AIG 2015 Annual Report Download - page 258

ITEM 8 / NOTE 4. FAIR VALUE MEASUREMENTS

258
security types. Certain investments in hedge funds were transferred into Level 3 due to these investments now being carried at
fair value and no longer being accounted for using the equity method of accounting due to a change in percentage ownership,
or as a result of limited market activity due to fund-imposed redemption restrictions.
During the years ended December 31, 2015 and 2014, transfers out of Level 3 assets primarily included CMBS, CDO/ABS,
RMBS, certain investments in municipal securities, private placement and other corporate debt, and investments in hedge
funds. Transfers of certain investments in municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3
assets were based on consideration of market liquidity as well as related transparency of pricing and associated observable
inputs for these investments. Transfers of certain investments in private placement corporate debt and certain ABS out of
Level 3 assets were primarily the result of using observable pricing information that reflects the fair value of those securities
without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the
current liquidity in the market. The transfers of certain hedge fund investments out of Level 3 assets were primarily the result of
easing of certain fund-imposed redemption restrictions.
Transfers of Level 3 Liabilities
There were no significant transfers of derivative or other liabilities into or out of Level 3 for the years ended December 31,
2015 and 2014.
Quantitative Information about Level 3 Fair Value Measurements
The table below presents information about the significant unobservable inputs used for recurring fair value
measurements for certain Level 3 instruments, and includes only those instruments for which information about the
inputs is reasonably available to us, such as data from independent third-party valuation service providers and from
internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments
(primarily CDO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts
reported for such Level 3 assets and liabilities:
Fair Value at
December 31, Valuation Range
(in millions) 2015 Technique Unobservable Input(b) (Weighted Average )
Assets:
Obligations of states, $ 1,217 Discounted cash flow Yield 4.32% - 5.10% (4.71%)
municipalities and
political subdivisions
Corporate debt 642 Discounted cash flow Yield 5.63% - 12.45% (9.04%)
RMBS(a) 17,280 Discounted cash flow Constant prepayment rate 0.99% - 8.95% (4.97%)
Loss severity 47.21% - 79.50% (63.35%)
Constant default rate 3.49% - 9.04% (6.26%)
Yield 3.13% - 6.14% (4.63%)
CDO/ABS(a) 3,338 Discounted cash flow Yield 3.41% - 4.98% (4.19%)
CMBS 2,388 Discounted cash flow Yield 0.00% - 17.65% (6.62%)
Liabilities:
Embedded derivatives
within Policyholder