AIG 2008 Annual Report Download - page 260

Supplemental information for gross loss and benefit reserves net of ceded reinsurance follows:
As
Reported
Net of
Reinsurance
(In millions)
December 31, 2008
Liability for unpaid claims and claims adjustment expense ............ $ (89,258) $ (72,455)
Future policy benefits for life and accident and health insurance
contracts ............................................... (142,334) (140,750)
Reserve for unearned premiums ................................ (25,735) (21,540)
Reinsurance assets* ......................................... 22,582 —
December 31, 2007
Liability for unpaid claims and claims adjustment expense ............ $ (85,500) $ (69,288)
Future policy benefits for life and accident and health insurance
contracts ............................................... (136,387) (134,781)
Reserve for unearned premiums ................................ (27,703) (23,709)
Reinsurance assets* ......................................... 21,811 —
*Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.
AIRCO acts primarily as an internal reinsurance company for AIG’s insurance operations. This facilitates
insurance risk management (retention, volatility, concentrations) and capital planning locally (branch and sub-
sidiary). It also allows AIG to pool its insurance risks and purchase reinsurance more efficiently at a consolidated
level, manage global counterparty risk and relationships and manage global life catastrophe risks.
General Reinsurance
General reinsurance is effected under reinsurance treaties and by negotiation on individual risks. Certain of
these reinsurance arrangements consist of excess of loss contracts which protect AIG against losses over stipulated
amounts. Ceded premiums are considered prepaid reinsurance premiums and are recognized as a reduction of
premiums earned over the contract period in proportion to the protection received. Amounts recoverable from
general reinsurers are estimated in a manner consistent with the claims liabilities associated with the reinsurance
and presented as a component of reinsurance assets. Assumed reinsurance premiums are earned primarily on a pro-
rata basis over the terms of the reinsurance contracts. For both ceded and assumed reinsurance, risk transfer
requirements must be met in order for reinsurance accounting to apply. If risk transfer requirements are not met, the
contract is accounted for as a deposit, resulting in the recognition of cash flows under the contract through a deposit
asset or liability and not as revenue or expense. To meet risk transfer requirements, a reinsurance contract must
include both insurance risk, consisting of both underwriting and timing risk, and a reasonable possibility of a
significant loss for the assuming entity. Similar risk transfer criteria are used to determine whether directly written
insurance contracts should be accounted for as insurance or as a deposit.
254 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)