AIG 2006 Annual Report Download - page 135

American International Group, Inc. and Subsidiaries
$944 million, $598 million and $684 million in 2006, 2005 and
Portfolio Review
2004, respectively. Just over half of other-than-temporary impair-
AIG periodically evaluates its securities for other-than-temporary ment charges in 2006 were a result of the decision not to hold
impairments in valuation. As a matter of policy, the determination these investment securities until they fully recover in value. The
that a security has incurred an other-than-temporary decline in writedowns recorded in 2005 and 2004 were primarily the result
value and the amount of any loss recognition requires the of adverse changes in the creditworthiness of the issuer.
judgment of AIG’s management and a continual review of its No impairment charge with respect to any one single credit
investments. See Note 1(e) of Notes to Consolidated Financial was significant to AIG’s consolidated financial condition or results
Statements for further information on AIG’s policy. of operations, and no individual impairment loss exceeded
Once a security has been identified as other-than-temporarily 1.0 percent of consolidated net income for 2006.
impaired, the amount of such impairment is determined by Excluding the other-than-temporary impairments noted above,
reference to that security’s contemporaneous market price and the changes in fair value for AIG’s available for sale portfolio,
recorded as a charge to earnings. which constitutes the vast majority of AIG’s investments, were
As a result of these policies, AIG recorded, in realized capital recorded in Accumulated other comprehensive income as unreal-
gains (losses), other-than-temporary impairment pretax losses of ized gains or losses, net of tax.
At December 31, 2006, aggregate pretax unrealized gains were $17.5 billion, while the pretax unrealized losses with
respect to investment grade bonds, non-investment grade bonds and equity securities were $3.6 billion, $134 million
and $159 million, respectively. Aging of the pretax unrealized losses with respect to these securities, distributed as a
percentage of cost relative to unrealized loss (the extent by which the fair value is less than amortized cost or cost),
including the number of respective items, was as follows:
Less than or equal to Greater than 20% to Greater than 50%
20% of Cost(a) 50% of Cost(a) of Cost(a) Total
Aging Unrealized Unrealized Unrealized Unrealized
(dollars in millions) Cost(a) Loss Items Cost(a) Loss Items Cost(a) Loss Items Cost(a) Loss(b) Items
Investment
grade bonds
0-6 months $ 28,869 $ 376 3,941 $ 74 $17 9 $ — $ — — $ 28,943 $ 393 3,950
7-12 months 37,835 777 4,876 — — — — — — 37,835 777 4,876
H12 months 82,945 2,377 10,640 10 4 5 — — — 82,955 2,381 10,645
Total $149,649 $3,530 19,457 $ 84 $21 14 $ — $ — — $149,733 $3,551 19,471
Below
investment
grade bonds
0-6 months $ 1,828 $ 56 341 $ 3 $ 1 5 $ 1 $ 1 4 $ 1,832 $ 58 350
7-12 months 1,043 28 146 3 1 4 — — — 1,046 29 150
H12 months 1,085 47 201 — — — — — — 1,085 47 201
Total $ 3,956 $ 131 688 $ 6 $ 2 9 $ 1 $ 1 4 $ 3,963 $ 134 701
Total bonds
0-6 months $ 30,697 $ 432 4,282 $ 77 $18 14 $ 1 $ 1 4 $ 30,775 $ 451 4,300
7-12 months 38,878 805 5,022 3 1 4 — — — 38,881 806 5,026
H12 months 84,030 2,424 10,841 10 4 5 — — — 84,040 2,428 10,846
Total $153,605 $3,661 20,145 $ 90 $23 23 $ 1 $ 1 4 $153,696 $3,685 20,172
Equity securities
0-6 months $ 2,042 $ 86 1,309 $ 68 $20 54 $ 1 $ — 3 $ 2,111 $ 106 1,366
7-12 months 566 36 309 56 16 72 1 1 3 623 53 384
H12 months — — — — — — — — — — — —
Total $ 2,608 $ 122 1,618 $124 $36 126 $ 2 $ 1 6 $ 2,734 $ 159 1,750
(a) For bonds, represents amortized cost.
(b) As more fully described above, upon realization, certain realized losses will be charged to par ticipating policyholder accounts, or realization will result in
a current decrease in the amortization of DAC.
Form 10-K 2006 AIG 85