AIG 2014 Annual Report Download - page 159

ITEM 7 / INSURANCE RESERVES / LIFE INSURANCE COMPANIES
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142
Death and other contract benefits (812) (772) (878)
Subtotal 3,141 3,194 2,985
Change in fair value of underlying assets and reserve accretion, net of
policy fees (691) (673) (473)
Cost of funds 507 541 510
Other reserve changes (2,231) (2,428) (2,200)
Balance at end of year 33,536 32,810 32,176
Reserves related to unrealized appreciation of investments - --
Reinsurance ceded (1,315) (1,354) (1,375)
Total insurance reserves $ 32,221 $ 31,456 $ 30,801
Total Life Insurance Companies:
Balance at beginning of year, gross $ 260,403 $ 237,699 $ 226,859
Premiums and deposits 32,680 29,641 21,797
Surrenders and withdrawals (22,123) (19,975) (16,938)
Death and other contract benefits (6,032) (5,496) (5,768)
Subtotal 4,525 4,170 (909)
Change in fair value of underlying assets and reserve accretion, net of
policy fees 6,829 14,965 8,188
Cost of funds 3,698 3,791 4,208
Other reserve changes (2,212) (222) (647)
Balance at end of year 273,243 260,403 237,699
Reserves related to unrealized appreciation of investments 1,154 - 2,815
Reinsurance ceded (1,673) (1,725) (1,761)
Total insurance reserves and mutual fund assets under management $ 272,724 $ 258,678 $ 238,753
Life Insurance Companies insurance reserves including separate accounts and mutual fund assets under
management were comprised of the following balances:
At December 31,
(in millions) 2014 2013
Future policy benefits* $ 40,931 $ 38,849
Policyholder contract deposits 124,716 122,038
Separate account liabilities 80,025 71,048
Total insurance reserves 245,672 231,935
Mutual funds assets under management 27,052 26,743
Total insurance reserves and mutual fund assets under management $ 272,724 $ 258,678
* Excludes certain intercompany assumed reinsurance.
Loss Recognition
Other reserve changes in the table above include loss recognition expense. Reserves related to unrealized appreciation of
investments include shadow loss reserves. Loss recognition expense attributable primarily to investment sales related to
capital loss carryforward utilization was excluded from pre-tax operating income and reported within changes in benefit
reserves and DAC, VOBA and SIA related to net realized capital gains (losses) in Results of Operations – Consumer
Insurance. See Critical Accounting Estimates – Future Policy Benefits for Life and Accident and Health Insurance Contracts for
additional discussion of loss recognition.
The Life operating segment recorded loss recognition expense of $87 million in 2014 and $67 million in 2012, which reduced
pre-tax operating income in the respective periods, to increase reserves for certain long-term care business. The 2014 loss
recognition was primarily a result of lower future premium increase assumptions and, to a lesser extent, lower yield
assumptions. The 2012 loss recognition reflected updated assumptions for morbidity and lower premium increases.
Assumptions related to investment yields, mortality experience and expenses are reviewed periodically and updated as
appropriate, which could also result in additional loss recognition reserves. While the domestic Life Insurance Companies do
not currently offer standalone long-term care products, these needs are addressed with various benefits and riders in the
existing portfolio, such as chronic illness riders.