AIG 2009 Annual Report Download - page 268

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Equity Securities
The impairment model for equity securities and other cost and equity method investments was not affected by the
adoption of the new accounting standard related to other-than-temporary impairments in the second quarter of 2009.
AIG continues to evaluate its available for sale equity securities, equity method and cost method investments for
impairment by considering such securities as candidates for other-than-temporary impairment if they meet any of the
following criteria:
• The security has traded at a significant (25 percent or more) discount to cost for an extended period of time
(nine consecutive months or longer);
• A discrete credit event has occurred 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 has concluded that it may not realize a full recovery on its investment, regardless of the occurrence of one
of the foregoing events.
The determination that an equity security is other-than-temporarily impaired requires the judgment of management
and consideration of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and
circumstances. The above criteria also consider circumstances of a rapid and severe market valuation decline in which
AIG could not reasonably assert that the impairment period would be temporary (severity losses).
Fixed Maturity Securities Impairment Policy — Prior to April 1, 2009
In all periods prior to April 1, 2009, AIG assessed its ability to hold any fixed maturity available for sale security in
an unrealized loss position to its recovery at each balance sheet date. The decision to sell any such fixed maturity
security classified as available for sale reflected the judgment of AIG’s management that the security sold was unlikely
to provide, on a relative value basis, as attractive a return in the future as alternative securities entailing comparable
risks. With respect to distressed securities, the sale decision reflected management’s judgment that the risk-adjusted
ultimate recovery was less than the value achievable on sale.
In those periods, AIG evaluated its fixed maturity securities for other-than-temporary impairments with respect to
valuation as well as credit.
After a fixed maturity security had been identified as other-than-temporarily impaired, the amount of such
impairment was determined as the difference between fair value and amortized cost and the entire amount was
recorded as a charge to earnings.
(d) Maiden Lane Investments
Maiden Lane II LLC
On December 12, 2008, AIG, certain wholly owned U.S. life insurance company subsidiaries of AIG (the life
insurance companies), and AIG Securities Lending Corp. (the AIG Agent), another AIG subsidiary, entered into an
Asset Purchase Agreement (the Asset Purchase Agreement) with ML II, a Delaware limited liability company whose
sole member is the FRBNY.
Pursuant to the Asset Purchase Agreement, the life insurance companies sold to ML II all of their undivided
interests in a pool of $39.3 billion face amount of residential mortgage-backed securities (the RMBS). In exchange for
the RMBS, the life insurance companies received an initial purchase price of $19.8 billion plus the right to receive
deferred contingent portions of the total purchase price of $1 billion plus a participation in the residual, each of which
is subordinated to the repayment of the FRBNY loan to ML II.
AIG 2009 Form 10-K 260