AIG 2014 Annual Report Download - page 236

ITEM 8 / NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 Future policy benefits
 Policyholder contract deposits
 Other policyholder funds
Note 14 Variable Life and Annuity Contracts
Note 15. Debt
 Long-term debt
Note 16. Contingencies, Commitments and Guarantees
 Legal contingencies
Note 18. Noncontrolling Interests
Note 19. Earnings Per Share
Note 24. Income Taxes
Other significant accounting policies
Premiums for short-duration contracts are recorded as written on the inception date of the policy. Premiums are earned
primarily on a pro rata basis over the term of the related coverage. Sales of extended services contracts are reflected as
premiums written and earned on a pro rata basis over the term of the related coverage. In addition, certain miscellaneous
income is included as premiums written and earned. The reserve for unearned premiums includes the portion of premiums
written relating to the unexpired terms of coverage. Reinsurance premiums are typically earned over the same period as the
underlying policies or risks covered by the contract. As a result, the earnings pattern of a reinsurance contract may extend up
to 24 months, reflecting the inception dates of the underlying policies throughout the year.
Reinsurance premiums ceded are recognized as a reduction in revenues over the period the reinsurance coverage is provided
in proportion to the risks to which the premiums relate.
Premiums for long-duration insurance products and life contingent annuities are recognized as revenues when due. Estimates
for premiums due but not yet collected are accrued.
Policy fees represent fees recognized from universal life and investment-type products consisting of policy charges for the
cost of insurance, policy administration charges, surrender charges and amortization of unearned revenue reserves.
Aircraft leasing revenue from flight equipment under operating leases, through May 14, 2014, the date of disposal of ILFC,
was recognized over the life of the leases as rental payments became receivable under the provisions of the leases or, in the
case of leases with varying payments, under the straight-line method over the noncancelable term of the leases. In certain
cases, leases provided for additional payments contingent on usage. In those cases, rental revenue was recognized at the
time such usage occurred, net of estimated future contractual aircraft maintenance reimbursements. Gains on sales of flight
equipment were recognized when flight equipment was sold and the risk of ownership of the equipment passed to the new
owner.
Other income includes unrealized gains and losses on derivatives, including income from the Direct Investment book (DIB)
unrealized market valuation gains and losses associated with the Global Capital Markets (GCM) super senior credit default
swap (CDS) portfolio, advisory fee income from the Consumer Insurance broker dealer business, as well as legal settlements
of $804 million, $1.2 billion and $200 million from legacy crisis and other matters in 2014, 2013 and 2012, respectively.
Other income from our Corporate and Other category consists of the following:
• Change in fair value relating to financial assets and liabilities for which the fair value option has been elected.
• Interest income and related expenses, including amortization of premiums and accretion of discounts on bonds with
changes in the timing and the amount of expected principal and interest cash flows reflected in the yield, as applicable.
• Dividend income from common and preferred stock and distributions from other investments.
• Changes in the fair value of other securities sold but not yet purchased, futures, hybrid financial instruments, securities
purchased under agreements to resell, and securities sold under agreements to repurchase.