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ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES.....................................................................................................................................................................................Liquidity and Capital ResourcesOverview ..............................................................................................................................................................................................Liquidity refers to the ability to generate sufficient cash resources to meet our payment obligations. It is defined ascash and unencumbered assets that can be monetized in a short period of time at a reasonable cost. We manageour liquidity prudently through various risk committees, policies and procedures, and a stress testing and liquidityframework established by ERM. See Enterprise Risk Management – Risk Governance Structure for additionalinformation. The liquidity framework is designed to measure both the amount and composition of our liquidity to meetfinancial obligations in both normal and stressed markets. See Enterprise Risk Management – Risk Appetite,Identification, and Measurement and Liquidity Risk Management for additional information.Capital refers to the long-term financial resources available to support the operation of our businesses, fund businessgrowth, and cover financial and operational needs that arise from adverse circumstances. Our primary source ofongoing capital generation is the profitability of our insurance subsidiaries. We and our insurance subsidiaries mustcomply with numerous constraints on our minimum capital positions. These constraints drive the requirements forcapital adequacy for both the consolidated company and the individual businesses and are based on internallydefinedrisk tolerances, regulatory requirements, rating agency and creditor expectations and business needs. Actualcapital levels are monitored on a regular basis and using ERM’s stress testing methodology, we evaluate the capitalimpact of potential macroeconomic, financial and insurance stresses in relation to the relevant capital constraints ofboth the consolidated company and our insurance subsidiaries.We believe that we have sufficient liquidity and capital resources to satisfy future requirements and meet ourobligations to policyholders, customers, creditors and debt-holders, including reasonably foreseeable contingencies orevents.Nevertheless, some circumstances may cause our cash or capital needs to exceed projected liquidity or capitalresources. Additional collateral calls, deterioration in investment portfolios or reserve strengthening affecting statutorysurplus, higher surrenders of annuities and other policies, downgrades in credit ratings, or catastrophic losses mayresult in significant additional cash or capital needs, loss of some sources of liquidity or capital, or both. In addition,regulatory, and other legal restrictions could limit our ability to transfer funds freely, either to or from our subsidiaries.Depending on market conditions, regulatory and rating agency considerations and other factors, we may take variousliability and capital management actions. Liability management actions may include, but are not limited torepurchasing or redeeming outstanding debt, issuing new debt or engaging in debt exchange offers. Capitalmanagement actions may include, but are not limited to, paying dividends to our shareholders, share purchases andacquisitions...................................................................................................................................................................................................................................120 AIG 2012 Form 10-K