AIG 2012 Annual Report Download - page 290

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11. VARIABLE INTEREST ENTITIES
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A variable interest entity (VIE) is a legal entity that does not have sufficient equity at risk to finance its activities
without additional subordinated financial support or is structured such that equity investors lack the ability to make
significant decisions relating to the entity’s operations through voting rights and do not substantively participate in the
gains and losses of the entity. Consolidation of a VIE by its primary beneficiary is not based on majority voting
interest, but is based on other criteria discussed below.
While we enter into various arrangements with VIEs in the normal course of business, our involvement with VIEs is
primarily via our insurance companies as a passive investor in debt securities (rated and unrated) and equity
interests issued by VIEs. In all instances, we consolidate the VIE when we determine we are the primary beneficiary.
This analysis includes a review of the VIE’s capital structure, contractual relationships and terms, nature of the VIE’s
operations and purpose, nature of the VIE’s interests issued and our involvement with the entity. When assessing the
need to consolidate a VIE, we evaluate the design of the VIE as well as the related risks the entity was designed to
expose the variable interest holders to.
For VIEs with attributes consistent with that of an investment company or a money market fund, the primary
beneficiary is the party or group of related parties that absorbs a majority of the expected losses of the VIE, receives
the majority of the expected residual returns of the VIE, or both.
For all other variable interest entities, the primary beneficiary is the entity that has both (1) the power to direct the
activities of the VIE that most significantly affect the entity’s economic performance and (2) the obligation to absorb
losses or the right to receive benefits that could be potentially significant to the VIE. While also considering these
factors, the consolidation conclusion depends on the breadth of our decision-making ability and our ability to
influence activities that significantly affect the economic performance of the VIE.
Exposure to Loss
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Our total off-balance sheet exposure associated with VIEs, primarily consisting of financial guarantees and
commitments to real estate and investment funds, was $0.2 billion and $0.4 billion at December 31, 2012 and 2011,
respectively.
The following table presents our total assets, total liabilities and off-balance sheet exposure associated with
our variable interests in consolidated VIEs:
AIA/ALICO SPVs $ 14.2 $ 0.1
Real estate and investment funds(c) 1.5 0.4
Securitization Vehicles – –
Structured investment vehicles 1.0 –
Affordable housing partnerships 2.5 0.1
Other 3.6 2.0
Total $ 22.8 $ 2.6
(a) The assets of each VIE can be used only to settle specific obligations of that VIE.
(b) Decrease primarily due to the retirement of the AIA SPV Preferred Interests held by the Department of the Treasury. As a result, the AIA SPV
no longer qualified as a VIE. Assets include $567 million of cash held in escrow pursuant to the terms of the ALICO stock purchase agreement
between AIG and MetLife. See Note 16 herein for further discussion of the escrow arrangement.
(c) At December 31, 2012 and December 31, 2011, off-balance sheet exposure with respect to real estate and investments funds was
$48.7 million and $85.7 million, respectively.
We calculate our maximum exposure to loss to be (i) the amount invested in the debt or equity of the VIE, (ii) the
notional amount of VIE assets or liabilities where we have also provided credit protection to the VIE with the VIE as
the referenced obligation, and (iii) other commitments and guarantees to the VIE. Interest holders in VIEs sponsored
by us generally have recourse only to the assets and cash flows of the VIEs and do not have recourse to us, except
in limited circumstances when we have provided a guarantee to the VIE’s interest holders.
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AIG 2012 Form 10-K 273
VIE Assets(a) VIE Liabilities
December 31, December 31, December 31, December 31,
(in billions) 2012 2011 2012 2011
$ 0.6(b) $ 0.1
1.0 0.2
2.4 –
1.7 0.1
2.3 0.2
3.3 1.3
$ 11.3 $ 1.9
ITEM 8 / NOTE 11. VARIABLE INTEREST ENTITIES