AIG 2010 Annual Report Download - page 51

American International Group, Inc., and Subsidiaries
Liquidity
If our internal sources of liquidity are insufficient to meet our needs, we may become dependent on third-party
financing, external capital markets or other sources of liquidity, which may not be available or could be prohibitively
expensive. We need liquidity to pay our operating expenses, interest on our debt and certain maturing debt
obligations and to meet any statutory capital requirements of our subsidiaries. If we have insufficient liquidity to
meet our needs, we may be required to raise additional capital or obtain other sources of commercial funding.
The availability of any additional financing depends on a variety of factors, including, but not limited to, general
market conditions, the volume of trading activities, the overall availability of credit, regulatory actions, our credit
ratings and credit capacity, as well as the possibility that customers, lenders or investors could develop a negative
perception of our long- or short-term financial prospects. Disruptions, volatility and uncertainty in the financial
markets, to the extent they persist or recur, may also limit our ability to access external capital markets at times
and on terms favorable to us and to meet our capital and liquidity needs. For example, our inability to access the
capital markets in September 2008 led to the FRBNY providing us financing under the FRBNY Credit Facility.
Furthermore, if our internal sources of liquidity prove to be insufficient, we may be unable to obtain additional
financing on favorable terms, if at all. For a further discussion of liquidity, see Management’s Discussion and
Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity.
AIG Parent’s ability to access funds from our subsidiaries is limited. As a holding company, AIG Parent depends
on dividends, distributions and other payments from our subsidiaries to fund payments due on its obligations,
including its outstanding debt. Further, the majority of its investments are held by our regulated subsidiaries. Our
subsidiaries may be limited in their ability to make dividend payments or advance funds to AIG Parent in the
future because of the need to support their own capital levels.
AIG Parent’s ability to support our subsidiaries is limited. Historically, AIG Parent has provided capital and
liquidity to our subsidiaries to maintain regulatory capital ratios, comply with rating agency requirements and meet
unexpected cash flow obligations, in some cases under support or capital maintenance agreements. If AIG Parent
is unable to provide support to a subsidiary having an immediate capital or liquidity need, the subsidiary could
become insolvent or, in the case of an insurance subsidiary or other regulated entity, could be seized by its
regulator. In the event of a catastrophe, reserve strengthening or other event, AIG Parent may be required to
provide capital to one or more of our regulated subsidiaries. For example, AIG Parent recently provided
$3.7 billion of capital to the Chartis insurance companies as a result of the reserve strengthening in the fourth
quarter of 2010. AIG Parent also expects to enter into additional capital maintenance agreements with certain of
our U.S. insurance subsidiaries that will require it to contribute capital if specific risk-based capital (RBC)
thresholds are triggered.
Certain of the investments held by our subsidiaries are illiquid and/or are difficult to sell, or to sell in significant
amounts or at acceptable prices, to generate cash to meet their needs. Our subsidiaries’ investments in certain
securities, including certain fixed income securities and certain structured securities, private equity securities,
investment partnerships, mortgage loans, flight equipment, finance receivables and real estate, which had a
collective fair value of $103 billion at December 31, 2010, are illiquid or may not be disposed of quickly. Further,
we have a significant remaining stake in AIA and have a significant position in the securities of MetLife, both of
which are subject to restrictions on transfer and hedging. In addition, the steep decline in the U.S. real estate
market and tight credit markets have materially adversely affected the liquidity of our other securities portfolios,
including our residential and commercial mortgage-related securities and investment portfolios. In the event
additional liquidity is required by one or more of our subsidiaries and AIG Parent is unable to provide liquidity, it
may be difficult to generate additional liquidity by selling, pledging or otherwise monetizing the less liquid
investments described above.
AIG 2010 Form 10-K 35