AIG 2007 Annual Report Download - page 211

American International Group, Inc. and Subsidiaries
4. Lending activities
Continued
Finance receivables, net of unearned finance charges, were as follows:
Years Ended December 31,
(in millions) 2007 2006
Real estate loans $20,023 $20,321
Non-real estate loans 5,447 4,506
Retail sales finance 3,659 3,092
Credit card loans 1,566 1,413
Other loans 1,417 978
Total finance receivables 32,112 30,310
Allowance for losses (878) (737)
Finance receivables, net $31,234 $29,573
ment (retention, volatility, concentrations) and capital planning
5. Reinsurance
locally (branch and subsidiary). It also allows AIG to pool its
In the ordinary course of business, AIG’s General Insurance and insurance risks and purchase reinsurance more efficiently at a
Life Insurance companies place reinsurance with other insurance consolidated level, manage global counterparty risk and relation-
companies in order to provide greater diversification of AIG’s ships and manage global life catastrophe risks.
business and limit the potential for losses arising from large
risks. In addition, AIG’s General Insurance subsidiaries assume General Reinsurance
reinsurance from other insurance companies.
General reinsurance is effected under reinsurance treaties and by
Supplemental information for gross loss and benefit negotiation on individual risks. Certain of these reinsurance
reserves net of ceded reinsurance at December 31, 2007 arrangements consist of excess of loss contracts which protect
and 2006 follows: AIG against losses over stipulated amounts. Ceded premiums are
considered prepaid reinsurance premiums and are recognized as
As Net of
(in millions) Reported Reinsurance a reduction of premiums earned over the contract period in
proportion to the protection received. Amounts recoverable from
2007
general reinsurers are estimated in a manner consistent with the
Reserve for losses and loss expenses $ (85,500) $ (69,288)
Future policy benefits for life and claims liabilities associated with the reinsurance and presented
accident and health insurance as a component of reinsurance assets. Assumed reinsurance
contracts (136,068) (134,461) premiums are earned primarily on a pro-rata basis over the terms
Reserve for unearned premiums (28,022) (24,029) of the reinsurance contracts. For both ceded and assumed
Reinsurance assets* 21,811 — reinsurance, risk transfer requirements must be met in order for
2006 reinsurance accounting to apply. If risk transfer requirements are
Reserve for losses and loss expenses $ (79,999) $ (62,630) not met, the contract is accounted for as a deposit, resulting in
Future policy benefits for life and the recognition of cash flows under the contract through a deposit
accident and health insurance asset or liability and not as revenue or expense. To meet risk
contracts (121,004) (119,430) transfer requirements, a reinsurance contract must include both
Reserve for unearned premiums (26,271) (22,759) insurance risk, consisting of both underwriting and timing risk,
Reinsurance assets* 22,456 — and a reasonable possibility of a significant loss for the assuming
* Represents gross reinsurance assets, excluding allowances and reinsur- entity. Similar risk transfer criteria are used to determine whether
ance recoverable on paid losses. directly written insurance contracts should be accounted for as
insurance or as a deposit.
AIRCO acts primarily as an internal reinsurance company for
AIG’s insurance operations. This facilitates insurance risk manage-
AIG 2007 Form 10-K 157