AIG 2008 Annual Report Download - page 186

$200 million for Japan and Taiwan only. No assurance can be given that AIG will be able to obtain this level of
coverage in 2009.
Reinsurance Recoverable
General reinsurance recoverable assets are comprised of:
• Balances due from reinsurers for indemnity losses and loss expenses billed to, but not yet collected from,
reinsurers (Paid Losses Recoverable);
• Ultimate ceded reserves for indemnity losses and expenses, including reserves for claims reported but not yet
paid and estimates for IBNR (collectively, Ceded Loss Reserves); and
• Ceded Reserves for Unearned Premiums.
At December 31, 2008, reinsurance assets of $21.9 billion include Paid Losses Recoverable of $1.3 billion and
Ceded Loss Reserves of $16.8 billion, and $4.2 billion of Ceded Reserves for Unearned Premiums. The methods
used to estimate IBNR and to establish the resulting ultimate losses involve projecting the frequency and severity of
losses over multiple years and are continually reviewed and updated by management. Any adjustments are reflected
in income currently. It is AIG’s belief that the ceded reserves for losses and loss expenses at December 31, 2008
reflect the ultimate losses recoverable. Actual losses may differ from the reserves currently ceded.
AIG manages the credit risk in its reinsurance relationships by transacting with reinsurers that it considers
financially sound, and when necessary AIG requires reinsurers to post substantial collateral in the form of funds,
securities and/or irrevocable letters of credit. This collateral can be drawn on for amounts that remain unpaid
beyond specified time periods on an individual reinsurer basis. At December 31, 2008, approximately 55 percent of
the reinsurance assets were from unauthorized reinsurers. The terms authorized and unauthorized pertain to
regulatory categories, not creditworthiness. More than 52 percent of these balances were collateralized, permitting
statutory recognition. Additionally, with the approval of insurance regulators, AIG posted approximately $1.6 bil-
lion of letters of credit issued by commercial banks and $2.9 billion of trust in favor of certain General Insurance
companies to permit those companies statutory recognition of balances otherwise uncollateralized at December 31,
2008. The remaining 45 percent of the reinsurance assets were from authorized reinsurers. At December 31, 2008,
approximately 84 percent of the balances with respect to authorized reinsurers are from reinsurers rated A
(excellent) or better, as rated by A.M. Best, or A (strong) or better, as rated by S&P. These ratings are measures of
financial strength.
The following table provides information for each reinsurer representing in excess of five percent of
AIG’s total reinsurance assets:
At December 31, 2008
S&P
Rating(a)
A.M.
Best
Rating(a)
Gross
Reinsurance
Assets
Percent of
Reinsurance
Assets, Net
Collateral
Held(b)
Uncollateralized
Reinsurance
Assets
(In millions)
Reinsurer:
Swiss Reinsurance Group of
Companies ............ A+ A+ $1,665 7.3% $380 $1,285
Berkshire Hathaway Group
of Companies .......... AAA A++ $1,341 5.8% $131 $1,210
Munich Reinsurance Group
of Companies .......... AA- A+ $1,274 5.6% $539 $ 735
Lloyd’s Syndicates —
Lloyd’s of London(c) .... A+ A $1,051 4.6% $128 $ 923
(a) The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed
as of February 18, 2009.
(b) Excludes collateral held in excess of applicable treaty balances.
(c) Excludes Equitas gross reinsurance assets that are unrated, which are less than five percent of AIG’s general
reinsurance assets.
180 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries