AIG 2011 Annual Report Download - page 155

investment income. The amount of such purchases totaled approximately $11 billion. The 2011 purchases of
structured securities largely replaced similar assets sold on behalf of SunAmerica in 2010. In the case of
Chartis, these purchases of structured securities were part of a deliberate diversification of the asset
portfolio of the domestic property and casualty companies.
• Base yields at Chartis were higher in 2011 compared to 2010 due to redeployment activities and the increase
due to investments in structured securities. SunAmerica base yields were lower as new money rates were
generally lower than on maturing or called investments; however, the impact was largely offset by the effect
of cash redeployment.
• A strategic decision was made to reduce the tax-exempt municipal bond portfolio exposure, resulting in an
approximate decrease of $12 billion in the carrying value (30 percent) of this asset class during the course of
the year.
Net Investment Income
• Income on private equity and hedge funds was approximately $1.3 billion (7 percent yield) in 2011,
compared to $1.7 billion (9 percent yield) in 2010 which directionally followed the equity market trends as
$1.2 billion of income was recognized in the first half of the year. Private equity funds drove the positive
results in 2011 as hedge funds were only marginally positive for the year. In 2010, hedge funds and private
equity funds each yielded approximately 9 percent.
• The fair value change for the Maiden Lane Interests turned negative in 2011 due to widening spread trends
and negative changes in future cash flow projections. The fair value change for 2011 was a loss of
$0.6 billion compared to a gain of $2.3 billion for 2010.
• The fair value of AIA ordinary shares increased by $1.3 billion as the stock price appreciated 11 percent in
2011 compared to a decrease in 2010 which resulted in a loss of $0.6 billion in 2010. The 11 percent
appreciation on the stock compared favorably to the 20 percent decline experienced in the Hang Seng Index.
Unrealized and Realized Gains and Losses
• Lower yields across most asset classes resulted in an increase of approximately $5.5 billion of unrealized
appreciation on AIG’s available for sale securities in 2011. This was slightly lower than the 2010 period. 2010
benefited from improving economic conditions in the post recession period.
• Net realized gains on the sales of fixed maturity securities and equities totaled $2.1 billion in 2011 compared
to $2.6 billion in 2010. Current year results consist primarily of gains on the sales of tax exempt municipal
securities and corporate debt.
• Other-than-temporary impairments were $1.3 billion in 2011 compared to $3.0 billion in 2010, primarily
related to impairments recorded on the mortgage backed, asset backed and collateralized portfolio in both
periods.
The credit ratings in the table below and in subsequent tables reflect for AIG’s fixed maturity investments: (a) a
composite of the ratings of the three major rating agencies or where agency ratings are not available, the rating
assigned by the National Association of Insurance Commissioners (NAIC) Securities Valuations Office (SVO)
(over 97 percent of total fixed maturity investments), or (b) AIG’s equivalent internal ratings where these
investments have not been rated by any of the major rating agencies or the NAIC. AIG changed to a composite
ratings methodology during 2011 in order to reduce reliance on any single rating agency, and ratings information
for prior periods presented has been conformed to this method. The ‘‘Non-rated’’ category in those tables consists
of fixed maturity investments that have not been rated by any of the major rating agencies, the NAIC or AIG, and
represents primarily AIG’s interest in ML III.
See Enterprise Risk Management herein for a discussion of credit risks associated with Investments.
AIG 2011 Form 10-K 141