AIG 2015 Annual Report Download - page 275

ITEM 8 / NOTE 5. INVESTMENTS
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Change in Unrealized Appreciation (Depreciation) of Investments
The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale
securities and other investments:
Years Ended
December 31,
(in millions) 2015 2014
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities $ (9,275) $ 6,809
Equity securities (929) 535
Other investments (803) 376
Total increase (decrease) in unrealized appreciation (depreciation) of investments $ (11,007) $ 7,720
Evaluating Investments for Other-Than-Temporary Impairments
Fixed Maturity Securities
If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security
before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary
impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized
capital losses. When assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be
required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and
circumstances including, but not limited to, decisions to reposition our investment portfolio, sales of securities to meet cash
flow needs and sales of securities to take advantage of favorable pricing.
For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated
recoverable value with a corresponding charge to realized capital losses. The estimated recoverable value is the present value
of cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost
that is not related to a credit impairment is presented in unrealized appreciation (depreciation) of fixed maturity securities on
which other-than-temporary credit impairments were recognized (a separate component of accumulated other comprehensive
income).
When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS) management
considers historical performance of underlying assets and available market information as well as bond-specific structural
considerations, such as credit enhancement and priority of payment structure of the security. In addition, the process of
estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by asset class:
• Current delinquency rates;
• Expected default rates and the timing of such defaults;
• Loss severity and the timing of any recovery; and
• Expected prepayment speeds.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the
fair value as the recoverable value when available information does not indicate that another value is more relevant or reliable.
When management identifies information that supports a recoverable value other than the fair value, the determination of a
recoverable value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes
of corporate restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any
secondary sources of repayment and the disposition of assets.