AIG 2011 Annual Report Download - page 315

American International Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summarizes GMDB and GMIB liabilities for guarantees on variable contracts reflected in the
general account:
Years Ended December 31,
(in millions) 2011 2010
Balance, beginning of year $ 412 $ 469
Reserve increase 120 31
Benefits paid (87) (88)
Balance, end of year $ 445 $ 412
The GMDB liability is determined each period end by estimating the expected value of death benefits in excess
of the projected account balance and recognizing the excess ratably over the accumulation period based on total
expected assessments. AIG regularly evaluates estimates used and adjusts the additional liability balance, with a
related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions
should be revised.
The following assumptions and methodology were used to determine the GMDB liability at December 31, 2011:
• Data used was up to 1,000 stochastically generated investment performance scenarios.
• Mean investment performance assumptions ranged from three percent to approximately ten percent
depending on the block of business.
• Volatility assumption was 16 percent.
• Mortality was assumed at between 50 percent and 88 percent based on various life and annuity mortality
tables adjusted for recent experience.
• Lapse rates vary by contract type and duration and ranged from zero percent to 40 percent.
• The discount rate ranged from 3.75 percent to 10 percent and is based on the growth rate assumption for
the underlying contracts in effect at the time of policy issuance.
In addition to GMDB, AIG’s contracts currently include to a lesser extent GMIB. The GMIB liability is
determined each period end by estimating the expected value of the annuitization benefits in excess of the
projected account balance at the date of annuitization and recognizing the excess ratably over the accumulation
period based on total expected assessments. AIG periodically evaluates estimates used and adjusts the additional
liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests
that earlier assumptions should be revised.
AIG contracts currently include GMAV and GMWB benefits. GMAV and GMWB features are considered to
be embedded derivatives are recognized at fair value through earnings. AIG enters into derivative contracts to
economically hedge a portion of the exposure that arises from GMAV and GMWB. At December 31, 2011, AIG
had $14.7 billion of account values and $1.9 billion of net amount at risk that were attributable to variable
annuities with GMAV and GMWB benefits. See Note 6 herein for additional fair value disclosures.
AIG 2011 Form 10-K 301