AIG 2013 Annual Report Download - page 237

• Income earned on real estate based investments and related realized gains and losses from sales, property level
impairments and financing costs.
• Exchange gains and losses resulting from foreign currency transactions.
• Reductions to the cost basis of securities available for sale for other-than-temporary impairments.
• Earnings from private equity funds and hedge fund investments accounted for under the equity method.
• Gains and losses recognized in earnings on derivatives for the effective portion and their related hedged items.
Aircraft leasing expenses consist of ILFC interest expense, depreciation expense, impairment charges, fair value
adjustments and lease-related charges on aircraft as well as selling, general and administrative expenses and other
expenses incurred by ILFC.
Cash represents cash on hand and non-interest bearing demand deposits.
Premiums and other receivables — net includes premium balances receivable, amounts due from agents and
brokers and policyholders, trade receivables for the DIB and GCM and other receivables. Trade receivables for GCM
include cash collateral posted to derivative counterparties that is not eligible to be netted against derivative liabilities.
The allowance for doubtful accounts on premiums and other receivables was $554 million and $619 million at
December 31, 2013 and 2012, respectively.
Other assets consists of sales inducement assets, prepaid expenses, deposits, other deferred charges, real estate,
other fixed assets, capitalized software costs, goodwill, intangible assets other than goodwill, and restricted cash.
We offer sales inducements, which include enhanced crediting rates or bonus payments to contract holders (bonus
interest) on certain annuity and investment contract products. Sales inducements provided to the contract holder are
recognized in Policyholder contract deposits in the Consolidated Balance Sheets. Such amounts are deferred and
amortized over the life of the contract using the same methodology and assumptions used to amortize DAC (see
Note 9 herein). To qualify for such accounting treatment, the bonus interest must be explicitly identified in the
contract at inception. We must also demonstrate that such amounts are incremental to amounts we credit on similar
contracts without bonus interest, and are higher than the contract’s expected ongoing crediting rates for periods after
the bonus period. The deferred bonus interest and other deferred sales inducement assets totaled $703 million and
$517 million at December 31, 2013 and 2012, respectively. The amortization expense associated with these assets is
reported within Interest credited to policyholder account balances in the Consolidated Statements of Income. Such
amortization expense totaled $102 million, $162 million and $239 million for the years ended December 31, 2013,
2012 and 2011, respectively.
The cost of buildings and furniture and equipment is depreciated principally on the straight-line basis over their
estimated useful lives (maximum of 40 years for buildings and 10 years for furniture and equipment). Expenditures
for maintenance and repairs are charged to income as incurred and expenditures for improvements are capitalized
and depreciated. We periodically assess the carrying value of our real estate for purposes of determining any asset
impairment. Capitalized software costs, which represent costs directly related to obtaining, developing or upgrading
internal use software, are capitalized and amortized using the straight-line method over a period generally not
exceeding five years. Real estate, fixed assets and other long-lived assets are assessed for impairment when
impairment indicators exist.
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are
not individually identified and separately recognized. Goodwill is tested for impairment annually, or more frequently if
circumstances indicate an impairment may have occurred. All of our goodwill was associated with and allocated to
the AIG Property Casualty’s Commercial Insurance and Consumer Insurance operating segments.
The impairment assessment involves an option to first assess qualitative factors to determine whether events or
circumstances exist that lead to a determination that it is more likely than not that the fair value of a reporting unit is
less than its carrying amount. If the qualitative assessment is not performed, or after assessing the totality of the
events or circumstances, we determine it is more likely than not that the fair value of a reporting unit is less than its
carrying amount, the impairment assessment involves a two-step process in which a quantitative assessment for
potential impairment is performed.
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AIG 2013 Form 10-K 219
ITEM 8 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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