AIG 2011 Annual Report Download - page 235

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 earnings 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
fair value, if available. Management considers one or more of these estimates when determining the fair value of a
reporting unit to be used in the impairment test.
If the estimated fair value of a reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying
value of a reporting unit exceeds its estimated fair value, goodwill associated with that reporting unit potentially is
impaired. The amount of impairment, if any, is measured as the excess of the carrying value of the goodwill over
the implied fair value of the goodwill. The implied fair value of the goodwill is measured as the excess of the fair
value of the reporting unit over the amounts that would be assigned to the reporting unit’s assets and liabilities in
a hypothetical business combination. An impairment charge is recognized in earnings to the extent of the excess.
Chartis manages its assets on an aggregate basis and does not allocate its assets, other than goodwill, between its
operating segments. Therefore, the carrying value of the reporting units was determined by allocating the carrying
value of Chartis to those units based upon an internal model.
During the third quarter of 2011, Chartis finalized its reorganization, operating design and related segment
reporting changes. In connection with this reorganization, total goodwill of $1.4 billion was allocated between
Commercial Insurance and Consumer Insurance based on their relative fair values as of September 30, 2011.
Management tested the allocated goodwill for impairment and determined that the fair values of the Commercial
Insurance and Consumer Insurance reporting units exceeded their carrying values at both September 30, 2011 and
December 31, 2011 and therefore the goodwill of these reporting units was considered not impaired.
During 2010, AIG had performed goodwill impairment tests at March 31, June 30 and September 30, in
connection with the announced sales of ALICO, AIG Star and AIG Edison and again at December 31, 2010.
During 2010, AIG determined that the fair value of ALICO was less than its carrying value. Based on the
results of the goodwill impairment test, AIG determined that all of the goodwill allocated to ALICO should be
impaired and, accordingly, recognized a goodwill impairment charge of $3.3 billion.
In connection with the announced sale of AIG Star and AIG Edison (the Reporting Unit) in 2010 and
management’s determination that the Reporting Unit met the held-for-sale criteria, management tested the
$1.3 billion of goodwill of the Reporting Unit for impairment. AIG estimated the fair value of the Reporting Unit
based on the consideration to be received pursuant to the agreement with Prudential Financial Inc. and
determined the fair value to be less than its carrying value. Based on the results of the goodwill impairment test,
AIG determined that all of the goodwill allocated to the Reporting Unit should be impaired and, accordingly,
recognized a goodwill impairment charge of $1.3 billion in the third quarter of 2010.
At December 31, 2010, AIG performed its annual goodwill impairment test. Based on the results of the
goodwill impairment test, AIG concluded that the remaining goodwill was not impaired.
AIG 2011 Form 10-K 221