AIG 2005 Annual Report Download - page 182

Notes to Consolidated Financial Statements Continued
The vast majority of AIG’s exposure on guarantees made to
21. Variable Life and Annuity Contracts
variable contract holders arises from GMDB. Details concern-
Continued
ing AIG’s GMDB exposures as of December 31, 2005 and
cumulative accounting charge upon adoption of $144 million 2004 are as follows:
to reflect the liability as of January 1, 2004.
As of January 1, 2004, approximately $11 billion of assets Net Deposits
and liabilities representing most of the non-U.S. portion of Plus a Minimum Highest Contract
(dollars in billions) Return Value Attained
AIG’s separate and variable account assets and liabilities were
reclassified in accordance with SOP 03-1 to several invested 2005
asset captions and to the Policyholders’ contract deposits Account Value(a) $59 $13
liability caption, respectively. Approximately $11 billion of Amount at Risk(b) 71
separate and variable account assets were reclassified as follows: Average Attained Age of
$4 billion to Short-term investments; $4 billion to Equity Contract Holders by Product 51-70 years 57-70 years
securities – common stocks trading; $2 billion to Fixed maturi- Range of Guaranteed
ties – bond trading securities; and $1 billion to various other Minimum Return Rates 0-10%
asset captions. 2004
Except as noted above, AIG reports variable contracts Account Value(a) $57 $12
through separate and variable accounts when investment Amount at Risk(b) 82
income and investment gains and losses accrue directly to, and Average Attained Age of
investment risk is borne by, the contract holder (traditional Contract Holders by Product 49-70 years 52-68 years
variable annuities). AIG also reports variable annuity and life Range of Guaranteed
contracts through separate and variable accounts where AIG Minimum Return Rates 0-10%
contractually guarantees to the contract holder (variable (a) Included in Policyholders’ Contract Deposits in the Consolidated
contracts with guarantees) either (a) total deposits made to the Balance Sheet.
contract less any partial withdrawals plus a minimum return (b) Represents the amount of death benefit currently in excess of Account
(and in minor instances, no minimum returns) (Net Deposits Value.
Plus a Minimum Return) or (b) the highest contract value
The following summarizes GMDB liabilities for guarantees on
attained, typically on any anniversary date minus any subse-
variable contracts reflected in the general account.
quent withdrawals following the contract anniversary (Highest
Contract Value Attained). These guarantees include benefits
(in millions) 2005 2004
that are payable in the event of death, annuitization, or, in
other instances, at specified dates during the accumulation Balance at January 1 $485 $479*
Reserve increase 33 86
period. Such benefits are referred to as guaranteed minimum
Benefits paid (76) (80)
death benefits (GMDB), guaranteed minimum income benefits
(GMIB), and guaranteed minimum withdrawal benefit Balance at December 31 $442 $485
(GMWB), or guaranteed minimum account value benefits * Includes amounts from the one-time cumulative accounting charge
(GMAV), respectively. For AIG, GMDB is by far the most resulting from the adoption of SOP 03-1.
widely offered benefit. The GMDB liability is determined each period end by
The assets supporting the variable portion of both tradi- estimating the expected value of death benefits in excess of the
tional variable annuities and variable contracts with guarantees projected account balance and recognizing the excess ratably
are carried at fair value and reported as summary total separate over the accumulation period based on total expected assess-
and variable account assets with an equivalent summary total ments. AIG regularly evaluates estimates used and adjusts the
reported for liabilities. Amounts assessed against the contract additional liability balance, with a related charge or credit to
holders for mortality, administrative, and other services are benefit expense, if actual experience or other evidence suggests
included in revenue and changes in liabilities for minimum that earlier assumptions should be revised.
guarantees are included in policyholder benefits in the Consoli- The following assumptions and methodology were used to
dated Statement of Income. Separate and variable account net determine the domestic and foreign GMDB liability as of
investment income, net investment gains and losses, and the December 31, 2005:
related liability changes are offset within the same line item in mData used was up to 5,000 stochastically generated invest-
the Consolidated Statement of Income. ment performance scenarios.
mMean investment performance assumptions ranged from
approximately three percent to ten percent depending on
the block of business.
mVolatility assumptions ranged from 10 percent to 30 percent
depending on the block of business.
mMortality was assumed at between 60 percent and 103 per-
cent of various life and annuity mortality tables.
130 AIG m Form 10-K