AIG 2009 Annual Report Download - page 162

American International Group, Inc., and Subsidiaries
Corporate Debt
The following table represents the relevant market credit inputs used to estimate the sensitivity for the credit default
swap portfolio written on investment-grade corporate debt and the estimated increase (decrease) to fair value of
derivative liability at December 31, 2009 corresponding to changes in these market credit inputs:
Input Used at December 31, 2009 Increase (Decrease) To
(in millions) Fair Value of Derivative Liability
Credit spreads for all names
Effect of an increase by 10 basis points $31
Effect of a decrease by 10 basis points $ (32)
All base correlations
Effect of an increase by 1% $7
Effect of a decrease by 1% $(7)
Assumed recovery rate
Effect of an increase by 1% $(5)
Effect of a decrease by 1% $5
These results are calculated by stressing a particular assumption independently of changes in any other assumption.
No assurance can be given that the actual levels of the indices and maturity will not exceed, perhaps significantly, the
ranges assumed by AIGFP for purposes of the above analysis. No assumption should be made that results calculated
from the use of other changes in these indices and maturity can be interpolated or extrapolated from the results set
forth above.
Other derivatives. Valuation models that incorporate unobservable inputs initially are calibrated to the transaction
price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates, credit spreads,
volatilities, etc.). Model inputs are changed only when corroborated by observable market data.
Transfers into and out of Level 3
During the year ended December 31, 2009, AIG transferred into Level 3 approximately $9.6 billion of assets,
primarily representing investments in certain ABS, RMBS and CMBS, which coincided with a decrease in market
transparency and downward credit migration of these securities, and investments in private placement corporate debt
securities, for which pricing adjustments were made to reflect an additional risk premium not captured in the matrix
pricing. During the year ended December 31, 2009, AIG transferred approximately $5.8 billion of assets out of
Level 3. These transfers out of Level 3 primarily related to investments in certain ABS and RMBS and investments in
private placement corporate debt. See Note 5 to the Consolidated Financial Statements for additional information
about transfers into and out of Level 3.
AIG 2009 Form 10-K 154