AIG 2009 Annual Report Download - page 184

American International Group, Inc., and Subsidiaries
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. Nine countries had cross-border exposures in excess of 10 percent of Total equity at
December 31, 2009 (eight countries and 20 percent at December 31, 2008). Based on AIG’s internal risk ratings, at
that date, six were rated AAA, two were rated AA and one was rated A. The two largest sovereign exposures are to
Bermuda and the United Kingdom.
In addition, AIG reviews and manages its industry concentrations. AIG’s single largest industry credit exposure is to
the global financial institutions sector, which includes banks and finance companies, securities firms, insurance and
reinsurance companies, and government-sponsored entities (Federal National Mortgage Association and Federal
Home Loan Mortgage Association).
The following table presents AIG’s largest credit exposures to the global financial institution sector as a percentage of
Total equity:
Credit Exposure
as a Percentage
At December 31, 2009 of Total Equity
Industry Category:
Money Center / Global Bank Groups 83.9%*
Government-Sponsored Entities 20.1
European Regional Financial Institutions 15.1
Global Life Insurance Companies 14.1
Global Reinsurance Companies 12.2
Asian Regional Financial Institutions 8.0
North American Based Regional Financial Institutions 7.4
Supranational Banks 7.3
* Exposure to Money Center/Global Bank Groups as a percentage of Total equity was 138.7 percent at December 31, 2008.
AIG’s exposure to its five largest money center/global bank group institutions was 33.5 percent of Total equity at
December 31, 2009 (56.8 percent of Total equity at December 31, 2008).
Credit exposure to Global Reinsurance Companies was 12.2 percent of Total equity compared to 18.4 percent at
December 31, 2008. Credit exposure to Transatlantic, previously a consolidated subsidiary, was added to this category.
Transatlantic now represents AIG’s largest reinsurance credit exposure, with approximately $1.6 billion of
uncollateralized reinsurance assets. Transatlantic’s core operating subsidiaries have financial strength ratings of A by
A.M. Best and A+ by S&P.
AIG also has a risk concentration through the investment portfolios of its insurance companies in the U.S.
municipal sector. AIG holds approximately $48.6 billion of tax-exempt and taxable securities issued by a wide number
of municipal authorities across the U.S. and its territories. A majority of these securities are held in available-for-sale
portfolios of AIG’s domestic property-casualty insurance companies. These securities are comprised of the general
obligations of states and local governments, revenue bonds issued by these same governments and bonds issued by
transportation authorities, universities, state housing finance agencies and hospital systems. The average credit quality
of these issuers is A+.
Currently, several states, local governments and other issuers are facing pressures on their budget revenues from
the effects of the recession and have had to cut spending and draw on reserve funds. Consequently, several municipal
issuers in AIG’s portfolios have been downgraded one or more notches by the rating agencies. The most notable of
these issuers is the State of California, of which AIG holds approximately $1.1 billion of general obligation bonds and
which at December 31, 2009 was also the largest single issuer in AIG’s municipal finance portfolio. Nevertheless,
despite the budget pressures facing the sector, AIG does not expect any significant defaults in portfolio holdings of
municipal issuers.
AIG 2009 Form 10-K 176