AIG 2013 Annual Report Download - page 125

number of years it would take before the current ending loss reserves for these claims would be paid off using recent
year average payments.
Many factors, such as aggressive settlement procedures, mix of business and level of coverage provided, have a
significant effect on the amount of asbestos and environmental reserves and payments and the resulting survival
ratio. Additionally, we primarily base our determination of these reserves based on ground-up and top-down
analyses, and not on survival ratios.
The following table presents survival ratios for asbestos and environmental claims, separately and
combined, which were based upon a three-year average payment:
Survival ratios:
Asbestos 9.6 8.7 9.1 10.3
Environmental 4.5 4.4 3.0 3.1
Combined 9.0 8.1 8.4 9.3
* Survival ratios are calculated consistent with the basis on historical reserve excluding the effects of the NICO reinsurance transaction.
AIG Life and Retirement presents its operating results in two operating segments — Retail and Institutional.
Premiums and deposits improved significantly in 2013 compared to 2012, primarily from strong sales of annuities in
our Retirement Income Solutions and Fixed Annuities product lines and increased Retail Mutual Fund sales. The
improvement in Retirement Income Solutions resulted from our efforts to increase sales while managing risk by
meeting the strong market demand for guaranteed features with innovative variable annuity products and expanded
distribution. As a result of the 2013 increase in premiums and deposits, net flows on investment products improved in
2013 compared to 2012. Net flows from our Fixed Annuities product line, while still negative in 2013, improved
compared to 2012 as a result of the modest rise in interest rates in the second half of 2013, which has increased the
demand for fixed annuities.
Pre-tax operating income increased in 2013 compared to 2012 due to higher fee income from growth in variable
annuity assets under management and active spread management in our interest rate sensitive product lines. The
increase in net investment income in 2013 compared to 2012 reflected higher alternative investment income, partially
offset by fair value gains on ML II in 2012 that did not recur in 2013 and reinvestment of investment proceeds at
lower rates. Pre-tax operating income in 2013 also included a $153 million net increase from adjustments to update
certain estimated gross profit assumptions used to amortize DAC and related items in our investment-oriented
product lines. These adjustments increased 2013 pre-tax operating income in our Retail operating segment by
$198 million and decreased 2013 pre-tax operating income in our Institutional operating segment by $45 million. See
Critical Accounting Estimates — Estimated Gross Profits for Investment-Oriented Products (AIG Life and Retirement)
for additional discussion of updated estimated gross profit assumptions. Pre-tax operating income in 2012 also
included $234 million of expenses related to the resolution of multi-state regulatory examinations of death claims
practices and additional reserves for long-term care products and the GIC portfolio.
Pre-tax income increased in 2013 compared to 2012, reflecting the increases in pre-tax operating income as well as
increases in legal settlements with financial institutions that participated in the creation, offering and sale of RMBS
from which AIG and its subsidiaries realized losses during the financial crisis. Additionally, pre-tax income increased
due to net realized capital gains from continued investment sales to utilize capital loss carryforwards, which
increased in 2013 compared to 2012. However, reinvestment of these sales proceeds at lower current yields has
contributed to lower future investment returns, reducing spreads in interest-sensitive product lines, and resulting in
loss recognition for certain traditional products in 2013 and 2012, which was reported in Changes in benefit reserves
and DAC, VOBA and SIA related to net realized capital gains (losses). See AIG Life and Retirement Reserves and
DAC — Other Reserve Changes for additional discussion of loss recognition.
Dividends and loan repayments paid by AIG Life and Retirement subsidiaries to AIG Parent increased to
$4.4 billion in 2013 from $2.9 billion in 2012 from strong pre-tax income, as we continue to pursue capital efficiency
and leverage our streamlined legal structure. The increase in dividends in 2013 compared to 2012 is primarily due to
legal settlement proceeds in 2013.
AIG LIFE AND RETIREMENT
AIG Life and Retirement 2013 Highlights
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AIG 2013 Form 10-K 107
ITEM 7 / RESULTS OF OPERATIONS / LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE
2013 2012 2011
Years Ended December 31,
Gross Net* Gross Net*Gross Net*
10.6 10.5
4.6 3.9
9.8 9.4
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