AIG 2011 Annual Report Download - page 237

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exchange for fixed payments over a fixed determinable period of time with a life contingency feature. Structured
settlement liabilities are presented on a discounted basis because the settled claims are fixed and determinable.
Policyholder contract deposits also include AIG’s liability for (a) certain guarantee benefits accounted for as
embedded derivatives at fair value, (b) annuities issued in a structured settlement arrangement with no life
contingency and (c) certain contracts AIG elected to account for at fair value.
See Note 6 herein for additional fair value information.
(n) Other policyholder funds: Other policyholder funds are reported at cost and include any policyholder
funds on deposit that encompass premium deposits and similar items.
(o) Income taxes: Deferred tax assets and liabilities are recorded for the effects of temporary differences
between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. AIG
assesses its ability to realize deferred tax assets considering all available evidence, including the earnings history,
the timing, character and amount of future earnings potential, the reversal of taxable temporary differences and
prudent and feasible tax planning strategies available to the legal entities when recognizing deferred tax assets. See
Note 22 herein for a further discussion of income taxes.
(p) Other liabilities: Other liabilities consist of other funds on deposit, other payables, securities sold under
agreements to repurchase and securities and spot commodities sold but not yet purchased. AIG has entered into
certain insurance and reinsurance contracts, primarily in its Chartis segment, that do not contain sufficient
insurance risk to be accounted for as insurance or reinsurance. Accordingly, the premiums received on such
contracts, after deduction for certain related expenses, are recorded as deposits within Other liabilities in the
Consolidated Balance Sheet. Net proceeds of these deposits are invested and generate Net investment income. As
amounts are paid, consistent with the underlying contracts, the deposit liability is reduced. Also included in Other
liabilities are trade payables for the Direct Investment book and AIGFP, which include option premiums received
and payables to counterparties that relate to unrealized gains and losses on futures, forwards, and options and
balances due to clearing brokers and exchanges. Trade payables for Global Capital Markets include cash collateral
received from derivative counterparties that is not contractually nettable against derivative assets.
Securities and spot commodities sold but not yet purchased represent sales of securities and spot commodities
not owned at the time of sale. The obligations arising from such transactions are recorded on a trade-date basis
and carried at fair value. Fair values of securities sold but not yet purchased are based on current market prices.
Fair values of spot commodities sold but not yet purchased are based on current market prices of reference spot
futures contracts traded on exchanges.
Liabilities arising from securities sold under agreements to repurchase securities (repurchase agreements) (other
than those entered into by AIGFP) are generally treated as collateralized borrowing transactions and are recorded
at their contracted repurchase amounts plus accrued interest. Agreements to repurchase securities entered into by
AIGFP are carried at fair value based on market-observable interest rates. As of December 31, 2011, the fair
value of repurchase agreements accounted for as collateralized borrowing transactions was $563 million.
When AIG does not obtain cash proceeds sufficient to fund substantially all of the cost of purchasing identical
replacement securities during the term of the contract (generally less than 90 percent of the security value), AIG
accounts for the transaction as a sale of the security and reports the obligation to repurchase the security as a
derivative contract that is recognized at fair value through earnings. When securities carried in the available for
sale category are sold, AIG records a gain or loss in income. When securities accounted for at fair value are
considered sold, no additional gain or loss is recognized.
The fair value of securities transferred under repurchase agreements accounted for as sales was $2.1 billion and
$2.7 billion at December 31, 2011 and December 31, 2010, respectively.
AIG 2011 Form 10-K 223