AIG 2013 Annual Report Download - page 264

increments. At December 31, 2013, assuming average original expected lives of 10 years for the funds, 62 percent of
the total fair value using net asset value per share (or its equivalent) presented above would have expected
remaining lives of three years or less, 34 percent between four and six years and 4 percent between seven and
10 years.
The hedge fund investments included above are generally redeemable monthly (14 percent), quarterly (44 percent),
semi-annually (22 percent) and annually (20 percent), with redemption notices ranging from one day to 180 days. At
December 31, 2013, however, investments representing approximately 57 percent of the total fair value of the hedge
fund investments cannot be redeemed, either in whole or in part, because the investments include various
contractual restrictions. The majority of these contractual restrictions, which may have been put in place at the fund’s
inception or thereafter, have pre-defined end dates and are generally expected to be lifted by the end of 2015. The
fund investments for which redemption is restricted only in part generally relate to certain hedge funds that hold at
least one investment that the fund manager deems to be illiquid.
Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not
otherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported in
earnings. We elect the fair value option for certain hybrid securities given the complexity of bifurcating the economic
components associated with the embedded derivatives. Refer to Note 11 for additional information related to
embedded derivatives.
Additionally, beginning in the third quarter of 2012 we elected the fair value option for investments in certain private
equity funds, hedge funds and other alternative investments when such investments are eligible for this election. We
believe this measurement basis is consistent with the applicable accounting guidance used by the respective
investment company funds themselves. Refer to Note 6 herein for additional information.
The following table presents the gains or losses recorded related to the eligible instruments for which we
elected the fair value option:
Assets:
Mortgage and other loans receivable $ 47 $ 11
Bond and equity securities 2,339 1,273
Other securities – ML II interest 246 42
Other securities – ML III interest 2,888 (646)
Retained interest in AIA 2,069 1,289
Alternative investments(a) 36 2
Other, including Short-term investments 20 33
Liabilities:
Long-term debt(b) (681) (966)
Other liabilities (33) (67)
Total gain $ 6,931 $ 971
(a) Includes certain hedge funds, private equity funds and other investment partnerships.
(b) Includes GIAs, notes, bonds and mortgage payable.
Interest income and dividend income on assets measured under the fair value option are recognized and included in
Net investment income in the Consolidated Statements of Income with the exception of activity within AIG’s Other
Operations, which is included in Other income. Interest on liabilities measured under the fair value option is
recognized in interest expense in the Consolidated Statements of Income. See Note 6 herein for additional
information about our policies for recognition, measurement, and disclosure of interest and dividend income and
interest expense.
Fair Value Option
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AIG 2013 Form 10-K246
ITEM 8 / NOTE 5. FAIR VALUE MEASUREMENTS
Gain (Loss)
Years Ended December 31,
(in millions) 2013 2012 2011
$3
1,667
–
–
–
360
11
327
(15)
$ 2,353
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