AIG 2012 Annual Report Download - page 175

.....................................................................................................................................................................................
• developing methodologies for quantification and assessment of credit risks, including the establishment and
maintenance of our internal risk rating process; and
• approving appropriate credit reserves, credit-related other-than-temporary impairments and corresponding
methodologies in all credit portfolios.
We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive risk
accumulations, whether funded or unfunded. To minimize the level of credit risk in some circumstances, we may
require third-party guarantees, reinsurance or collateral, such as letters of credit and trust collateral accounts. We
treat these guarantees, reinsurance recoverables, letters of credit and trust collateral accounts as credit exposure
and include them in our risk concentration exposure data. We identify our aggregate credit exposures to our
underlying counterparty risks.
Largest Credit Concentrations
..............................................................................................................................................................................................
Our single largest credit exposure, the U.S. Government, was 25 percent of Total equity at December 31, 2012
compared to 30 percent at December 31, 2011. Exposure to the U.S. Government primarily includes credit exposure
related to U.S. Treasury and government agency securities and to direct and guaranteed exposures to U.S.
government-sponsored entities, primarily the Federal National Mortgage Association (Fannie Mae) and the Federal
Home Loan Mortgage Corporation (Freddie Mac) based upon their U.S. Government conservatorship. The reduction
in exposure was primarily related to U.S. government-sponsored entities.
Based on our internal risk ratings, at December 31, 2012, our largest below investment grade-rated credit exposure,
apart from ILFC leasing arrangements secured by aircraft with airlines having below investment grade ratings, was
related to a non-financial corporate counterparty and that exposure was 0.6 percent of Total equity, compared to
0.5 percent at December 31, 2011.
Government Credit Concentrations (non-U.S.)
..............................................................................................................................................................................................
Our total direct and guaranteed credit exposure to non-U.S. governments is $22.5 billion at December 31, 2012,
compared to $26.2 billion in December 31, 2011. Our single largest concentration was to the government of Japan in
the amount of $8.1 billion at December 31, 2012. Most of these securities were held in the investment portfolios of
our Japanese insurance operations.
The following table presents our aggregate (gross and net) credit exposures to non-U.S. governments:
Japan $ 9,205
Canada 3,153
Germany 1,854
France 1,157
China 132
United Kingdom 1,615
Australia 879
Mexico 507
Netherlands 442
Russia 293
Other 6,934
Total $ 26,171
Financial Institution Concentrations
..............................................................................................................................................................................................
Our single largest industry credit exposure in 2012 was to the global financial institutions sector as a whole, which
includes banks and finance companies, securities firms, and insurance and reinsurance companies, many of which
can be highly correlated at times of market stress. As of December 31, 2012, credit exposure to this sector was
$85.5 billion, or 84 percent of Total equity compared to 106 percent at December 31, 2011.
..................................................................................................................................................................................................................................
AIG 2012 Form 10-K158
December 31, December 31,
(in millions) 2012 2011
$ 8,109
2,718
1,446
1,207
926
816
601
552
442
340
5,350
$ 22,507
ITEM 7 / ENTERPRISE RISK MANAGEMENT