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ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................For a further discussion of the risks of AIG’s unhedged exposures, see Item 1A. – Risk Factors – Business andOperations.Estimated Gross Profits for Interest-Sensitive Products (AIG Life and Retirement)..............................................................................................................................................................................................Estimated gross profits (EGP) are subject to differing market returns and interest rate environments in any singleperiod. EGP is composed of net investment income, net realized investment gains and losses, fees, surrendercharges, expenses, and mortality and morbidity gains and losses. When assumptions are changed, the percentage ofEGP used to amortize DAC may also change.The following table summarizes the sensitivity of changes in certain assumptions in the amortization of DAC/SIA, guaranteed benefits reserve and unearned revenue liability and the related hypothetical impact onyear-end 2012 balances. The effect of changes in the equity markets, volatility and interest rates primarilyimpacts individual variable annuities (SunAmerica Retirement Markets) and group retirement products(VALIC). The effect of changes in mortality primarily impacts the universal life insurance business.Guaranteed Unearned NetDecember 31, 2012 Benefits Revenue Pre-Tax(in millions) DAC/SIA Reserve Liability EarningsAssumptions:Equity Return (a)Effect of an increase by 1% $ 67 $ – $ (23) $ 90Effect of a decrease by 1% (67) – 54 (121)Volatility (b)Effect of an increase by 1% (10) 1 2 (13)Effect of a decrease by 1% 9 (1) (2) 12Interest Rate (c)Effect of an increase by 10 basis points 9 1 – 8Effect of a decrease by 10 basis points (9) (1) – (8)MortalityEffect of an increase by 1% (15) (6) 13 (22)Effect of a decrease by 1% 13 5 (13) 21(a) Represents the net impact of 1 percent increase or decrease in long-term equity returns for GMDB and GMIB reserves and negligible netimpact of 1 percent increase or decrease in the S&P 500 index for living benefit reserves.(b)Represents the net impact of 1 percentage point increase or decrease in implied volatility.(c)Represents the net impact of a 10 basis point parallel shift in the yield curve. Does not represent interest rate spread compression.The analysis of DAC, guaranteed benefits reserve and unearned revenue liability is a dynamic process that considersall relevant factors and assumptions described above. We estimate each of the above factors individually, without theeffect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in anysingle assumption would not necessarily be an indicator of future results.Other-Than-Temporary Impairments on Available For Sale Securities..............................................................................................................................................................................................At each balance sheet date, we evaluate our available for sale securities holdings with unrealized losses.See the discussion in Note 7 to the Consolidated Financial Statements for additional information on the methodologyand significant inputs, by security type, that we use to determine the amount of other-than-temporary impairment onfixed maturity and equity securities.Goodwill Impairment..............................................................................................................................................................................................For a discussion of goodwill impairment, see Note 2 to the Consolidated Financial Statements...................................................................................................................................................................................................................................AIG 2012 Form 10-K 191
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................Liability for Legal Contingencies..............................................................................................................................................................................................We estimate and record a liability for potential losses that may arise from litigation and regulatory proceedings to theextent such losses are probable and can be estimated. Determining a reasonable estimate of the amount of suchlosses requires significant management judgment. In many cases, it is not possible to determine whether a liabilityhas been incurred or to estimate the ultimate or minimum amount of that liability until the matter is close toresolution. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases in whichclaimants seek substantial or indeterminate damages, we often cannot predict the outcome or estimate the eventualloss or range of reasonably possible losses related to such matters.See Note 16 to the Consolidated Financial Statements.Fair Value Measurements of Certain Financial Assets and Liabilities..............................................................................................................................................................................................See Note 6 to the Consolidated Financial Statements for more detailed information about the measurement of fairvalue of financial assets and financial liabilities and how our accounting policy incorporates credit risk in fair valuemeasurements.The following table presents the fair value of fixed maturity and equity securities by source of valuedetermination:December 31, 2012 Fair Percent(in billions) Value of TotalFair value based on external sources (a) $ 280 94%Fair value based on internal sources 18 6Total fixed maturity and equity securities (b) $ 298 100%(a) Includes $28.7 billion for which the primary source is broker quotes.(b)Includes available for sale and trading securities.Level 3 Assets and Liabilities..............................................................................................................................................................................................Assets and liabilities recorded at fair value in the Consolidated Balance Sheet are measured and classified in ahierarchy for disclosure purposes consisting of three ‘‘levels’’ based on the observability of inputs available in themarketplace used to measure the fair value. See Note 6 to the Consolidated Financial Statements for additionalinformation.The following table presents the amount of assets and liabilities measured at fair value on a recurring basisand classified as Level 3:December 31, Percentage December 31, Percentage(in billions) 2012 of Total 2011 of TotalAssets $ 40.5 7.4% $ 39.4 7.1%Liabilities 4.1 0.95.3 1.2Level 3 fair value measurements are based on valuation techniques that use at least one significant input that isunobservable. We consider unobservable inputs to be those for which market data is not available and that aredeveloped using the best information available about the assumptions that market participants would use whenvaluing the asset or liability. Our assessment of the significance of a particular input to the fair value measurement inits entirety requires judgment.We classify fair value measurements for certain assets and liabilities as Level 3 when they require significantunobservable inputs in their valuation, including contractual terms, prices and rates, yield curves, credit curves,measures of volatility, prepayment rates, default rates, mortality rates and correlations of such inputs...................................................................................................................................................................................................................................192 AIG 2012 Form 10-K
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American International Group, Inc.2
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KEY FACTS & FIGURES52,000+ $65.7 bi
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■We said we would return to profi
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Financial HighlightsYears Ended Dec
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~63,000AIG EMPLOYEES AROUND THE WOR
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$115.1 millionAVERAGE CLAIMS PAID E
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$10,000MAXIMUM DONATION MADE BY AIG
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American International Group, Inc.F
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AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG LIFE AND RE
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 5 / MARKET FOR REGISTRANT’S
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / MANAGEMENT’S DISCUSSION
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ITEM 7 / USE OF NON-GAAP MEASURES..
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ITEM 7 / EXECUTIVE SUMMARY.........
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ITEM 7 / RESULTS OF OPERATIONS.....
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ITEM 7 / LIQUIDITY AND CAPITAL RESO
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ITEM 7 / INVESTMENTS...............
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Page 217 and 218: ITEM 7A / QUANTITATIVE AND QUALITAT
Page 219 and 220: ITEM 8 / INDEX TO FINANCIAL STATEME
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ITEM 8 / NOTE 6. FAIR VALUE MEASURE
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ITEM 8 / NOTE 7. INVESTMENTS.......
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ITEM 8 / NOTE 8. LENDING ACTIVITIES
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ITEM 8 / NOTE 9. REINSURANCE.......
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 12. DERIVATIVES AND H
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ITEM 8 / NOTE 13. LIABILITY FOR UNP
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ITEM 8 / NOTE 14. VARIABLE LIFE AND
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 16. CONTINGENCIES, CO
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ITEM 8 / NOTE 17. TOTAL EQUITY.....
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ITEM 8 / NOTE 18. NONCONTROLLING IN
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ITEM 8 / NOTE 19. EARNINGS (LOSS) P
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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ITEM 8 / NOTE 26. QUARTERLY FINANCI
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ITEM 8 / NOTE 27. INFORMATION PROVI
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PART II............................
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PART IV............................
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SignatureTitle/s/ ARTHUR C. MARTINE
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ExhibitNumber Description Location(
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Condensed Financial Information of
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Condensed Financial Information of
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Notes to Condensed Financial Inform
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Supplementary Insurance Information
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Valuation and Qualifying AccountsFo
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Subsidiaries of RegistrantExhibit 2
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Percentageof VotingSecuritiesJurisd
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Percentageof VotingSecuritiesJurisd
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CONSENT OF INDEPENDENT REGISTERED P
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CERTIFICATIONSI, Robert H. Benmosch
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CERTIFICATIONExhibit 32In connectio
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SECURITIES REGISTERED PURSUANT TO S
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American International Group, Inc.1
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