AIG 2010 Annual Report Download - page 266

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the discount rate or the estimated future cash flows used in the valuation would alter AIG’s estimate
of the fair value of the Maiden Lane Interests as shown in the table below.
Fair Value Change
Year Ended December 31, 2010
(in millions) Maiden Lane II Maiden Lane III
Discount Rates:
200 basis point increase $ (142) $ (722)
200 basis point decrease 164 836
400 basis point increase (266) (1,349)
400 basis point decrease 354 1,810
Estimated Future Cash Flows:
10% increase 303 845
10% decrease (315) (858)
20% increase 599 1,674
20% decrease (649) (1,735)
AIG believes that the ranges of discount rates used in these analyses are reasonable on the basis of implied
spread volatilities of similar collateral securities and implied volatilities of LIBOR interest rates. The ranges of
estimated future cash flows were determined on the basis of variability in estimated future cash flows implied by
cumulative loss estimates for similar instruments. Because of these factors, the fair values of the Maiden Lane
Interests are likely to vary, perhaps materially, from the amount estimated.
Equity Securities Traded in Active Markets — Trading, Available for Sale and Other Invested Assets
Whenever available, AIG obtains quoted prices in active markets for identical assets at the balance sheet date
to measure at fair value marketable equity securities in its trading and available for sale portfolios or in Other
invested assets. Market price data is generally obtained from exchange or dealer markets.
Direct Private Equity Investments — Other Invested Assets
AIG initially estimates the fair value of direct private equity investments by reference to the transaction price.
This valuation is adjusted for changes in inputs and assumptions that are corroborated by evidence such as
transactions in similar instruments, completed or pending third-party transactions in the underlying investment or
comparable entities, subsequent rounds of financing, recapitalizations and other transactions across the capital
structure, offerings in the equity capital markets and/or changes in financial ratios or cash flows. For equity
securities that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and/or
non-transferability and such adjustments generally are based on available market evidence. In the absence of such
evidence, management’s best estimate is used.
Hedge Funds, Private Equity Funds and Other Investment Partnerships — Other Invested Assets
AIG initially estimates the fair value of investments in certain hedge funds, private equity funds and other
investment partnerships by reference to the transaction price. Subsequently, AIG generally obtains the fair value
of these investments from net asset value information provided by the general partner or manager of the
investments, the financial statements of which are generally audited annually. AIG considers observable market
data and performs diligence procedures in validating the appropriateness of using the net asset value as a fair
value measurement.
250 AIG 2010 Form 10-K