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ITEM 7 / ENTERPRISE RISK MANAGEMENT.....................................................................................................................................................................................In addition to the aggregate return period loss, we evaluate potential single event earthquake and hurricane losses.The single events utilized are a subset of potential events identified and utilized by Lloyd’s (see Lloyd’s RealisticDisaster Scenarios, Scenario Specifications, January 2013) and referred to as Realistic Disaster Scenarios (RDS).The purpose of this type of analysis is to provide a frame of reference and context for the model results. The specificevents used for this analysis do not necessarily represent the worst case loss that we could incur from this type ofan event in these regions. The losses associated with the RDS are included in the following table.Single-event modeled property and workers’ compensation losses and loss adjustment expenses to AIG’sworldwide portfolio of risk for key geographic areas are shown below.At December 31, 2012 Net of 2013(in millions) Gross (a) Reinsurance (b)Natural Peril:Northeast Hurricane $ 3,706 $ 1,721Gulf Coast Hurricane $ 3,703 $ 1,857Los Angeles Earthquake $ 4,987 $ 2,886San Francisco Earthquake $ 5,425 $ 2,977Miami Hurricane $ 3,275 $ 1,093Japanese Earthquake $ 1,542 $ 968European Windstorm $ 802 $ 483Japanese Typhoon $ 1,125 $ 577(a) After the application of policy limits and deductibles.(b) Calculated using the AIG reinsurance program in effect as at January 1, 2013, including reinstatement premiums. AIG’s reinsurance programincludes industry loss warranty (ILW) contracts under which there is basis risk between AIG’s losses and the total industry loss. The net ofreinsurance amount in the table above includes a positive impact from these ILWs, which may not be indicative of actual experience.We also monitor key international property risks utilizing industry recognized natural catastrophe models. Based onthe occurrence exceedance probabilities, the 100-year return period loss for Japanese Earthquake is $1.1 billiongross and $885 million net; the 100-year return period loss for European Windstorm is $575 million gross and$503 million net; and the 100-year return period loss for Japanese Typhoon is $1.7 billion gross and $842 million net.ACTUAL RESULTS IN ANY PERIOD ARE LIKELY TO VARY, PERHAPS MATERIALLY, FROM THE MODELEDSCENARIOS. THE OCCURRENCE OF ONE OR MORE SEVERE EVENTS COULD HAVE A MATERIAL ADVERSEEFFECT ON OUR FINANCIAL CONDITION, RESULTS OF OPERATIONS AND LIQUIDITY. See also Item 1A. RiskFactors – Reserves and Exposures for additional information.TerrorismWe actively monitor terrorism risk and strive to control exposure to loss from terrorist attack by limiting the aggregateaccumulation insurance that is underwritten in defined target locations. We use modeling to provide projections ofProbable Maximum Loss (PML) by target location based upon the actual exposures of our policyholders.We also share our exposures to terrorism risks under the Terrorism Risk Insurance Program Reauthorization Act of2007 (TRIPRA). TRIPRA covers terrorist attacks in the United States only and excludes, as specified by applicablelaw, certain commercial lines of business as well as A&H, group life and personal lines. In 2012 and beginningJanuary 1, 2013, our deductible under TRIPRA was approximately $3.0 billion and $2.8 billion, respectively, with a15 percent coinsurance retention of certified terrorism losses in excess of the deductible for each period.We offer terrorism coverage in many other countries through various insurance products and participate in countryterrorism pools when applicable. International terrorism exposure is managed through active aggregation control andtargeted reinsurance purchases for lines of business such as commercial property, political risk, aviation and A&H.Reinsurance RecoverablesAIG’s reinsurance recoverable assets are comprised of:• Paid losses recoverable – balances due from reinsurers for losses and loss expenses paid by our subsidiaries andbilled, but not yet collected.• Ceded loss reserves – ultimate ceded reserves for losses and loss expenses, including reserves for claimsreported but not yet paid and estimates for IBNR.• Ceded reserves for unearned premiums...................................................................................................................................................................................................................................168 AIG 2012 Form 10-K