AIG 2014 Annual Report Download - page 165

ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES
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We utilize our capital resources to support our businesses, with the majority of capital allocated to our core insurance
operations. Should we have or generate more capital than is needed to support our business strategies (including organic
growth or acquisition opportunities) or mitigate risks inherent to our business, we may develop plans to distribute such capital
to shareholders via dividends or share repurchase authorizations or deploy such capital towards liability management.
In the normal course, it is expected that a portion of the capital released by our core insurance operations or through the
utilization of AIG’s deferred tax assets may be available for distribution to shareholders. Additionally, it is expected that capital
associated with businesses or investments that do not directly support our core insurance operations may be available for
distribution to shareholders or deployment towards liability management upon its monetization.
In developing plans to distribute capital, AIG considers a number of factors, including, but not limited to: the capital resources
available to support our core insurance operations and business strategies, AIG’s funding capacity and capital resources in
comparison to internal benchmarks, expectations for capital generation, rating agency expectations for capital, as well as
regulatory standards for capital and capital distributions.
The following table presents AIG Parent's liquidity sources:
As of As of
(In millions) December 31, 2014 December 31, 2013
Cash and short-term investments
(
a
)(b)
$ 5,085 $ 10,154
Unencumbered fixed maturity securities(c) 4,727 2,968
Total AIG Parent liquidity 9,812 13,122
Available capacity under syndicated credit facility(d) 4,000 3,947
Available capacity under contingent liquidity facility(e) 500 500
Total AIG Parent liquidity sources $ 14,312 $ 17,569
(a) Cash and short-term investments include reverse repurchase agreements totaling $1.6 billion and $6.9 billion as of December 31, 2014 and 2013,
respectively.
(b) $2.9 billion and $5.9 billion of cash and short-term investments as of December 31, 2014 and 2013, respectively, are allocated toward future maturities of
liabilities and contingent liquidity stress needs of DIB and GCM.
(c) Unencumbered securities consist of publicly traded, intermediate-term investment grade rated fixed maturity securities. Fixed maturity securities consist of
U.S. government and government sponsored entity securities, U.S. agency mortgage-backed securities, and corporate and municipal bonds.
(d) For additional information relating to this syndicated credit facility, see Credit Facilities below.
(e) For additional information relating to the contingent liquidity facility, see Contingent Liquidity Facilities below.
Non-Life Insurance Companies
We expect that our Non-Life Insurance Companies will be able to continue to satisfy reasonably foreseeable future liquidity
requirements and meet their obligations, including those arising from reasonably foreseeable contingencies or events, through
cash from operations and, to the extent necessary, monetization of invested assets. Our Non-Life Insurance Companies’
liquidity resources are held in the form of cash, short-term investments and publicly traded, investment grade rated fixed
maturity securities.
Certain Non-Life Insurance Companies are members of the Federal Home Loan Banks (FHLBs) in their respective districts.
Borrowings from the FHLBs may be used to supplement liquidity. As of December 31, 2014 and 2013, none of our Non-Life
Insurance Companies had FHLB borrowings outstanding.
Our Non-Life Insurance Companies may require additional funding to meet capital or liquidity needs under certain
circumstances. Large catastrophes may require us to provide additional support to our affected operations. Downgrades in our
credit ratings could put pressure on the insurer financial strength ratings of our subsidiaries, which could result in non-renewals
or cancellations by policyholders and adversely affect the subsidiary’s ability to meet its own obligations. Increases in market
interest rates may adversely affect the financial strength ratings of our subsidiaries, as rating agency capital models may
reduce the amount of available capital relative to required capital. Other potential events that could cause a liquidity strain
include an economic collapse of a nation or region significant to our operations, nationalization, catastrophic terrorist acts,
pandemics or other events causing economic or political upheaval.