AIG 2009 Annual Report Download - page 337

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
the risk of short-term funding shortfalls; and (c) maintain liquidity sufficient to address cash needs. Accordingly, the
asset allocation strategy is designed to maximize the investment rate of return while managing various risk factors,
including but not limited to, volatility relative to the benefit obligations, diversification and concentration, and the risk
and rewards profile indigenous to each asset class.
There were no shares of AIG Common Stock included in the U.S. and non-U.S. pension plans assets at
December 31, 2009 or 2008.
U.S. pension plans
The long-term strategic asset allocation is reviewed and revised approximately every three years. The plans’ assets
are monitored by the investment committee of AIG’s Retirement Board and the investment managers, which can
entail allocating the plans assets among approved asset classes within pre-approved ranges permitted by the strategic
allocation.
At December 31, 2009, the actual asset allocation for the primary asset classes was 56 percent in equity securities,
25 percent in fixed income securities, 16 percent in other investments, and 3 percent in cash and cash equivalents. The
2010 target asset allocation for the primary asset classes is 45 percent in equity securities, 30 percent in fixed income
securities, and 25 percent in other investments, which may include hedge funds, private equity investments, insurance
contracts and commodities. The actual allocation may differ from the target allocation at any particular point in time.
The U.S. pension plans hold a group annuity contract with US Life, an AIG subsidiary, which totaled $34 million
and $36 million at December 31, 2009 and 2008, respectively.
The expected long-term rate of return for the plans was 7.75 percent for both 2009 and 2008. The expected rate of
return is an aggregation of expected returns within each asset class category. The expected asset return and any
contributions made by AIG together are expected to maintain the plans’ ability to meet all required benefit
obligations. The expected asset return with respect to each asset class was developed based on a building block
approach that considers historical returns, current market conditions, asset volatility and the expectations for future
market returns. While the assessment of the expected rate of return is long-term and thus not expected to change
annually, significant changes in investment strategy or economic conditions may warrant such a change.
Non-U.S. pension plans
The assets of the non-U.S. pension plans are held in various trusts in multiple countries and are invested primarily
in equities and fixed income securities to maximize the long-term return on assets for a given level of risk.
At December 31, 2009, the actual aggregate asset class allocation was 46 percent in equity securities, 27 percent in
fixed income securities, 22 percent in other investments and 5 percent in cash and cash equivalents. The 2010 target
allocation for the asset classes is 43 percent in equity securities, 29 percent in fixed income securities, 18 percent in
other investments (which may include hedge funds, private equity investments, and insurance contracts), 6 percent in
real estate, and 4 percent in cash and cash equivalents.
The expected long-term rates of return for the non-U.S. pension plans ranged from 2.75 percent to 12.50 percent
and 2.75 percent to 9.75 percent for the years ended December 31, 2009 and 2008, respectively. The expected rate of
return for each country is an aggregation of expected returns within each asset class for such country. For each
country, the return with respect to each asset class was developed based on a building block approach that considers
historical returns, current market conditions, asset volatility and the expectations for future market returns. While the
assessment of the expected rate of return is long-term and thus not expected to change annually, significant changes in
investment strategy or economic conditions may warrant such a change. The expected asset return and any
contributions made by AIG together are expected to maintain the plan’s ability to meet all required benefit
obligations.
The non-U.S. pension plans hold an insurance contract with AIG Star Life, an AIG subsidiary, which totaled
$79 million and $90 million at December 31, 2009 and 2008, respectively.
329 AIG 2009 Form 10-K