AIG 2011 Annual Report Download - page 292

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Mortgage and other loans receivable are considered impaired when collection of all amounts due under
contractual terms is not probable. For commercial mortgage loans in particular, the impairment is measured based
on the fair value of underlying collateral, which is determined based on the present value of expected net future
cash flows of the collateral, less estimated costs to sell. For other loans, the impairment may be measured based
on the present value of expected future cash flows discounted at the loan’s effective interest rate or based on the
loan’s observable market price, where available. An allowance is typically established for the difference between
the impaired value of the loan and its current carrying amount. Additional allowance amounts are established for
incurred but not specifically identified impairments, based on the analysis of internal risk ratings and current loan
values. Internal risk ratings are assigned based on the consideration of risk factors including past due status, debt
service coverage, loan-to-value ratio or the ratio of the loan balance to the estimated value of the property,
property occupancy, profile of the borrower and of the major property tenants, economic trends in the market
where the property is located, and condition of the property. These factors and the resulting risk ratings also
provide a basis for determining the level of monitoring performed at both the individual loan and the portfolio
level. When all or a portion of a commercial mortgage loan is deemed uncollectible, the uncollectible portion of
the carrying value of the loan is charged off against the allowance.
A significant majority of commercial mortgage loans in the portfolio are non-recourse loans and, accordingly,
the only guarantees are for specific items that are exceptions to the non-recourse provisions. It is therefore
extremely rare for AIG to have cause to enforce the provisions of a guarantee on a commercial real estate or
mortgage loan.
The following table presents a rollforward of the changes in the allowance for losses on Mortgage and other loans
receivable:
2011 2010 2009
Years Ended December 31, Commercial Other Commercial Other Commercial Other
(in millions) Mortgages Loans Total Mortgages Loans(b) Total Mortgages Loans(b) Total
Allowance, beginning of year $ 470 $ 408 $ 878 $ 432 $ 2,012 $ 2,444 $ 3 $ 1,677 $ 1,680
Loans charged off (78) (47) (125) (217) (137) (354) (82) (482) (564)
Recoveries of loans previously
charged off 37 1 38 - 8 8 - 54 54
Net charge-offs (41) (46) (87) (217) (129) (346) (82) (428) (510)
Provision for loan losses (69) 73 4 342 27 369 422 588 1,010
Other (55) - (55) (34) (1,497) (1,531) 89 379 468
Reclassified to Assets of
businesses held for sale -- - (53) (5) (58) - (204) (204)
Allowance, end of year $ 305(a) $ 435 $ 740 $ 470(a) $ 408 $ 878 $ 432 $ 2,012 $ 2,444
(a) Of the total, $65 million and $476 million relates to individually assessed credit losses on $110 million and $739 million of commercial
mortgage loans as of December 31, 2011 and 2010, respectively.
(b) Included in Other loans were finance receivables, which were reported net of unearned finance charges, for both investment purposes and held
for sale.
278 AIG 2011 Form 10-K
METHODOLOGY USED TO ESTIMATE THE ALLOWANCE FOR CREDIT LOSSES