AIG 2010 Annual Report Download - page 293

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
relevant facts and circumstances including, but not limited to, decisions to reposition AIG’s investment portfolio,
sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing.
AIG considers severe price declines in its assessment of potential credit impairments. AIG may also modify its
modeled outputs for certain securities when it determines that price declines are indicative of factors not
comprehended by the cash flow models.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale
fixed maturity securities that is not foreign exchange related, AIG generally prospectively accretes into earnings
the difference between the new amortized cost and the expected undiscounted recovery value over the remaining
expected holding period of the security.
Credit Impairments
The following table presents a rollforward of the credit impairments recognized in earnings for available for sale
fixed maturity securities held by AIG(a):
Twelve Nine
Months Months
Ended Ended
December 31, December 31,
(in millions) 2010 2009
Balance, beginning of year $ 7,803 $ -
Increases due to:
Credit losses remaining in accumulated deficit related to the adoption of new
other-than-temporary impairment standard - 7,182
Credit impairments on new securities subject to impairment losses 627 550
Additional credit impairments on previously impaired securities 1,294 1,523
Reductions due to:
Credit impaired securities fully disposed for which there was no prior intent or
requirement to sell (1,039) (967)
Credit impaired securities for which there is a current intent or anticipated requirement
to sell (503) -
Accretion on securities previously impaired due to credit(b) (332) (221)
Hybrid securities with embedded credit derivatives reclassified to Bonds trading securities (748) -
Foreign exchange translation adjustments (18) 18
Activity of discontinued operations 251 (104)
Impairments on securities reclassified to Assets held for sale (201) (176)
Dispositions(c) (406) -
Other 58 (2)
Balance, end of year $ 6,786 $7,803
(a) Includes structured, corporate, municipal and sovereign fixed maturity securities.
(b) Represents accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired
securities as well as the accretion due to the passage of time.
(c) Reflects the deconsolidation of AIA and sale of ALICO and AGF in 2010.
In assessing whether a credit impairment has occurred for a structured fixed maturity security, AIG performs
evaluations of expected future cash flows. Certain critical assumptions are made with respect to the performance
of the securities.
When estimating future cash flows for a structured fixed maturity security (e.g., RMBS, CMBS, CDO, ABS)
management considers historical performance of underlying assets and available market information as well as
bond-specific structural considerations, such as credit enhancement and priority of payment structure of the
AIG 2010 Form 10-K 277