AIG 2008 Annual Report Download - page 131

Allowance for Finance Receivable Losses (Financial Services):
•Historical defaults and delinquency experience: utilizing factors, such as delinquency ratio, allowance
ratio, charge-off ratio and charge-off coverage.
•Portfolio characteristics: portfolio composition and consideration of the recent changes to underwriting
criteria and portfolio seasoning.
•External factors: consideration of current economic conditions, including levels of unemployment and
personal bankruptcies.
•Migration analysis: empirical technique measuring historical movement of similar finance receivables
through various levels of repayment, delinquency, and loss categories to existing finance receivable pools.
Flight Equipment Recoverability (Financial Services):
•Expected undiscounted future net cash flows: based upon current lease rates, projected future lease rates
and estimated terminal values of each aircraft based on expectations of market participants.
Other-Than-Temporary Impairments:
AIG evaluates its available for sale, equity method and cost method investments for impairment such that a
security is considered a candidate for other-than-temporary impairment if it meets any of the following criteria:
• Trading at a significant (25 percent or more) discount to par, amortized cost (if lower) or cost for an extended
period of time (nine consecutive months or longer);
• The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding
obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws
intended for court supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary
reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a
fair value substantially lower than par value of their claims; or
• AIG may not realize a full recovery on its investment, regardless of the occurrence of one of the foregoing
events.
The determination that a security has incurred an other-than-temporary decline in value requires the judgment
of management and consideration of the fundamental condition of the issuer, its near-term prospects and all the
relevant facts and circumstances. The above criteria also consider circumstances of a rapid and severe market
valuation decline, such as that experienced in current credit markets, in which AIG could not reasonably assert that
the impairment period would be temporary (severity losses). For further discussion, see Investments — Portfolio
Review — Other-Than-Temporary Impairments.
At each balance sheet date, AIG evaluates its available for sale securities holdings with unrealized losses.
When AIG does not intend to hold or lacks the ability to hold such securities until they have recovered their cost
basis, AIG records the unrealized loss in income. If a loss is recognized from a sale subsequent to a balance sheet
date pursuant to changes in circumstances, the loss is recognized in the period in which the intent to hold the
securities to recovery no longer existed.
In periods subsequent to the recognition of an other-than-temporary impairment charge for fixed maturity
securities, which is not credit or foreign exchange related, AIG generally accretes into income the discount or
amortizes the reduced premium resulting from the reduction in cost basis over the remaining life of the security.
Goodwill Impairment
Goodwill is the excess of the cost of an acquired business over the fair value of the identifiable net assets of the
acquired business. Goodwill is tested for impairment annually, or more frequently if circumstances indicate an
impairment may have occurred. During 2008, AIG performed goodwill impairment tests at June 30, September 30,
and December 31.
AIG 2008 Form 10-K 125
American International Group, Inc., and Subsidiaries