AIG 2008 Annual Report Download - page 181

• aggregate globally all credit exposure data by counterparty, country and industry and report risk concen-
trations regularly to and review with the CRC and the Finance Committee of the Board of Directors;
• administer regular portfolio credit reviews of all investment, derivative and credit-incurring business units
and recommend any corrective actions where required;
• develop methodologies for quantification and assessment of credit risks, including the establishment and
maintenance of AIG’s internal risk rating process; and
• approve appropriate credit reserves and methodologies at the business unit and enterprise levels.
The CRC also approves concentration limits on U.S. and international business unit consumer loan portfolios,
including the mortgage insurance activities of UGC. In addition, the CRC is also responsible for establishing
concentration limits on AIG Investments’ exposures in U.S. and international residential and commercial mortgage-
backed securities and collateralized debt obligations.
AIG monitors and controls its company-wide credit risk concentrations and attempts to avoid unwanted or
excessive risk accumulations, whether funded or unfunded. To minimize the level of credit risk in certain
circumstances, AIG may require third-party guarantees, reinsurance or collateral, such as letters of credit and
trust account deposits. These guarantees, letters of credit and reinsurance recoverables are also treated as credit
exposure and are added to AIG’s risk concentration exposure data.
AIG defines its aggregate credit exposures to a counterparty as the sum of its fixed maturities, loans, finance
leases, reinsurance recoverables, derivatives (mark-to-market), deposits and letters of credit (both in the case of
financial institutions) and the specified credit equivalent exposure to certain insurance products which embody
credit risk.
The following table presents AIG’s largest credit exposures as a percentage of total shareholders’
equity:
Category Risk Rating(a)
Credit Exposure
as a Percentage of Total
Shareholders’ Equity
At December 31, 2008
Investment Grade:
10 largest combined....................... A+(weighted average)(b) 173.8%
Single largest non-sovereign (financial
institution) ............................ A- 19.2
Single largest corporate .................... AA 9.4
Single largest sovereign .................... AAA 35.6
Non-Investment Grade:
Single largest sovereign .................... BB- 3.3
Single largest non-sovereign................. BB 1.4
(a) Risk rating is based on the lower of AIG’s internal risk ratings or the external ratings of the major rating
agencies.
(b) Five of the ten largest credit exposures are to financial institutions and four are to investment-grade rated
sovereigns; none is rated lower than BBB or its equivalent.
AIG monitors its aggregate cross-border exposures by country and regional group of countries. AIG defines its
cross-border exposure to include both cross-border credit exposures and its cross-border investments in its own
international subsidiaries. Ten countries had cross-border exposures in excess of 20 percent of total shareholders’
equity at December 31, 2008. At that date, seven were AAA-rated two were AA-rated and one was A-rated.
In addition, AIG reviews and manages its industry concentrations. AIG’s single largest industry credit
exposure is to the global financial institutions sector, comprised of banks, securities firms, life and non-life
insurance companies, reinsurance companies, finance companies and government-sponsored entities.
AIG 2008 Form 10-K 175
American International Group, Inc., and Subsidiaries