AIG 2013 Annual Report Download - page 219

We estimate and record a liability for potential losses that may arise from litigation and regulatory proceedings to the
extent such losses are probable and can be estimated. Determining a reasonable estimate of the amount of such
losses requires significant management judgment. In many cases, it is not possible to determine whether a liability
has been incurred or to estimate the ultimate or minimum amount of that liability until the matter is close to
resolution. In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases that are in
the early stages of litigation or in which claimants seek substantial or indeterminate damages, we often cannot
predict the outcome or estimate the eventual loss or range of reasonably possible losses related to such matters.
See Note 15 to the Consolidated Financial Statements.
See Note 5 to the Consolidated Financial Statements for additional information about the measurement of fair value
of financial assets and financial liabilities and our accounting policy regarding the incorporation of credit risk in fair
value measurements.
The following table presents the fair value of fixed maturity and equity securities by source of value
determination:
Fair value based on external sources(a) $268 94%
Fair value based on internal sources 17 6
Total fixed maturity and equity securities(b) $285 100%
(a) Includes $26.5 billion for which the primary source is broker quotes.
(b) Includes available for sale and other securities.
Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in a
hierarchy for disclosure purposes consisting of three ‘‘levels’’ based on the observability of inputs available in the
marketplace used to measure the fair value. See Note 5 to the Consolidated Financial Statements for additional
information.
The following table presents the amount of assets and liabilities measured at fair value on a recurring basis
and classified as Level 3:
Assets $ 40.5 7.4%
Liabilities 4.1 0.9
Level 3 fair value measurements are based on valuation techniques that use at least one significant input that is
unobservable. We consider unobservable inputs to be those for which market data is not available and that are
developed using the best information available about the assumptions that market participants would use when
valuing the asset or liability. Our assessment of the significance of a particular input to the fair value measurement in
its entirety requires judgment.
We classify fair value measurements for certain assets and liabilities as Level 3 when they require significant
unobservable inputs in their valuation, including contractual terms, prices and rates, yield curves, credit curves,
measures of volatility, prepayment rates, default rates, mortality rates and correlations of such inputs.
Liability for Legal Contingencies
Fair Value Measurements of Certain Financial Assets and Liabilities
Level 3 Assets and Liabilities
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AIG 2013 Form 10-K 201
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
December 31, 2013 Fair Percent
(in billions) Value of Total
December 31, Percentage December 31, Percentage
(in billions) 2013 of Total 2012 of Total
$ 46.7 8.6%
2.3 0.5
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