AIG 2015 Annual Report Download - page 265

ITEM 8 / NOTE 4. FAIR VALUE MEASUREMENTS
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FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS
We measure the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes
in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and
equity-method investments, commercial mortgage loans, investments in life settlements, investments in real estate and other
fixed assets, goodwill and other intangible assets. See Notes 5 and 6 herein for additional information about how we test
various asset classes for impairment.
Information regarding the estimation of fair value for financial instruments measured at fair value on a non-recurring basis is
discussed below:
• Impairments for Other investments primarily relate to certain investments in affordable housing partnerships, the fair values
of which are determined based on remaining tax credits and other residual benefits due from the respective partnerships.
Residual benefits include consideration of the fair value of underlying real estate properties, which is determined based on
market-appropriate capitalization rates applied to net operating income of the properties. Impairments for Other investments
also relate to certain investments in aircraft, the fair values of which are determined based on third party independent
appraisals that use industry specific appraisal standards and methodologies.
• Impairments of Investments in Life Settlements are measured using their fair values as determined using a discounted cash
flow methodology that incorporates the best available market assumptions for mortality as well as market yields based on
reported transactions. Effective December 31, 2015, AIG adopted the Society of Actuaries 2015 Valuation Basic Table
(VBT) as the market mortality assumption used to measure fair value of impaired policies.
The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the
related impairment charges recorded during the periods presented:
Assets at Fair Value Impairment Charges
Non-Recurring Basis December 31,
(in millions) Level 1 Level 2 Level 3 Total 2015 2014 2013
December 31, 2015
Other investments $ - $ - $ 1,117 $1,117 $189 $ 134 $ 112
Investments in life settlements - -828 828 540 201 971
Other assets - -129 129 80 731
Tot al $ - $ - $ 2,074 $2,074 $809 $ 342 $ 1,114
December 31, 2014
Other investments $ - $ - $ 790 $ 790
Investments in life settlements - - 537 537
Other assets - - 1 1
Total $ - $ - $ 1,328 $ 1,328
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 commercial 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. Fair values of residential mortgage loans are generally determined
based on market prices, using market based adjustments for credit and servicing as appropriate. The fair values of policy
loans are generally estimated based on unpaid principal amount as of each reporting date. No consideration is given to
credit risk because policy loans are effectively collateralized by the cash surrender value of the policies.