AIG 2006 Annual Report Download - page 177

American International Group, Inc. and Subsidiaries
Life Insurance & Retirement Services premiums were
5. Reinsurance
comprised of the following:
In the ordinary course of business, AIG’s General Insurance and
Years Ended December 31,
Life Insurance companies place reinsurance with other insurance (in millions) 2006 2005 2004
companies in order to provide greater diversification of AIG’s
Gross premiums $32,117 $30,717 $29,202
business and limit the potential for losses arising from large
Ceded premiums (1,481) (1,317) (1,114)
risks. In addition, AIG’s General Insurance subsidiaries assume
reinsurance from other insurance companies. Premiums $30,636 $29,400 $28,088
General Reinsurance: General reinsurance is effected under rein- Life Insurance recoveries, which reduced death and other
surance treaties and by negotiation on individual risks. Certain of benefits, approximated $806 million, $770 million and $779 mil-
these reinsurance arrangements consist of excess of loss lion, respectively, for the years ended December 31, 2006, 2005
contracts which protect AIG against losses over stipulated and 2004.
amounts. Ceded premiums are considered prepaid reinsurance
Life Insurance in force ceded to other insurance
premiums and are recognized as a reduction of premiums earned
companies was as follows:
over the contract period in proportion to the protection received.
Amounts recoverable from general reinsurers are estimated in a Years Ended December 31,
manner consistent with the claims liabilities associated with the (in millions) 2006 2005 2004
reinsurance and presented as a component of reinsurance Life Insurance in force
assets. Assumed reinsurance premiums are earned primarily on a ceded $408,970 $365,082 $344,036
pro-rata basis over the terms of the reinsurance contracts.
Life Insurance assumed represented 0.1 percent, 0.8 percent
General Insurance premiums written and earned were
and 0.7 percent of gross Life Insurance in force at December 31,
comprised of the following:
2006, 2005 and 2004, respectively, and Life Insurance &
Years Ended December 31, Retirement Services premiums assumed represented 0.1 percent,
(in millions) 2006 2005 2004 0.3 percent and 2.5 percent of gross GAAP premiums for the
Premiums written: years ended December 31, 2006, 2005 and 2004, respectively.
Direct $ 49,609 $ 46,689 $ 44,692
Supplemental information for gross loss and benefit
Assumed 6,671 6,036 7,354
reserves net of ceded reinsurance at December 31, 2006
Ceded (11,414) (10,853) (11,423)
and 2005 follows:
Total $ 44,866 $ 41,872 $ 40,623
As Net of
Premiums earned: (in millions) Reported Reinsurance
Direct $ 47,973 $ 45,794 $ 43,109
2006
Assumed 6,449 5,921 7,094
Reserve for losses and loss expenses $ (79,999) $ (62,630)
Ceded (10,971) (10,906) (11,666)
Future policy benefits for life and
Total $ 43,451 $ 40,809 $ 38,537 accident and health insurance
contracts (122,230) (120,656)
For the years ended December 31, 2006, 2005 and 2004, Reserve for unearned premiums (26,271) (22,759)
reinsurance recoveries, which reduced loss and loss expenses Reinsurance assets 23,355 —
incurred, amounted to $8.3 billion, $20.7 billion and $12.1 bil-
2005
lion, respectively.
Reserve for losses and loss expenses $ (77,169) $ (57,476)
Life Insurance: Life reinsurance is effected principally under yearly Future policy benefits for life and
renewable term treaties. The premiums with respect to these accident and health insurance
treaties are considered prepaid reinsurance premiums and are contracts (108,807) (107,420)
recognized as a reduction of premiums earned over the contract Reserve for unearned premiums (24,243) (21,174)
period in proportion to the protection provided. Amounts recover- Reinsurance assets 24,978 —
able from life reinsurers are estimated in a manner consistent
with the assumptions used for the underlying policy benefits and AIRCO acts primarily as an internal reinsurance company for
are presented as a component of reinsurance assets. AIG’s insurance operations. This facilitates insurance risk manage-
ment (retention, volatility, concentrations) and capital planning
locally (branch and subsidiary). It also allows AIG to pool its
insurance risks and purchase reinsurance more efficiently at a
consolidated level, manage global counterparty risk and relation-
ships and manage global life catastrophe risks.
AIG’s Domestic Life Insurance & Retirement Services opera-
tions utilize internal and third-party reinsurance relationships to
Form 10-K 2006 AIG 127