2007 Annual Report - AIG.com

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
10. Variable Life and Annuity Contracts
Continued
The vast majority of AIG’s exposure on guarantees made
to variable contract holders arises from GMDB. Details
concerning AIG’s GMDB exposures at December 31,
2007 and 2006 are as follows:
annuity and life contracts through separate and variable accounts,
or general accounts when not qualified for separate account
reporting, when AIG contractually guarantees to the contract
holder (variable contracts with guarantees) either (a) total deposits
made to the contract less any partial withdrawals plus a minimum
return (and in minor instances, no minimum returns) (Net
2007
Deposits Plus a Minimum Return) or (b) the highest contract value Account value (a) $66 $17
attained, typically on any anniversary date minus any subsequent
Amount at risk (b) 5 1
withdrawals following the contract anniversary (Highest Contract
Average attained age of
contract holders by product
Value Attained). These guarantees include benefits that are
38-69 years 55-72 years
payable in the event of death, annuitization, or, in other instances, Range of guaranteed
at specified dates during the accumulation period. Such benefits minimum return rates 3-10%
are referred to as guaranteed minimum death benefits (GMDB), 2006
guaranteed minimum income benefits (GMIB), guaranteed mini- Account value (a) $64 $15
mum withdrawal benefits (GMWB) and guaranteed minimum Amount at risk (b) 6 1
account value benefits (GMAV). For AIG, GMDB is by far the most Average attained age of
Net Deposits
Plus a Minimum Highest Contract
(dollars in billions) Return Value Attained
widely offered benefit. contract holders by product 38-70 years 56-71 years
The assets supporting the variable portion of both traditional Range of guaranteed
variable annuities and variable contracts with guarantees are minimum return rates 0-10%
carried at fair value and reported as Separate and variable
(a) Included in Policyholders’ contract deposits in the consolidated balance
account assets with an equivalent summary total reported as
sheet.
Separate and variable account liabilities when the separate
(b) Represents the amount of death benefit currently in excess of Account
account qualifies for separate account treatment under SOP 03-1. value.
Assets for separate accounts that do not qualify for separate
account treatment are reported as trading account assets, and The following summarizes GMDB liabilities for guarantees
liabilities are included in the respective policyholder liability on variable contracts reflected in the general account.
account of the general account. Amounts assessed against the (in millions) 2007 2006
contract holders for mortality, administrative, and other services
Balance at January 1 $406 $442
are included in revenue and changes in liabilities for minimum
Reserve increase 111 35
guarantees are included in incurred policy losses and benefits in
Benefits paid (54) (71)
the consolidated statement of income. Separate and variable
account net investment income, net investment gains and losses, Balance at December 31 $463 $406
and the related liability changes are offset within the same line
The GMDB liability is determined each period end by estimating
item in the consolidated statement of income for those accounts
the expected value of death benefits in excess of the projected
that qualify for separate account treatment under SOP 03-1. Net
account balance and recognizing the excess ratably over the
investment income and gains and losses on trading accounts for
accumulation period based on total expected assessments. AIG
contracts that do not qualify for separate account treatment under
regularly evaluates estimates used and adjusts the additional
SOP 03-1 are reported in net investment income and are
liability balance, with a related charge or credit to benefit
principally offset by amounts reported in incurred policy losses
expense, if actual experience or other evidence suggests that
and benefits.
earlier assumptions should be revised.
The following assumptions and methodology were used to
determine the GMDB liability at December 31, 2007:
( Data used was up to 1,000 stochastically generated investment
performance scenarios.
( Mean investment performance assumptions ranged from
three percent to approximately ten percent depending on the
block of business.
( Volatility assumptions ranged from eight percent to 23 percent
depending on the block of business.
( Mortality was assumed at between 50 percent and 102 percent
of various life and annuity mortality tables.
( For domestic contracts, lapse rates vary by contract type and
duration and ranged from zero percent to 40 percent. For
168 AIG 2007 Form 10-K