AIG 2012 Annual Report Download - page 256

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Long-Term Debt
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The fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer
markets, when available, or discounting expected cash flows using the appropriate discount rate for the applicable
maturity. We determine the fair value of structured liabilities and hybrid financial instruments (where performance is
linked to structured interest rates, inflation or currency risks) using the appropriate derivative valuation methodology
(described above) given the nature of the embedded risk profile. In addition, adjustments are made to the valuations
of both non-structured and structured liabilities to reflect our own creditworthiness based on the methodology
described under the caption ‘‘Incorporation of Credit Risk in Fair Value Measurements – Our Own Credit Risk’’
above.
Borrowings under obligations of Guaranteed Investment Agreements (GIAs), which are guaranteed by us, are
recorded at fair value using discounted cash flow calculations based on interest rates currently being offered for
similar contracts and our current market observable implicit credit spread rates with maturities consistent with those
remaining for the contracts being valued. Obligations may be called at various times prior to maturity at the option of
the counterparty. Interest rates on these borrowings are primarily fixed, vary by maturity and range up to 9.8 percent.
Other Liabilities
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Other liabilities measured at fair value include certain securities sold under agreements to repurchase and certain
securities and spot commodities sold but not yet purchased. Liabilities arising from securities sold under agreements
to repurchase are generally treated as collateralized borrowings. We estimate the fair value of liabilities arising under
these agreements by using market-observable interest rates. This methodology considers such factors as the coupon
rate, yield curves and other relevant factors. Fair values for securities sold but not yet purchased are based on
current market prices. Fair values of spot commodities sold but not yet purchased are based on current market
prices of reference spot futures contracts traded on exchanges.
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AIG 2012 Form 10-K 239
ITEM 8 / NOTE 6. FAIR VALUE MEASUREMENTS