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ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................internal and external investment management fees. The interest income increase reflects the redeployment of cashand short term instruments into longer term, higher yield securities. In addition, 2011 reflects a full year of interestincome related to Fuji.Net Realized Capital Gains (Losses)Net realized capital gains were recorded in 2011, compared to losses in 2010. We recorded gains on the sales offixed maturity securities; a decrease in other-than-temporary impairment charges; gains from improvements in foreigncurrency exchange rates; and gains from derivative instruments that do not qualify for hedge accounting, resultingprimarily from declining long term interest rates. These derivative instruments economically hedge products thatprovide benefits over an extended period of time. Net realized capital gains on sales of fixed maturity securitiesincreased due to our strategy to better align investment allocations with current overall performance and income taxplanning objectives.These gains were partially offset by impairments within other invested assets, primarily life settlement contracts. Forthe years 2011 and 2010, we recorded impairment charges of $351 million and $78 million, respectively, related tolife settlement contracts. These charges included approximately $38 million and $4 million of impairments,respectively, associated with life insurance policies issued by AIG Life and Retirement that are eliminated inconsolidation.During 2011, we experienced an increase in the number of life settlement contracts identified as potentially impaired,compared to previous analyses. This increase reflected a new process adopted by us, in which updated medicalinformation on individual insured lives is requested on a routine basis. In some cases, this updated informationindicates that an individual’s health has improved, resulting in an impairment loss due to revised estimates of netcash flows from the related contract. In addition, our domestic operations refined our fair values based upon theavailability of recent medical information.See Consolidated Results for further discussion on net investment income and net realized capital gains (losses).Bargain Purchase GainOn March 31, 2010, we purchased additional voting shares in Fuji which resulted in the effective control andconsolidation of Fuji. This acquisition resulted in a bargain purchase gain of $0.3 billion, which was included in theConsolidated Statement of Income (Loss) in Other Income. The bargain purchase gain was primarily attributable tothe depressed market value of Fuji’s common stock, which we believed was the result of macro-economic, capitalmarket and regulatory factors in Japan coupled with Fuji’s financial condition and results of operations.Liability for Unpaid Claims and Claims Adjustment Expense..............................................................................................................................................................................................The following discussion of the consolidated liability for unpaid claims and claims adjustment expenses (lossreserves) presents loss reserves for AIG Property Casualty as well as the loss reserves pertaining to the MortgageGuaranty reporting unit, which is reported in Other...................................................................................................................................................................................................................................88 AIG 2012 Form 10-K