AIG 2011 Annual Report Download - page 132

Global Capital Markets Operations
2011 and 2010 Comparison
Global Capital Markets reported a pre-tax loss in 2011 compared to pre-tax income in 2010 primarily due to a
decrease in unrealized market valuation gains related to the AIGFP super senior credit default swap (CDS)
portfolio and losses in 2011 compared to gains in 2010 on the AIGFP CDS contracts referencing single-name
exposures written on corporate, index and asset-backed credits, which are not included in the AIGFP super senior
CDS portfolio. These items were partially offset by improvements related to the net effect of changes in credit
spreads on the credit valuation adjustments of AIGFP’s derivative assets and liabilities. During 2011, AIGFP
recorded an unrealized market valuation gain on its super senior CDS portfolio of $339 million compared to an
unrealized market valuation gain of $598 million in 2010. The reduction in gains resulted primarily from CDS
transactions written on multi-sector CDOs driven by price declines of the underlying assets. AIGFP also
recognized a loss of $23 million in 2011 on CDS contracts referencing single-name exposures as compared to a
gain of $149 million in 2010 due to a decline in market conditions. During 2011, AIGFP recognized a net credit
valuation adjustment loss on derivative assets and liabilities of $53 million compared to a net credit valuation
adjustment loss of $200 million in 2010 due to a narrowing of corporate spreads.
2010 and 2009 Comparison
Global Capital Markets reported lower pre-tax income in 2010 compared to 2009 primarily due to lower
unrealized market valuation gains related to the AIGFP super senior CDS portfolio and the significant decrease
related to the net effect of changes in credit spreads on the credit valuation adjustments of AIGFP’s derivative
assets and liabilities, partially offset by lower costs related to the continued wind-down of AIGFP’s businesses and
portfolios. During 2010, AIGFP recorded an unrealized market valuation gain on its super senior CDS portfolio of
$598 million compared to an unrealized market valuation gain of $1.4 billion in 2009. During 2010, AIGFP
recognized a net credit valuation adjustment loss on derivative assets and liabilities of $200 million compared to a
net credit valuation adjustment gain of $775 million in 2009.
See Critical Accounting Estimates — Level 3 Assets and Liabilities herein for a discussion of AIGFP’s super
senior CDS portfolio.
Direct Investment Book Results
2011 and 2010 Comparison
The Direct Investment book pre-tax income decreased in 2011 compared to 2010 due to lower net gains on
credit valuation adjustments on non-derivative assets and liabilities accounted for under the fair value option and
lower interest income in the MIP due to approximately $4.9 billion in sales of investments during the fourth
quarter of 2010 and the first quarter of 2011 to increase liquidity. These declines were partially offset by
significantly lower other-than-temporary impairments on fixed maturity securities.
2010 and 2009 Comparison
The Direct Investment book pre-tax income decreased in 2010 compared to 2009 due to lower net gains on
credit valuation adjustments on non-derivative assets and liabilities accounted for under the fair value option,
partially offset by significantly lower other-than-temporary impairments on fixed maturity securities.
118 AIG 2011 Form 10-K