AIG 2008 Annual Report Download - page 54

Liquidity of Parent and Subsidiaries
AIG (Parent Company)
At February 18, 2009, AIG parent had the following sources of liquidity:
• $24.8 billion of available borrowings under the Fed Facility;
• $753 million of available commercial paper borrowings under the CPFF; and
• $1.1 billion of cash and short-term investments.
These sources of liquidity will be supplemented when the liquidity arrangements expected to be entered into
among AIG, the NY Fed and the United States Department of the Treasury are implemented. As a result, AIG
believes that it has sufficient liquidity at the parent level to meet its obligations through at least the next
twelve months. However, no assurance can be given that AIG’s cash needs will not exceed projected amounts.
Additional collateral calls at AIGFP, a further downgrade of AIG’s credit ratings or unexpected capital or liquidity
needs of AIG’s subsidiaries may result in significant additional cash needs. For a further discussion of this risk, see
Item 1A. Risk Factors.
Since the fourth quarter of 2008, AIG has not had access to its traditional sources of long-term or short-term
financing through the public debt markets. Further, in light of AIG’s current common stock price, AIG does not
expect to be able to issue equity securities in the public markets in the foreseeable future.
Traditionally AIG depended on dividends, distributions, and other payments from subsidiaries to fund
payments on its obligations. In light of AIG’s current financial situation, many of its regulated subsidiaries are
restricted from making dividend payments, or advancing funds, to AIG (see Item 1A. Risk Factors). Primary uses of
cash flow are for debt service and subsidiary funding. In 2008, AIG parent collected $2.7 billion in dividends and
other payments from subsidiaries (primarily from insurance company subsidiaries), issued $12.8 billion of debt and
retired $3.2 billion of debt, excluding MIP and Series AIGFP debt. Excluding MIP and Series AIGFP debt, AIG
parent made interest payments totaling $1.5 billion, and made $27.2 billion in net capital contributions to
subsidiaries. AIG paid $1.7 billion in dividends to shareholders in 2008, prior to the suspension of dividends
in September 2008.
AIG parent funds a portion of its short-term working capital needs through commercial paper issued by AIG
Funding. Since October 2008, all commercial paper issuance for AIG Funding has been through the CPFF program.
As of December 31, 2008, AIG Funding had $6.9 billion of commercial paper outstanding with an average maturity
of 32 days, of which $6.6 billion was issued through the CPFF.
AIG’s liquidity could also be further impaired by unforeseen significant outflows of cash. This situation may
arise due to circumstances that AIG may be unable to control, such as more extensive general market disruption or
an operational problem that affects third parties or AIG. Regulatory and other legal restrictions would likely limit
AIG’s ability to transfer funds freely, either to or from its subsidiaries. For a further discussion of the regulatory
environment in which AIG subsidiaries operate and other issues affecting AIG’s liquidity, see Item 1A. Risk
Factors.
General Insurance
AIG currently expects that its general insurance subsidiaries will be able to continue to meet their obligations
as they come due through cash from operations and, to the extent necessary, asset dispositions. One or more large
catastrophes, however, may require AIG to provide additional support to the affected general insurance operations.
In addition, further downgrades in AIG’s credit ratings could put pressure on the insurer financial strength ratings of
these subsidiaries. A downgrade in the insurer financial strength ratings of an insurance company subsidiary could
result in non-renewals or cancellations by policyholders and adversely affect these companies’ ability to meet their
own obligations and require that AIG provide capital or liquidity support to them. For a discussion of AIG’s
potential inability to support its subsidiaries, see Item 1A. Risk Factors — Liquidity.
48 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries