AIG 2013 Annual Report Download - page 174

The following table presents impairments by investment type:
Fixed maturity securities, available for sale $ 723 $ 1,009
Equity securities, available for sale 106 39
Private equity funds and hedge funds 338 232
Subtotal 1,167 1,280
Investments in life settlements 309 312
Aircraft trusts – 168
Other investments 9–
Real estate 730
Total $ 1,492 $ 1,790
Our investments in life settlements are monitored for impairment on a contract-by-contract basis quarterly. An
investment in life settlements is considered impaired if the undiscounted cash flows resulting from the expected
proceeds would not be sufficient to recover our estimated future carrying amount, which is the current carrying
amount for the investment in life settlements plus anticipated undiscounted future premiums and other capitalizable
future costs, if any. Impaired investments in life settlements are written down to their estimated fair value which is
determined on a discounted cash flow basis, incorporating current market longevity assumptions and market yields.
In 2011, we revised the valuation table for estimating the future net cash flows from investments in life settlements.
This resulted in an increase in the number of investments in life settlements identified as potentially impaired
compared to previous analyses. Since that time, we have continued to monitor the longevity experience of the
portfolio, new medical information as it becomes available regarding insureds, as well as U.S. industry experience
studies that have become available for portfolios with similar insureds. The cumulative mortality experience through
December 31, 2013, was sufficiently lower than the prior assumptions indicating that it was appropriate to revise our
future mortality assumptions, despite the small number of lives in the portfolio.
Our new mortality assumptions are based on an industry table that was supplemented with proprietary data on the
older age mortality of U.S. insured lives. In addition, mortality improvement factors were applied to our new
assumptions based on our view of future mortality improvements likely to apply to the U.S. insured lives population.
These mortality improvement assumptions were based on our analysis of various public industry sources and
proprietary research conducted by our specialist advisors. Using these new mortality assumptions coupled with the
adopted future mortality improvement rates, we revised our estimate of future net cash flows from the investments in
life settlements. This resulted in a significant increase in the number of investments in life settlements identified as
impaired as of December 31, 2013.
Additional impairments are expected to occur in the future due to the fact that continued payment of premiums
required to maintain policies will cause the expected lifetime undiscounted cash flows for some policies to become
negative in future reporting periods, even in the absence of future changes to the mortality assumptions. Impairments
may also occur due to our future sale or lapse of select policies at a value that is below carrying value.
To determine other-than-temporary impairments, we use fundamental credit analyses of individual securities without
regard to rating agency ratings. Based on this analysis, we expect to receive cash flows sufficient to cover the
amortized cost of all below investment grade securities for which credit impairments were not recognized.
Impairments
Other-Than-Temporary Impairments
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AIG 2013 Form 10-K156
ITEM 7 / INVESTMENTS
Years Ended December 31,
(in millions) 2013 2012 2011
$ 173
14
140
327
971
–
–
19
$ 1,317
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