AIG 2010 Annual Report Download - page 173

American International Group, Inc., and Subsidiaries
The following table presents information for each reinsurer representing in excess of four percent of AIG’s total
Reinsurance assets:
At December 31, 2010 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 $ 1,985 8.1% $ 103 $ 1,882
Swiss Reinsurance Group of Companies A+ A $ 1,606 6.5% $ 335 $ 1,271
Munich Reinsurance Group of
Companies AA- A+ $ 1,860 7.6% $ 729 $ 1,131
(a) The financial strength ratings reflect the ratings of the various reinsurance subsidiaries of the companies listed as of February 16, 2011.
(b) Excludes collateral held in excess of applicable treaty balances.
The estimation of reinsurance recoverable involves a significant amount of judgment, particularly for asbestos
exposures, due to its long-tail nature. Chartis assesses the collectability of its reinsurance recoverable balances
through detailed reviews of the underlying nature of the reinsurance balance, including paid and unpaid
recoverables, whether the balance is in dispute or a legal collection status, whether the insurer is financially
troubled (i.e., liquidated, insolvent, in receivership or otherwise subject to formal or informal regulatory
restriction), whether collateral and collateral arrangements exist, and the credit quality of the underlying insurer.
Detailed reviews of the underlying receivables are particularly important when assessing recoverables attributable
to long-tail exposures, such as asbestos. Adjustments to reflect the results of the detailed review are recorded
through an allowance for uncollectable reinsurance. At December 31, 2010, the allowance for estimated
unrecoverable reinsurance was $492.6 million. At December 31, 2010, AIG had no significant reinsurance
recoverables due from any individual reinsurer that was financially troubled. In the current environment of weaker
economic conditions and strained financial markets, certain reinsurers are reporting losses and could be subject to
rating downgrades. AIG’s reinsurance recoverable exposures are primarily to the regulated subsidiaries of such
companies which are subject to minimum regulatory capital requirements. AIG’s Reinsurance Security Department
(RSD), in conjunction with CRM, is reviewing these developments, is monitoring compliance with credit triggers
that may require the reinsurer to post collateral, and, as appropriate, will seek to use other means to mitigate any
material risks arising from these developments.
SunAmerica
For SunAmerica, the primary risks are the following:
• Pricing risk, which represents the potential exposure to loss resulting from actual policy experience emerging
adversely in comparison to the assumptions made in product pricing associated with investment results,
mortality, morbidity, terminations and expenses;
• Investment risk, which represents the exposure to loss resulting from the cash flows from the invested assets
being less than cash flows required to meet the obligations of the expected policy and contract liabilities and
the necessary return on investments;
• Interest rate risk, which represents the exposure to loss due to the sensitivity of the liabilities and assets to
changes in interest rates; and
• Equity market risk, which represents the potential exposure to higher claim costs for guaranteed benefits
associated with variable annuities and the potential reduction in expected fee revenue.
AIG businesses manage these risks through product design, exposure limitations and the active management of
the asset-liability relationship in their operations. The emergence of significant adverse experience would require
an adjustment to DAC and benefit reserves that could have a material adverse effect on AIG’s consolidated
results of operations for a particular period. For a further discussion of this risk, see Item 1A. Risk Factors —
Adjustments to Deferred Policy Acquisition Costs for Life Insurance and Retirement Services companies.
AIG 2010 Form 10-K 157