AIG 2015 Annual Report Download - page 262

ITEM 8 / NOTE 4. FAIR VALUE MEASUREMENTS
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 Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a
dynamic lapse function, which reduces the base lapse rate when the contract is in-the-money (when the contract holder’s
guaranteed value is worth more than their underlying account value). Lapse rates are also generally assumed to be lower
in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the
liability, as fewer policyholders would persist to collect guaranteed withdrawal amounts, but in certain scenarios, increases
in assumed lapse rates may increase the fair value of the liability.
 Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality
improvement assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower
mortality rate assumptions will generally increase the fair value of the liability, because guaranteed payments will be made
for a longer period of time.
 Utilization rate assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and
begin taking withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contract’s
withdrawal history and the age of the policyholder. Utilization rate assumptions are based on company experience, which
includes partial withdrawal behavior. Increases in assumed utilization rates will generally increase the fair value of the
liability.
Derivative liabilities – credit contracts
The significant unobservable inputs used for Derivative liabilities – credit contracts are recovery rates, diversity scores, and the
weighted average life of the portfolio. AIG non-performance risk is also considered in the measurement of the liability.
An increase in recovery rates and diversity score will decrease the fair value of the liability. An increase in the weighted
average life will increase the fair value measurement of the liability.
Investments in Certain Entities Carried at Fair Value Using Net Asset Value Per Share
The following table includes information related to our investments in certain other invested assets, including private
equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its
equivalent). For these investments, which are measured at fair value on a recurring basis, we use the net asset value
per share to measure fair value.
December 31, 2015 December 31, 2014
Fair Value
Using Net
Asset Value
Per Share (or
its equivalent)
Fair Value
Using Net
Asset Value
Per Share (or
its equivalent)
Unfunded Unfunded
(in millions) Investment Category Includes Commitments Commitments
Investment Category
Private equity funds:
Leveraged buyout Debt and/or equity investments made as part of a
transaction in which assets of mature companies are
acquired from the current shareholders, typically with the
use of financial leverage $1,774 $436 $ 2,275 $450
Real Estate /
Infrastructure
Investments in real estate properties and infrastructure
positions, including power plants and other energy
generating facilities 306 213 384 227
Venture capital Early-stage, high-potential, growth companies expected to
generate a return through an eventual realization event,
such as an initial public offering or sale of the company 107 41 121 26