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ITEM 7 / INVESTMENTS.....................................................................................................................................................................................• We continued to make risk-weighted opportunistic investments in RMBS and other structured securities to improveyields and increase net investment income.• We purchased an aggregate of $7.1 billion of CDOs sold in the FRBNY auctions of ML III assets, and elected fairvalue option accounting treatment on those assets.• Blended investment yields on new AIG Life and Retirement investments were lower than blended rates oninvestments that were sold, matured or called. Base yields at AIG Property Casualty benefited from blended yieldson new investments that were higher than the yields on investments that were sold, matured or called.• A continued low interest rate environment and narrowing spreads in many fixed income asset classes contributedto unrealized gains in the investment portfolio.• Other-than-temporary-impairments on structured securities decreased from 2011.• We disposed of our remaining interest in AIA, and our position in ML III was liquidated.Credit Ratings..............................................................................................................................................................................................At December 31, 2012, approximately 88 percent of fixed maturity securities were held by our domestic entities.Approximately 17 percent of such securities were rated AAA by one or more of the principal rating agencies, andapproximately 15 percent were rated below investment grade or not rated. Our investment decision process reliesprimarily on internally generated fundamental analysis and internal risk ratings. Third-party rating services’ ratingsand opinions provide one source of independent perspective for consideration in the internal analysis.A significant portion of our foreign entities’ fixed maturity securities portfolio is rated by Moody’s, S&P or similarforeign rating services. Rating services are not available for some foreign issued securities. Our Credit RiskManagement department closely reviews the credit quality of the foreign portfolio’s non-rated fixed maturity securities.At December 31, 2012, approximately 18 percent of such investments were either rated AAA or, on the basis of ourinternal analysis, were equivalent from a credit standpoint to securities rated AAA, and approximately 3 percent wererated below investment grade or not rated at that date. Approximately 49 percent of the foreign entities’ fixed maturitysecurities portfolio is comprised of sovereign fixed maturity securities supporting policy liabilities in the country ofissuance.With respect to our fixed maturity investments, the credit ratings in the table below and in subsequent tables reflect:(a) a composite of the ratings of the three major rating agencies, or when agency ratings are not available, the ratingassigned by the National Association of Insurance Commissioners (NAIC) Securities Valuations Office (SVO) (over99 percent of total fixed maturity investments), or (b) our equivalent internal ratings when these investments have notbeen rated by any of the major rating agencies or the NAIC. The ‘‘Non-rated’’ category in those tables consists offixed maturity securities that have not been rated by any of the major rating agencies, the NAIC or us, and for 2011,represents primarily our interest in ML III at December 31, 2011.See Enterprise Risk Management herein for a discussion of credit risks associated with Investments...................................................................................................................................................................................................................................AIG 2012 Form 10-K 139