AIG 2010 Annual Report Download - page 230

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• Interest income and related expenses, including amortization of premiums and accretion of discounts on
bonds with changes in the timing and the amount of expected principal and interest cash flows reflected in
the yield, as applicable.
• Dividend income and distributions from common and preferred stock and other investments when
receivable.
• Changes in the fair value of derivatives. In certain instances, no initial gain or loss was recognized. Prior to
January 1, 2008, the initial gain or loss was recognized in income over the life of the transaction or when
observable market data became available. Any remaining unamortized balances at January 1, 2008 were
recognized in beginning retained earnings when the fair value option was elected.
• Changes in the fair value of trading securities and spot commodities sold but not yet purchased, futures and
hybrid financial instruments.
• Realized capital gains and losses from the sales of available for sale securities and investments in private
equities, joint ventures, limited partnerships and other investments.
• Income earned on real estate based investments and related losses from property level impairments and
financing costs.
• Exchange gains and losses resulting from foreign currency transactions.
• Reductions to the cost basis of securities available for sale for other-than-temporary impairments.
• Earnings from hedge funds and limited partnership investments accounted for under the equity method.
Policyholder benefits and claims incurred: Incurred claims and claims adjustment expenses for short duration
insurance contracts consist of the estimated ultimate cost of settling claims incurred within the reporting period,
including incurred but not reported claims, plus the changes in estimates of current and prior period losses
resulting from the continuous review process. Benefits for long duration insurance contracts consist of benefits
paid and changes in future policy benefits liabilities. Benefits for universal life and investment-type products
primarily consist of interest credited to policy account balances and benefit payments made in excess of policy
account balances except for certain contracts for which the fair value option was elected, for which benefits
represent the entire change in fair value (including derivative gains and losses on related economic hedges).
Restructuring expenses and related asset impairment and other expenses: Restructuring expenses include employee
severance and related costs, costs to terminate contractual arrangements, consulting and other professional fees
and other costs related to restructuring and divesture activities. Asset impairment includes charges associated with
writing down long-lived assets to fair value when their carrying values are not recoverable from undiscounted cash
flows. Other expenses include other costs associated with divesting of businesses and costs of employee retention
awards.
Net (gain) loss on sale of divested businesses and properties: Includes gains or losses from the sales of businesses
that do not qualify as discontinued operations and sales of previously occupied properties.
(b) Income taxes: Deferred tax assets and liabilities are recorded for the effects of temporary differences
between the tax basis of an asset or liability and its reported amount in the consolidated financial statements. AIG
assesses its ability to realize deferred tax assets considering all available evidence, including the earnings history,
the timing, character and amount of future earnings potential, the reversal of taxable temporary differences and
the tax planning strategies available to the legal entities when recognizing deferred tax assets. See Note 22 herein
for a further discussion of income taxes.
(c) Held-for-sale and discontinued operations: AIG reports a business as held for sale when management has
approved or received approval to sell the business and is committed to a formal plan, the business is available for
immediate sale, the business is being actively marketed, the sale is anticipated to occur during the ensuing year
214 AIG 2010 Form 10-K