AIG 2005 Annual Report Download - page 149

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
AIRCO acts primarily as an internal reinsurance company
5. Reinsurance
for AIG’s foreign life operations. This facilitates insurance risk
Continued
management (retention, volatility, concentrations) and capital
contract period in proportion to the protection provided. planning locally (branch and subsidiary). It also allows AIG to
Amounts recoverable from life reinsurers are estimated in a pool its insurance risks and purchase reinsurance more effi-
manner consistent with the assumptions used for the underly- ciently at a consolidated level, manage global counterparty risk
ing policy benefits and are presented as a component of and relationships and manage global life catastrophe risks.
reinsurance assets. AIG’s domestic Life Insurance & Retirement Services
operations utilize internal and third-party reinsurance relation-
Life Insurance & Retirement Services GAAP premiums were
ships to manage insurance risks and to facilitate capital
comprised of the following:
management strategies. Pools of highly-rated third-party rein-
Years Ended December 31, surers are utilized to manage net amounts at risk in excess of
(in millions) 2005 2004 2003 retention limits. AIG’s domestic life insurance companies also
Gross GAAP premiums $ 30,717 $29,202 $24,448 cede excess, non-economic reserves carried on a statutory-basis
Ceded premiums (1,317) (1,114) (952) only on certain term and universal life insurance policies and
certain fixed annuities to an offshore affiliate.
GAAP premiums $ 29,400 $28,088 $23,496
AIG generally obtains letters of credit in order to obtain
Life Insurance recoveries, which reduced death and other statutory recognition of these intercompany reinsurance trans-
benefits, approximated $770 million, $779 million and actions. For this purpose, AIG entered into a $2.5 billion
$651 million, respectively, for the years ended December 31, syndicated letter of credit facility in December 2004. Letters of
2005, 2004 and 2003. credit totaling $2.17 billion were outstanding as of Decem-
ber 31, 2004, and letters of credit for all $2.5 billion were
Life Insurance in force ceded to other insurance companies outstanding as of December 31, 2005, all of which relate to life
was as follows: intercompany reinsurance transactions. The letter of credit
facility has a ten-year term, but the facility can be reduced or
Years Ended December 31, terminated by the lenders beginning after seven years.
(in millions) 2005 2004 2003
In November 2005, AIG entered into a revolving credit
Life Insurance in force $ 365,082 $344,036 $293,064 facility for an aggregate amount of $3 billion. The facility can
be drawn in the form of letters of credit with terms of up to
Life Insurance assumed represented 0.8 percent, 0.7 percent ten years. As of December 31, 2005 and as of the date hereof,
and 0.1 percent of gross Life Insurance in force at Decem- $1.86 billion principal amount of letters of credit are outstand-
ber 31, 2005, 2004 and 2003, respectively, and Life Insur- ing under this facility, of which approximately $494 million
ance & Retirement Services GAAP premiums assumed relates to life intercompany reinsurance transactions. AIG also
represented 0.3 percent, 2.5 percent and 0.1 percent of gross obtained approximately $212 million letters of credit on a
GAAP premiums for the periods ended December 31, 2005, bilateral basis.
2004 and 2003, respectively.
Reinsurance Security: AIG’s reinsurance arrangements do not
Supplemental information for gross loss and benefit reserves relieve AIG from its direct obligation to its insureds. Thus, a
net of ceded reinsurance at December 31, 2005 and 2004 credit exposure exists with respect to both general and life
follows: reinsurance ceded to the extent that any reinsurer is unable to
meet the obligations assumed under the reinsurance agree-
As Net of
(in millions) Reported Reinsurance ments. AIG holds substantial collateral as security under
related reinsurance agreements in the form of funds, securities,
2005
and/or letters of credit. A provision has been recorded for
Reserve for losses and loss expenses $ (77,169) $ (57,476)
estimated unrecoverable reinsurance. AIG has been largely
Future policy benefits for life and
successful in prior recovery efforts.
accident and health insurance
AIG evaluates the financial condition of its reinsurers and
contracts (108,807) (107,420)
Reserve for unearned premiums (24,243) (21,174) establishes limits per reinsurer through AIG’s Credit Risk
Reinsurance assets 24,978 – Committee. AIG believes that no exposure to a single
reinsurer represents an inappropriate concentration of risk to
2004
AIG, nor is AIG’s business substantially dependent upon any
Reserve for losses and loss expenses $ (61,878) $ (47,254)
reinsurance contract.
Future policy benefits for life and
accident and health insurance
contracts (104,740) (103,348)
Reserve for unearned premiums (23,400) (20,278)
Reinsurance assets 19,613 –
AIG m Form 10-K 97