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ITEM 8 / NOTE 13. LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE AND FUTURE POLICYBENEFITS FOR LIFE AND ACCIDENT AND HEALTH INSURANCE CONTRACTS AND POLICYHOLDER CONTRACT DEPOSITS.....................................................................................................................................................................................• Mortality and surrender rates are based upon actual experience modified to allow for variations in policy form. Theweighted average lapse rate, including surrenders, for individual and group life was approximately 7.1 percent.• Participating life business represented approximately 2.0 percent of the gross insurance in force at December 31,2012 and 4.2 percent of gross Premiums and other considerations in 2012. The amount of annual dividends to bepaid is approved locally by the boards of directors of the life companies. Provisions for future dividend paymentsare computed by jurisdiction, reflecting local regulations. The portions of current and prior Net income and ofcurrent unrealized appreciation of investments that can inure to our benefit are restricted in some cases by theinsurance contracts and by the local insurance regulations of the jurisdictions in which the policies are in force.Policyholder Contract Deposits..............................................................................................................................................................................................The following table presents policyholder contract deposits liabilities:At December 31,(in millions) 2012 2011Policyholder contract deposits:Annuities $ 98,544 $ 98,657Universal life products 13,045 12,917Guaranteed investment contracts 6,178 6,788Variable products – fixed account option 3,936 3,181Corporate life products 2,284 2,239Other investment contracts 3,130 3,116Total policyholder contract deposits $ 127,117 $ 126,898The liability for policyholder contract deposits has been established based on the following assumptions:• Interest rates credited on deferred annuities, which vary by year of issuance, range from 1 percent to, includingbonuses, 9 percent. Current declared interest rates are generally guaranteed to remain in effect for a period of oneyear though some are guaranteed for longer periods. Withdrawal charges generally range from zero percent to20 percent grading to zero over a period of zero to 15 years.• Guaranteed investment contracts (GICs) have market value withdrawal provisions for any funds withdrawn otherthan benefit responsive payments. Interest rates credited generally range from 0.5 percent to 8.5 percent. Themajority of these GICs mature within four years.• Interest rates on corporate life insurance products are guaranteed at 3 percent and the weighted average ratecredited in 2012 was 4.6 percent.• The universal life products have credited interest rates of 1 percent to 8 percent and guarantees ranging from1 percent to 5.5 percent depending on the year of issue. Additionally, universal life funds are subject to surrendercharges that amount to 9.7 percent of the aggregate fund balance grading to zero over a period not longer than20 years.• For variable products and investment contracts, policy values are expressed in terms of investment units. Each unitis linked to an asset portfolio. The value of a unit increases or decreases based on the value of the linked assetportfolio. The current liability at any time is the sum of the current unit value of all investment units plus any liabilityfor guaranteed minimum death or withdrawal benefits.Certain products are subject to experience adjustments. These include group life and group medical products, creditlife contracts, accident and health insurance contracts/riders attached to life policies and, to a limited extent,reinsurance agreements with other direct insurers. Ultimate premiums from these contracts are estimated andrecognized as revenue, and the unearned portions of the premiums recorded as liabilities. Experience adjustmentsvary according to the type of contract and the territory in which the policy is in force and are subject to localregulatory guidance...................................................................................................................................................................................................................................AIG 2012 Form 10-K 285
ITEM 8 / NOTE 14. VARIABLE LIFE AND ANNUITY CONTRACTS.....................................................................................................................................................................................14. VARIABLE LIFE AND ANNUITY CONTRACTS..............................................................................................................................................................................................We report variable contracts within the separate accounts when investment income and investment gains and lossesaccrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities), and theseparate account meets other accounting criteria to qualify for separate account treatment. The assets supporting thevariable portions of both traditional variable annuities and variable contracts with guarantees are carried at fair valueand reported as separate account assets with an equivalent summary total reported as separate account liabilitieswhen the separate account qualifies for separate account treatment. Assets for separate accounts that do not qualifyfor separate account treatment are reported as trading account assets, and liabilities are included in the respectivepolicyholder liability account of the general account.We also report variable annuity and life contracts through separate accounts, or general accounts when not qualifiedfor separate account reporting, when we contractually guarantee to the contract holder (variable contracts withguarantees) either (a) total deposits made to the contract less any partial withdrawals plus a minimum return (and inminor instances, no minimum returns) or (b) the highest contract value attained, typically on any anniversary dateminus any subsequent withdrawals following the contract anniversary. These guarantees include benefits that arepayable in the event of death, annuitization, or, in other instances, at specified dates during the accumulation period.Such benefits are referred to as guaranteed minimum death benefits (GMDB), guaranteed minimum income benefits(GMIB), guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum account value benefits (GMAV).GMDB is our most widely offered benefit.Amounts assessed against the contract holders for mortality, administrative, and other services are included inrevenue and changes in liabilities for minimum guarantees are included in Policyholder benefits and claims incurredin the Consolidated Statement of Operations. Separate account net investment income, net investment gains andlosses, and the related liability changes are offset within the same line item in the Consolidated Statement ofOperations for those accounts that qualify for separate account treatment. Net investment income and gains andlosses on trading accounts for contracts that do not qualify for separate account treatment are reported in Netinvestment income and are principally offset by amounts reported in Policyholder benefits and claims incurred.The following table presents details concerning our GMDB exposures:2012 2011Net DepositsNet DepositsAt December 31, Plus a Highest Contract Plus a Highest Contract(dollars in billions) Minimum Return Value Attained Minimum Return Value AttainedAccount value (a) $ 64 $ 13 $ 57 $ 12Amount at risk (b) 2 13 2Average attained age of contract holders byproduct 59 - 73 years 66 - 75 years 58 - 72 years 67 - 74 yearsRange of guaranteed minimum return rates 3 - 10%3 - 10%(a) Included in Policyholder contract deposits in the Consolidated Balance Sheet.(b) Represents the amount of death benefit currently in excess of Account value.The following summarizes GMDB and GMIB liabilities for guarantees on variable contracts reflected in thegeneral account:Years Ended December 31,(in millions) 2012 2011Balance, beginning of year $ 445 $ 412Reserve increase 43 120Benefits paid (75) (87)Balance, end of year $ 413 $ 445The GMDB liability is determined each period end by estimating the expected value of death benefits in excess ofthe projected account balance and recognizing the excess ratably over the accumulation period based on totalexpected assessments. We regularly evaluate estimates used and adjust the additional liability balance, with a..................................................................................................................................................................................................................................286 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 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 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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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 / INVESTMENTS...............
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ITEM 7 / ENTERPRISE RISK MANAGEMENT
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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 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 5. BUSINESS COMBINATI
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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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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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