AIG 2010 Annual Report Download - page 68

American International Group, Inc., and Subsidiaries
AIG’s consolidated risk target is to maintain a minimum liquidity buffer such that AIG Parent’s liquidity needs
under the ERM stress scenarios do not exceed 80 percent of AIG Parent’s overall liquidity sources over the
specified two-year horizon. If the 80 percent minimum threshold is projected to be breached over this defined
time horizon, AIG will take appropriate actions to further increase liquidity sources or reduce liquidity needs to
maintain the target threshold, although no assurance can be given that this would be possible under
then-prevailing market conditions.
AIG expects to enter into additional capital maintenance agreements with its U.S. insurance companies to
manage the flow of capital and funds between AIG Parent and the insurance companies.
As a result of these ERM stress tests, AIG believes that it has sufficient liquidity at the AIG Parent level to
satisfy future liquidity requirements and meet its obligations, including reasonably foreseeable contingencies or
events.
See further discussion regarding AIG Parent and subsidiary liquidity considerations in Liquidity of Parent and
Subsidiaries below.
Analysis of sources and uses of cash
The following table presents selected data from AIG’s Consolidated Statement of Cash Flows:
Years Ended December 31,
(in millions) 2010 2009 2008
Summary:
Net cash provided by (used in) operating activities $ 16,910 $ 18,584 $ (122)
Net cash provided by (used in) investing activities (10,225) 5,778 47,176
Net cash used in financing activities (9,261) (28,997) (40,734)
Effect of exchange rate changes on cash 39 533 38
Change in cash (2,537) (4,102) 6,358
Cash at beginning of year 4,400 8,642 2,284
Reclassification of assets held for sale (305) (140) -
Cash at end of year $ 1,558 $ 4,400 $ 8,642
Net cash provided by operating activities was positive for both 2010 and 2009 compared to negative in 2008,
principally due to positive cash flows from AIG’s life insurance subsidiaries.
Insurance companies generally receive most premiums in advance of the payment of claims or policy benefits,
but the ability of Chartis to generate positive cash flow is affected by operating expenses, the frequency and
severity of losses under its insurance policies and policy retention rates. Cash provided by Chartis operations was
$1.9 billion for 2010 compared to $2.8 billion in 2009 as a reduction in claims paid was more than offset by
declines in premiums collected, arising primarily from a decrease in domestic production. Catastrophic events and
significant casualty losses, the timing and effect of which are inherently unpredictable, reduce operating cash flow
for Chartis operations. Cash provided by AIG’s life insurance subsidiaries, including entities presented as
discontinued operations, was $15.5 billion for 2010 compared to $9.1 billion in 2009 as growth in international
markets was partially offset by a decrease in cash flows from domestic operations. Cash flows provided from
Financial Services including entities presented as discontinued operations were $1.4 billion and $5.4 billion for
2010 and 2009, respectively. The decrease can be attributed in part to the continued wind-down of AIGFP’s
businesses and portfolio.
Cash provided by Chartis was $2.8 billion for 2009 compared to $4.8 billion in 2008 as a reduction in claims
paid was more than offset by reduced premiums collected. Cash provided by life insurance operations, including
entities presented as discontinued operations, was $9.1 billion for 2009 compared to $22 billion in 2008. Reduced
cash flows were primarily driven by the continuing impact of the negative events during the second half of 2008.
Cash provided from Financial Services, including entities presented as discontinued operations, was $5.4 billion for
2009 compared to $28.9 billion operating cash outflows in 2008, primarily related to collateral posting
requirements.
52 AIG 2010 Form 10-K