AIG 2015 Annual Report Download - page 218

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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equity and cost method investments in private equity funds, hedge funds and other entities as well as investments in life
settlements, aircraft and real estate.
See the discussion in Note 5 to the Consolidated Financial Statements for additional information on the methodology and
significant inputs, by investment type, that we use to determine the amount of impairment.
Impairments on Investments in Life Settlements
Impairments to investments in life settlements may occur in the future due to the fact that continued payment of premiums
required to maintain policies will cause the expected lifetime undiscounted cash flows for some policies to become negative in
future reporting periods, even in the absence of future changes to the mortality assumptions. Impairments may also occur due
to our future sale or lapse of select policies at a value that is below carrying amount.
For a discussion of impairments on investments in life settlements, see Note 5 to the Consolidated Financial Statements.
Goodwill Impairment
For a discussion of goodwill impairment, see Note 11 to the Consolidated Financial Statements. In 2015 and 2014, AIG elected
to bypass the qualitative assessment of whether goodwill impairment may exist and, therefore, performed quantitative
assessments that supported a conclusion that the fair value of all of the reporting units tested exceeded their book value. To
determine fair value, we primarily use a discounted expected future cash flow analysis that estimates and discounts projected
future distributable earnings. Such analysis is principally based on AIG’s business projections that inherently include
judgments regarding business trends.
Liability for Legal Contingencies
We estimate and record a liability for potential losses that may arise from litigation and regulatory proceedings to the extent
such losses are probable and can be estimated. Determining a reasonable estimate of the amount of such losses requires
significant management judgment. In many cases, it is not possible to determine whether a liability has been incurred or to
estimate the ultimate or minimum amount of that liability until the matter is close to resolution. In view of the inherent difficulty
of predicting the outcome of such matters, particularly in cases that are in the early stages of litigation or in which claimants
seek substantial or indeterminate damages, we often cannot predict the outcome or estimate the eventual loss or range of
reasonably possible losses related to such matters.
For more information on legal, regulatory and litigation matters, see Note 15 to the Consolidated Financial Statements.
Fair Value Measurements of Certain Financial Assets and Financial Liabilities
See Note 4 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, 2015 F air Percent
(in billions) Value of Total
Fair value based on external sources(a) $ 250 93 %
Fair value based on internal sources 19 7
Total fixed maturity and equity securities(b) $ 269 100 %
(a) Includes $26.3 billion for which the primary source is broker quotes.