AIG 2009 Annual Report Download - page 190

American International Group, Inc., and Subsidiaries
losses and could be subject to rating downgrades. AIG’s reinsurance recoverable exposures are primarily to the
regulated subsidiaries of such companies which are subject to minimum regulatory capital requirements. The RSD, in
conjunction with CRM, is reviewing these developments, is monitoring compliance with credit triggers that may
require the reinsurer to post collateral, and, as appropriate, will seek to use other means to mitigate any material risks
arising from these developments.
Segment Risk Management
Other than as described above, AIG manages its business risk oversight activities through its operating segments.
Insurance Operations
AIG’s multiple insurance businesses conducted on a global basis expose AIG to a wide variety of risks with different
time horizons. These risks are managed throughout the organization, both centrally and locally, through a number of
procedures, including:
• pre-launch approval of product design, development and distribution;
• underwriting approval processes and authorities;
• exposure limits with ongoing monitoring;
• modeling and reporting of aggregations and limit concentrations at multiple levels (policy, line of business,
product group, country, individual/group, correlation and catastrophic risk events);
• compliance with financial reporting and capital and solvency targets;
• extensive use of reinsurance, both internal and third-party; and
• review and establishment of reserves.
AIG closely manages insurance risk by overseeing and controlling the nature and geographic location of the risks in
each line of business underwritten, the terms and conditions of the underwriting and the premiums charged for taking
on the risk. Concentrations of risk, including, but not limited to wind, flood, earthquake, terrorism and accident are
analyzed using various modeling techniques.
AIG has two major categories of insurance risks as follows:
•General Insurance — risks covered include property, casualty, fidelity/surety, management liability and mortgage
insurance. Risks in the general insurance segment are managed through aggregations and limitations of
concentrations at multiple levels: policy, line of business, correlation and catastrophic risk events.
•Domestic Life Insurance & Retirement Services and Foreign Life Insurance & Retirement Services — risks include
mortality and morbidity in the insurance-oriented products and insufficient cash flows to cover contract
liabilities in the retirement savings-oriented products. Risks are managed through product design, sound
medical underwriting, external traditional reinsurance programs and external catastrophe reinsurance programs.
AIG is a major purchaser of reinsurance for its insurance operations. The use of reinsurance facilitates insurance
risk management (retention, volatility, concentrations) and capital planning locally (branch and subsidiary). AIG may
purchase reinsurance on a pooled basis. Pooling of AIG’s reinsurance risks enables AIG to purchase reinsurance
more efficiently at a consolidated level, manage global counterparty risk and relationships and manage global
catastrophe risks, both for the General Insurance and Life Insurance & Retirement Services businesses.
General Insurance
In General Insurance, underwriting risks are managed through the application approval process, exposure
limitations as well as through exclusions, deductibles and self-insured retentions, coverage limits and reinsurance. The
risks covered by AIG are managed through sound underwriting practices, pricing procedures and the use of actuarial
AIG 2009 Form 10-K 182