AIG 2009 Annual Report Download - page 294

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
that do not qualify for separate account treatment are reported in Net investment income and are principally offset by
amounts reported in Policyholder benefits and claims incurred.
The vast majority of AIG’s exposure on guarantees made to variable contract holders arises from GMDB. The following
table presents details concerning AIG’s GMDB exposures:
2009 2008
Net Deposits Net Deposits
At December 31, Plus a Minimum Highest Contract Plus a Minimum Highest Contract
(dollars in billions) Return Value Attained Return Value Attained
Account value(a) $57$12$50$11
Amount at risk(b) 8213 5
Average attained age of contract holders by
product 40-71 years 55-71 years 38-69 years 55-71 years
Range of guaranteed minimum return rates 3-10% 3-10%
(a) Included in Policyholder contract deposits in the Consolidated Balance Sheet.
(b) Represents the amount of death benefit currently in excess of Account value.
The following summarizes GMDB liabilities for guarantees on variable contracts reflected in the general account.
Years Ended December 31,
(in millions) 2009 2008
Balance, beginning of year $ 717 $463
Reserve increase 290 351
Benefits paid (190) (97)
Balance, end of year $ 817 $717
The GMDB liability is determined each period end by estimating the expected value of death benefits in excess of
the projected account balance and recognizing the excess ratably over the accumulation period based on total
expected assessments. AIG regularly evaluates estimates used and adjusts the additional liability balance, with a
related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assumptions
should be revised.
The following assumptions and methodology were used to determine the GMDB liability at December 31, 2009:
• Data used was up to 1,000 stochastically generated investment performance scenarios.
• Mean investment performance assumptions ranged from three percent to approximately ten percent depending
on the block of business.
• Volatility assumptions ranged from six percent to 23 percent depending on the block of business.
• Mortality was assumed at between 50 percent and 103 percent of various life and annuity mortality tables.
• For domestic contracts, lapse rates vary by contract type and duration and ranged from zero percent to
40 percent. For foreign contracts, lapse rates ranged from zero percent to 35 percent depending on the type of
contract.
• For domestic contracts, the discount rate ranged from 3.25 percent to 11 percent. For foreign contracts, the
discount rate ranged from 1.5 percent to 8.5 percent.
In addition to GMDB, AIG’s contracts currently include to a lesser extent GMIB. The GMIB liability is determined
each period end by estimating the expected value of the annuitization benefits in excess of the projected account
balance at the date of annuitization and recognizing the excess ratably over the accumulation period based on total
AIG 2009 Form 10-K 286