AIG 2011 Annual Report Download - page 171

In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale
fixed maturity securities that is not foreign exchange related, AIG generally prospectively accretes into earnings
the difference between the new amortized cost and the expected undiscounted recovery value over the remaining
expected holding period of the security. The amounts of accretion recognized in earnings for 2011, 2010 and 2009
were $542 million, $401 million and $735 million, respectively. For a discussion of recent accounting standards
affecting fair values and other-than-temporary impairments, see Notes 2 and 7 to the Consolidated Financial
Statements.
An aging of the pre-tax unrealized losses of fixed maturity and equity securities, distributed as a percentage of
cost relative to unrealized loss (the extent by which the fair value is less than amortized cost or cost), including
the number of respective items was as follows:
December 31, 2011 Less Than or Equal Greater Than 20% Greater Than 50%
to 20% of Cost(b) to 50% of Cost(b) of Cost(b) Total
Aging(a) Unrealized Unrealized Unrealized Unrealized
(dollars in millions) Cost(c) Loss Items(e) Cost(c) Loss Items(e) Cost(c) Loss Items(e) Cost(c) Loss(d) Items(e)
Investment grade bonds
0-6 months $ 23,689 $ 669 3,360 $ 180 $ 43 18 $ - $ - - $ 23,869 $ 712 3,378
7-11 months 3,183 209 596 184 49 22 - - - 3,367 258 618
12 months or more 8,187 626 904 2,275 636 246 70 40 24 10,532 1,302 1,174
Total $ 35,059 $ 1,504 4,860 $ 2,639 $ 728 286 $ 70 $ 40 24 $ 37,768 $ 2,272 5,170
Below investment grade bonds
0-6 months $ 6,862 $ 328 1,112 $ 407 $ 107 66 $ 45 $ 24 24 $ 7,314 $ 459 1,202
7-11 months 2,832 274 261 981 252 78 - - - 3,813 526 339
12 months or more 3,493 313 476 2,760 916 282 724 424 113 6,977 1,653 871
Total $ 13,187 $ 915 1,849 $ 4,148 $ 1,275 426 $ 769 $ 448 137 $ 18,104 $ 2,638 2,412
Total bonds
0-6 months $ 30,551 $ 997 4,472 $ 587 $ 150 84 $ 45 $ 24 24 $ 31,183 $ 1,171 4,580
7-11 months 6,015 483 857 1,165 301 100 - - - 7,180 784 957
12 months or more 11,680 939 1,380 5,035 1,552 528 794 464 137 17,509 2,955 2,045
Total(e) $ 48,246 $ 2,419 6,709 $ 6,787 $ 2,003 712 $ 839 $ 488 161 $ 55,872 $ 4,910 7,582
Equity securities
0-11 months $ 523 $ 50 193 $ 194 $ 51 111 $ - $ - - $ 717 $ 101 304
12 months or more - - - - - - - - - - - -
Total $ 523 $ 50 193 $ 194 $ 51 111 $ - $ - - $ 717 $ 101 304
(a) Represents the number of consecutive months that fair value has been less than cost by any amount.
(b) Represents the percentage by which fair value is less than cost at December 31, 2011.
(c) For bonds, represents amortized cost.
(d) The effect on Net income of unrealized losses after taxes will be mitigated upon realization because certain realized losses will result in current
decreases in the amortization of certain DAC.
(e) Item count is by CUSIP by subsidiary.
For 2011, net unrealized gains related to fixed maturity and equity securities increased by $5.4 billion primarily
resulting from the narrowing of credit spreads.
As of December 31, 2011, the majority of AIG’s fixed maturity investments in an unrealized loss position of
more than 50 percent for 12 months or more consisted of the unrealized loss of $464 million related to CMBS
and RMBS securities originally rated investment grade that are floating rate or that have low fixed coupons
relative to current market yields. A total of 24 securities with an amortized cost of $70 million and a net
unrealized loss of $40 million are still investment grade. As part of its credit evaluation procedures applied to
these and other securities, AIG considers the nature of both the specific securities and the market conditions for
those securities. For most security types supported by real estate-related assets, current market yields continue to
be higher than the yields were at the respective issuance dates of the securities. This is largely due to investors
demanding additional yield premium for securities whose performance is closely linked to the commercial and
residential real estate sectors. In addition, for floating rate securities, persistently low LIBOR levels continue to
make these securities less attractive.
AIG 2011 Form 10-K 157