AIG 2009 Annual Report Download - page 267

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Credit Impairments
The following table presents a rollforward of the credit impairments recognized in earnings for available for sale fixed
maturity securities held by AIG(a):
(in millions)
Nine Months Ended December 31, 2009
Balance, March 31, 2009 $-
Increases due to:
Credit losses remaining in accumulated deficit related to the adoption of new other-than-temporary impairment
standard 7,182
Credit impairments on new securities subject to impairment losses 623
Additional credit impairments on previously impaired securities 1,593
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or requirement to sell (1,223)
Credit impaired securities for which there is a current intent or anticipated requirement to sell (4)
Accretion on securities previously impaired due to credit(b) (225)
Foreign exchange translation adjustments 54
Activity of discontinued operations (19)
Impairments on securities reclassified to Assets of businesses held for sale (176)
Other (2)
Balance, December 31, 2009 $ 7,803
(a) Includes structured, corporate, municipal and sovereign fixed maturity securities.
(b) Represents accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired
securities as well as the accretion due to the passage of time.
In assessing whether a credit impairment has occurred for a structured fixed maturity security, AIG performs
evaluations of expected future cash flows. Certain critical assumptions are made with respect to the performance of
the securities.
When estimating future cash flows for a structured fixed maturity security (e.g. RMBS, CMBS, CDO, ABS)
management considers historical performance of underlying assets and available market information as well as
bond-specific structural considerations, such as credit enhancement and priority of payment structure of the security.
In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs,
which vary by asset class:
• Current delinquency rates;
• Expected default rates and timing of such defaults;
• Loss severity and timing of any such recovery;
• Expected prepayment speeds; and
• Ratings of securities underlying structured products.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management
considers the fair value as the recovery value when available information does not indicate that another value is more
relevant or reliable. When management identifies information that supports a recovery value other than the fair value,
the determination of a recovery value considers scenarios specific to the issuer and the security, and may be based
upon estimates of outcomes of corporate restructurings, political and macro economic factors, stability and financial
strength of the issuer, the value of any secondary sources of repayment and the disposition of assets.
259 AIG 2009 Form 10-K