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ITEM 1A / RISK FACTORS.....................................................................................................................................................................................ITEM 1A / RISK FACTORS..............................................................................................................................................................................................Investing in AIG involves risk. In deciding whether to invest in AIG, you should carefully consider the following riskfactors. Any of these risk factors could have a significant or material adverse effect on our businesses, results ofoperations, financial condition or liquidity. They could also cause significant fluctuations and volatility in the tradingprice of our securities. Readers should not consider any descriptions of these factors to be a complete set of allpotential risks that could affect AIG. These factors should be considered carefully together with the other informationcontained in this report and the other reports and materials filed by us with the Securities and Exchange Commission(SEC). Further, many of these risks are interrelated and could occur under similar business and economic conditions,and the occurrence of certain of them may in turn cause the emergence or exacerbate the effect of others. Such acombination could materially increase the severity of the impact of these risks on our results of operations, liquidityand financial condition.MARKET CONDITIONS..............................................................................................................................................................................................Difficult conditions in the global capital markets and the economy may materially and adversely affect ourbusinesses, results of operations, financial condition and liquidity. Our businesses are highly dependent on theeconomic environment, both in the U.S. and around the world. Concerns over continued high domesticunemployment, weakness in the U.S. housing and commercial real estate markets, the ability of the U.S. governmentto rein in the U.S. deficit, address the federal debt ceiling and reduce spending, and the European Union’s ability toresolve its debt crisis, among other issues, have contributed to increased volatility and reduced expectations for theeconomy and the markets in the near term. Extreme prolonged market events, such as the global financial crisisduring 2008 and 2009, have at times led, and could in the future lead, to a lack of liquidity, highly volatile markets, asteep depreciation in asset values across all classes, an erosion of investor and public confidence, and a widening ofcredit spreads. Difficult economic conditions could also result in increased unemployment and a severe decline inbusiness across a wide range of industries and regions. These market and economic factors could have a materialadverse effect on our businesses, results of operations, financial condition and liquidity.Under difficult economic conditions, we could experience reduced demand for our financial and insurance productsand an elevated incidence of claims and lapses or surrenders of policies. Contract holders may choose to defer orcease paying insurance premiums. Other ways in which we could be negatively affected by economic conditions,include, but are not limited to:• declines in the valuation and performance of our investment portfolio, including declines attributable to rapidincreases in rates;• increased credit losses;• declines in the value of other assets;• impairments of goodwill and other long-lived assets;• additional statutory capital requirements;• limitations on our ability to recover deferred tax assets;• a decline in new business levels and renewals;• a decline in insured values caused by a decrease in activity at client organizations;• an increase in liability for future policy benefits due to loss recognition on certain long-duration insurance contracts;• higher borrowing costs and more limited availability of credit;• an increase in policy surrenders and cancellations; and• a write-off of deferred policy acquisition costs (DAC).Sustained low interest rates may materially and adversely affect our profitability. Sustained low interest ratescan negatively affect the performance of our investment securities and reduce the level of investment income earnedon our investment portfolios. If a low interest rate environment persists, we may experience slower investment..................................................................................................................................................................................................................................32 AIG 2012 Form 10-K