AIG 2013 Annual Report Download - page 146

Liquidity and Capital Resources
Liquidity refers to the ability to generate sufficient cash resources to meet our payment obligations. It is defined as
cash and unencumbered assets that can be monetized in a short period of time at a reasonable cost. We manage
our liquidity prudently through various risk committees, policies and procedures, and a stress testing and liquidity
framework established by Enterprise Risk Management (ERM). Our liquidity framework is designed to measure both
the amount and composition of our liquidity to meet financial obligations in both normal and stressed markets. See
Enterprise Risk Management — Risk Appetite, Identification, and Measurement and — Enterprise Risk
Management — Liquidity Risk Management below for additional information.
Capital refers to the long-term financial resources available to support the operation of our businesses, fund
business growth, and cover financial and operational needs that arise from adverse circumstances. Our primary
source of ongoing capital generation is the profitability of our insurance subsidiaries. We and our insurance
subsidiaries must comply with numerous constraints on our minimum capital positions. These constraints drive the
requirements for capital adequacy for both AIG and the individual businesses and are based on internally-defined risk
tolerances, regulatory requirements, rating agency and creditor expectations and business needs. Actual capital
levels are monitored on a regular basis, and using ERM’s stress testing methodology, we evaluate the capital impact
of potential macroeconomic, financial and insurance stresses in relation to the relevant capital constraints of both AIG
and our insurance subsidiaries.
We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet our
obligations to policyholders, customers, creditors and debt-holders, including reasonably foreseeable contingencies or
events.
Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or readily
deployable capital resources. Additional collateral calls, deterioration in investment portfolios or reserve strengthening
affecting statutory surplus, higher surrenders of annuities and other policies, downgrades in credit ratings, or
catastrophic losses may result in significant additional cash or capital needs and loss of sources of liquidity and
capital. In addition, regulatory and other legal restrictions could limit our ability to transfer funds freely, either to or
from our subsidiaries.
Depending on market conditions, regulatory and rating agency considerations and other factors, we may take various
liability and capital management actions. Liability management actions may include, but are not limited, to
repurchasing or redeeming outstanding debt, issuing new debt or engaging in debt exchange offers. Capital
management actions may include, but are not limited to, paying dividends to our shareholders and share
repurchases.
Overview
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AIG 2013 Form 10-K128
ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES
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