AIG 2008 Annual Report Download - page 108

these losses. These results were primarily due to an increase in the embedded policy derivative liability valuations
resulting from the inclusion of explicit risk margins.
AIG adopted FAS 159 on January 1, 2008 and elected to apply the fair value option to a closed block of single
premium variable life business in Japan and to an investment-linked product sold principally in Asia. The adoption
of FAS 159 with respect to these fair value elections resulted in a decrease to 2008 opening retained earnings of
$559 million, net of tax. The fair value of the liabilities for these policies totaled $2.6 billion at December 31, 2008
and is reported in policyholder contract deposits.
2007 and 2006 Comparison
The severe credit market disruption was a key driver of operating results in 2007 principally due to significant
net realized capital losses resulting from other-than-temporary impairment charges and losses on derivative
instruments not qualifying for hedge accounting treatment. See Results of Operations Consolidated Results — Net
Realized Gains (Losses) for further discussion.
Life Insurance & Retirement Services total revenues increased in 2007 compared to 2006 despite the higher
net realized capital losses primarily due to higher premiums and other considerations and higher net investment
income.
Operating income in 2007 decreased compared to 2006 primarily due to net realized capital losses and the
following:
• mark-to-market trading losses of $150 million related to investment-linked products in the U.K.;
• DAC amortization charges of $108 million related to the adoption in 2007 of SOP 05-1;
• remediation activity charges of $118 million; and
• out-of-period adjustments related to UCITS and participating policyholder dividends, which increased 2006
operating income by $332 million.
These decreases were partially offset as operating income in 2006 was negatively affected by charges of
$125 million for the Superior National arbitration ruling, $66 million related to exiting the domestic financial
institutions credit life business and $55 million related to other litigation charges.
Foreign Life Insurance & Retirement Services Results
Foreign Life Insurance & Retirement Services results on a sub-product basis were as follows:
Years Ended December 31,
Premiums and
Other
Considerations
Net
Investment
Income
Net Realized
Capital Gains
(Losses)
Total
Revenues
Operating
Income /
(Loss)
(In millions)
2008
Life insurance ........................ $17,839 $ 1,734 $ (8,837) $10,736 $(5,669)
Personal accident ...................... 7,055 371 (385) 7,041 1,040
Group products ....................... 3,777 510 73 4,360 564
Individual fixed annuities . ............... 761 2,320 (2,660) 421 (2,125)
Individual variable annuities .............. 487 (2,974) 24 (2,463) (147)
Total............................. $29,919 $ 1,961 $(11,785) $20,095 $(6,337)
102 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries