AIG 2015 Annual Report Download - page 36

ITEM 1A / RISK FACTORS
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LIQUIDITY, CAPITAL AND CREDIT
AIG Parent’s ability to access funds from our subsidiaries is limited. As a holding company, AIG Parent depends on
dividends, distributions and other payments from its subsidiaries to fund dividends on AIG Common Stock and to make
payments due on its obligations, including its outstanding debt. The majority of our investments are held by our regulated
subsidiaries. Our subsidiaries may be limited in their ability to make dividend payments or advance funds to AIG Parent in the
future because of the need to support their own capital levels or because of regulatory limits or rating agency requirements.
The inability of our subsidiaries to make payments, dividends or distributions in an amount sufficient to enable AIG Parent to
meet its cash requirements could have an adverse effect on our operations, our ability to pay dividends or our ability to meet
our debt service obligations.
Our internal sources of liquidity may be insufficient to meet our needs. We need liquidity to pay our operating expenses,
interest on our debt, maturing debt obligations and to meet any statutory capital requirements of our subsidiaries. If our liquidity
is insufficient to meet our needs, we may at the time need to have recourse to third-party financing, external capital markets or
other sources of liquidity, which may not be available or could be prohibitively expensive. The availability and cost of any
additional financing at any given time depends on a variety of factors, including general market conditions, the volume of
trading activities, the overall availability of credit, regulatory actions and our credit ratings and credit capacity. It is also possible
that, as a result of such recourse to external financing, customers, lenders or investors could develop a negative perception of
our long- or short-term financial prospects. Disruptions, volatility and uncertainty in the financial markets, and downgrades in
our credit ratings, may limit our ability to access external capital markets at times and on terms favorable to us to meet our
capital and liquidity needs or prevent our accessing the external capital markets or other financing sources. For a further
discussion of our liquidity, see Item 7. MD&A — Liquidity and Capital Resources.
AIG Parent’s ability to support our subsidiaries is limited. AIG Parent has in the past and expects to continue to provide
capital to our subsidiaries as necessary to maintain regulatory capital ratios, comply with rating agency requirements and meet
unexpected cash flow obligations. If AIG Parent is unable to satisfy a capital need of a subsidiary, the credit rating agencies
could downgrade the subsidiary insurer’s financial strength ratings or the subsidiary could become insolvent or, in certain
cases, could be seized by its regulator.
Our subsidiaries may not be able to generate cash to meet their needs due to the illiquidity of some of their
investments. Our subsidiaries have investments in certain securities that may be illiquid, including certain fixed income
securities and certain structured securities, private company securities, investments in private equity funds and hedge funds,
mortgage loans, finance receivables and real estate. Collectively, investments in these assets had a fair value of $59 billion at
December 31, 2015. Adverse real estate and capital markets, and wider credit spreads, have in the past, and may in the
future, materially adversely affect the liquidity of our other securities portfolios, including our residential and commercial
mortgage-related securities portfolios. In the event additional liquidity is required by one or more of our subsidiaries and AIG
Parent is unable to provide it, it may be difficult for these subsidiaries to generate additional liquidity by selling, pledging or
otherwise monetizing these less liquid investments.
A downgrade in the Insurer Financial Strength ratings of our insurance companies could limit their ability to write or
prevent them from writing new business and retaining customers and business. Insurer Financial Strength (IFS) ratings
are an important factor in establishing the competitive position of insurance companies. IFS ratings measure an insurance
company’s ability to meet its obligations to contract holders and policyholders. High ratings help maintain public confidence in
a company’s products, facilitate marketing of products and enhance its competitive position. Downgrades of the IFS ratings of
our insurance companies could prevent these companies from selling, or make it more difficult for them to succeed in selling,
products and services, or result in increased policy cancellations, lapses and surrenders, termination of assumed reinsurance
contracts, or return of premiums. Under credit rating agency policies concerning the relationship between parent and
subsidiary ratings, a downgrade in AIG Parent’s credit ratings could result in a downgrade of the IFS ratings of our insurance
subsidiaries. Certain rating agencies recently revised our IFS ratings and ratings outlooks, primarily as a result of our reserve
strengthening in the fourth quarter of 2015 and related concerns regarding our profitability outlook. We cannot predict what
actions rating agencies may take, or what actions we may take in response to the actions of rating agencies, which could
adversely affect our business.