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ITEM 7 / EXECUTIVE SUMMARY.....................................................................................................................................................................................investments are subject to periodic volatility, they have historically achieved yields in excess of the base portfolioyields. Our expectation is that these alternative investments will continue to outperform the base portfolio yields overthe long-term.Opportunistic investments in structured securities and other yield-enhancement opportunities continue to be madewith the objective of increasing net investment income. Overall base yields increased in 2012 due to the portfolio mixshift away from tax-exempt municipal bonds toward taxable instruments; overall investment purchases were made atexpected yields higher than the weighted average yields of the existing portfolio.In 2013, we expect to continue to refine our investment strategy, which includes asset diversification and yieldenhancementopportunities that meet our liquidity, duration and credit quality objectives as well as current risk-returnand tax objectives.See Segment Results – AIG Property Casualty Operations – AIG Property Casualty Results AIG PropertyCasualty Investing and Other Results and Note 7 to the Consolidated Financial Statements for additional information.AIG LIFE AND RETIREMENT STRATEGIC OUTLOOK..............................................................................................................................................................................................AIG Life and Retirement’s businesses and the life and annuity industrycontinue to be affected by the current economic environment of lowinterest rates and volatile equity markets. Continued low interest rates putpressure on long-term investment returns, negatively affect future sales ofinterest rate-sensitive products and reduce future profits on certainexisting business. Also, products such as payout annuities and traditionallife insurance that are not rate-adjustable may require increases inreserves if future investment yields are insufficient to support currentvaluation interest rates. Equity market volatility may result in higherreserves for variable annuity guarantee features, and both equity marketvolatility and low interest rates can affect the recoverability andamortization rate of DAC assets.During 2012, AIG Life and Retirement implemented a number ofmanagement actions to proactively address the impact of low interestrates. These actions include a continued disciplined approach to newbusiness pricing of interest sensitive products (e.g. fixed annuities), activemanagement of renewal crediting rates, increased pricing in certain lifeinsurance products and re-filing of products to continue lowering minimumrate guarantees.AIG Life and Retirement is focused on the following strategic initiatives:AIG Life and Retiremente e tOpportunitiesti• Grow assets undermanagement• Increase life insurance in force• Enhance return on equityGrowth of Assets Under Management..............................................................................................................................................................................................AIG Life and Retirement plans to fully leverage its unified all-channel distribution organization to increase sales ofprofitable products across all channels. In addition, management will pursue select institutional market opportunitieswhere AIG Life and Retirement’s scale and capacity provides a competitive market advantage. AIG Life andRetirement is well positioned to capitalize on the growing demand for income solutions while certain competitors arescaling back in this market. AIG Life and Retirement will continue to manage the risks associated with variableannuity living benefits through innovative product designs and hedging strategies. Given the size and diversity of AIGLife and Retirement’s overall product portfolio, variable annuity reserves are a relatively small portion of its totalreserves compared to others in this market. As a result of a broad distribution network and a more favorablecompetitive environment, AIG Life and Retirement expects variable annuity sales to remain strong for 2013.Increase Life Insurance In force..............................................................................................................................................................................................AIG Life and Retirement’s strategic focus related to life insurance and other mortality-based products includesdisciplined underwriting, active expense management and product innovation. AIG Life and Retirement’s distribution..................................................................................................................................................................................................................................AIG 2012 Form 10-K 65
ITEM 7 / EXECUTIVE SUMMARY.....................................................................................................................................................................................strategy is to grow new sales by strengthening the core retail independent and career agent distributor channels andexpanding its market presence through the development of innovative life insurance offerings based on consumerfocused research to drive superior, differentiated product solutions. In addition, AIG Life and Retirement is enhancingits service and technology platform through the consolidation of its life operations and administrative systems, whichis expected to result in a more efficient, cost-competitive and agile operating model.Enhance Return on Equity..............................................................................................................................................................................................AIG Life and Retirement expects to leverage its streamlined legal entity structure to enhance financial strength anddurability capital efficiency and ease of doing business. AIG Life and Retirement completed the merger of six lifeinsurance operating legal entities into American General Life Insurance Company effective December 31, 2012. Thismerger will allow for more effective capital and dividend planning while creating operating efficiencies and making iteasier for producers and customers to do business with AIG Life and Retirement. AIG Life and Retirement also plansto improve operational efficiencies and service through investments in technology, more productive use of existingresources and further use of lower-cost operations centers.Our Investment Strategy for AIG Life and Retirement..............................................................................................................................................................................................AIG Life and Retirement places primary emphasis on investments in fixed maturity securities issued by corporations,municipalities and other governmental agencies, structured securities collateralized by, among others, residential andcommercial real estate, and to a lesser extent, commercial mortgage loans, private equity, hedge funds, otheralternative investments, and common and preferred stock.Our fundamental investment strategy is to maintain primarily a diversified, high quality portfolio of fixed maturitysecurities and, as nearly as is practicable, to match the duration characteristics of our liabilities with assets ofcomparable duration. In addition, AIG Life and Retirement enhances its returns through investments in a diversifiedportfolio of private equity funds, hedge funds and affordable housing partnerships. Although returns on theseinvestments are more volatile than our base fixed maturity securities portfolio, they have historically achieved highertotal returns and yields than the base portfolio yields. AIG Life and Retirement’s expectation is that these alternativeinvestments will continue to outperform the base portfolio yields over the long-term.Opportunistic investments in structured securities and other yield enhancement opportunities continue to be madewith the objective of increasing net investment income. Overall base yields increased in 2012 due to the reinvestmentof significant amounts of cash and short term investments during 2011. However, base yields have been declining inthe latter half of 2012 as investment purchases were made at yields lower than the weighted average yield of theexisting portfolio. During prolonged periods of low or declining interest rates, AIG Life and Retirement has to investnet flows and reinvest interest and principal payments from its investment portfolio in lower yielding securities.See Segment Results – AIG Life and Retirement Operations and Note 7 to the Consolidated Financial Statements foradditional information.Other Operations..............................................................................................................................................................................................Mortgage Guaranty..............................................................................................................................................................................................The following are expected to continue to affect results for 2013:• Market developments – UGC is a market leader in the mortgageinsurance industry with a differentiated risk-based pricing model that isdesigned to produce high quality new business. The withdrawal ofcertain competitors from the market during 2011 combined with UGC’sinvestment grade rating and risk-based pricing has positioned UGC totake advantage of market opportunities. UGC plans to continue toexecute this strategy during 2013 and to further enhance its marketposition. UGC will continue to review its new business pricing relative tochanges in the market to ensure that the price of coverage iscommensurate with the level of risk being underwritten.Mortgage ge GuarantyaOpportunitiesti• Increase market share throughcompetitor differentiation.• Improve the risk profile of newinsurance written.• Build our market leadershipposition...................................................................................................................................................................................................................................66 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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Page 49 and 50: ITEM 1A / RISK FACTORS.............
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Page 65 and 66: ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / RESULTS OF OPERATIONS.....
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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 2. SUMMARY OF SIGNIFI
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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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 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 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 16. CONTINGENCIES, CO
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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 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 26. QUARTERLY FINANCI
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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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