AIG 2012 Annual Report Download - page 78

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Changes in Fair Value of Derivatives
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To align the presentation of changes in the fair value of derivatives with changes in the administration of AIG’s
derivatives portfolio, changes were made to the presentation within the Consolidated Statement of Operations and
Consolidated Statement of Cash Flows. Specifically, amounts attributable to derivative activity where AIG Financial
Products Corp. and AIG Trading Group Inc. and their respective subsidiaries (collectively AIGFP) is an intermediary
for AIG subsidiaries have been reclassified from Other income to Net realized capital gains (losses).
Liquidity and Capital Resources Highlights
In March 2012, AIG paid down in full the $8.6 billion remaining preferred interests (the AIA SPV Preferred Interests)
in the special purpose vehicle holding the proceeds of the AIA initial public offering (the AIA SPV) held by the
Department of the Treasury.
In addition, in 2012, the Department of the Treasury, as selling shareholder, sold its remaining shares of AIG
common stock by completing five registered public offerings in March, May, August, September and December
(collectively, the 2012 Offerings). The Department of the Treasury sold approximately 1.5 billion shares of AIG
Common Stock for aggregate proceeds of approximately $45.8 billion in the 2012 Offerings. We purchased
approximately 421 million shares of AIG Common Stock at an average price of $30.86 per share for an aggregate
purchase amount of approximately $13.0 billion in the first four of the 2012 Offerings. We did not purchase any
shares in the December 2012 offering.
In 2012, AIG received $10.1 billion in distributions from the FRBNY’s final disposition of ML II and ML III assets. Also
in 2012, we sold our entire remaining interest in AIA ordinary shares for gross proceeds of approximately
$14.5 billion.
Additional discussion and other liquidity and capital resources developments are included in Note 17 to the
Consolidated Financial Statements and Liquidity and Capital Resources herein.
Investment Highlights
Net investment income increased 38 percent to $20.3 billion in 2012 compared to 2011, primarily through our
previous investments in ML III and AIA. The overall credit rating of our fixed maturity portfolio was largely unchanged,
and other-than- temporary impairments declined compared to prior year levels.
•Our insurance operations achieved a $1.3 billion increase in net investment income in spite of the
challenges presented by a continuing low rate environment. Net investment income improved due to the
impact of yield enhancement initiatives and higher base yields. While corporate debt securities represented the
core of new investment allocations, we continued to focus on risk weighted opportunistic investments in residential
mortgage-backed (RMBS) and other structured securities to improve yields. These included purchases of assets
sold in the ML II and ML III auctions by the FRBNY.
•The unrealized appreciation of our investment portfolio grew from approximately $5.5 billion in 2011 to
approximately $10.7 billion in 2012. This was driven by declining interest rates and narrowing spreads in both
investment grade and high yield asset portfolios. We realized higher gains on the sales of securities compared to
the prior year as we repositioned assets to meet strategic and tactical asset allocation objectives.
Other-than-temporary Impairments were lower than the prior year, in part driven by favorable developments in the
housing sector which drove strong performance in our structured products portfolios.
•The overall credit ratings of our fixed maturity investments were largely unchanged from last year,
reflecting a continued focus on long term risk adjusted portfolio performance.
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AIG 2012 Form 10-K 61
ITEM 7 / EXECUTIVE SUMMARY