Bring on tomorrow - AIG.com

ITEM 7 / LIQUIDITY AND CAPITAL RESOURCES.....................................................................................................................................................................................• increases in market interest rates that may adversely affect the financial strength ratings of our subsidiaries, asrating agency capital models may reduce the amount of available capital relative to required capital; and• other potential events that could cause a liquidity strain, including economic collapse of a nation or regionsignificant to our operations, nationalization, catastrophic terrorist acts, pandemics or other events causingeconomic or political upheaval.In February 2012, AIG Parent, Chartis Inc. and certain AIG Property Casualty domestic insurance subsidiaries,entered into a single CMA, which replaced the CMAs entered into in February 2011. Under the 2012 CMA, the totaladjusted capital and total authorized control level Risk-Based Capital (RBC) (as defined by National Association ofInsurance Commissioners (NAIC) guidelines and determined based on the subsidiaries’ statutory financialstatements) of these AIG Property Casualty insurance subsidiaries are measured as a group (the Fleet) rather thanon an individual company basis.Among other things, the 2012 CMA provides that AIG Parent will maintain the total adjusted capital of the Fleet at orabove the specified minimum percentage of the Fleet’s projected total authorized control level RBC. As a result, the2012 CMA provides that if the total adjusted capital of the Fleet falls below the specified minimum percentage of theFleet’s total authorized control level RBC, AIG Parent will contribute cash or other instruments admissible underapplicable regulations to Chartis Inc., which will further contribute such funds to the AIG Property Casualtysubsidiaries in the amount necessary to increase the Fleet’s total adjusted capital to a level at least equal to suchspecified minimum percentage. Any required contribution under the 2012 CMA would generally be made during thesecond and fourth quarters of each year; however, AIG Parent may also make contributions in such amounts and atsuch times as it deems appropriate. In addition, the 2012 CMA provides that if the total adjusted capital of the Fleetexceeds that same specified minimum percentage of the Fleet’s total authorized control level RBC, subject to boardapproval, the AIG Property Casualty insurance subsidiaries would declare and pay ordinary dividends to theirrespective equity holders up to an amount that is the lesser of:(i)(ii)the amount (to be determined by Chartis Inc.) necessary to reduce the Fleet’s projected or actual total adjustedcapital to a level equal to or not materially greater than such specified minimum percentage orthe maximum amount of ordinary dividends permitted under applicable insurance law.The 2012 CMA does not prohibit, however, the payment of extraordinary dividends, subject to board or regulatoryapproval, to reduce the Fleet’s projected or actual total adjusted capital to a level equal to or not materially greaterthan the specified minimum percentage. Any required dividend under the 2012 CMA would generally be made on aquarterly basis. As structured, the 2012 CMA contemplates that the specified minimum percentage would bereviewed and agreed upon at least annually.For the years ended December 31, 2012 and 2011, AIG Parent received $2.3 billion and $1.3 billion, respectively, individends from Chartis Inc. that were made pursuant to the CMAs then in place, and AIG Parent was not required tomake any capital contributions in either period pursuant to the CMAs then in place.On February 20, 2013, the 2012 CMA was amended to exclude deferred tax assets from the calculation of totaladjusted capital. As a result, effective February 20, 2013, the specified minimum percentage decreased from350 percent to 325 percent.In March 2012, the National Union Fire Insurance Company of Pittsburgh, Pa. (NUFI), an AIG Property Casualtycompany, became a member of the Federal Home Loan Bank (FHLB) of Pittsburgh. In August 2012, ChartisSpecialty Insurance Company (CSI), an AIG Property Casualty company, became a member of the FHLB ofChicago. FHLB membership provides participants with access to various services, including access to low-costadvances through pledging of certain mortgage-backed securities, government and agency securities and otherqualifying assets. These advances may be used to provide an additional source of liquidity for balance sheetmanagement or contingency funding purposes. As of December 31, 2012, neither NUFI nor CSI had any advancesoutstanding under their respective FHLB facilities...................................................................................................................................................................................................................................AIG 2012 Form 10-K 127