AIG 2010 Annual Report Download - page 318

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The liability for policyholder contract deposits has been established based on the following assumptions:
• Interest rates credited on deferred annuities, which vary by territory and year of issuance, range from
1 percent to, including bonuses, 13 percent. Current declared interest rates are generally guaranteed to
remain in effect for a period of one year though some are guaranteed for longer periods. Withdrawal
charges generally range from zero percent to 20 percent grading to zero over a period of zero to 15 years.
• Domestically, guaranteed investment contracts (GICs) have market value withdrawal provisions for any funds
withdrawn other than benefit responsive payments. Interest rates credited generally range from 0.3 percent
to 8.5 percent. The vast majority of these GICs mature within four years.
• Interest rates on corporate life insurance products are guaranteed at 3 percent and the weighted average
rate credited in 2010 was 4.9 percent.
• The universal life funds have credited interest rates of 1 percent to 8 percent and guarantees ranging from
1 percent to 5.5 percent depending on the year of issue. Additionally, universal life funds are subject to
surrender charges that amount to 11 percent of the aggregate fund balance grading to zero over a period
not longer than 20 years.
• For variable products and investment contracts, policy values are expressed in terms of investment units.
Each unit is linked to an asset portfolio. The value of a unit increases or decreases based on the value of the
linked asset portfolio. The current liability at any time is the sum of the current unit value of all investment
units plus any liability for guaranteed minimum death or withdrawal benefits.
Certain products are subject to experience adjustments. These include group life and group medical products,
credit life contracts, accident and health insurance contracts/riders attached to life policies and, to a limited extent,
reinsurance agreements with other direct insurers. Ultimate premiums from these contracts are estimated and
recognized as revenue, and the unearned portions of the premiums recorded as liabilities. Experience adjustments
vary according to the type of contract and the territory in which the policy is in force and are subject to local
regulatory guidance.
14. Variable Life and Annuity Contracts
AIG reports variable contracts through separate accounts when investment income and investment gains and
losses accrue directly to, and investment risk is borne by, the contract holder (traditional variable annuities), and
the separate account qualifies for separate account treatment. AIG also reports variable annuity and life contracts
through separate accounts, or general accounts when not qualified for separate account reporting, when AIG
contractually guarantees to the contract holder (variable contracts with guarantees) either (a) total deposits made
to the contract less any partial withdrawals plus a minimum return (and in minor instances, no minimum returns)
(Net Deposits Plus a Minimum Return) or (b) the highest contract value attained, typically on any anniversary
date minus any subsequent withdrawals following the contract anniversary (Highest Contract Value Attained).
These guarantees include benefits that are payable in the event of death, annuitization, or, in other instances, at
specified dates during the accumulation period. Such benefits are referred to as guaranteed minimum death
benefits (GMDB), guaranteed minimum income benefits (GMIB), guaranteed minimum withdrawal benefits
(GMWB) and guaranteed minimum account value benefits (GMAV). For AIG, GMDB is the most widely offered
benefit.
The assets supporting the variable portion of both traditional variable annuities and variable contracts with
guarantees are carried at fair value and reported as Separate account assets with an equivalent summary total
reported as Separate account liabilities when the separate account qualifies for separate account treatment. Assets
for separate accounts that do not qualify for separate account treatment are reported as trading account assets,
and liabilities are included in the respective policyholder liability account of the general account. Amounts
assessed against the contract holders for mortality, administrative, and other services are included in revenue and
changes in liabilities for minimum guarantees are included in Policyholder benefits and claims incurred in the
302 AIG 2010 Form 10-K