Bring on tomorrow - AIG.com

ITEM 7 / EXECUTIVE SUMMARY.....................................................................................................................................................................................Risk Management HighlightsOur Risk Management Process..............................................................................................................................................................................................Risk management is an integral part of managing our businesses. It is a keyelement of our approach to corporate governance. We have an integratedprocess for managing risks throughout the organization. The framework of ourEnterprise Risk Management (ERM) system provides senior management witha consolidated view of our major risk positions.Our risk management process includes:• An enhanced risk governance structure that supports consistent andtransparent decision making. We have recently revised our corporatepolicies to ensure that accountability for the implementation and oversight ofeach policy is better aligned with individual corporate executives whilespecialized risk governance committees already in operation receive regularreporting regarding policy compliance.• Risk committees at our corporate level as well as in each businessunit that manage the development and maintenance of a risk andcontrol culture encompassing all significant risk categories. Our Boardof Directors oversees the management of risk through the complementaryfunctioning of the Finance and Risk Management Committee (the FRMC)and the Audit Committee, as well as through its regular interaction withother committees of the Board.• A capital and liquidity stress testing framework to assess our aggregateexposure to our most significant risks. We conduct enterprise-wide stresstests under a range of scenarios to better understand the resources needed tosupport our subsidiaries and consolidated company.Risk Managementage e• We remain committed toadhering to the higheststandards of risk managementand corporate governance.• We continue to promoteawareness and accountabilityfor key risk and businessdecisions, and performancethan in the past.• We manage risks better byapplying performance metricsthat enable us to assess riskmore clearly and addressevolving market conditions.Strategic OutlookIndustry Trends..............................................................................................................................................................................................Our business is affected by industry and economic factors such as interest rates, credit and equity market conditions,regulation, tax policy, competition, and general economic, market and political conditions. In 2012, and continuing into2013, we operated under difficult market conditions, characterized by factors such as low interest rates, instability inthe global markets due to the European debt crisis, and slow growth in the U.S. economy.The prevailing interest rate climate has a particularly significant effect on our industry. Investment returns havedeclined as the U.S. fixed income market remains in a low interest rate environment. In addition, current marketconditions may not necessarily permit insurance companies to increase pricing across all our product lines...................................................................................................................................................................................................................................62 AIG 2012 Form 10-K