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ITEM 1 / BUSINESS.....................................................................................................................................................................................The Liability for unpaid claims and claims adjustment expense as reported in AIG’s Consolidated Balance Sheet atDecember 31, 2012 differs from the total reserve reported in the annual statements filed with state insurancedepartments and, where applicable, with foreign regulatory authorities primarily for the following reasons:• Reserves for certain foreign operations are not required or permitted to be reported in the United States forstatutory reporting purposes, including contingency reserves for catastrophic events;• Statutory practices in the United States require reserves to be shown net of applicable reinsurance recoverable;and• Unlike statutory financial statements, AIG’s consolidated Liability for unpaid claims and claims adjustment expenseexcludes the effect of intercompany transactions.Gross loss reserves are calculated without reduction for reinsurance recoverables and represent the accumulation ofestimates for reported losses and IBNR. We review the adequacy of established gross loss reserves in the mannerpreviously described for net loss reserves. A reconciliation of activity in the Liability for unpaid claims and claimsadjustment expense is included in Note 13 to the Consolidated Financial Statements.REINSURANCE ACTIVITIES..............................................................................................................................................................................................AIG subsidiaries operate worldwide primarily by underwriting and accepting risks for their direct account on a grossbasis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent thoserisks exceed the desired retention level. In addition, as a condition of certain direct underwriting transactions, we arerequired by clients, agents or regulation to cede all or a portion of risks to specified reinsurance entities, such ascaptives, other insurers, local reinsurers and compulsory pools.In 2012, AIG Property Casualty adopted a new ceded reinsurance framework and strategy to improve the efficiencyof our legal entity capital management and support our global product line risk and profitability objectives.Reinsurance is also used to manage overall capital adequacy and mitigate the effects of certain events such asnatural and man-made catastrophes. As a result of adopting the new framework and strategy, many individualreinsurance contracts were consolidated into more efficient global programs and reinsurance ceded to third parties insupport of risk and capital management objectives has decreased in 2012. There are many different forms ofreinsurance agreements and different markets that may be used to achieve our risk and profitability objectives. Wecontinually evaluate the reinsurance markets and the relative attractiveness of various arrangements that may beused to achieve our risk and profitability objectives.The form of reinsurance that we may choose from time to time will generally depend on whether we are seeking(i) proportional reinsurance, whereby we cede a specified percentage of premium and losses to reinsurers, ornon-proportional or excess of loss reinsurance, whereby we cede all or a specified portion of losses in excess of aspecified amount on a per risk, per occurrence (including catastrophe reinsurance) or aggregate basis and(ii) treaties that cover a defined book of policies, or facultative placements that cover an individual policy.Reinsurance markets include:• Traditional local and global reinsurance markets including in the United States, Bermuda, London and Europe,accessed directly and through reinsurance intermediaries;• Capital markets through investors in ILS and collateralized reinsurance transactions, such as catastrophe bonds,‘‘sidecars’’ (special purpose entities that allow investors to take on the risk of a book of business from an insurancecompany in exchange for a premium) and similar vehicles; and• Other insurers which engage in both direct and assumed reinsurance and/or engage in swaps.Reinsurance arrangements do not relieve the AIG subsidiaries from their direct obligations to insureds. However, aneffective reinsurance program substantially mitigates our exposure to potentially significant losses.See Item 7. MD&A – Enterprise Risk Management – Insurance Operations Risks – AIG Property Casualty KeyInsurance Risks – Reinsurance Recoverables for a summary of significant reinsurers...................................................................................................................................................................................................................................AIG 2012 Form 10-K 23
ITEM 1 / BUSINESS.....................................................................................................................................................................................GENERATING REVENUES: INVESTMENT ACTIVITIES OF OUR INSURANCE OPERATIONS..............................................................................................................................................................................................AIG Property Casualty and AIG Life and Retirement generally receivepremiums and deposits well in advance of paying covered claims orbenefits. In the intervening periods, we invest these premiums anddeposits to generate net investment income and fee income that isavailable to pay claims or benefits. As a result, we generate significantrevenues from insurance investment activities.AIG’s worldwide insurance investment policy places primary emphasis oninvestments in fixed maturity securities of corporations, municipal bondsand government issuances in all of its portfolios, and, to a lesser extent,investments in high-yield bonds, common stock, real estate, hedge fundsand other alternative investments.We generate significantrevenues in our AIG PropertyCasualty and AIG Life andRetirement operations frominvestment activities.The majority of assets backing insurance liabilities at AIG consist of intermediate and long duration fixed maturitysecurities.AIG Property Casualty – Fixed maturity securities held by the insurance companies included in AIG PropertyCasualty domestic operations historically have consisted primarily of laddered holdings of tax-exempt municipalbonds. These tax-exempt municipal bonds provided attractive after-tax returns and limited credit risk. To meet ourdomestic operations’ current risk-return and tax objectives, our domestic property and casualty companies havebegun to shift investment allocations away from tax-exempt municipal bonds towards taxable instruments. Anytaxable instruments must meet our liquidity, duration and quality objectives as well as current risk-return and taxobjectives. Fixed maturity securities held by AIG Property Casualty international operations consist primarily ofintermediate duration high-grade securities, primarily in the markets being served. In addition, AIG Property Casualtyhas redeployed cash in excess of operating needs and short-term investments into longer-term, higher-yieldingsecurities.AIG Life and Retirement – Our investment strategy is to generally match the duration of our liabilities with assets ofcomparable duration. AIG Life and Retirement also invests in a diversified portfolio of private equity funds, hedgefunds and affordable housing partnerships. Although these types of investments are subject to periodic earningsvolatility, through December 31, 2012, they have achieved total returns in excess of AIG Life and Retirement’s baseportfolio yield. AIG Life and Retirement expects that these alternative investments will continue to outperform thebase portfolio yield over the long term.The following table summarizes the investment results of AIG’s insurance operations, excluding the resultsof discontinued operationsYears Ended December 31, Annual Average Net Investment Pre-tax Return on(in millions) Investments (a) Income Average Investments (b)AIG Property Casualty:2012 $ 120,166 $ 4,820 4.0%2011 113,405 4,348 3.82010 100,583 4,392 4.4AIG Life and Retirement:2012 $ 190,983 $ 10,718 5.6%2011 172,846 9,882 5.72010 154,167 10,768 7.0(a) Includes real estate investments and excludes cash and short-term investments.(b)Net investment income divided by the annual average investments.REGULATION..............................................................................................................................................................................................Our operations around the world are subject to regulation by many different types of regulatory authorities, includingbanking, insurance, securities and investment advisory regulators in the United States and abroad. The insurance..................................................................................................................................................................................................................................24 AIG 2012 Form 10-K
Page 1 and 2: American International Group, Inc.2
Page 3 and 4: KEY FACTS & FIGURES52,000+ $65.7 bi
Page 5 and 6: ■We said we would return to profi
Page 7 and 8: Financial HighlightsYears Ended Dec
Page 9 and 10: ~63,000AIG EMPLOYEES AROUND THE WOR
Page 11 and 12: $115.1 millionAVERAGE CLAIMS PAID E
Page 13 and 14: $10,000MAXIMUM DONATION MADE BY AIG
Page 15 and 16: American International Group, Inc.F
Page 18 and 19: AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 7 / RESULTS OF OPERATIONS.....
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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 2. SUMMARY OF SIGNIFI
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 5. BUSINESS COMBINATI
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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 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 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 20. STATUTORY FINANCI
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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 24. INCOME TAXES.....
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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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