AIG 2010 Annual Report Download - page 66

American International Group, Inc., and Subsidiaries
Mortgage Guaranty
The improvement in UGC’s 2010 results is primarily the result of declining levels of newly reported
delinquencies in the first-lien, second-lien and international products, higher cure rates on existing first-lien and
international delinquent loans, the effect of stop-loss limits on certain second-lien and international policies,
increased rescission activity on domestic first-lien claims, the commutation of several blocks of loan risks, and
increased efforts to modify payment plans for currently delinquent domestic first-lien loans. If these trends persist,
UGC’s financial results may continue to show improvement in future quarters. However, there remains
considerable uncertainty about the longer term outlook for the housing market, U.S. unemployment rates, the
impact of future foreclosures on domestic home prices, loan modification programs, the elimination of tax credits
for first-time homebuyers, moratoriums on foreclosures by certain lenders and mortgage insurance rescission rates
and the effects, if any, these factors may have on UGC’s financial results.
Direct Investment Business
During 2010, AIG made progress in the wind-down of the Global Real Estate business by reducing debt,
guarantees and other funding requirements while monetizing assets within the portfolio which included the sale of
discrete assets, joint venture restructuring and the sale of certain business platforms both domestically and
internationally. During 2011, AIG expects to continue the wind-down of the Global Real Estate platform. AIG
carefully evaluates various alternative exit strategies for each property and chooses the strategy it deems most
appropriate. Although orderly, the wind-down has produced and will continue to produce income statement
volatility resulting from impairments on real estate assets and subsequent gains on the defeasance of non-recourse
debt. AIG continues to monitor funding requirements of the business.
During the fourth quarter of 2010, AIG either sold or internally securitized Direct Investment assets. These
actions have produced sufficient cash to fund the expected 2011 maturities of the Direct Investment portfolio.
During 2011, management expects to pursue measures to maximize cash flows from these invested assets while
continuing its efforts to align the timing of the combined cash flows between the MIP and certain non-derivative
assets and liabilities of AIGFP.
The remainder of MD&A is organized as follows:
Index Page
Capital Resources and Liquidity 51
Overview 51
Results of Operations 69
Consolidated Results 69
Segment Results 76
Chartis Operations 77
SunAmerica Operations 110
Financial Services Operations 115
Other Operations 119
Investments 125
Investment Strategy 125
Other-Than-Temporary Impairments 137
Enterprise Risk Management 143
Overview 143
Credit Risk Management 146
Market Risk Management 149
Operational Risk Management 151
Segment Risk Management 152
Critical Accounting Estimates 161
50 AIG 2010 Form 10-K