AIG 2011 Annual Report Download - page 276

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
other intangible assets. AIG uses a variety of techniques to measure the fair value of these assets when
appropriate, as described below:
•Cost and Equity-Method Investments: When AIG determines that the carrying value of these assets may not
be recoverable, AIG records the assets at fair value with the loss recognized in earnings. In such cases, AIG
measures the fair value of these assets using the techniques discussed above in Valuation Methodologies of
Financial Instruments Measured at Fair Value — Other Invested Assets.
•Life Settlement Contracts: AIG measures the fair value of individual life settlement contracts (which are
included in Other invested assets) whenever the carrying value plus the undiscounted future costs that are
expected to be incurred to keep the life settlement contract in force exceed the expected proceeds from the
contract. In those situations, the fair value is determined on a discounted cash flow basis, incorporating
current life expectancy assumptions. The discount rate incorporates current information about market
interest rates, the credit exposure to the insurance company that issued the life settlement contract and
AIG’s estimate of the risk margin an investor in the contracts would require.
•Flight Equipment Primarily Under Operating Leases: AIG evaluates quarterly the need to perform a
recoverability assessment of held for use aircraft considering applicable accounting requirements and
performs this assessment at least annually for all aircraft in the fleet. When AIG determines that the
carrying value of its commercial aircraft may not be recoverable, AIG records the aircraft at fair value with
the loss recognized in earnings. The impairment assessment involves a two-step process in which an initial
assessment for potential impairment is performed whenever events or changes in circumstances indicate an
aircraft’s carrying amount may not be recoverable. If potential impairment is present, undiscounted cash
flows are compared to the carrying value and, in the event of a cash flow shortfall, the amount of
impairment is measured and recorded. AIG measures the fair value of its commercial aircraft using an
income approach based on the present value of all cash flows from existing contractual and projected lease
payments for the period extending to the end of the aircraft’s economic life in its highest and best use
configuration, plus its disposition value based on expectations of a market participant.
•Collateral Securing Foreclosed Loans on Real Estate and Other Fixed Assets: When AIG takes collateral in
connection with foreclosed loans, AIG generally bases its estimate of fair value on the price that would be
received in a current transaction to sell the asset by itself, by reference to observable transactions for similar
assets.
•Goodwill: AIG tests goodwill for impairment annually or more frequently whenever events or changes in
circumstances indicate the carrying amount of goodwill may not be recoverable. When AIG determines that
goodwill may be impaired, AIG uses techniques including market-based earning multiples of peer companies,
discounted expected future cash flows, appraisals, or, in the case of reporting units being considered for sale,
third-party indications of fair value of the reporting unit, if available, to determine the amount of any
impairment.
•Long-Lived Assets: AIG tests its long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. AIG measures
the fair value of long-lived assets based on an in-use premise that considers the same factors used to
estimate the fair value of its real estate and other fixed assets under an in-use premise.
•Businesses Held for Sale: When AIG determines that a business qualifies as held for sale and AIG’s
carrying amount is greater than the expected sale price less cost to sell, AIG records an impairment loss for
the difference.
See Note 2 herein for additional information about how AIG tests various asset classes for impairment.
262 AIG 2011 Form 10-K