AIG 2014 Annual Report Download - page 274

ITEM 8 / NOTE 6. INVESTMENTS
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considerations, such as credit enhancement and priority of payment structure of the security. In addition, the process of
estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by asset class:
• Current delinquency rates;
• Expected default rates and the timing of such defaults;
• Loss severity and the timing of any recovery; and
• Expected prepayment speeds.
For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the
fair value as the recoverable value when available information does not indicate that another value is more relevant or reliable.
When management identifies information that supports a recoverable value other than the fair value, the determination of a
recoverable value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes
of corporate restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any
secondary sources of repayment and the disposition of assets.
We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs
when we determine that price movements in certain sectors are indicative of factors not captured by the cash flow models.
In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity
securities that is not foreign exchange related, we prospectively accrete into earnings the difference between the new
amortized cost and the expected undiscounted recoverable value over the remaining expected holding period of the security.
Credit Impairments
The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments
recognized in earnings for available for sale fixed maturity securities:
Years Ended December 31,
(in millions) 2014
2013 2012
Balance, beginning of year $3,872 $ 5,164 $ 6,504
Increases due to:
Credit impairments on new securities subject to impairment losses 49 47 194
Additional credit impairments on previously impaired securities 85 78 483
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell (613) (643) (1,105)
Credit impaired securities for which there is a current intent or
anticipated requirement to sell - -(5)
Accretion on securities previously impaired due to credit* (725) (774) (915)
Other (9) -8
Balance, end of year $2,659 $ 3,872 $ 5,164
* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired
securities and the accretion due to the passage of time.
Equity Securities
We evaluate our available for sale equity securities for impairment by considering such securities as candidates for other-than-
temporary impairment if they meet any of the following criteria:
• The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine
consecutive months or longer);
• A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer
seeking protection from creditors under the bankruptcy laws or any similar laws intended for court-supervised reorganization