AIG 2014 Annual Report Download - page 166

ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES

149
AIG Parent and Ascot Corporate Name Limited (ACNL), a Non-Life Insurance Company, are parties to a $625 million letter of
credit facility. ACNL, as a member of the Lloyd’s of London insurance syndicate (Lloyd’s), is required to hold capital at Lloyd’s,
known as Funds at Lloyds (FAL). The entire FAL capital requirement of $625 million as of December 31, 2014, which supports
the 2014 and 2015 years of account, was satisfied with a letter of credit issued under the facility.
AIG generally manages capital between AIG Parent and our Non-Life Insurance Companies through internal, Board-approved
policies and guidelines. In addition, AIG Parent is party to a CMA with a Mortgage Guaranty insurance company. Among other
things, the CMA provides that AIG Parent will maintain capital and surplus of this Mortgage Guaranty insurance company at or
above a specified minimum required capital based on a specified risk-to-capital ratio. In addition, the CMA provides that if
capital and surplus of this Mortgage Guaranty insurance company is in excess of that same specified minimum required
capital, subject to its board approval and compliance with applicable insurance laws, this Mortgage Guaranty insurance
company would declare and pay ordinary dividends to its equity holders up to an amount necessary to reduce projected or
actual capital and surplus to a level equal to or not materially greater than such specified minimum required capital. As
structured, the CMA contemplates that the specified minimum required capital would be reviewed and agreed upon at least
annually. As of December 31, 2014, the minimum required capital for the CMA with the Mortgage Guaranty insurance company
is based on a risk-to-capital ratio of 19 to 1.
AIG Parent was also party to a consolidated CMA with AIG Property Casualty Inc. and certain domestic Non-Life Insurance
Companies. Among other things, the CMA provided that AIG Parent would maintain the total adjusted capital of these Non-Life
Insurance Companies, measured as a group (the Fleet), at or above the specified minimum percentage of the Fleet’s projected
total authorized control level RBC. As a result of managing capital through internal, Board-approved policies and guidelines,
AIG Parent agreed with AIG Property Casualty Inc. and these domestic Non-Life Insurance Companies to terminate this CMA
effective February 19, 2015. As of December 31, 2014, the specified minimum percentage in the CMA with AIG Property
Casualty Inc. and these domestic Non-Life Insurance Companies was 300 percent.
In 2014, our Non-Life Insurance Companies paid approximately $2.6 billion in dividends in the form of cash and fixed maturity
securities to AIG Parent. The fixed maturity securities included investment-grade government, corporate and sovereign bonds,
as well as agency RMBS. In 2014, our Non-Life Insurance Companies also paid other non-cash dividends of $178 million to
AIG Parent. In addition, our Non-Life Insurance Companies paid approximately $600 million of cash dividends to AIG Parent
in February 2015, which represented the remainder of dividends that were declared by our Non-Life Insurance Companies in
the fourth quarter of 2014. AIG Parent was not required to make any capital contributions pursuant to the CMAs.
Life Insurance Companies
We expect that our 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 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 of our domestic Life Insurance Companies are members of the FHLBs in their respective districts. Borrowings from the
FHLBs are used to supplement liquidity or for other uses deemed appropriate by management. Our domestic Life Insurance
Companies had outstanding borrowings from the FHLBs in an aggregate amount of $44 million and $50 million as of
December 31, 2014 and 2013, respectively.
The need to fund product surrenders, withdrawals and maturities creates a potential liquidity requirement for our Life Insurance
Companies. Management believes that because of the size and liquidity of our Life Insurance Companies’ investment
portfolios, normal deviations from projected claim or surrender experience would not create significant liquidity risk.
Furthermore, our Life Insurance Companies’ products contain certain features that mitigate surrender risk, including surrender
charges. As part of their risk management framework, our Life Insurance Companies continue to evaluate and, where
appropriate, pursue strategies and programs to improve their liquidity position and facilitate their ability to maintain a fully
invested asset portfolio. Our Life Insurance Companies also have developed a contingent liquidity plan to address unforeseen
liquidity needs.