AIG 2011 Annual Report Download - page 301

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
significantly impact the entity’s economic performance and bears the obligation to absorb economic losses that
could potentially be significant to the SIV. The SIV meets the definition of a VIE and accordingly, AIG, as
primary beneficiary, consolidates the assets of the SIV, which totaled over $1 billion as of December 31, 2011 in
the Direct Investment book; related liabilities were not significant.
ILFC has created wholly-owned subsidiaries for the purpose of purchasing aircraft and obtaining financing
secured by such aircraft. A portion of the secured debt has been guaranteed by the European Export Credit
Agencies. These entities meet the definition of a VIE because they do not have sufficient equity to operate
without ILFC’s subordinated financial support in the form of intercompany notes which serve as equity. ILFC fully
consolidates the entities, controls all the activities of the entities and guarantees the activities of the entities. AIG
has not included these entities in the above table as they are wholly-owned and there are no other variable
interests other than those of ILFC and the lenders. See Note 15 herein for further information.
ILFC has created wholly-owned subsidiaries for the purpose of facilitating aircraft leases with airlines. The
entities meet the definition of a VIE because they do not have sufficient equity to operate without ILFC’s
subordinated financial support in the form of intercompany notes which serve as equity. ILFC fully consolidates
the entities, controls all the activities of the entities and fully guarantees the activities of the entities. AIG has not
included these entities in the above table as they are wholly owned and there are no other variable interests in the
entities other than those of ILFC.
AIG, through its insurance company subsidiaries, is a passive investor in RMBS, CMBS, other ABS and CDOs
primarily issued by domestic special-purpose entities. AIG generally does not sponsor or transfer assets to, or act
as the servicer to these asset-backed structures, and was not involved in the design of these entities.
AIG, through its Direct Investment book, also invests in CDOs and similar structures, which can be cash-based
or synthetic and are managed by third parties. The role of Direct Investment book is generally limited to that of a
passive investor in structures AIG does not manage.
AIG’s maximum exposure in these types of structures is limited to its investment in securities issued by these
entities. Based on the nature of AIG’s investments and its passive involvement in these types of structures, AIG
has determined that it is not the primary beneficiary of these entities. AIG has not included these entities in the
above table; however, the fair values of AIG’s investments in these structures are reported in Notes 6 and 7
herein.
AIG uses derivatives and other financial instruments as part of its financial risk management programs and as
part of its investment operations. AIGFP had also transacted in derivatives as a dealer and had acted as an
intermediary between the relevant AIG subsidiary and the counterparty. In a number of situations, AIG has
replaced AIGFP with AIG Markets for purposes of acting as an intermediary between the AIG subsidiary and the
third-party counterparty as part of the wind-down of AIGFP’s portfolios.
Derivatives are financial arrangements among two or more parties with returns linked to or ‘‘derived’’ from
some underlying equity, debt, commodity, or other asset, liability, or foreign exchange rate or other index or the
occurrence of a specified payment event. Derivatives, with the exception of bifurcated embedded derivatives, are
reflected in the Consolidated Balance Sheet in Derivative assets, at fair value and Derivative liabilities, at fair
AIG 2011 Form 10-K 287
FINANCING VEHICLES
LEASING ENTITIES
RMBS, CMBS, OTHER ABS AND CDOS
12. DERIVATIVES AND HEDGE ACCOUNTING