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ITEM 7 / ENTERPRISE RISK MANAGEMENT.....................................................................................................................................................................................• developing methodologies for quantification and assessment of credit risks, including the establishment andmaintenance of our internal risk rating process; and• approving appropriate credit reserves, credit-related other-than-temporary impairments and correspondingmethodologies in all credit portfolios.We monitor and control our company-wide credit risk concentrations and attempt to avoid unwanted or excessive riskaccumulations, whether funded or unfunded. To minimize the level of credit risk in some circumstances, we mayrequire third-party guarantees, reinsurance or collateral, such as letters of credit and trust collateral accounts. Wetreat these guarantees, reinsurance recoverables, letters of credit and trust collateral accounts as credit exposureand include them in our risk concentration exposure data. We identify our aggregate credit exposures to ourunderlying counterparty risks.Largest Credit Concentrations..............................................................................................................................................................................................Our single largest credit exposure, the U.S. Government, was 25 percent of Total equity at December 31, 2012compared to 30 percent at December 31, 2011. Exposure to the U.S. Government primarily includes credit exposurerelated to U.S. Treasury and government agency securities and to direct and guaranteed exposures to U.S.government-sponsored entities, primarily the Federal National Mortgage Association (Fannie Mae) and the FederalHome Loan Mortgage Corporation (Freddie Mac) based upon their U.S. Government conservatorship. The reductionin exposure was primarily related to U.S. government-sponsored entities.Based on our internal risk ratings, at December 31, 2012, our largest below investment grade-rated credit exposure,apart from ILFC leasing arrangements secured by aircraft with airlines having below investment grade ratings, wasrelated to a non-financial corporate counterparty and that exposure was 0.6 percent of Total equity, compared to0.5 percent at December 31, 2011.Government Credit Concentrations (non-U.S.)..............................................................................................................................................................................................Our total direct and guaranteed credit exposure to non-U.S. governments is $22.5 billion at December 31, 2012,compared to $26.2 billion in December 31, 2011. Our single largest concentration was to the government of Japan inthe amount of $8.1 billion at December 31, 2012. Most of these securities were held in the investment portfolios ofour Japanese insurance operations.The following table presents our aggregate (gross and net) credit exposures to non-U.S. governments:December 31, December 31,(in millions) 2012 2011Japan $ 8,109 $ 9,205Canada 2,718 3,153Germany 1,446 1,854France 1,207 1,157China 926 132United Kingdom 816 1,615Australia 601 879Mexico 552 507Netherlands 442 442Russia 340 293Other 5,350 6,934Total $ 22,507 $ 26,171Financial Institution Concentrations..............................................................................................................................................................................................Our single largest industry credit exposure in 2012 was to the global financial institutions sector as a whole, whichincludes banks and finance companies, securities firms, and insurance and reinsurance companies, many of whichcan be highly correlated at times of market stress. As of December 31, 2012, credit exposure to this sector was$85.5 billion, or 84 percent of Total equity compared to 106 percent at December 31, 2011...................................................................................................................................................................................................................................158 AIG 2012 Form 10-K