AIG 2014 Annual Report Download - page 265

ITEM 8 / NOTE 5. FAIR VALUE MEASUREMENTS

248
Other assets - 11 48 59
Total $ - $ 11 $ 2,559 $ 2,570
FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE
Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding insurance
contracts and lease contracts) is discussed below:
• Mortgage and other loans receivable: Fair values of loans on real estate and other loans receivable are estimated for
disclosure purposes using discounted cash flow calculations based on discount rates that we believe market participants
would use in determining the price that they would pay for such assets. For certain loans, our current incremental lending
rates for similar types of loans are used as the discount rates, because we believe this 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 the 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 amounts 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 are 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. To
determine fair value, other factors include current policyholder account values and related surrender charges and other
assumptions include expectations about policyholder behavior and an appropriate risk margin.
• 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 amounts 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 amounts 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:
Estimated Fair Value Carrying
(in millions) Level 1 Level 2 Level 3 Total Value
December 31, 2014
Assets:
Mortgage and other loans receivable $ - $ 449 $26,157 $ 26,606 $24,984
Other invested assets -593 2,882 3,475 4,352
Short-term investments -9,559 - 9,559 9,559
Cash 1,758 -- 1,758 1,758
Liabilities:
Policyholder contract deposits associated
with investment-type contracts -244 119,268 119,512 106,395
Other liabilities -1,120 - 1,120 1,120