AIG 2015 Annual Report Download - page 273

ITEM 8 / NOTE 5. INVESTMENTS
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Investments in Life Settlements
Investments in life settlements are accounted for under the investment method. Under the investment method, we recognize
our initial investment in life settlements at the transaction price plus all initial direct external costs. Continuing costs to keep the
policy in force, primarily life insurance premiums, increase the carrying amount of the investment. We recognize income on
individual investments in life settlements when the insured dies, at an amount equal to the excess of the investment proceeds
over the carrying amount of the investment at that time. These investments are subject to impairment review, as discussed
below.
During 2015, 2014 and 2013, income recognized on investments in life settlements was $332 million, $407 million and
$334 million, respectively, and is included in Net investment income in the Consolidated Statements of Income.
The following table presents further information regarding investments in life settlements:
December 31, 2015
Number of Carrying Face Value
(dollars in millions) Contracts Value (Death Benefits)
Remaining Life Expectancy of Insureds:
0 – 1 year 1 $ - $ -
1 – 2 years 9 917
2 – 3 years 16 10 20
3 – 4 years 72 50 113
4 – 5 years 156 235 485
Thereafter 4,300 3,302 14,233
Total 4,554 $ 3,606 $14,868
Remaining life expectancy for year 0-1 references policies whose current life expectancy is less than 12 months as of the
valuation date. Remaining life expectancy is not an indication of expected maturity. Actual maturity dates in any category may
vary significantly (either earlier or later) from the remaining life expectancies reported above.
At December 31, 2015, 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, 2016 and the four succeeding years ending
December 31, 2020 are $530 million, $553 million, $579 million, $598 million and $607 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 with changes in the
timing and the amount of expected principal and interest cash flows reflected in yield, as applicable.
• Dividend income from common and preferred stocks and earnings 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.