AIG 2008 Annual Report Download - page 56

securities. Government and corporate bonds represented 84.8 percent of total fixed income investments at
December 31, 2008. Given the size and liquidity profile of AIG’s Life Insurance & Retirement Services investment
portfolios, AIG believes that deviations from its projected claim experience do not constitute a significant liquidity
risk. AIG’s asset/liability management process takes into account the expected maturity of investments and
expected benefit payments and policy surrenders as well as the specific nature and risk profile of these liabilities.
The Life Insurance & Retirement Services subsidiaries have been able to meet liquidity needs, even during the
period of higher surrenders which was experienced from mid-September through year-end 2008, and expect to be
able to do so in the foreseeable future.
Foreign Life Insurance Companies
AIG’s Foreign Life Insurance companies (including ALICO) have had significant capital needs following
publicity of AIG parent’s liquidity issues and related credit ratings downgrades and reflecting the decline in the
equity markets. AIG contributed $4.4 billion to the Foreign Life Insurance companies during 2008 ($4.0 billion of
which was contributed using borrowings under the Fed Facility). In Taiwan, AIG contributed approximately
$1.8 billion to Nan Shan in 2008 as a result of the continued declines in the Taiwan equity market and foreign
currency movements. AIG made capital contributions of $2.6 billion to support foreign life operations in Hong
Kong and Japan, principally due to the steep decline in AIG’s common stock price.
AIG believes that its Foreign Life Insurance subsidiaries have adequate capital to support their business plans
through 2009; however, to the extent the investment portfolios of the Foreign Life Insurance companies continue to
be adversely affected by market conditions, AIG may need to make additional capital contributions to these
companies. For a discussion of AIG’s potential inability to support its subsidiaries, see Item 1A. Risk Factors —
Liquidity.
Domestic Life Insurance and Domestic Retirement Services Companies
AIG’s Domestic Life Insurance and Domestic Retirement Services companies have two primary liquidity
needs: the funding of surrenders, and obtaining capital to offset statutory other-than-temporary impairment charges.
At the current rate of surrenders, AIG believes that its Domestic Life Insurance and Domestic Retirement Services
companies will have sufficient resources to meet these obligations. A substantial increase in surrender activity
could, however, place stress on the liquidity of these companies and require asset sales or contributions from AIG.
During the year ended December 31, 2008 and through February 27, 2009, AIG contributed capital totaling
$22.7 billion ($18.0 billion of which was contributed using borrowings under the Fed Facility) to certain of its
Domestic Life Insurance and Domestic Retirement Services subsidiaries to replace a portion of the capital lost as a
result of net realized capital losses (primarily resulting from other-than-temporary impairment charges). Further
capital contributions may be required to the extent additional statutory net realized capital losses are incurred. For a
discussion of AIG’s potential inability to support its subsidiaries, see Item 1A. Risk Factors — Liquidity.
Financial Services
AIG’s major Financial Services operating subsidiaries consist of ILFC, AIGFP, AGF and AIGCFG. Tradi-
tional sources of funds considered in meeting the liquidity needs of these operations are generally no longer
available. These sources included GIAs’ issuance of long- and short-term debt, issuance of commercial paper, bank
loans and bank credit facilities. However, AIGCFG has been able to retain a significant portion of customer
deposits, providing a measure of liquidity.
ILFC
ILFC’s traditional source of liquidity had been collections of lease payments and borrowing in the public debt
markets to fund aircraft purchases and to satisfy maturing debt. Additional liquidity is provided by the proceeds of
aircraft sales.
50 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries