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ITEM 1A / RISK FACTORS.....................................................................................................................................................................................unauthorized access, systems failures and disruptions. AIG maintains cyber risk insurance, but this insurance maynot cover all costs associated with the consequences of personal, confidential or proprietary information beingcompromised. In some cases, such unauthorized access may not be immediately detected. This may impede orinterrupt our business operations and could adversely affect our consolidated financial condition or results ofoperations.In addition, we routinely transmit, receive and store personal, confidential and proprietary information by email andother electronic means. Although we attempt to keep such information confidential, we may be unable to do so in allevents, especially with clients, vendors, service providers, counterparties and other third parties who may not have oruse appropriate controls to protect confidential information. Furthermore, certain of our businesses are subject tocompliance with laws and regulations enacted by U.S. federal and state governments, the European Union or otherjurisdictions or enacted by various regulatory organizations or exchanges relating to the privacy and security of theinformation of clients, employees or others. The compromise of personal, confidential or proprietary information couldresult in remediation costs, legal liability, regulatory action and reputational harm.BUSINESS AND OPERATIONS OF ILFC PRIOR TO COMPLETION OF THE ILFC TRANSACTION..............................................................................................................................................................................................We will be subject to the following risks until we complete the ILFC Transaction:Our aircraft leasing business depends on lease revenues and exposes us to the risk of lesseenonperformance. A decrease in ILFC’s customers’ ability to meet their obligations to ILFC under their leases maynegatively affect our business, results of operations and cash flows.ILFC’s aircraft may become obsolete over time. Aircraft are long-lived assets requiring long lead times to developand manufacture. Particular models and types of aircraft may become obsolete and less in demand over time, whennewer, more advanced and efficient aircraft or aircraft engines are manufactured. This life cycle, however, can beshortened by world events, government regulation or customer preferences. As aircraft in ILFC’s fleet approachobsolescence, demand for particular models and types may decrease. This may result in declining lease rates,losses on sales, impairment charges or fair value adjustments and may adversely affect ILFC’s business and ourconsolidated financial condition, results of operations and cash flows.The residual value of ILFC’s aircraft is subject to a number of risks and uncertainties. Technologicaldevelopments, macro-economic conditions, availability and cost of funding for aviation, and the overall health of theairline industry impact the residual values of ILFC’s aircraft. If challenging economic conditions persist for extendedperiods, the residual values of ILFC’s aircraft could be negatively impacted, which could result in future impairments.COMPETITION AND EMPLOYEES..............................................................................................................................................................................................We face intense competition in each of our businesses. Our businesses operate in highly competitiveenvironments, both domestically and overseas. Our principal competitors are other large multinational insuranceorganizations, as well as banks, investment banks and other non-bank financial institutions. The insurance industry inparticular is highly competitive. Within the U.S., AIG Property Casualty subsidiaries compete with approximately3,300 other stock companies, specialty insurance organizations, mutual insurance companies and other underwritingorganizations. AIG Life and Retirement subsidiaries compete in the U.S. with approximately 1,800 life insurancecompanies and other participants in related financial services fields. Overseas, our subsidiaries compete for businesswith the foreign insurance operations of large U.S. insurers and with global insurance groups and local companies.The past reduction of our credit ratings and the lingering effects of AIG’s negative publicity have made, and maycontinue to make, it more difficult to compete to retain existing customers and to maintain our historical levels ofbusiness with existing customers and counterparties. General insurance and life insurance companies competethrough a combination of risk acceptance criteria, product pricing, and terms and conditions. Retirement servicescompanies compete through crediting rates and the issuance of guaranteed benefits. A decline in our position as toany one or more of these factors could adversely affect our profitability...................................................................................................................................................................................................................................38 AIG 2012 Form 10-K