AIG 2014 Annual Report Download - page 276

ITEM 8 / NOTE 6. INVESTMENTS
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as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to
undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate
PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows
for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield.
The following tables present information on our PCI securities, which are included in bonds available for sale:
(in millions) At Date of Acquisition
Contractually required payments (principal and interest) $ 30,520
Cash flows expected to be collected* 24,561
Recorded investment in acquired securities 16,311
* Represents undiscounted expected cash flows, including both principal and interest.
December 31, December 31,
(in millions) 2014 2013
Outstanding principal balance $16,962 $ 14,741
Amortized cost 12,216 10,110
Fair value 13,462 11,338
The following table presents activity for the accretable yield on PCI securities:
Years Ended December 31,
(in millions) 2014 2013
Balance, beginning of year $ 6,940 $ 4,766
Newly purchased PCI securities 1,289 1,773
Disposals -(60)
Accretion (880) (719)
Effect of changes in interest rate indices (542) 302
Net reclassification from non-accretable difference,
including effects of prepayments 58 878
Balance, end of year $ 6,865 $ 6,940
Pledged Investments
Secured Financing and Similar Arrangements
We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase
agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or
substantially similar securities. In the majority of these repurchase agreements, the securities transferred by us may be sold or
repledged by the counterparties. Repurchase agreements entered into by the DIB are carried at fair value based on market-
observable interest rates. All other repurchase agreements are recorded at their contracted repurchase amounts plus accrued
interest.
At December 31, 2013, our secured financing transactions also included those that involve the transfer of securities to financial
institutions in exchange for cash or other liquid collateral. Securities transferred by us under these financing transactions may
be sold or repledged by the counterparties. As collateral for the securities transferred by us, counterparties transfer assets to
us, such as cash or high quality fixed maturity securities. Collateral levels are monitored daily and are generally maintained at
an agreed-upon percentage of the fair value of the transferred securities during the life of the transactions. When we receive
fixed maturity securities as collateral, we do not have the right to sell or repledge this collateral unless an event of default
occurs by the counterparties. At the termination of the transactions, we and our counterparties are obligated to return the
collateral provided and the securities transferred, respectively.