AIG 2012 Annual Report Download - page 263

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Quantitative Information about Level 3 Fair Value Measurements
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The table below presents information about the significant unobservable inputs used for recurring fair value
measurements for certain Level 3 instruments, and includes only those instruments for which information
about the inputs is reasonably available to us, such as data from pricing vendors and from internal valuation
models. Because input information with respect to certain Level 3 instruments may not be reasonably
available to us, balances shown below may not equal total amounts reported for such Level 3 assets and
liabilities:
Assets:
Corporate debt Discounted cash flow Yield(b) 0.08% - 6.55% (3.31%)
RMBS Discounted cash flow Constant prepayment rate(c) 0.00% - 10.76% (5.03%)
Loss severity(c) 43.70% - 78.72% (61.21%)
Constant default rate(c) 4.21% - 13.30% (8.75%)
Yield(c) 2.23% - 9.42% (5.82%)
Certain CDO/ABS(d) Discounted cash flow Constant prepayment rate(c) 0.00% - 32.25% (11.82%)
Loss severity(c) 0.00% - 29.38% (6.36%)
Constant default rate(c) 0.00% - 4.05% (1.18%)
Yield(c) 5.41% - 10.67% (8.04%)
Commercial mortgage backed securities Discounted cash flow Yield(b) 0.00% - 19.95% (7.76%)
CDO/ABS – Direct Binomial Expansion Recovery rate(b) 3% - 63% (27%)
Investment Book Technique (BET) Diversity score(b) 4 - 44 (13)
Weighted average life(b) 1.27 - 9.11 years (4.91 years)
Liabilities:
Policyholder contract deposits – GMWB Discounted cash flow Equity implied volatility(b) 6.0% - 39.0%
Base lapse rates(b) 1.00% - 40.0%
Dynamic lapse rates(b) 0.2% - 60.0%
Mortality rates(b) 0.5% - 40.0%
Utilization rates(b) 0.5% - 25.0%
Derivative Liabilities – Credit contracts BET Recovery rates(b) 3% - 37% (17%)
Diversity score(b) 9 - 38 (14)
Weighted average life(b) 5.10 - 8.45 years (5.75 years)
(a) The unobservable inputs and ranges for the constant prepayment rate, loss severity and constant default rate relate to each of the individual
underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the
securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the
tranches purchased by us because there are other factors relevant to the specific tranches owned by us including, but not limited to, purchase price,
position in the waterfall, senior versus subordinated position and attachment points.
(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and
liabilities.
(c) Information received from independent third-party valuation service providers.
(d) Yield was the only input available for $6.6 billion of total fair value at December 31, 2012.
The ranges of reported inputs for Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow
technique consist of plus/minus one standard deviation in either direction from the value-weighted average. The
preceding table does not give effect to our risk management practices that might offset risks inherent in these
investments.
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AIG 2012 Form 10-K246
Fair Value at
December 31, Valuation Range
(in millions) 2012 Technique Unobservable Input(a) (Weighted Average)(a)
$ 775
10,650
7,844
3,251
1,205
1,257
1,436
ITEM 8 / NOTE 6. FAIR VALUE MEASUREMENTS