AIG 2012 Annual Report Download - page 268

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Fair Value Information about Financial Instruments Not Measured at Fair Value
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Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding
insurance contracts and lease contracts) is discussed below:
•Fair values of loans on real estate and other loans receivable were
estimated for disclosure purposes using discounted cash flow calculations based upon discount rates that we
believe market participants would use in determining the price that they would pay for such assets. For certain
loans, our current incremental lending rates for similar types of loans is used as the discount rate, as we
believe that this rate approximates the rates that market participants would use. The fair values of policy loans
are generally estimated based on unpaid principal amount as of each reporting date or, in some cases, based
on the present value of the loans using a discounted cash flow model. No consideration is given to credit risk
as policy loans are effectively collateralized by the cash surrender value of the policies.
• The majority of Other invested assets that are not measured at fair value represent
investments in life settlement contracts. The fair value of life settlement contracts included in Other invested
assets is determined on a discounted cash flow basis, incorporating current life expectancy assumptions.
• The carrying values of these assets approximate fair values because of
the relatively short period of time between origination and expected realization, and their limited exposure to
credit risk.
•Fair values for policyholder
contract deposits associated with investment-type contracts not accounted for at fair value were estimated
using discounted cash flow calculations based upon interest rates currently being offered for similar contracts
with maturities consistent with those remaining for the contracts being valued. Where no similar contracts are
being offered, the discount rate is the appropriate tenor swap rate (if available) or current risk-free interest rate
consistent with the currency in which the cash flows are denominated.
• Fair values of these obligations were determined by reference to quoted market prices,
where available and appropriate, or discounted cash flow calculations based upon our current market-
observable implicit-credit-spread rates for similar types of borrowings with maturities consistent with those
remaining for the debt being valued.
The following table presents the carrying value and estimated fair value of our financial instruments not
measured at fair value and indicates the level of the estimated fair value measurement based on the
observability of the inputs used:
December 31, 2012
Assets:
Mortgage and other loans receivable
Other invested assets
Short-term investments
Cash
Liabilities:
Policyholder contract deposits associated with
investment-type contracts
Other liabilities
Long-term debt
*
December 31, 2011
Assets:
Mortgage and other loans receivable $ 20,494 $ 19,382
Other invested assets 3,390 4,701
Short-term investments 16,657 16,659
Cash 1,474 1,474
Liabilities:
Policyholder contract deposits associated with
investment-type contracts 122,125 106,950
Other liabilities 896 896
Long-term debt 61,295 64,487
* Excludes Long-term debt of ILFC reclassed to Liabilities held for sale on the Consolidated Balance Sheet.
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AIG 2012 Form 10-K 251
Mortgage and other loans receivable:
Other Invested Assets:
Cash and short-term investments:
Policyholder contract deposits associated with investment-type contracts:
Long-term debt:
Estimated Fair Value Carrying
(in millions) Level 1 Level 2 Level 3 Total Value
$ 823 $ 19,396 $ 20,219 $ 19,348
237 3,521 3,758 4,932
20,752 – 20,752 20,752
– – 1,151 1,151
245 123,860 124,105 105,979
2,205 818 3,023 3,024
43,966 1,925 45,891 40,445
$–
–
–
1,151
–
–
–
ITEM 8 / NOTE 6. FAIR VALUE MEASUREMENTS