AIG 2015 Annual Report Download - page 281

ITEM 8 / NOTE 6. LENDING ACTIVITIES
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Allowance for credit losses:
Specific $ - $ 27 $ 3 $ 13 $ 3 $ 9 $ 55 - %
General 3 59 25 9 3 5 104 1
Total allowance for credit losses $ 3 $ 86 $ 28 $ 22 $ 6 $ 14 $ 159 1 %
(a) Loans that have been modified in troubled debt restructurings and are performing according to their restructured terms. See discussion of troubled debt
restructurings below.
(b) Does not reflect allowance for credit losses.
(c) Approximately 99 percent of the commercial mortgages held at such respective dates were current as to payments of principal and interest.
Methodology Used to Estimate the Allowance for Credit Losses
Mortgage and other loans receivable are considered impaired when collection of all amounts due under contractual terms is
not probable. Impairment is measured using either i) the present value of expected future cash flows discounted at the loan’s
effective interest rate, ii) the loan’s observable market price, if available, or iii) the fair value of the collateral if the loan is
collateral dependent. Impairment of commercial mortgages is typically determined using the fair value of collateral while
impairment of other loans is typically determined using the present value of cash flows or the loan’s observable market price.
An allowance is typically established for the difference between the impaired value of the loan and its current carrying amount.
Additional allowance amounts are established for incurred but not specifically identified impairments, based on statistical
models primarily driven by past due status, debt service coverage, loan-to-value ratio, property type and location, loan term,
profile of the borrower and of the major property tenants, and loan seasoning. When all or a portion of a loan is deemed
uncollectible, the uncollectible portion of the carrying amount of the loan is charged off against the allowance.
Interest income is not accrued when payment of contractual principal and interest is not expected. Any cash received on
impaired loans is generally recorded as a reduction of the current carrying amount of the loan. Accrual of interest income is
generally resumed when delinquent contractual principal and interest is repaid or when a portion of the delinquent contractual
payments are made and the ongoing required contractual payments have been made for an appropriate period.
A significant majority of commercial mortgages in the portfolio are non-recourse loans and, accordingly, the only guarantees
are for specific items that are exceptions to the non-recourse provisions. It is therefore extremely rare for us to have cause to
enforce the provisions of a guarantee on a commercial real estate or mortgage loan.
The following table presents a rollforward of the changes in the allowance for credit losses on Mortgage and other
loans receivable:
2015 2014 2013
Years Ended December 31, Commercial Other Commercial Other Commercial Other
(in millions) Mortgages Loans Total Mortgages Loans Total Mortgages Loans Total
Allowance, beginning of year $ 159 $112 $271 $ 201 $ 111 $ 312 $ 159 $ 246 $ 405
Loans charged off (23) (6) (29) (29) (39) (68) (12) (104) (116)
Recoveries of loans previously
charged off 4 1 5 18 16 34 3 6 9
Net charge-offs (19) (5) (24) (11) (23) (34) (9) (98) (107)
Provision for loan losses 31 27 58 (31) 23 (8) 52 (32) 20
Other - 3 3 - 1 1 (1) (5) (6)
Allowance, end of year $ 171 *$137 $308 $ 159 *$ 112 $ 271 $ 201 *$ 111 $ 312
* Of the total allowance at the end of the year, $24 million and $55 million relates to individually assessed credit losses on $507 million and $192 million of
commercial mortgages as of December 31, 2015 and 2014, respectively.
Troubled Debt Restructurings
We modify loans to optimize their returns and improve their collectability, among other things. When we undertake such a
modification with a borrower that is experiencing financial difficulty and the modification involves us granting a concession to