AIG 2005 Annual Report Download - page 150

Notes to Consolidated Financial Statements Continued
(c) Long duration contract liabilities included in future policy
6. Reserve for Losses and Loss Expenses and
benefits, as presented in the preceding table, result from life
Future Life Policy Benefits and Policyholders’
products. Short duration contract liabilities are primarily
Contract Deposits accident and health products. The liability for future life policy
(a) The following analysis provides a reconciliation of the benefits has been established based upon the following
activity in the reserve for losses and loss expenses: assumptions:
Years Ended December 31, (i) Interest rates (exclusive of immediate/terminal funding
(in millions) 2005 2004 2003 annuities), which vary by territory, year of issuance and
At beginning of year: products, range from 1.0 percent to 12.0 percent within the
Reserve for losses and first 20 years. Interest rates on immediate/terminal funding
loss expenses $ 61,878 $ 51,871 $ 46,674 annuities are at a maximum of 11.5 percent and grade to not
Reinsurance recoverable (14,624) (15,643) (17,327) greater than 6.0 percent.
47,254 36,228 29,347 (ii) Mortality and surrender rates are based upon actual
Foreign exchange effect (628) 524 580 experience by geographical area modified to allow for variations
Acquisitions –– 391(a) in policy form. The weighted average lapse rate, including
surrenders, for individual and group life approximated
Losses and loss expenses
incurred: 7.9 percent.
Current year 28,426 26,793 20,509 (iii) The portions of current and prior net income and of
Prior years(b) 4,665(c) 3,564(d) 2,363 current unrealized appreciation of investments that can inure
Total 33,091 30,357 22,872 to the benefit of AIG are restricted in some cases by the
Losses and loss expenses paid: insurance contracts and by the local insurance regulations of
Current year 7,331 7,692 6,187 the countries in which the policies are in force.
Prior years 14,910 12,163 10,775 (iv) Participating life business represented approximately
Total 22,241 19,855 16,962 22 percent of the gross insurance in force at December 31,
At end of year: 2005 and 36 percent of gross GAAP premiums in 2005. The
Net reserve for losses and amount of annual dividends to be paid is determined locally by
loss expenses 57,476 47,254 36,228 the boards of directors. Provisions for future dividend payments
Reinsurance recoverable 19,693 14,624 15,643 are computed by jurisdiction, reflecting local regulations.
Total $ 77,169 $ 61,878 $ 51,871 (d) The liability for policyholders’ contract deposits has been
(a) Reflects the opening balances with respect to the GE U.S.-based auto established based on the following assumptions:
and home insurance business acquired in 2003.
(b) Includes accretion of discount of $(15) million in 2005, including an (i) Interest rates credited on deferred annuities, which vary by
increase of $375 million in the discount recorded in 2005; $377 million
in 2004 and $296 million in 2003. territory and year of issuance, range from 1.0 percent to,
(c) Includes fourth quarter charge of $1.8 billion. including bonuses, 13.4 percent. Less than 1.0 percent of the
(d) Includes fourth quarter charge of $850 million attributable to the change liabilities are credited at a rate greater than 9.0 percent.
in estimate for asbestos and environmental exposures. Current declared interest rates are generally guaranteed to
(b) The analysis of the future policy benefits and policyhold- remain in effect for a period of one year though some are
ers’ contract deposits liabilities at December 31, 2005 and guaranteed for longer periods. Withdrawal charges generally
2004 follows: range from zero percent to 14.0 percent grading to zero over a
period of zero to 19 years.
(in millions) 2005 2004
(ii) Domestically, GICs have market value withdrawal provi-
Future policy benefits: sions for any funds withdrawn other than benefit responsive
Long duration contracts $105,490 $101,584 payments. Interest rates credited generally range from 1.4 per-
Short duration contracts 3,317 3,156 cent to 9.0 percent. The vast majority of these GICs mature
Total $108,807 $104,740 within ten years. Overseas, interest rates credited on GICs
Policyholders’ contract deposits: generally range from 1.2 percent to 5.6 percent and maturities
Annuities $142,057 $130,524 range from one to five years.
Guaranteed investment contracts
(iii) Interest rates on corporate life insurance products are
(GICs) 39,705 46,472
guaranteed at 4.0 percent and the weighted average rate
Corporate life products 2,077 2,042
credited in 2005 was 5.4 percent.
Universal life 18,682 16,771
Variable products 7,799 5,960 (iv) The universal life funds have credited interest rates of
Variable investment contracts 8,373 7,579 1.5 percent to 7.0 percent and guarantees ranging from
Other investment contracts 8,334 7,126 1.5 percent to 5.5 percent depending on the year of issue.
Total $227,027 $216,474 Additionally, universal life funds are subject to surrender
98 AIG m Form 10-K