2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
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American International Group, Inc. and Subsidiaries<br />
1. Summary of Significant Accounting Policies (v) Goodwill: Goodwill is the excess of cost over the fair value<br />
Continued<br />
of identifiable net assets acquired. Goodwill is reviewed for<br />
impairment on an annual basis, or more frequently if circummaturity<br />
and equity securities available for sale that is credited or<br />
stances indicate that a possible impairment has occurred. The<br />
charged directly to Accumulated other <strong>com</strong>prehensive in<strong>com</strong>e<br />
assessment of impairment involves a two-step process whereby<br />
(loss). Value of Business Acquired (VOBA) is determined at the<br />
an initial assessment for potential impairment is performed,<br />
time of acquisition and is reported in the consolidated balance<br />
followed by a measurement of the amount of impairment, if any.<br />
sheet with DAC. This value is based on the present value of future<br />
Impairment testing is performed using the fair value approach,<br />
pre-tax profits discounted at yields applicable at the time of<br />
which requires the use of estimates and judgment, at the<br />
purchase. For products accounted for under FAS 60, VOBA is<br />
‘‘reporting unit’’ level. A reporting unit is the operating segment,<br />
amortized over the life of the business similar to that for DAC<br />
or a business that is one level below the operating segment if<br />
based on the assumptions at purchase. For products accounted<br />
discrete financial information is prepared and regularly reviewed by<br />
for under FAS 97, VOBA is amortized in relation to the estimated<br />
management at that level. The determination of a reporting unit’s<br />
gross profits to date for each period. As of December 31, <strong>2007</strong><br />
fair value is based on management’s best estimate, which<br />
and 2006, there had been no impairments of VOBA.<br />
generally considers the market-based earning multiples of the<br />
(s) Investments in Partially Owned Companies: Invest- unit’s peer <strong>com</strong>panies or expected future cash flows. If the<br />
ments in partially owned <strong>com</strong>panies represents investments carrying value of a reporting unit exceeds its fair value, an<br />
entered into for strategic purposes and not solely for capital impairment is recognized as a charge against in<strong>com</strong>e equal to the<br />
appreciation or for in<strong>com</strong>e generation. These investments are excess of the carrying value of goodwill over its fair value. No<br />
accounted for under the equity method. All other equity method impairments were recorded in <strong>2007</strong>, 2006 or 2005. Changes in<br />
investments are reported in Other invested assets. At Decem- the carrying amount of goodwill result from business acquisitions,<br />
ber 31, <strong>2007</strong>, <strong>AIG</strong>’s significant investments in partially owned the payment of contingent consideration, foreign currency transla<strong>com</strong>panies<br />
included its 26.0 percent interest in Tata <strong>AIG</strong> Life tion adjustments and purchase price adjustments.<br />
Insurance Company, Ltd., its 26.0 percent interest in Tata <strong>AIG</strong><br />
(w) Other Assets: Other assets consist of prepaid expenses,<br />
General Insurance Company, Ltd. and its 25.4 percent interest in<br />
including deferred advertising costs, sales inducement assets,<br />
The Fuji Fire and Marine Insurance Co., Ltd. Dividends received<br />
non-<strong>AIG</strong>FP derivatives assets carried at fair value, deposits, other<br />
from unconsolidated entities in which <strong>AIG</strong>’s ownership interest is<br />
deferred charges and other intangible assets.<br />
less than 50 percent were $30 million, $28 million and<br />
Certain direct response advertising costs are deferred and<br />
$146 million for the years ended December 31, <strong>2007</strong>, 2006 and<br />
amortized over the expected future benefit period in accordance<br />
2005, respectively. The undistributed earnings of unconsolidated<br />
with SOP 93-7, ‘‘<strong>Report</strong>ing on Advertising Costs.’’ When <strong>AIG</strong> can<br />
entities in which <strong>AIG</strong>’s ownership interest is less than 50 percent<br />
demonstrate that its customers have responded specifically to<br />
were $266 million, $300 million and $179 million at Decemdirect-response<br />
advertising, the primary purpose of which is to<br />
ber 31, <strong>2007</strong>, 2006 and 2005, respectively.<br />
elicit sales to customers, and when it can be shown such<br />
(t) Real Estate and Other Fixed Assets: The costs of<br />
advertising results in probable future economic benefits, the<br />
buildings and furniture and equipment are depreciated principally advertising costs are capitalized. Deferred advertising costs are<br />
on the straight-line basis over their estimated useful lives<br />
amortized on a cost-pool-by-cost-pool basis over the expected<br />
(maximum of 40 years for buildings and ten years for furniture and future economic benefit period and are reviewed regularly for<br />
equipment). Expenditures for maintenance and repairs are<br />
recoverability. Deferred advertising costs totaled $1.35 billion and<br />
charged to in<strong>com</strong>e as incurred; expenditures for betterments are $1.05 billion at December 31, <strong>2007</strong> and 2006, respectively. The<br />
capitalized and depreciated. <strong>AIG</strong> periodically assesses the carrying amount of expense amortized into in<strong>com</strong>e was $395 million,<br />
value of its real estate for purposes of determining any asset $359 million and $272 million, for the years ended <strong>2007</strong>, 2006,<br />
impairment.<br />
and 2005, respectively.<br />
Also included in Real Estate and Other Fixed Assets are<br />
<strong>AIG</strong> offers sales inducements, which include enhanced creditcapitalized<br />
software costs, which represent costs directly related ing rates or bonus payments to contract holders (bonus interest)<br />
to obtaining, developing or upgrading internal use software. Such on certain annuity and investment contract products. Sales<br />
costs are capitalized and amortized using the straight-line method inducements provided to the contractholder are recognized as part<br />
over a period generally not exceeding five years.<br />
of the liability for policyholders’ contract deposits in the consolidated<br />
balance sheet. Such amounts are deferred and amortized<br />
(u) Separate and Variable Accounts: Separate and variable<br />
over the life of the contract using the same methodology and<br />
accounts represent funds for which investment in<strong>com</strong>e and<br />
assumptions used to amortize DAC. To qualify for such accounting<br />
investment gains and losses accrue directly to the policyholders<br />
treatment, the bonus interest must be explicitly identified in the<br />
who bear the investment risk. Each account has specific investcontract<br />
at inception, and <strong>AIG</strong> must demonstrate that such<br />
ment objectives, and the assets are carried at fair value. The<br />
amounts are incremental to amounts <strong>AIG</strong> credits on similar<br />
assets of each account are legally segregated and are not subject<br />
contracts without bonus interest, and are higher than the<br />
to claims that arise out of any other business of <strong>AIG</strong>. The<br />
contract’s expected ongoing crediting rates for periods after the<br />
liabilities for these accounts are equal to the account assets.<br />
bonus period. The deferred bonus interest and other deferred<br />
<strong>AIG</strong> <strong>2007</strong> Form 10-K 143