AIG 2009 Annual Report Download - page 189

American International Group, Inc., and Subsidiaries
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 (collectively, 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, 2009, reinsurance recoverable assets of $21.4 billion include Paid Losses Recoverable of
$744 million, Ceded Loss Reserves of $17.5 billion, and Ceded Reserves for Unearned Premiums of $3.2 billion. 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. It is AIG’s belief that the ceded reserves for losses and loss expenses at December 31, 2009 reflect
a reasonable estimate of 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 collateral in the form of funds withheld,
securities in reinsurance trust accounts 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, 2009,
approximately 56 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 $1.5 billion of letters of credit issued by commercial banks and $2.8 billion of funded trusts in favor of
certain General Insurance companies to permit those companies statutory recognition of balances otherwise
uncollateralized at December 31, 2009. The remaining 44 percent of the reinsurance assets were from authorized
reinsurers. At December 31, 2009, approximately 85 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 presents information for each reinsurer representing in excess of four percent of AIG’s total
Reinsurance assets:
At December 31, 2009 A.M. Gross Percent of Uncollateralized
S&P Best Reinsurance Reinsurance Collateral Reinsurance
(in millions) Rating(a) Rating(a) Assets Assets, Net Held(b) Assets
Reinsurer:
Transatlantic A+ A $ 1,692 8.1% $ 105 $ 1,587
Swiss Reinsurance Group of Companies A+ A $ 1,569 7.6% $ 372 $ 1,197
Munich Reinsurance Group of
Companies AA- A+ $ 1,597 7.5% $ 677 $ 920
Lloyd’s Syndicates — Lloyd’s of
London(c) A+ A $ 908 4.3% $ 99 $ 809
(a) The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed as of February 5, 2010.
(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.
AIG maintains an allowance for estimated unrecoverable reinsurance of $440 million. At December 31, 2009, AIG
had no significant reinsurance recoverables due from any individual reinsurer that was financially troubled
(i.e., liquidated, insolvent, in receivership or otherwise subject to formal or informal regulatory restriction). In the
current environment of weaker economic conditions and strained financial markets, certain reinsurers are reporting
181 AIG 2009 Form 10-K