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ITEM 8 / NOTE 7. INVESTMENTS.....................................................................................................................................................................................On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluatedbased on updates to key assumptions. Declines in undiscounted expected future cash flows due to further creditdeterioration as well as changes in the expected timing of the cash flows can result in the recognition of another-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments forother-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes inthe contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively.Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes arerecognized prospectively as adjustments to the accretable yield.The following tables present information on our PCI securities, which are included in bonds available forsale:(in millions)At Date of AcquisitionContractually required payments (principal and interest) $ 18,708Cash flows expected to be collected * 14,626Recorded investment in acquired securities 9,379* Represents undiscounted expected cash flows, including both principal and interest.(in millions) December 31, 2012 December 31, 2011Outstanding principal balance $ 11,791 $ 10,119Amortized cost 7,7187,006Fair value 8,8236,535The following table presents activity for the accretable yield on PCI securities:Years Ended December 31,(in millions) 2012 2011Balance, beginning of year $ 4,135 $ –Newly purchased PCI securities 1,620 3,943Disposals (298) –Accretion (672) (324)Effect of changes in interest rate indices (213) (62)Net reclassification from non-accretable difference, including effects of prepayments 194 578Balance, end of year $ 4,766 $ 4,135Pledged Investments..............................................................................................................................................................................................Secured Financing and Similar Arrangements..............................................................................................................................................................................................We enter into financing transactions whereby certain securities are transferred to financial institutions in exchange forcash or other liquid collateral. Securities transferred by us under these financing transactions may be sold orrepledged by the counterparties. As collateral for the securities transferred by us, counterparties transfer assets tous, such as cash or high quality fixed maturity securities. Collateral levels are monitored daily and are generallymaintained at an agreed-upon percentage of the fair value of the transferred securities during the life of thetransactions. Where we receive fixed maturity securities as collateral, we do not have the right to sell or repledge thiscollateral unless an event of default occurs by the counterparties. At the termination of the transactions, we and ourcounterparties are obligated to return the collateral provided and the securities transferred, respectively. We treatthese transactions as secured financing arrangements.Secured financing transactions also include securities sold under agreements to repurchase (repurchaseagreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the sameor substantially similar securities. In the majority of these repurchase agreements, the securities transferred by usmay be sold or repledged by the counterparties. Repurchase agreements entered into by the DIB are carried at fair..................................................................................................................................................................................................................................AIG 2012 Form 10-K 263
ITEM 8 / NOTE 7. INVESTMENTS.....................................................................................................................................................................................value based on market-observable interest rates. All other repurchase agreements are recorded at their contractedrepurchase amounts plus accrued interest.Under the secured financing transactions described above, securities available for sale with a fair value of $8.2 billionand $2.3 billion at December 31, 2012 and December 31, 2011, respectively, and trading securities with a fair valueof $3.0 billion and $2.8 billion at December 31, 2012 and December 31, 2011, respectively, were pledged tocounterparties.Prior to January 1, 2012, in the case of repurchase agreements where we did not obtain collateral sufficient to fundsubstantially all of the cost of purchasing identical replacement securities during the term of the contract (generallyless than 90 percent of the security value), we accounted for the transaction as a sale of the security and reportedthe obligation to repurchase the security as a derivative contract. The fair value of securities transferred underrepurchase agreements accounted for as sales was $2.1 billion at December 31, 2011. Effective January 1, 2012,the level of collateral received by the transferor in a repurchase agreement or similar arrangement is no longerrelevant in determining whether the transaction should be accounted for as a sale. There were no repurchaseagreements accounted for as sales as of December 31, 2012.We also enter into agreements in which securities are purchased by us under agreements to resell (reverserepurchase agreements), which are accounted for as secured financing transactions and reported as short-terminvestments or other assets, depending on their terms. These agreements are recorded at their contracted resaleamounts plus accrued interest, other than those that are accounted for at fair value. Such agreements entered intoby the DIB are carried at fair value based on market observable interest rates. In all reverse repurchase transactions,we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledgethis collateral received. The fair value of securities collateral pledged to us was $11.0 billion and $6.8 billion atDecember 31, 2012 and December 31, 2011, respectively, of which $33 million and $122 million was repledged byus.Insurance – Statutory and Other Deposits..............................................................................................................................................................................................Total carrying values of cash and securities deposited by our insurance subsidiaries under requirements of regulatoryauthorities or other insurance-related arrangements, including certain annuity-related obligations and certainreinsurance agreements, were $8.9 billion and $9.8 billion at December 31, 2012 and 2011, respectively.Other Pledges..............................................................................................................................................................................................Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires themembers to own stock in these FHLBs. These subsidiaries owned an aggregate of $84 million and $77 million ofstock in FHLBs at December 31, 2012 and December 31, 2011, respectively. To the extent an AIG subsidiaryborrows from the FHLB, its ownership interest in the stock of FHLBs will be pledged to the FHLB. In addition, oursubsidiaries have pledged securities available for sale with a fair value of $341 million at December 31, 2012,associated with advances from the FHLBs.Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgradeof our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the eventof such downgrades, and the aggregate amount of payments that we could be required to make, depend on marketconditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of thedowngrade. The fair value of securities pledged as collateral with respect to these obligations approximated$4.4 billion and $5.1 billion at December 31, 2012 and December 31, 2011, respectively. This collateral primarilyconsists of securities of the U.S. government and government sponsored entities and generally cannot be repledgedor resold by the counterparties...................................................................................................................................................................................................................................264 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 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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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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ITEM 7 / CRITICAL ACCOUNTING ESTIMA
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ITEM 7 / GLOSSARY..................
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ITEM 7 / GLOSSARY..................
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ITEM 7A / QUANTITATIVE AND QUALITAT
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ITEM 8 / INDEX TO FINANCIAL STATEME
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AMERICAN INTERNATIONAL GROUP, INC.C
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ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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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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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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