AIG 2015 Annual Report Download - page 217

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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rates, equity returns and volatility primarily impact embedded derivatives and other reserves for guaranteed benefits
in our Retirement Income Solutions and Group Retirement product lines, as well as universal life insurance with
secondary guarantees. Changes in mortality assumptions primarily impact DAC in our universal life insurance
business.
Other Embedded Net
Reserves Derivatives Increase
Related to Unearned Related to (Decrease)
December 31, 2015 Guaranteed Revenue Guaranteed in Pre-Tax
(in millions) DAC/SIA Benefits Reserve Benefits Income
Assumptions:
Net Investment Spread
Effect of an increase by 10 basis points $ 123 $ (7) $ 8 $ (12) $ 135
Effect of a decrease by 10 basis points (131) 14 (26) 12 (130)
Equity Return(a)
Effect of an increase by 1% 88 (34) 1 (47) 168
Effect of a decrease by 1% (87) 40 (1) 50 (176)
Volatility (b)
Effect of an increase by 1% - - - (43) 43
Effect of a decrease by 1% - - - 42 (42)
Interest Rate(c)
Effect of an increase by 10 basis points - - - (131) 131
Effect of a decrease by 10 basis points - - - 141 (141)
Mortality
Effect of an increase by 1% (8) 23 (1) (25) (4)
Effect of a decrease by 1% 8 (23) 3 26 3
Lapse
Effect of an increase by 10% (142) (42) (8) (103) 11
Effect of an decrease by 10% 149 43 8 109 (11)
(a) Represents the net impact of a one percent increase or decrease in long-term equity returns for GMDB and GMIB reserves and negligible net impact of a
one percent increase or decrease in the S&P 500 index for GMWB and GMAB living benefit reserves.
(b) Represents the net impact of a one percentage point increase or decrease in equity volatility.
(c) Represents the net impact of 10 basis point parallel shift in the yield curve on the reserves for GMWB and GMAB living benefit features. Does not represent
interest rate spread compression on investment-oriented products.
The analysis of DAC, embedded derivatives and other reserves related to guaranteed benefits, and unearned revenue reserve
is a dynamic process that considers all relevant factors and assumptions described above. We estimate each of the above
factors individually, without the effect of any correlation among the key assumptions. An assessment of sensitivity associated
with changes in any single assumption would not necessarily be an indicator of future results. The effects on pre-tax income in
the sensitivity analysis table above do not reflect the related effects from our economic hedging program, which utilizes
derivative and other financial instruments and is designed so that changes in value of those instruments move in the opposite
direction of changes in the guaranteed benefit embedded derivative liabilities. For a further discussion on guaranteed benefit
features of our variable annuities and the related hedging program, see Enterprise Risk Management – Life Insurance
Companies Key Insurance Risks – Variable Annuity Risk Management and Hedging Program, Item 1A. — Risk Factors —
Business and Operations, and Notes 4 and 13 to the Consolidated Financial Statements.
Impairment Charges
Impairments of Investments
At each balance sheet date, we evaluate our available for sale securities holdings with unrealized losses to determine if an
other-than-temporary impairment has occurred. We also evaluate our other invested assets for impairment; these include