AIG 2015 Annual Report Download - page 148

ITEM 7 / INSURANCE RESERVES / LIFE INSURANCE COMPANIES
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In 2013, pre-tax operating income of the Life Insurance Companies in the aggregate increased by a net positive adjustment of
$153 million as a result of the update of assumptions, primarily due to a net positive adjustment in Fixed Annuities, partially
offset by net negative adjustments in Retirement Income Solutions and Group Retirement and a negative adjustment in Life
from the update of mortality assumptions. In Group Retirement, the negative adjustments were partially offset by an increase in
the assumption for separate account asset long-term growth rates.
Adjustments related to the update of assumptions for the valuation of variable annuity GMWB features accounted for as
embedded derivatives and measured at fair value, which are primarily in the Retirement Income Solutions and Group
Retirement product lines, are recorded in net realized capital gains (losses) and excluded from pre-tax operating income. The
update of GMWB valuation assumptions in 2015, which included improved mortality, lapse and withdrawal assumptions,
resulted in a net decrease in the GMWB liability. After offsets for related adjustments to DAC, this update of GMWB valuation
assumptions resulted in a net increase to 2015 pre-tax income of $9 million.
In 2014, improved mortality, lapse and withdrawal assumptions for GMWB embedded derivative liabilities resulted in a net
increase to pre-tax income of $39 million, net of DAC. In 2013, the update of GMWB valuation assumptions resulted in a net
increase to pre-tax income of $61 million, net of DAC, primarily due to updated mortality assumptions.
A discussion of the adjustments to reflect the update of assumptions for the Retirement and Life operating segments follows.
Update of Actuarial Assumptions by Operating Segment
Retirement
The update of actuarial assumptions resulted in net positive adjustments to pre-tax operating income of the Retirement
operating segment of $140 million, $246 million and $233 million in 2015, 2014 and 2013, respectively.
In Fixed Annuities, the update of estimated gross profit assumptions resulted in a net positive adjustment of $92 million in
2015, which reflected refinements to investment spread assumptions, lower terminations than previously assumed and
decreases to expense assumptions. In 2014, a net positive adjustment of $196 million in Fixed Annuities was primarily due to
better spreads than previously assumed. In 2013, a net positive adjustment of $306 million in the Fixed Annuities product line
was the result of active spread management of crediting rates and higher future investment yields than those previously
assumed.
In Retirement Income Solutions, there were offsetting changes to assumed investment fees, modeled expenses, and
terminations resulting in no adjustment to pre-tax operating income in 2015, compared to a $4 million net positive adjustment
in 2014, due to the update of estimated gross profit assumptions. A net negative adjustment of $28 million in Retirement
Income Solutions in 2013 resulted primarily from the update of variable annuity spreads and surrender rates. Adjustments
related to the update of assumptions for the valuation of variable annuity GMWB features accounted for as embedded
derivatives and measured at fair value, which primarily relate to the Retirement Income Solutions product line, are recorded in
net realized capital gains (losses) and excluded from pre-tax operating income. See Update of Actuarial Assumptions above
for discussion of these adjustments.
In Group Retirement, a net positive adjustment from the update of estimated gross profit assumptions of $48 million in 2015
was primarily due to revisions to mortality and surrender assumptions, partially offset by decreased spread assumptions. In
2014, a net positive adjustment of $46 million in Group Retirement was primarily due to more favorable assumptions for
investment spreads and surrenders than previously assumed. A net negative adjustment of $45 million in Group Retirement in
2013 resulted primarily from the update of variable annuity spreads and surrender rates, partially offset by an increase in the
assumption for separate account asset long-term growth rates under our reversion to the mean methodology.
Life
The net negative adjustment of $146 million related to the update of actuarial assumptions, which reduced pre-tax operating
income of the Life operating segment in 2015, included additions to reserves for universal life with secondary guarantees due
to lower surrender rates (partially offset by better mortality than previously assumed), loss recognition expense for certain long-