AIG 2015 Annual Report Download - page 99

ITEM 7 / RESULTS OF OPERATIONS / CONSUMER INSURANCE

99
Premiums and deposits increased in 2015 compared to 2014, primarily due to growth in Retirement Income Solutions and
Retail Mutual Funds. Premiums and deposits increased in 2014 compared to 2013, primarily in Retirement Income Solutions
product lines and in Fixed Annuities, partially offset by lower deposits in Retail Mutual Funds and Group Retirement.
Net flows for annuity products included in the Fixed Annuities, Retirement Income Solutions and Group Retirement product
lines represent premiums and deposits less death, surrender and other withdrawal benefits. Net flows from mutual funds,
which are included in both the Retail Mutual Funds and Group Retirement product lines, represent deposits less withdrawals.
Total net flows for Retirement increased in 2015 compared to 2014, primarily due to lower surrenders in Group Retirement,
improvement in both sales and the level of withdrawals in Retail Mutual Funds, and continued growth in Retirement Income
Solutions.
Total net flows for Retirement decreased in 2014 compared to 2013, primarily due to higher surrenders and withdrawals in
2014, primarily in the Group Retirement and Retail Mutual Funds product lines, which resulted in a significant decrease in net
flows compared to 2013.
Premiums and Deposits and Net Flows by Product Line
A discussion of the significant variances in premiums and deposits and net flows for each product line follows:
Fixed Annuities premiums and deposits increased in 2015 compared to 2014, due to new product offerings and increases in
market interest rates driven by widening credit spreads in the second half of the year, but net flows continued to be negative,
primarily due to the sustained relatively low interest rate environment. The increase in Fixed Annuities deposits in 2014
compared to 2013 was due to modest increases in interest rates and steepening of the yield curve in the first half of 2014,
compared to lower rates in the prior year, particularly in the first half of 2013. Fixed Annuities net flows in 2014 were negative,
but improved compared to 2013, primarily due to the increased deposits.
Retirement Income Solutions premiums and deposits and net flows increased in 2015 compared to 2014, reflecting an
increase in index annuity sales. Premiums and deposits and net flows increased significantly in 2014 compared to 2013,
reflecting a high volume of variable and index annuity sales, which benefitted from consumer demand for retirement products
with guaranteed benefit features, product enhancements, expanded distribution and a more favorable competitive
environment. The improvement in surrender rates in 2015 and 2014 compared to the prior years (see Surrender Rates below)
was primarily due to the significant growth in account value driven by the high volume of sales, which has increased the
proportion of business that is within the surrender charge period.
Retail Mutual Funds deposits and net flows increased in 2015 compared to 2014, and decreased in 2014 compared to 2013,
driven primarily by activity within the Focused Dividend Strategy Portfolio. After record sales in 2013, the Focused Dividend
Strategy Portfolio experienced relatively less favorable performance in 2014, putting pressure on 2014 sales and withdrawal
activity. In 2015, sales and withdrawals for this portfolio improved, due to a return to strong performance levels, resulting in
overall growth in Retail Mutual Funds net flows compared to 2014.
Group Retirement net flows increased in 2015 compared to 2014, primarily due to lower surrender activity. The improvement
in the surrender rate in 2015 compared to 2014 was due in part to lower large group surrenders, which were approximately
$1.5 billion in 2015, compared to $2.7 billion in 2014. Group Retirement net flows decreased in 2014 compared to 2013,
primarily due to higher group surrender activity, as well as lower premiums and deposits. The large group market has become
increasingly competitive and has been impacted by the consolidation of healthcare providers and other employers in our target
markets. This trend of heightened competition is expected to continue in 2016 as plan sponsors perform reviews of existing
retirement plan relationships.