AIG 2010 Annual Report Download - page 297

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Reinsurance
In the ordinary course of business, AIG’s general insurance and life insurance companies place reinsurance with
other insurance companies in order to provide greater diversification of AIG’s business and limit the potential for
losses arising from large risks. In addition, AIG’s general insurance subsidiaries assume reinsurance from other
insurance companies.
The following table provides supplemental information for gross loss and benefit reserves net of ceded
reinsurance:
2010 2009
At December 31,
As Net of As Net of
(in millions) Reported Reinsurance Reported Reinsurance
Liability for unpaid claims and claims adjustment expense $(91,151) $(71,507) $ (85,386) $ (67,899)
Future policy benefits for life and accident and health insurance
contracts (31,268) (30,234) (116,001) (114,777)
Reserve for unearned premiums (23,803) (19,927) (21,363) (18,146)
Reinsurance assets*24,554 - 21,928 -
* Represents gross reinsurance assets, excluding allowances and reinsurance recoverable on paid losses.
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 that protect AIG against losses above 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.
The following table presents general insurance premiums written and earned:
Years Ended December 31, Chartis Other Businesses*Eliminations Total
(in millions) 2010 2009 2008 2010 2009*2008*2010 2009 2008 2010 2009 2008
Premiums written:
Direct $38,965 $ 38,461 $ 43,953 $ 927 $2,195 $3,997 $-$-$ -$39,892 $ 40,656 $ 47,950
Assumed 2,442 2,061 2,913 (2) 2,628 6,301 -(657) (1,925) 2,440 4,032 7,289
Ceded (9,795) (9,869) (12,335) (169) (631) (697) -657 1,925 (9,964) (9,843) (11,107)
Total $31,612 $ 30,653 $ 34,531 $ 756 $4,192 $9,601 $-$-$ -$32,368 $ 34,845 $ 44,132
Premiums earned:
Direct $39,082 $ 40,859 $ 44,655 $1,065 $2,288 $4,095 $-$-$ -$40,147 $ 43,147 $ 48,750
Assumed 2,488 2,192 2,951 80 2,740 6,361 -(657) (1,925) 2,568 4,275 7,387
Ceded (9,049) (10,790) (12,096) (170) (689) (733) -657 1,925 (9,219) (10,822) (10,904)
Total $32,521 $ 32,261 $ 35,510 $ 975 $4,339 $9,723 $-$-$ -$33,496 $ 36,600 $ 45,233
* Includes results of Mortgage Guaranty and in 2009 also includes results of Transatlantic which was deconsolidated during 2009 and
21st Century and HSB which were sold during 2009.
AIG 2010 Form 10-K 281