AIG 2012 Annual Report Download - page 208

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For a further discussion of the risks of AIG’s unhedged exposures, see Item 1A. – Risk Factors – Business and
Operations.
Estimated Gross Profits for Interest-Sensitive Products (AIG Life and Retirement)
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Estimated gross profits (EGP) are subject to differing market returns and interest rate environments in any single
period. EGP is composed of net investment income, net realized investment gains and losses, fees, surrender
charges, expenses, and mortality and morbidity gains and losses. When assumptions are changed, the percentage of
EGP used to amortize DAC may also change.
The following table summarizes the sensitivity of changes in certain assumptions in the amortization of DAC/
SIA, guaranteed benefits reserve and unearned revenue liability and the related hypothetical impact on
year-end 2012 balances. The effect of changes in the equity markets, volatility and interest rates primarily
impacts individual variable annuities (SunAmerica Retirement Markets) and group retirement products
(VALIC). The effect of changes in mortality primarily impacts the universal life insurance business.
Assumptions:
Equity Return(a)
Effect of an increase by 1% $ 67 $ – $ (23) $ 90
Effect of a decrease by 1% (67) – 54 (121)
Volatility(b)
Effect of an increase by 1% (10) 1 2 (13)
Effect of a decrease by 1% 9 (1) (2) 12
Interest Rate(c)
Effect of an increase by 10 basis points 9 1 – 8
Effect of a decrease by 10 basis points (9) (1) – (8)
Mortality
Effect of an increase by 1% (15) (6) 13 (22)
Effect of a decrease by 1% 13 5 (13) 21
(a) Represents the net impact of 1 percent increase or decrease in long-term equity returns for GMDB and GMIB reserves and negligible net
impact of 1 percent increase or decrease in the S&P 500 index for living benefit reserves.
(b) Represents the net impact of 1 percentage point increase or decrease in implied volatility.
(c) Represents the net impact of a 10 basis point parallel shift in the yield curve. Does not represent interest rate spread compression.
The analysis of DAC, guaranteed benefits reserve and unearned revenue liability is a dynamic process that considers
all relevant factors and assumptions described above. We estimate each of the above factors individually, without the
effect of any correlation among the key assumptions. An assessment of sensitivity associated with changes in any
single assumption would not necessarily be an indicator of future results.
Other-Than-Temporary Impairments on Available For Sale Securities
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At each balance sheet date, we evaluate our available for sale securities holdings with unrealized losses.
See the discussion in Note 7 to the Consolidated Financial Statements for additional information on the methodology
and significant inputs, by security type, that we use to determine the amount of other-than-temporary impairment on
fixed maturity and equity securities.
Goodwill Impairment
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For a discussion of goodwill impairment, see Note 2 to the Consolidated Financial Statements.
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AIG 2012 Form 10-K 191
Guaranteed Unearned Net
December 31, 2012 Benefits Revenue Pre-Tax
(in millions) DAC/SIA Reserve Liability Earnings
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES