AIG 2014 Annual Report Download - page 155

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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The following table presents survival ratios for asbestos and environmental claims, separately and combined, which
were based upon a three-year average payment:
Years Ended December 31
,
2014 2013 2012
Gross Net*Gross Net* Gross Net*
Survival ratios:
Asbestos 8.3 7.6 10.6 10.5 9.6 8.7
Environmental 5.0 4.3 4.6 3.9 4.5 4.4
Combined 7.9 7.1 9.8 9.4 9.0 8.1
* Survival ratios are calculated consistent with the basis on historical reserve excluding the effects of the NICO reinsurance transaction.
Life Insurance Companies DAC and Reserves
The following section provides discussion of deferred policy acquisition costs and insurance reserves for Life Insurance
Companies.
DAC
The following table summarizes the major components of the changes in Life Insurance Companies DAC, including
VOBA:
Years Ended December 31,
(in millions) 2014 2013 2012
Balance, beginning of year $6,920 $ 5,815 $ 6,607
Acquisition costs deferred 1,114 1,034 788
Amortization expense:
Unlocking included in pre-tax operating income 183 129 64
Related to realized capital gains and losses (23) (23) (119)
All other operating amortization (887) (780) (890)
Increase (decrease) in DAC due to foreign exchange (32) (39) (14)
Other change in DAC(a) 343 --
Change related to unrealized depreciation (appreciation) of investments (360) 784 (621)
Balance, end of year(b) $7,258 $ 6,920 $ 5,815
(a) Other change in DAC in 2014 included (i) VOBA related to the acquisition of Ageas Protect and (ii) an increase in DAC due to a change to include interest
income on assets supporting certain non-traditional insurance liabilities in the determination of estimated gross profits used to amortize both DAC and URR. The
increase in the DAC asset, which principally reflected the impact of the change on periods prior to 2014, was substantially offset by a related increase in the
URR liability.
(b) DAC balance excluding the amount related to unrealized depreciation (appreciation) of investments was $8.7 billion, $8.0 billion and $7.7 billion at December
31, 2014, 2013 and 2012, respectively.
Update of Actuarial Assumptions
Pre-tax operating income in 2014, 2013 and 2012 reflected the net effect of adjustments to update actuarial assumptions for
the domestic Life Insurance Companies. These adjustments included unlocking of estimated gross profit assumptions for
investment-oriented products as well as loss recognition expense to increase reserves for certain traditional blocks of
business. See Critical Accounting Estimates – Estimated Gross Profits for Investment-Oriented Products, Critical Accounting
Estimates – Future Policy Benefits for Life and Accident and Health Insurance Contracts, Unlocking of Estimated Gross Profits
below, and Loss Recognition below, for additional discussion of the process and results related to assumption changes.