AIG 2015 Annual Report Download - page 174

ITEM 7 / ENTERPRISE RISK MANAGEMENT
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Governance
Our credit risks are managed by a team of investment professionals, subject to ERM oversight and various control processes.
ERM is assisted by credit functions headed by highly experienced credit professionals. Their primary role is to assure
appropriate credit risk management in accordance with our credit policies and procedures relative to our credit risk parameters.
Our Chief Credit Officer (CCO) and credit executives are primarily responsible for the development, implementation and
maintenance of a risk management framework, which includes the following elements related to our credit risks:
• developing and implementing our company-wide credit policies and procedures;
• approving delegated credit authorities to our credit executives and qualified investment professionals;
• developing methodologies for quantification and assessment of credit risks, including the establishment and maintenance of
our internal risk rating process;
• managing a system of credit and program limits, as well as the approval process for credit transactions, above limit
exposures, and concentrations of risk that may exist or be incurred;
• evaluating, monitoring, reviewing and reporting of credit risks and concentrations regularly with senior management; and
• approving appropriate credit reserves, credit-related other-than-temporary impairments and corresponding methodologies
for 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
mitigants, such as third-party guarantees, reinsurance or collateral, including commercial bank-issued letters of credit and trust
collateral accounts. We treat these guarantees, reinsurance recoverables, and letters of credit as credit exposure and include
them in our risk concentration exposure data. We also monitor closely the quality of any trust collateral accounts.
See Investments – Available for Sale Investments herein for further information on our credit concentrations and credit
exposures.
Market Risk Management
Market risk is defined as the risk of adverse impact due to systemic movements in one or more of the following market risk
drivers: equity and commodity prices, residential and commercial real estate values, interest rates, credit spreads, foreign
exchange, inflation, and their levels of volatility.
We are engaged in a variety of insurance, investment and other financial services businesses that generate market risk,
directly and indirectly. We are exposed to market risks primarily within our insurance and capital markets activities, on both the
asset and liability side of our balance sheet through on and off-balance sheet exposures. The chief risk officer within each
business is responsible for creating a framework to properly identify these risks, then ensuring that they are appropriately
measured, monitored and managed in accordance with the risk governance framework established by the Chief Market Risk
Officer (CMRO).
The scope and magnitude of our market risk exposures is managed under a robust framework that contains documented risk-
taking authorities, defined risk limits and minimum standards for managing market risk in a manner consistent with our Risk
Appetite Statement. Our market risk management framework focuses on quantifying the financial repercussions of changes in
these broad market observables, as opposed to from the idiosyncratic risks associated with individual assets that are
addressed through our credit risk management function.