AIG 2009 Annual Report Download - page 187

American International Group, Inc., and Subsidiaries
the recovering world equity markets, which added approximately $2 billion in common and preferred stock
investments; and
• the net increase in foreign exchange net combined exposure reflects: approximately $4.3 billion increase in the
Taiwan dollar due to aggressive capital management-driven local hedging program (away from U.S. and other
non-local currencies); $4.2 billion increase in Japanese yen primarily due to surrender activity in Japan; partially
offset by a number of relatively small decreases in other currencies with a net combined position totaling
approximately $4.0 billion.
The above sensitivities of a 100 basis point increase in yield curves, a 20 percent decline in equities and alternative
assets, and a 10 percent depreciation of all foreign currency exchange rates against the U.S. dollar were chosen solely
for illustrative purposes. The selection of these specific events should not be construed as a prediction, but only as a
demonstration of the potential effects of such events. These scenarios should not be construed as the only risks AIG
faces; these events are shown as an indication of several possible losses AIG could experience. In addition, losses from
these and other risks could be materially higher than illustrated.
The sensitivity factors utilized for 2009 and presented above were selected based on historical data from 1989 to
2009, as follows (see the table below):
• a 100 basis point parallel shift in the yield curve is broadly consistent with a one standard deviation movement of
the benchmark ten-year treasury yield;
• a 20 percent drop for equity and alternative investments is broadly consistent with a one standard deviation
movement in the S&P 500. In the 2008 sensitivity analysis, a standard deviation of 15 percent was based on the
experience of the 20 years ended December 31, 2007; the volatile 2008 period was deemed to be a stress event
and was thus excluded; and
• a 10 percent depreciation of foreign currency exchange rates is consistent with a one standard deviation
movement in the U.S. dollar (USD)/Japanese Yen (JPY) exchange rate.
Original
2008 Scenario
2009 Scenario (based on
as a 2009 as a Standard
Suggested Multiple of 2009 Multiple of Deviation for
Standard 2009 Standard Change/ Standard 1987-2007
Period Deviation Scenario Deviation Return Deviation Period)
10-Year Treasury 1989-2009 1.0% 1.0% 1.0 1.6% 1.6 1.0%
S&P 500 1989-2009 19.3% 20.0% 1.0 23.5% 1.2 15.0%
USD/JPY 1989-2009 10.6% 10.0% 0.9 (2.6)% 0.2 10.0%
Operational Risk Management
AIG’s Operational Risk Management department (ORM) oversees AIG’s operational risk management practices.
The Director of ORM reports to the CRO. ORM is responsible for establishing the framework, principles and
guidelines of AIG’s operational risk management program. AIG has implemented an operational risk management
framework including a risk and control self assessment (RCSA) process.
Each business unit is responsible for implementing the components of the operational risk management program to
ensure that effective operational risk management practices are utilized throughout AIG. Business units continue to
enhance their governance frameworks in order to perform more robust risk assessments. In addition, business units
involved in the disposition process are engaged in the assessment of the specific operational risks attendant to a
separation from AIG.
179 AIG 2009 Form 10-K