AIG 2008 Annual Report Download - page 212

DAC. Additionally, $320 million has been reclassified in the consolidated balance sheet as of December 31, 2007
from unearned premiums to future policy benefits for life and accident and health insurance contracts. These
revisions did not have a material effect on AIG’s net income (loss), or shareholders’ equity for any period presented.
See Recent Accounting Standards — Accounting Changes below for a discussion of AIG’s adoption of the
Financial Accounting Standards Board (FASB) Staff Position (FSP) FASB Interpretation No. (FIN) 39-1,
“Amendment of FASB Interpretation No. 39” (FSP FIN 39-1), which resulted in reclassifications of amounts
previously presented on the consolidated balance sheet at December 31, 2007.
Fixed Maturity Securities, Held to Maturity — Change in Intent
During 2008, AIG transferred all securities previously classified as held to maturity to available for sale. As a
result of the continuing disruption in the credit markets during 2008, AIG changed its intent to hold to maturity
certain tax-exempt municipal securities held by its insurance subsidiaries, which comprised substantially all of
AIG’s held to maturity securities. This change in intent resulted from a change in certain subsidiaries’ investment
strategies to increase their allocations to taxable securities, reflecting AIG’s net operating loss position. As of the
date the securities were transferred, the securities had a carrying value of $20.8 billion and a net unrealized loss of
$752 million.
Accounting Policies
(a) Revenue Recognition and Expenses:
Premiums and Other Considerations: Premiums for short duration contracts and considerations received
from retailers in connection with the sale of extended service contracts are earned primarily on a pro rata basis over
the term of the related coverage. The reserve for unearned premiums includes the portion of premiums written and
other considerations relating to the unexpired terms of coverage.
Premiums for long duration insurance products and life contingent annuities are recognized as revenues when
due. Estimates for premiums due but not yet collected are accrued. Consideration for universal life and investment-
type products consists of policy charges for the cost of insurance, administration, and surrenders during the period.
Policy charges collected with respect to future services are deferred and recognized in a manner similar to DAC
related to such products.
Net Investment Income: Net investment income represents income primarily from the following sources in
AIG’s insurance operations and AIG parent:
• Interest income and related expenses, including amortization of premiums and accretion of discounts on
bonds with changes in the timing and the amount of expected principal and interest cash flows reflected in
the yield, as applicable.
• Dividend income and distributions from common and preferred stock and other investments when
receivable.
• Realized and unrealized gains and losses from investments in trading securities accounted for at fair value.
• Earnings from hedge funds and limited partnership investments accounted for under the equity method.
• The difference between the carrying amount of a life settlement contract and the life insurance proceeds of
the underlying life insurance policy recorded in income upon the death of the insured.
Realized Capital Gains (Losses): Realized capital gains and losses are determined by specific identification.
The realized capital gains and losses are generated primarily from the following sources:
• Sales of fixed maturity securities and equity securities (except trading securities accounted for at fair value),
real estate, investments in joint ventures and limited partnerships and other types of investments.
206 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)