AIG 2009 Annual Report Download - page 273

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
American International Reinsurance Company Limited (AIRCO) acts primarily as an internal reinsurance
company for AIG’s General Insurance operations. This facilitates insurance risk management (retention, volatility,
concentrations) and capital planning locally (branch and subsidiary). 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.
The following table presents General Insurance premiums written and earned:
Years Ended December 31, General Insurance Noncore Insurance* Eliminations Total
(in millions) 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007
Premiums written:
Direct $ 38,550 $ 45,425 $ 48,030 $ 2,195 $3,997 $4,025 $-$-$-$ 40,745 $ 49,422 $ 52,055
Assumed 2,011 2,863 2,502 2,628 6,301 6,657 (657) (1,925) (2,416) 3,982 7,239 6,743
Ceded (9,897) (12,655) (13,425) (631) (697) (722) 657 1,925 2,416 (9,871) (11,427) (11,731)
Total $ 30,664 $ 35,633 $ 37,107 $ 4,192 $9,601 $9,960 $-$-$-$ 34,856 $ 45,234 $ 47,067
Premiums earned:
Direct $ 40,949 $ 46,015 $ 46,579 $ 2,288 $4,095 $3,824 $-$-$-$ 43,237 $ 50,110 $ 50,403
Assumed 2,143 2,900 2,426 2,740 6,361 6,520 (657) (1,925) (2,416) 4,226 7,336 6,530
Ceded (10,818) (12,416) (12,949) (689) (733) (718) 657 1,925 2,416 (10,850) (11,224) (11,251)
Total $ 32,274 $ 36,499 $ 36,056 $ 4,339 $9,723 $9,626 $-$-$-$ 36,613 $ 46,222 $ 45,682
* Includes Transatlantic which was deconsolidated during 2009; 21st Century and HSB which were sold during 2009.
For the years ended December 31, 2009, 2008 and 2007, reinsurance recoveries, which reduced loss and loss
expenses incurred, amounted to $8.9 billion, $8.4 billion and $9.0 billion, respectively.
Life Reinsurance
Life reinsurance is effected principally under yearly renewable term treaties. The premiums with respect to these
treaties are considered prepaid reinsurance premiums and are recognized as a reduction of premiums earned over the
contract period in proportion to the protection provided. Amounts recoverable from life reinsurers are estimated in a
manner consistent with the assumptions used for the underlying policy benefits and are presented as a component of
Reinsurance assets.
265 AIG 2009 Form 10-K