AIG 2008 Annual Report Download - page 145

In a number of instances, the level of subordination with respect to individual CDOs has increased since
inception relative to the overall size of the CDO. While the super senior tranches are amortizing, subordinate layers
have not been reduced by realized losses to date. Such losses are expected to emerge in the future. At inception,
substantially all of the underlying assets were rated B-/B3 or higher and in most cases at least BBB. Thus, the
percentage of gross notional amount rated less than B-/B3 represents deterioration in the credit quality of the
underlying assets.
The gross transaction notional amount, percentage of the total CDO collateral pools, and ratings and
vintage breakdown of collateral securities in the multi-sector CDOs at December 31, 2008, by ABS category,
were as follows (excluding 2a-7 Puts):
Gross
Transaction
Notional
Amount
Percent
of Total AAA AA A BBB BB ⬍BB NR 2008 2007 2006 2005 2004+P
Ratings Vintage
(Dollars in
millions)
RMBS PRIME . .... $ 3,013 12.79% 10.50% 0.95% 0.57% 0.26% 0.00% 0.51% 0.00% 0.31% 7.39% 3.72% 0.59% 0.78%
RMBS ALT-A . . .... 3,526 14.96% 8.91% 0.99% 0.78% 1.68% 0.55% 2.05% 0.00% 0.68% 3.91% 5.33% 4.29% 0.75%
RMBS
SUBPRIME...... 6,865 29.12% 0.93% 3.74% 2.29% 2.55% 2.38% 17.23% 0.00% 0.00% 1.33% 1.94% 17.30% 8.55%
CMBS . . ......... 4,457 17.47% 2.93% 2.33% 2.74% 6.72% 2.24% 0.42% 0.09% 0.07% 0.96% 5.26% 4.85% 6.33%
CDO............ 3,151 12.42% 1.54% 1.74% 1.58% 1.24% 0.83% 5.35% 0.14% 0.00% 0.61% 1.45% 3.31% 7.05%
OTHER.......... 4,024 13.24% 3.70% 3.01% 4.18% 1.75% 0.04% 0.36% 0.20% 0.32% 0.58% 2.85% 4.43% 5.06%
Total . . . ......... $25,036 100.00% 28.51% 12.76% 12.14% 14.20% 6.04% 25.92% 0.43% 1.38% 14.78% 20.55% 34.77% 28.52%
The corporate arbitrage portfolio consists principally of CDS written on portfolios of senior unsecured
corporate obligations that were generally rated investment grade at the inception of the CDS. These CDS
transactions require cash settlement (see Triggers and Settlement Alternatives below). This portfolio also includes
CDS with a net notional amount of $1.5 billion written on the senior part of the capital structure of CLOs, which
require physical settlement.
The gross transaction notional amount of CDS transactions written on portfolios of senior unsecured
corporate obligations (excluding CLOs), percentage of the total referenced portfolios, and ratings by
industry sector, in addition to the subordinations below the super senior risk layer and AIGFP’s net
notional exposure at December 31, 2008, by industry sector, were as follows:
Gross Transaction
Notional Amount
Percent
of Total AAA Aa A Baa Ba ⬍Ba NR
Ratings
(Dollars in millions)
United States Industrial ........ $23,363 37.5% 0.0% 0.4% 7.5% 19.2% 4.7% 5.4% 0.3%
Financial ................. 9,776 15.7% 0.4% 0.6% 7.6% 4.6% 1.5% 0.3% 0.7%
Utilities .................. 2,218 3.6% 0.0% 0.0% 0.5% 2.7% 0.1% 0.1% 0.2%
Other.................... 1,364 2.2% 0.0% 0.0% 0.0% 0.1% 0.0% 0.0% 2.1%
Total United States ......... 36,721 59.0% 0.4% 1.0% 15.6% 26.6% 6.3% 5.8% 3.3%
Non-United States Industrial .... 18,616 29.9% 0.1% 0.9% 9.0% 14.4% 2.2% 1.0% 2.3%
Financial ................. 3,088 5.0% 0.1% 0.7% 3.0% 0.8% 0.1% 0.0% 0.3%
Government ............... 1,853 3.0% 0.0% 0.4% 1.4% 1.0% 0.2% 0.0% 0.0%
Utilities .................. 1,680 2.7% 0.0% 0.0% 1.5% 0.8% 0.0% 0.0% 0.4%
Other.................... 268 0.4% 0.0% 0.0% 0.2% 0.1% 0.0% 0.0% 0.1%
AIG 2008 Form 10-K 139
American International Group, Inc., and Subsidiaries