AIG 2015 Annual Report Download - page 161

ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES
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Insurance Companies in the fourth quarter of 2014. The fixed maturity securities primarily include U.S. government and
government sponsored entity securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain
other highly rated securities.
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
sources are primarily held in the form of cash, short-term investments and publicly traded, investment grade rated fixed
maturity securities.
Each of our Life Insurance Companies’ liquidity is monitored through the use of various internal liquidity risk measures. The
primary sources of liquidity are premiums, fees, reinsurance recoverables and investment income. The primary uses of liquidity
are benefit claims, interest payments, surrenders, withdrawals, dividends, expenses, investments and collateral requirements.
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. However, as we saw in 2008,
in times of extreme capital markets disruption, liquidity needs could outpace resources. 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.
Certain of our U.S. 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 U.S. Life Insurance
Companies had outstanding borrowings from the FHLBs in an aggregate amount of $2 million and $44 million as of December
31, 2015 and 2014, respectively.
Certain of our U.S. Life Insurance Companies have programs, which began in 2012, that lend securities from their investment
portfolio to supplement liquidity or for other uses as deemed appropriate by management. Under these programs, these U.S.
Life Insurance Companies lend securities to financial institutions and receive cash as collateral equal to 102 percent of the fair
value of the loaned securities. Cash collateral received is invested in short-term investments. Additionally, the aggregate
amount of securities that a Life Insurance Company is able to lend under its program at any time is limited to five percent of its
general account statutory-basis admitted assets. At December 31, 2015, our U.S. Life Insurance Companies had $1.1 billion of
securities subject to these agreements and $1.1 billion of liabilities to borrowers for collateral received. Our U.S. Life Insurance
Companies had no securities subject to lending agreements and no collateral liability at December 31, 2014.
AIG generally manages capital between AIG Parent and our Life Insurance Companies through internal, Board-approved
policies and guidelines. In addition, AIG Parent is party to a CMA with AGC Life Insurance Company. Among other things, the
CMA provides that AIG Parent will maintain the total adjusted capital of AGC Life Insurance Company at or above a specified
minimum percentage of its projected NAIC Company Action Level Risk-Based Capital (RBC). As of December 31, 2015, the
specified minimum percentage under this CMA was 250 percent.
In 2015, our U.S. Life Insurance Companies paid approximately $4.6 billion to AIG Parent, which included $5.4 billion in
dividends and loan repayments in the form of cash and fixed maturity securities, net of an $818 million tax settlement payment
received from AIG Parent. The 2015 dividend payments included $2.2 billion that represented the remainder of dividends that
were declared in the fourth quarter of 2014. The fixed maturity securities primarily included U.S. government and government
sponsored entity securities, U.S. agency mortgage-backed securities, corporate and municipal bonds and certain other highly
rated securities.