AIG 2008 Annual Report Download - page 221

(v) Future Policy Benefits for Life and Accident and Health Contracts and Policyholder Contract Deposits:
The liability for future policy benefits and policyholder contract deposits are established using assumptions
described in Note 11 herein. Future policy benefits for life and accident and health insurance contracts include
provisions for future dividends to participating policyholders, accrued in accordance with all applicable regulatory
or contractual provisions. Policyholder contract deposits include AIG’s liability for (a) certain guarantee benefits
accounted for as embedded derivatives at fair value in accordance with FAS 133 and (b) certain contracts that AIG
has elected to account for at fair value beginning in 2008 in accordance with FAS 159.
See Note 4 to the Consolidated Financial Statements for additional FAS 159 disclosures.
(w) Other Policyholder Funds: Other policyholder funds are reported at cost and include any policyholders’
funds on deposit that encompass premium deposits and similar items.
(x) Securities and Spot Commodities Sold but not yet Purchased, at Fair Value: Securities and spot
commodities sold but not yet purchased represent sales of securities and spot commodities not owned at the time
of sale. The obligations arising from such transactions are recorded on a trade-date basis and carried at fair value.
Also included are obligations under gold leases, which are accounted for as a debt host with an embedded gold
derivative. Beginning January 1, 2008, AIGFP elected the fair value option for these debt host contracts.
(y) Commercial Paper and Extendible Commercial Notes and Long-Term Debt: AIG’s funding consists, in
part, of medium and long-term debt and commercial paper. Commercial paper, when issued at a discount, is
recorded at the proceeds received and accreted to its par value. Extendible commercial notes were issued by AGF
with initial maturities of up to 90 days, but were extended by AGF in mid-September 2008 to 390 days. Long-term
debt is carried at the principal amount borrowed, net of unamortized discounts or premiums. See Note 13 herein for
additional information. Long-term debt also includes liabilities connected to trust preferred stock principally
related to outstanding securities issued by AIG Life Holdings (US), Inc. (AIGLH), a wholly owned subsidiary of
AIG. Cash distributions on such preferred stock are accounted for as interest expense.
(z) Fed Facility and Commercial Paper Funding Facility: In 2008, AIG obtained funding under the Fed
Facility and the NY Fed’s Commercial Paper Funding Facility (the CPFF). Amounts borrowed under the Fed
Facility and the CPFF are carried at the principal amount borrowed, and in the case of the Fed Facility, also include
accrued compounding interest and fees.
(aa) Other Liabilities: Other liabilities consist of other funds on deposit, and other payables. AIG has
entered into certain insurance and reinsurance contracts, primarily in its General Insurance segment, that do not
contain sufficient insurance risk to be accounted for as insurance or reinsurance. Accordingly, the premiums
received on such contracts, after deduction for certain related expenses, are recorded as deposits within Other
liabilities in the consolidated balance sheet. Net proceeds of these deposits are invested and generate net investment
income. As amounts are paid, consistent with the underlying contracts, the deposit liability is reduced.
(bb) Minority Interest: Minority interest liability includes the equity interest of outside shareholders in
AIG’s consolidated subsidiaries and the preferred shareholders’ equity in subsidiary companies relating to
outstanding preferred stock or interest of ILFC, a wholly owned subsidiary of AIG. Cash distributions on such
preferred stock or interest are accounted for as interest expense.
At December 31, 2008, the preferred stock consisted of 1,000 shares of market auction preferred stock (MAPS)
in two series (Series A and B) of 500 shares each. Each of the MAPS shares has a liquidation value of $100,000 per
share and is not convertible. The dividend rate, other than the initial rate, for each dividend period for each series is
reset approximately every seven weeks (49 days) on the basis of orders placed in an auction. During 2006, ILFC
extended each of the MAPS dividend periods for three years. At December 31, 2008, the dividend rate for Series A
MAPS was 4.70 percent and the dividend rate for Series B MAPS was 5.59 percent.
(cc) Contingent Liabilities: Amounts are accrued for the resolution of claims that have either been asserted
or are deemed probable of assertion if, in the opinion of management, it is both probable that a liability has been
incurred and the amount of the liability can be reasonably estimated. In many cases, it is not possible to determine
AIG 2008 Form 10-K 215
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)