AIG 2008 Annual Report Download - page 110

2008 and 2007 Comparison
Total revenues for Foreign Life Insurance & Retirement Services in 2008 decreased compared to 2007
primarily due to substantial net realized capital losses and significantly lower net investment income. See
Consolidated Results — Net Investment Income and — Net Realized Capital Gains (Losses).
Despite the continued growth in the underlying business in force and the positive effect of foreign exchange,
operating income in 2008 also decreased compared to 2007 due to:
• higher losses of $262 million on certain investment linked-products in the U.K. due to mark-to-market trading
losses partially offset by a positive change in benefit reserves resulting from changes to the Premier Access
Bond product following significant surrender activity as a result of the AIG liquidity issues in mid-September.
As allowed under the contract terms, surrenders were suspended to allow sufficient time to develop an
appropriate course of action with the respective distribution network and to protect the interest of the fund’s
policyholders. Policyholders received a cash distribution equal to approximately half of their account value and
were given the option to receive the remainder in cash at a discounted amount based on the value of the
underlying investments or transfer their account value into a newly created fund. The newly created fund is
valued at the net asset value of the underlying investments but provides for a guarantee of a minimum amount
should the policyholder remain in the fund until July 2012. Any surrenders prior to July 2012 will be at the net
asset value;
• higher benefit costs, net of related DAC unlocking, of $106 million principally related to volatility in the
Japanese equity market and declines in interest rates and,
• Foreign Life Insurance & Retirement Services continued its ongoing project to increase standardization of
AIG’s actuarial systems and processes throughout the world which resulted in a favorable effect on operating
income of $151 million for 2008 compared to a $183 million positive effect in 2007.
Partially offsetting these items were higher DAC and SIA benefits of $132 million related to the net realized
capital losses and higher surrender charge income related to the temporary spike in policy surrenders during the
fourth quarter. Generally, surrenders have returned to normal levels in the foreign operations. In addition, operating
income for 2007 included $118 million of remediation activity charges and $67 million of additional claim expense
related to an industry-wide regulatory claims review in Japan.
2007 and 2006 Comparison
Total revenues for Foreign Life Insurance & Retirement Services in 2007 increased compared to 2006,
primarily due to higher premiums and other considerations and net investment income partially offset by net
realized capital losses. Net investment income increased in 2007 compared to 2006 due to higher levels of assets
under management, higher policyholder trading gains and higher partnership and mutual fund income.
Operating income decreased in 2007 compared to 2006 principally due to:
• net realized capital losses;
• mark-to-market trading losses of $150 million related to investment-linked products in the U.K.;
• remediation activity charge of $118 million;
• additional claim expense of $67 million relating to an industry-wide regulatory review of claims in Japan;
• additional policyholder benefits expense of $36 million related to a closed block of Japanese business with
guaranteed benefits; and
• out-of-period adjustments benefiting 2006 earnings for $332 million related to UCITS and participating
policyholder dividend reserves.
These decreases were partially offset by higher net investment income, a $183 million positive effect of
changes in actuarial estimates and the positive effect of changes in foreign exchange rates.
104 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries