AIG 2009 Annual Report Download - page 124

American International Group, Inc., and Subsidiaries
AIGFP’s pre-tax gain in 2009 includes a net gain of $2.8 billion representing the effect of changes in credit spreads
on the valuation of AIGFP’s assets and liabilities, including $52 million of gains reflected in the unrealized market
valuation gain on super senior credit default swaps. The gain in 2009 was primarily the result of tightening of spreads
on asset-backed securities and CDOs, which represent a significant segment of AIGFP’s investment portfolio.
AIGFP’s pre-tax loss for 2008 includes a loss of $9.3 billion representing the effect of changes in credit spreads on
the valuation of AIGFP’s assets and liabilities, including $185 million of gains reflected in the unrealized market
valuation loss on super senior credit default swaps. Historically, AIG’s credit spreads and those on AIGFP’s assets
moved in a similar fashion. This relationship began to diverge during second quarter of 2008 and continued to diverge
through the end of the year. While AIG’s credit spreads widened significantly during 2008, the credit spreads on the
Asset-backed securities (ABS) and CDO products, which represent a significant portion of AIGFP’s investment
portfolio, widened even more. The losses on AIGFP’s assets more than offset the net gain on its liabilities that was
driven by the significant widening in AIG’s credit spreads. The net gain on AIGFP’s liabilities was reduced by the
effect of posting collateral and the early terminations of GIAs, term notes and hybrid term notes. Included in the 2008
pre-tax loss is the transition amount of $291 million related to the adoption of new accounting standards on fair value
measurements and fair value option for financial assets and financial liabilities.
Other Operations
AIG’s Other operations includes results from Parent & Other operations, after allocations to AIG’s business
segments and results from noncore businesses.
Parent & Other
AIG’s Parent & Other operations consist primarily of interest expense, restructuring costs, expenses of corporate
staff not attributable to specific reportable segments, expenses related to efforts to improve internal controls,
corporate initiatives, certain compensation plan expenses, corporate level net realized capital gains and losses, certain
litigation related charges and net gains and losses on sale of divested businesses.
Noncore Businesses
Noncore businesses include results of certain businesses that have been divested or are being wound down or
repositioned.
In order to better align financial reporting with the manner in which AIG’s chief operating decision makers review
the businesses to make decisions about resources to be allocated and to assess performance, beginning in 2009, the
following changes were made:
• results for Mortgage Guaranty, Transatlantic, 21st Century and HSB are now included in AIG’s Other
operations category. These amounts were previously reported as part of General Insurance operations.
• results for certain brokerage service, mutual fund, GIC and other asset management activities previously
reported in the Asset Management segment are now included in Domestic Life Insurance & Retirement
Services. The remaining Asset Management operations are now included in AIG’s Other operations category.
See Capital Resources and Liquidity — AIG’s Strategy for Stabilization and Repayment of its Obligations —
Asset Disposition Plan — Sales of Businesses and Specific Asset Dispositions for discussion of the sale of AIG’s
investment advisory and third party institutional asset management business in 2009.
• the equity income (loss) from certain equity method investments, which were previously included as part of
AIG’s Other operations category are now included in General Insurance and Foreign Life Insurance &
Retirement Services.
Prior period amounts have been revised to conform to the current presentation for the above changes.
AIG 2009 Form 10-K 116