AIG 2014 Annual Report Download - page 281

ITEM 8 / NOTE 8. REINSURANCE
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264
Assumed 3,258 3,516 3,133
Ceded (8,140) (8,585) (9,375)
Net $ 33,825 $ 33,949 $ 34,786
For the years ended December 31, 2014, 2013 and 2012, reinsurance recoveries, which reduced losses and loss adjustment
expenses incurred, amounted to $2.6 billion, $3.3 billion and $4.5 billion, respectively.
Long-Duration Reinsurance
Long-duration reinsurance is effected principally under yearly renewable term treaties. The premiums with respect to these
treaties are earned over the contract period in proportion to the protection provided. Amounts recoverable from reinsurers on
long-duration contracts are estimated in a manner consistent with the assumptions used for the underlying policy benefits and
are presented as a component of Reinsurance assets.
The following table presents premiums for our long-duration insurance and retirement services operations:
Years Ended
December 31, Life Insurance Companies Run-off insurance lines Total
(in millions) 2014 2013 2012 2014 2013 2012 2014 2013 2012
Gross premiums $ 4,059 $ 4,155 $ 3,963 $11 $9$11 $ 4,070 $ 4,164 $ 3,974
Ceded premiums (661) (620) (581) --- (661) (620) (581)
Net $ 3,398 $ 3,535 $ 3,382 $11 $9$11 $ 3,409 $ 3,544 $ 3,393
Long-duration reinsurance recoveries, which reduced Policyholder benefits and losses incurred, were approximately
$731 million, $714 million and $758 million, respectively, for the years ended December 31, 2014, 2013 and 2012.
The following table presents long-duration insurance in-force ceded to other insurance companies:
At December 31,
(in millions) 2014 2013 2012
*
Long-duration insurance in force ceded $180,178 $ 122,012 $129,159
* Excludes amounts related to held-for-sale entities.
Long-duration insurance in force assumed represented 0.04 percent of gross long-duration insurance in force at December 31,
2014, 0.05 percent at December 31, 2013 and 0.05 percent at December 31, 2012, and premiums assumed by the Life
Insurance Companies represented 0.5 percent, 0.3 percent and 0.4 percent of gross premiums for the years ended December
31, 2014, 2013 and 2012, respectively.
The domestic Life Insurance Companies utilize internal and third-party reinsurance relationships to manage insurance risks
and to facilitate capital management strategies, which allows them to minimize the use of letters of credit and utilize capital
more efficiently. Pools of highly-rated third-party reinsurers are utilized to manage net amounts at risk in excess of retention
limits.
The domestic Life Insurance Companies manage the capital impact on their statutory reserve requirements under the NAIC
Model Regulation “Valuation of Life Insurance Policies” (Regulation XXX) and NAIC Actuarial Guideline 38 (Guideline AXXX)
through intercompany reinsurance transactions. Under GAAP, these intercompany reinsurance transactions are eliminated in
consolidation. Under one arrangement, one of the domestic Life Insurance Companies obtains letters of credit to support
statutory recognition of the ceded reinsurance. As of December 31, 2014, the domestic Life Insurance Companies had two
bilateral letters of credit totaling $450 million with AIG entities, which were issued on February 7, 2014 and expire on February
7, 2019, but will be automatically extended without amendment by one year on each anniversary of the issuance date, unless
the issuer provides notice of non-renewal. See Note 20 for additional information on the use of affiliated reinsurance for
Regulation XXX and Guideline AXXX reserves.