INVESTMENTS

12 Months Ended

Dec. 31, 2018

6. Investments

Fixed Maturity and Equity Securities

Bonds held to maturity are carried at amortized cost when we have the ability and positive intent to hold these securities until maturity. When we do not have the ability or positive intent to hold bonds until maturity, these securities are classified as available for sale or are measured at fair value at our election. None of our fixed maturity securities met the criteria for held to maturity classification at December 31, 2018 or 2017.

On January 1, 2018, AIG adopted ASU 2016-01, the Financial Instruments Recognition and Measurement standard for equity securities which eliminates the available for sale classification and treatment for equity securities. As a result, equity securities that do not follow the equity method of accounting, are measured at fair value with changes in fair value recognized in earnings.

Prior to the adoption of this standard, unrealized gains and losses from available for sale investments in fixed maturity and equity securities carried at fair value were reported as a separate component of Accumulated other comprehensive income, net of deferred policy acquisition costs and deferred income taxes, in shareholders’ equity. Realized and unrealized gains and losses from fixed maturity and equity securities measured at fair value at our election are reflected in Net investment income (for insurance subsidiaries) or Other income (for Other Operations). Investments in fixed maturity and equity securities are recorded on a trade-date basis.

Premiums and discounts arising from the purchase of bonds classified as available for sale are treated as yield adjustments over their estimated holding periods, until maturity, or call date, if applicable. For investments in certain RMBS, CMBS and CDO/ABS, (collectively, structured securities), recognized yields are updated based on current information regarding the timing and amount of expected undiscounted future cash flows. For high credit quality structured securities, effective yields are recalculated based on actual payments received and updated prepayment expectations, and the amortized cost is adjusted to the amount that would have existed had the new effective yield been applied since acquisition with a corresponding charge or credit to net investment income. For structured securities that are not high credit quality, effective yields are recalculated and adjusted prospectively based on changes in expected undiscounted future cash flows. For purchased credit impaired (PCI) securities, at acquisition, the difference between the undiscounted expected future cash flows and the recorded investment in the securities represents the initial accretable yield, which is to be accreted into net investment income over the securities’ remaining lives on an effective level-yield basis. Subsequently, effective yields recognized on PCI securities are recalculated and adjusted prospectively to reflect changes in the contractual benchmark interest rates on variable rate securities and any significant increases in undiscounted expected future cash flows arising due to reasons other than interest rate changes.

Securities Available for Sale

The following table presents the amortized cost or cost and fair value of our available for sale securities^(a):

										Other-Than-
		Amortized		Gross		Gross				Temporary
		Cost or		Unrealized		Unrealized		Fair		Impairments
(in millions)		Cost		Gains		Losses		Value		in AOCI^(b)
December 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	3,170	$	132	$	(42)	$	3,260	$	-
Obligations of states, municipalities and political subdivisions		15,421		701		(121)		16,001		4
Non-U.S. governments		14,376		451		(302)		14,525		-
Corporate debt		130,436		3,911		(3,647)		130,700		4
Mortgage-backed, asset-backed and collateralized:
RMBS		31,940		2,754		(317)		34,377		1,155
CMBS		12,673		242		(214)		12,701		31
CDO/ABS		17,764		228		(165)		17,827		17
Total mortgage-backed, asset-backed and collateralized		62,377		3,224		(696)		64,905		1,203
Total bonds available for sale^(c)	$	225,780	$	8,419	$	(4,808)	$	229,391	$	1,211
December 31, 2017
Bonds available for sale:
U.S. government and government sponsored entities	$	2,532	$	160	$	(36)	$	2,656	$	-
Obligations of states, municipalities and political subdivisions		17,377		1,297		(30)		18,644		-
Non-U.S. governments		15,059		717		(117)		15,659		-
Corporate debt		126,310		8,666		(800)		134,176		17
Mortgage-backed, asset-backed and collateralized:
RMBS		34,181		3,273		(220)		37,234		1,568
CMBS		13,538		408		(105)		13,841		42
CDO/ABS		16,464		370		(52)		16,782		29
Total mortgage-backed, asset-backed and collateralized		64,183		4,051		(377)		67,857		1,639
Total bonds available for sale^(c)		225,461		14,891		(1,360)		238,992		1,656
Equity securities available for sale:
Common stock		703		379		(21)		1,061		-
Preferred stock		504		29		-		533		-
Mutual funds		98		16		-		114		-
Total equity securities available for sale		1,305		424		(21)		1,708		-
Total	$	226,766	$	15,315	$	(1,381)	$	240,700	$	1,656

(a) As a result of the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, equity securities are no longer classified and accounted for as available for sale securities.

(b) Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income (loss). Amount includes unrealized gains and losses on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.

(c) At December 31, 2018 and 2017, bonds available for sale held by us that were below investment grade or not rated totaled $28.8 billion and $31.5 billion, respectively.

Securities Available for Sale in a Loss Position

The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position⁽^a):

	Less than 12 Months				12 Months or More				Total
				Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in millions)		Value		Losses		Value		Losses		Value		Losses
December 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	574	$	13	$	873	$	29	$	1,447	$	42
Obligations of states, municipalities and political
subdivisions		1,965		51		1,530		70		3,495		121
Non-U.S. governments		3,851		149		2,422		153		6,273		302
Corporate debt		47,364		2,181		20,056		1,466		67,420		3,647
RMBS		5,231		94		5,641		223		10,872		317
CMBS		2,646		47		4,264		167		6,910		214
CDO/ABS		9,169		144		1,324		21		10,493		165
Total bonds available for sale	$	70,800	$	2,679	$	36,110	$	2,129	$	106,910	$	4,808
December 31, 2017
Bonds available for sale:
U.S. government and government sponsored entities	$	770	$	23	$	332	$	13	$	1,102	$	36
Obligations of states, municipalities and political
subdivisions		586		6		646		24		1,232		30
Non-U.S. governments		3,511		54		857		63		4,368		117
Corporate debt		15,578		453		7,291		347		22,869		800
RMBS		6,212		99		3,790		121		10,002		220
CMBS		3,408		46		1,389		59		4,797		105
CDO/ABS		1,455		24		822		28		2,277		52
Total bonds available for sale		31,520		705		15,127		655		46,647		1,360
Equity securities available for sale:
Common stock		136		21		-		-		136		21
Mutual funds		1		-		-		-		1		-
Total equity securities available for sale		137		21		-		-		137		21
Total	$	31,657	$	726	$	15,127	$	655	$	46,784	$	1,381

At December 31, 2018, we held 16,876 individual fixed maturity securities that were in an unrealized loss position, of which 5,127 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities at December 31, 2018 because we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data.

Contractual Maturities of Fixed Maturity Securities Available for Sale

The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual maturity:

	Total Fixed Maturity Securities				Fixed Maturity Securities in a Loss
	Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value
December 31, 2018
Due in one year or less	$	9,539	$	9,674	$	2,322	$	2,294
Due after one year through five years		47,400		47,905		17,382		16,844
Due after five years through ten years		42,363		42,045		27,724		26,517
Due after ten years		64,101		64,862		35,319		32,980
Mortgage-backed, asset-backed and collateralized		62,377		64,905		28,971		28,275
Total	$	225,780	$	229,391	$	111,718	$	106,910
December 31, 2017
Due in one year or less	$	7,932	$	8,071	$	1,526	$	1,515
Due after one year through five years		47,179		49,093		7,764		7,571
Due after five years through ten years		42,617		43,944		11,559		11,143
Due after ten years		63,550		70,027		9,705		9,342
Mortgage-backed, asset-backed and collateralized		64,183		67,857		17,453		17,076
Total	$	225,461	$	238,992	$	48,007	$	46,647

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for sale securities:

	Years Ended December 31,
		2018				2017				2016
		Gross		Gross		Gross		Gross	Gross		Gross
	Realized		Realized		Realized		Realized		Realized		Realized
(in millions)		Gains		Losses		Gains		Losses	Gains		Losses
Fixed maturity securities	$	331	$	476	$	725	$	300	$	801	$	800
Equity securities		16		-		107		19		1,072		15
Total	$	347	$	476	$	832	$	319	$	1,873	$	815

For the years ended December 31, 2018, 2017 and 2016, the aggregate fair value of available for sale securities sold was $25.1 billion, $31.3 billion and $30.2 billion, which resulted in net realized capital gains (losses) of $(129) million, $0.5 billion and $1.1 billion, respectively.

Other Securities Measured at Fair Value

The following table presents the fair value of other securities measured at fair value based on our election of the fair value option:

		December 31, 2018				December 31, 2017
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	2,665	21	%	$	2,802	21	%
Non-U.S. governments		45	-			57	1
Corporate debt		1,671	13			1,909	14
Mortgage-backed, asset-backed and collateralized:
RMBS		1,714	14			1,885	14
CMBS		388	3			559	4
CDO/ABS and other collateralized^*		4,932	39			5,560	42
Total mortgage-backed, asset-backed and collateralized		7,034	56			8,004	60
Total fixed maturity securities		11,415	90			12,772	96
Equity securities		1,253	10			589	4
Total	$	12,668	100	%	$	13,361	100	%

* Includes $178 million and $251 million of U.S. government agency backed ABS at December 31, 2018 and 2017, respectively.

Other Invested Assets

The following table summarizes the carrying amounts of other invested assets:

December 31,
(in millions)		2018		2017
Alternative investments^{(a) (b)}	$	8,966	$	11,308
Investment real estate^(c)		8,935		8,258
All other investments		1,440		1,256
Total	$	19,341	$	20,822

(a) At December 31, 2018, included hedge funds of $4.2 billion, private equity funds of $4.3 billion, and affordable housing partnerships of $438 million. At December 31, 2017, included hedge funds of $5.8 billion, private equity funds of $5.0 billion, and affordable housing partnerships of $543 million.

(b) At December 31, 2018, approximately 74 percent of our hedge fund portfolio is available for redemption in 2019. The remaining 26 percent will be available for redemption between 2020 and 2027.

Other Invested Assets Carried at Fair Value

Certain hedge funds, private equity funds, and other investment partnerships for which we have elected the fair value option are reported at fair value with changes in fair value recognized in Net investment income with the exception of investments of AIG’s Other Operations, for which such changes are reported in Other income.

Prior to January 1, 2018, other investments in hedge funds, private equity funds and other investment partnerships in which our insurance operations do not hold aggregate interests sufficient to exercise more than minor influence over the respective partnerships were reported at fair value with changes in fair value recognized as a component of Accumulated other comprehensive income. These investments were subject to other-than-temporary impairment evaluations. The gross unrealized loss recorded in Accumulated other comprehensive income on such investments was $45 million at December 31, 2017, the majority of which pertained to investments in private equity funds and hedge funds that have been in continuous unrealized loss positions for less than 12 months. Effective January 1, 2018, upon the adoption of the Financial Instruments Recognition and Measurement standard, these investments are no longer accounted for as available for sale securities. The new standard requires these investments to be measured at fair value with the change in fair value recognized in earnings. As a result, beginning in 2018, these investments are no longer subject to the other-than-temporary impairment evaluation.

Other Invested Assets – Equity Method Investments

We account for hedge funds, private equity funds, affordable housing partnerships and other investment partnerships using the equity method of accounting unless our interest is so minor that we may have virtually no influence over partnership operating and financial policies, or we have elected the fair value option. Under the equity method of accounting, our carrying amount generally is our share of the net asset value of the funds or the partnerships, and changes in our share of the net asset values are recorded in Net investment income with the exception of investments of AIG’s Other Operations, for which such changes are reported in Other income. In applying the equity method of accounting, we consistently use the most recently available financial information provided by the general partner or manager of each of these investments, which is one to three months prior to the end of our reporting period. The financial statements of these investees are generally audited annually.

Summarized Financial Information of Equity Method Investees

The following is the aggregated summarized financial information of our equity method investees, including those for which the fair value option has been elected:

Years Ended December 31,
(in millions)		2018		2017		2016
Operating results:
Total revenues	$	15,310	$	13,066	$	9,512
Total expenses		(3,200)		(6,835)		(7,361)
Net income	$	12,110	$	6,231	$	2,151
At December 31,
(in millions)				2018		2017
Balance sheet:
Total assets			$	96,915	$	132,708
Total liabilities			$	(21,063)	$	(35,585)

The following table presents the carrying amount and ownership percentage of equity method investments at December 31, 2018 and 2017:

		2018			2017
		Carrying	Ownership		Carrying	Ownership
(in millions, except percentages)		Value	Percentage		Value	Percentage
Equity method investments	$	6,520	Various	$	9,050	Various

Summarized financial information for these equity method investees may be presented on a lag, due to the unavailability of information for the investees at our respective balance sheet dates, and is included for the periods in which we held an equity method ownership interest.

Other Investments

Also included in Other invested assets are real estate held for investment. These investments are reported at cost, less depreciation and are subject to impairment review, as discussed below.

Investments in Life Settlements

Investments in life settlements were accounted for under the investment method. Under the investment method, we recognized 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, increased the carrying amount of the investment. We recognized income on individual investments in life settlements upon the death of the insured, at an amount equal to the excess of the investment proceeds over the carrying amount of the investment at that time. These investments were subject to impairment review, as discussed below.

During 2017 and 2016, income recognized on investments in life settlements was $266 million and $453 million, respectively, and is included in Net investment income in the Consolidated Statements of Income. We sold the remaining portion of our life settlements portfolio in 2017.

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.
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.

The following table presents the components of Net investment income:

Years Ended December 31,
(in millions)		2018		2017		2016
Available for sale fixed maturity securities, including short-term investments	$	10,323	$	10,435	$	11,314
Other fixed maturity securities		7		660		331
Equity securities^(a)		(162)		34		(5)
Interest on mortgage and other loans		1,874		1,661		1,526
Alternative investments^(b)		655		1,475		693
Real estate		257		144		150
Other investments		15		290		509
Total investment income		12,969		14,699		14,518
Investment expenses		493		520		453
Net investment income	$	12,476	$	14,179	$	14,065

(a) Upon the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, the change in fair value of all equity securities is included in Net investment income.

(b) Includes income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds for which we elected the fair value option are recorded as of the balance sheet date. Other hedge funds are generally reported on a one-month lag. Private equity funds are generally reported on a one-quarter lag.

Net Realized Capital Gains and Losses

Net realized capital gains and losses are determined by specific identification. The net realized capital gains and losses are generated primarily from the following sources:

Sales or full redemptions of available for sale fixed maturity securities, available for sale equity securities, real estate and other alternative investments.
Reductions to the amortized cost basis of available for sale fixed maturity securities, available for sale equity securities and certain other invested assets for other-than-temporary impairments.
Impairments on investments in life settlements.
Changes in fair value of derivatives except for (1) those derivatives at AIGFP and (2) those instruments that are designated as hedging instruments when the change in the fair value of the hedged item is not reported in Net realized capital gains (losses).
Exchange gains and losses resulting from foreign currency transactions.

The following table presents the components of Net realized capital losses:

Years Ended December 31,
(in millions)		2018		2017		2016
Sales of fixed maturity securities	$	(145)	$	425	$	1
Sales of equity securities^(a)		16		88		1,057
Other-than-temporary impairments:
Severity		-		(2)		(15)
Change in intent		(87)		(9)		(46)
Foreign currency declines		(15)		(11)		(18)
Issuer-specific credit events		(147)		(234)		(433)
Adverse projected cash flows		(2)		(4)		(47)
Provision for loan losses		(92)		(50)		10
Foreign exchange transactions		(182)		489		(1,226)
Variable annuity embedded derivatives, net of related hedges		304		(1,374)		(1,243)
All other derivatives and hedge accounting		338		(368)		299
Impairments on investments in life settlements		-		(360)		(397)
Loss on sale of private equity funds		(321)		-		-
Other^(b)		203		30		114
Net realized capital losses	$	(130)	$	(1,380)	$	(1,944)

(a) In 2016, includes realized gains on the sale of a portion of our holdings in People’s Insurance Company (Group) of China Limited and PICC Property & Casualty Company Limited (collectively, our PICC Investment).

(b) In 2018, primarily includes $96 million and $49 million of realized gains on the sale of shares of OneMain Holdings, Inc. and an investment in Castle Holdings LLC’s aircraft assets, respectively. In 2016, primarily includes $107 million of realized gains due to a purchase price adjustment on the sale of Class B shares of Prudential Financial, Inc. and losses of $253 million from the sale of a portion of our Life Settlements portfolio.

Change in Unrealized Appreciation (Depreciation) of Investments

The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale securities and other investments:

	Years Ended
	December 31,
(in millions)		2018		2017
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	(9,920)	$	4,235
Equity securities^(a)		-		22
Other investments		(88)		(195)
Total increase (decrease) in unrealized appreciation (depreciation) of investments^(b)	$	(10,008)	$	4,062

(b) Excludes net unrealized losses attributable to businesses held for sale.

The following table summarizes the unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date:

Year Ended December 31, 2018				Other Invested
(in millions)		Equities		Assets		Total
Net gains and losses recognized during the period on equity securities	$	(184)	$	342	$	158
Less: Net gains and losses recognized during the year on equity securities
sold during the year		56		23		79
Unrealized gains and losses recognized during the reporting period on equity
securities still held at the reporting date	$	(240)	$	319	$	79

Evaluating Investments for Other-Than-Temporary Impairments

Fixed Maturity Securities

If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, an other-than-temporary impairment has occurred and the amortized cost is written down to current fair value, with a corresponding charge to realized capital losses. When assessing our intent to sell a fixed maturity security, or whether it is more likely than not that we will be required to sell a fixed maturity security before recovery of its amortized cost basis, management evaluates relevant facts and circumstances including, but not limited to, decisions to reposition our investment portfolio, sales of securities to meet cash flow needs and sales of securities to take advantage of favorable pricing.

For fixed maturity securities for which a credit impairment has occurred, the amortized cost is written down to the estimated recoverable value with a corresponding charge to realized capital losses. The estimated recoverable value is the present value of cash flows expected to be collected, as determined by management. The difference between fair value and amortized cost that is not related to a credit impairment is presented in unrealized appreciation (depreciation) of fixed maturity securities on which other-than-temporary credit impairments were recognized (a separate component of accumulated other comprehensive income).

When estimating future cash flows for structured fixed maturity securities (e.g., RMBS, CMBS, CDO, ABS) management considers historical performance of underlying assets and available market information as well as bond-specific structural considerations, such as credit enhancement and priority of payment structure of the security. In addition, the process of estimating future cash flows includes, but is not limited to, the following critical inputs, which vary by asset class:

Current delinquency rates;
Expected default rates and the timing of such defaults;
Loss severity and the timing of any recovery; and
Expected prepayment speeds.

For corporate, municipal and sovereign fixed maturity securities determined to be credit impaired, management considers the fair value as the recoverable value when available information does not indicate that another value is more relevant or reliable. When management identifies information that supports a recoverable value other than the fair value, the determination of a recoverable value considers scenarios specific to the issuer and the security, and may be based upon estimates of outcomes of corporate restructurings, political and macroeconomic factors, stability and financial strength of the issuer, the value of any secondary sources of repayment and the disposition of assets.

We consider severe price declines in our assessment of potential credit impairments. We may also modify our model inputs when we determine that price movements in certain sectors are indicative of factors not captured by the cash flow models.

In periods subsequent to the recognition of an other-than-temporary impairment charge for available for sale fixed maturity securities that is not foreign exchange related, we prospectively accrete into earnings the difference between the new amortized cost and the expected undiscounted recoverable value over the remaining expected holding period of the security.

Credit Impairments

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in earnings for available for sale fixed maturity securities:

Years Ended December 31,
(in millions)		2018		2017		2016
Balance, beginning of year	$	526	$	1,098	$	1,747
Increases due to:
Credit impairments on new securities subject to impairment losses		59		122		204
Additional credit impairments on previously impaired securities		90		74		212
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(145)		(99)		(296)
Accretion on securities previously impaired due to credit^*		(530)		(669)		(767)
Divested businesses		-		-		(2)
Balance, end of year	$	-	$	526	$	1,098

* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.

Equity Securities

On January 1, 2018, AIG adopted the Financial Instruments Recognition and Measurement standard for equity securities. The new standard requires equity securities to be measured at fair value with changes in fair value recognized in earnings each reporting period. As a result of the new standard, equity securities with readily determinable fair values are no longer required to be evaluated for other-than-temporary-impairment.

Prior to the adoption of the Recognition and Measurement standard on January 1, 2018, we evaluated our available for sale equity securities for impairment by considering such securities as candidates for other-than-temporary impairment if they meet any of the following criteria:

The security has traded at a significant (25 percent or more) discount to cost for an extended period of time (nine consecutive months or longer);
A discrete credit event has occurred resulting in (i) the issuer defaulting on a material outstanding obligation; (ii) the issuer seeking protection from creditors under the bankruptcy laws or any similar laws intended for court-supervised reorganization of insolvent enterprises; or (iii) the issuer proposing a voluntary reorganization pursuant to which creditors are asked to exchange their claims for cash or securities having a fair value substantially lower than the par value of their claims; or
We have concluded that we may not realize a full recovery on our investment, regardless of the occurrence of one of the foregoing events.

The determination that an equity security was other-than-temporarily impaired required the judgment of management and consideration of the fundamental condition of the issuer, its near-term prospects and all the relevant facts and circumstances. In addition to the above criteria, all equity securities that have been in a continuous decline in value below cost over 12 months are impaired. We also considered circumstances of a rapid and severe market valuation decline (50 percent or more) discount to cost, in which we could not reasonably assert that the impairment period would be temporary (severity losses).

Other Invested Assets

Our equity method investments in private equity funds, hedge funds and other entities are evaluated for impairment each reporting period. Such evaluation considers market conditions, events and volatility that may impact the recoverability of the underlying investments within these private equity funds and hedge funds and is based on the nature of the underlying investments and specific inherent risks. Such risks may evolve based on the nature of the underlying investments.

Our investments in life settlements were monitored for impairment on a contract-by-contract basis quarterly. An investment in life settlements was considered impaired if the undiscounted cash flows resulting from the expected proceeds would not be sufficient to recover our estimated future carrying amount, which was the current carrying amount for the investment in life settlements plus anticipated undiscounted future premiums and other capitalizable future costs, if any. Impaired investments in life settlements were written down to their estimated fair value which was determined on a discounted cash flow basis, incorporating current market mortality assumptions and market yields or by repricing to the anticipated sale price as appropriate.

In general, fair value estimates for the investments in life settlements were calculated using cash flows based on medical underwriting ratings of the policies from a third-party underwriter, applied to an industry mortality table. Our mortality assumptions were based on an industry table as supplemented with proprietary data on the older age mortality of U.S. insured lives. Mortality improvement factors were applied to these assumptions based on our view of future mortality improvements likely to apply to the U.S. insured lives population. Our mortality assumptions coupled with the mortality improvement rates were used in our estimate of future net cash flows from the investments in life settlements. We sold the remaining portion of our life settlements portfolio in 2017.

Our investments in aircraft assets and real estate are periodically evaluated for recoverability whenever changes in circumstances indicate the carrying amount of an asset may be impaired. When impairment indicators are present, we compare expected investment cash flows to carrying amount. When the expected cash flows are less than the carrying amount, the investments are written down to fair value with a corresponding charge to earnings. We sold the remaining portion of our aircraft assets in 2018.

Purchased Credit Impaired (PCI) Securities

We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining lives on an effective yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected future cash flows, which are discussed further below.

On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield.

The following tables present information on our PCI securities, which are included in bonds available for sale:

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	36,519
Cash flows expected to be collected^*		29,980
Recorded investment in acquired securities		20,229

* Represents undiscounted expected cash flows, including both principal and interest.

		December 31,		December 31,
(in millions)		2018		2017
Outstanding principal balance	$	12,495	$	14,718
Amortized cost		8,646		10,492
Fair value		10,280		12,293

The following table presents activity for the accretable yield on PCI securities:

Years Ended December 31,
(in millions)		2018		2017
Balance, beginning of year	$	7,501	$	7,498
Newly purchased PCI securities		33		190
Disposals		(21)		(18)
Accretion		(722)		(797)
Effect of changes in interest rate indices		207		(34)
Net reclassification from (to) non-accretable difference, including effects of prepayments		212		662
Balance, end of year	$	7,210	$	7,501

Pledged Investments

Secured Financing and Similar Arrangements

We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially similar securities. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us (pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus accrued interest, other than those that are accounted for at fair value.

Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the securities transferred, respectively.

The following table presents the fair value of securities pledged to counterparties under secured financing transactions, including repurchase and securities lending agreements:

(in millions)		December 31, 2018		December 31, 2017
Fixed maturity securities available for sale	$	1,050	$	2,911
Other bond securities, at fair value	$	122	$	1,585

At December 31, 2018 and 2017, amounts borrowed under repurchase and securities lending agreements totaled $1.2 billion and $4.5 billion, respectively.

The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by remaining contractual maturity:

	Remaining Contractual Maturity of the Agreements
(in millions)	Overnight and Continuous			up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total
December 31, 2018
Bonds available for sale:
Non-U.S. governments	$	25	$	35	$	-	$	-	$	-	$	60
Corporate debt		51		55		-		-		-		106
Other bond securities:
U.S. government and government sponsored entities		11		-		-		-		-		11
Non-U.S. governments		-		3		-		-		-		3
Corporate debt		17		38		53		-		-		108
Total	$	104	$	131	$	53	$	-	$	-	$	288

December 31, 2017
Bonds available for sale:
Non-U.S. governments	$	-	$	7	$	19	$	-	$	-	$	26
Corporate debt		-		13		35		-		-		48
Other bond securities:
U.S. government and government sponsored entities		44		-		-		-		-		44
Non-U.S. governments		-		-		11		-		-		11
Corporate debt		-		387		1,065		-		-		1,452
Total	$	44	$	407	$	1,130	$	-	$	-	$	1,581

The following table presents the fair value of securities pledged under our securities lending agreements by collateral type and by remaining contractual maturity:

	Remaining Contractual Maturity of the Agreements
(in millions)		Overnight and Continuous		up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total
December 31, 2018
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	50	$	130	$	-	$	-	$	180
Non-U.S. governments		-		21		8		-		-		29
Corporate debt		-		330		345		-		-		675
Other bond securities:
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		-		-		-		-		-
Total	$	-	$	401	$	483	$	-	$	-	$	884

December 31, 2017
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	-	$	-	$	-	$	-	$	-
Non-U.S. governments		-		-		18		-		-		18
Corporate debt		-		588		2,231		-		-		2,819
Other bond securities:
Non-U.S. governments		-		-		22		-		-		22
Corporate debt		-		-		56		-		-		56
Total	$	-	$	588	$	2,327	$	-	$	-	$	2,915

We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements), which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted for at fair value. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledge this collateral received.

The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:

(in millions)		December 31, 2018		December 31, 2017
Securities collateral pledged to us	$	426	$	2,227
Amount sold or repledged by us		106		46

At December 31, 2018 and December 31, 2017, amounts loaned under reverse repurchase agreements totaled $426 million and $2.2 billion, respectively.

We do not currently offset any secured financing transactions. All such transactions are collateralized and margined daily consistent with market standards and subject to enforceable master netting arrangements with rights of set off.

Insurance – Statutory and Other Deposits

The total carrying value of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance treaties, was $7.9 billion and $4.9 billion at December 31, 2018 and 2017, respectively.

Other Pledges and Restrictions

Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own stock in these FHLBs. We owned an aggregate of $202 million and $93 million of stock in FHLBs at December 31, 2018 and 2017, respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with borrowings and funding agreements from FHLBs, with a fair value of $4.2 billion and $2.1 billion, respectively, at December 31, 2018 and $2.7 billion and $471 million, respectively, at December 31, 2017.

Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as collateral with respect to these obligations was approximately $1.6 billion and $2.0 billion at December 31, 2018 and 2017, respectively. This collateral primarily consists of securities of the U.S. government and government- sponsored entities and generally cannot be repledged or resold by the counterparties.

Investments held in escrow accounts or otherwise subject to restriction as to their use were $273 million and $255 million, comprised of bonds available for sale and short term investments at December 31, 2018 and 2017, respectively.