AIG 2012 Annual Report Download - page 125

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2012 and 2011 Comparison
Overall, net flows were negative in 2012, primarily due to lower fixed annuity deposits resulting from the low interest
rate environment. Net flows improved in 2012 for individual variable annuities due to both the increase in deposits
and favorable surrender experience. Net flows improved in 2012 for retail mutual funds due to increased deposits.
2011 and 2010 Comparison
Net flows improved in 2011 due to both the significant increase in deposits and favorable surrender experience in
group retirement and individual fixed annuities. However, individual fixed annuities net flows declined in the second
half of the year due to lower deposits resulting from the low interest rate environment.
Surrender rates for individual fixed annuities also decreased in 2011 due to the low interest rate environment and the
relative competitiveness of interest credited rates on the existing block of fixed annuities versus interest rates on
alternative investment options available in the marketplace. AIG Life and Retirement returned to a more normal level
of group surrender activity that no longer reflects the negative AIG publicity associated with the events of 2008 and
2009. Individual variable annuities net flows improved from 2010 levels due primarily to higher deposits throughout
2011 and turned positive in the fourth quarter of 2011.
The following table presents reserves by surrender charge category and surrender rates:
No surrender charge $ 53,100 $ 18,179 $ 10,061
0% - 2% 1,186 2,922 4,317
Greater than 2% - 4% 1,248 4,719 2,068
Greater than 4% 4,060 23,372 7,764
Non-surrenderable 815 3,084 686
Total reserves $ 60,409 $ 52,276 $ 24,896
Surrender rates 8.4% 6.8% 11.9%
* Excludes mutual funds of $11.8 billion and $9.5 billion at December 31, 2012 and 2011, respectively.
Low Interest Rate Environment
There are a variety of factors that impact AIG Life and Retirement’s businesses, and the life insurance and annuity
industry in general, during a prolonged low interest rate environment. Declining interest rates result in higher fair
values of assets backing insurance and annuity liabilities and may result in improved persistency of certain lines of
business. A sustained low interest rate environment may also result in lower sales of fixed annuities and other
products and lower net investment spreads as portfolio cash flows are reinvested at lower rates (spread
compression). There are a number of management actions we may take to mitigate these impacts as discussed
below.
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AIG 2012 Form 10-K108
2012 2011
Group Individual Individual Group Individual Individual
Retirement Fixed Variable Retirement Fixed VariableAt December 31,
(in millions) Products*Annuities Annuities Products*Annuities Annuities
$ 55,892 $ 21,528 $ 11,548
1,241 2,970 4,231
1,400 2,867 2,125
4,879 19,609 10,318
1,278 3,757 891
$ 64,690 $ 50,731 $ 29,113
8.6% 6.8% 10.3%
ITEM 7 / RESULTS OF OPERATIONS