AIG 2010 Annual Report Download - page 299

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reinsurance Security
AIG’s third-party reinsurance arrangements do not relieve AIG from its direct obligation to its insureds. Thus, a
credit exposure exists with respect to both general and life reinsurance ceded to the extent that any reinsurer fails
to meet the obligations assumed under any reinsurance agreement. AIG holds substantial collateral as security
under related reinsurance agreements in the form of funds, securities, and/or letters of credit. A provision has
been recorded for estimated unrecoverable reinsurance. AIG has been largely successful in prior recovery efforts.
AIG evaluates the financial condition of its reinsurers and establishes limits per reinsurer through AIG’s Credit
Risk Committee. AIG believes that no exposure to a single reinsurer represents an inappropriate concentration of
risk to AIG, nor is AIG’s business substantially dependent upon any single reinsurer.
10. Deferred Policy Acquisition Costs
The following table presents a rollforward of deferred policy acquisition costs:
Years Ended December 31,
(in millions) 2010 2009 2008
General insurance operations:
Balance, beginning of year $ 4,875 $ 5,114 $ 5,407
Dispositions(a) -(418) -
Acquisition costs deferred 6,865 6,522 7,370
Amortization expense (6,788) (6,741) (7,457)
Activity of discontinued operations -- (152)
Increase (decrease) due to foreign exchange and other 68 398 (54)
Balance, end of year $ 5,020 $ 4,875 $ 5,114
Life insurance and retirement services:
Balance, beginning of year $ 11,098 $14,447 $12,270
Dispositions(b) -(479) -
Acquisition costs deferred 990 1,014 1,655
Amortization expense (1,368) (1,553) (522)
Change in unrealized gains (losses) on securities(c) (1,111) (960) 1,158
Increase (decrease) due to foreign exchange 1(10) (114)
Other(d) (4) (1,361) -
Subtotal $ 9,606 $11,098 $14,447
Consolidation and eliminations 42 49 55
Balance, end of year(e) $ 9,648 $11,147 $14,502
Divested Businesses:(f)
Balance, beginning of year $ 24,792 $26,166 $26,175
Dispositions(b) (22,244) - (16)
Acquisition costs deferred 1,480 1,513 1,861
Amortization expense (978) (1,148) (1,460)
Change in unrealized gains (losses) on securities(c) 34 (44) (81)
Increase (decrease) due to foreign exchange 377 826 (1,143)
Activity of discontinued operations 220 868 1,888
Reclassified to Assets held for sale (3,521) (3,322) -
Other(d) (160) (67) (1,058)
Balance, end of year(e) $-$24,792 $26,166
Total deferred policy acquisition costs $ 14,668 $40,814 $45,782
(a) In 2009, Transatlantic was deconsolidated and 21st Century and HSB were sold.
AIG 2010 Form 10-K 283