AIG 2009 Annual Report Download - page 33

American International Group, Inc., and Subsidiaries
Employee error and misconduct may be difficult to detect and prevent and may result in significant losses. Losses may
result from, among other things, fraud, errors, failure to document transactions properly or to obtain proper internal
authorization or failure to comply with regulatory requirements, both generally, and during the asset disposition
process. There have been a number of highly publicized cases involving fraud or other misconduct by employees in the
financial services industry in recent years, and AIG runs the risk that employee misconduct could occur. It is not
always possible to deter or prevent employee misconduct, and the controls that AIG has in place to prevent and detect
this activity may not be effective in all cases. This risk may be heightened by AIG’s asset disposition program since
employees who perceive that they will lose their jobs may engage in intentional misconduct or simply fail to comply
with AIG’s reporting requirements.
Policyholder Behavior
AIG’s policyholders and agents and other distributors of AIG’s insurance products have expressed significant concerns in
the wake of announcements by AIG of adverse financial results. Many of AIG’s businesses depend upon the financial
stability (both actual and perceived) of AIG parent. Concerns that AIG or its subsidiaries may not be able to meet
their obligations have negatively affected AIG’s businesses in many ways, including:
• requests by customers to withdraw funds from AIG under annuity and certain life insurance contracts;
• a refusal by independent agents, brokers and banks to continue to offer AIG products and services;
• a refusal of counterparties, customers or vendors to continue to do business with AIG; and
• requests by customers and other parties to terminate existing contractual relationships.
Continued economic uncertainty, additional adverse results or a lack of confidence in AIG and AIG’s businesses
may cause AIG customers, agents and other distributors to cease or reduce their dealings with AIG, turn to
competitors or shift to products that generate less income for AIG. Although AIG has announced its intent to refocus
its business and certain AIG subsidiaries are rebranding themselves in an attempt to overcome a perception of
instability, AIG cannot be sure that such efforts will be successful in attracting or maintaining clients.
Concentration of Investments and Exposures
Concentration of AIG’s investment portfolios in any particular segment of the economy may have adverse effects.
AIG’s results of operations have been adversely affected and may continue to be adversely affected by a concentration
in residential mortgage-backed, commercial mortgage-backed and other asset-backed securities and commercial
mortgage loans. AIG also has significant exposures to financial institutions and, in particular, to money center and
global banks. These types of concentrations in AIG’s investment portfolios could have an adverse effect on the value
of these portfolios and consequently on AIG’s consolidated results of operations and financial condition. While AIG
seeks to mitigate this risk by having a broadly diversified portfolio, events or developments that have a negative effect
on any particular industry, asset class, group of related industries or geographic region may have a greater adverse
effect on the investment portfolios to the extent that the portfolios are concentrated. Furthermore, AIG’s ability to
sell assets relating to such particular groups of related assets may be limited if other market participants are seeking to
sell at the same time.
Concentration of AIG’s insurance and other risk exposures may have adverse effects. AIG seeks to manage the risks
to which it is exposed as a result of the insurance policies, derivatives and other obligations that it undertakes to
customers and counterparties by monitoring the diversification of its exposures by exposure type, industry, geographic
region, counterparty and otherwise and by using reinsurance, hedging and other arrangements to limit or offset
exposures that exceed the limits it wishes to retain. In certain circumstances, or with respect to certain exposures, such
risk management arrangements may not be available on acceptable terms, or AIG’s exposure in absolute terms may
be so large that even slightly adverse experience compared to AIG’s expectations may cause a material adverse effect
on AIG’s consolidated financial condition or results of operations.
Casualty Insurance Underwriting and Reserves
Casualty insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss expenses.
Although AIG regularly reviews the adequacy of the established Liability for unpaid claims and claims adjustment
25 AIG 2009 Form 10-K