AIG 2013 Annual Report Download - page 276

The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available
for sale securities and other investments:
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturities $ 10,599
Equity securities (232)
Other investments 343
Total increase (decrease) in unrealized appreciation (depreciation) of investments*$ 10,710
* Excludes net unrealized gains attributable to businesses held for sale.
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity
security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an
other-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with a
corresponding charge to realized capital losses. When assessing our intent to sell a fixed maturity security, or
whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its
amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions
to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take
advantage of favorable pricing.
For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the
estimated recovery value with a corresponding charge to realized capital losses. The estimated recovery value is the
present value of cash flows expected to be collected, as determined by management. The difference between fair
value and amortized cost that is not related to a credit impairment is recognized in unrealized appreciation
(depreciation) of fixed maturity securities on which other-than-temporary credit impairments were taken (a separate
component of accumulated other comprehensive income).
When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS)
management considers historical performance of underlying assets and available market information as well as
bond-specific structural considerations, such as credit enhancement and priority of payment structure of the security.
In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs,
which vary by asset class:
• Current delinquency rates;
• Expected default rates and the timing of such defaults;
• Loss severity and the timing of any recovery; and
• Expected prepayment speeds.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management
considers the fair value as the recovery value when available information does not indicate that another value is
more relevant or reliable. When management identifies information that supports a recovery value other than the fair
value, the determination of a recovery value considers scenarios specific to the issuer and the security, and may be
based upon estimates of outcomes of corporate restructurings, political and macroeconomic factors, stability and
financial strength of the issuer, the value of any secondary sources of repayment and the disposition of assets.
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model
inputs when we determine that price movements in certain sectors are indicative of factors not captured by the cash
flow models.
Change in Unrealized Appreciation (Depreciation) of Investments
Evaluating Investments for Other-Than-Temporary Impairments
Fixed Maturity Securities
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AIG 2013 Form 10-K258
ITEM 8 / NOTE 6. INVESTMENTS
Years Ended
December 31,
(in millions) 2013 2012
$ (14,066)
360
101
$ (13,605)
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