AIG 2010 Annual Report Download - page 277

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(b) Net realized and unrealized gains and losses related to Level 3 items shown above are reported in the Consolidated Statement of Income (Loss) primarily as
follows:
Major Category of Assets/Liabilities Consolidated Statement of Income (Loss) Line Items
Bonds available for sale • Net realized capital losses
Bond trading securities • Net investment income
• Other income
Other invested assets • Net realized capital losses
• Other income
Policyholder contract deposits • Policyholder benefits and claims incurred
• Net realized capital losses
Unrealized loss on swaps, options and • Unrealized market valuation gains (losses) on Capital Markets
forward transactions, net super senior credit default swap portfolio
• Net realized capital losses
• Other income
(c) Included within purchases, sales, issuances and settlements — net is approximately $210 million transferred from bonds available for sale to bond trading securities
for the 12 months ended December 31, 2010.
(d) Reflects the deconsolidation of AIA and sales of ALICO and AGF in 2010.
Both observable and unobservable inputs may be used to determine the fair values of positions classified in
Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at December 31, 2010
and 2009 may include changes in fair value that were attributable to both observable (e.g., changes in market
interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities).
Transfers of Level 3 Assets and Liabilities
AIG’s policy is to transfer assets and liabilities into Level 3 when a significant input cannot be corroborated
with market observable data. This may include circumstances in which market activity has dramatically decreased
and transparency to underlying inputs cannot be observed, current prices are not available and substantial price
variances in quotations among market participants exist.
In certain cases, the inputs used to measure the fair value may fall into different levels of the fair value
hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its
entirety falls is determined based on the lowest level input that is significant to the fair value measurement. AIG’s
assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment.
In making the assessment, AIG considers factors specific to the asset or liability.
Transfers in 2010 are comprised of gross transfers into Level 3 assets and liabilities of $7.8 billion and gross
transfers out of Level 3 assets and liabilities of $6.9 billion. AIG’s policy is to record transfers of assets and
liabilities into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date
of the determination of fair value. As a result, the Net realized and unrealized gains (losses) included in income
or other comprehensive income and as shown in the table above excludes $86 million of net losses related to
assets and liabilities transferred into Level 3 during 2010, and includes $172 million of net gains related to assets
and liabilities transferred out of Level 3 during 2010.
AIG 2010 Form 10-K 261