2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
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American International Group, Inc. and Subsidiaries<br />
in <strong>2007</strong>, 2006 and 2005, respectively, were $87 million,<br />
meet its anticipated cash requirements, including the funding of<br />
$97 million and $124 million. increased dividends under <strong>AIG</strong>’s current dividend policy. See also<br />
<strong>AIG</strong> is also required to participate in various involuntary pools Item 1A. Risk Factors — Liquidity and Risk Management herein.<br />
(principally workers <strong>com</strong>pensation business) which provide insurance<br />
coverage for those not able to obtain such coverage in the Insurance Operations<br />
voluntary markets. This participation is also recorded upon<br />
Insurance operating cash flow is derived from two sources,<br />
notification, as these amounts cannot reasonably be estimated.<br />
underwriting operations and investment operations. Cash flow<br />
A substantial portion of <strong>AIG</strong>’s General Insurance business and<br />
from underwriting operations includes collections of periodic<br />
a majority of its Life Insurance & Retirement Services business<br />
premiums and policyholders’ contract deposits, and paid loss<br />
are conducted in foreign countries. The degree of regulation and<br />
recoveries, less reinsurance premiums, losses, benefits, and<br />
supervision in foreign jurisdictions varies. Generally, <strong>AIG</strong>, as well<br />
acquisition and operating expenses. Generally, there is a time lag<br />
as the underwriting <strong>com</strong>panies operating in such jurisdictions,<br />
from when premiums are collected and losses and benefits are<br />
must satisfy local regulatory requirements. Licenses issued by<br />
paid. Investment cash flow is primarily derived from interest and<br />
foreign authorities to <strong>AIG</strong> subsidiaries are subject to modification<br />
dividends received and includes realized capital gains net of<br />
and revocation. Thus, <strong>AIG</strong>’s insurance subsidiaries could be<br />
realized capital losses.<br />
prevented from conducting future business in certain of the<br />
Liquid assets include cash and short-term investments, fixed<br />
jurisdictions where they currently operate. <strong>AIG</strong>’s international<br />
maturities that are not designated as held to maturity, and publicly<br />
operations include operations in various developing nations. Both<br />
traded equity securities. At December 31, <strong>2007</strong> and 2006, <strong>AIG</strong>’s<br />
current and future foreign operations could be adversely affected<br />
insurance operations had liquid assets of $476.1 billion and<br />
by unfavorable political developments up to and including national-<br />
$428.4 billion, respectively. The portion of liquid assets <strong>com</strong>prised<br />
ization of <strong>AIG</strong>’s operations without <strong>com</strong>pensation. Adverse effects<br />
of cash and short-term investments was $45.5 billion and<br />
resulting from any one country may affect <strong>AIG</strong>’s results of<br />
$19.9 billion at December 31, <strong>2007</strong> and 2006, respectively. At<br />
operations, liquidity and financial condition depending on the<br />
December 31, <strong>2007</strong>, $380.9 billion, or 95 percent of the fixed<br />
magnitude of the event and <strong>AIG</strong>’s net financial exposure at that<br />
maturity investments that were not designated as held to maturity<br />
time in that country.<br />
in <strong>AIG</strong>’s insurance <strong>com</strong>pany general account portfolios were rated<br />
Foreign insurance operations are individually subject to local<br />
investment grade. Given the size and liquidity profile of <strong>AIG</strong>’s<br />
solvency margin requirements that require maintenance of adeinvestment<br />
portfolios, <strong>AIG</strong> believes that deviations from its proquate<br />
capitalization, which <strong>AIG</strong> <strong>com</strong>plies with by country. In<br />
jected claim experience do not constitute a significant liquidity risk.<br />
addition, certain foreign locations, notably Japan, have estab-<br />
<strong>AIG</strong>’s asset/liability management process takes into account the<br />
lished regulations that can result in guarantee fund assessments.<br />
expected maturity of investments and expected benefit payments<br />
These have not had a material effect on <strong>AIG</strong>’s financial condition<br />
and policy surrenders as well as the specific nature and risk profile<br />
or results of operations.<br />
of these liabilities. Historically, there has been no significant<br />
variation between the expected maturities of <strong>AIG</strong>’s investments and<br />
Liquidity<br />
the payment of claims.<br />
<strong>AIG</strong> manages liquidity at both the subsidiary and parent <strong>com</strong>pany See also Operating Review — General Insurance Operations —<br />
levels. At December 31, <strong>2007</strong>, <strong>AIG</strong>’s consolidated invested<br />
General Insurance Net Investment In<strong>com</strong>e and Life Insurance &<br />
assets included $65.6 billion in cash and short-term investments. Retirement Services Operations — Life Insurance & Retirement<br />
Consolidated net cash provided from operating activities in <strong>2007</strong> Services Net Investment In<strong>com</strong>e and Realized Capital Gains<br />
amounted to $35.2 billion. At both the subsidiary and parent (Losses) herein.<br />
<strong>com</strong>pany level, liquidity management activities are intended to<br />
preserve and enhance funding stability, flexibility, and diversity General Insurance<br />
through a wide range of potential operating environments and<br />
General Insurance operating cash flow is derived from underwriting<br />
market conditions.<br />
and investment activities. With respect to General Insurance<br />
As a result of market disruption in the credit markets, <strong>AIG</strong> took<br />
operations, if paid losses accelerated beyond <strong>AIG</strong>’s ability to fund<br />
steps to enhance the liquidity of its portfolios. Cash and shortsuch<br />
paid losses from current operating cash flows, <strong>AIG</strong> might<br />
term investments increased in all of <strong>AIG</strong>’s major operating<br />
need to liquidate a portion of its General Insurance investment<br />
segments. In addition, <strong>AIG</strong> created an interdisciplinary Liquidity<br />
portfolio and/or arrange for financing. A liquidity strain could<br />
Risk Committee to measure, monitor, control and aggregate<br />
result from the occurrence of several significant catastrophic<br />
liquidity risks across <strong>AIG</strong>. While this Committee’s responsibilities<br />
events in a relatively short period of time. Additional strain on<br />
are broad, the Committee’s initial focus is on portfolios with<br />
liquidity could occur if the investments liquidated to fund such<br />
shorter-term contractual liabilities, such as securities lending in<br />
paid losses were sold into a depressed market place and/or<br />
the United States and retail deposit-like products in the United<br />
reinsurance recoverable on such paid losses became uncollectible<br />
Kingdom.<br />
or collateral supporting such reinsurance recoverable significantly<br />
Management believes that <strong>AIG</strong>’s liquid assets, cash provided<br />
decreased in value.<br />
by operations and access to the capital markets will enable it to<br />
<strong>AIG</strong> <strong>2007</strong> Form 10-K 99