AIG 2012 Annual Report Download - page 50

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income growth and we may not be able to fully mitigate the interest rate risk of our assets relative to our liabilities.
Continued low interest rates could impair our ability to earn the returns assumed in the pricing and the reserving for
our products at the time they were sold and issued.
INVESTMENT PORTFOLIO, CONCENTRATION OF INVESTMENTS, INSURANCE AND OTHER
EXPOSURES
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The performance and value of our investment portfolio are subject to a number of risks and uncertainties,
including changes in interest rates. Interest rates are highly sensitive to many factors, including monetary policies,
domestic and international economic and political issues and other factors beyond our control. Changes in monetary
policy or other factors may cause interest rates to rise, which would adversely affect the value of the fixed income
securities that we hold and could adversely affect our ability to sell these securities. In addition, the evaluation of
available-for-sale securities for other-than-temporary impairments, which may occur if interest rates rise, is a
quantitative and qualitative process that is subject to significant management judgment.
Our investment portfolio is concentrated in certain segments of the economy. Our results of operations and
financial condition have been adversely affected by the degree of concentration in our investment portfolio in the
past, and this may occur again in the future. We have concentrations in residential mortgage-backed, commercial
mortgage-backed and other asset-backed securities and commercial mortgage loans. We also have significant
exposures to financial institutions and, in particular, to money center and global banks; U.S. state and local
government issuers and authorities; and Eurozone financial institutions and governments and corporations. Events or
developments that have a negative effect on any particular industry, asset class, group of related industries or
geographic region may adversely affect our investments that are concentrated in such segments. Our ability to sell
assets concentrated in such areas may be limited if other market participants are selling similar assets at the same
time.
Concentration of our insurance and other risk exposures may have adverse effects. We may be exposed to
risks as a result of concentrations in our insurance policies, derivatives and other obligations that we undertake for
customers and counterparties. We manage these concentration risks by monitoring the accumulation of our
exposures by factors such as exposure type, industry, geographic region, counterparty and other factors. We also
use reinsurance, hedging and other arrangements to limit or offset exposures that exceed the limits we wish to
retain. In certain circumstances, however, these risk management arrangements may not be available on acceptable
terms or may prove to be ineffective for certain exposures. Also, our exposure may be so large that even a slightly
adverse experience compared to our expectations may have a material adverse effect on our consolidated results of
operations or financial condition, or result in additional statutory capital requirements for our subsidiaries.
RESERVES AND EXPOSURES
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Our consolidated results of operations, liquidity and financial condition are subject to the effects of
catastrophic events. Events such as hurricanes, windstorms, flooding, earthquakes, pandemic disease, acts of
terrorism and other catastrophes have adversely affected our business in the past and could do so in the future.
Such events could expose us to:
• widespread claim costs associated with property, workers’ compensation, business interruption and mortality and
morbidity claims;
• loss resulting from a decline in the value of our invested assets
• limitations on our ability to recover deferred tax assets;
• loss resulting from actual policy experience that is adverse compared to the assumptions made in the product
pricing; and
• significant interruptions to our systems and operations.
For a sensitivity analysis of our exposure to certain catastrophes, see Item 7. MD&A – Enterprise Risk
Management – Insurance Operations Risks – AIG Property Casualty Key Insurance Risks – Catastrophe Exposures.
Insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss
expenses. We regularly review the adequacy of the established Liability for unpaid claims and claims adjustment
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AIG 2012 Form 10-K 33
ITEM 1A / RISK FACTORS