Bring on tomorrow - AIG.com

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