AIG 2014 Annual Report Download - page 297

ITEM 8 / NOTE 13. INSURANCE LIABILITIES
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Future policy benefits also include certain guaranteed benefits of variable annuity products that are not considered embedded
derivatives, primarily guaranteed minimum death benefits. See Note 14 for additional information on guaranteed death
benefits.
The liability for long-duration future policy benefits has been established including assumptions for interest rates which vary by
year of issuance and product, and range from approximately 1 percent to 12 percent. Mortality and surrender rate assumptions
are generally based on actual experience when the liability is established.
For universal life policies with secondary guarantees, we recognize a future policy benefit reserve, in addition to policyholder
contract deposits, based on a benefit ratio of (a) the present value of total expected payments, in excess of the account value,
over the life of the contract, divided by (b) the present value of total expected assessments over the life of the contract. For
universal life policies without secondary guarantees, for which profits followed by losses are first expected after contract
inception, we establish future policy benefit reserves, in addition to policyholder contract deposits, so that expected future
losses are recognized in proportion to the emergence of profits in the earlier (profitable) years.
Policyholder Contract Deposits
The liability for Policyholder contract deposits is primarily recorded at accumulated value (deposits received and net transfers
from separate accounts, plus accrued interest credited at rates ranging from 0.3% to 8.4% at December 31, 2014, less
withdrawals and assessed fees). Deposits collected on investment-oriented products are not reflected as revenues, because
they are recorded directly to Policyholder contract deposits upon receipt. Amounts assessed against the contract holders for
mortality, administrative, and other services are included in revenues.
In addition to liabilities for universal life, fixed annuities, fixed options within variable annuities, annuities without life
contingencies, funding agreements and GICs, policyholder contract deposits also include our liability for (a) certain guaranteed
benefits and indexed features accounted for as embedded derivatives at fair value, (b) annuities issued in a structured
settlement arrangement with no life contingency and (c) certain contracts we have elected to account for at fair value. See
Note 14 herein for additional information on guaranteed benefits accounted for as embedded derivatives.
Under a funding agreement-backed notes issuance program, an unaffiliated, non-consolidated statutory trust issues medium-
term notes to investors, which are secured by GICs issued to the trust by one of our Life Insurance Companies through our
Institutional Markets operating segment. During the year ended December 31, 2014, a $450 million GIC was issued in
conjunction with the funding agreement-backed notes program.
The following table presents Policyholder contract deposits of the domestic Life Insurance Companies by product
line:
At December 31,
(in millions) 2014 2013
Policyholder contract deposits:
Fixed Annuities $ 53,370 $ 54,515
Group Retirement 37,693 37,695
Life 13,717 13,644
Retirement Income Solutions 10,040 6,729
Institutional Markets 9,793 9,433
Total Policyholder contract deposits $ 124,613 $ 122,016
Other Policyholder Funds
Other policyholder funds include unearned revenue reserves (URR). URR consists of front-end loads on investment-oriented
contracts, representing those policy loads that are non-level and typically higher in initial policy years than in later policy years.
URR for investment-oriented contracts are generally deferred and amortized, with interest, in relation to the incidence of
estimated gross profits (EGPs) to be realized over the estimated lives of the contracts and are subject to the same adjustments
due to changes in the assumptions underlying EGPs as DAC. Amortization of URR is recorded in Policy Fees.