AIG 2011 Annual Report Download - page 244

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
debt restructuring activities in interim and annual periods beginning on July 1, 2011. See Accounting Standards
Adopted During 2011 herein for further discussion.
Accounting Standards Adopted During 2009
Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own
Stock
In June 2008, the FASB issued an accounting standard that addresses how to determine whether a financial
instrument (or embedded feature) is indexed to an entity’s own stock and therefore may not be accounted for as a
derivative instrument. AIG adopted the standard on January 1, 2009, which resulted in a $15 million cumulative
effect adjustment to opening Accumulated deficit and a $91 million reduction in Additional paid-in capital.
Recognition and Presentation of Other-Than-Temporary Impairments
In April 2009, the FASB issued an accounting standard that requires a company to recognize the credit
component of an other-than-temporary impairment of a fixed maturity security in earnings and the non-credit
component in accumulated other comprehensive income when the company does not intend to sell the security or
it is more likely than not that the company will not be required to sell the security prior to recovery. The standard
also changed the threshold for determining when an other-than-temporary impairment has occurred on a fixed
maturity security with respect to intent and ability to hold until recovery. The standard does not change the
recognition of other-than-temporary impairment for equity securities. The standard requires additional disclosures
in interim and annual reporting periods for fixed maturity and equity securities. See Note 7 herein for the
expanded disclosures.
AIG adopted the standard on April 1, 2009 and recorded an after-tax cumulative effect adjustment to increase
AIG shareholders’ equity by $2.5 billion as of April 1, 2009, consisting of a decrease in Accumulated deficit of
$11.8 billion and an increase to Accumulated other comprehensive loss of $9.3 billion, net of tax. The net increase
in AIG’s shareholders’ equity was due to a reversal of a portion of the deferred tax asset valuation allowance for
certain previous non-credit impairment charges directly attributable to the change in accounting principle (see
Note 22 herein). The cumulative effect adjustment resulted in an increase of approximately $16 billion in the
amortized cost of fixed maturity securities, which has the effect of significantly reducing the accretion of
investment income over the remaining life of the underlying securities, beginning in the second quarter of 2009.
The effect of the reduced investment income will be offset, in part, by a decrease in the amortization of deferred
policy acquisition costs (DAC) and sales inducements assets (SIA).
The standard reduced the level of other-than-temporary impairment charges recorded in earnings for fixed
maturity securities due to the following required changes in AIG’s accounting policy for other-than-temporary
impairments (see Note 7 herein for a more detailed discussion of the changes in policy):
• Impairment charges for non-credit (e.g., severity) losses are no longer recognized;
• The amortized cost basis of credit impaired securities will be written down through a charge to earnings to
the present value of expected cash flows, rather than to fair value; and
• For fixed maturity securities that are not deemed to be credit-impaired, AIG is no longer required to assert
that it has the intent and ability to hold such securities to recovery to avoid an other-than-temporary
impairment charge. Instead, an impairment charge through earnings is required only when AIG has the
intent to sell the fixed maturity security or it is more likely than not that AIG will be required to sell the
security prior to recovery.
230 AIG 2011 Form 10-K