American Express 2010 Annual Report Download - page 29

FAIR VALUE MEASUREMENT (CONTINUED)
Description Assumptions/Approach Used
Effect if Actual Results Differ
from Assumptions
Other-Than-Temporary Impairment
Realized losses are recognized when
management determines that a decline in
fair value is other-than-temporary. Such
determination requires judgment regarding
the amount and timing of recovery. The
Company reviews and evaluates its
investment securities, at least quarterly,
and more often as market conditions may
require, to identify investment securities
that have indications of
other-than-temporary impairments. The
determination of other-than-temporary
impairment is a subjective process,
requiring the use of judgments and
assumptions. Accordingly, the Company
considers several factors when evaluating
debt securities for other-than-temporary
impairment, including the determination of
the extent to which the decline in fair
value of the security is due to increased
default risk for the specific issuer or
market interest rate risk. With respect to
increased default risk, the Company
assesses the collectibility of principal and
interest payments by monitoring issuers’
credit ratings, related changes to those
ratings, specific credit events associated
with the individual issuers as well as the
credit ratings of a financial guarantor,
where applicable, and the extent to which
amortized cost exceeds fair value and the
duration and size of that difference. With
respect to market interest rate risk,
including benchmark interest rates and
credit spreads, the Company assesses
whether it has the intent to sell the
investment securities, and whether it is
more likely than not that the Company will
not be required to sell the investment
securities before recovery of any unrealized
losses. Refer to Note 6 to the Company’s
Consolidated Financial Statements.
Other-Than-Temporary Impairment
In determining whether any of the
Company’s investment securities are other-
than-temporarily impaired, a change in
facts and circumstances could lead to a
change in management judgment around
the Company’s view on collectibility and
credit quality of the issuer, or the
Company’s intent to sell the investment
securities, and whether it is more likely
than not that the Company will not be
required to sell the investment securities
before recovery of any unrealized losses.
Therefore, it is at least reasonably possible
that a change in estimate will occur in the
near term relating to other-than-temporary
impairment. This could result in the
Company recording an other-than-
temporary impairment loss through
earnings with a corresponding offset to
accumulated other comprehensive (loss)
income. As of December 31, 2010, the
Company had approximately $0.4 billion in
gross unrealized losses in its investment
securities portfolio which were deemed not
to be other-than-temporarily impaired.
Defined Benefit Pension Plan Assets
Defined benefit pension plan (the Plan)
assets are measured at fair value, changes
in which are included in the determination
of the Plan’s net funded status which is
reported in other liabilities on the
Company’s Consolidated Balance Sheets.
Defined Benefit Pension Plan Assets
The fair value measurements for the Plan
assets align with those described under
investment securities above. Refer to Note
21 to the Company’s Consolidated
Financial Statements.
Defined Benefit Pension Plan Assets
The fair value measurements for the Plan
assets contain a similar amount of
subjectivity as described under investment
securities above, and therefore differing
judgments in how the underlying inputs
are modeled could result in different
estimates of fair value.
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AMERICAN EXPRESS COMPANY
2010 FINANCIAL REVIEW