AIG 2013 Annual Report Download - page 261

Assets:
Corporate debt $ 775 Discounted cash flow Yield(b) 0.08% – 6.55% (3.31%)
RMBS 10,650 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) 7,844 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%)
CMBS 3,251 Discounted cash flow Yield(b) 0.00% – 19.95% (7.76%)
CDO/ABS – Direct Binomial Expansion Recovery rate(b) 3.00% – 63.00% (27.00%)
Investment Book 1,205 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 1,257 Discounted cash flow Equity implied volatility(b) 6.00% – 39.00%
Base lapse rate(b) 1.00% – 40.00%
Dynamic lapse rate(b) 0.20% – 60.00%
Mortality rate(b) 0.50% – 40.00%
Utilization rate(b) 0.50% – 25.00%
Derivative Liabilities – Credit contracts 1,436 BET Recovery rate(b) 3.00% – 37.00% (17.00%)
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 fair values of 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 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.
Sensitivity to Changes in Unobservable Inputs
We consider unobservable inputs to be those for which market data is not available and that are developed using the
best information available to us about the assumptions that market participants would use when pricing the asset or
liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following
is a general description of sensitivities of significant unobservable inputs along with interrelationships between and
among the significant unobservable inputs and their impact on the fair value measurements. The effect of a change
in a particular assumption in the sensitivity analysis below is considered independently of changes in any other
assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs
discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships
have not been included in the discussion below. For each of the individual relationships described below, the inverse
relationship would also generally apply.
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AIG 2013 Form 10-K 243
ITEM 8 / NOTE 5. FAIR VALUE MEASUREMENTS
Fair Value at
December 31, Valuation Range
(in millions) 2012 Technique Unobservable Input(a) (Weighted Average)(a)
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