AIG 2010 Annual Report Download - page 139

American International Group, Inc., and Subsidiaries
Dispositions
In December 2009, UGC entered into two stock purchase agreements for the sale of its Canadian and Israel
operations. The Israel transaction closed on January 21, 2010 and the Canadian transaction closed on April 16,
2010.
Change in Fair Value of ML III
The gain of $1.8 billion on ML III for 2010 was attributable to the shortening of weighted average life by
1.34 years. Additionally, fair value for 2010 was positively affected by a decrease in projected credit losses in the
underlying collateral securities. During 2010, credit spreads tightened by 287 basis points.
Asset Management Operations
AIG’s Asset Management operations include the results of the Direct Investment businesses and the
Institutional Asset Management business.
On March 26, 2010, AIG completed the sale of its third-party asset management business. The results of
operations from January 1 through the closing of the sale are included in the Institutional Asset Management
results. Subsequent to the sale of AIG’s third-party asset management business, the revenues of the Institutional
Asset Management business are derived from providing asset management services to AIG and its subsidiaries,
which are eliminated in consolidation.
Direct Investment Business Results
The Direct Investment business includes results for the MIP, AIG Global Real Estate and the results of certain
non-derivative assets and liabilities of Capital Markets now managed by the Asset Management Group. The
revenues and pre-tax income (loss) for these operations are affected by the general conditions in the credit,
equity, interest rate, foreign exchange and real estate markets. In addition, net realized gains are contingent upon
investment maturity levels and market conditions.
2010 and 2009 Comparison
The Direct Investment business recognized pre-tax income in 2010 driven by:
• its allocated share of the gain on the sale of the Otemachi building of $620 million;
• gains on the sale of assets sold primarily to create liquidity in the fourth quarter;
• net unrealized gain on assets and liabilities accounted for under the fair value option where tightening asset
spreads exceeded liability spreads; and
• significantly lower impairments on fixed maturity and real estate investments.
2009 and 2008 Comparison
The Direct Investment business reported a lower pre-tax loss in 2009 compared to 2008 due to:
• significantly lower other-than-temporary impairments on fixed maturity investments driven by improved
credit environment and the adoption of the new accounting standard on other-than-temporary impairments;
and
• the positive impact of AIG’s credit spread widening on liabilities for which AIG elected the fair value
option, offset by increased net fair value losses on foreign exchange and interest rate derivatives not
qualifying for hedge accounting treatment.
AIG 2010 Form 10-K 123