AIG 2009 Annual Report Download - page 73

American International Group, Inc., and Subsidiaries
Net Investment Income
The following table summarizes the components of consolidated Net investment income:
Years Ended December 31, Percentage Increase/(Decrease)
(in millions) 2009 2008 2007 2009 vs. 2008 2008 vs. 2007
Fixed maturities, including short-term investments $18,793 $21,472 $21,496 (12)% -%
Maiden Lane interests 394 (1,116) - - -
Equity securities 397 408 440 (3) (7)
Interest on mortgage and other loans 574 622 650 (8) (4)
Partnerships (35) (2,152) 3,415 - -
Mutual funds 440 (962) 521 - -
Trading account gains (losses) 33 (725) (150) - -
Real estate 1,229 1,226 1,126 - 9
Other investments 457 629 691 (27) (9)
Total investment income before policyholder -
income and trading gains (losses) 22,282 19,402 28,189 15 (31)
Policyholder investment income and trading losses 3,950 (6,984) 2,903 - -
Total investment income 26,232 12,418 31,092 111 (60)
Investment expenses 993 985 1,041 1 (5)
Net investment income $25,239 $11,433 $30,051 121% (62)%
2009 and 2008 Comparison
Net investment income increased in 2009 compared to 2008 primarily due to:
• increased policyholder investment income and trading gains and losses for Foreign Life Insurance & Retirement
Services (together, policyholder trading gains (losses)), compared to 2008. Policyholder trading losses are offset
by a change in Policyholder benefits and claims incurred and generally reflect the trends in equity markets,
principally in Japan and Asia;
• gains associated with the change in fair value of AIG’s investment in ML III of $419 million in 2009 resulting
from improvements in valuation, primarily resulting from the shortening of the weighted average life from
10.9 years to 9.6 years, and the narrowing of credit spreads by approximately 100 basis points. Adversely
affecting the fair value is the decrease in cash flows primarily due to an increase in projected credit losses in the
underlying collateral securities; and
• income from mutual fund investments in 2009 compared to losses in 2008 and a decrease in partnership losses in
2009, in each case reflecting stronger market conditions in 2009 than in 2008.
These increases were partially offset by:
• lower levels of invested assets, including the effect of divested businesses, in 2009 compared to 2008; and
• lower returns as a result of increased levels of short-term investments that were held for liquidity purposes.
2008 and 2007 Comparison
Net investment income decreased in 2008 compared to 2007 due to:
• losses from partnership and mutual fund investments reflecting significantly weaker market conditions in 2008
than in 2007;
• policyholder trading losses for Foreign Life Insurance & Retirement Services in 2008 compared to policyholder
trading gains in 2007, reflecting equity market declines;
65 AIG 2009 Form 10-K