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ITEM 8 / NOTE 6. FAIR VALUE MEASUREMENTS.....................................................................................................................................................................................Transfers of Level 3 Assets and Liabilities..............................................................................................................................................................................................We record transfers of assets and liabilities into or out of Level 3 at their fair values as of the end of each reportingperiod, consistent with the date of the determination of fair value. As a result, the Net realized and unrealized gains(losses) included in income or other comprehensive income and as shown in the table above excludes $143 millionof net losses related to assets and liabilities transferred into Level 3 during 2012, and includes $92 million of netgains related to assets and liabilities transferred out of Level 3 during 2012.Transfers of Level 3 AssetsDuring the year ended December 31, 2012, transfers into Level 3 assets included certain RMBS, CMBS, CDO/ABS,private placement corporate debt and certain private equity funds and hedge funds. Transfers of certain RMBS andcertain CDO/ABS into Level 3 assets were related to decreased observations of market transactions and priceinformation for those securities. The transfers of investments in certain other RMBS and CMBS into Level 3 assetswere due to a decrease in market transparency, downward credit migration and an overall increase in price disparityfor certain individual security types. Transfers of private placement corporate debt and certain other ABS into Level 3assets were primarily the result of limited market pricing information that required us to determine fair value for thesesecurities based on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of aspecific security or associated market liquidity. Certain private equity fund and hedge fund investments were alsotransferred into Level 3 due to these investments being carried at fair value and no longer being accounted for usingthe equity method of accounting, consistent with the changes to our ownership and the lack of ability to exercisemore than minor influence over the respective investments. Other hedge fund investments were transferred intoLevel 3 as a result of limited market activity due to fund-imposed redemption restrictions.Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroboratedwith market observable data. This may be due to a significant increase in market activity for the asset, a specificevent, one or more significant input(s) becoming observable or a long-term interest rate significant to a valuationbecoming short-term and thus observable. In addition, transfers out of Level 3 assets also occur when investmentsare no longer carried at fair value as the result of a change in the applicable accounting methodology, given changesin the nature and extent of our ownership interest. During the year ended December 31, 2012, transfers out ofLevel 3 assets primarily related to certain RMBS, CMBS, ABS, investments in private placement corporate debt andprivate equity funds and hedge funds. Transfers of certain RMBS out of Level 3 assets were based on considerationof the market liquidity as well as related transparency of pricing and associated observable inputs for theseinvestments. Transfers of investments in certain CMBS out of Level 3 were due to an increase in markettransparency, positive credit migration and an overall improvement in price comparability for certain individual securitytypes. Transfers of ABS and private placement corporate debt out of Level 3 assets were primarily the result of usingobservable pricing information that reflects the fair value of those securities without the need for adjustment based onour own assumptions regarding the characteristics of a specific security or the current liquidity in the market. Theremoval of fund-imposed redemption restrictions, as well as certain fund investments becoming subject to the equitymethod of accounting based on our level of influence over the respective investments, resulted in the transfer ofcertain hedge fund and private equity fund investments out of Level 3.Transfers of Level 3 LiabilitiesBecause we present carrying values of our derivative positions on a net basis in the table above, transfers intoLevel 3 liabilities for the year ended December 31, 2012 primarily related to certain derivative assets transferred outof Level 3 because of the presence of observable inputs on certain forward commitments and options. During theyear ended December 31, 2012, certain notes payable were transferred out of Level 3 liabilities because inputparameters for the pricing of these liabilities became more observable as a result of market movements and portfolioaging. There were no significant transfers of derivative liabilities out of Level 3 for the year ended December 31,2012.We use various hedging techniques to manage risks associated with certain positions, including those classifiedwithin Level 3. Such techniques may include the purchase or sale of financial instruments that are classified withinLevel 1 and/or Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities classifiedwithin Level 3 presented in the table above do not reflect the related realized or unrealized gains (losses) on hedginginstruments that are classified within Level 1 and/or Level 2...................................................................................................................................................................................................................................AIG 2012 Form 10-K 245
ITEM 8 / NOTE 6. FAIR VALUE MEASUREMENTS.....................................................................................................................................................................................Quantitative Information about Level 3 Fair Value Measurements..............................................................................................................................................................................................The table below presents information about the significant unobservable inputs used for recurring fair valuemeasurements for certain Level 3 instruments, and includes only those instruments for which informationabout the inputs is reasonably available to us, such as data from pricing vendors and from internal valuationmodels. Because input information with respect to certain Level 3 instruments may not be reasonablyavailable to us, balances shown below may not equal total amounts reported for such Level 3 assets andliabilities:Fair Value atDecember 31, Valuation Range(in millions) 2012 Technique Unobservable Input (a) (Weighted Average) (a)Assets:Corporate debt $ 775 Discounted cash flow Yield (b) 0.08% - 6.55% (3.31%)RMBS 10,650 Discounted cash flow Constant prepayment rate (c) 0.00% - 10.76% (5.03%)Loss severity (c) 43.70% - 78.72% (61.21%)Constant default rate (c) 4.21% - 13.30% (8.75%)Yield (c) 2.23% - 9.42% (5.82%)Certain CDO/ABS (d) 7,844 Discounted cash flow Constant prepayment rate (c) 0.00% - 32.25% (11.82%)Loss severity (c) 0.00% - 29.38% (6.36%)Constant default rate (c) 0.00% - 4.05% (1.18%)Yield (c) 5.41% - 10.67% (8.04%)Commercial mortgage backed securities 3,251 Discounted cash flow Yield (b) 0.00% - 19.95% (7.76%)CDO/ABS – Direct Binomial Expansion Recovery rate (b) 3% - 63% (27%)Investment Book 1,205 Technique (BET) Diversity score (b) 4 - 44 (13)Weighted average life (b) 1.27 - 9.11 years (4.91 years)Liabilities:Policyholder contract deposits – GMWB 1,257 Discounted cash flow Equity implied volatility (b) 6.0% - 39.0%Base lapse rates (b) 1.00% - 40.0%Dynamic lapse rates (b) 0.2% - 60.0%Mortality rates (b) 0.5% - 40.0%Utilization rates (b) 0.5% - 25.0%Derivative Liabilities – Credit contracts 1,436BET Recovery rates (b) 3% - 37% (17%)Diversity score (b) 9 - 38 (14)Weighted average life (b) 5.10 - 8.45 years (5.75 years)(a) The unobservable inputs and ranges for the constant prepayment rate, loss severity and constant default rate relate to each of the individualunderlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to thesecuritization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of thetranches purchased by us because there are other factors relevant to the 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 andliabilities.(c)Information received from independent third-party valuation service providers.(d) Yield was the only input available for $6.6 billion of total fair value at December 31, 2012.The ranges of reported inputs for Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flowtechnique consist of plus/minus one standard deviation in either direction from the value-weighted average. Thepreceding table does not give effect to our risk management practices that might offset risks inherent in theseinvestments...................................................................................................................................................................................................................................246 AIG 2012 Form 10-K
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American International Group, Inc.2
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KEY FACTS & FIGURES52,000+ $65.7 bi
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■We said we would return to profi
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Financial HighlightsYears Ended Dec
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~63,000AIG EMPLOYEES AROUND THE WOR
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$115.1 millionAVERAGE CLAIMS PAID E
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$10,000MAXIMUM DONATION MADE BY AIG
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American International Group, Inc.F
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AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG LIFE AND RE
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 5 / MARKET FOR REGISTRANT’S
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / MANAGEMENT’S DISCUSSION
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ITEM 7 / USE OF NON-GAAP MEASURES..
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ITEM 7 / EXECUTIVE SUMMARY.........
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ITEM 7 / RESULTS OF OPERATIONS.....
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ITEM 7 / LIQUIDITY AND CAPITAL RESO
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ITEM 7 / INVESTMENTS...............
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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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ITEM 7 / CRITICAL ACCOUNTING ESTIMA
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Page 217 and 218: ITEM 7A / QUANTITATIVE AND QUALITAT
Page 219 and 220: ITEM 8 / INDEX TO FINANCIAL STATEME
Page 221 and 222: AMERICAN INTERNATIONAL GROUP, INC.C
Page 227 and 228: ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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ITEM 8 / NOTE 17. TOTAL EQUITY.....
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ITEM 8 / NOTE 18. NONCONTROLLING IN
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ITEM 8 / NOTE 19. EARNINGS (LOSS) P
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ITEM 8 / NOTE 20. STATUTORY FINANCI
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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ITEM 8 / NOTE 24. INCOME TAXES.....
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ITEM 8 / NOTE 26. QUARTERLY FINANCI
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ITEM 8 / NOTE 27. INFORMATION PROVI
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PART II............................
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PART IV............................
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SignatureTitle/s/ ARTHUR C. MARTINE
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ExhibitNumber Description Location(
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Condensed Financial Information of
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Notes to Condensed Financial Inform
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Supplementary Insurance Information
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Valuation and Qualifying AccountsFo
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Subsidiaries of RegistrantExhibit 2
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Percentageof VotingSecuritiesJurisd
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Percentageof VotingSecuritiesJurisd
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CONSENT OF INDEPENDENT REGISTERED P
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CERTIFICATIONSI, Robert H. Benmosch
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CERTIFICATIONExhibit 32In connectio
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SECURITIES REGISTERED PURSUANT TO S
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American International Group, Inc.1
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