AIG 2015 Annual Report Download - page 260

ITEM 8 / NOTE 4. FAIR VALUE MEASUREMENTS
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Indexed Life 259 Discounted cash flow Equity volatility 10.00% to 25.00%
Base lapse rate 2.00% to 19.00%
Mortality rate 0.00% to 20.00%
Derivative liabilities -
credit contracts(e) 791 BET Recovery rate 5.00% - 23.00% (13.00%)
Diversity score 8 - 25 (13)
Weighted average life 2.67 - 10.49 years (4.65 years)
(a) Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and
constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO
securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to
changes in the fair values of the tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including,
but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points.
(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities.
(c) Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table for GMWB and GMAB, and the 1975-1980 Modified Basic Table
for index annuities.
(d) An equity / interest rate correlation factor was added to the valuation model in the fourth quarter of 2015.
(e) Beginning in the third quarter of 2015, we began valuing these instruments using prices obtained from vendors and/or counterparties and discontinued use of
the BET model.
The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS,
CDO/ABS, and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from
the value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks
inherent in these Level 3 assets and liabilities.
Sensitivity to Changes in Unobservable Inputs
We consider unobservable inputs to be those for which market data is not available and that are developed using the best
information available to us about the assumptions that market participants would use when pricing the asset or liability.
Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following paragraphs
provide a general description of sensitivities of significant unobservable inputs along with interrelationships between and
among the significant unobservable inputs and their impact on the fair value measurements. The effect of a change in a
particular assumption in the sensitivity analysis below is considered independently of changes in any other assumptions. In
practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below.
Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in
the discussion below. For each of the individual relationships described below, the inverse relationship would also generally
apply.
Obligations of States, Municipalities and Political Subdivisions
The significant unobservable input used in the fair value measurement of certain investments in obligations of states,
municipalities and political subdivisions is yield. In general, increases in the yield would decrease the fair value of investments
in obligations of states, municipalities and political subdivisions.
Corporate Debt
Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active markets or
that are subject to transfer restrictions. Fair value measurements consider illiquidity and non-transferability. When observable
price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based
on credit spreads, yields or price levels of publicly-traded debt of the issuer or other comparable securities, considering
illiquidity and structure. The significant unobservable input used in the fair value measurement of corporate debt is the yield.