AIG 2007 Annual Report Download - page 212

American International Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements Continued
Life Insurance assumed represented less than 0.1 percent,
5. Reinsurance
0.1 percent and 0.8 percent of gross Life Insurance in force at
Continued
December 31, 2007, 2006 and 2005, respectively, and Life
General Insurance premiums written and earned were Insurance & Retirement Services premiums assumed represented
comprised of the following: 0.1 percent, 0.1 percent and 0.3 percent of gross premiums and
Years Ended December 31, other considerations for the years ended December 31, 2007,
(in millions) 2007 2006 2005 2006 and 2005, respectively.
Premiums written: AIG’s Domestic Life Insurance & Retirement Services opera-
Direct $ 52,055 $ 49,609 $ 46,689 tions utilize internal and third-party reinsurance relationships to
Assumed 6,743 6,671 6,036 manage insurance risks and to facilitate capital management
Ceded (11,731) (11,414) (10,853) strategies. Pools of highly-rated third-party reinsurers are utilized
to manage net amounts at risk in excess of retention limits. AIG’s
Total $ 47,067 $ 44,866 $ 41,872
Domestic Life Insurance companies also cede excess, non-
Premiums earned: economic reserves carried on a statutory-basis only on certain
Direct $ 50,403 $ 47,973 $ 45,794 term and universal life insurance policies and certain fixed
Assumed 6,530 6,449 5,921 annuities to an offshore affiliate.
Ceded (11,251) (10,971) (10,906) AIG generally obtains letters of credit in order to obtain
Total $ 45,682 $ 43,451 $ 40,809 statutory recognition of its intercompany reinsurance transactions.
For this purpose, AIG has a $2.5 billion syndicated letter of credit
For the years ended December 31, 2007, 2006 and 2005, facility outstanding at December 31, 2007, all of which relates to
reinsurance recoveries, which reduced loss and loss expenses life intercompany reinsurance transactions.
incurred, amounted to $9.0 billion, $8.3 billion and $20.7 billion, AIG is also a party to a 364-day bilateral revolving credit facility
respectively. for an aggregate amount of $3.2 billion. The facility can be drawn
in the form of letters of credit with terms of up to eight years. At
Life Reinsurance December 31, 2007, approximately $3.0 billion principal amount
of letters of credit are outstanding under this facility, of which
Life reinsurance is effected principally under yearly renewable
approximately $2.1 billion relates to life intercompany reinsurance
term treaties. The premiums with respect to these treaties are
transactions. AIG has also obtained approximately $377 million of
considered prepaid reinsurance premiums and are recognized as
letters of credit on a bilateral basis.
a reduction of premiums earned over the contract period in
proportion to the protection provided. Amounts recoverable from
Reinsurance Security
life reinsurers are estimated in a manner consistent with the
assumptions used for the underlying policy benefits and are AIG’s third-party reinsurance arrangements do not relieve AIG from
presented as a component of reinsurance assets. its direct obligation to its insureds. Thus, a credit exposure exists
with respect to both general and life reinsurance ceded to the
Life Insurance & Retirement Services premiums were
extent that any reinsurer fails to meet the obligations assumed
comprised of the following:
under any reinsurance agreement. AIG holds substantial collateral
Years Ended December 31, as security under related reinsurance agreements in the form of
(in millions) 2007 2006 2005
funds, securities, and/or letters of credit. A provision has been
Gross premiums $34,585 $32,247 $30,818 recorded for estimated unrecoverable reinsurance. AIG has been
Ceded premiums (1,778) (1,481) (1,317) largely successful in prior recovery efforts.
Premiums $32,807 $30,766 $29,501 AIG evaluates the financial condition of its reinsurers and
establishes limits per reinsurer through AIG’s Credit Risk Commit-
Life Insurance recoveries, which reduced death and other tee. AIG believes that no exposure to a single reinsurer repre-
benefits, approximated $1.1 billion, $806 million and $770 mil- sents an inappropriate concentration of risk to AIG, nor is AIG’s
lion, respectively, for the years ended December 31, 2007, 2006 business substantially dependent upon any single reinsurer.
and 2005.
Life Insurance in-force ceded to other insurance
companies was as follows:
At December 31,
(in millions) 2007 2006 2005
Life Insurance in force
ceded $402,654 $408,970 $365,082
158 AIG 2007 Form 10-K