AIG 2009 Annual Report Download - page 57

American International Group, Inc., and Subsidiaries
$5.7 billion in net capital contributions to subsidiaries in 2009. In addition, during the second quarter of 2009, AIG
parent drew down on the Department of the Treasury Commitment in order to make loans totaling $1.2 billion to
wholly owned subsidiaries, which in turn were used principally to make capital contributions to insurance companies.
AIG parent traditionally funded a portion of its short-term working capital needs through commercial paper issued
by AIG Funding. Since October 2008, all commercial paper issued for AIG Funding was through the CPFF program.
AIG Funding was accepted into the CPFF with a total borrowing limit of $6.9 billion. AIG Funding had approximately
$2 billion in commercial paper outstanding at December 31, 2009, which was repaid in January 2010.
General Insurance
In 2009, AIG made a capital contribution of $641 million to a Chartis U.S. subsidiary, all of which was returned as a
dividend to AIG later in the year. AIG collected an additional $500 million in dividends from Chartis U.S. in the
fourth quarter of 2009. AIG also made a capital contribution of $91 million in 2009 to a Chartis U.S. subsidiary in
connection with the subsidiary’s sale of a portion of its Transatlantic common stock.
AIG currently expects that its Chartis subsidiaries will be able to continue to meet their obligations as they come
due through cash from operations and, to the extent necessary, asset dispositions. One or more large catastrophes,
however, may require AIG to provide additional support to the affected General Insurance operations. In addition,
further downgrades in AIG’s credit ratings could put pressure on the insurer financial strength ratings of these
subsidiaries. A downgrade in the insurer financial strength ratings of an insurance company subsidiary could result in
non-renewals or cancellations by policyholders and adversely affect these companies’ ability to meet their own
obligations and require that AIG provide capital or liquidity support to them. Increases in market interest rates may
adversely affect the financial strength ratings of General Insurance subsidiaries as rating agency capital models may
reduce the amount of available capital relative to required capital.
At December 31, 2009, Chartis had liquidity in the form of cash and short-term investments. These are consolidated
cash and short-term investments for a number of legal entities within Chartis. Generally, these assets are not
transferable across various legal entities; however, there are generally sufficient cash and short-term investments
within those legal entities such that they can meet their individual liquidity needs. In the event additional liquidity is
required, management believes it can provide such liquidity through sale of a portion of its substantial holdings in
government and corporate bonds as well as equity securities. Government and corporate bonds represented
95.0 percent of General Insurance total fixed income investments at December 31, 2009. Given the size and liquidity
profile of AIG’s General Insurance investment portfolios, AIG believes that deviations from its projected claim
experience do not constitute a significant liquidity risk. AIG’s asset/liability management process takes into account
the expected maturity of investments and the specific nature and risk profile of liabilities. Historically, there has been
no significant variation between the expected maturities of AIG’s General Insurance investments and the payment of
claims. See Management’s Discussion and Analysis of Financial Condition and Results of Operations — Investments
for further information.
Domestic and Foreign Life Insurance & Retirement Services operations
At December 31, 2009, Domestic and Foreign Life Insurance & Retirement Services subsidiaries had liquidity in
the form of cash and short-term investments, which management considers adequate to meet foreseeable liquidity
needs. Domestic and Foreign Life Insurance & Retirement Services subsidiaries had been increasing their liquidity
given recent market disruptions and AIG-specific issues, which reduced investment income in 2009. During the
second half of 2009, these subsidiaries began lengthening their maturity profile by purchasing investment grade fixed
income securities. Generally, these assets are not transferable across various legal entities; however, there are
generally sufficient cash and short-term investments within those legal entities such that they can meet their individual
liquidity needs. In the event additional liquidity is required, management believes it can provide such liquidity through
sale of a portion of its substantial holdings in government and corporate bonds as well as equity securities.
Government and corporate bonds represented 85.6 percent of Domestic and Foreign Life Insurance & Retirement
Services total fixed income investments at December 31, 2009. Given the size and liquidity profile of AIG’s Domestic
and Foreign Life Insurance & Retirement Services investment portfolios, AIG believes that deviations from their
projected claim experience do not constitute a significant liquidity risk. The Domestic and Foreign Life Insurance &
Retirement Services subsidiaries have been able to meet liquidity needs, even during the period of higher surrenders
49 AIG 2009 Form 10-K