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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