AIG 2014 Annual Report Download - page 280

ITEM 8 / NOTE 8. REINSURANCE
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under our reinsurance contracts by reference to the terms of the reinsurance protection purchased. This determination is
necessarily based on the estimate of IBNR and accordingly, is subject to the same uncertainties as the estimate of IBNR.
Reinsurance assets include the balances due from reinsurance and insurance companies under the terms of our reinsurance
agreements for paid and unpaid losses and loss adjustment expenses incurred, ceded unearned premiums and ceded future
policy benefits for life and accident and health insurance contracts and benefits paid and unpaid. Amounts related to paid and
unpaid losses and benefits and loss expenses with respect to these reinsurance agreements are substantially collateralized.
We remain liable to the extent that our reinsurers do not meet their obligation under the reinsurance contracts, and as such,
we regularly evaluate the financial condition of our reinsurers and monitor concentration of our credit risk. The estimation of the
allowance for doubtful accounts requires judgment for which key inputs typically include historical trends regarding
uncollectible balances, disputes and credit events as well as specific reviews of balances in dispute or subject to credit
impairment. The allowance for doubtful accounts on reinsurance assets was $258 million and $276 million at December 31,
2014 and 2013, respectively. Changes in the allowance for doubtful accounts on reinsurance assets are reflected in
Policyholder benefits and losses incurred within the Consolidated Statements of Income.
The following table provides supplemental information for loss and benefit reserves, gross and net of ceded
reinsurance:
At December 31, 2014 2013
As Net of As Net of
(in millions) Reported Reinsurance Reported Reinsurance
Liability for unpaid losses and loss adjustment expenses(a) $(77,260) $(61,612) $ (81,547) $ (64,316)
Future policy benefits for life and accident and health insurance contracts (42,749) (41,767) (40,653) (39,619)
Reserve for unearned premiums (21,324) (18,278) (21,953) (18,532)
Reinsurance assets(b) 19,676 21,686
(a) In 2014 and 2013, the Net of Reinsurance amount reflects the cession under the June 17, 2011 transaction with National Indemnity Company (NICO) of $1.5
billion and $1.6 billion, respectively.
(b) Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.
Short-Duration Reinsurance
Short-duration reinsurance is affected under reinsurance treaties and by negotiation on individual risks. Certain of these
reinsurance arrangements consist of excess of loss contracts that protect us against losses above stipulated amounts. Ceded
premiums are considered prepaid reinsurance premiums and are recognized as a reduction of premiums earned over the
contract period in proportion to the protection received. Amounts recoverable from reinsurers on short-duration contracts are
estimated in a manner consistent with the claims liabilities associated with the reinsurance and presented as a component of
Reinsurance assets. Assumed reinsurance premiums are earned primarily on a pro-rata basis over the terms of the
reinsurance contracts and the portion of premiums relating to the unexpired terms of coverage is included in the reserve for
unearned premiums. For both ceded and assumed reinsurance, risk transfer requirements must be met for reinsurance
accounting to apply. If risk transfer requirements are not met, the contract is accounted for as a deposit, resulting in the
recognition of cash flows under the contract through a deposit asset or liability and not as revenue or expense. To meet risk
transfer requirements, a reinsurance contract must include both insurance risk, consisting of both underwriting and timing risk,
and a reasonable possibility of a significant loss for the assuming entity. Similar risk transfer criteria are used to determine
whether directly written insurance contracts should be accounted for as insurance or as a deposit.
The following table presents short-duration insurance premiums written and earned:
Years Ended December 31,
Non-Life Insurance Companies
(in millions) 2014 2013 2012
Premiums written:
Direct $ 39,375 $ 39,833 $ 40,647
Assumed 3,399 4,306 4,900
Ceded (8,318) (9,514) (11,054)
Net $ 34,456 $ 34,625 $ 34,493
Premiums earned:
Direct $ 38,707 $ 39,018 $ 41,028