AIG 2006 Annual Report Download - page 124

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
These credit ratings are current opinions of the rating agen- adverse effect on its financial condition or liquidity. Ratings
cies. As such, they may be changed, suspended or withdrawn at downgrades could also trigger the application of termination
any time by the rating agencies as a result of changes in, or provisions in certain of AIG’s contracts, principally agreements
unavailability of, information or based on other circumstances. entered into by AIGFP and assumed reinsurance contracts entered
Ratings may also be withdrawn at AIG management’s request. into by Transatlantic.
This discussion of ratings is not a complete list of ratings of AIG It is estimated that, as of the close of business on
and its subsidiaries. See Item 1A. Risk Factors for more February 15, 2007, based on AIGFP’s outstanding municipal GIAs
information regarding the credit ratings of AIG and its subsidiaries and financial derivatives transactions as of such date, a
and certain risks related thereto. downgrade of AIG’s long-term senior debt ratings to ‘Aa3’ by
‘‘Rating triggers’’ have been defined by one independent rating Moody’s or ‘AA–’ by S&P would permit counterparties to call for
agency to include clauses or agreements the outcome of which approximately $864 million of collateral. Further, additional
depends upon the level of ratings maintained by one or more downgrades could result in requirements for substantial additional
rating agencies. Rating triggers generally relate to events which collateral, which could have a material effect on how AIGFP
(i) could result in the termination or limitation of credit availability, manages its liquidity. The actual amount of additional collateral
or require accelerated repayment, (ii) could result in the termina- that AIGFP would be required to post to counterparties in the
tion of business contracts or (iii) could require a company to post event of such downgrades depends on market conditions, the fair
collateral for the benefit of counterparties. value of the outstanding affected transactions and other factors
AIG believes that any of its own or its subsidiaries’ contractual prevailing at the time of the downgrade. Additional obligations to
obligations that are subject to ‘‘ratings triggers’’ or financial post collateral would increase the demand on AIGFP’s liquidity.
covenants relating to ‘‘ratings triggers’’ would not have a material
74 AIG 2006 Form 10-K