2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
9. Reserve for Losses and Loss Expenses and
including bonuses, 13.0 percent. Less than 1.0 percent of the
Future Life Policy Benefits and Policyholders’ liabilities are credited at a rate greater than 9.0 percent.
Contract Deposits
Current declared interest rates are generally guaranteed to
Continued
remain in effect for a period of one year though some are
guaranteed for longer periods. Withdrawal charges generally
The analysis of the future policy benefits and policyholders’
range from zero percent to 20.0 percent grading to zero over a
contract deposits liabilities follows:
period of zero to 19 years.
At December 31,
( Domestically, guaranteed investment contracts (GICs) have
(in millions) 2007 2006 market value withdrawal provisions for any funds withdrawn
Future policy benefits:
other than benefit responsive payments. Interest rates credited
Long duration contracts $135,202 $120,138 generally range from 2.8 percent to 9.0 percent. The vast
Short duration contracts 866 866 majority of these GICs mature within five years.
Total $136,068 $121,004
( Interest rates on corporate life insurance products are
guaranteed at 4.0 percent and the weighted average rate
Policyholders’ contract deposits:
credited in 2007 was 5.2 percent.
Annuities $140,444 $141,826 ( The universal life funds have credited interest rates of
Guaranteed investment contracts 25,321 33,054 1.0 percent to 7.0 percent and guarantees ranging from
Universal life products 27,114 22,497 1.0 percent to 5.5 percent depending on the year of issue.
Variable products 46,407 34,821
Additionally, universal life funds are subject to surrender
Corporate life products 2,124 2,083
charges that amount to 12.0 percent of the aggregate fund
Other investment contracts 17,049 13,983
balance grading to zero over a period not longer than 20 years.
Total $258,459 $248,264 ( For variable products and investment contracts, policy values
are expressed in terms of investment units. Each unit is linked
Long duration contract liabilities included in future policy
to an asset portfolio. The value of a unit increases or
benefits, as presented in the preceding table, result primarily from decreases based on the value of the linked asset portfolio. The
life products. Short duration contract liabilities are primarily
current liability at any time is the sum of the current unit value
accident and health products. The liability for future life policy
of all investment units plus any liability for guaranteed
benefits has been established based upon the following
minimum death or withdrawal benefits.
assumptions:
Certain products are subject to experience adjustments. These
include group life and group medical products, credit life
( Interest rates (exclusive of immediate/terminal funding
annuities), which vary by territory, year of issuance and
contracts, accident and health insurance contracts/riders
products, range from 1.0 percent to 12.5 percent within the attached to life policies and, to a limited extent, reinsurance
first 20 years. Interest rates on immediate/terminal funding agreements with other direct insurers. Ultimate premiums from
annuities are at a maximum of 11.5 percent and grade to not these contracts are estimated and recognized as revenue, and the
greater than 6.0 percent.
unearned portions of the premiums recorded as liabilities.
Experience adjustments vary according to the type of contract and
( Mortality and surrender rates are based upon actual experience
by geographical area modified to allow for variations in policy the territory in which the policy is in force and are subject to local
form. The weighted average lapse rate, including surrenders, regulatory guidance.
for individual and group life approximated 5.7 percent.
( The portions of current and prior net income and of current 10. Variable Life and Annuity Contracts
unrealized appreciation of investments that can inure to the AIG follows American Institute of Certified Public Accountants
benefit of AIG are restricted in some cases by the insurance Statement of Position 03-1 (SOP 03-1), which requires recognition
contracts and by the local insurance regulations of the
of a liability for guaranteed minimum death benefits and other
jurisdictions in which the policies are in force.
living benefits related to variable annuity and variable life
( Participating life business represented approximately contracts as well as certain disclosures for these products.
12 percent of the gross insurance in force at December 31, AIG reports variable contracts through separate and variable
2007 and 25 percent of gross premiums and other accounts when investment income and investment gains and
considerations in 2007. The amount of annual dividends to be losses accrue directly to, and investment risk is borne by, the
paid is determined locally by the boards of directors. Provisions contract holder (traditional variable annuities), and the separate
for future dividend payments are computed by jurisdiction, account qualifies for separate account treatment under SOP 03-1.
reflecting local regulations.
In some foreign jurisdictions, separate accounts are not legally
The liability for policyholders’ contract deposits has been insulated from general account creditors and therefore do not
established based on the following assumptions:
qualify for separate account treatment under SOP 03-1. In such
cases, the variable contracts are reported as general account
( Interest rates credited on deferred annuities, which vary by contracts even though the policyholder bears the risks associated
territory and year of issuance, range from 1.4 percent to, with the performance of the assets. AIG also reports variable
AIG 2007 Form 10-K 167