AIG 2006 Annual Report Download - page 60

American International Group, Inc. and Subsidiaries
The reserve for losses and loss expenses as reported in AIG’s independent producers, and sell their products largely to indige-
consolidated balance sheet at December 31, 2006 differs from nous persons in local and foreign currencies. In addition to the
the total reserve reported in the Annual Statements filed with agency outlets, these companies also distribute their products
state insurance departments and, where appropriate, with foreign through direct marketing channels, such as mass marketing, and
regulatory authorities. The differences at December 31, 2006 through brokers and other distribution outlets, such as financial
relate primarily to reserves for certain foreign operations not institutions.
required to be reported in the United States for statutory Life insurance products such as whole life and endowment
reporting purposes. Further, statutory practices in the United continue to be significant in the overseas companies, especially in
States require reserves to be shown net of applicable reinsurance Southeast Asia, while a mixture of life insurance, accident and
recoverable. health and retirement services products are sold in Japan.
The reserve for gross losses and loss expenses is prior to AIG also has subsidiary operations in Canada, Egypt, Mexico,
reinsurance and represents the accumulation for reported losses Poland, Switzerland, Russia and Puerto Rico, and conducts life
and IBNR. Management reviews the adequacy of established insurance business through a joint venture in Brazil and in certain
gross loss reserves in the manner previously described for net countries in Central and South America.
loss reserves.
For further discussion regarding net reserves for losses and Domestic Life Insurance & Retirement
loss expenses, see Management’s Discussion and Analysis of Services
Financial Condition and Results of Operations — Operating Re- AIG’s principal domestic Life Insurance & Retirement Services
view — General Insurance Operations — Reserve for Losses and operations include AGLA, AIG American General, AIG Annuity,
Loss Expenses. USLIFE, VALIC and SunAmerica Life. These companies utilize
multiple distribution channels including independent producers,
Life Insurance & Retirement Services brokerage, career agents and banks to offer life insurance,
Operations annuity and accident and health products and services, as well as
AIG’s Life Insurance & Retirement Services subsidiaries offer a financial and other investment products. The domestic Life
wide range of insurance and retirement savings products both Insurance & Retirement Services operations comprised 22 per-
domestically and abroad. Insurance-oriented products consist of cent of total Life Insurance & Retirement Services GAAP premi-
individual and group life, payout annuities (including structured ums and 32 percent of Life Insurance & Retirement Services
settlements), endowment and accident and health policies. Retire- operating income in 2006.
ment savings products consist generally of fixed and variable
annuities. Reinsurance
There was no significant adverse effect on AIG’s Life Insur- AIG’s General Insurance subsidiaries worldwide operate primarily
ance & Retirement Services results of operations from economic by underwriting and accepting risks for their direct account and
conditions in any one state, country or geographic region for the securing reinsurance on that portion of the risk in excess of the
year ended December 31, 2006. limit which they wish to retain. This operating policy differs from
that of many insurance companies that will underwrite only up to
Foreign Life Insurance & Retirement Services their net retention limit, thereby requiring the broker or agent to
In its Life Insurance & Retirement Services businesses, AIG secure commitments from other underwriters for the remainder of
operates overseas principally through ALICO, AIG Star Life, AIG the gross risk amount.
Edison Life, AIA, AIRCO, Nan Shan and Philamlife. ALICO is Various AIG profit centers, including DBG, AIU, AIG Reinsurance
incorporated in Delaware and all of its business is written outside Advisors, Inc. and AIG Risk Finance, as well as certain Foreign
of the United States. ALICO has operations either directly or Life subsidiaries, use AIRCO as a reinsurer for certain of their
through subsidiaries in Europe, including the U.K., Latin America, businesses, and AIRCO also receives premiums from offshore
the Caribbean, the Middle East, South Asia and the Far East, with captives of AIG clients. In accordance with permitted accounting
Japan being the largest territory. AIA operates primarily in China practices in Bermuda, AIRCO discounts reserves attributable to
(including Hong Kong), Singapore, Malaysia, Thailand, Korea, certain classes of business assumed from other AIG subsidiaries.
Australia, New Zealand, Vietnam, Indonesia, and India. The For a further discussion of reinsurance, see Item 1A. Risk
operations in India are conducted through a joint venture, Tata AIG Factors — Reinsurance, Management’s Discussion and Analysis of
Life Insurance Company Limited. Nan Shan operates in Taiwan. Financial Condition and Results of Operations — Risk Manage-
Philamlife is the largest life insurer in the Philippines. AIG Star ment — Reinsurance and Note 5 of Notes to Consolidated
Life and AIG Edison Life operate in Japan. Operations in foreign Financial Statements.
countries comprised 78 percent of Life Insurance & Retirement
Services GAAP premiums and 68 percent of Life Insurance & Insurance Investment Operations
Retirement Services operating income in 2006. A significant portion of AIG’s General Insurance and Life Insur-
The Foreign Life Insurance & Retirement Services companies ance & Retirement Services revenues are derived from AIG’s
have over 270,000 full and part-time agents, as well as
10 AIG 2006 Form 10-K