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ITEM 8 / NOTE 9. REINSURANCE.....................................................................................................................................................................................9. REINSURANCE..............................................................................................................................................................................................In the ordinary course of business, our insurance companies may use both treaty and facultative reinsurance tominimize their net loss exposure to any single catastrophic loss event or to an accumulation of losses from a numberof smaller events or to provide greater diversification of our businesses. In addition, our general insurancesubsidiaries assume reinsurance from other insurance companies. We determine the portion of the incurred but notreported (IBNR) loss that will be recoverable under our reinsurance contracts by reference to the terms of thereinsurance protection purchased. This determination is necessarily based on the estimate of IBNR and accordingly,is subject to the same uncertainties as the estimate of IBNR. Reinsurance assets include the balances due fromreinsurance and insurance companies under the terms of our reinsurance agreements for paid and unpaid lossesand loss expenses, ceded unearned premiums and ceded future policy benefits for life and accident and healthinsurance contracts and benefits paid and unpaid. Amounts related to paid and unpaid losses and benefits and lossexpenses with respect to these reinsurance agreements are substantially collateralized. We remain liable to theextent that our reinsurers do not meet their obligation under the reinsurance contracts, and as such, we regularlyevaluate the financial condition of our reinsurers and monitor concentration of our credit risk. The allowance fordoubtful accounts on reinsurance assets was $338 million and $365 million at December 31, 2012 and 2011,respectively.The following table provides supplemental information for loss and benefit reserves, gross and net of cededreinsurance:2012 2011At December 31, As Net of As Net of(in millions) Reported Reinsurance Reported ReinsuranceLiability for unpaid claims and claims adjustment expense (a) $ (87,991) $ (68,782) $ (91,145) $ (70,825)Future policy benefits for life and accident and health insurancecontracts (36,340) (35,408) (34,317) (33,312)Reserve for unearned premiums (22,537) (18,934) (23,465) (19,553)Reinsurance assets (b) 23,744 – 25,237 –(a) In 2012 and 2011, the Net of Reinsurance amount reflects the cession under the June 17, 2011 transaction with National Indemnity Company(NICO) of $1.6 billion and $1.7 billion, respectively.(b)Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.Short-Duration Reinsurance..............................................................................................................................................................................................Short-duration reinsurance is effected under reinsurance treaties and by negotiation on individual risks. Certain ofthese reinsurance arrangements consist of excess of loss contracts that protect us against losses above stipulatedamounts. Ceded premiums are considered prepaid reinsurance premiums and are recognized as a reduction ofpremiums earned over the contract period in proportion to the protection received. Amounts recoverable fromreinsurers on short-duration contracts are estimated in a manner consistent with the claims liabilities associated withthe reinsurance and presented as a component of Reinsurance assets. Assumed reinsurance premiums are earnedprimarily on a pro-rata basis over the terms of the reinsurance contracts and the portion of premiums relating to theunexpired terms of coverage is included in the reserve for unearned premiums. For both ceded and assumedreinsurance, risk transfer requirements must be met for reinsurance accounting to apply. If risk transfer requirementsare not met, the contract is accounted for as a deposit, resulting in the recognition of cash flows under the contractthrough a deposit asset or liability and not as revenue or expense. To meet risk transfer requirements, a reinsurancecontract must include both insurance risk, consisting of both underwriting and timing risk, and a reasonable possibilityof a significant loss for the assuming entity. Similar risk transfer criteria are used to determine whether directly writteninsurance contracts should be accounted for as insurance or as a deposit...................................................................................................................................................................................................................................AIG 2012 Form 10-K 267
ITEM 8 / NOTE 9. REINSURANCE.....................................................................................................................................................................................The following table presents short-duration insurance premiums written and earned:Years EndedAIG Property Casualty Other Businesses * Eliminations TotalDecember 31,(in millions) 2012 2011 2010 2012 2011 * 2010 * 2012 2011 2010 2012 2011 2010Premiums written:Direct $ 40,428 $ 41,710 $ 38,965 $ 938 $ 898 $ 927 $ – $ – $ – $ 41,366 $ 42,608 $ 39,892Assumed 3,428 3,031 2,442 (10) – (2) 7 2 – 3,425 3,033 2,440Ceded (9,420) (9,901) (9,795) (70) (97) (169) (7) (2) – (9,497) (10,000) (9,964)Net $ 34,436 $ 34,840 $ 31,612 $ 858 $ 801 $ 756 $ – $ – $ – $ 35,294 $ 35,641 $ 32,368Premiums earned:Direct $ 40,954 $ 42,878 $ 39,082 $ 754 $ 835 $ 1,065 $ – $ – $ – $ 41,708 $ 43,713 $ 40,147Assumed 3,254 3,294 2,488 31 55 80 (30) (46) – 3,255 3,303 2,568Ceded (9,335) (10,483) (9,049) (70) (98) (170) 30 46 – (9,375) (10,535) (9,219)Net $ 34,873 $ 35,689 $ 32,521 $ 715 $ 792 $ 975 $ – $ – $ – $ 35,588 $ 36,481 $ 33,496* Includes results of Mortgage Guaranty.For the years ended December 31, 2012, 2011 and 2010, reinsurance recoveries, which reduced loss and lossexpenses incurred, amounted to $4.5 billion, $6.1 billion and $8.0 billion, respectively.Long-Duration Reinsurance..............................................................................................................................................................................................Long-duration reinsurance is effected principally under yearly renewable term treaties. The premiums with respect tothese treaties are earned over the contract period in proportion to the protection provided. Amounts recoverable fromreinsurers on long-duration contracts are estimated in a manner consistent with the assumptions used for theunderlying policy benefits and are presented as a component of Reinsurance assets.The following table presents premiums for our long-duration insurance and retirement services operations:Years Ended December 31,AIG Life and Retirement Divested Businesses * Total(in millions) 2012 2011 2010 2012 2011 2010 2012 2011 2010Gross premiums $ 3,030 $ 3,104 $ 3,141 $ 11 $ 17 $ 9,670 $ 3,041 $ 3,121 $ 12,811Ceded premiums (602) (591) (621) – (6) (435) (602) (597) (1,056)Net $ 2,428 $ 2,513 $ 2,520 $ 11 $ 11 $ 9,235 $ 2,439 $ 2,524 $ 11,755* Primarily represents results of AIA, which was deconsolidated during 2010.Long-duration reinsurance recoveries, which reduced death and other benefits, approximated $758 million,$611 million and $810 million, respectively, for the years ended December 31, 2012, 2011 and 2010.The following table presents long-duration insurance in force ceded to other insurance companies:At December 31,(in millions) 2012 2011 2010 *Long-duration insurance in force ceded $ 129,159 $ 140,156 $ 148,605* Excludes amounts related to held-for-sale entities.Long-duration insurance assumed in force represented 0.1 percent of gross long-duration insurance in force atDecember 31, 2012, 0.07 percent at December 31, 2011 and 0.1 percent at December 31, 2010, and premiumsassumed by AIG Life and Retirement represented 0.5 percent, 0.5 percent and 0.3 percent of gross premiums for theyears ended December 31, 2012, 2011 and 2010, respectively.AIG Life and Retirement operations utilize internal and third-party reinsurance relationships to manage insurancerisks and to facilitate capital management strategies. As a result of these reinsurance arrangements AIG Life andRetirement is able to minimize the use of letters of credit and utilize capital more efficiently. Pools of highly-ratedthird-party reinsurers are utilized to manage net amounts at risk in excess of retention limits. AIG Life andRetirement’s domestic long-duration insurance companies also cede excess, non-economic reserves carried on a..................................................................................................................................................................................................................................268 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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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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ITEM 7 / CRITICAL ACCOUNTING ESTIMA
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ITEM 7 / GLOSSARY..................
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ITEM 7 / GLOSSARY..................
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ITEM 7A / QUANTITATIVE AND QUALITAT
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ITEM 8 / INDEX TO FINANCIAL STATEME
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AMERICAN INTERNATIONAL GROUP, INC.C
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ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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ITEM 8 / NOTE 2. SUMMARY OF SIGNIFI
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ITEM 8 / NOTE 2. SUMMARY OF SIGNIFI
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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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