AIG 2007 Annual Report Download - page 165

American International Group, Inc. and Subsidiaries
There have been disruptions in the commercial mortgage adversely affected by market perceptions that underlying mortgage
markets in general, and the CMBS market in particular, with credit defaults will increase. As a result, AIG recognized $135 million of
default swaps indices and quoted prices of securities at levels other-than-temporary impairment charges on CMBS trading at a
consistent with a severe correction in lease rates, occupancy and severe discount to cost, despite the absence of any deterioration
fair value of properties. In addition, spreads in the primary in per formance of the underlying credits, because AIG concluded
mortgage market have widened significantly. While this capital that it could not reasonably assert that the recovery period was
market stress has not to date been reflected in the per formance temporary. At this time, AIG anticipates full recovery of principal
of commercial mortgage securitization in the form of increased and interest on the securities to which such other-than-temporary
defaults in underlying mortgage pools, pricing of CMBS has been impairment charges were recorded.
An aging of the pre-tax unrealized losses of fixed maturity and equity 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 at December 31, 2007:
Less than or equal to Greater than 20% to Greater than 50%
20% of Cost(e) 50% of Cost(e) of Cost(e) Total
Aging(d) 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 $124,681 $ 5,099 16,539 $ 2,588 $ 681 633 $ $ $127,269 $ 5,780 17,172
7-12 months 53,515 3,078 7,174 3,219 859 1,110 — — — 56,734 3,937 8,284
H12 months 63,146 2,966 9,598 699 180 119 63,845 3,146 9,717
Total $241,342 $11,143 33,311 $ 6,506 $1,720 1,862 $ — $ — — $247,848 $12,863 35,173
Below
investment
grade bonds
0-6 months $ 5,909 $ 147 1,611 $ 68 $ 18 24 $ — $ — — $ 5,977 $ 165 1,635
7-12 months 782 45 246 47 8 14 — — — 829 53 260
H12 months 1,222 61 204 70 19 9 — — — 1,292 80 213
Total $ 7,913 $ 253 2,061 $ 185 $ 45 47 $ — $ — — $ 8,098 $ 298 2,108
Total bonds
0-6 months $130,590 $ 5,246 18,150 $ 2,656 $ 699 657 $ — $ — — $133,246 $ 5,945 18,807
7-12 months 54,297 3,123 7,420 3,266 867 1,124 — — — 57,563 3,990 8,544
H12 months 64,368 3,027 9,802 769 199 128 — — — 65,137 3,226 9,930
Total(c) $249,255 $11,396 35,372 $ 6,691 $1,765 1,909 $ — $ — — $255,946 $13,161 37,281
Equity securities
0-6 months $ 3,603 $ 297 2,051 $ 262 $ 69 39 $ $ $ 3,865 $ 366 2,090
7-12 months 283 33 181 285 64 36 568 97 217
H12 months — — — — — — — — — — — —
Total $ 3,886 $ 330 2,232 $ 547 $ 133 75 $ — $ — — $ 4,433 $ 463 2,307
(a) For bonds, represents amortized cost.
(b) The effect on net income of unrealized losses after taxes will be mitigated upon realization because certain realized losses will be charged to
participating policyholder accounts, or realization will result in current decreases in the amortization of certain DAC.
(c) Includes securities lending invested collateral.
(d) Represents the number of continuous months that fair value has been less than cost by any amount.
(e) Represents the percentage by which fair value is less than cost at the balance sheet date.
2007, aggregate pre-tax unrealized gains for fixed maturity and
Unrealized gains and losses
equity securities were $18.1 billion ($11.8 billion after tax).
At December 31, 2007, the fair value of AIG’s fixed maturity and At December 31, 2007, the aggregate pre-tax gross unrealized
equity securities aggregated $587.1 billion. At December 31, losses on fixed maturity and equity securities were $13.6 billion
AIG 2007 Form 10-K 111