AIG 2013 Annual Report Download - page 195

enforceable netting agreement exists, the fair value of the transaction with the counterparty represents the net sum of
estimated fair values.
The fair value of GCM’s interest rate, currency, credit, commodity and equity swaps, options, swaptions, and forward
commitments, futures, and forward contracts reported in Derivative assets, at fair value, was approximately
$1.4 billion at December 31, 2013 and $3.2 billion at December 31, 2012. Where applicable, these amounts have
been determined in accordance with the respective master netting agreements.
GCM evaluates the counterparty credit quality by reference to ratings from rating agencies or, where such ratings are
not available, by internal analysis consistent with the risk rating policies of ERM. In addition, GCM’s credit approval
process involves pre-set counterparty and country credit exposure limits subject to approval by ERM and, for
particularly credit-intensive transactions, requires approval from ERM.
The following table presents the fair value of GCM’s derivatives portfolios by counterparty credit rating:
Rating:
AAA $ 145
AA 168
A 745
BBB 1,907
Below investment grade 199
Total $ 3,164
See Critical Accounting Estimates below and Note 11 to the Consolidated Financial Statements for additional
discussion related to derivative transactions.
Risks inherent in ILFC’s business, which are managed at the business unit level, include the following:
• that there will be no market for the aircraft acquired;
• that aircraft cannot be placed with lessees;
• non-performance by lessees;
• that aircraft and related assets cannot be disposed of at the time and in a manner desired;
• losses on sales or impairment charges and fair value adjustments on older aircraft; and
• an inability of ILFC to access the capital markets to finance operations and meet contractual obligations due to
prevailing economic and market conditions.
ILFC uses security deposit requirements, repossession rights and overhaul requirements, while also closely
monitoring industry conditions, to manage the risk of nonperformance by its lessees. At December 31, 2013, more
than 93 percent of ILFC’s lease revenue came from non-U.S. carriers, and its fleet continues to be in high demand
from such carriers. Quarterly, ILFC’s management evaluates the need to perform a recoverability assessment of
aircraft in its fleet, including events and circumstances that may cause impairment of aircraft values, and performs
this assessment at least annually for all aircraft in its fleet. Management evaluates aircraft in the fleet as necessary
based on these events and circumstances. As new and more fuel-efficient aircraft enter the marketplace and
negatively affect the demand for older aircraft, lease rates on older aircraft may deteriorate and ILFC may incur
additional losses on sales or record impairment charges and fair value adjustments.
The major risk for investments in life settlements is longevity risk, which represents the risk of a change in the
carrying value of the contracts arising from actual mortality rates being lower than the expected mortality rates. This
risk could arise from longer term societal health changes as well as other factors.
Aircraft Leasing
Corporate & Other
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AIG 2013 Form 10-K 177
ITEM 7 / ENTERPRISE RISK MANAGEMENT
At December 31,
(in millions) 2013 2012
$ 129
156
291
687
114
$ 1,377
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