AIG 2011 Annual Report Download - page 199

The following table summarizes the sensitivity of changes in certain assumptions in the amortization of DAC/SIA,
guaranteed benefits reserve and unearned revenue liability and the related hypothetical impact on year-end 2011
balances. The effect of changes in the equity markets, volatility and interest rates primarily impacts individual
variable annuities (SunAmerica Retirement Markets) and group retirement products (VALIC). The effect of
changes in mortality primarily impacts the universal life insurance business.
Guaranteed Unearned
December 31, 2011 Benefits Revenue Net Pre-Tax
(in millions) DAC/SIA Reserve Liability Earnings
Assumptions:
Equity Return(a)
Effect of an increase by 1% $ 91 $ (20) $ NA $ 111
Effect of a decrease by 1% (98) 66 NA (164)
Volatility(b)
Effect of an increase by 1% (1) 12 NA (13)
Effect of a decrease by 1% 1 (12) NA 13
Interest Rate(c)
Effect of an increase by 10 basis points 7 (16) NA 23
Effect of a decrease by 10 basis points (7) 16 NA (23)
Mortality
Effect of an increase by 1% (20) 12 (6) (26)
Effect of a decrease by 1% 20 (12) 6 26
(a) Represents the net impact of 1 percent increase or decrease in long-term equity returns for GMDB and GMIB reserves and negligible net impact
of 1 percent increase or decrease in the S&P 500 index for living benefit reserves.
(b) Represents the net impact of 1 percentage point increase or decrease in implied volatility.
(c) Represents the net impact of a 10 basis point parallel shift in the yield curve. Does not represent interest rate spread compression.
The analysis of DAC, guaranteed benefits reserve and unearned revenue liability is a dynamic process that
considers all relevant factors and assumptions described above. Each of the factors set forth above is estimated
individually, without consideration of any correlation among the key assumptions. An assessment of sensitivity
associated with changes in any single assumption would not necessarily be an indicator of future results.
At each balance sheet date, AIG evaluates its available for sale securities holdings with unrealized losses.
See the discussion in Note 7 to the Consolidated Financial Statements for additional information on the
methodology and significant inputs, by security type, that AIG uses to determine the amount of
other-than-temporary impairment on fixed maturity and equity securities.
Goodwill is the excess of the cost of an acquired business over the fair value of the identifiable net assets of the
acquired business. Goodwill is tested for impairment annually, or more frequently if circumstances indicate an
impairment may have occurred.
The impairment assessment involves a two-step process in which an initial assessment for potential impairment
is performed and, if potential impairment is present, the amount of impairment is measured (if any) and recorded.
Impairment is tested at the reporting unit level.
Management initially assesses the potential for impairment by estimating the fair value of each of AIG’s
reporting units and comparing the estimated fair values with the carrying amounts of those reporting units,
including allocated goodwill. The estimate of a reporting unit’s fair value may be based on one or a combination
of approaches including market-based earning multiples of the unit’s peer companies, discounted expected future
cash flows, external appraisals or, in the case of reporting units being considered for sale, third-party indications of
AIG 2011 Form 10-K 185
OTHER-THAN-TEMPORARY IMPAIRMENTS ON AVAILABLE FOR SALE
SECURITIES:
GOODWILL IMPAIRMENT: