AIG 2014 Annual Report Download - page 237

ITEM 8 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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• Income earned on real estate based investments and related realized gains and losses from sales, property level
impairments and financing costs.
• Exchange gains and losses resulting from foreign currency transactions.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• Gains and losses recognized in earnings on derivatives for the effective portion and their related hedged items.
Aircraft leasing expenses through May 14, 2014, the date of disposal of ILFC, consisted of ILFC interest expense,
depreciation expense, impairment charges, fair value adjustments and lease-related charges on aircraft as well as selling,
general and administrative expenses and other expenses incurred by ILFC.
Cash represents cash on hand and non-interest- bearing demand deposits.
Premiums and other receivables – net of allowance include premium balances receivable, amounts due from agents and
brokers and policyholders, trade receivables for the DIB and GCM and other receivables. Trade receivables for GCM include
cash collateral posted to derivative counterparties that is not eligible to be netted against derivative liabilities. The allowance for
doubtful accounts on premiums and other receivables was $428 million and $554 million at December 31, 2014 and 2013,
respectively.
Other assets consist of sales inducement assets, prepaid expenses, deposits, other deferred charges, real estate, other fixed
assets, capitalized software costs, goodwill, intangible assets other than goodwill, and restricted cash.
We offer sales inducements which include enhanced crediting rates or bonus payments to contract holders (bonus interest) on
certain annuity and investment contract products. Sales inducements provided to the contract holder are recognized in
Policyholder contract deposits in the Consolidated Balance Sheets. Such amounts are deferred and amortized over the life of
the contract using the same methodology and assumptions used to amortize DAC (see Note 9 herein). To qualify for such
accounting treatment, the bonus interest must be explicitly identified in the contract at inception. We must also demonstrate
that such amounts are incremental to amounts we credit on similar contracts without bonus interest, and are higher than the
contract’s expected ongoing crediting rates for periods after the bonus period. The deferred bonus interest and other deferred
sales inducement assets totaled $629 million and $703 million at December 31, 2014 and 2013, respectively. The amortization
expense associated with these assets is reported within Interest credited to policyholder account balances in the Consolidated
Statements of Income. Such amortization expense totaled $63 million, $102 million and $162 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
The cost of buildings and furniture and equipment is depreciated principally on the straight-line basis over their estimated
useful lives (maximum of 40 years for buildings and 10 years for furniture and equipment). Expenditures for maintenance and
repairs are charged to income as incurred and expenditures for improvements are capitalized and depreciated. We periodically
assess the carrying amount of our real estate for purposes of determining any asset impairment. Capitalized software costs,
which represent costs directly related to obtaining, developing or upgrading internal use software, are capitalized and
amortized using the straight-line method over a period generally not exceeding five years. Real estate, fixed assets and other
long-lived assets are assessed for impairment when impairment indicators exist.
Separate accounts represent funds for which investment income and investment gains and losses accrue directly to the
policyholders who bear the investment risk. Each account has specific investment objectives and the assets are carried at fair
value. The assets of each account are legally segregated and are not subject to claims that arise from any of our other
businesses. The liabilities for these accounts are equal to the account assets. For a more detailed discussion of separate
accounts, see Note 14 herein.
Other liabilities consist of other funds on deposit, other payables, securities sold under agreements to repurchase and
securities sold but not yet purchased. We have entered into certain insurance and reinsurance contracts, primarily in our Non-
Life Insurance Companies segment, that do not contain sufficient insurance risk to be accounted for as insurance or
reinsurance. Accordingly, the premiums received on such contracts, after deduction for certain related expenses, are recorded
as deposits within Other liabilities in the Consolidated Balance Sheets. Net proceeds of these deposits are invested and
generate Net investment income. As amounts are paid, consistent with the underlying contracts, the deposit liability is reduced.
Also included in Other liabilities are trade payables for the DIB and GCM, which include option premiums received and
payables to counterparties that relate to unrealized gains and losses on futures, forwards, and options and balances due to