AIG 2014 Annual Report Download - page 220

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Fair Value Measurements of Certain Financial Assets and Financial Liabilities
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:
December 31, 2014 Fair Percent
(in billions) Value of Total
Fair value based on external sources(a) $ 267 94 %
Fair value based on internal sources 18 6
Total fixed maturity and equity securities(b) $ 285 100 %
(a) Includes $27.3 billion for which the primary source is broker quotes.
(b) Includes available for sale and other securities.
Level 3 Assets and Liabilities
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:
December 31, Percentage December 31, Percentage
(in billions) 2014 of Total 2013 of Total
Assets $44.4 8.6 %$ 46.7 8.6 %
Liabilities 2.9 0.7 2.3 0.5
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.
See Note 5 to the Consolidated Financial Statements for discussion of the valuation methodologies for assets and liabilities
measured at fair value, as well as a discussion of transfers of Level 3 assets and liabilities.