AIG 2012 Annual Report Download - page 280

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On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated
based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit
deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an
other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for
other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in
the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively.
Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are
recognized prospectively as adjustments to the accretable yield.
The following tables present information on our PCI securities, which are included in bonds available for
sale:
Contractually required payments (principal and interest) $ 18,708
Cash flows expected to be collected*14,626
Recorded investment in acquired securities 9,379
* Represents undiscounted expected cash flows, including both principal and interest.
Outstanding principal balance $ 10,119
Amortized cost 7,006
Fair value 6,535
The following table presents activity for the accretable yield on PCI securities:
Balance, beginning of year $–
Newly purchased PCI securities 3,943
Disposals –
Accretion (324)
Effect of changes in interest rate indices (62)
Net reclassification from non-accretable difference, including effects of prepayments 578
Balance, end of year $ 4,135
Pledged Investments
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Secured Financing and Similar Arrangements
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We enter into financing transactions whereby certain securities are transferred to financial institutions in exchange for
cash or other liquid collateral. Securities transferred by us under these financing transactions may be sold or
repledged by the counterparties. As collateral for the securities transferred by us, counterparties transfer assets to
us, such as cash or high quality fixed maturity securities. Collateral levels are monitored daily and are generally
maintained at an agreed-upon percentage of the fair value of the transferred securities during the life of the
transactions. Where we receive fixed maturity securities as collateral, we do not have the right to sell or repledge this
collateral unless an event of default occurs by the counterparties. At the termination of the transactions, we and our
counterparties are obligated to return the collateral provided and the securities transferred, respectively. We treat
these transactions as secured financing arrangements.
Secured financing transactions also include securities sold under agreements to repurchase (repurchase
agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same
or substantially similar securities. In the majority of these repurchase agreements, the securities transferred by us
may be sold or repledged by the counterparties. Repurchase agreements entered into by the DIB are carried at fair
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AIG 2012 Form 10-K 263
$ 11,791
7,718
8,823
$ 4,135
1,620
(298)
(672)
(213)
194
$ 4,766
(in millions) At Date of Acquisition
(in millions) December 31, 2012 December 31, 2011
Years Ended December 31,
(in millions) 2012 2011
ITEM 8 / NOTE 7. INVESTMENTS