AIG 2011 Annual Report Download - page 228

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Other income from the operations of the Direct Investment book and AIG’s Other Operations category consists
of the following:
• Change in fair value relating to financial assets and liabilities for which the fair value option has been
elected.
• Interest income and related expenses, including amortization of premiums and accretion of discounts on
bonds with changes in the timing and the amount of expected principal and interest cash flows reflected in
the yield, as applicable.
• Dividend income from common and preferred stock and distributions from other investments.
• Changes in the fair value of trading securities and spot commodities sold but not yet purchased, futures,
hybrid financial instruments, securities purchased under agreements to resell, and securities sold under
agreements to repurchase for which the fair value option was elected.
• Realized capital gains and losses from the sales of available for sale securities and investments in private
equity funds and hedge funds and other investments.
• Income earned on real estate based investments and related losses from property level impairments and
financing costs.
• Exchange gains and losses resulting from foreign currency transactions.
• Reductions to the cost basis of securities available for sale for other-than-temporary impairments.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• Gains and losses recognized in earnings on derivatives for the effective portion and their related hedged
items.
Policyholder benefits and claims incurred: Incurred claims and claims adjustment expenses for short duration
insurance contracts consist of the estimated ultimate cost of settling claims incurred within the reporting period,
including incurred but not reported claims, plus the changes in estimates of current and prior period losses
resulting from the continuous review process, which are charged to income as incurred. Benefits for long duration
insurance contracts consist of benefits paid and changes in future policy benefits liabilities. Benefits for universal
life and investment-type products primarily consist of interest credited to policy account balances and benefit
payments made in excess of policy account balances except for certain contracts for which the fair value option
was elected, for which benefits represent the entire change in fair value (including derivative gains and losses on
related economic hedges).
Interest credited to policyholder account balances: Represents interest on account-value-based policyholder
deposits consisting of amounts credited on non-equity-indexed account values, accretion to the host contract for
equity indexed products, and net amortization of sales inducements.
Amortization of deferred policy acquisition costs: Amortization of deferred policy acquisition costs represents
amortization of short-duration and long-duration deferred policy acquisition costs:
• Short-duration policies: Policy acquisition costs are deferred and amortized over the period in which the
related premiums written are earned, generally 12 months.
• Long-duration policies: Policy acquisition costs for participating life, traditional life and accident and health
insurance products are generally deferred and amortized, with interest, over the premium paying period.
Policy acquisition costs and policy issuance costs related to universal life, and investment-type products
(investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of
estimated gross profits to be realized over the estimated lives of the contracts.
214 AIG 2011 Form 10-K