AIG 2005 Annual Report Download - page 62

Reconciliation of Net Reserves for Losses and Loss Expenses
(in millions) 2005 2004 2003
Net reserve for losses and loss
expenses at beginning of year $47,254 $36,228 $29,347
Foreign exchange effect (628) 524 580
Acquisition –– 391
(a)
Losses and loss expenses incurred:
Current year 28,426 26,793 20,509
Prior years(b) 4,665 3,564 2,363
33,091 30,357 22,872
Losses and loss expenses paid:
Current year 7,331 7,692 6,187
Prior years 14,910 12,163 10,775
22,241 19,855 16,962
Net reserve for losses and loss
expenses at end of year(c) $57,476 $47,254 $36,228
(a) Reflects the opening balances with respect to the GE U.S.-based auto and home insurance business acquired in 2003.
(b) Includes accretion of discount of $(15) million in 2005, including an increase of $375 million in the discount recorded in 2005; $377 million in 2004
and $296 million in 2003. Additionally, includes $269 million in 2005, $317 million in 2004 and $323 million in 2003 for the general reinsurance
operations of Transatlantic, and $197 million of additional losses incurred in 2005 resulting from increased labor and material costs related to the 2004
Florida hurricanes.
(c) See also Note 6(a) of Notes to Consolidated Financial Statements.
The reserve for losses and loss expenses as reported in outside of the United States. ALICO has operations either
AIG’s Consolidated Balance Sheet at December 31, 2005 directly or through subsidiaries in Europe, Latin America, the
differs from the total reserve reported in the Annual State- Caribbean, the Middle East, South Asia and the Far East, with
ments filed with state insurance departments and, where Japan being the largest territory. AIG added significantly to its
appropriate, with foreign regulatory authorities. The differences presence in Japan with the acquisition of GE Edison Life
at December 31, 2005 relate primarily to reserves for certain Insurance Company (now AIG Edison Life), which was
foreign operations not required to be reported in the United consolidated beginning with the fourth quarter of 2003. AIA
States for statutory reporting purposes. operates primarily in China (including Hong Kong), Singapore,
The reserve for gross losses and loss expenses is prior to Malaysia, Thailand, Korea, Australia, New Zealand, Vietnam,
reinsurance and represents the accumulation for reported losses and India. The operations in India are conducted through a
and IBNR. Management reviews the adequacy of established joint venture, Tata AIG Life Insurance Company Limited. Nan
gross loss reserves in the manner previously described for net Shan operates in Taiwan. Philamlife is the largest life insurer
loss reserves. in the Philippines. AIG Star Life operates in Japan. See also
For further discussion regarding net reserves for losses and Note 2 of Notes to Consolidated Financial Statements.
loss expenses, see Management’s Discussion and Analysis of AIRCO acts primarily as an internal reinsurance company
Financial Condition and Results of Operations. for AIG’s foreign life operations. This facilitates insurance risk
management (retention, volatility, concentrations) and capital
planning locally (branch and subsidiary). It also allows AIG to
Life Insurance & Retirement Services Operations
pool its insurance risks and purchase reinsurance more effi-
AIG’s Life Insurance & Retirement Services subsidiaries offer a ciently at a consolidated level, manage global counterparty risk
wide range of insurance and retirement savings products both and relationships and manage global life catastrophe risks.
domestically and abroad. Insurance-oriented products consist of AIG’s principal domestic Life Insurance & Retirement
individual and group life, payout annuities, endowment and Services operations include AGLA, AIG American General,
accident and health policies. Retirement savings products AIG Annuity, USLIFE, VALIC and SunAmerica Life. These
consist generally of fixed and variable annuities. See also companies utilize multiple distribution channels including
Management’s Discussion and Analysis of Financial Condition independent producers, brokerage, career agents and banks to
and Results of Operations. offer life insurance, annuity and accident and health products
Life Insurance & Retirement Services operations in foreign and services, as well as financial and other investment
countries comprised 78 percent of Life Insurance & Retirement products. The domestic Life Insurance & Retirement Services
Services GAAP premiums and 59 percent of Life Insurance & operations comprised 22 percent of total Life Insurance &
Retirement Services operating income in 2005. AIG operates Retirement Services GAAP premiums and 41 percent of Life
overseas principally through ALICO, AIA, Nan Shan, Philam- Insurance & Retirement Services operating income in 2005.
life, AIG Star Life, and AIG Edison Life. ALICO is There was no significant adverse effect on AIG’s Life
incorporated in Delaware and all of its business is written Insurance & Retirement Services results of operations from
10 AIG m Form 10-K