AIG 2008 Annual Report Download - page 213

• Reductions to the cost basis of fixed maturity securities and equity securities (except trading securities
accounted for at fair value) and other invested assets for other-than-temporary impairments.
• Changes in fair value of derivatives except for (1) those instruments at AIGFP, (2) those instruments that
qualify for hedge accounting treatment under (FAS 133) Statement of Financial Accounting Standards
No. 133, “Accounting for Derivative Instruments and Hedging Activities” when the change in the fair value
of the hedged item is not reported in realized gains (losses), and (3) those instruments that are designated as
economic hedges of financial instruments for which the fair value option has been elected under FAS 159,
“The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159).
• Exchange gains and losses resulting from foreign currency transactions.
Other Income: Other income includes income from flight equipment, Asset Management operations, the
operations of AIGFP and finance charges on consumer loans.
Income from flight equipment under operating leases is recognized over the life of the lease as rentals become
receivable under the provisions of the lease or, in the case of leases with varying payments, under the straight-line
method over the noncancelable term of the lease. In certain cases, leases provide for additional payments contingent
on usage. Rental income is recognized at the time such usage occurs less a provision for future contractual aircraft
maintenance. Gains and losses on flight equipment are recognized when flight equipment is sold and the risk of
ownership of the equipment is passed to the new owner.
Income from Asset Management operations is generally recognized as revenues as services are performed.
Certain costs incurred in the sale of mutual funds are deferred and subsequently amortized.
Income from the operations of AIGFP included in other income consists of the following:
• Change in fair value relating to financial assets and liabilities for which the fair value option has been
elected.
• 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.
• Changes in the fair value of derivatives. In certain instances, no initial gain or loss was recognized in
accordance with Emerging Issues Task Force Issue (EITF) 02-3, “Issues Involved in Accounting for
Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk
Management Activities” (EITF 02-3). Prior to January 1, 2008, the initial gain or loss was recognized in
income over the life of the transaction or when observable market data became available. Any remaining
unamortized balances at January 1, 2008 were recognized in beginning retained earnings in the transition to
FAS 159.
• Changes in the fair value of trading securities and spot commodities sold but not yet purchased, futures and
hybrid financial instruments.
• Realized gains and losses from the sale of available for sale securities and investments in private equities,
joint ventures, limited partnerships and other investments.
• Exchange gains and losses resulting from foreign currency transactions.
• Reductions to the cost basis of securities available for sale for other-than-temporary impairments.
• Earnings from hedge funds and limited partnership investments accounted for under the equity method.
Finance charges on consumer loans are recognized as revenue using the interest method. Revenue ceases to be
accrued when contractual payments are not received for four consecutive months for loans and retail sales contracts,
AIG 2008 Form 10-K 207
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)