AIG 2013 Annual Report Download - page 303

We regularly evaluate estimates used to determine the GMDB liability and adjust the additional liability balance, with
a related charge or credit to Policyholder benefits and claims incurred, 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, 2013:
• 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 to be between 50 percent and 88 percent of the 1994 variable annuity minimum
guaranteed death benefit table for recent experience.
• Lapse rates vary by contract type and duration and ranged from zero percent to 37 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.
Certain of our variable annuity contracts offer optional GMWB and GMAV benefits. The contract holder can monetize
the excess of the guaranteed amount over the account value of the contract only through a series of withdrawals that
do not exceed a specific percentage per year of the guaranteed amount. If, after the series of withdrawals, the
account value is exhausted, the contract holder will receive a series of annuity payments equal to the remaining
guaranteed amount, and, for lifetime GMWB products, the annuity payments can continue beyond the guaranteed
amount. The account value can also fluctuate with equity market returns on a daily basis resulting in increases or
decreases in the excess of the guaranteed amount over account value.
The liabilities for GMWB and GMAV, which are recorded in Policyholder contract deposits, are accounted for as
embedded derivatives measured at fair value, with changes in the fair value of the liabilities recorded in Other
realized capital gains (losses). The fair value of these embedded derivatives was a net asset of $37 million at
December 31, 2013 and a net liability of $997 million at December 31, 2012. See Note 5 herein for discussion of the
fair value measurement of guaranteed benefits that are accounted for as embedded derivatives. We had account
values subject to GMWB and GMAV that totaled $28.6 billion and $19.8 billion at December 31, 2013 and 2012,
respectively. The net amount at risk for GMWB represents the present value of minimum guaranteed withdrawal
payments, in accordance with contract terms, in excess of account value. The net amount at risk for GMAV
represents the present value of minimum guaranteed account value in excess of the current account balance,
assuming no lapses. The net amount at risk related to these guarantees was $63 million and $753 million at
December 31, 2013 and 2012, respectively. We use derivative instruments to mitigate a portion of our exposure that
arises from GMWB and GMAV benefits.
GMWB and GMAV
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AIG 2013 Form 10-K 285
ITEM 8 / NOTE 13. VARIABLE LIFE AND ANNUITY CONTRACTS
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