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ITEM 7 / GLOSSARY.....................................................................................................................................................................................GLOSSARYAccident year The annual calendar accounting period in which loss events occurred, regardless of when the lossesare actually reported, booked or paid.Accident year combined ratio, as adjusted the combined ratio excluding catastrophe losses and relatedreinstatement premiums, prior year development, net of premium adjustments, and the impact of reserve discounting.Accident year loss ratio, as adjusted the loss ratio excluding catastrophe losses and related reinstatementpremiums, prior year development, net of premium adjustments and the impact of reserve discount. Catastrophelosses are generally weather or seismic events having a net impact on AIG Property Casualty in excess of$10 million each.Acquisition ratio acquisition costs divided by net premiums earned. Acquisition costs are those costs incurred toacquire new and renewal insurance contracts and also include the amortization of VOBA. Acquisition costs vary withsales and include, but are not limited to, commissions, premium taxes, direct marketing costs, certain costs ofpersonnel engaged in sales support activities such as underwriting, and the change in deferred acquisition costs.Acquisition costs that are incremental and directly related to successful sales efforts are deferred and recognizedover the coverage periods of related insurance contracts. Acquisition costs that are not incremental and directlyrelated to successful sales efforts are recognized as incurred.Admitted insurer A company licensed to transact insurance business within a state.AIG – After-tax operating income (loss) is derived by excluding the following items from net income (loss): income(loss) from discontinued operations, net loss (gain) on sale of divested businesses, income from divested businesses,legacy FIN 48 and other tax adjustments, legal reserves (settlements) related to ‘‘legacy crisis matters,’’ deferredincome tax valuation allowance (releases) charges, amortization of the Federal Reserve Bank of New York prepaidcommitment fee asset, changes in fair value of AIG Life and Retirement fixed income securities designated to hedgeliving benefit liabilities, change in benefit reserves and deferred policy acquisition costs (DAC), value of businessacquired (VOBA), and sales inducement assets (SIA) related to net realized capital (gains) losses, (gain) loss onextinguishment of debt, net realized capital (gains) losses, non-qualifying derivative hedging activities, excluding netrealized capital (gains) losses and bargain purchase gain. ‘‘Legacy crisis matters’’ include favorable and unfavorablesettlements related to events leading up to and resulting from our September 2008 liquidity crisis. It also includeslegal fees incurred by AIG as the plaintiff in connection with such legal matters.AIG Life and Retirement – Operating income (loss) Operating income (loss) is derived by excluding the followingitems from net income (loss): legal settlements related to legacy crisis matters, changes in fair values of fixedmaturity securities designated to hedge living benefit liabilities, net realized capital (gains) losses, and changes inbenefit reserves and DAC, VOBA, and SIA related to net realized capital (gains) losses.AIG Life and Retirement – Premiums, deposits and other considerations includes life insurance premiums anddeposits on annuity contracts and mutual funds.AIG Property Casualty – Net premiums written represent the sales of an insurer, adjusted for reinsurancepremiums assumed and ceded, during a given period. Net premiums earned are the revenue of an insurer forcovering risk during a given period. Net premiums written are a measure of performance for a sales period while Netpremiums earned are a measure of performance for a coverage period. From the period in which the premiums arewritten until the period in which they are earned, the amount is presented as Unearned premium reserves in theConsolidated Balance Sheet.AIG Property Casualty – Operating income (loss) In 2012, AIG Property Casualty revised its non-GAAP incomemeasure from underwriting income (loss) to operating income (loss), which includes both underwriting income (loss)and net investment income, but not net realized capital (gains) losses or other (income) expense, legal settlementsrelated to legacy crisis matters and bargain purchase gain. Underwriting income (loss) is derived by reducing netpremiums earned by claims and claims adjustment expense and underwriting expenses, which consist of theacquisition costs and general operating expenses.Assume, assumed reinsurance, assuming company An insurance company that accepts all or part of a cedingcompany’s insurance or reinsurance on a risk or exposure is referred to as the assuming company...................................................................................................................................................................................................................................AIG 2012 Form 10-K 195
ITEM 7 / GLOSSARY.....................................................................................................................................................................................Basel I, Basel II and Basel III set of capital and liquidity standards for international financial institution establishedby the Basel Committee on Banking Supervision.BET Binomial Expansion Technique A model that generates expected loss estimates for CDO tranches and derivesa credit rating for those tranches.Book Value Per Share Excluding Accumulated Other Comprehensive Income (loss) (AOCI) is used to show theamount of our net worth on a per-share basis. Book Value Per Share Excluding AOCI is derived by dividing TotalAIG shareholders’ equity, excluding AOCI, by Total common shares outstanding.Case reserves Claim department estimates of anticipated future payments to be made on each specific individualreported claim.Casualty insurance Insurance that is primarily associated with the losses caused by injuries to third persons,i.e., not the insured, and the legal liability imposed on the insured as a result.Cede, ceded reinsurance, ceding company An insurance company that reinsures its risk with another, is referredto as the ceding company.Combined ratio Sum of the loss ratio and the acquisition and general operating expense ratios.CSA Credit Support Annex A legal document that provides for collateral postings at various ratings and thresholdlevels.DAC Deferred Policy Acquisition Costs Deferred costs that are incremental and directly related to the successfulacquisition of new business or renewal of existing business.Expense ratio Sum of acquisition costs and general operating expenses, divided by net premiums earned.First-Lien Priority over all other liens or claims on a property in the event of default on a mortgage.General operating expense ratio general operating expenses divided by net premiums earned. General operatingexpenses are those costs that are generally attributed to the support infrastructure of the organization and includebut are not limited to personnel costs, projects and bad debt expenses. General operating expenses exclude claimsadjustment expenses, acquisition expenses, and investment expenses.GIC/GIA Guaranteed Investment Contract/Guaranteed Investment Agreement A contract whereby the seller providesa guaranteed repayment of principal and a fixed or floating interest rate for a predetermined period of time.IBNR Incurred But Not Reported Estimates of claims that have been incurred but not reported to us.IFS Insurer Financial Strength ratings IFS ratings measure the ability of an insurance company to meet itsobligations to contract holders and policyholders.LAE Loss Adjustment Expenses The expenses of settling claims, including legal and other fees and the portion ofgeneral expenses allocated to claim settlement costs.Long-Tail Reserves Reserves for claims that may be reported or settled several years after the coverage periodhas expired for these classes of businesses. Long-tail casualty classes of business include excess and umbrellaliability, D&O, professional liability, medical malpractice, workers’ compensation, general liability, products liability andrelated classes.Loss Ratio Claims and claims adjustment expenses incurred divided by net premiums earned. Claims adjustmentexpenses are directly attributed to settling and paying claims of insureds and include, but are not limited to, legalfees, adjuster’s fees, and claims department personnel costs.Loss reserve development The increase or decrease in incurred claims and claim adjustment expenses as a resultof the re-estimation of claims and claim adjustment expense reserves at successive valuation dates for a given groupof claims.Loss reserves Liability for unpaid claims and claims adjustment expense. The estimated ultimate cost of settlingclaims relating to insured events that have occurred on or before the balance sheet date, whether or not reported tothe insurer at that date.LTV Loan-to-Value Ratio Principal amount of loan amount divided by appraised value of collateral securing the loan...................................................................................................................................................................................................................................196 AIG 2012 Form 10-K
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American International Group, Inc.2
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KEY FACTS & FIGURES52,000+ $65.7 bi
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■We said we would return to profi
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Financial HighlightsYears Ended Dec
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~63,000AIG EMPLOYEES AROUND THE WOR
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$115.1 millionAVERAGE CLAIMS PAID E
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$10,000MAXIMUM DONATION MADE BY AIG
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American International Group, Inc.F
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AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG LIFE AND RE
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 5 / MARKET FOR REGISTRANT’S
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / MANAGEMENT’S DISCUSSION
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ITEM 7 / USE OF NON-GAAP MEASURES..
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ITEM 7 / EXECUTIVE SUMMARY.........
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ITEM 7 / RESULTS OF OPERATIONS.....
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ITEM 7 / LIQUIDITY AND CAPITAL RESO
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ITEM 7 / INVESTMENTS...............
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Page 215 and 216: ITEM 7 / GLOSSARY..................
Page 217 and 218: ITEM 7A / QUANTITATIVE AND QUALITAT
Page 219 and 220: ITEM 8 / INDEX TO FINANCIAL STATEME
Page 221 and 222: AMERICAN INTERNATIONAL GROUP, INC.C
Page 227 and 228: ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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Page 241 and 242: ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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Page 245 and 246: ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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Page 249 and 250: ITEM 8 / NOTE 5. BUSINESS COMBINATI
Page 251 and 252: ITEM 8 / NOTE 6. FAIR VALUE MEASURE
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ITEM 8 / NOTE 6. FAIR VALUE MEASURE
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ITEM 8 / NOTE 7. INVESTMENTS.......
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ITEM 8 / NOTE 8. LENDING ACTIVITIES
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ITEM 8 / NOTE 9. REINSURANCE.......
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 12. DERIVATIVES AND H
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ITEM 8 / NOTE 13. LIABILITY FOR UNP
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ITEM 8 / NOTE 14. VARIABLE LIFE AND
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 16. CONTINGENCIES, CO
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ITEM 8 / NOTE 17. TOTAL EQUITY.....
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ITEM 8 / NOTE 18. NONCONTROLLING IN
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ITEM 8 / NOTE 19. EARNINGS (LOSS) P
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ITEM 8 / NOTE 20. STATUTORY FINANCI
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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ITEM 8 / NOTE 24. INCOME TAXES.....
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ITEM 8 / NOTE 26. QUARTERLY FINANCI
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ITEM 8 / NOTE 27. INFORMATION PROVI
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PART II............................
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PART IV............................
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SignatureTitle/s/ ARTHUR C. MARTINE
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ExhibitNumber Description Location(
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Condensed Financial Information of
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Condensed Financial Information of
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Notes to Condensed Financial Inform
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Supplementary Insurance Information
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Valuation and Qualifying AccountsFo
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Subsidiaries of RegistrantExhibit 2
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Percentageof VotingSecuritiesJurisd
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Percentageof VotingSecuritiesJurisd
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CONSENT OF INDEPENDENT REGISTERED P
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CERTIFICATIONSI, Robert H. Benmosch
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CERTIFICATIONExhibit 32In connectio
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SECURITIES REGISTERED PURSUANT TO S
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American International Group, Inc.1
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