AIG 2009 Annual Report Download - page 132

American International Group, Inc., and Subsidiaries
Flight Equipment Recoverability (Financial Services):
•Expected undiscounted future net cash flows: based upon current lease rates, projected future lease rates and
lease periods and estimated residual or sales values of each aircraft based on expectations regarding the use of
the aircraft and market participants.
Other-Than-Temporary Impairments:
At each balance sheet date, AIG evaluates its available for sale securities holdings with unrealized losses. Prior to
April 1, 2009, these reviews were conducted pursuant to accounting standards that were amended on April 1, 2009.
See Note 6 to the Consolidated Financial Statements for a discussion of AIG’s process for evaluating
other-than-temporary impairments under these prior accounting standards.
In April 2009, the Financial Accounting Standards Board issued a new accounting standard addressing recognition
and presentation of other-than-temporary impairments, which amended the other-than-temporary impairment model
for fixed maturity securities and requires additional disclosures. The impairment model for equity securities was not
affected. See Note 1 to the Consolidated Financial Statements for additional discussion on the new
other-than-temporary impairments accounting standard.
In connection with AIG’s adoption of the new other-than-temporary impairments accounting standard on April 1,
2009, AIG changed its process for determining other-than-temporary impairments with respect to available for sale
fixed maturity securities. If AIG intends to sell a fixed maturity security or it is more likely than not that AIG will be
required to sell a fixed maturity security before recovery of its amortized cost basis and the fair value of the security is
below amortized cost, an other-than-temporary impairment has occurred and the amortized cost is written down to
current fair value, with a corresponding charge to earnings.
For all other fixed maturity securities for which a credit impairment has occurred, the amortized cost is written
down to the estimated recovery value with a corresponding charge to earnings. Additional fair value decline below
recovery value, if any, is charged to unrealized appreciation (depreciation) of fixed maturity investments on which
other-than-temporary credit impairments were taken (a component of accumulated other comprehensive income
(loss)) because this is considered a non-credit impairment.
When assessing AIG’s intent to sell a fixed maturity security, or if it is more likely than not that AIG will be
required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant
facts and circumstances including, but not limited to, decisions to reposition AIG’s investment portfolio, sale of
securities to meet cash flow needs and sales of securities to capitalize on favorable pricing.
See the discussion in Note 6 to the Consolidated Financial Statements for additional information on the
methodology and significant inputs, by security type, which AIG uses to determine the amount of a credit loss.
AIG continues to evaluate its available for sale equity securities, equity method and cost method investments for
impairment such that a security is considered a candidate for other-than-temporary impairment if it meets any of the
following criteria:
• Trading at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive
months or longer);
• The occurrence of a discrete credit event resulting in (i) the issuer defaulting on a material outstanding
obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws
intended for court supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary
reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair
value substantially lower than par value of their claims; or
• AIG may not realize a full recovery on its investment, regardless of the occurrence of one of the foregoing
events.
AIG 2009 Form 10-K 124