AIG 2013 Annual Report Download - page 267

Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these
securities until maturity. When we do not have the ability or positive intent to hold bonds until maturity, these
securities are classified as available for sale or are measured at fair value at our election. None of our fixed maturity
securities met the criteria for held to maturity classification at December 31, 2013 or 2012.
Fixed maturity and equity securities classified as available for sale are carried at fair value. Unrealized gains and
losses from available for sale investments in fixed maturity and equity securities are reported as a separate
component of Accumulated other comprehensive income, net of deferred policy acquisition costs and deferred
income taxes, in shareholders’ equity. Realized and unrealized gains and losses from fixed maturity and equity
securities measured at fair value at our election are reflected in Net investment income (for insurance subsidiaries) or
Other income (for Other Operations). Investments in fixed maturity and equity securities are recorded on a trade-date
basis.
Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield
adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in certain
RMBS, CMBS and CDO/ABS, (collectively, structured securities), recognized yields are updated based on current
information regarding the timing and amount of expected undiscounted future cash flows. For high credit quality
structured securities, effective yields are recalculated based on actual payments received and updated prepayment
expectations, and the amortized cost is adjusted to the amount that would have existed had the new effective yield
been applied since acquisition with a corresponding charge or credit to net investment income. For structured
securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on
changes in expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition,
the difference between the undiscounted expected future cash flows and the recorded investment in the securities
represents the initial accretable yield, which is to be accreted into net investment income over the securities’
remaining lives on a level-yield basis. Subsequently, effective yields recognized on PCI securities are recalculated
and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities
and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest
rate changes.
6. INVESTMENTS
Fixed Maturity and Equity Securities
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AIG 2013 Form 10-K 249
ITEM 8 / NOTE 6. INVESTMENTS
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