AIG 2010 Annual Report Download - page 88

American International Group, Inc., and Subsidiaries
management has the intent to sell such securities. See Note 7 to the Consolidated Financial Statements; and
Investments — Other-Than-Temporary Impairments; and
• foreign exchange transaction gains incurred in 2010 compared to losses in 2009 primarily resulting from the
strengthening of the U.S. dollar against the Euro, British pound and Japanese yen compared to 2009.
These improvements were partially offset by lower gains from derivative instruments not designated for hedge
accounting, particularly those used to hedge foreign exchange movements.
2009 and 2008 Comparison
Net realized capital losses decreased in 2009 compared to 2008 primarily due to the following:
• the 2008 period included severity losses throughout the year that are no longer required for fixed maturity
securities as noted above. Additionally, other-than-temporary impairments declined from the 2008 period
due to improved market conditions. See Note 7 to the Consolidated Financial Statements; and
Investments — Other-Than-Temporary Impairments;
• gains on sales of fixed maturity securities in 2009 compared to losses in 2008 reflecting improvement in the
credit markets; and
• gains on derivative instruments not qualifying for hedge accounting treatment in 2009 compared to losses in
2008 resulting from weakening of the U.S. dollar in 2009.
Partially offsetting the above items were losses on sales of real estate and other assets in 2009. Additionally, Net
realized capital losses includes foreign exchange translation losses in 2009 compared to gains in 2008 primarily
resulting from the weakening of the U.S. dollar.
Unrealized Market Valuation Gains (Losses) on Capital Markets Super Senior Credit Default Swap Portfolio
2010 and 2009 Comparison
The unrealized market valuation gains decreased in 2010 compared to 2009 as a result of losses in the corporate
arbitrage portfolio caused by increasing corporate spreads in 2010 and decreasing corporate spreads in 2009, offset
by improved prices of the underlying assets in the multi-sector CDO portfolio in 2010 compared to 2009.
2009 and 2008 Comparison
Capital Markets reported unrealized market valuation gains related to its super senior credit default swap
portfolio in 2009 and unrealized market valuation losses in 2008. The change in the unrealized market valuation
gains (losses) related to Capital Markets’ super senior credit default swap portfolio was due to the substantial
decline in outstanding net notional amount resulting from the termination of contracts in the fourth quarter of
2008 associated with the ML III transaction and the improvement in market conditions in 2009, as well as the
narrowing of corporate credit spreads.
See Segment Results — Financial Services Operations — Financial Services Results — Capital Markets Results
and Critical Accounting Estimates — Valuation of Level 3 Assets and Liabilities and Note 6 to the Consolidated
Financial Statements.
Other Income
2010 and 2009 Comparison
Other income decreased in 2010 compared to 2009 due to:
• a decline of $975 million in credit valuation adjustments on Capital Markets’ derivative assets and liabilities
which are measured at fair value, excluding gains and losses, which are reflected in Unrealized gains (losses)
72 AIG 2010 Form 10-K