2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
Survival Ratios — Asbestos and Environmental
and term life, investment linked, universal life and endowments,
The table below presents AIG’s survival ratios for asbestos and personal accident and health products, group products including
environmental claims at December 31, 2007, 2006 and 2005. pension, life and health, and fixed and variable annuities. The
The survival ratio is derived by dividing the current carried loss Foreign Life Insurance & Retirement Services products are sold
reserve by the average payments for the three most recent
through independent producers, career agents, financial institu-
calendar years for these claims. Therefore, the survival ratio is a tions and direct marketing channels.
simplistic measure estimating the number of years it would be
AIG’s Domestic Life Insurance operations offer a broad range
before the current ending loss reserves for these claims would be of protection products, such as individual life insurance and group
paid off using recent year average payments. The December 31, life and health products, including disability income products and
2007 survival ratio is lower than the ratio at December 31, 2006 payout annuities, which include single premium immediate annuibecause
the more recent periods included in the rolling average ties, structured settlements and terminal funding annuities. The
reflect higher claims payments. In addition, AIG’s survival ratio for Domestic Life Insurance products are sold through independent
asbestos claims was negatively affected by the favorable settlemarketing
producers, career agents and financial institutions and direct
ments described above, which reduced gross and net asbestos
channels. Home service operations include an array of
survival ratios at December 31, 2007 by approximately 1.3 years life insurance, accident and health and annuity products sold
and 2.6 years, respectively. Many factors, such as aggressive primarily through career agents.
settlement procedures, mix of business and level of coverage
AIG’s Domestic Retirement Services operations include group
provided, have a significant effect on the amount of asbestos and retirement products, individual fixed and variable annuities sold
environmental reserves and payments and the resultant survival through banks, broker-dealers and exclusive sales representa-
ratio. Moreover, as discussed above, the primary basis for AIG’s tives, and annuity runoff operations, which include previously
determination of its reserves is not survival ratios, but instead acquired ‘‘closed blocks’’ and other fixed and variable annuities
the ground-up and top-down analysis. Thus, caution should be largely sold through distribution relationships that have been
exercised in attempting to determine reserve adequacy for these discontinued.
claims based simply on this survival ratio.
In order to better align financial reporting with the manner in
which AIG’s chief operating decision makers manage their busi-
AIG’s survival ratios for asbestos and environmental
nesses, commencing in 2007, revenues and operating income
claims, separately and combined were based upon a
related to foreign investment-type contracts, which were historithree-year
average payment. These ratios for the years
cally reported as a component of the Asset Management
ended December 31, 2007, 2006 and 2005 were as
segment, are now reported as part of Foreign Life Insurance &
follows:
Retirement Services. Prior period amounts have been revised to
Gross * Net conform to the current presentation.
2007
AIG’s Life Insurance & Retirement Services reports its opera-
Survival ratios:
tions through the following major internal reporting units and legal
Asbestos 7.1 5.6
Environmental 4.7 3.7
entities:
Combined 6.7 5.2
2006
Foreign Life Insurance & Retirement Services
Survival ratios:
Japan and Other
Asbestos 11.8 12.9 ( American Life Insurance Company (ALICO)
Environmental 5.6 4.5
( AIG Star Life Insurance Co., Ltd. (AIG Star Life)
Combined 10.4 10.3
( AIG Edison Life Insurance Company (AIG Edison Life)
2005
Survival ratios:
Asia
Asbestos 16.0 19.8 ( American International Assurance Company, Limited, to-
Environmental 7.2 6.2
gether with American International Assurance Company
Combined 13.1 14.2
(Bermuda) Limited (AIA)
* Gross amounts for 2006 and 2005 were revised from the previous ( Nan Shan Life Insurance Company, Ltd. (Nan Shan)
presentation to reflect the inclusion of certain reserves not previously
( American International Reinsurance Company Limited
identified as asbestos and environmental related. This revision had no
effect on net reserves.
(AIRCO)
( The Philippine American Life and General Insurance Company
(Philamlife)
Life Insurance & Retirement Services
Operations
Domestic Life Insurance
AIG’s Life Insurance & Retirement Services operations offer a ( American General Life Insurance Company (AIG American
wide range of insurance and retirement savings products both
General)
domestically and abroad. ( The United States Life Insurance Company in the City of New
AIG’s Foreign Life Insurance & Retirement Services operations York (USLIFE)
include insurance and investment-oriented products such as whole
62 AIG 2007 Form 10-K