AIG 2011 Annual Report Download - page 159

assessing the creditworthiness of counterparties periodically. SunAmerica generally uses ISDA Master Agreements
and Credit Support Annexes (CSAs) with bilateral collateral provisions to reduce counterparty credit exposures.
Other Operations
Global Capital Markets
The active wind-down of the AIGFP derivatives portfolio was completed by the end of the second quarter of
2011. AIGFP derivative transactions are carried at fair value. AIGFP reduces its market risk exposure through
similarly valued offsetting transactions including swaps, trading securities, options, forwards and futures. For
discussion on the use of derivatives by AIGFP, see Note 12 to the Consolidated Financial Statements.
Direct Investment book
The DIB, which includes the Matched Investment Program and non-derivative assets and liabilities of AIGFP,
was originally created to generate spread income from investments yielding greater returns than the related cost of
funds. The DIB’s investment portfolio, which has a carrying value on the Consolidated Balance Sheet of
$27.5 billion, consists primarily of cash, short term investments, fixed maturity securities issued by U.S. government
and government sponsored entities, mortgage and asset backed securities and to a lesser extent bank loans,
mortgage loans and equity securities. Although the DIB is in wind-down, the investment strategy remains focused
on maximizing the value of the portfolio while producing sufficient liquidity to meet the obligations of the DIB.
The management of the DIB investment portfolio seeks to minimize interest rate, currency, commodity and equity
risk associated with the investment strategy by utilizing derivatives. The use of these derivatives does not qualify
for hedge accounting treatment; although, management believes these provide appropriate economic hedges of the
underlying risk within the investment portfolio.
Further, management seeks to maximize the value of the investment portfolio through an ongoing evaluation of
each position in determining whether to hold, sell or finance the investments in furtherance of the strategy, which
includes both immediate and long term liquidity needs.
The investments of the DIB are all generally carried at fair value with the exception of loans and notes
receivable held by MIP of $1.1 billion, which are carried at amortized cost and evaluated for impairment each
period. The investments of AIGFP are generally subject to the fair value option with all changes in fair value
recorded in earnings. The investments within the MIP are generally available-for-sale securities, where changes in
fair value are presented in unrealized appreciation (depreciation) of investments, net of taxes, as a component of
Accumulated other comprehensive income which are subject to impairment review each period.
AIG 2011 Form 10-K 145