AIG 2008 Annual Report Download - page 217

generated by the asset. These evaluations for impairment are significantly affected by estimates of future net cash
flows and other factors that involve uncertainty.
When assets are retired or disposed of, the cost and associated accumulated depreciation are removed from the
related accounts and the difference, net of proceeds, is recorded as a gain or loss in Other income.
Accumulated depreciation on flight equipment was $12.3 billion and $10.5 billion at December 31, 2008 and
2007, respectively.
(h) Other Invested Assets: Other invested assets consist primarily of investments by AIG’s insurance
operations in hedge funds, private equity and limited partnerships.
Hedge funds and limited partnerships in which AIG’s insurance operations hold in the aggregate less than a
five percent interest are reported at fair value. The change in fair value is recognized as a component of
Accumulated other comprehensive income (loss). With respect to hedge funds and limited partnerships in which
AIG holds in the aggregate a five percent or greater interest or less than a five percent interest but in which AIG has
more than a minor influence over the operations of the investee, AIG’s carrying value is its share of the net asset
value of the funds or the partnerships. The changes in such net asset values, accounted for under the equity method,
are recorded in Net investment income.
In applying the equity method of accounting, AIG consistently uses the most recently available financial
information provided by the general partner or manager of each of these investments, which is one to three months
prior to the end of AIG’s reporting period. The financial statements of these investees are generally audited on an
annual basis.
Other invested assets include investments entered into for strategic purposes and not solely for capital
appreciation or for income generation. These investments are accounted for under the equity method. At
December 31, 2008, AIG’s significant investments in partially owned companies included its 26.0 percent interest
in Tata AIG Life Insurance Company, Ltd., its 26.0 percent interest in Tata AIG General Insurance Company, Ltd.
and its 39 percent interest in The Fuji Fire and Marine Insurance Co., Ltd. Dividends received from unconsolidated
entities in which AIG’s ownership interest is less than 50 percent were $20 million, $30 million and $28 million for
the years ended December 31, 2008, 2007, and 2006, respectively. The undistributed earnings of unconsolidated
entities in which AIG’s ownership interest is less than 50 percent were $227 million, $266 million and $300 million
at December 31, 2008, 2007, and 2006, respectively.
Also included in Other invested assets are real estate held for investment, aircraft asset investments held by
non-Financial Services subsidiaries and investments in life settlement contracts. See Note 5(h) herein for further
information.
(i) Securities Purchased (Sold) Under Agreements to Resell (Repurchase), at contract value: Securities
purchased under agreements to resell and Securities sold under agreements to repurchase for AIGFP are accounted
for as collateralized borrowing or lending transactions and are recorded at their contracted resale or repurchase
amounts, plus accrued interest. AIG’s policy is to take possession of or obtain a security interest in securities
purchased under agreements to resell.
AIG minimizes the credit risk that counterparties to transactions might be unable to fulfill their contractual
obligations by monitoring customer credit exposure and collateral value and generally requiring additional
collateral to be deposited with AIG when necessary.
(j) Short-term Investments: Short-term investments consist of interest-bearing cash equivalents, time
deposits, and investments with original maturities within one year from the date of purchase, such as commercial
paper.
(k) Cash: Cash represents cash on hand and non-interest bearing demand deposits.
(l) Premiums and Insurance Balances Receivable: Premiums and insurance balances receivable consist of
premium balances, less commissions payable thereon, due from agents and brokers and insureds. The allowance for
AIG 2008 Form 10-K 211
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)