AIG 2007 Annual Report Download - page 223

American International Group, Inc. and Subsidiaries
annuitization and recognizing the excess ratably over the accumu-
10. Variable Life and Annuity Contracts
lation period based on total expected assessments. AIG periodi-
Continued
cally evaluates estimates used and adjusts the additional liability
Japan, lapse rates ranged from zero percent to 20 percent balance, with a related charge or credit to benefit expense, if
depending on the type of contract. actual experience or other evidence suggests that earlier assump-
(For domestic contracts, the discount rate ranged from 3.25 per- tions should be revised.
cent to 11 percent. For Japan, the discount rate ranged from AIG contracts currently include a minimal amount of GMAV and
two percent to seven percent. GMWB. GMAV and GMWB are considered to be embedded
In addition to GMDB, AIG’s contracts currently include to a derivatives and are recognized at fair value through earnings. AIG
lesser extent GMIB. The GMIB liability is determined each period enters into derivative contracts to economically hedge a portion of
end by estimating the expected value of the annuitization benefits the exposure that arises from GMAV and GMWB.
in excess of the projected account balance at the date of
AIG 2007 Form 10-K 169