AIG 2007 Annual Report Download - page 116

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
Survival Ratios — Asbestos and Environmental and term life, investment linked, universal life and endowments,
personal accident and health products, group products including
The table below presents AIG’s survival ratios for asbestos and
pension, life and health, and fixed and variable annuities. The
environmental claims at December 31, 2007, 2006 and 2005.
Foreign Life Insurance & Retirement Services products are sold
The survival ratio is derived by dividing the current carried loss
through independent producers, career agents, financial institu-
reserve by the average payments for the three most recent
tions and direct marketing channels.
calendar years for these claims. Therefore, the survival ratio is a
AIG’s Domestic Life Insurance operations offer a broad range
simplistic measure estimating the number of years it would be
of protection products, such as individual life insurance and group
before the current ending loss reserves for these claims would be
life and health products, including disability income products and
paid off using recent year average payments. The December 31,
payout annuities, which include single premium immediate annui-
2007 survival ratio is lower than the ratio at December 31, 2006
ties, structured settlements and terminal funding annuities. The
because the more recent periods included in the rolling average
Domestic Life Insurance products are sold through independent
reflect higher claims payments. In addition, AIG’s survival ratio for
producers, career agents and financial institutions and direct
asbestos claims was negatively affected by the favorable settle-
marketing channels. Home service operations include an array of
ments described above, which reduced gross and net asbestos
life insurance, accident and health and annuity products sold
survival ratios at December 31, 2007 by approximately 1.3 years
primarily through career agents.
and 2.6 years, respectively. Many factors, such as aggressive
AIG’s Domestic Retirement Services operations include group
settlement procedures, mix of business and level of coverage
retirement products, individual fixed and variable annuities sold
provided, have a significant effect on the amount of asbestos and
through banks, broker-dealers and exclusive sales representa-
environmental reserves and payments and the resultant survival
tives, and annuity runoff operations, which include previously
ratio. Moreover, as discussed above, the primary basis for AIG’s
acquired ‘‘closed blocks’’ and other fixed and variable annuities
determination of its reserves is not survival ratios, but instead
largely sold through distribution relationships that have been
the ground-up and top-down analysis. Thus, caution should be
discontinued.
exercised in attempting to determine reserve adequacy for these
In order to better align financial reporting with the manner in
claims based simply on this survival ratio.
which AIG’s chief operating decision makers manage their busi-
AIG’s survival ratios for asbestos and environmental nesses, commencing in 2007, revenues and operating income
claims, separately and combined were based upon a related to foreign investment-type contracts, which were histori-
three-year average payment. These ratios for the years cally reported as a component of the Asset Management
ended December 31, 2007, 2006 and 2005 were as segment, are now reported as part of Foreign Life Insurance &
follows: Retirement Services. Prior period amounts have been revised to
Gross*Net conform to the current presentation.
AIG’s Life Insurance & Retirement Services reports its opera-
2007
Survival ratios: tions through the following major internal reporting units and legal
Asbestos 7.1 5.6 entities:
Environmental 4.7 3.7
Combined 6.7 5.2 Foreign Life Insurance & Retirement Services
2006
Japan and Other
Survival ratios:
Asbestos 11.8 12.9 (American Life Insurance Company (ALICO)
Environmental 5.6 4.5 (AIG Star Life Insurance Co., Ltd. (AIG Star Life)
Combined 10.4 10.3 (AIG Edison Life Insurance Company (AIG Edison Life)
2005
Asia
Survival ratios:
Asbestos 16.0 19.8 (American International Assurance Company, Limited, to-
Environmental 7.2 6.2 gether with American International Assurance Company
Combined 13.1 14.2 (Bermuda) Limited (AIA)
* Gross amounts for 2006 and 2005 were revised from the previous (Nan Shan Life Insurance Company, Ltd. (Nan Shan)
presentation to reflect the inclusion of certain reserves not previously (American International Reinsurance Company Limited
identified as asbestos and environmental related. This revision had no (AIRCO)
effect on net reserves.
(The Philippine American Life and General Insurance Com-
pany (Philamlife)
Life Insurance & Retirement Services
Operations Domestic Life Insurance
AIG’s Life Insurance & Retirement Services operations offer a (American General Life Insurance Company (AIG American
wide range of insurance and retirement savings products both General)
domestically and abroad. (The United States Life Insurance Company in the City of New
AIG’s Foreign Life Insurance & Retirement Services operations York (USLIFE)
include insurance and investment-oriented products such as whole
62 AIG 2007 Form 10-K