit.
Our credit risks are managed at the corporate level within ERM. ERM is assisted by credit functions headed by
highly experienced credit officers in the business units, whose primary role is to assure appropriate credit risk
management in accordance with our credit policies and procedures and relative to our credit risk parameters. Our
Chief Credit Officer (CCO) and credit executives are primarily responsible for the development and maintenance of
these credit risk policies and procedures.
Responsibilities of the CCO and credit executives include:
• developing and implementing our company-wide credit policies;
• approving delegated credit authorities to our credit executives;
• managing the approval process for requests for credit limits, program limits and credit transactions above
authorities or where concentrations of risk may exist or be incurred;
• aggregating globally all credit exposure data by counterparty, country, sector and industry and reporting risk
concentrations regularly to and reviewing with senior management;
• administering regular portfolio credit reviews of investment, derivative and credit risk-incurring business units and
recommending corrective actions where required;
• conducting credit research on countries, sectors and asset classes where risk concentrations may exist;
• developing methodologies for quantification and assessment of credit risks, including the establishment and
maintenance of our internal risk rating process; and
• approving appropriate credit reserves, credit-related other-than-temporary impairments and corresponding
methodologies in all credit portfolios.
We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive risk
accumulations, whether funded or unfunded. To minimize the level of credit risk in some circumstances, we may
require third-party guarantees, reinsurance or collateral, such as letters of credit and trust collateral accounts. We
treat these guarantees, reinsurance recoverables, letters of credit and trust collateral accounts as credit exposure
and include them in our risk concentration exposure data. We identify our aggregate credit exposures to our
underlying counterparty risks and report them regularly to senior management for review.
See Investments — Available for Sale Investments herein for further information on our credit concentrations and
credit exposures.
Market risk is defined as the potential loss arising from adverse fluctuations in equity and commodity prices,
residential and commercial real estate values, interest rates, credit spreads, foreign currencies, inflation, and their
levels of volatility.
We are exposed to market risks primarily within our insurance and capital markets businesses. The chief risk officer
within each such business is responsible for properly identifying these risks, then ensuring that they are appropriately
measured, monitored and managed in accordance with the written risk governance framework established by the
Chief Market Risk Officer (CMRO).
Our market risk management framework focuses on quantifying the financial repercussions of changes in these
broad market observables, distinct from the idiosyncratic risks associated with individual assets that are addressed
through our credit risk management function.
Governance
Market Risk Management
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AIG 2013 Form 10-K164
ITEM 7 / ENTERPRISE RISK MANAGEMENT
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