AIG 2013 Annual Report Download - page 215

Variable annuity products offered by our Retirement Income Solutions and Group Retirement product lines offer
guaranteed benefit features. These guaranteed features include guaranteed minimum death benefits (GMDB) and
guaranteed minimum income benefits (GMIB) that are payable in the event of death, and living benefits that are
payable in the event of annuitization, or, in other instances, at specified dates during the accumulation period. Living
benefits include guaranteed minimum withdrawal benefits (GMWB) and guaranteed minimum account value benefits
(GMAV). See Note 13 to the Consolidated Financial Statements for additional information on these features. At
December 31, 2013, variable annuity account values subject to these features included $63 billion with GMDB,
$3 billion with GMIB, $28 billion with GMWB and $627 million with GMAV. For GMDB, our most widely offered
guaranteed benefit feature, the liabilities included in Future policyholder benefits at December 31, 2013 and 2012
were $355 million and $374 million, respectively.
The liabilities for GMDB and GMIB, which are recorded in Future policyholder benefits, represent the expected value
of benefits in excess of the projected account value, with the excess recognized ratably over the accumulation period
based on total expected assessments, through Policyholder benefits and claims. The liabilities for GMWB and GMAV,
which are recorded in Policyholder contract deposits, are accounted for as embedded derivatives measured at fair
value, with changes in the fair value of the liabilities recorded in Other realized capital gains (losses).
Our exposure to the guaranteed amounts is equal to the amount by which the contract holder’s account balance is
below the amount provided by the guaranteed feature. A variable annuity contract may include more than one type of
guaranteed benefit feature; for example, it may have both a GMDB and a GMWB. However, a policyholder can only
receive payout from one guaranteed feature on a contract containing a death benefit and a living benefit, i.e. the
features are mutually exclusive, so the exposure to the guaranteed amount for each feature is not additive to that of
other features. A policyholder cannot purchase more than one living benefit on one contract. Declines in the equity
markets, increased volatility and a sustained low interest rate environment increase our exposure to potential benefits
under the guaranteed features, leading to an increase in the liabilities for those benefits. See Critical Accounting
Estimates — Estimated Gross Profits for Investment-Oriented Products herein for sensitivity analysis which includes
the sensitivity of reserves for guaranteed benefit features to changes in the assumptions for equity market returns,
volatility and mortality. For a further discussion of the risks related to guaranteed benefit features of variable
annuities, our dynamic hedging program and risks of AIG’s unhedged exposures, see Item 1A. — Risk Factors —
Business and Operations.
Guaranteed Benefit Features of Variable Annuity Products (AIG Life and Retirement)
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AIG 2013 Form 10-K 197
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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