AIG 2015 Annual Report Download - page 181

ITEM 7 / ENTERPRISE RISK MANAGEMENT

181
privacy and data security), third-party providers, as well as compliance and regulatory matters. Based on the results of the risk
identification and assessment efforts above, business leaders are accountable for tracking and remediating identified issues in
line with our risk monitoring procedures. Governance committees support these efforts and promote transparency and
management decision making.
An integrated risk and control framework facilitates the identification and mitigation of operational risk
issues. To accomplish this, our integrated risk and control framework is designed to:
• ensure first line accountability and ownership of risks and controls;
• promote role clarity among the business and risk and control functions;
• enhance transparency, risk management governance and culture;
• foster greater consistency in identifying and ranking material risks;
• pro-actively address potential risk issues and assign clear ownership and accountability for addressing identified risk
issues; and
• accelerate the development of technology solutions that support objectives above.
Insurance Risks
Except as described above, we manage our business risk oversight activities through our insurance operations. A primary goal
in managing our insurance operations is to achieve an acceptable risk-adjusted return on equity. To achieve this goal, we must
be disciplined in risk selection, premium adequacy, and appropriate terms and conditions to cover the risk accepted.
We operate our insurance businesses on a global basis, and we are exposed to a wide variety of risks with different time horizons.
We manage these risks throughout the organization, both centrally and locally, through a number of procedures:
• pre-launch approval of product design, development and distribution;
• underwriting approval processes and authorities;
• exposure limits with ongoing monitoring;
• management of relationship between assets and liabilities, including hedging;
• enhanced pricing models;
• modeling and reporting of aggregations and limit concentrations at multiple levels (policy, line of business, product group,
country, individual/group, correlation and catastrophic risk events);
• compliance with financial reporting and capital and solvency targets;
• use of reinsurance, both internal and third-party; and
• review and establishment of reserves.
We closely manage insurance risk by monitoring and controlling the nature and geographic location of the risks in each line of
business underwritten, the terms and conditions of the underwriting and the premiums we charge for taking on the risk. We
analyze concentrations of risk using various modeling techniques, including both probability distributions (stochastic) and/or
single-point estimates (deterministic) approaches.