Bring on tomorrow - AIG.com

ITEM 7 / GLOSSARY.....................................................................................................................................................................................Net premiums written Represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded,during a given period. Net premiums earned are the revenue of an insurer for covering risk during a given period.Net premiums written are a measure of performance for a sales period while Net premiums earned are a measure ofperformance for a coverage period. From the period in which the premiums are written until the period in which theyare earned, the amount is presented as Unearned premium reserves in the Consolidated Balance Sheet.Noncontrolling interest The portion of equity ownership in a consolidated subsidiary not attributable to thecontrolling parent company.Other Operations – Operating income (loss): income (loss) excluding certain legal reserves (settlements) relatedto legacy crisis matters, loss on extinguishment of debt, amortization of prepaid commitment fee asset, Net realizedcapital (gains) losses, net (gains) losses on sale of divested businesses and properties, and income from divestedbusinesses.Overturns The reversal of a rescinded mortgage guarantee policy.Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account,to reflect the cost of issuing a policy, establishing the required records, sending premium notices and other relatedexpenses.Prior year development Increase or decrease in estimates of losses and loss expenses for prior years that isincluded in earnings.RBC Risk-Based Capital A formula designed to measure the adequacy of an insurer’s statutory surplus compared tothe risks inherent in its business.Reinstatement premium Additional premiums payable to reinsurers to restore coverage limits that have beenexhausted as a result of reinsured losses under certain excess of loss reinsurance treaties.Reinsurance The practice whereby one insurer, the reinsurer, in consideration of a premium paid to that insurer,agrees to indemnify another insurer, the ceding company, for part or all of the liability of the ceding company underone or more policies or contracts of insurance which it has issued.Rescission Denial of claims and termination of coverage on loans related to fraudulent or undocumented claims,underwriting guideline violations and other deviations from contractual terms.Reserve deficiency When actual reported reserves are lower than the expected reserves. This is also referred to asunfavorable loss development.Reserve redundancy When actual reported reserves exceed expected reserves. This is also referred to asfavorable loss development.Retained Interest Category within AIG’s Other operations that includes the fair value gains or losses, prior to theirsale, of the AIA ordinary shares retained following the AIA initial public offering and the MetLife, Inc. (MetLife)securities that were received as consideration from the sale of American Life Insurance Company (ALICO) and thefair value gains or losses, prior to the FRBNY liquidation of ML III assets, on the retained interest in ML III.Second-lien Subordinate in ranking to the first-lien holder on a property in the event of default on a mortgage.Severe losses Individual non-catastrophe first party losses greater than $10 million, net of related reinsurance.Short-Tail Reserves Reserves for claims that are generally reported and paid within a relatively short period of timeduring and following the policy coverage period. Short-tail classes of business consist principally of property, personallines and certain casualty classes.SIA Sales Inducement Asset Represents amounts that are credited to policyholder account balances related to theenhanced crediting rates that a seller offers on certain of its annuity products.SIFI Systemically Important Financial Institutions Financial institutions are deemed systemically important (that is, thefailure of the financial institution could pose a threat to the financial stability of the United States) by the FinancialStability Oversight Council (FSOC) based on a three-stage analytical process.Solvency II Legislation in the European Union which reforms the insurance industry’s solvency framework, includingminimum capital and solvency requirements, governance requirements, risk management and public reporting..................................................................................................................................................................................................................................AIG 2012 Form 10-K 197