AIG 2010 Annual Report Download - page 163

American International Group, Inc., and Subsidiaries
• aggregate globally all credit exposure data by counterparty, country and industry and report risk
concentrations regularly to and review with the CRC and the Finance and Risk Management Committee of
the Board of Directors;
• administer regular portfolio credit reviews of all investment, derivative and credit-incurring business units
and recommend any corrective actions where required;
• develop methodologies for quantification and assessment of credit risks, including the establishment and
maintenance of AIG’s internal risk rating process; and
• approve appropriate credit reserves and methodologies at the business unit and enterprise levels.
The CRC also approves concentration limits on U.S. and international business unit consumer loan portfolios,
including the mortgage insurance activities of UGC. In addition, the CRC is also responsible for establishing
concentration limits on Asset Management Group’s exposures in U.S. and international RMBS, CMBS and CDOs.
See Investments herein for a discussion of these exposures.
AIG monitors and controls its company-wide credit risk concentrations and attempts to avoid unwanted or
excessive risk accumulations, whether funded or unfunded. To minimize the level of credit risk in certain
circumstances, AIG may require third-party guarantees, reinsurance or collateral, such as letters of credit and trust
accounts. These guarantees, reinsurance recoverable, letters of credit and trust accounts are also treated as credit
exposure and are added to AIG’s risk concentration exposure data.
AIG defines its aggregate credit exposures to a counterparty as the sum of its fixed maturities, loans, finance
leases, reinsurance recoverables, derivatives (mark-to-market), deposits, reverse repurchase agreements, collateral
extended to counterparties and letters of credit (in the case of financial institutions) and the specified credit
equivalent exposure to certain insurance products which embody credit risk.
The following table presents AIG’s largest credit exposures as a percentage of Total equity:
At December 31, 2010 Credit Exposure
as a Percentage
Category Risk Rating(a) of Total Equity(b)
Investment Grade:
10 largest combined(c) A+ 84.4%(d)
Single largest financial institution AA- 4.8
Single largest corporate AAA 2.9
Single largest sovereign AAA 21.3
Non-Investment Grade:
Single largest financial institution BB- 0.3
Single largest corporate BB 0.6
Single largest sovereign BB 0.1
(a) Reflects AIG’s internal risk ratings.
(b) Amounts shown include AIG Star, AIG Edison and Nan Shan which were held for sale at December 31, 2010.
(c) Six of the ten largest credit exposures are to financial institutions, three are to investment-grade rated sovereigns and one is to an AAA-rated
corporate. Based on support from the U.S. Government, the exposure to government-sponsored entities (GSEs) and to mortgage-backed
securities guaranteed by the GSEs is included in the U.S. Government total, rather than in financial institutions. None of the top ten is rated
lower than BBB- or its equivalent.
(d) Exposure to the ten largest combined as a percentage of Total equity declined from 123.9 percent at September 30, 2010, primarily due to the
deconsolidation of AIA and sale of ALICO.
AIG monitors its aggregate cross-border exposures by country and regional group of countries. AIG includes in
its cross-border exposures both aggregated cross-border credit exposures to unrelated third parties, its cross-border
investments in its own international subsidiaries and operating aircraft leases. Eight countries have cross-border
exposures in excess of 10 percent of Total equity at December 31, 2010. Based on AIG’s internal risk ratings, as of
AIG 2010 Form 10-K 147