AIG 2013 Annual Report Download - page 154

subsidiaries also include collateral posting requirements, the purpose of which are to provide collateral to GCM,
which in turn is used to satisfy posting requirements with third parties, including the margin requirements of clearing
organizations and futures commission merchants.
In addition, most of GCM’s CDSs within AIGFP are subject to collateral posting provisions. The collateral posting
provisions contained in the ISDA Master Agreements and related transaction documents with respect to CDSs differ
among counterparties and asset classes. The amount of future collateral posting requirements for super senior CDSs
is a function of our credit ratings, the rating of the relevant reference obligations and the market value of the relevant
reference obligations, with market value being the most significant factor. We estimate the amount of potential future
collateral postings associated with the super senior CDSs using various methodologies. The contingent liquidity
requirements associated with such potential future collateral postings are incorporated into our liquidity planning
assumptions.
As of December 31, 2013 and December 31, 2012, respectively, GCM had total assets of $7.7 billion and $8.0 billion
and total liabilities of $3.1 billion and $4.9 billion. GCM’s assets consist primarily of cash, short-term investments,
other receivables, net of allowance, and unrealized gains on swaps, options and forwards. GCM’s liabilities consist
primarily of trade payables and unrealized losses on swaps, options and forwards. Collateral posted by GCM to third
parties was $3.0 billion and $4.2 billion at December 31, 2013 and December 31, 2012, respectively. GCM obtained
collateral from third parties totaling $572 million and $846 million at December 31, 2013 and December 31, 2012,
respectively. The collateral amounts reflect counterparty netting adjustments available under ISDA Master
Agreements and are inclusive of collateral that exceeded the fair value of derivatives as of the reporting date.
The DIB portfolio is being wound down and is managed with the objective of ensuring that at all times it maintains
the liquidity we believe is necessary to meet all of its liabilities as they come due, even under stress scenarios, and
to maximize returns consistent with our risk management objectives. We are focused on meeting the DIB’s liquidity
needs, including the need for contingent liquidity arising from collateral posting for debt positions of the DIB, without
relying on resources beyond the DIB. As part of this program management, we may from time to time access the
capital markets, including issuing and repurchasing debt, and selling assets on an opportunistic basis, in each case
subject to market conditions. If the DIB’s risk target is breached, we expect to take appropriate actions to increase
the DIB’s liquidity sources or reduce liquidity requirements to maintain the risk target, although no assurance can be
given that this can be achieved under then-prevailing market conditions. Any additional liquidity shortfalls would need
to be funded by AIG Parent.
From time to time, we may utilize cash allocated to the DIB that is not required to meet the risk target for the DIB for
general corporate purposes unrelated to the DIB.
The DIB’s assets consist primarily of cash, short-term investments, fixed maturity securities issued by corporations,
U.S. government and government sponsored entities and mortgage and asset backed securities. The DIB’s liabilities
consist primarily of notes and other borrowings supported by assets as well as other short-term financing obligations.
As of December 31, 2013 and December 31, 2012, respectively, the DIB had total assets of $23.3 billion and
$28.5 billion and total liabilities of $20.0 billion and $23.8 billion.
The overall hedging activity for the assets and liabilities of the DIB is executed by GCM, The value of hedges related
to the non-derivative assets and liabilities of AIGFP in the DIB is included within the assets, liabilities and operating
results of GCM and is not included within the DIB’s assets, liabilities or operating results.
Collateral posted by operations included in the DIB to third parties was $4.2 billion at December 31, 2013 and
$4.3 billion December 31, 2012. This collateral primarily consists of securities of the U.S. government and
government sponsored entities and generally cannot be repledged or resold by the counterparties.
During 2013, the DIB funded maturities and repurchased debt in the open market in the amount of $2.5 billion. The
repurchased debt resulted in a loss on extinguishment of debt of $15 million.
We maintain a committed revolving four-year syndicated credit facility (the Four-Year Facility) as a potential source of
liquidity for general corporate purposes. The Four-Year Facility also provides for the issuance of letters of credit. We
Direct Investment Book
Credit Facilities
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AIG 2013 Form 10-K136
ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES
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