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ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................AIG Life and Retirement is proactively addressing the impact of sustained low interest rates. During 2012,a number of actions were taken on both the asset and liability sides of our balance sheet:• Opportunistic investments in structured securities and re-deployment of cash in 2011 to increase yields• Continued disciplined approach to new business pricing• Actively managing renewal credited rates• Re-priced certain life insurance and annuity products to reflect current low rate environment• Re-filed certain products to continue lowering minimum rate guaranteesAs a result of these actions, we estimate that the effect of interest rates remaining at or near current levels throughthe end of 2013 on pre-tax operating income would not be material, and would be modestly more significant withrespect to 2014 results.Opportunistic Investments: The majority of assets backing insurance and annuity liabilities consists ofintermediate- and long-term fixed maturity securities. We generally purchase assets with the intent of matchingexpected maturities of the insurance liabilities. An extended low interest rate environment may result in a lengtheningof liability maturities from initial estimates, primarily due to lower lapses. Opportunistic investments in structuredsecurities, private placement corporate debt securities and mortgage loans continue to be made to improve yields,increase net investment income and help to offset the impact of the lower interest rate environment.Disciplined New Business Pricing: New fixed annuity sales have declined in 2012 relative to 2011, due to therelatively low crediting rates offered as a result of our disciplined approach to new business. However, even in thecurrent interest rate environment, we continue to pursue new sales of life and annuity products at targeted netinvestment spreads. New sales of fixed annuity products generally have minimum interest rate guarantees of1 percent. Universal life insurance interest rate guarantees are generally 2 to 3 percent on new non-indexed productsand 1 percent on new indexed products, and are designed to be sufficient to meet targeted net investment spreads.If the low interest rate environment continues, we expect our fixed annuities sales (including deposits into fixedoptions within variable annuities sold in group retirement markets) to remain weak into 2013.Active Management of Renewal Credited Rates: The contractual provisions for renewal of crediting rates andguaranteed minimum crediting rates included in our products may have the effect, in a continued low interest rateenvironment, of reducing our spreads and thus reducing future profitability. Although we partially mitigate this interestrate risk through its asset-liability management process, product design elements and crediting rate strategies, aprolonged low interest rate environment may negatively affect future profitability. Our annuity and universal lifeproducts were designed with contractual provisions that allow crediting rates to be reset at pre-established intervalssubject to minimum crediting rate guarantees. We have adjusted, and will continue to adjust, crediting rates in orderto maintain targeted net investment spreads on both new business and in-force business where crediting rates areabove minimum guarantees. In addition to annuity and universal life products discussed above, certain traditionallong-duration products for which we do not have the ability to adjust interest rates, such as payout annuities, areexposed to reduced earnings and potential reserve increases in a prolonged low interest rate environment.As indicated in the table below, approximately 63 percent of our annuity and universal life account values are at theirminimum crediting rates as of December 31, 2012, an increase from 45 percent at December 31, 2011. These..................................................................................................................................................................................................................................AIG 2012 Form 10-K 109