We report variable contracts within the separate accounts when investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contract holder and the separate account meets additional accounting criteria to qualify for separate account treatment. The assets supporting the variable portion of variable annuity and variable universal life contracts that qualify for separate account treatment are carried at fair value and reported as separate account assets, with an equivalent summary total reported as separate account liabilities.
The following summarizes GMDB and GMIB liabilities related to variable annuity contracts:
• Data used was up to 1,000 stochastically generated investment performance scenarios.
The following table lists our total debt outstanding at December 31, 2014 and 2013. The interest rates presented in the following table are the range of contractual rates in effect at December 31, 2014, including fixed and variable-rates:
(b) At December 31, 2014, includes debt of consolidated investments held through AIG Global Real Estate Investment Corp., AIG Credit Corp., AIGLH and AIG Property Casualty Inc. of $2.0 billion, $54 million, $1.5 billion and $122 million, respectively. At December 31, 2013, includes debt of consolidated investments held through AIG Global Real Estate Investment Corp., AIG Credit Corp., AIGLH and AIG Property Casualty Inc. of $1.5 billion, $111 million, $696 million and $58 million, respectively.
(c) At December 31, 2013, excludes $21.4 billion related to ILFC as it is classified as a held-for-sale business.
The following table presents maturities of long-term debt (including unamortized original issue discount, hedge accounting valuation adjustments and fair value adjustments, when applicable), excluding $3.7 billion in borrowings of debt of consolidated investments:
In August 2012, we entered into new replacement capital covenants (the New RCCs) for the initial benefit of the holders of our 2.375% Subordinated Notes due 2015 (the Subordinated Notes), in connection with our 5.75% Series A-2 Junior Subordinated
In 2014, we repurchased approximately $2.4 billion aggregate principal amount of our 8.175% Series A-6 Junior Subordinated Debentures.
On July 11, 2013, the AIGLH junior subordinated debentures were distributed to holders of the capital securities, the capital securities were cancelled and the trusts were dissolved. At December 31, 2014, the junior subordinated debentures outstanding consisted of $155 million of 8.5 percent junior subordinated debentures due July 2030, $245 million of 8.125 percent junior subordinated debentures due March 2046 and $136 million of 7.57 percent junior subordinated debentures due December 2045, each guaranteed by AIG Parent.
Various regulatory and governmental agencies have been reviewing certain transactions and practices of AIG and our subsidiaries in connection with industry-wide and other inquiries into, among other matters, certain business practices of current and former operating insurance subsidiaries. We have cooperated, and will continue to cooperate, in producing documents and other information in response to subpoenas and other requests.
AIG, AIGFP and certain directors and officers of AIG, AIGFP and other AIG subsidiaries have been named in various actions relating to our exposure to the U.S. residential subprime mortgage market, unrealized market valuation losses on AIGFP’s super senior credit default swap portfolio, losses and liquidity constraints relating to our securities lending program and related disclosure and other matters (Subprime Exposure Issues).
Individual Securities Litigations. Between November 18, 2011 and September 16, 2013, nine separate, though similar, securities actions were filed asserting claims substantially similar to those in the Consolidated 2008 Securities Litigation against AIG and certain directors and officers of AIG and AIGFP (one such action also names as defendants AIG’s outside auditor and the underwriters of various securities offerings). Two such actions have been voluntarily dismissed; the remainder are now pending in the Southern District of New York. On January 20, 2015, AIG and other defendants filed motions to dismiss some or all of the claims asserted in all such actions pending as of that date. On February 2, 2015, and February 9, 2015, two additional securities actions were filed in the Southern District of New York asserting claims substantially similar to those in the Consolidated 2008 Securities Litigation against AIG (one of the two actions also names as defendants certain directors and officers of AIG and AIGFP, and AIG’s outside auditor and certain of AIG’s underwriters during the relevant period).
We have accrued our current estimate of probable loss with respect to the pending litigations and other potential related litigations.
On March 11, 2013, the Court of Federal Claims in the SICO Treasury Action granted SICO’s motion for class certification of two classes with respect to SICO’s non-derivative claims: (1) persons and entities who held shares of AIG Common Stock on or before September 16, 2008 and who owned those shares on September 22, 2008; and (2) persons and entities who owned shares of AIG Common Stock on June 30, 2009 and were eligible to vote those shares at AIG’s June 30, 2009 annual meeting of shareholders. SICO has provided notice of class certification to potential members of the classes, who, pursuant to a court order issued on April 25, 2013, had to return opt-in consent forms by September 16, 2013 to participate in either class. 286,908 holders of AIG Common Stock during the two class periods have opted into the classes.
AIG believes that any such indemnification obligation would arise only if: (a) SICO prevails on its claims at trial and receives an award of damages and prevails through any appellate process; (b) the United States commences an action against AIG seeking indemnification; and (c) the United States is successful in such an action through any appellate process. If SICO prevails on its claims and the United States seeks indemnification from AIG, AIG intends to assert defenses thereto. A final determination that the United States is liable for damages, together with a final determination that AIG is obligated to indemnify the United States for any such damages, could have a material adverse effect on our business, consolidated financial condition and results of operations.
On February 25, 2010, a complaint was filed in the United States District Court for the Southern District of California by two individuals (Relators) seeking to assert claims on behalf of the United States against AIG and certain other defendants, including Goldman Sachs and Deutsche Bank, under the False Claims Act. Relators filed a first amended complaint on September 30, 2010, adding certain additional defendants, including Bank of America and Société Générale. The first amended complaint alleged that defendants engaged in fraudulent business practices in respect of their activities in the over-the-counter market for collateralized debt obligations, and submitted false claims to the United States in connection with the FRBNY Credit Facility and Maiden Lane II LLC (ML II) and Maiden Lane III LLC entities (the Maiden Lane Interests) through, among other things, misrepresenting AIG’s ability and intent to repay amounts drawn on the FRBNY Credit Facility, and misrepresenting the value of the securities that the Maiden Lane Interests acquired from AIG and certain of its counterparties. The first amended complaint sought unspecified damages pursuant to the False Claims Act in the amount of three times the damages allegedly sustained by the United States as well as interest, attorneys’ fees, costs and expenses. The complaint and the first amended complaint were initially filed and maintained under seal while the United States considered whether to intervene in the action. On or about April 28, 2011, after the United States declined to intervene, the District Court lifted the seal, and Relators served the first amended complaint on AIG on July 11, 2011. On April 19, 2013, the Court granted AIG’s motion to dismiss, dismissing the first amended complaint in its entirety, without prejudice, giving the Relators the opportunity to file a second amended complaint. On May 24, 2013, the Relators filed a second amended complaint, which attempted to plead the same claims as the prior complaints and did not specify an amount of alleged damages. AIG and its co-defendants filed motions to dismiss the second amended complaint on August 9, 2013. On March 29, 2014, the Court dismissed the second amended complaint with prejudice. On April 30, 2014, the Relators filed a Notice of Appeal to the Ninth Circuit. We are unable to reasonably estimate the possible loss or range of losses, if any, arising from the litigation.
On August 15, 2012, the trial court entered an order granting plaintiffs’ motion for class certification, and on September 12, 2014, the Alabama Supreme Court affirmed that order. AIG and the other defendants have petitioned for rehearing of that decision. Absent further review of the class certification order, the matter will return to the trial court for general discovery (which has not yet commenced) and adjudication of the merits. AIG is unable to reasonably estimate the possible loss or range of losses, if any, arising from the litigation.
direction of the NAIC’s Market Analysis Working Group. AIG was informed of the multi-state targeted market conduct examination in January 2008. The lead states in the multi-state examination were Delaware, Florida, Indiana, Massachusetts, Minnesota, New York, Pennsylvania and Rhode Island. All other states (and the District of Columbia) agreed to participate in the multi-state examination. The examination focused on legacy issues related to certain AIG entities’ writing and reporting of workers compensation insurance between 1985 and 1996.
On December 17, 2010, AIG and the lead states reached an agreement to settle all regulatory liabilities arising out of the subjects of the multistate examination. This regulatory settlement agreement, which was agreed to by all 50 states and the District of Columbia, included, among other terms, (i) AIG’s payment of $100 million in regulatory fines and penalties; (ii) AIG’s payment of $46.5 million in outstanding premium taxes and assessments; (iii) AIG’s agreement to enter into a compliance plan describing agreed-upon specific steps and standards for evaluating AIG’s ongoing compliance with state regulations governing the setting of workers’ compensation insurance premium rates and the reporting of workers compensation premiums; and (iv) AIG’s agreement to pay up to $150 million in contingent fines in the event that AIG fails to comply substantially with the compliance plan requirements. In furtherance of the compliance plan, the agreement provided for a monitoring period from May 29, 2012 to May 29, 2014 leading up to a compliance plan examination. After the close of the monitoring period, as part of preparation for the actual conduct of the compliance plan examination, on or about October 1, 2014, AIG and the lead states agreed upon corrective action plans to address particular issues identified during the monitoring period. The compliance plan examination is ongoing. There can be no assurance that the result of the compliance plan examination will not result in a fine, have a material adverse effect on AIG’s ongoing operations or lead to civil litigation.
Industry-wide examinations conducted by the Minnesota Department of Insurance and the Department of Housing and Urban Development (HUD) on captive reinsurance practices by lenders and mortgage insurance companies, including UGC, have been ongoing for several years. In 2011, the Consumer Financial Protection Bureau (CFPB) assumed responsibility for violations of the Real Estate Settlement Procedures Act from HUD, and assumed HUD’s aforementioned ongoing investigation. UGC and the CFPB reached a settlement, entered on April 8, 2013 by the United States District Court for the Southern District of Florida, where UGC consented to discontinue its remaining captive reinsurance practices and to pay a civil monetary penalty of $4.5 million to the CFPB. The settlement includes a release for all liability related to UGC’s captive reinsurance practices and resolves the CFPB’s investigation. On January 31, 2014, PHH Corp. and various affiliates (all non-parties to the action and the consent order) filed a motion to reopen the case and to intervene therein for the limited purpose of obtaining a declaratory judgment enforcing the consent order. UGC opposed this request, and on March 10, 2014, the Court denied PHH Corp.’s motion. PHH Corp. has appealed to the Eleventh Circuit.
AIG is responding to subpoenas from the New York Department of Financial Services (NYDFS) and the Manhattan District Attorney’s Office (NYDA) relating to AIG’s formerly wholly owned subsidiaries, ALICO and Delaware American Life Insurance
Company (DelAm), and other related business units, which were sold by AIG to MetLife in November 2010. The inquiries relate to whether ALICO, DelAm and their representatives conducted insurance business in New York over an extended period of time without a license, and whether certain representations by ALICO concerning its activities in New York were accurate. On or about March 31, 2014, a consent order between MetLife and the NYDFS, whereby MetLife agreed to pay $50 million, and a deferred prosecution agreement with the NYDA, whereby MetLife agreed to pay $10 million, were announced. AIG was not a party to either settlement. The consent order between the NYDFS and MetLife made certain findings, including that former AIG subsidiaries and affiliates conducted insurance business in New York without a license and that ALICO, while operating as a subsidiary of AIG, made misrepresentations and omissions concerning its insurance business activities in New York to NYDFS’s predecessor agency, the New York State Department of Insurance. The NYDFS also found in the consent order that AIG had violated the New York Insurance Law. On April 3, 2014, AIG filed a complaint against the NYDFS and NYDFS Superintendent Benjamin Lawsky in the Southern District of New York, seeking declaratory and injunctive relief on the basis that the NYDFS’s interpretation of the New York Insurance Law is unconstitutional under the Due Process and Commerce Clauses, as well as the First Amendment, of the U.S. Constitution. Defendants filed a motion to dismiss the federal complaint on May 16, 2014. On October 31, 2014, AIG and NYDFS entered into a Consent Order, whereby AIG agreed to pay $35 million and dismiss the federal lawsuit in exchange for NYDFS’s agreement to discontinue its inquiry.
We recorded increases in our legal reserve liability of $507 million and $391 million in the years ended December 31, 2014 and 2013, respectively.
economic conditions, changes in the legal, regulatory, judicial and social environment, changes in medical cost trends (for example, inflation, intensity and utilization of medical services), underlying policy pricing, terms and conditions, and claims handling practices.
The following table presents the future minimum lease payments under operating leases at December 31, 2014:
We have issued unconditional guarantees with respect to the prompt payment, when due, of all present and future payment obligations and liabilities of AIGFP and those arising from transactions entered into by AIG Markets.
In connection with AIGFP’s business activities, AIGFP has issued, in a limited number of transactions, standby letters of credit or similar facilities to equity investors of structured leasing transactions in an amount equal to the termination value owing to the equity investor by the lessee in the event of a lessee default (the equity termination value) that are not otherwise satisfied by other arrangements. The total amount outstanding under these facilities at December 31, 2014 was $214 million. In those transactions, AIGFP has agreed to pay the equity termination value if the lessee fails to pay. The amount payable by AIGFP is, in certain cases, partially offset by amounts payable under other instruments typically equal to the present value of scheduled payments to be made by AIGFP. In the event that AIGFP is required to make a payment to the equity investor, the lessee is unconditionally obligated to reimburse AIGFP. To the extent that the equity investor is paid the equity termination value from the standby letter of credit and/or other sources, including payments by the lessee, AIGFP takes an assignment of the equity investor’s rights under the lease of the underlying property. Because the obligations of the lessee under the lease transactions are generally economically defeased, lessee bankruptcy is the most likely circumstance in which AIGFP would be required to pay without reimbursement.
We are unable to develop a reasonable estimate of the maximum potential liability under certain of these arrangements. Overall, we believe that it is unlikely we will have to make any material payments related to the sales subject to these arrangements, and no material liabilities related to these arrangements have been recorded in the Consolidated Balance Sheets. See Note 4 herein for additional information on sales of businesses and asset dispositions.
• See Note 10 for commitments and guarantees associated with VIEs.
• See Note 26 for additional disclosures about guarantees of outstanding debt.
Payment of future dividends to our shareholders and repurchases of AIG Common Stock depends in part on the regulatory framework that we are currently subject to and that will ultimately be applicable to us, including as a nonbank systemically important financial institution under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd Frank) and a global systemically important insurer. In addition, dividends are payable on AIG Common Stock only when, as and if declared by our Board of Directors in its discretion, from funds legally available therefor. In considering whether to pay a dividend or purchase shares of AIG Common Stock, our Board of Directors considers such matters as the performance of our businesses, our consolidated financial condition, results of operations and liquidity, available capital, the existence of investment opportunities, contractual, legal and regulatory restrictions on the payment of dividends by our subsidiaries, rating agency considerations, including the potential effect on our debt ratings, and such other factors as our Board of Directors may deem relevant.
On March 25, 2014, AIG paid a dividend of $0.125 per share on AIG Common Stock to shareholders of record on March 11, 2014. On June 24, 2014, AIG paid a dividend of $0.125 per share on AIG Common Stock to shareholders of record on June 10, 2014. On September 25, 2014, AIG paid a dividend of $0.125 per share on AIG Common Stock to shareholders of record on September 11, 2014. On December 18, 2014, AIG paid a dividend of $0.125 per share on AIG Common Stock to shareholders of record on December 4, 2014.
On August 1, 2013, our Board of Directors authorized the repurchase of shares of AIG Common Stock, with an aggregate purchase price of up to $1.0 billion, from time to time in the open market, private purchases, through forward, derivative, accelerated repurchase or automatic repurchase transactions or otherwise. For the year ended December 31, 2013, we repurchased approximately 12 million shares of AIG Common Stock for an aggregate purchase price of approximately $597 million pursuant to this authorization.
The following table presents the other comprehensive income (loss) reclassification adjustments for the years ended December 31, 2014, 2013 and 2012:
The SPV Preferred Interests were measured at fair value on their issuance date. The SPV Preferred Interests initially had a liquidation preference of $25 billion and had a preferred return of five percent per year compounded quarterly through September 22, 2013 and nine percent thereafter. The preferred return is reflected in Net income from continuing operations attributable to noncontrolling interests - Nonvoting, callable, junior and senior preferred interests in the Consolidated Statements of Income. The difference between the SPV Preferred Interests’ fair value and the initial liquidation preference was amortized and included in Net income from continuing operations attributable to noncontrolling interests - Nonvoting, callable, junior and senior preferred interests.
Non-redeemable noncontrolling interests include the equity interests of third-party shareholders in our consolidated subsidiaries and includes the preferred shareholders’ equity in outstanding preferred stock of ILFC, a wholly-owned subsidiary that was held for sale at December 31, 2013 and 2012. The preferred stock in ILFC consisted of 1,000 shares of market auction preferred stock (MAPS) in two series (Series A and B) of 500 shares each. Each of the MAPS shares had a liquidation value of $100,000 per share and was not convertible. Dividends on the MAPS were accounted for as a reduction of the noncontrolling interest. The dividend rate, other than the initial rate, for each dividend period for each series was reset approximately every seven weeks (49 days) on the basis of orders placed in an auction, provided such auctions were able to occur. The MAPS were transferred as part of the sale of ILFC.
On May 14, 2014, we completed the sale of International Lease Finance Corporation (ILFC) to AerCap Ireland Limited, a wholly owned subsidiary of AerCap Holdings N.V. (AerCap). See Note 4 - Held-For-Sale Classification and Discontinued Operations for further discussion.
The following table presents statutory net income (loss) and capital and surplus for our Non-Life Insurance Companies and our Life Insurance Companies in accordance with statutory accounting practices:
* For the years ended December 31, 2014, 2013 and 2012, $86 million, $315 million and $286 million of pre-tax compensation expense was attributed to unsettled liability-classified awards, the values of which are based on our share price at the reporting date. Our share price was $56.01, $51.05 and $35.30 at December 31, 2014, 2013 and 2012, respectively. In addition, we recognized $120 million and $101 million for immediately vested stock-settled awards issued to retirement eligible employees in 2014 and 2013, respectively.
During 2014 and 2013, our employees were issued awards under the 2013 Long Term Incentive Plan, which is governed by the AIG 2013 Omnibus Incentive Plan (2013 Plan). The 2013 Plan replaced the AIG 2010 Stock Incentive Plan (2010 Plan) as of May 15, 2013, but does not affect the terms or conditions of any award issued under the 2010 Plan. The 2013 Plan is currently the only plan under which share-based awards can be made.
As of December 31, 2014, the Starr International Company, Inc. Deferred Compensation Profit Participation Plans (the SICO Plans) are the only legacy plans for which share-settled awards remain unvested.
Our share-settled awards are settled with previously acquired shares held in AIG’s treasury. Share awards made by SICO are settled by SICO.
The 2013 Plan was adopted at the 2013 Annual Meeting of Shareholders and provides for the grants of share-based awards to our employees and non-employee directors. The total number of shares that may be granted under the 2013 Plan (the reserve) is the sum of 1) 45 million shares of AIG Common Stock, plus 2) the number of authorized shares that remained available for issuance under the 2010 Plan when the 2013 Plan became effective, plus 3) the number of shares of AIG Common Stock relating to outstanding awards under the 2010 Plan at the time the 2013 Plan became effective that subsequently are forfeited, expired, terminated or otherwise lapse or are settled in cash. Each share-based unit granted under the 2013 Plan reduces the number of shares available for future grants by one share. However, shares with respect to awards that are forfeited, expired or settled for cash, and shares withheld for taxes on awards (other than options and stock appreciation rights (SARs) awards) are returned to the reserve.
During 2014, performance share units (PSUs) and deferred stock units (DSUs) were granted under the 2013 Plan and 50,206,557 shares are available for future grants as of December 31, 2014. PSUs were issued for off-cycle grants, which are made from time to time during the year as sign-on awards to new hires or as a result of a change in employee status.
The 2013 Long Term Incentive Plan (2013 LTIP), adopted in March 2013, provides for the annual grant of PSUs to certain employees, including our senior executive officers and other highly compensated employees. Each recipient of an award is granted a number of PSUs (the target) that provides the opportunity to receive shares of AIG Common Stock based on AIG achieving specified performance goals at the end of a three-year performance period. These performance goals are pre-established by AIG’s Compensation and Management Resources Committee for each annual grant and may differ from year to year. The actual number of PSUs earned can vary from zero to 150 percent of the target depending on AIG’s performance relative to a specified peer group. Vesting occurs in three equal installments beginning on January 1 of the year immediately following the end of a performance period and January 1 of each of the next two years. Dividends do not accrue on unvested PSUs or underlying shares. Recipients must be employed at each vesting date to be entitled to share delivery, except upon the occurrence of an accelerated vesting event, such as an involuntary termination without cause, disability, or retirement during the vesting period.
The following table presents the assumptions used to estimate the fair value of PSUs based on AIG’s TSR:
During the period we were subject to Troubled Asset Relief Program (TARP) restrictions, we issued various cash-settled share-based grants, including Stock Salary, TARP RSU awards, and other cash-settled RSU awards, to certain of our most highly compensated employees and executive officers in the form of restricted stock units that were either fully vested with payment deferred, or subject to specified service and performance conditions. After the repayment of our TARP obligations in December 2012, all performance conditions were satisfied; as a result, we no longer issue awards that are subject to TARP restrictions.
Stock Salary was earned and accrued at the same time or times as the salary would otherwise be paid in cash and is generally settled in installments on the first, second or third anniversary of grant in accordance with the terms of an employee’s award. Stock Salary grants were generally issued in the form of fully vested RSUs and are settled in cash based on the value of AIG Common Stock on the applicable settlement date. During 2014, 2013 and 2012, we paid $89 million, $180 million and $111 million, respectively, to settle awards. For those awards that were vested and unsettled at the end of each year, we recognized charges of $7 million, $73 million and $173 million in compensation expense for the years ended December 31, 2014, 2013 and 2012, respectively, to reflect fluctuations in the value of AIG Common Stock. At December 31, 2014, the number of vested but unsettled RSUs totaled 742,317.
The cash portion of the awards expensed in 2014, 2013 and 2012 totaled approximately $57 million, $249 million, and $189 million, respectively.
The following table presents a roll forward of SARs and cash-settled RSUs (excluding stock salary) as well as the related expenses:
(a) Total unrecognized compensation and the weighted-average period for which it will be recognized is $3 million and 0.55 year, respectively.
(c) Also includes SARs for which vesting was accelerated for employees who became retirement eligible or were deceased.
(d) The ending balance represents awards granted under the 2011 LTIP that vested on January 1, 2015 and were automatically exercised. The value of a SAR as of December 31, 2014 was determined based on the excess of the fair value (as defined) of one share of AIG Common Stock over the strike price of $37.40; the fair value was $55.29 based on the average of the closing sale prices on each trading day during the month of December 2014 in accordance with the plan provisions. No SARs are outstanding after January 1, 2015.
percentage of final average compensation multiplied by years of credited service, up to 44 years. Grandfathered employees will receive the higher of the benefits under the cash balance or final average pay formula at retirement. Non-U.S. defined benefit plans are generally either based on the employee’s years of credited service and compensation in the years preceding retirement or on points accumulated based on the employee’s job grade and other factors during each year of service.
The estimated net loss and prior service credit that will be amortized from Accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $141 million and $35 million, respectively, for our combined defined benefit pension plans. For the defined benefit postretirement plans, the estimated amortization from Accumulated other comprehensive income for net loss and prior service credit that will be amortized into net periodic benefit cost over the next fiscal year is a $10 million credit in the aggregate.
The projected benefit cash flows under the U.S. AIG Retirement plan were discounted using the spot rates derived from the Mercer Pension Discount Yield Curve at December 31, 2014 and 2013, which resulted in a single discount rate that would produce the same liability at the respective measurement dates. The discount rates were 3.95 percent at December 31, 2014 and 4.84 percent at December 31, 2013. The methodology was consistently applied for the respective years in determining the discount rates for the other U.S. plans.
The projected benefit obligation for Japan represents approximately 47 percent and 51 percent of the total projected benefit obligations for our non-U.S. pension plans at December 31, 2014 and 2013, respectively. The weighted average discount rate of 1.22 percent and 1.39 percent at December 31, 2014 and 2013 respectively for Japan was selected by reference to the AA rated corporate bonds reported by Rating and Investment Information, Inc. based on the duration of the plans’ liabilities.
(a) Includes index funds that primarily track several indices including S&P 500 and S&P Small Cap 600 as well as other actively managed accounts composed of investments in large cap companies.
(g) Includes funds that are diverse by geography, investment strategy, sector and vintage year.
The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. Based on our investment strategy, we had no significant concentrations of risks at December 31, 2014.
Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. We had no transfers between Level 1 and Level 2 during the years ended December 31, 2014 and 2013.
Funding for the U.S. pension plan ranges from the minimum amount required by ERISA to the maximum amount that would be deductible for U.S. tax purposes. Contributed amounts in excess of the minimum amounts are deemed voluntary. Amounts in excess of the maximum amount would be subject to an excise tax and may not be deductible under the Internal Revenue Code. There are no minimum required cash contributions in 2015 for the AIG Retirement Plan. SERP, AIG NQRIP, and postretirement plan payments are deductible when paid to participants.
For the year ended December 31, 2014, the effective tax rate on income from continuing operations was 27.9 percent. The effective tax rate on income from continuing operations differs from the statutory tax rate of 35 percent primarily due to tax benefits of $236 million associated with tax exempt interest income, $209 million related to a decrease in the U.S. Life Insurance Companies’ capital loss carryforward valuation allowance, $182 million of income excludible from gross income
related to the global resolution of certain residential mortgage-related disputes and $68 million associated with effect of foreign operations.
The following table presents our U.S. consolidated income tax group tax losses and credits carryforwards as of December 31, 2014 on a tax return basis.
Total AIG U.S. consolidated income tax group tax losses and credits carryforwards
The evaluation of the recoverability of the deferred tax asset and the need for a valuation allowance requires us to weigh all positive and negative evidence to reach a conclusion that it is more likely than not that all or some portion of the deferred tax
Therefore, for the year ended December 31, 2014, we recognized a decrease of $1.8 billion in the capital loss carryforward valuation allowance associated with the U.S. Life Insurance Companies, of which $209 million was allocated to income from continuing operations and $1.6 billion was allocated to other comprehensive income. Included in the $1.8 billion was a decrease in the capital loss carryforward valuation allowance of $314 million related to a portion of the U.S. Life Insurance Companies’ capital loss carryforward previously treated as expired that was restored and utilized in 2014.
During the year ended December 31, 2014, we also recognized a $325 million decrease in our deferred tax asset valuation allowance associated with certain state, local and foreign jurisdictions, primarily attributable to a corresponding reduction in state and local deferred tax assets.
The following table presents the net deferred tax assets (liabilities) at December 31, 2014 and 2013 on a U.S. GAAP basis:
At December 31, 2014, and 2013, our U.S. consolidated income tax group had net deferred tax assets after valuation allowance of $18.9 billion and $21.3 billion, respectively. At December 31, 2014, and 2013, our U.S. consolidated income tax group had valuation allowances of $129 million and $1.7 billion, respectively.
At December 31, 2014 and 2013, we had net deferred tax liabilities of $159 million and $116 million, respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns.
At December 31, 2014 and 2013, we had deferred tax asset valuation allowances of $1.6 billion and $2.0 billion, respectively, related to foreign subsidiaries, state and local tax jurisdictions, and certain domestic subsidiaries that file separate tax returns. We maintained these valuation allowances following our conclusion that we could not demonstrate that it was more likely than not that the related deferred tax assets will be realized. This was primarily due to factors such as cumulative losses in recent years and the inability to demonstrate profits within the specific jurisdictions over the relevant carryforward periods.
On March 29, 2011, the U.S. District Court for the Southern District of New York, ruled on a motion for partial summary judgment that we filed on July 30, 2010 related to the disallowance of foreign tax credits associated with cross-border financing transactions. The court denied our motion with leave to renew.
At December 31, 2014, 2013 and 2012, our unrecognized tax benefits, excluding interest and penalties, were $4.4 billion, $4.3 billion and $4.4 billion, respectively. At December 31, 2014, 2013 and 2012, our unrecognized tax benefits related to tax positions that, if recognized, would not affect the effective tax rate because they relate to such factors as the timing, rather than the permissibility, of the deduction were $0.3 billion, $0.1 billion and $0.2 billion, respectively. Accordingly, at December 31, 2014, 2013 and 2012, the amounts of unrecognized tax benefits that, if recognized, would favorably affect the effective tax rate were $4.1 billion, $4.2 billion and $4.2 billion, respectively.
Interest and penalties related to unrecognized tax benefits are recognized in income tax expense. At both December 31, 2014 and 2013, we had accrued liabilities of $1.1 billion for the payment of interest (net of the federal benefit) and penalties. For the years ended December 31, 2014, 2013 and 2012, we accrued expense (benefits) of $21 million, $142 million and $192 million, respectively, for the payment of interest (net of the federal benefit) and penalties.
(c) For December 31, 2014 and 2013, includes intercompany tax payable of $0.3 billion and $1.4 billion, respectively, and intercompany derivative liabilities of $275 million and $249 million, respectively, for American International Group, Inc. (As Guarantor) and intercompany tax receivable of $3 million and $98 million, respectively, for AIGLH.
Item 8 / note 26. INFORMATION PROVIDED IN CONNECTION WITH OUTSTANDING DEBT
On February 12, 2015, our Board of Directors declared a cash dividend on AIG Common Stock of $0.125 per share, payable on March 26, 2015 to shareholders of record on March 12, 2015.
On February 12, 2015, our Board of Directors authorized an additional increase to the August 1, 2013 repurchase authorization of AIG Common Stock of $2.5 billion, resulting in an aggregate remaining authorization on such date of approximately $2.5 billion.