AIG 2010 Annual Report Download - page 278

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides the components of the transfers of Level 3 assets and liabilities on a gross basis:
Net
December 31, 2010 Gross Gross transfers In
(in millions) Transfers in Transfers (out) (out)
Assets:
Obligations of states, municipalities and political subdivisions $ 358 $ (187) $ 171
Non U.S. governments 9 (59) (50)
Corporate debt 1,389 (3,202) (1,813)
RMBS 1,486 (262) 1,224
CMBS 728 (372) 356
CDO/ABS 735 (750) (15)
Equity securities 13 (19) (6)
Other invested assets 2,284 (810) 1,474
Total assets $ 7,002 $ (5,661) $ 1,341
Liabilities:
Unrealized loss on swaps, options, and forward transactions
Interest rate contracts $ (11) $ 1,002 $ 991
Foreign exchange contracts (1) 1 -
Equity contracts (86) 106 20
Credit contracts (2) - (2)
Other contracts -4949
Total unrealized loss on swaps, options and forward transactions (100) 1,158 1,058
Other long-term debt (705) 98 (607)
Total liabilities $ (805) $ 1,256 $ 451
Transfers of Level 3 Assets
During the year ended December 31, 2010, AIG transferred into Level 3 approximately $7.0 billion of assets
consisting of certain ABS, CMBS and RMBS, as well as private placement corporate debt, certain municipal
bonds related to affordable housing partnerships and investment partnerships. The transfers into Level 3 related
to investments in certain ABS, RMBS and CMBS were due to a decrease in market transparency, downward
credit migration and an overall increase in price disparity for certain individual security types. Transfers into
Level 3 for private placement corporate debt and certain ABS were primarily the result of AIG overriding matrix
pricing information downward to better reflect the additional risk premium associated with those securities that
AIG believes was not captured in the matrix. Certain municipal bonds were transferred into Level 3 based on
limited market activity for the particular issuances and related limitations on observable inputs for their valuation.
Investment partnerships transferred into Level 3 primarily consisted of certain hedge funds with limited market
activity due to fund-imposed redemption restrictions.
Assets are transferred out of Level 3 when circumstances change such that significant inputs can be
corroborated with market observable data. This may be due to a significant increase in market activity for the
asset, a specific event, one or more significant input(s) becoming observable or when a long-term interest rate
significant to a valuation becomes short-term and thus observable. During the year ended December 31, 2010,
AIG transferred approximately $5.7 billion of assets out of Level 3. These transfers out of Level 3 are primarily
related to investments in private placement corporate debt, investments in certain ABS, RMBS, CMBS and CDOs
and certain investment partnerships. Transfers out of Level 3 for private placement corporate debt and for ABS
were primarily the result of AIG using observable pricing information or a third party pricing quote that
appropriately reflects the fair value of those securities, without the need for adjustment based on AIG’s own
assumptions regarding the characteristics of a specific security or the current liquidity in the market. Transfers out
of Level 3 for RMBS investments were primarily due to increased usage of pricing from valuation service
262 AIG 2010 Form 10-K