AIG 2010 Annual Report Download - page 199

American International Group, Inc., and Subsidiaries
The following table presents, for each of the corporate debt and CLO CDS transactions, the net notional
amounts, attachment points and inception to date defaults:
(dollars in millions) Net Notional
Amount at
December 31, Attachment Point Attachment Point Defaults through
CDS Type 2010 at Inception(a) at December 31, 2010(a) December 31, 2010(b)
1 Corporate Debt $ 1,554 21.76% 18.94% 6.16%
2 Corporate Debt 5,267 22.00% 20.23% 3.76%
3 Corporate Debt 987 22.14% 20.21% 3.61%
4 Corporate Debt 982 20.80% 18.16% 5.26%
5 Corporate Debt 214 28.00% 27.68% 1.01%
6 Corporate Debt 640 24.00% 22.42% 4.46%
7 Corporate Debt 1,286 24.00% 22.32% 4.63%
8 CLO 171 35.85% 37.78% 3.11%
9 CLO 129 43.76% 43.69% 1.02%
10 CLO 190 44.20% 43.65% 4.31%
11 CLO 77 44.20% 43.65% 4.31%
12 CLO 144 44.20% 43.65% 4.31%
13 CLO 170 31.76% 32.30% 4.14%
14 CLO 338 30.40% 31.12% 0.00%
15 CLO 120 31.23% 29.55% 0.75%
Total $ 12,269
(a) Expressed as a percentage of gross transaction notional amount of the referenced obligations.
(b) Represents defaults (assets that are technically defaulted but for which the losses have not yet been realized) from inception through
December 31, 2010 expressed as a percentage of the gross transaction notional amount at December 31, 2010.
Triggers and Settlement Alternatives
At December 31, 2010, all outstanding regulatory capital CDS transactions and the majority of the arbitrage
portfolio (comprising $15.3 billion or 81 percent of the net notional amount for the arbitrage portfolio at
December 31, 2010 compared to $25.1 billion or 84 percent of the net notional amount for the arbitrage portfolio
at December 31, 2009) have cash-settled structures in respect of a basket of reference obligations, where AIGFP’s
payment obligations may be triggered by payment shortfalls, bankruptcy and certain other events such as write-
downs of the value of underlying assets (see Cash Settlement below). For the remainder of the CDS transactions
in respect of the arbitrage portfolio (comprising $3.7 billion or 19 percent of the net notional amount for the
arbitrage portfolio at December 31, 2010 compared to $4.9 billion or 16 percent of the net notional amount for
the arbitrage portfolio at December 31, 2009), AIGFP’s payment obligations are triggered by the occurrence of a
credit event under a single reference security, and performance is limited to a single payment by AIGFP in return
for physical delivery by the counterparty of the reference security (see Physical Settlement below).
Cash Settlement. Transactions requiring cash settlement (principally on a ‘‘pay as you go’’ basis) are generally
in respect of baskets of reference credits (which may also include single-name CDS in addition to securities and
loans) rather than a single reference obligation as in the case of the physically settled transactions described
below. Under these credit default swap transactions:
• Each time a ‘‘triggering event’’ occurs a ‘‘loss amount’’ is calculated. A triggering event is generally a failure
by the relevant obligor to pay principal of or, in some cases, interest on one of the reference credits in the
underlying basket. Triggering events may also include bankruptcy of the obligors of the reference credits,
write-downs or payment postponements with respect to interest or to the principal amount of a reference
credit payable at maturity. The determination of the loss amount is specific to each triggering event. It can
represent the amount of a shortfall in ordinary course interest payments on the reference credit, a
write-down in the interest on or principal of such reference credit or payment postponed. It can also
represent the difference between the notional or par amount of such reference credit and its market value,
as determined by reference to market quotations. A ‘‘write-down’’ with respect to a referenced credit may
AIG 2010 Form 10-K 183