AIG 2009 Annual Report Download - page 215

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
charges collected with respect to future services are deferred and recognized in a manner similar to DAC related to
such products.
Net investment income: Net investment income represents income primarily from the following sources in AIG’s
insurance operations and AIG parent:
• Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds
with changes in the timing and the amount of expected principal and interest cash flows reflected in the yield, as
applicable.
• Dividend income and distributions from common and preferred stock and other investments when receivable.
• Realized and unrealized gains and losses from investments in trading securities accounted for at fair value.
• Earnings from hedge funds and limited partnership investments accounted for under the equity method.
• The difference between the carrying amount of a life settlement contract and the life insurance proceeds of the
underlying life insurance policy recorded in income upon the death of the insured.
• Change in fair value of AIG’s interest in ML II.
Net realized capital gains (losses): Net realized capital gains and losses are determined by specific identification. The
net realized capital gains and losses are generated primarily from the following sources:
• Sales of fixed maturity securities and equity securities (except trading securities accounted for at fair value), real
estate, investments in joint ventures and limited partnerships and other types of investments.
• Reductions to the cost basis of fixed maturity securities and equity securities (except trading securities
accounted for at fair value) and other invested assets for other-than-temporary impairments.
• Changes in fair value of derivatives except for (1) those instruments at AIGFP, (2) those instruments that qualify
for hedge accounting treatment when the change in the fair value of the hedged item is not reported in net
realized capital gains (losses), and (3) those instruments that are designated as economic hedges of financial
instruments for which the fair value option has been elected.
• Exchange gains and losses resulting from foreign currency transactions.
Unrealized market valuation gains (losses) on AIGFP super senior credit default swap portfolio: Includes the market
valuation gains and losses associated with AIGFP’s super senior credit default swap (CDS) portfolio.
Other income: Other income includes income from flight equipment, noncore Asset Management operations, the
operations of AIGFP excluding unrealized market valuation gains (losses) on AIGFP’s CDS portfolio, finance charges
on consumer loans, and the change in fair value of AIG’s interest in ML III.
Income from flight equipment under operating leases is recognized over the life of the lease as rentals become
receivable under the provisions of the lease or, in the case of leases with varying payments, under the straight-line
method over the noncancelable term of the lease. In certain cases, leases provide for additional payments contingent
on usage. Rental income is recognized at the time such usage occurs less a provision for future contractual aircraft
maintenance. Gains and losses on flight equipment are recognized when flight equipment is sold and the risk of
ownership of the equipment is passed to the new owner.
Income from noncore Asset Management operations is generally recognized as revenues as services are performed
with related expenses generally recognized consistent with related revenues. In addition, net realized gains and carried
interest are contingent upon investment maturity levels and market conditions.
Income from the operations of AIGFP included in Other income consists of the following:
• Change in fair value relating to financial assets and liabilities for which the fair value option has been elected.
207 AIG 2009 Form 10-K