AIG 2006 Annual Report Download - page 183

American International Group, Inc. and Subsidiaries
8. Investment Information
Continued
As of December 31, 2006, AIG held 20,172 and 1,750 of invested assets on the consolidated balance sheet. These
individual bond and stock investments, respectively, that were in investments are monitored for impairment on a contract by
an unrealized loss position, of which 10,846 individual invest- contract basis quarterly. During 2006, income recognized on life
ments were in an unrealized loss position continuously for 12 settlement contracts previously held in non-consolidated trusts
months or more. was $38 million, and is included in net investment income on the
consolidated statement of income. Further information regarding
AIG recorded other-than-temporary impairment losses of ap- life settlement contracts as of December 31, 2006 is as follows:
proximately $944 million, $598 million and $684 million in
(dollars in millions)
realized capital gains (losses) in 2006, 2005 and 2004, respec-
Remaining Life
tively. See Note 1(e) herein for AIG’s other-than-temporary impair- Expectancy Number of Carrying Face Value
ment accounting policy. of Insureds Contracts Value (Death Benefits)
0 – 1 year 4 $ 6 $ 8
(g) Other Invested Assets: Other invested assets as of De-
1 – 2 years 23 10 15
cember 31, 2006 were $42.1 billion, consisting primarily of hedge
2 – 3 years 61 58 88
funds and limited partnerships. Approximately $5.3 billion relates
3 – 4 years 123 108 188
to available for sale investments carried at fair value, with 4 – 5 years 135 79 170
unrealized gains and losses recorded in a separate component of Thereafter 1,453 829 3,197
Other comprehensive income, net of deferred taxes, with almost
Total 1,799 $1,090 $3,666
all of the remaining investments being accounted for on the equity
method of accounting. All of the investments are subject to
As of December 31, 2006, the anticipated life insurance
impairment testing (see Note 1(e) herein). The gross unrealized
premiums required to keep the life settlement contracts in force,
loss on the investments accounted for as available for sale as of
payable in the ensuing twelve months ending December 31, 2007
December 31, 2006 was $167 million, the majority of which
and the four succeeding years ending December 31, 2011 are
represents investments that have been in a continuous unrealized
$77 million, $81 million, $85 million, $86 million, and $87 mil-
loss position for less than 12 months.
lion, respectively.
Other invested assets at December 31, 2006, also includes
Financial Services
approximately $1.8 billion of aircraft asset investments held by
non-financial services subsidiaries. (i) Economic Hedging of Securities Available for Sale:
AIGFP follows a policy of minimizing interest rate, currency,
(h) Investments in Life Settlement Contracts: In June
commodity, and equity risks associated with securities available
2006, AIG restructured its ownership of life settlement contracts
for sale by entering into internal offsetting positions, on a security
with no effect on the economic substance of these investments.
by security basis within its derivatives portfolio, thereby offsetting
At the same time, AIG paid $610 million to its former co-investors
a significant portion of the unrealized appreciation and deprecia-
to acquire all the remaining interests in life settlement contracts
tion. In addition, to reduce its credit risk, AIGFP has entered into
held in previously non-consolidated trusts. The life insurers for a
credit derivative transactions with respect to $128 million of
small portion of these newly consolidated life settlement con-
securities available for sale to economically hedge its credit risk.
tracts include AIG subsidiaries. As a result, amounts related to
As previously discussed, these economic offsets did not meet the
life insurance issued by AIG subsidiaries are eliminated in
hedge accounting requirements of FAS 133 and, therefore, are
consolidation.
recorded in Other income in the Consolidated Statement of
At December 31, 2006, the carrying value of AIG’s life Income.
settlement contracts was $1.1 billion, and is included in Other
Form 10-K 2006 AIG 133