AIG 2011 Annual Report Download - page 135

slightly narrowed spreads. The structured securities portfolio accounted for more than half of the positive change
in 2010, as RMBS and CMBS continued to recover from the distressed pricing levels of the financial crisis. The
increase in 2010 also includes $578 million of appreciation in available-for-sale equities held by Chartis.
The $33.2 billion in unrealized appreciation for 2009 reflects $30.2 billion and $2.9 billion in appreciation in
bonds and equities available for sale, respectively, related to the continued recovery of the global financial markets
in 2009, as investors returned to equity and bond markets.
Change in Deferred Acquisition Costs Adjustment and Other
The decline in deferred acquisition costs in all periods is primarily the result of increases in the unrealized
appreciation of investments supporting interest-sensitive products. The decline since 2009 reflects the divestiture of
multiple life insurance operations, including the sales of Nan Shan, AIG Star and AIG Edison in 2011, the
deconsolidation of AIA in 2010 and sale of ALICO in 2010.
Change in Future Policy Benefits
AIG periodically evaluates the assumptions used to establish its deferred acquisition costs and future policy
benefits. These assumptions may be adjusted based on actual experience and management judgment. Key
assumptions include mortality, morbidity, persistency, maintenance expenses and investment returns.
Primarily as a result of the significant decline in interest rates during the latter half of 2011 and updated
assumptions for mortality experience, AIG recorded additional future policy benefits through other comprehensive
income. This change in future policy benefits assumes the securities underlying certain traditional long-duration
products had been sold at their stated aggregate fair value and reinvested at current yields.
Change in Foreign Currency Translation Adjustments
Increases in foreign currency translation adjustments for all periods primarily reflect the weakening of the U.S.
dollar in relation to foreign currencies. The decline in foreign currency translation adjustments over the three-year
period reflects the divestiture of multiple foreign operations, including the sales of Nan Shan, AIG Star and AIG
Edison in 2011, the deconsolidation of AIA in 2010 and the sale of ALICO in 2010.
Change in Net Derivative Gains (Losses) Arising from Cash Flow Hedging Activities
The decline in 2011 compared to 2010 primarily reflects the gradual wind-down of the cash flow hedge portfolio
in 2011, 2010 and 2009, partially offset by a decline in the interest rate environment.
Retirement Plan Liabilities Adjustment
The decrease in 2011 was primarily due to the announced redesign and resulting remeasurement of the AIG
Retirement and AIG Excess Plans, which will be converted to cash balance plans effective April 1, 2012. AIG
recognized a $590 million pre-tax reduction to Accumulated other comprehensive income in connection with the
remeasurement at September 30, 2011, primarily due to a decrease in the discount rate since December 31, 2010.
This decrease in Accumulated other comprehensive income was partially offset by the effect of the increase in the
discount rate in the fourth quarter in connection with the year end remeasurement.
In 2010 and 2009, the effect of declining discount rates on pension benefit obligations was offset by the
appreciation of investments held by the respective plans.
See Note 20 to the Consolidated Financial Statements for further discussion.
Divestitures and Deconsolidations
The change attributable to divestitures and deconsolidations in every period reflects the derecognition of all
items in Accumulated other comprehensive income (loss) at the point of sale/deconsolidation for all entities,
AIG 2011 Form 10-K 121