2007 Annual Report - AIG.com

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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
American International Group, Inc. and Subsidiaries Life Insurance & Retirement Services Net Investment Income and Net Realized Capital Gains (Losses) The following table summarizes the components of net investment income for the years ended December 31, 2007, 2006 and 2005: (in millions) 2007 2006 2005 Foreign Life Insurance & Retirement Services: Fixed maturities, including short-term investments $ 7,846 $ 6,820 $6,059 Equity securities 135 80 51 Interest on mortgage and other loans 466 454 447 Partnership income 128 94 57 Unit investment trusts (a) 439 259 4 Other (b) 275 301 357 Total investment income before policyholder income and trading gains 9,289 8,008 6,975 Policyholder investment income and trading gains (c) 2,899 2,017 2,021 Total investment income 12,188 10,025 8,996 Investment expenses 339 267 278 Net investment income $11,849 $ 9,758 $8,718 Domestic Life Insurance: Fixed maturities, including short-term investments $ 3,528 $ 3,444 $3,481 Equity securities (4) (6) (3) Interest on mortgage and other loans 418 349 327 Partnership income — excluding Synfuels 123 80 135 Partnership loss — Synfuels (101) (107) (143) Unit investment trusts 3 5 — Other (b) 77 67 (4) Total investment income before policyholder income and trading gains 4,044 3,832 3,793 Policyholder investment income and trading gains (c) 4 — — Total investment income 4,048 3,832 3,793 Investment expenses 53 54 60 Net investment income $ 3,995 $ 3,778 $3,733 Domestic Retirement Services: Fixed maturities, including short-term investments $ 5,376 $ 5,645 $5,579 Equity securities 30 38 13 Interest on mortgage and other loans 539 449 401 Partnership income 572 425 224 Other (b) 42 (18) 60 Total investment income 6,559 6,539 6,277 Investment expenses 62 51 51 Net investment income $ 6,497 $ 6,488 $6,226 AIG 2007 Form 10-K 75
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AMERICAN INTERNATIONAL GROUP, INC.
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FINANCIAL HIGHLIGHTS (in millions,
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overall financial condition, althou
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Group Executive Committee We are ad
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AIG’s life insurance network is t
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We have also begun to address the e
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WHAT WE SEE The ability to see and
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The Major Accounts Practice within
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Around the world, the middle class
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WE SEE GROWTH OPPORTUNITIES IN EMER
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To grow the strength of the AIG glo
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Since 2003, the AIG Disaster Relief
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RESPECT Respect encompasses how we
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Life Insurance & Retirement Service
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Domestic Brokerage Group— Gross P
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In the summer of 2007, widespread f
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in gross premiums written. It launc
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It grew new business premiums from
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emerging markets for its services,
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ILFC—Revenues by Region Total = $
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AIG Investments acquired a 94 perce
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and changing interest rates, as wel
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American International Group, Inc.
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UNITED STATES SECURITIES AND EXCHAN
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Index of Notes to Consolidated Fina
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SHAREHOLDER INFORMATION Corporate H
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2007 Annual Report - AIG.com

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