AIG 2014 Annual Report Download - page 120

ITEM 7 / RESULTS OF OPERATIONS / CORPORATE AND OTHER
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(c) During 2014, the Life Insurance Companies sold their investment in PICC Group to AIG Parent.
Direct Investment Book Results
2014 and 2013 Comparison
DIB pre-tax operating income decreased in 2014 compared to 2013 primarily due to lower fair value appreciation on asset-
backed security (ABS) collateralized debt obligations (CDOs) and declines in net credit valuation adjustments on assets and
liabilities for which the fair value option was elected, partially offset by lower interest expense on borrowings resulting from
redemptions and repurchases of DIB debt in 2014.
Fair value appreciation on ABS CDOs was $789 million and $954 million in 2014 and 2013, respectively. The fair value
appreciation on the ABS CDOs was higher in 2013, driven primarily by improved collateral pricing due to more significant
improvements in home price indices and amortization of the underlying collateral.
Net credit valuation adjustment gains of $291 million and $444 million were recognized in 2014 and 2013, respectively. The
decrease resulted primarily from lower gains on assets due to more significant widening of counterparty credit spreads in 2014
compared to 2013.
2013 and 2012 Comparison
DIB pre-tax operating income increased in 2013 compared to 2012 primarily due to fair value appreciation on ABS CDOs that
were acquired in the fourth quarter of 2012, partially offset by a decline in net credit valuation adjustments on assets and
liabilities for which the fair value option was elected.
Fair value appreciation on ABS CDOs was $954 million in 2013 driven primarily by improved collateral pricing due to
improvements in home price indices and amortization of the underlying collateral.
Net credit valuation adjustment gains of $444 million and $789 million were recognized in 2013 and 2012, respectively. The
decrease resulted primarily from a decline in the portfolio size due to sales and maturities as well as lower gains on assets due
to less significant tightening of counterparty credit spreads, partially offset by lower losses on liabilities due to less significant
tightening of AIG’s credit spreads in 2013 compared to 2012.
The following table presents credit valuation adjustment gains (losses) for the DIB (excluding intercompany
transactions):
Years Ended December 31,
(in millions) 2014 2013 2012
Counterparty Credit Valuation Adjustment on Assets:
Other bond securities $ 322 $ 488 $ 1,401
Loans and other assets - 10 29
Increase in assets 322 498 1,430
AIG's Own Credit Valuation Adjustment on Liabilities:
Notes and bonds payable (29) (88) (526)
Guaranteed Investment Agreements (1) 41 (81)
Other liabilities (1) (7) (34)
Increase in liabilities (31) (54) (641)
Net increase to pre-tax operating income $ 291 $ 444 $ 789