AIG 2010 Annual Report Download - page 73

American International Group, Inc., and Subsidiaries
related to these assets and liabilities, primarily consisting of credit valuation adjustment gains and losses, are
reported in AIG’s Other operations category as part of Asset Management — Direct Investment business.
During 2010, AIGFP continued to unwind its portfolios, significantly reducing the net notional amount and
number of outstanding trade positions as shown in the following table:
Percentage Decrease
December 31, December 31, December 31,
(dollars in billions) 2010 2009 2008 2010 vs. 2009 2009 vs. 2008
Net notional amount(a) $ 353 $ 941 $ 1,800 (62)% (48)%
Super senior CDS contracts (included in net
notional amount above) $60 $ 184 $ 302 (67) (39)
Outstanding trade positions(b) 3,900 16,100 35,200 (76) (54)
(a) Includes $11.5 billion, $40.7 billion and $44.7 billion of intercompany derivatives in 2010, 2009 and 2008, respectively. Net notional amount in
2008 was adjusted by approximately $200.0 billion in accordance with the amended accounting standard on derivative instruments and hedging
activities.
(b) Excludes approximately 4,800 non-derivative trade positions that were transferred to Direct Investment business in 2010.
In connection with these activities, AIGFP disaggregated its portfolio of existing transactions into separate
‘‘books’’ and developed a plan for addressing each book, including assessing each book’s risks, risk mitigation
options, monitoring metrics and various potential outcomes. The plans are subject to change as efforts progress
and as conditions in the financial markets evolve, and they contemplate, depending on the book in question,
alternative strategies, including sales, assignments or other transfers of positions, terminations of positions and/or
run-offs of positions in accordance with existing terms. Execution of these plans is overseen by a transaction
approval process involving senior members of AIGFP’s and AIG’s respective management groups as specific
actions entail greater liquidity and financial consequences. Successful execution of these plans is subject, to varying
degrees depending on the transactions of a given book, to market conditions and, in many circumstances,
counterparty negotiation and agreement.
As a consequence of its wind-down strategy, AIGFP is entering into new derivative transactions only to hedge
its current portfolio, reduce risk and hedge the currency, interest rate and other market risks associated with its
affiliated businesses. AIGFP has already reduced the size of certain portions of its portfolio, including through a
substantial reduction in credit derivative transactions in respect of multi-sector collateralized debt obligations
(CDOs) in connection with ML III, the ongoing termination of transactions in its regulatory capital portfolio, a
sale of its commodity index business, termination and sale of its activities as a foreign exchange prime broker and
a sale and other disposition of its energy/infrastructure investment portfolio. AIGFP has also novated certain
trades to AIG Markets. AIG expects the active unwind of the Capital Markets derivatives portfolio to be
completed by the end of the second quarter of 2011, and the remaining Capital Markets derivatives portfolio will
consist predominantly of transactions AIG believes will be of low complexity, low risk, supportive of AIG’s risk
management objectives or not economically appropriate to unwind based on a cost versus benefit analysis.
The cost and liquidity needs of executing the wind-down will depend on many factors, many of which are not
within AIG’s control, including market conditions, AIGFP’s access to markets via market counterparties, the
availability of liquidity and the potential implications of further rating downgrades.
Debt
Debt Maturities
The following table summarizes the maturing debt at December 31, 2010 of AIG and its subsidiaries for the next
four quarters:
First Second Third Fourth
Quarter Quarter Quarter Quarter
(in millions) 2011 2011 2011 2011 Total
ILFC $1,489 $1,262 $2,148 $ 336 $ 5,235
AIG borrowings supported by assets 248 1,637 1,284 1,151 4,320
AIG general borrowings 146 - - 618 764
Other 1 1114
Total $1,884 $2,900 $3,433 $2,106 $10,323
AIG 2010 Form 10-K 57