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ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................2012 and 2011 ComparisonChange in Unrealized Appreciation of Investments..............................................................................................................................................................................................The increase in 2012 was primarily attributable to appreciation in bonds available for sale due to lower interest ratesand narrowing spreads for investment grade and high-yield securities. The ten year U.S. Treasury rate started theyear at 1.88 percent, decreased to a historic low of 1.39 percent in the middle of the year, and ended the year at1.76 percent. High yield and investment grade spreads were down approximately 200 basis points and 100 basispoints, respectively, during the year, with the narrowing spreads being the major contributor to unrealizedappreciation in bonds available for sale, which was almost double the amount recorded in 2011. Corporate bondsand structured securities were major beneficiaries from this continued low rate environment as prices on these assetsincreased significantly during the year. Non-agency securities provided the majority of the structured securitiesimprovement as high yield securities generally benefited from the significant narrowing of spreads during the year.The significant majority of the unrealized appreciation occurred during the first three quarters of the year, as thefourth quarter experienced less rate and spread volatility.During 2011, the insurance operations portfolio experienced appreciation in bonds available for sale due to lowerrates, which more than offset widening spreads. The ten year U.S. Treasury rate started the year at 3.30 percent,falling 188 basis points to end the year at 1.88 percent. Municipal bond rates also decreased, resulting in unrealizedappreciation in both the U.S. Government securities and municipal bond portfolio. The drop in U.S. Treasury ratesmore than offset the widening of spreads on Investment grade securities, resulting in improved pricing andcorresponding unrealized appreciation in the corporate bond portfolio during the year.The reclassification adjustments included in net income on unrealized appreciation of investments increased by$1.0 billion in 2012 compared to 2011 as a result of realized gains and losses recognized on sales of securitiesclassified as available for sale.See Investments – Investment Highlights – Securities available for sale herein for a table on the gross unrealizedgains (losses) of AIG’s available for sale securities by type of security.Change in Deferred Acquisition Costs Adjustment and Other..............................................................................................................................................................................................The change in DAC in 2012 compared to 2011 is primarily the result of increases in the unrealized appreciation ofinvestments supporting interest-sensitive products. DAC for investment-oriented products is adjusted for changes inestimated gross profits that result from changes in the net unrealized gains or losses on fixed maturity and equitysecurities available for sale. Because fixed maturity and equity securities available for sale are carried at aggregatefair value, an adjustment is made to DAC equal to the change in DAC amortization that would have been recorded ifsuch securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields.These adjustments, net of tax, are credited or charged directly to Accumulated other comprehensive income (loss).Change in Future Policy Benefits..............................................................................................................................................................................................We periodically evaluate the assumptions used to establish deferred acquisition costs and future policy benefits.These assumptions may be adjusted based on actual experience and judgment. Key assumptions include mortality,morbidity, persistency, maintenance expenses and investment returns.Primarily as a result of the increase in unrealized appreciation of investments during 2012 and 2011, we recordedadditional future policy benefits through Other comprehensive income. This change in future policy benefits assumesthat the securities underlying certain traditional long-duration products are sold at their stated aggregate fair valueand reinvested at current yields. This increase in future policy benefits in other comprehensive income was partiallyoffset by loss reserve recognition in net income resulting from sales of securities in unrealized gain positions.Change in Foreign Currency Translation Adjustment..............................................................................................................................................................................................The change in foreign currency translation adjustment was a net loss in 2012 due to the strengthening of the U.S.dollar against the Euro and Japanese Yen slightly offset by the weakening of the U.S. dollar against British pound.Change in Net Derivative Gains (Losses) Arising from Cash Flow Hedging Activities..............................................................................................................................................................................................The decline primarily reflects the gradual run-off of the cash flow hedge portfolio as well as the de-designationsresulting from ILFC, partially offset by a decline in the interest rate environment...................................................................................................................................................................................................................................AIG 2012 Form 10-K 117
ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................Change in Retirement Plan Liabilities Adjustment..............................................................................................................................................................................................The decrease in the amount of change in 2012 compared to the 2011 was primarily due to the overall decreases indiscount rates resulting in a loss of approximately $636 million and $677 million in 2012 and 2011, respectively.Partially offsetting the 2012 loss was a gain from investment returns of $213 million. Adding to the loss in 2011 wasa loss from investment returns of $146 million.See Note 22 to the Consolidated Financial Statements for further discussion.Change Attributable to Divestitures and Deconsolidations..............................................................................................................................................................................................The change attributable to divestitures and deconsolidations in 2011 primarily reflects the derecognition of all items inAccumulated other comprehensive income (loss) at the time of sale for AIG Star, AIG Edison and Nan Shan.Deferred Taxes on Other Comprehensive Income..............................................................................................................................................................................................In 2012, the effective tax rate on pre-tax Other Comprehensive Income was 32.2 percent. The effective tax ratediffered from the statutory 35 percent rate primarily due to a decrease in the deferred tax asset valuation allowanceand the effect of foreign operations.For the year ended December 31, 2011, the effective tax rate on pre-tax Other Comprehensive Loss was9.1 percent. The effective tax rate differs from the statutory 35 percent rate primarily due to the effects of the NanShan disposition.2011 and 2010 ComparisonChange in Unrealized Appreciation of Investments..............................................................................................................................................................................................As discussed above, the 2011 increase in unrealized appreciation of investments was due to the result ofappreciation in bonds available for sale due to lower rates, which more than offset widening spreads.The $9.9 billion increase in 2010 primarily reflects an appreciation in bonds available for sale due to lower U.S.Treasury rates and slightly narrowed spreads. The structured securities portfolio accounted for more than half of thepositive change in 2010, as RMBS and CMBS continued to recover from the distressed pricing levels of the financialcrisis. The increase in 2010 also includes an appreciation in available-for-sale equity securities.The reclassification adjustments included in net income on unrealized appreciation of investments decreased by$0.5 billion in 2011 compared to 2010 as a result of realized gains and losses recognized on sales of securitiesclassified as available for sale.Change in Deferred Acquisition Costs Adjustment and Other..............................................................................................................................................................................................DAC amortization was reduced in 2011 and 2010 primarily as a result of increases in the unrealized appreciation ofinvestments supporting interest-sensitive products. The declines also reflect the divestiture of multiple life insuranceoperations, including the sales of Nan Shan, AIG Star and AIG Edison in 2011, the deconsolidation of AIA in 2010and sale of ALICO in 2010.Change in Foreign Currency Translation Adjustments..............................................................................................................................................................................................The decline in foreign currency translation adjustments reflects the divestiture of multiple foreign operations, includingthe sales of Nan Shan, AIG Star and AIG Edison in 2011, the deconsolidation of AIA in 2010 and the sale of ALICOin 2010.Change in Net Derivative Gains (Losses) Arising from Cash Flow Hedging Activities..............................................................................................................................................................................................The decline in 2011 compared to 2010 primarily reflects the gradual wind-down of the cash flow hedge portfolio,partially offset by a decline in the interest rate environment...................................................................................................................................................................................................................................118 AIG 2012 Form 10-K
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American International Group, Inc.2
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KEY FACTS & FIGURES52,000+ $65.7 bi
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■We said we would return to profi
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Financial HighlightsYears Ended Dec
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~63,000AIG EMPLOYEES AROUND THE WOR
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$115.1 millionAVERAGE CLAIMS PAID E
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$10,000MAXIMUM DONATION MADE BY AIG
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American International Group, Inc.F
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AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG LIFE AND RE
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 5 / MARKET FOR REGISTRANT’S
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / MANAGEMENT’S DISCUSSION
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ITEM 7 / USE OF NON-GAAP MEASURES..
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ITEM 7 / EXECUTIVE SUMMARY.........
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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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ITEM 7 / CRITICAL ACCOUNTING ESTIMA
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ITEM 7 / GLOSSARY..................
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ITEM 7 / GLOSSARY..................
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ITEM 7A / QUANTITATIVE AND QUALITAT
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ITEM 8 / INDEX TO FINANCIAL STATEME
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AMERICAN INTERNATIONAL GROUP, INC.C
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ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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ITEM 8 / NOTE 2. SUMMARY OF SIGNIFI
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 5. BUSINESS COMBINATI
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ITEM 8 / NOTE 6. FAIR VALUE MEASURE
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ITEM 8 / NOTE 7. INVESTMENTS.......
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ITEM 8 / NOTE 8. LENDING ACTIVITIES
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ITEM 8 / NOTE 9. REINSURANCE.......
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 12. DERIVATIVES AND H
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ITEM 8 / NOTE 13. LIABILITY FOR UNP
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ITEM 8 / NOTE 14. VARIABLE LIFE AND
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 16. CONTINGENCIES, CO
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ITEM 8 / NOTE 17. TOTAL EQUITY.....
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ITEM 8 / NOTE 18. NONCONTROLLING IN
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ITEM 8 / NOTE 19. EARNINGS (LOSS) P
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ITEM 8 / NOTE 20. STATUTORY FINANCI
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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ITEM 8 / NOTE 24. INCOME TAXES.....
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ITEM 8 / NOTE 26. QUARTERLY FINANCI
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ITEM 8 / NOTE 27. INFORMATION PROVI
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PART II............................
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PART IV............................
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SignatureTitle/s/ ARTHUR C. MARTINE
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ExhibitNumber Description Location(
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Condensed Financial Information of
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Condensed Financial Information of
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Notes to Condensed Financial Inform
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Supplementary Insurance Information
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Valuation and Qualifying AccountsFo
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Subsidiaries of RegistrantExhibit 2
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Percentageof VotingSecuritiesJurisd
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Percentageof VotingSecuritiesJurisd
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CONSENT OF INDEPENDENT REGISTERED P
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CERTIFICATIONSI, Robert H. Benmosch
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CERTIFICATIONExhibit 32In connectio
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SECURITIES REGISTERED PURSUANT TO S
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American International Group, Inc.1
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