AIG 2008 Annual Report Download - page 180

• The CRC is responsible for the following:
• approving credit risk policies and procedures for use throughout AIG;
• delegating credit authority to business unit credit officers and select business unit managers;
• approving transaction requests and limits for corporate, sovereign, structured finance and cross-border
credit exposures that exceed delegated authorities;
• establishing and maintaining AIG’s risk rating process for corporate, financial and sovereign obligors;
• conducting regular reviews of credit risk exposures in the portfolios of all credit-incurring business
units; and
• reviewing all credit concentration risks.
• The LRC is responsible for liquidity policy and implementation at AIG Parent and exercises oversight and
control of liquidity policies at each AIG entity. See Capital Resources and Liquidity herein.
• The CERC was formed in June 2008 to enhance and consolidate AIG’s existing processes to analyze,
discuss, quantify and report to senior management the risks to AIG of potential catastrophic events that have
been insured by AIG’s various divisions. The committee meets regularly and discusses potential events and
emerging risks that may materialize in the future. The committee’s membership includes senior under-
writing, actuarial, and risk management professionals.
• A CSFT is any AIG transaction or product that may involve a heightened legal, regulatory, accounting or
reputational risk that is developed, marketed or proposed by AIG or a third-party The CSFTC has the
authority and responsibility to review and approve any proposed CSFT. The CSFTC provides guidance to
and monitors the activities of transaction review committees (TRCs) which have been established in all
major business units. TRCs have the responsibility to identify, review and refer CSFTs to the CSFTC.
AIG developed and implemented a Global Pricing Committee in the first quarter of 2008 to address the
requirements of FAS 157. The Global Pricing Committee provides oversight of AIG’s pricing valuation practices
and processes and has delegated operational responsibility to five Regional Pricing Committees to implement and
monitor these practices within the underlying businesses of each respective region.
Credit Risk Management
AIG devotes considerable resources to managing its direct and indirect credit exposures, such as those arising
from fixed income investments, deposits, corporate and consumer loans, leases, reinsurance recoverables, counter-
party risk in derivatives activities, cessions of insurance risk to reinsurers and customers, credit risk assumed
through credit derivatives written, financial guarantees and letters of credit. Credit risk is defined as the risk that
AIG’s customers or counterparties are unable or unwilling to repay their contractual obligations when they become
due. Credit risk may also be manifested: (i) through the downgrading of credit ratings of counterparties whose credit
instruments AIG may be holding, or, in some cases, insuring, causing the value of the assets to decline or insured
risks to rise; and (ii) as cross-border risk where a country (sovereign government risk) or one or more non-sovereign
obligors within a country are unable to repay an obligation or are unable to provide foreign exchange to service a
credit or equity exposure incurred by another AIG business unit located outside that country.
AIG’s credit risks are managed at the corporate level by the Credit Risk Management department (CRM)
whose primary role is to support and supplement the work of the businesses and the CRC. CRM is headed by AIG’s
Chief Credit Officer (CCO), who reports to AIG’s CRO. AIG’s CCO is primarily responsible for the development
and maintenance of credit risk policies and procedures approved by the CRC. In discharging this function CRM has
the following responsibilities:
• approve delegated credit authorities to CRM credit executives and business unit credit officers;
• manage the approval process for all requests for credit limits, program limits and transactions above
delegated authorities;
174 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries