AIG 2009 Annual Report Download - page 216

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• 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.
• Changes in the fair value of derivatives. In certain instances, no initial gain or loss was recognized. Prior to
January 1, 2008, the initial gain or loss was recognized in income over the life of the transaction or when
observable market data became available. Any remaining unamortized balances at January 1, 2008 were
recognized in beginning retained earnings when the fair value option was elected.
• Changes in the fair value of trading securities and spot commodities sold but not yet purchased, futures and
hybrid financial instruments.
• Realized capital gains and losses from the sale of available for sale securities and investments in private equities,
joint ventures, limited partnerships and other investments.
• Exchange gains and losses resulting from foreign currency transactions.
• Reductions to the cost basis of securities available for sale for other-than-temporary impairments.
• Earnings from hedge funds and limited partnership investments accounted for under the equity method.
Finance charges on consumer loans are recognized as revenue using the interest method. Revenue ceases to be
accrued when contractual payments are not received for four consecutive months for loans and retail sales contracts,
and for six months for revolving retail accounts and private label receivables. Extension fees, late charges, and
prepayment penalties are recognized as revenue when received.
Policyholder benefits and claims incurred: Incurred policy losses for short duration insurance contracts consist of the
estimated ultimate cost of settling claims incurred within the reporting period, including incurred but not reported
claims, plus the changes in estimates of current and prior period losses resulting from the continuous review process.
Benefits for long duration insurance contracts consist of benefits paid and changes in future policy benefits liabilities.
Benefits for universal life and investment-type products primarily consist of interest credited to policy account
balances and benefit payments made in excess of policy account balances except for certain contracts for which the
fair value option was elected, for which benefits represent the entire change in fair value (including derivative gains
and losses on related economic hedges).
Restructuring expenses and related asset impairment and other expenses: Restructuring expenses include employee
severance and related costs, costs to terminate contractual arrangements, consulting and other professional fees and
other costs related to restructuring and divesture activities. Asset impairment includes charges associated with writing
down long-lived assets to fair value when their carrying values are not recoverable from undiscounted cash flows.
Other expenses include other costs associated with divesting of businesses and costs of key employee retention awards.
Net loss on sale of divested businesses: Includes gains or losses from the sale of businesses that do not qualify as
discontinued operations.
(b) Income taxes: Deferred tax assets and liabilities are recorded for the effects of temporary differences between the
tax basis of an asset or liability and its reported amount in the consolidated financial statements. AIG assesses its
ability to realize deferred tax assets considering all available evidence, including the earnings history, the timing,
character and amount of future earnings potential, the reversal of taxable temporary differences, and the tax planning
strategies available to the legal entities when recognizing deferred tax assets. See Note 21 herein for a further
discussion of income taxes.
(c) Held for sale and discontinued operations: AIG reports a business as held for sale when management has approved
or received approval to sell the business and is committed to a formal plan, the business is available for immediate
sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year, and certain other
AIG 2009 Form 10-K 208