AIG 2009 Annual Report Download - page 270

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The FRBNY is the controlling party and managing member of ML III for so long as the FRBNY has any interest in
the ML III Senior Loan. AIG does not have any control rights over ML III. AIG has determined that ML III is a VIE
and AIG is not the primary beneficiary. AIG has elected to account for its $5 billion interest in ML III (including the
rights to contingent distributions) at fair value. This interest is reported in Bonds — trading securities, at fair value,
with changes in fair value reported as a component of Net investment income. See Note 5 herein for a further
discussion of AIG’s fair value methodology.
Through December 31, 2008, AIG Financial Products Corp. terminated CDS transactions with its counterparties
and concurrently, ML III purchased the underlying multi-sector CDOs, including $8.5 billion of multi-sector CDOs
underlying 2a-7 Puts written by AIG Financial Products Corp. The FRBNY advanced an aggregate of $24.3 billion to
ML III under the ML III Senior Loan, and ML III funded its purchase of the $62.1 billion of multi-sector CDOs with
a net payment to AIG Financial Products Corp. counterparties of $26.8 billion. AIG Financial Products Corp.’s
counterparties also retained $35.0 billion, of which $2.5 billion was returned under the shortfall agreement, in net
collateral previously posted by AIG Financial Products Corp. in respect of the terminated multi-sector CDS. The
$26.8 billion funded by ML III was based on the fair value of the underlying multi-sector CDOs at October 31, 2008,
as mutually agreed between the FRBNY and AIG.
(e) Other Invested Assets
The following table summarizes Other invested assets:
At December 31,
(in millions) 2009 2008
Category:
Alternative funds(a) $19,273 $24,416
Mutual funds 9,623 8,585
Investment real estate(b) 7,262 8,879
Aircraft asset investments(c) 1,498 1,597
Life settlement contracts 3,399 2,581
Consolidated managed partnerships and funds 816 6,714
Direct private equity investments 443 649
All other investments 2,921 4,218
Other invested assets $45,235 $57,639
(a) Includes hedge funds, private equity funds and other investment partnerships.
(b) Net of accumulated depreciation of $1.04 billion and $813 million in 2009 and 2008, respectively.
(c) Consist primarily of Domestic Life Insurance & Retirement Services investments in aircraft equipment held in trusts.
Investments in Life Settlement Contracts
AIG’s life settlement contracts reported above are monitored for impairment on a contract-by-contract basis
quarterly. During 2009, 2008 and 2007, income recognized on life settlement contracts was $106 million, $120 million
and $41 million, respectively, and are included in Net investment income in the Consolidated Statement of Income.
Impairment charges on life settlement contracts are included in net realized capital gains (losses).
AIG 2009 Form 10-K 262