AIG 2011 Annual Report Download - page 229

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Aircraft leasing expenses: Aircraft leasing expenses consist of depreciation expense, impairment charges, fair
value adjustments and lease-related charges on aircraft as well as selling, general and administrative expenses and
other expenses incurred by ILFC.
Net (gain) loss on sale of properties and divested businesses: Includes gains or losses from the sales of businesses
that do not qualify as discontinued operations and sales of previously occupied properties.
(b) Held-for-sale and discontinued operations: AIG reports a business as held for sale when management has
approved or received approval to sell the business and is committed to a formal plan, the business is available for
immediate sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year
and certain other specified criteria are met. A business classified as held for sale is recorded at the lower of its
carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its
estimated fair value, a loss is recognized. Depreciation is not recorded on assets of a business classified as held for
sale. Assets and liabilities related to a business classified as held for sale are segregated in the Consolidated
Balance Sheet and major classes are separately disclosed in the notes to the Consolidated Financial Statements
commencing in the period in which the business is classified as held for sale.
AIG reports the results of operations of a business as discontinued operations if the business is classified as
held for sale, the operations and cash flows of the business have been or will be eliminated from the ongoing
operations of AIG as a result of a disposal transaction and AIG will not have any significant continuing
involvement in the operations of the business after the disposal transaction. The results of discontinued operations
are reported in Discontinued Operations in the Consolidated Statement of Operations for current and prior
periods commencing in the period in which the business meets the criteria of a discontinued operation, and
include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.
(c) Investments:
Fixed maturity and equity securities: Bonds held to maturity are carried at amortized cost when AIG has the
ability and positive intent to hold these securities until maturity. When AIG does not have the positive intent to
hold bonds until maturity, these securities are classified as available for sale or as trading and are carried at fair
value. None of AIG’s fixed maturity securities met the criteria for held to maturity classification at December 31,
2011 or 2010.
Fixed maturity and equity securities classified as available for sale or as trading are carried at fair value.
Unrealized gains and losses from available for sale investments in fixed maturity and equity securities are reported
as a separate component of Accumulated other comprehensive income (loss), net of deferred acquisition costs and
deferred income taxes, in Total AIG shareholders’ equity. Realized and unrealized gains and losses from fixed
maturity and equity securities classified as trading are reflected in Net investment income (for insurance
subsidiaries) or Other income (for Direct Investment book). Investments in fixed maturities and equity securities
are recorded on a trade-date basis.
Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield
adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in
certain residential mortgage-backed securities (RMBS), certain commercial mortgage-backed securities (CMBS)
and certain collateralized debt obligations/asset backed securities (CDO/ABS), (collectively, structured securities),
recognized yields are updated based on current information regarding the timing and amount of expected
undiscounted future cash flows. For high credit-quality structured securities, effective yields are recalculated based
on actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the
amount that would have existed had the new effective yield been applied since acquisition with a corresponding
charge or credit to net investment income. For structured securities that are not high credit-quality, effective yields
are recalculated and adjusted prospectively based on changes in expected undiscounted future cash flows. For
purchased credit impaired (PCI) securities, at acquisition, the difference between the undiscounted expected
AIG 2011 Form 10-K 215