AIG 2009 Annual Report Download - page 182

American International Group, Inc., and Subsidiaries
assisting AIG’s business leaders, executive management and Board of Directors to identify, assess, quantify, manage
and mitigate the risks incurred by AIG.
An important goal of ERM is to ensure that, after appropriate governance, authorities, procedures and policies
have been established, aggregated risks do not result in inappropriate concentrations. Senior management defines the
policies and has established general operating parameters for its global businesses and various oversight committees
to monitor the risks attendant to its businesses. These committees include the ARCC, as previously described, Credit
Risk Committee (CRC), Liquidity Risk Committee (LRC), Catastrophic & Emerging Risks Committee (CERC),
Complex Structured Finance Transaction Committee (CSFTC) and Global and Regional Pricing Committees.
• 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 is responsible for enhancing and consolidating 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 underwriting, 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.
• The Global Pricing Committee provides oversight of AIG’s pricing valuation practices and processes and has
delegated operational responsibility to the 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, counterparty 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 2009 Form 10-K 174