2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
growth in lower margin mutual fund products relative to annuity Surrender rates increased for individual fixed annuities, while
products will result in a gradual reduction in overall profit margins group retirement surrender rates decreased slightly in 2007
of this business. Individual fixed annuity sales continued to face compared to 2006. Although group retirement surrenders inincreased
competition from bank deposit products and money creased compared to 2006, the surrender rate decreased slightly
market funds offering very competitive short-term rates in the as a result of a 6 percent increase in reserves. The increase in
current yield curve environment, and as a result deposits
the surrender rate for individual fixed annuities continues to be
decreased 5 percent in 2007 compared to 2006. Individual driven by a relatively flat yield curve and the general aging of the
variable annuity deposits increased 5 percent in 2007 compared in-force block; however, less than 23 percent of the individual
to 2006 despite the discontinuation of a major bank proprietary fixed annuity reserves as of December 31, 2007 were available
product.
for surrender without charge. Individual variable annuities surren-
Domestic Retirement Services surrenders and other withdraw- der rates were slightly lower in 2007 compared to 2006.
als increased in 2007 compared to 2006. The increase primarily An increase in the level of surrenders in any of these
reflects higher surrenders in both group retirement products and businesses or in the individual fixed annuities runoff block could
individual fixed annuities. Group retirement surrenders increased accelerate the amortization of DAC and negatively affect fee
as a result of both normal maturing of the business and higher income earned on assets under management.
large group surrenders in 2007 compared to 2006. Individual
Higher surrenders in the group retirement and individual fixed
fixed annuity surrenders and withdrawals increased in 2007 due annuity blocks, offset somewhat by increased deposits in group
to both an increasing number of policies coming out of their retirement, resulted in negative net flows in 2007. The continuasurrender
charge period and increased competition from bank tion of the current interest rate and competitive environment
deposit products. AIG expects this trend to continue into 2008 as would prolong this trend.
a significant amount of business comes out of its surrender
charge period.
The following table presents Domestic Retirement Services
reserves by surrender charge category and surrender
rates as of December 31, 2007 and 2006:
Group Individual Individual
2007 Retirement Fixed Variable
(in millions) Products* Annuities Annuities
No surrender charge $49,770 $11,316 $13,014
0%–2% 3,284 3,534 5,381
Greater than 2% – 4% 3,757 7,310 5,133
Greater than 4% 2,280 24,956 9,492
Non-Surrenderable 865 3,392 88
Total Reserves $59,956 $50,508 $33,108
Surrender rates 9.8% 14.6% 12.8%
Group Individual Individual
2006 Retirement Fixed Variable
(in millions) Products* Annuities Annuities
No surrender charge $42,741 $10,187 $11,467
0% – 2% 6,921 4,503 4,869
Greater than 2% – 4% 4,573 6,422 4,830
Greater than 4% 2,842 28,109 9,836
Non-Surrenderable 877 3,464 91
Total Reserves $57,954 $52,685 $31,093
Surrender rates 9.9% 12.0% 13.3%
* Excludes mutual funds of $8.2 billion and $6.4 billion in 2007 and
2006, respectively.
74 AIG 2007 Form 10-K