AIG 2006 Annual Report Download - page 179

American International Group, Inc. and Subsidiaries
including bonuses, 12.0 percent. Less than 1.0 percent of the
6. Reserve for Losses and Loss Expenses and
liabilities are credited at a rate greater than 9.0 percent.
Future Life Policy Benefits and Policyholders’
Current declared interest rates are generally guaranteed to
Contract Deposits
remain in effect for a period of one year though some are
Continued
guaranteed for longer periods. Withdrawal charges generally
Years Ended December 31, range from zero percent to 20.0 percent grading to zero over a
(in millions) 2006 2005* period of zero to 19 years.
Policyholders’ contract deposits: (Domestically, guaranteed investment contracts (GICs) have
Annuities $144,599 $142,057 market value withdrawal provisions for any funds withdrawn
GICs 34,746 39,705 other than benefit responsive payments. Interest rates credited
Universal life products 22,632 18,682 generally range from 2.6 percent to 9.0 percent. The vast
Variable investment contracts 14,289 8,373 majority of these GICs mature within five years. Overseas,
Variable products 14,264 7,799 interest rates credited on GICs generally range from 1.2 per-
Corporate life products 2,083 2,077 cent to 5.2 percent and maturities range from one to
Other investment contracts 12,045 8,334 five years.
Total $244,658 $227,027 (Interest rates on corporate life insurance products are guaran-
teed at 4.0 percent and the weighted average rate credited in
Long duration contract liabilities included in future policy 2006 was 5.2 percent.
benefits, as presented in the preceding table, result from life
(The universal life funds have credited interest rates of
products. Short duration contract liabilities are primarily accident 1.5 percent to 7.0 percent and guarantees ranging from
and health products. The liability for future life policy benefits has 1.5 percent to 5.5 percent depending on the year of issue.
been established based upon the following assumptions: Additionally, universal life funds are subject to surrender
(Interest rates (exclusive of immediate/terminal funding annui- charges that amount to 12.2 percent of the aggregate fund
ties), which vary by territory, year of issuance and products, balance grading to zero over a period not longer than 20 years.
range from 1.0 percent to 12.5 percent within the first (For variable products and investment contracts, policy values
20 years. Interest rates on immediate/terminal funding annui- are expressed in terms of investment units. Each unit is linked
ties are at a maximum of 11.5 percent and grade to not to an asset portfolio. The value of a unit increases or
greater than 6.0 percent. decreases based on the value of the linked asset portfolio. The
(Mortality and surrender rates are based upon actual experience current liability at any time is the sum of the current unit value
by geographical area modified to allow for variations in policy of all investment units plus any liability for guaranteed
form. The weighted average lapse rate, including surrenders, minimum death or withdrawal benefits. A portion of these
for individual and group life approximated 7.4 percent. liabilities are classified in the Spread-Based Investment Busi-
(The portions of current and prior net income and of current ness for segment reporting purposes.
unrealized appreciation of investments that can inure to the Certain products are subject to experience adjustments. These
benefit of AIG are restricted in some cases by the insurance include group life and group medical products, credit life con-
contracts and by the local insurance regulations of the tracts, accident and health insurance contracts/riders attached to
countries in which the policies are in force. life policies and, to a limited extent, reinsurance agreements with
(Participating life business represented approximately 19 per- other direct insurers. Ultimate premiums from these contracts are
cent of the gross insurance in force at December 31, 2006 estimated and recognized as revenue, and the unearned portions
and 34 percent of gross GAAP premiums in 2006. The amount of the premiums recorded as liabilities. Experience adjustments
of annual dividends to be paid is determined locally by the vary according to the type of contract and the territory in which
boards of directors. Provisions for future dividend payments are the policy is in force and are subject to local regulatory guidance.
computed by jurisdiction, reflecting local regulations.
The liability for policyholders’ contract deposits has been
established based on the following assumptions:
(Interest rates credited on deferred annuities, which vary by
territory and year of issuance, range from 1.2 percent to,
Form 10-K 2006 AIG 129