American International Group - Case Study Example

The major business line of American International Group are functions, supports, services, and operations. The failure of these lines would result on the huge material loss of profit, revenue and franchise value for the organization as a whole. Therefore, American International Group prepared a resolution plan and for that purpose 22 companies as material entities were identified, from which one is AIG Markets, Inc; and the type of this entity is derivatives intermediaries. Fear of revenue, profit and franchise value loss motivated organization to be a part of derivatives market.

American international group utilizes derivatives as a part of the company’s risk management framework. The major purpose of the company in entering in a derivative market is to mitigate the risk either by providing a profile of the investment or by hedging exposure. American international group is no longer engage in activities of derivatives that contributed materially to concerns throughout the financial crisis or also not act as a market for the contracts of derivatives. The exposure of derivatives and derivative portfolio is examined on a regular basis in order to avoid any risk and fulfill the market standards of investment.

Interest rate derivatives are used to deal with interest rate risk that is associated with insurance assets and liabilities. The company is involved in making investments in hybrid securities in order to generate more income. Therefore, company is involved in such derivative activities that are associated with investment operations for risk mitigation (AIG, 2014). After the financial crisis of 2008 the insurance industry like other industries faced backslash, this crisis and other infamous events proven as threat for the economy of the country.

Many of American people rely on financial services for ability to get more mortgages, for investment opportunities and retirement savings. When ethical analysis taken into consideration, and the