AIG 2010 Annual Report Download - page 307

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
exchange rates. AIG records the change in the carrying amount of these investments in the foreign currency
translation adjustment within Accumulated other comprehensive income (loss). Simultaneously, the effective
portion of the hedge of this exposure is also recorded in foreign currency translation adjustment and the
ineffective portion, if any, is recorded in earnings. If (i) the notional amount of the hedging debt instrument
matches the designated portion of the net investment and (ii) the hedging debt instrument is denominated in the
same currency as the functional currency of the hedged net investment, no ineffectiveness is recorded in earnings.
For the years ended December 31, 2010 and 2009, AIG recognized gains (losses) of $28 million and $(81) million,
respectively, included in Foreign currency translation adjustment in Accumulated other comprehensive loss related
to the net investment hedge relationships.
The following table presents the effect of AIG’s derivative instruments in fair value hedging relationships on the
Consolidated Statement of Income (Loss):
Years Ended December 31,
(in millions) 2010 2009
Interest rate contracts(a)(b):
Gain (loss) recognized in earnings on derivatives $ 196 $ (240)
Gain (loss) recognized in earnings on hedged items(c) (25) 343
Gain recognized in earnings for ineffective portion and amount excluded from effectiveness testing 27 87
(a) Gains and losses recognized in earnings on derivatives for the effective portion and hedged items are recorded in Other income. Gains and
losses recognized in earnings on derivatives for the ineffective portion and amounts excluded from effectiveness testing are recorded in Net
realized capital losses and Other income, respectively.
(b) Includes $27 million and $95 million for 2010 and 2009, respectively, related to the ineffective portion and $0 million and $(8) million for
2010 and 2009, respectively, for amounts excluded from effectiveness testing.
(c) Includes $144 million for 2010, representing the amortization of debt basis adjustment following the discontinuation of hedge accounting on
certain positions.
The following table presents the effect of AIG’s derivative instruments in cash flow hedging relationships on the
Consolidated Statement of Income (Loss):
Years Ended December 31,
(in millions) 2010 2009
Interest rate contracts(a):
Gain (loss) recognized in OCI on derivatives $ (33) $91
Loss reclassified from Accumulated OCI into earnings(b) (84) (13)
Gain (loss) recognized in earnings on derivatives for ineffective portion (6) 9
(a) Gains and losses reclassified from Accumulated other comprehensive loss are recorded in Other income. Gains or losses recognized in earnings
on derivatives for the ineffective portion are recorded in Net realized capital losses.
(b) The effective portion of the change in fair value of a derivative qualifying as a cash flow hedge is recorded in Accumulated other comprehensive
income until earnings are affected by the variability of cash flows in the hedged item. At December 31, 2010, $55 million of the deferred net
loss in Accumulated other comprehensive loss is expected to be recognized in earnings during the next 12 months.
AIG 2010 Form 10-K 291