AIG 2007 Annual Report Download - page 133

American International Group, Inc. and Subsidiaries
The following table summarizes the major components of the changes in DAC/Value of Business Acquired (VOBA) and
Sales Inducement Assets (SIA) for 2007 and 2006:
2007 2006
(in millions) DAC/VOBA SIA Total DAC/VOBA SIA Total
Foreign Life Insurance & Retirement Services
Balance at beginning of year $21,153 $ 404 $21,557 $17,638 $ 192 $17,830
Acquisition costs deferred 5,640 241 5,881 4,991 112 5,103
Amortization (charged) or credited to operating income:
Related to net realized capital gains (losses) 117 1 118 5(3) 2
Related to unlocking future assumptions (17) (2) (19) 102 2 104
All other amortization(a) (1,979) 11 (1,968) (2,399) (4) (2,403)
Change in unrealized gains (losses) on securities 301 16 317 (132) (6) (138)
Increase due to foreign exchange 831 10 841 948 13 961
Other(b) 129 — 129 —98 98
Balance at end of year(a) $26,175 $ 681 $26,856 $21,153 $ 404 $21,557
Domestic Life Insurance
Balance at beginning of year $ 6,006 $ 46 $ 6,052 $ 5,184 $ 31 $ 5,215
Acquisition costs deferred 895 15 910 1,115 18 1,133
Amortization (charged) or credited to operating income:
Related to net realized capital gains (losses) 13 — 13 23 — 23
Related to unlocking future assumptions 6(1) 5(42) (1) (43)
All other amortization(a) (671) (7) (678) (671) (2) (673)
Change in unrealized gains (losses) on securities 162 — 162 398 — 398
Increase (decrease) due to foreign exchange 85 — 85 (1) — (1)
Other(b) (64) — (64) —— —
Balance at end of year $ 6,432 $ 53 $ 6,485 $ 6,006 $ 46 $ 6,052
Domestic Retirement Services
Balance at beginning of year $ 5,651 $ 887 $ 6,538 $ 5,284 $ 871 $ 6,155
Acquisition costs deferred 741 201 942 717 231 948
Amortization (charged) or credited to operating income:
Related to net realized capital gains (losses) 161 41 202 62 19 81
Related to unlocking future assumptions (7) (18) (25) (3) — (3)
All other amortization(a) (990) (174) (1,164) (789) (143) (932)
Change in unrealized gains (losses) on securities 282 54 336 380 (91) 289
Balance at end of year $ 5,838 $ 991 $ 6,829 $ 5,651 $ 887 $ 6,538
Total Life Insurance & Retirement Services
Balance at beginning of year $32,810 $1,337 $34,147 $28,106 $1,094 $29,200
Acquisition costs deferred 7,276 457 7,733 6,823 361 7,184
Amortization (charged) or credited to operating income:
Related to net realized capital gains (losses) 291 42 333 90 16 106
Related to unlocking future assumptions (18) (21) (39) 57 1 58
All other amortization(a) (3,640) (170) (3,810) (3,859) (149) (4,008)
Change in unrealized gains (losses) on securities 745 70 815 646 (97) 549
Increase due to foreign exchange 916 10 926 947 13 960
Other(b) 65 — 65 —98 98
Balance at end of year $38,445 $1,725 $40,170 $32,810 $1,337 $34,147
(a) In 2007, Foreign Life Insurance & Retirement Services includes lower amortization of $836 million related to changes in actuarial estimates, mostly
offset in incurred policy losses and benefits. Domestic Retirement Services includes a higher amor tization of $104 million related to changes in
actuarial estimates.
(b) In 2007, includes $(118) million for the cumulative effect of adoption of SOP 05-1 and $189 million related to balance sheet reclassifications. In
2006, primarily represents a balance sheet reclassification.
Because AIG operates in various global markets, the estimated DAC, VOBA and SIA for insurance-oriented, investment-oriented
gross profits used to amortize DAC, VOBA and sales inducements and retirement services products are reviewed for recoverability,
can be subject to differing market returns and interest rate which involves estimating the future profitability of current busi-
environments in any single period. The combination of market ness. This review involves significant management judgment. If
returns and interest rates may lead to acceleration of amortization actual future profitability is substantially lower than estimated,
in some products and regions and simultaneous deceleration of AIG’s DAC, VOBA and SIA may be subject to an impairment charge
amortization in other products and regions.
AIG 2007 Form 10-K 79