AIG 2008 Annual Report Download - page 177

The aging of the unrealized losses of RMBS, CMBS, CDOs and ABS with fair values greater than
20 percent and 50 percent less than their cost at December 31, 2008 (in footnote (f) to the table above) is shown
in the table below, which provides the period in which those securities in unrealized loss positions would
become candidates for impairment solely because they have been trading at a discount for nine consecutive
months (AIG’s other-than-temporary aging guideline) without regard to the level of discount (AIG’s other-
than-temporary trading level guideline), assuming prices remained unchanged.
First
Quarter
2009
Second
Quarter
2009
Third
Quarter
2009 Total
(In millions)
Unrealized loss percent:
Greater than 25 percent .......................... $46 $275 $4,181 $4,502
20 to less than 25 percent ........................ $— $ — $ 791 $ 791
Given the current difficult market conditions, AIG is not able to predict reasonably likely changes in the prices
of these securities. Moreover, AIG is unable to assess the effect, if any, that potential sales of securities pursuant to
TARP will have on the pricing of its available for sale securities.
Unrealized gains and losses
At December 31, 2008, the carrying value of AIG’s available for sale fixed maturity and equity securities
aggregated $375.3 billion. At December 31, 2008, aggregate pre-tax unrealized gains for fixed maturity and equity
securities were $14.8 billion ($9.6 billion after tax).
At December 31, 2008, the aggregate pre-tax gross unrealized losses on fixed maturity and equity securities
were $25.0 billion ($16.3 billion after tax). Additional information about these securities is as follows:
• These securities were valued, in the aggregate, at approximately 88 percent of their current amortized cost.
• Approximately 24 percent of these securities were valued at less than 20 percent of their current cost, or
amortized cost.
• Approximately five percent of the fixed maturity securities had issuer credit ratings which were below
investment grade.
AIG did not consider these securities in an unrealized loss position to be other-than-temporarily impaired at
December 31, 2008, because management has the intent and ability to hold these investments until they recover
their cost basis within a recovery period deemed to be temporary. In performing this evaluation, management
considered the market recovery periods for securities in previous periods of broad market declines. In addition, for
certain securities with more significant declines, management performed extended fundamental credit analysis on a
security-by-security basis including consideration of credit enhancements, expected defaults on underlying
collateral, review of relevant industry analyst reports and forecasts and other market available data. In manage-
ment’s view this analysis provides persuasive evidence sufficient to conclude that such severe declines in fair value
below amortized cost should not be considered other than temporary.
In 2008, unrealized losses related to investment grade bonds increased $10.6 billion ($6.9 billion after tax),
reflecting the widening of credit spreads, partially offset by the effects of a decline in risk-free interest rates.
AIG 2008 Form 10-K 171
American International Group, Inc., and Subsidiaries