AIG 2011 Annual Report Download - page 220

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
American International Group, Inc. (AIG) is a leading international insurance organization serving customers in
more than 130 countries. AIG companies serve commercial, institutional and individual customers through one of
the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading
providers of life insurance and retirement services in the United States.
Since September 2008, AIG has been working to protect and enhance the value of its key businesses, execute an
orderly asset disposition plan, and position itself for the future. AIG has entered into several important
transactions and relationships with the Federal Reserve Bank of New York (FRBNY), the AIG Credit Facility
Trust (together with its trustees, acting in their capacity as trustees, the Trust) and the United States Department
of the Treasury (the Department of the Treasury) during this period. As a result of the series of integrated
transactions to recapitalize AIG, on January 14, 2011, the Department of the Treasury became the holder of
92 percent of AIG’s outstanding common stock, par value $2.50 per share (AIG Common Stock). In May 2011,
AIG completed a registered public offering of AIG Common Stock (the May Common Stock Offering), which
resulted in a reduction of the Department of the Treasury’s ownership to approximately 77 percent. See Significant
Events below for further information.
The consolidated financial statements include the accounts of AIG, its controlled subsidiaries (through a greater
than 50 percent ownership of voting rights of a voting interest entity), and variable interest entities (VIEs) in
which AIG is the primary beneficiary. Entities that AIG does not consolidate, but in which it holds 20 percent to
50 percent of the voting rights or otherwise has the ability to exercise significant influence, are accounted for
under the equity method unless AIG has elected the fair value option. On October 29, 2010, AIG completed an
initial public offering (IPO) of 8.08 billion ordinary shares of AIA Group Limited (AIA), upon the completion of
which AIG owned approximately 33 percent of AIA’s outstanding shares. AIG accounts for its investment in AIA
under the fair value option with gains and losses recorded in Net investment income.
Certain of AIG’s foreign subsidiaries included in the consolidated financial statements report on different fiscal
period bases, in most cases ending November 30. The effect on AIG’s consolidated financial condition and results
of operations of all material events occurring at these subsidiaries between the fiscal year end and December 31
for all periods presented has been recorded.
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP). All material intercompany accounts and transactions have been
eliminated.
The preparation of financial statements requires the application of accounting policies that often involve a
significant degree of judgment. AIG considers the accounting policies that are most dependent on the application
of estimates and assumptions to be those relating to items considered by management in the determination of:
• estimates with respect to income taxes, including the recoverability of the deferred tax assets and the
predictability of future tax planning strategies and operating profitability of the character necessary for their
realization;
• recoverability of assets, including deferred policy acquisition costs (DAC), flight equipment, and reinsurance;
• insurance liabilities, including general insurance unpaid claims and claims adjustment expenses and future
policy benefits for life and accident and health contracts;
• estimated gross profits for investment-oriented products;
• impairment charges, including other-than-temporary impairments on financial instruments and goodwill
impairments;
206 AIG 2011 Form 10-K
1. BASIS OF PRESENTATION AND SIGNIFICANT EVENTS
USE OF ESTIMATES