AIG 2006 Annual Report Download - page 141

American International Group, Inc. and Subsidiaries
The following table provides information for each reinsurer representing in excess of five percent of AIG’s general reinsurance assets
at December 31, 2006.
Percent of
A.M. Gross General Uncollateralized
S&P Best Reinsurance Reinsurance Collateral Reinsurance
(in millions) Rating Rating Assets Assets, Net Held(a) Assets
Reinsurer:
Swiss Reinsurance Group AA- A+ $2,032 9.3% $339 $1,693
Berkshire Hathaway Insurance Group AAA A++ $1,575 7.2% $144 $1,431
Munich Reinsurance Group AA- A+ $1,268 5.8% $341 $ 927
Lloyd’s Syndicates — Lloyd’s of London(b) A A $1,250 5.7% $101 $1,149
(a) Excludes collateral held in excess of applicable treaty balances.
(b) Excludes Equitas gross reinsurance assets that are unrated, which are less than five percent of AIG’s general reinsurance assets.
At December 31, 2006, consolidated general reinsurance assets of distribution; (ii) underwriting approval processes and authorities;
$21.8 billion include reinsurance recoverables for paid losses and (iii) exposure limits with ongoing monitoring; (iv) modeling and
loss expenses of $1.0 billion and $17.3 billion with respect to the reporting of aggregations and limit concentrations at multiple
ceded reserve for losses and loss expenses, including ceded levels (policy, line of business, product group, country, individ-
losses IBNR (ceded reserves) and $3.5 billion of ceded reserve for ual/group, correlation and catastrophic risk events);
unearned premiums. The ceded reserve for losses and loss (v) compliance with financial reporting and capital and solvency
expenses represent the accumulation of estimates of ultimate targets; (vi) extensive use of reinsurance, both internal and third-
ceded losses including provisions for ceded IBNR and loss party; and (vii) review and establishment of reserves.
expenses. The methods used to determine such estimates and to AIG has two major categories of insurance risks as follows:
establish the resulting ceded reserves involve significant judgment (General Insurance — risks covered include property, casualty,
in projecting the frequency and severity of losses over multiple fidelity/surety, management liability and mortgage insurance.
years and are continually reviewed and updated by management. Risks in the general insurance segment are managed through
Any adjustments thereto are reflected in income currently. It is aggregations and limitations of concentrations at multiple levels:
AIG’s belief that the ceded reserves for losses and loss expenses policy, line of business, correlation and catastrophic risk events.
at December 31, 2006 were representative of the ultimate losses (Life Insurance & Retirement Services — risks include mortality
recoverable. In the future, as the ceded reserves continue to and morbidity in the insurance-oriented products and insuffi-
develop to ultimate amounts, the ultimate loss recoverable may be cient cash flows to cover contract liabilities in the retirement
greater or less than the reserves currently ceded. savings-oriented products. In the Life Insurance & Retirement
AIG maintains an allowance for estimated unrecoverable Services segment, risk is aggregated and limited by individ-
reinsurance of $536 million. The allowance was reduced substan- ual/group, product group, country and catastrophic risk events.
tially during 2006, as uncollectible amounts due from individual AIG closely manages insurance risk by overseeing and control-
reinsurers were charged off against the allowance, primarily as a ling the nature and geographic location of the risks in each line of
result of the balance sheet reconciliation remediation process; in business underwritten, the terms and conditions of the underwrit-
addition, a portion of the allowance was reclassified to align it ing and the premiums charged for taking on the risk. Concentra-
with the related receivable. The reduction for charge offs was tions of risk primarily arise from external events, such as wind,
partially offset by additional provisions totaling $147 million flood, earthquake, terrorism and pandemics, which are analyzed
during 2006. At December 31, 2006, AIG had no significant using various modeling techniques.
reinsurance recoverables due from any individual reinsurer that AIG is a major purchaser of reinsurance for its insurance
was financially troubled (i.e., liquidated, insolvent, in receivership operations. The use of reinsurance facilitates insurance risk
or otherwise subject to formal or informal regulatory restriction). management (retention, volatility, concentrations) and capital
planning locally (branch and subsidiary). Pooling of AIG’s reinsur-
ance risks enables AIG to purchase reinsurance more efficiently at
Segment Risk Management
a consolidated level, manage global counterparty risk and relation-
Other than as described above, AIG manages its business risk ships and manage global catastrophe risks, both for the General
oversight activities through its business segments. Insurance and Life Insurance & Retirement Services businesses.
Insurance Operations General Insurance
AIG’s multiple insurance businesses conducted on a global basis In General Insurance, underwriting risks are managed through the
expose AIG to a wide variety of risks with different time horizons. application approval process, exposure limitations as well as
These risks are managed throughout the organization, both through exclusions, coverage limits and reinsurance. The risks
centrally and locally, through a number of procedures, including: covered by AIG are managed through limits on delegated under-
(i) pre-launch approval of product design, development and
Form 10-K 2006 AIG 91