AIG 2013 Annual Report Download - page 52

portfolios. If a low interest rate environment persists, we may experience slower investment income growth. Due to
practical and capital markets limitations, we may not be able to fully mitigate our interest rate risk by matching
exposure of our assets relative to our liabilities. Continued low interest rates could also 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.
The performance and value of our investment portfolio are subject to a number of risks and uncertainties,
including changes in interest rates. Our investment securities are subject to market risks and uncertainties. In
particular, 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. For a sensitivity analysis of our exposure to certain market risk
factors, see Item 7. MD&A — Enterprise Risk Management — Market Risk Management. Furthermore, our
alternative investment portfolio includes investments for which changes in fair value are reported through operating
income and are therefore subject to significant volatility. In an economic downturn or declining market, the reduction
in our investment income due to decreases in the fair value of alternative investments could have a material adverse
effect on operating income.
Our investment portfolio is concentrated in certain segments of the economy. Our results of operations and
financial condition have in the past been, and may in the future be, adversely affected by the degree of concentration
in our investment portfolio. We have concentrations in real estate and real estate-related securities, including
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; PICC Group and PICC P&C, as a result of our
strategic investments; and Euro Zone financial institutions, 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 to the extent they are concentrated in such segments. Our ability to sell assets
concentrated in such areas may be limited.
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
seek to 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.
Our valuation of fixed maturity and equity securities may include methodologies, estimations and
assumptions that are subject to differing interpretations and could result in changes to investment
valuations that may materially adversely affect our results of operations, financial condition and liquidity.
During periods of market disruption, it may be difficult to value certain of our investment securities if trading becomes
less frequent and/or market data becomes less observable. There may be cases where certain assets in normally
active markets with significant observable data become inactive with insufficient observable data due to the financial
environment or market conditions in effect at that time. As a result, valuations may include inputs and assumptions
that are less observable or require greater estimation and judgment as well as valuation methods that are more
complex. These values may not be realized in a market transaction, may not reflect the loan value of the asset and
may change very rapidly as market conditions change and valuation assumptions are modified. Decreases in value
and/or an inability to realize that value in a market transaction or secured lending transaction may have a material
adverse effect on our results of operations, financial condition and liquidity.
INVESTMENT PORTFOLIO, CONCENTRATION OF INVESTMENTS, INSURANCE AND OTHER
EXPOSURES
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AIG 2013 Form 10-K34
ITEM 1A / RISK FACTORS
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