AIG 2014 Annual Report Download - page 287

ITEM 8 / NOTE 10. VARIABLE INTEREST ENTITIES
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Affordable Housing Partnerships
SunAmerica Affordable Housing Partners, Inc. (SAAHP) organizes and invests in limited partnerships that develop and operate
affordable housing qualifying for federal tax credits, in addition to a few market rate properties across the United States. The
operating partnerships are VIEs, whose debt is generally non-recourse in nature, and the general partners of which are mostly
unaffiliated third-party developers. We do not consolidate an operating partnership if the general partner is an unaffiliated entity
and we do not have the power to direct activities that most significantly impact the entities’ economic performance. Through
approximately 900 partnerships, SAAHP has limited partnership investments in developments with approximately 110,000
apartment units nationwide, and as of December 31, 2014, has syndicated approximately $7.7 billion in partnership equity to
other investors who will receive, among other benefits, tax credits under certain sections of the Internal Revenue Code. The
pre-tax income of SAAHP is reported as a component of the Consumer Insurance segment.
RMBS, CMBS, Other ABS and CDOs
Primarily through our insurance operations, we are a passive investor in RMBS, CMBS, other ABS and CDOs, the majority of
which are issued by domestic special purpose entities. We generally do not sponsor or transfer assets to, or act as the servicer
to these asset-backed structures, and were not involved in the design of these entities.
Through the DIB, we also invest in CDOs and similar structures, which can be cash-based or synthetic and are managed by
third parties. The role of DIB is generally limited to that of a passive investor in structures we do not manage.
Our maximum exposure in these types of structures is limited to our investment in securities issued by these entities. Based on
the nature of our investments and our passive involvement in these types of structures, we have determined that we are not
the primary beneficiary of these entities. We have not included these entities in the above tables; however, the fair values of
our investments in these structures are reported in Notes 5 and 6 herein.
11. DERIVATIVES AND HEDGE ACCOUNTING
We use derivatives and other financial instruments as part of our financial risk management programs and as part of our
investment operations. Interest rate, currency, equity and commodity swaps, credit contracts (including the super senior credit
default swap portfolio), swaptions, options and forward transactions are accounted for as derivatives, recorded on a trade-date
basis and carried at fair value. Unrealized gains and losses are reflected in income, when appropriate. In certain instances, a
contract’s transaction price is the best indication of initial fair value. Aggregate asset or liability positions are netted on the
Consolidated Balance Sheets only to the extent permitted by qualifying master netting arrangements in place with each
respective counterparty. Cash collateral posted with counterparties in conjunction with transactions supported by qualifying
master netting arrangements is reported as a reduction of the corresponding net derivative liability, while cash collateral
received in conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the
corresponding net derivative asset.
Derivatives, with the exception of bifurcated embedded derivatives, are reflected in the Consolidated Balance Sheets in
Derivative assets, at fair value and Derivative liabilities, at fair value. A bifurcated embedded derivative is measured at fair
value and accounted for in the same manner as a free standing derivative contract. The corresponding host contract is
accounted for according to the accounting guidance applicable for that instrument. A bifurcated embedded derivative is
generally presented with the host contract in the Consolidated Balance Sheets. See Notes 5 and 14 herein for additional
information on embedded policy derivatives.
Effective April 1, 2014, we reclassified cross-currency swaps from Interest rate contracts to Foreign exchange contracts. This
change was applied prospectively.