AIG 2012 Annual Report Download - page 288

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The change in these adjustments, net of tax, is included with the change in net unrealized appreciation (depreciation)
of investments that is credited or charged directly to Accumulated other comprehensive income (loss) (Shadow DAC).
Value of Business Acquired (VOBA) is determined at the time of acquisition and is reported in the Consolidated
Balance Sheet with DAC. This value is based on the present value of future pre-tax profits discounted at yields
applicable at the time of purchase. For participating life, traditional life and accident and health insurance products,
VOBA is amortized over the life of the business similar to that for DAC based on the assumptions at purchase. For
universal life, and investment-oriented products, VOBA is amortized in relation to the estimated gross profits to date
for each period.
For contracts accounted for at fair value, policy acquisition costs are expensed as incurred and not deferred or
amortized.
For discussion related to changes in deferred acquisition costs in 2012 due to the adoption of a new accounting
standard that addresses the accounting for costs associated with acquiring or renewing insurance contracts. See
Note 2 herein.
The following table presents a rollforward of DAC:
AIG Property Casualty:
Balance, beginning of year $ 2,099 $ 1,919
Acquisition costs deferred 4,548 4,058
Amortization expense (4,324) (3,894)
Increase (decrease) due to foreign exchange and other 52 16
Balance, end of year $ 2,375 $ 2,099
AIG Life and Retirement:
Balance, beginning of year $ 7,258 $ 8,462
Acquisition costs deferred 869 701
Amortization expense (1,142) (1,086)
Change in net unrealized losses on securities (486) (817)
Increase (decrease) due to foreign exchange 3 1
Other – (3)
Balance, end of year(a) $ 6,502 $ 7,258
Other operations:
Balance, beginning of year $ 32 $ 17,505
Dispositions(b) – (16,117)
Acquisition costs deferred 14 1,218
Amortization expense (20) (841)
Change in net unrealized gains (losses) on securities – 28
Increase due to foreign exchange 1 314
Activity of discontinued operations – 59
Reclassified to Assets held for sale – (1,960)
Other (2) (174)
Subtotal $25$ 32
Consolidation and eliminations 35 42
Balance, end of year(a) $60$ 74
Total deferred policy acquisition costs $ 8,937 $ 9,431
(a) Includes $(619) million, $(1.4) billion, and $(758) million for AIG Life and Retirement at December 31, 2012, 2011 and 2010, respectively, and
$(34) million for Divested businesses at 2011 related to the effect of net unrealized gains and losses on available for sale securities. For the year
ended December 31, 2010, there were no net unrealized gains and losses on available for sale securities associated with divested businesses.
(b) For 2010, includes AIA which was deconsolidated and ALICO which was sold in 2010.
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AIG 2012 Form 10-K 271
Years Ended December 31,
(in millions) 2012 2011 2010
$ 2,375
4,861
(4,761)
(34)
$ 2,441
$ 6,502
724
(931)
(621)
(2)
–
$ 5,672
$25
–
36
(17)
–
–
–
–
–
$44
25
$69
$ 8,182
ITEM 8 / NOTE 10. DEFERRED POLICY ACQUISITION COSTS