AIG 2014 Annual Report Download - page 272

ITEM 8 / NOTE 6. INVESTMENTS
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At December 31, 2014, management’s best estimate of the life insurance premiums required to keep the investments in life
settlements in force, payable in the 12 months ending December 31, 2015 and the four succeeding years ending
December 31, 2019 are $545 million, $562 million, $584 million, $607 million and $627 million, respectively.
Net Investment Income
Net investment income represents income primarily from the following sources:
• 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 stocks and distributions from other investments.
• Realized and unrealized gains and losses from investments in other securities and investments for which we elected the fair
value option.
• Earnings from alternative investments.
• The difference between the carrying amount of an investment in life settlements and the life insurance proceeds of the
underlying life insurance policy recorded in income upon the death of the insured.
• Changes in the fair values of our interests in ML II and AIA securities prior to sale and change in the fair value of our
interests in ML III prior to the FRBNY liquidation of ML III assets.
The following table presents the components of Net investment income:
Years Ended December 31,
(in millions) 2014
2013 2012
Fixed maturity securities, including short-term investments $12,322 $ 12,044 $ 12,592
Change in fair value of ML II - - 246
Change in fair value of ML III - - 2,888
Change in fair value of AIA securities including realized gain - - 2,069
Equity securities 221 178 162
Interest on mortgage and other loans 1,272 1,144 1,083
Alternative investments* 2,624 2,803 1,769
Real estate 110 128 127
Other investments 47 61 11
Total investment income 16,596 16,358 20,947
Investment expenses 517 548 604
Net investment income $16,079 $ 15,810 $ 20,343
* Includes hedge funds, private equity funds, affordable housing partnerships, investments in life settlements and other investment partnerships.
Net Realized Capital Gains and Losses
Net realized capital gains and losses are determined by specific identification. The net realized capital gains and losses are
generated primarily from the following sources:
• Sales of available for sale fixed maturity securities, available for sale equity securities and real estate.
• Reductions to the cost basis of available for sale fixed maturity securities, available for sale equity securities and certain
other invested assets for other-than-temporary impairments.
• Impairments on investments in life settlements.
• Changes in fair value of derivatives except for (1) those instruments at AIGFP that are not intermediated on behalf of other
AIG subsidiaries and (2) those instruments that are designated as hedging instruments when the change in the fair value of
the hedged item is not reported in Net realized capital gains (losses).
• Exchange gains and losses resulting from foreign currency transactions.