AIG 2014 Annual Report Download - page 123

ITEM 7 / INVESTMENTS
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Investments
OVERVIEW
Our investment strategies are tailored to the specific business needs of each operating unit. The investment objectives are
driven by the respective business models for Non-Life Insurance Companies, Life Insurance Companies, and AIG Parent
including the DIB. The primary objectives are generation of investment income, preservation of capital, liquidity management
and growth of surplus to support the insurance products. The majority of assets backing our insurance liabilities consist
of intermediate and long duration fixed maturity securities.
Investments Highlights in 2014
 A decrease in interest rates on investment grade fixed maturity securities, partially offset by the widening of spreads,
resulted in net unrealized gains in the investment portfolio. Net unrealized gains in our available for sale portfolio
increased to approximately $19.0 billion as of December 31, 2014 from approximately $11.7 billion as of December
31, 2013.
 We continued to make investments in structured securities and other fixed maturity securities and increased lending
activities in commercial mortgage loans with favorable risk versus return characteristics to improve yields and
increase net investment income.
 Net investment income benefitted from positive performance on fixed maturity securities for which we elected the fair
value option, primarily driven by lower interest rates as well as income on alternative investments, which continued to
benefit from equity market performance.
 Blended investment yields on new Non-Life and Life Insurance Companies’ investments were lower than blended
rates on investments that were sold, matured or called.
 Other-than-temporary impairments remained at low levels.
 The sale of ILFC to AerCap resulted in AIG receiving a 46 percent ownership interest in the outstanding common
stock of AerCap, which is included in Other invested assets and accounted for under the equity method.
Investment Strategies
Investment strategies are based on considerations that include the local and general market conditions, liability duration and
cash flow characteristics, rating agency and regulatory capital considerations, legal investment limitations, tax optimization and
diversification.
Some of our key investment strategies are as follows:
• Fixed maturity securities held by the U.S. insurance companies included in Non-Life Insurance Companies consist of a mix
of instruments that meet our current risk-return, tax, liquidity, credit quality and diversification objectives.
• Outside of the U.S., fixed maturity securities held by Non-Life Insurance Companies consist primarily of intermediate
duration high-grade securities generally denominated in the currencies of the countries in which we operate.
• While more of a focus is placed on asset-liability matching in Life Insurance Companies, 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.
• AIG Parent actively manages its assets and liabilities in terms of products, counterparties and duration. AIG Parent’s
liquidity sources are held in the form of cash, short-term investments and publicly traded, intermediate term investment-