AIG 2014 Annual Report Download - page 182

ITEM 7 / ENTERPRISE RISK MANAGEMENT
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and liquidity levels under specific stress tests. At the market risk level, the framework measures our overall exposure to each
systemic market risk change on an economic basis.
In addition, we continue to enhance economic, U.S. GAAP accounting and statutory capital-based risk measures at the market
risk level, business-unit level and firm-wide levels. This process aims to ensure that we have a comprehensive view of the
impact of our market risk exposures.
We use a number of approaches to measure our market risk exposure, including:
Sensitivity analysis. Sensitivity analysis measures the impact from a unit change in a market risk input. Examples of
such sensitivities include a one basis point increase in yield on fixed maturity securities, a one basis point increase in
credit spreads on fixed maturity securities, and a one percent increase in price on equity securities.
Scenario analysis. Scenario analysis uses historical, hypothetical, or forward-looking macroeconomic scenarios to
assess and report exposures. Examples of hypothetical scenarios include a 100 basis point parallel shift in the yield curve
or a 20 percent immediate and simultaneous decrease in world-wide equity markets. Scenarios may also utilize a
stochastic framework to arrive at a probability distribution of losses.
Stress testing. Stress testing is a special form of scenario analysis in which the scenarios are designed to lead to a
material adverse outcome. Examples of such scenarios include the stock market crash of October 1987 or the widening of
yields or spreads of RMBS or CMBS during 2008.
Market Risk Sensitivities
The following table provides estimates of our sensitivity to changes in yield curves, equity prices and foreign
currency exchange rates:
Balance Sheet Exposure Balance Sheet Effect
December 31, December 31, December 31, December 31,
(dollars in millions) 2014 2013 2014 2013
Sensitivity factor 100 bps parallel increase in all yield curves
Interest rate sensitive assets:
Fixed maturity securities 273,885 268,208 (15,107) (14,341)
Mortgage and other loans receivable 16,594 14,649 (921) (661)
Preferred stock 19 21 (1) (2)
Total interest rate sensitive assets $290,498 (a) $ 282,878 (a) $(16,029)
(b) $ (15,004)
Sensitivity factor 20% decline in stock prices and value of
alternative investments
Equity and alternative investments exposure:
Hedge funds 10,798 9,900 (2,160) (1,980)
Private equity 8,858 9,810 (1,772) (1,962)
Real estate investments 3,612 3,113 (722) (623)
PICC(c) 3,375 2,536 (675) (507)
Common equity 2,044 1,927 (409) (385)
Aircraft asset investments 651 763 (130) (153)
AerCap 4,972 - (994) -
Other investments 1,331 957 (266) (191)
Total equity and alternative investments
exposure $35,641 $ 29,006
$(7,128) $ (5,801)