2007 Annual Report - AIG.com

More documents

Recommendations

Info

American International Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements Continued 1. Summary of Significant Accounting Policies Continued (p) Cash: Cash represents cash on hand and non-interest bearing demand deposits. (q) Reinsurance Assets: Reinsurance assets include the bal- ances due from reinsurance and insurance companies under the terms of AIG’s reinsurance agreements for paid and unpaid losses and loss expenses, ceded unearned premiums and ceded future policy benefits for life and accident and health insurance contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and benefits and loss expenses with respect to these reinsurance agreements are substantially collateralized. (r) Deferred Policy Acquisition Costs: Policy acquisition costs represent those costs, including com- missions, premium taxes and other underwriting expenses that vary with and are primarily related to the acquisition of new business. General Insurance: Policy acquisition costs are deferred and amortized over the period in which the related premiums written are earned. DAC is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the profitability of the underlying insurance contracts. Investment income is not anticipated in assessing the recoverability of DAC. Life Insurance & Retirement Services: Policy acquisition costs for traditional life insurance products are generally deferred and amortized over the premium paying period in accordance with FAS 60, ‘‘Accounting and Reporting by Insurance Enterprises’’ (FAS 60). Policy acquisition costs and policy issuance costs related to universal life, participating life, and investment-type products (investment-oriented products) are deferred and amortized, with interest, in relation to the incidence of estimated gross profits to be realized over the estimated lives of the contracts in accordance with FAS 97, ‘‘Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and for Realized Gains and Losses from the Sale of Investments’’ (FAS 97). Estimated gross profits are composed of net interest income, net realized investment gains and losses, fees, surrender charges, expenses, and mortality and morbidity gains and losses. If estimated gross profits change significantly, DAC is recalculated using the new assumptions. Any resulting adjustment is included in income as an adjustment to DAC. DAC is grouped consistent with the manner in which the insurance contracts are acquired, serviced and measured for profitability and is reviewed for recoverability based on the current and projected future profitability of the underlying insurance contracts. The DAC for investment-oriented products is also adjusted with respect to estimated gross profits as a result of changes in the net unrealized gains or losses on fixed maturity and equity securities available for sale. Because fixed maturity and equity securities available for sale are carried at aggregate fair value, an adjustment is made to DAC equal to the change in amortization that would have been recorded if such securities had been sold at their stated aggregate fair value and the proceeds reinvested at current yields. The change in this adjustment, net of tax, is included with the change in net unrealized gains/losses on fixed Finance receivables originated and intended for sale in the secondary market are carried at the lower of cost or fair value, as determined by aggregate outstanding commitments from investors or current investor yield requirements. American General Finance, Inc. (AGF) recognizes net unrealized losses through a valuation allowance by charges to income. (m) Securities Lending Invested Collateral, at Fair Value and Securities Lending Payable: AIG’s insurance and asset management operations lend their securities and primarily take cash as collateral with respect to the securities lent. Invested collateral consists of interest-bearing cash equivalents and floating rate bonds, whose changes in fair value are recorded as a separate component of Accumulated other comprehensive income (loss), net of deferred income taxes. The invested collateral is evaluated for other-than-temporary impairment by applying the same criteria used for investments in fixed maturities. Income earned on invested collateral, net of interest payable to the collateral provider, is recorded in Net investment income. The fair value of securities pledged under securities lending arrangements was $76 billion and $69 billion at December 31, 2007 and 2006, respectively. These securities are included in bonds available for sale in AIG’s consolidated balance sheet. (n) Other Invested Assets: Other invested assets consist primarily of investments by AIG’s insurance operations in hedge funds, private equity and limited partnerships. Hedge funds and limited partnerships in which AIG’s insurance operations hold in the aggregate less than a five percent interest are reported at fair value. The change in fair value is recognized as a component of Accumulated other comprehensive income (loss). With respect to hedge funds and limited partnerships in which AIG holds in the aggregate a five percent or greater interest or less than a five percent interest but in which AIG has more than a minor influence over the operations of the investee, AIG’s carrying value is its share of the net asset value of the funds or the partnerships. The changes in such net asset values, accounted for under the equity method, are recorded in Net investment income. In applying the equity method of accounting, AIG consistently uses the most recently available financial information provided by the general partner or manager of each of these investments, which is one to three months prior to the end of AIG’s reporting period. The financial statements of these investees are generally audited on an annual basis. Also included in Other invested assets are real estate held for investment, aircraft asset investments held by non-financial services subsidiaries and investments in life settlement contracts. See Note 3(g) herein for further information. (o) Short-term Investments: Short-term investments consist of interest-bearing cash equivalents, time deposits, and investments with original maturities within one year from the date of purchase, such as commercial paper. 142 AIG 2007 Form 10-K
American International Group, Inc. and Subsidiaries 1. Summary of Significant Accounting Policies (v) Goodwill: Goodwill is the excess of cost over the fair value Continued of identifiable net assets acquired. Goodwill is reviewed for impairment on an annual basis, or more frequently if circummaturity and equity securities available for sale that is credited or stances indicate that a possible impairment has occurred. The charged directly to Accumulated other comprehensive income assessment of impairment involves a two-step process whereby (loss). Value of Business Acquired (VOBA) is determined at the an initial assessment for potential impairment is performed, time of acquisition and is reported in the consolidated balance followed by a measurement of the amount of impairment, if any. sheet with DAC. This value is based on the present value of future Impairment testing is performed using the fair value approach, pre-tax profits discounted at yields applicable at the time of which requires the use of estimates and judgment, at the purchase. For products accounted for under FAS 60, VOBA is ‘‘reporting unit’’ level. A reporting unit is the operating segment, amortized over the life of the business similar to that for DAC or a business that is one level below the operating segment if based on the assumptions at purchase. For products accounted discrete financial information is prepared and regularly reviewed by for under FAS 97, VOBA is amortized in relation to the estimated management at that level. The determination of a reporting unit’s gross profits to date for each period. As of December 31, 2007 fair value is based on management’s best estimate, which and 2006, there had been no impairments of VOBA. generally considers the market-based earning multiples of the (s) Investments in Partially Owned Companies: Invest- unit’s peer companies or expected future cash flows. If the ments in partially owned companies represents investments carrying value of a reporting unit exceeds its fair value, an entered into for strategic purposes and not solely for capital impairment is recognized as a charge against income equal to the appreciation or for income generation. These investments are excess of the carrying value of goodwill over its fair value. No accounted for under the equity method. All other equity method impairments were recorded in 2007, 2006 or 2005. Changes in investments are reported in Other invested assets. At Decem- the carrying amount of goodwill result from business acquisitions, ber 31, 2007, AIG’s significant investments in partially owned the payment of contingent consideration, foreign currency translacompanies included its 26.0 percent interest in Tata AIG Life tion adjustments and purchase price adjustments. Insurance Company, Ltd., its 26.0 percent interest in Tata AIG (w) Other Assets: Other assets consist of prepaid expenses, General Insurance Company, Ltd. and its 25.4 percent interest in including deferred advertising costs, sales inducement assets, The Fuji Fire and Marine Insurance Co., Ltd. Dividends received non-AIGFP derivatives assets carried at fair value, deposits, other from unconsolidated entities in which AIG’s ownership interest is deferred charges and other intangible assets. less than 50 percent were $30 million, $28 million and Certain direct response advertising costs are deferred and $146 million for the years ended December 31, 2007, 2006 and amortized over the expected future benefit period in accordance 2005, respectively. The undistributed earnings of unconsolidated with SOP 93-7, ‘‘Reporting on Advertising Costs.’’ When AIG can entities in which AIG’s ownership interest is less than 50 percent demonstrate that its customers have responded specifically to were $266 million, $300 million and $179 million at Decemdirect-response advertising, the primary purpose of which is to ber 31, 2007, 2006 and 2005, respectively. elicit sales to customers, and when it can be shown such (t) Real Estate and Other Fixed Assets: The costs of advertising results in probable future economic benefits, the buildings and furniture and equipment are depreciated principally advertising costs are capitalized. Deferred advertising costs are on the straight-line basis over their estimated useful lives amortized on a cost-pool-by-cost-pool basis over the expected (maximum of 40 years for buildings and ten years for furniture and future economic benefit period and are reviewed regularly for equipment). Expenditures for maintenance and repairs are recoverability. Deferred advertising costs totaled $1.35 billion and charged to income as incurred; expenditures for betterments are $1.05 billion at December 31, 2007 and 2006, respectively. The capitalized and depreciated. AIG periodically assesses the carrying amount of expense amortized into income was $395 million, value of its real estate for purposes of determining any asset $359 million and $272 million, for the years ended 2007, 2006, impairment. and 2005, respectively. Also included in Real Estate and Other Fixed Assets are AIG offers sales inducements, which include enhanced creditcapitalized software costs, which represent costs directly related ing rates or bonus payments to contract holders (bonus interest) to obtaining, developing or upgrading internal use software. Such on certain annuity and investment contract products. Sales costs are capitalized and amortized using the straight-line method inducements provided to the contractholder are recognized as part over a period generally not exceeding five years. of the liability for policyholders’ contract deposits in the consolidated balance sheet. Such amounts are deferred and amortized (u) Separate and Variable Accounts: Separate and variable over the life of the contract using the same methodology and accounts represent funds for which investment income and assumptions used to amortize DAC. To qualify for such accounting investment gains and losses accrue directly to the policyholders treatment, the bonus interest must be explicitly identified in the who bear the investment risk. Each account has specific investcontract at inception, and AIG must demonstrate that such ment objectives, and the assets are carried at fair value. The amounts are incremental to amounts AIG credits on similar assets of each account are legally segregated and are not subject contracts without bonus interest, and are higher than the to claims that arise out of any other business of AIG. The contract’s expected ongoing crediting rates for periods after the liabilities for these accounts are equal to the account assets. bonus period. The deferred bonus interest and other deferred AIG 2007 Form 10-K 143
Page 1 and 2:
AMERICAN INTERNATIONAL GROUP, INC.
Page 3 and 4:
FINANCIAL HIGHLIGHTS (in millions,
Page 5 and 6:
overall financial condition, althou
Page 7 and 8:
Group Executive Committee We are ad
Page 9 and 10:
AIG’s life insurance network is t
Page 11 and 12:
We have also begun to address the e
Page 13 and 14:
WHAT WE SEE The ability to see and
Page 15 and 16:
The Major Accounts Practice within
Page 17 and 18:
Around the world, the middle class
Page 19 and 20:
WE SEE GROWTH OPPORTUNITIES IN EMER
Page 21 and 22:
To grow the strength of the AIG glo
Page 23 and 24:
Since 2003, the AIG Disaster Relief
Page 25 and 26:
RESPECT Respect encompasses how we
Page 27 and 28:
Life Insurance & Retirement Service
Page 29 and 30:
Domestic Brokerage Group— Gross P
Page 31 and 32:
In the summer of 2007, widespread f
Page 33 and 34:
in gross premiums written. It launc
Page 35 and 36:
It grew new business premiums from
Page 37 and 38:
emerging markets for its services,
Page 39 and 40:
ILFC—Revenues by Region Total = $
Page 41 and 42:
AIG Investments acquired a 94 perce
Page 43 and 44:
and changing interest rates, as wel
Page 45 and 46:
American International Group, Inc.
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
UNITED STATES SECURITIES AND EXCHAN
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68:
Page 69 and 70:
Page 71 and 72:
Page 73 and 74:
Page 75 and 76:
Page 77 and 78:
Page 79 and 80:
Page 81 and 82:
Page 83 and 84:
Page 85 and 86:
Page 87 and 88:
Page 89 and 90:
Page 91 and 92:
Page 93 and 94:
Page 95 and 96:
Page 97 and 98:
Page 99 and 100:
Page 101 and 102:
Page 103 and 104:
Page 105 and 106:
Page 107 and 108:
Page 109 and 110:
Page 111 and 112:
Page 113 and 114:
Page 115 and 116:
Page 117 and 118:
Page 119 and 120:
Page 121 and 122:
Page 123 and 124:
Page 125 and 126:
Page 127 and 128:
Page 129 and 130:
Page 131 and 132:
Page 133 and 134:
Page 135 and 136:
Page 137 and 138:
Page 139 and 140:
Page 141 and 142:
Page 143 and 144:
Page 145 and 146: American International Group, Inc.
Page 191 and 192: Index of Notes to Consolidated Fina
Page 195: American International Group, Inc.
Page 247 and 248:
Page 249 and 250:
Page 251 and 252:
Page 253 and 254:
Page 255 and 256:
Page 257 and 258:
Page 259 and 260:
Page 261 and 262:
Page 263 and 264:
Page 265 and 266:
Page 267 and 268:
Page 269 and 270:
Page 271 and 272:
Page 273 and 274:
Page 275 and 276:
SHAREHOLDER INFORMATION Corporate H
show all

2007 Annual Report - AIG.com

Create successful ePaper yourself

Delete template?

Save as template?