AIG 2013 Annual Report Download - page 287

The following table presents a rollforward of DAC:
AIG Property Casualty:
Balance, beginning of year $ 2,375 $ 2,099
Acquisition costs deferred 4,861 4,548
Amortization expense (4,761) (4,324)
Increase (decrease) due to foreign exchange and other (34) 52
AIG Property Casualty other ––
Balance, end of year $ 2,441 $ 2,375
AIG Life and Retirement:
Balance, beginning of year $ 6,502 $ 7,258
Acquisition costs deferred 724 869
Amortization expense (931) (1,142)
Change in net unrealized gains (losses) on securities (621) (486)
Increase (decrease) due to foreign exchange (2) 3
Other ––
Balance, end of year $ 5,672 $ 6,502
Mortgage Guaranty:
Balance, beginning of year $ 25 $ 32
Acquisition costs deferred 36 14
Amortization expense (17) (20)
Increase (decrease) due to foreign exchange – 1
Other –(2)
Balance, end of year $44$25
Consolidation and eliminations 25 35
Total deferred policy acquisition costs*$ 8,182 $ 8,937
* Includes $1.1 billion, $1.8 billion, and $1.4 billion for AIG Life and Retirement at December 31, 2013, 2012 and 2011, respectively, and
$34 million for Divested businesses at December 31, 2011, related to the effect of net unrealized gains and losses on available for sale securities.
VOBA amortization expense included in the table above was $21 million, $53 million and $34 million in 2013, 2012
and 2011, respectively, while the unamortized balance of VOBA was $351 million, $339 million and $430 million at
December 31, 2013, 2012 and 2011, respectively. The percentage of the unamortized balance of VOBA at
December 31, 2013 expected to be amortized in 2014 through 2018 by year is: 4.6 percent, 6.3 percent, 5.6 percent,
5.3 percent and 5.3 percent, respectively, with 72.8 percent being amortized after five years. These projections are
based on current estimates for investment income and spreads, persistency, mortality and morbidity assumptions.
The DAC amortization expense charged to income includes the increase or decrease of amortization related to Net
realized capital gains (losses), primarily in AIG Life and Retirement. In 2013, 2012 and 2011, amortization expense
related to Net realized capital gains (losses) increased by $23 million, $119 million and $274 million, respectively.
DAC, VOBA and SIA for insurance-oriented and investment-oriented products are reviewed for recoverability, which
involves estimating the future profitability of current business. This review involves significant management judgment.
If actual future profitability is substantially lower than estimated, AIG’s DAC, VOBA and SIA may be subject to an
impairment charge and AIG’s results of operations could be significantly affected in future periods.
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AIG 2013 Form 10-K 269
ITEM 8 / NOTE 9. DEFERRED POLICY ACQUISITION COSTS
Years Ended December 31,
(in millions) 2013 2012 2011
$ 2,441
4,866
(4,479)
(168)
(37)
$ 2,623
$ 5,672
930
(658)
787
(5)
(3)
$ 6,723
$44
42
(20)
–
1
$67
23
$ 9,436
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