AIG 2013 Annual Report Download - page 88

AIG Markets acts as the derivatives intermediary between AIG and its subsidiaries and third parties to provide
hedging services for AIG entities. The derivative portfolio of AIG Markets consists primarily of interest rate and
currency derivatives.
The remaining derivatives portfolio of AIGFP consists primarily of hedges of the assets and liabilities of the DIB and
a portion of the legacy hedges for AIG and its subsidiaries. AIGFP’s derivative portfolio consists primarily of interest
rate, currency, credit, commodity and equity derivatives. Additionally, AIGFP has a credit default swap portfolio that is
being managed for economic benefit and with limited risk. The AIGFP portfolio continues to be wound down and is
managed consistent with our risk management objectives. Although the portfolio may experience periodic fair value
volatility, it consists predominantly of transactions that we believe are of low complexity, low risk or currently not
economically appropriate to unwind based on a cost versus benefit analysis.
The DIB consists of a portfolio of assets and liabilities held directly by AIG Parent in the MIP and certain
non-derivative assets and liabilities of AIGFP. 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.
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 value of these
assets is impacted by macro-economic trends in U.S. and core European markets, including corporate credit
spreads, commercial and residential real estate markets, and to a lesser extent, interest rates and foreign exchange
rates, among other factors. The majority of these assets are carried at fair value with changes in fair value
recognized through earnings. The DIB’s liabilities consist primarily of notes and other borrowings supported by assets
as well as other short-term financing obligations. The DIB has both liabilities that are held at cost and liabilities that
are held at fair value. The liabilities held at fair value vary in price based on changes in AIG’s credit spreads with
changes in fair value reflected in earnings. Changes in the fundamental drivers of the fair value of DIB assets and
liabilities will create earnings volatility for the DIB on a period-to-period comparative basis.
Global Capital Markets
Direct Investment Book
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AIG 2013 Form 10-K70
ITEM 7 / EXECUTIVE SUMMARY
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