AIG 2012 Annual Report Download - page 144

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• increases in market interest rates that may adversely affect the financial strength ratings of our subsidiaries, as
rating agency capital models may reduce the amount of available capital relative to required capital; and
• other potential events that could cause a liquidity strain, including economic collapse of a nation or region
significant to our operations, nationalization, catastrophic terrorist acts, pandemics or other events causing
economic or political upheaval.
In February 2012, AIG Parent, Chartis Inc. and certain AIG Property Casualty domestic insurance subsidiaries,
entered into a single CMA, which replaced the CMAs entered into in February 2011. Under the 2012 CMA, the total
adjusted capital and total authorized control level Risk-Based Capital (RBC) (as defined by National Association of
Insurance Commissioners (NAIC) guidelines and determined based on the subsidiaries’ statutory financial
statements) of these AIG Property Casualty insurance subsidiaries are measured as a group (the Fleet) rather than
on an individual company basis.
Among other things, the 2012 CMA provides that AIG Parent will maintain the total adjusted capital of the Fleet at or
above the specified minimum percentage of the Fleet’s projected total authorized control level RBC. As a result, the
2012 CMA provides that if the total adjusted capital of the Fleet falls below the specified minimum percentage of the
Fleet’s total authorized control level RBC, AIG Parent will contribute cash or other instruments admissible under
applicable regulations to Chartis Inc., which will further contribute such funds to the AIG Property Casualty
subsidiaries in the amount necessary to increase the Fleet’s total adjusted capital to a level at least equal to such
specified minimum percentage. Any required contribution under the 2012 CMA would generally be made during the
second and fourth quarters of each year; however, AIG Parent may also make contributions in such amounts and at
such times as it deems appropriate. In addition, the 2012 CMA provides that if the total adjusted capital of the Fleet
exceeds that same specified minimum percentage of the Fleet’s total authorized control level RBC, subject to board
approval, the AIG Property Casualty insurance subsidiaries would declare and pay ordinary dividends to their
respective equity holders up to an amount that is the lesser of:
(i) the amount (to be determined by Chartis Inc.) necessary to reduce the Fleet’s projected or actual total adjusted
capital to a level equal to or not materially greater than such specified minimum percentage or
(ii) the maximum amount of ordinary dividends permitted under applicable insurance law.
The 2012 CMA does not prohibit, however, the payment of extraordinary dividends, subject to board or regulatory
approval, to reduce the Fleet’s projected or actual total adjusted capital to a level equal to or not materially greater
than the specified minimum percentage. Any required dividend under the 2012 CMA would generally be made on a
quarterly basis. As structured, the 2012 CMA contemplates that the specified minimum percentage would be
reviewed and agreed upon at least annually.
For the years ended December 31, 2012 and 2011, AIG Parent received $2.3 billion and $1.3 billion, respectively, in
dividends from Chartis Inc. that were made pursuant to the CMAs then in place, and AIG Parent was not required to
make any capital contributions in either period pursuant to the CMAs then in place.
On February 20, 2013, the 2012 CMA was amended to exclude deferred tax assets from the calculation of total
adjusted capital. As a result, effective February 20, 2013, the specified minimum percentage decreased from
350 percent to 325 percent.
In March 2012, the National Union Fire Insurance Company of Pittsburgh, Pa. (NUFI), an AIG Property Casualty
company, became a member of the Federal Home Loan Bank (FHLB) of Pittsburgh. In August 2012, Chartis
Specialty Insurance Company (CSI), an AIG Property Casualty company, became a member of the FHLB of
Chicago. FHLB membership provides participants with access to various services, including access to low-cost
advances through pledging of certain mortgage-backed securities, government and agency securities and other
qualifying assets. These advances may be used to provide an additional source of liquidity for balance sheet
management or contingency funding purposes. As of December 31, 2012, neither NUFI nor CSI had any advances
outstanding under their respective FHLB facilities.
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AIG 2012 Form 10-K 127
ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES