AIG 2011 Annual Report Download - page 319

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Generally, GIAs have provisions that require collateral to be posted by AIG upon a downgrade of AIG’s
long-term debt ratings or, at the election of AIG and as an alternative to posting collateral and subject to certain
conditions, repayment by AIG of the transactions or arrangement by AIG of a substitute guarantee of AIG’s
obligations by an obligor with higher debt ratings. The actual amount of collateral required to be posted to the
counterparties in the event of such downgrades, or the aggregate amount of payments that AIG could be required
to make, depends on market conditions, the fair value of outstanding affected transactions and other factors
prevailing at and after the time of the downgrade. The fair value of securities pledged as collateral with respect to
these obligations approximated $5.1 billion and $5.7 billion at December 31, 2011 and December 31, 2010,
respectively. This collateral primarily consists of securities of U.S. government and government sponsored entities
and generally cannot be repledged or resold by the counterparties.
Notes and Bonds Payable at Fair Value
Direct Investment book notes and bonds also include structured debt instruments whose payment terms are
linked to one or more financial or other indices (such as an equity index or commodity index or another measure
that is not considered to be clearly and closely related to the debt instrument). These notes contain embedded
derivatives that otherwise would be required to be accounted for separately. The notes and bonds payable,
including the structured debt instruments, are accounted for using the fair value option. The fair value of these
obligations was determined by reference to quoted market prices, where available and appropriate, or discounted
cash flow calculations based upon AIG’s current market-observable implicit-credit-spread rates for similar types of
obligations with maturities consistent with those remaining for the debt being valued.
The following table presents a range of maturities and interest rates by currency for AIG’s borrowings supported
by assets:
At December 31, 2011
(dollars in millions) Range of U.S. Dollar
Range of Maturities Currency Interest Rates Carrying Value
2012 - 2053 U.S. dollar 0.18 - 10.37% $ 16,722
2012 - 2047 Euro 1.60 - 9.25 3,098
2012 - 2037 Japanese yen 0.01 - 3.65 2,856
2013 - 2017 Swiss franc 0.78 - 3.39 983
2014 Canadian dollar 4.90 418
2016 - 2017 Mexican peso 7.98 - 8.59 249
2012 Swedish krona 2.65 290
2015 Australian dollar 4.62 - 4.89 9
2013 Great Britain pound 1.30 44
2017 - 2018 Other 1.84 - 7.28 51
Total $ 24,720
The Direct Investment book economically hedges its notes, bonds and GIAs. As a result, certain of the interest
rate or currency exposures set forth in the table above have been hedged with floating rate instruments so the
stated rates may not be reflective of the all-in cost of funding after taking into account the related hedges. AIG
Parent guarantees all Direct Investment book debt, except for MIP notes payable and series AIGFP matched
notes and bonds payable, which are direct obligations of AIG, Inc.
AIG 2011 Form 10-K 305