AIG 2011 Annual Report Download - page 281

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) At December 31, 2011 and 2010, bonds available for sale held by AIG that were below investment grade or not rated totaled $24.2 billion and
$18.6 billion, respectively.
(c) Represents private equity and hedge fund investments carried at fair value for which unrealized gains and losses are required to be recognized in
other comprehensive income.
(d) Excludes $80.5 billion of available for sale securities at fair value from businesses held for sale at December 31, 2010. Net unrealized gain
attributable to businesses held for sale totaled $604 million at December 31, 2010. See Note 4 herein.
During 2011, Chartis entered into financing transactions using municipal bonds to support statutory capital by
generating taxable income. In these transactions, certain available for sale high grade municipal bonds were loaned
to counterparties, primarily commercial banks and brokerage firms, who receive the tax-exempt income from the
bonds. In return, the counterparties are required to pay Chartis an income stream equal to the bond coupon of
the loaned securities, plus a fee. To secure their borrowing of the securities, counterparties are required to post
liquid collateral (such as high quality fixed maturity securities and cash) equal to at least 102 percent of the fair
value of the loaned securities to third-party custodians for Chartis’ benefit in the event of default by the
counterparties. The collateral is maintained in a third-party custody account and is adjusted daily based on daily
fair value measurements from a third-party pricing source. Chartis is not permitted to sell, repledge or otherwise
control the collateral unless an event of default by the counterparties occurs. At the termination of these
transactions, Chartis and its counterparties are obligated to return the collateral maintained in the third-party
custody account and the identical municipal bonds loaned, respectively. These transactions are accounted for as
secured financing arrangements. Under these secured financing arrangements, securities available for sale with a
fair value of $2.3 billion at December 31, 2011 were loaned to counterparties against collateral equal to at least
102 percent of the fair value of the loaned securities.
Unrealized Losses on Securities Available for Sale
The following table summarizes the fair value and gross unrealized losses on AIG’s available for sale securities,
aggregated by major investment category and length of time that individual securities have been in a continuous
unrealized loss position:
Less than 12 Months 12 Months or More Total
Gross Gross Gross
Fair Unrealized Fair Unrealized Fair Unrealized
(in millions) Value Losses Value Losses Value Losses
December 31, 2011
Bonds available for sale:
U.S. government and government sponsored
entities $ 142 $ 1 $ - $ - $ 142 $ 1
Obligations of states, municipalities and
political subdivisions 174 1 669 72 843 73
Non-U.S. governments 3,992 67 424 35 4,416 102
Corporate debt 18,099 937 5,907 788 24,006 1,725
RMBS 10,624 714 4,148 849 14,772 1,563
CMBS 1,697 185 1,724 788 3,421 973
CDO/ABS 1,680 50 1,682 423 3,362 473
Total bonds available for sale 36,408 1,955 14,554 2,955 50,962 4,910
Equity securities available for sale:
Common stock 608 100 - - 608 100
Preferred stock 6---6-
Mutual funds 21 - -21
Total equity securities available for sale 616 101 - - 616 101
Total $ 37,024 $ 2,056 $ 14,554 $ 2,955 $ 51,578 $ 5,011
AIG 2011 Form 10-K 267