AIG 2008 Annual Report Download - page 137

2008(b) 2007(b) 2008(c) 2007(c) 2008(d) 2007(d)
Net Notional Amount
December 31,
Fair Value
Of Derivative
Liability at December 31,
Unrealized Market
Valuation Loss
Year Ended December 31(a),
(In millions)
Arbitrage:
Multi-sector CDOs(f) ............ 12,556 78,205 5,906 11,246 25,700 11,246
Corporate debt/CLOs(g) .......... 50,495 70,425 2,554 226 2,328 226
Total. . . ...................... 63,051 148,630 8,460 11,472 28,028 11,472
Mezzanine tranches(h) ............. 4,701 5,770 195 —195 —
Total .......................... $302,201 $533,143 $9,034 $11,472 $28,602 $11,472
(a) There were no unrealized market valuation losses in 2006.
(b) Net notional amounts presented are net of all structural subordination below the covered tranches.
(c) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash
collateral in accordance with FIN 39.
(d) Includes credit valuation adjustment gains of $185 million in 2008 representing the positive effect of AIG’s
widening credit spreads on the valuation of the derivatives liabilities. AIGFP began reflecting this valuation
adjustment as a result of the adoption of SFAS 157 on January 1, 2008. Prior to January 1, 2008, a credit
valuation adjustment was not reflected in the valuation of AIGFP’s liabilities.
(e) During 2008, a European RMBS regulatory capital relief transaction was not terminated as expected when it
no longer provided regulatory capital relief to the counterparty as a result of arbitrage opportunities arising
from its unique attributes and the counterparty’s access to a particular funding source.
(f) Includes $9.7 billion in net notional amount of credit default swaps written with cash settlement provisions at
December 31, 2008. In connection with the terminations of CDS transactions in respect of the ML III
transaction, AIG Financial Products Corp. paid $32.5 billion through the surrender of collateral previously
posted (net of the $2.5 billion received pursuant to the shortfall agreement), of which $2.5 billion (included in
Other income (loss)) is related to certain 2a-7 Put transactions written on multi-sector CDOs purchased by
ML III.
(g) Includes $1.5 billion of credit default swaps written on the super senior tranches of CLOs as of December 31,
2008.
(h) Includes offsetting purchased CDS of $2.0 billion and $2.7 billion in net notional amount at December 31,
2008 and 2007, respectively.
The changes in the net notional amount of the AIGFP super senior credit default swap portfolio,
including credit default swaps written on mezzanine tranches of certain regulatory capital relief transactions
were as follows:
For The Year Ended December 31, 2008
Net Notional
Amount
December 31,
2007
Terminations
and
Maturities
ML III
Transaction(a)
Effect of
Foreign
Exchange
Rates(b)
Amortization/
Reclassification
Net Notional
Amount
December 31,
2008
(In millions)
Regulatory Capital:
Corporate loans . . . $229,313 $ (75,480) $ — $ (3,554) $(24,651) $125,628
Prime residential
mortgages ..... 149,430 (24,222) — (6,539) (11,423) 107,246
Other(c) ......... —- — — (207) 1,782 1,575
Total ........... 378,743 (99,702) — (10,300) (34,292) 234,449
AIG 2008 Form 10-K 131
American International Group, Inc., and Subsidiaries