AIG 2009 Annual Report Download - page 129

American International Group, Inc., and Subsidiaries
• a decline in unrealized carried interest revenues due to a decline in portfolio asset valuations as well as lower
management fees on lower base assets under management. Unrealized carried interest revenues are impacted
by asset valuation changes within the managed portfolio and typically move in tandem with the level of assets
under management and related base management fees. Base management fees have declined from prior year
periods due to lower average assets under management. The lower average asset base is a function of reduced
asset values and client loss, which primarily occurred in the second half of 2008 and has since abated.
2008 and 2007 Comparison
Institutional Asset Management recognized a pre-tax loss in 2008 compared to pre-tax income in 2007, primarily
resulting from:
• higher net equity losses and impairment charges of $321 million. Due to the global real estate market
conditions, several of AIG Global Real Estate’s investments were deemed to be impaired, and several equity
investments were written off during 2008. These impairments and write-offs totaled $269 million, of which
$62 million is included in noncontrolling interest;
• lower Net realized capital gains on real estate investments due to lower real estate asset sales;
• lower carried interest revenues due to lower fund performance in 2008;
• increased losses on warehouse investments driven by depressed market conditions; and
• losses related to the wind down of securities lending activities and expenses associated with restructuring and
divestment related activities.
Included in the 2007 results was a $398 million gain related to the sale of a portion of AIG’s investment in The
Blackstone Group, LP.
Critical Accounting Estimates
The preparation of financial statements in conformity with GAAP requires the application of accounting policies
that often involve a significant degree of judgment. AIG considers its accounting policies that are most dependent on
the application of estimates and assumptions, and therefore viewed as critical accounting estimates, to be those
relating to items considered by management in the determination of:
• AIG’s ability to continue as a going concern;
• liability for general insurance unpaid claims and claims adjustment expenses;
• future policy benefits for life and accident and health contracts;
• recoverability of DAC;
• estimated gross profits for investment-oriented products;
• the allowance for finance receivable losses;
• flight equipment recoverability;
• other-than-temporary impairments of investments;
• goodwill impairment;
• liability for legal contingencies;
• estimates with respect to income taxes; and
• fair value measurements of certain financial assets and liabilities, including credit default swaps and AIG’s
investments in ML II and ML III (Maiden Lane Interests).
121 AIG 2009 Form 10-K