AIG 2013 Annual Report Download - page 266

rate approximates the rates market participants would use. The fair values of policy loans are generally estimated
based on unpaid principal amount as of each reporting date or, in some cases, based on the present value of the
loans using a discounted cash flow model. No consideration is given to credit risk because policy loans are
effectively collateralized by the cash surrender value of the policies.
•Other invested assets: The majority of Other invested assets that are not measured at fair value represent
investments in life settlements. The fair value of investments in life settlements is determined using a discounted
cash flow methodology that incorporates best available market assumptions for longevity as well as market yields
based on reported transactions. Due to the individual life nature of each investment in life settlements and the
illiquidity of the existing market, significant inputs to the fair value are unobservable.
•Cash and short-term investments: The carrying values of these assets approximate fair values because of the
relatively short period of time between origination and expected realization, and their limited exposure to credit risk.
•Policyholder contract deposits associated with investment-type contracts: Fair values for policyholder
contract deposits associated with investment-type contracts not accounted for at fair value were estimated using
discounted cash flow calculations based on interest rates currently being offered for similar contracts with
maturities consistent with those of the contracts being valued. When no similar contracts are being offered, the
discount rate is the appropriate swap rate (if available) or current risk-free interest rate consistent with the currency
in which the cash flows are denominated.
•Other liabilities: The majority of Other liabilities that are financial instruments not measured at fair value represent
secured financing arrangements, including repurchase agreements. The carrying values of these liabilities
approximate fair value, because the financing arrangements are short-term and are secured by cash or other liquid
collateral.
•Long-term debt: Fair values of these obligations were determined by reference to quoted market prices, when
available and appropriate, or discounted cash flow calculations based upon our current market-observable implicit-
credit-spread rates for similar types of borrowings with maturities consistent with those remaining for the debt being
valued.
The following table presents the carrying values and estimated fair values of our financial instruments not
measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value
measurement based on the observability of the inputs used:
Assets:
Mortgage and other loans receivable
Other invested assets
Short-term investments
Cash
Liabilities:
Policyholder contract deposits associated with investment-type contracts
Other liabilities
Long-term debt
December 31, 2012
Assets:
Mortgage and other loans receivable $ – $ 823 $ 19,396 $ 20,219 $ 19,348
Other invested assets – 237 3,521 3,758 4,932
Short-term investments – 20,752 – 20,752 20,752
Cash 1,151 – – 1,151 1,151
Liabilities:
Policyholder contract deposits associated with investment-type contracts – 245 123,860 124,105 105,979
Other liabilities – 3,981 818 4,799 4,800
Long-term debt – 43,966 1,925 45,891 40,445
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AIG 2013 Form 10-K248
ITEM 8 / NOTE 5. FAIR VALUE MEASUREMENTS
Estimated Fair Value Carrying
(in millions) Level 1 Level 2 Level 3 Total Value
December 31, 2013
$ – $ 219 $ 21,418 $ 21,637 $ 20,765
– 529 2,705 3,234 4,194
– 15,304 – 15,304 15,304
2,241 – – 2,241 2,241
– 199 114,361 114,560 105,093
– 4,869 1 4,870 4,869
– 36,239 2,394 38,633 34,946
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