AIG 2012 Annual Report Download - page 145

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AIG Life and Retirement
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We believe that AIG Life and Retirement subsidiaries have liquidity sources adequate to satisfy future liquidity
requirements and meet their obligations, including those arising from reasonably foreseeable contingencies or events,
through cash from operations and, to the extent necessary, asset dispositions. The AIG Life and Retirement
subsidiaries maintain liquidity in the form of cash and short-term investments, totaling $7.8 billion as of December 31,
2012. In 2012, AIG Life and Retirement provided $2.9 billion of liquidity to AIG Parent through note repayments
funded by the payment of dividends from insurance subsidiaries. These payments included a $1.6 billion distribution
relating to the liquidation of ML II and a distribution of $440 million in the form of a note repayment.
The need to fund product surrenders, withdrawals and maturities creates a significant potential liquidity requirement
for AIG Life and Retirement’s subsidiaries. We believe that because of the size and liquidity of our investment
portfolios, AIG Life and Retirement does not face a significant liquidity risk due to normal deviations from projected
claim or surrender experience. As part of its risk management framework, AIG Life and Retirement continues to
evaluate programs, including securities lending programs and other secured financings, to improve its liquidity
position and facilitate AIG Life and Retirement’s ability to maintain a fully invested asset portfolio.
During 2012, AIG Life and Retirement began utilizing programs that lend securities from its investment portfolio to
supplement liquidity or for other uses as deemed appropriate by management. Under these programs, the AIG Life
and Retirement subsidiaries lend securities to financial institutions and receive collateral equal to 102 percent of the
fair value of the loaned securities. Reinvestment of cash collateral received is restricted to highly liquid short-term
investments. AIG Life and Retirement’s liability to the borrower for collateral received was $3.1 billion as of
December 31, 2012. In addition, in 2011, certain AIG Life and Retirement insurance subsidiaries became members
of the FHLBs in their respective districts. As of December 31, 2012, AIG Life and Retirement had outstanding
borrowings of $82 million from the FHLBs.
In March 2011, AIG Parent entered into CMAs with certain AIG Life and Retirement insurance subsidiaries. Among
other things, the CMAs provide that AIG Parent will maintain the total adjusted capital of each of these AIG Life and
Retirement insurance subsidiaries at or above a specified minimum percentage of the subsidiary’s projected
Company Action Level RBC. As a result, the CMAs provide that if the total adjusted capital of these AIG Life and
Retirement insurance subsidiaries falls below the specified minimum percentage of their respective Company Action
Level RBC, AIG Parent will contribute cash or instruments admissible under applicable regulations to these AIG Life
and Retirement insurance subsidiaries in the amount necessary to increase total adjusted capital to a level at least
equal to such specified minimum percentage. Any required contribution under the CMAs 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 CMAs provide that if the total adjusted capital of these AIG Life and Retirement insurance
subsidiaries is in excess of that same specified minimum percentage of their respective total company action level
RBC, subject to board approval, the subsidiaries would declare and pay ordinary dividends to their respective equity
holders up to an amount that is the lesser of:
• (i) the amount necessary to reduce 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 CMAs do not prohibit, however, the payment of extraordinary dividends, subject to board and regulatory
approval, to reduce 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 CMAs would generally be made on a quarterly
basis. As structured, the CMAs contemplate that the specified minimum percentage would be reviewed and agreed
upon at least annually. As a result of a reduction in rating agency minimum requirements and greater capital
efficiency arising from the consolidation of legal entities, the specified minimum percentage decreased from
435 percent to 385 percent effective February 19, 2013, except for the CMA with AGC Life Insurance Company,
where the specified minimum percentage remained at 250 percent.
For the years ended December 31, 2012 and 2011, AIG Parent received a total of approximately $2.9 billion and
$1.4 billion, respectively, in distributions from AIG Life and Retirement subsidiaries in the form of note repayments
funded by the payment of dividends from these subsidiaries, which were made under the CMAs. AIG Parent was not
required to make any capital contributions to AIG Life and Retirement subsidiaries in either period under the CMAs
then in place.
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AIG 2012 Form 10-K128
ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES