AIG 2010 Annual Report Download - page 188

American International Group, Inc., and Subsidiaries
of the assets of the Maiden Lane Interests. Other methodologies employed or assumptions made in determining
fair value for these investments could result in amounts that differ significantly from the amounts reported.
Refer to Note 6 to the Consolidated Financial Statements for sensitivity analysis disclosures with respect to the
Maiden Lane Interests.
Capital Markets Super Senior Credit Default Swap Portfolio: AIGFP wrote credit protection on the super senior
risk layer of collateralized loan obligations (CLOs), multi-sector CDOs and diversified portfolios of corporate
debt, and prime residential mortgages. In these transactions, AIGFP is at risk of credit performance on the super
senior risk layer related to such assets. To a lesser extent, AIGFP also wrote protection on tranches below the
super senior risk layer, primarily in respect of regulatory capital relief transactions.
The following table presents the net notional amount, fair value of derivative (asset) liability and unrealized
market valuation gain (loss) of the Capital Markets super senior credit default swap portfolio, including credit
default swaps written on mezzanine tranches of certain regulatory capital relief transactions, by asset class:
Fair Value of Unrealized Market
Net Notional Amount Derivative (Asset) Valuation Gain (Loss)
December 31, Liability at December 31, Year Ended December 31,
(in millions) 2010(a) 2009(a) 2010(b)(c) 2009(b)(c) 2010(c) 2009(c)
Regulatory Capital:
Corporate loans $ 5,193 $ 55,010 $- $- $- $-
Prime residential mortgages 31,613 93,276 (190) (137) 53 137
Other 1,263 1,760 17 21 435
Total 38,069 150,046 (173) (116) 57 172
Arbitrage:
Multi-sector CDOs(d) 6,689 7,926 3,484 4,418 663 (669)
Corporate debt/CLOs(e) 12,269 22,076 171 309 (67) 1,863
Total 18,958 30,002 3,655 4,727 596 1,194
Mezzanine tranches(f) 2,823 3,478 198 143 (55) 52
Total $59,850 $183,526 $3,680 $4,754 $598 $1,418
(a) Net notional amounts presented are net of all structural subordination below the covered tranches.
(b) Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(c) Includes credit valuation adjustment gains (losses) of ($133) million and $52 million in the years ended December 31, 2010 and 2009,
respectively, representing the effect of changes in AIG’s credit spreads on the valuation of the derivatives liabilities.
(d) During 2010, AIGFP terminated a super senior CDS transaction with its counterparty with a net notional amount of $296 million, included in
Multi-sector CDOs. This transaction was terminated at approximately its fair value at the time of the termination. As a result, a $202 million
loss, which was previously included in the fair value derivative liability as an unrealized market valuation loss, was realized. During 2010,
AIGFP also paid $69 million to its counterparty with respect to multi-sector CDOs. Upon payment, a $69 million loss, which was previously
included in the fair value derivative liability as an unrealized market valuation loss, was realized. Multi-sector CDOs also include $5.5 billion
and $6.3 billion in net notional amount of credit default swaps written with cash settlement provisions at December 31, 2010 and December 31,
2009, respectively.
(e) During 2010, AIGFP terminated super senior CDS transactions with its counterparties with a net notional amount of $9.3 billion, included in
Corporate debt/CLOs. These transactions were terminated at approximately their fair value at the time of the termination. As a result, an
$83 million loss, which was previously included in the fair value derivative liability as an unrealized market valuation loss, was realized. In
addition, AIGFP made a one time payment of $122 million in 2010 to an intermediary in exchange for eliminating all future collateral posting
requirements on $10.7 billion of net notional of Corporate debt transactions. Corporate debt/CLOs also include $1.3 billion and $1.4 billion in
net notional amount of credit default swaps written on the super senior tranches of CLOs at December 31, 2010 and December 31, 2009,
respectively.
(f) Net of offsetting purchased CDS of $1.4 billion and $1.5 billion in net notional amount at December 31, 2010 and December 31, 2009,
respectively.
172 AIG 2010 Form 10-K