AIG 2005 Annual Report Download - page 59

AMERICAN INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
change in estimates over the period of years subsequent to the The bottom of each table below shows the remaining
calendar year reflected at the top of the respective column undiscounted and discounted net loss reserve for each year. For
heading. For example, the deficiency of $3.75 billion at example, in the table that excludes asbestos and environmental
December 31, 2005 related to December 31, 2004 net losses losses, for the 2000 year-end, the remaining undiscounted
and loss expense reserves of $47.30 billion represents the reserves held as of December 31, 2005 are $10.01 billion, with
cumulative amount by which reserves for 2004 and prior years a corresponding discounted net reserve of $9.32 billion.
have developed deficiently during 2005. The deficiency that The reserves for net losses and loss expenses with respect to
has emerged in the last year can be attributed primarily to the Transatlantic and 21st Century are included only in consoli-
excess casualty, excess workers compensation, and D&O and dated net losses and loss expenses commencing with the year
related management liability classes of business. These classes ended December 31, 1998, the year they were first consolidated
in total produced approximately $4 billion of adverse develop- in AIG’s financial statements. Reserve development for these
ment in 2005, primarily related to claims from accident years operations is included only for 1998 and subsequent periods.
2002 and prior. For most other classes, accident years 2002 and Thus, the presentation for 1997 and prior year ends is not fully
prior generally produced adverse development in 2005, whereas comparable to that for 1998 and subsequent years in the tables
accident year 2004 generally produced favorable development. below.
In total, the favorable development for all classes of business
for accident year 2004 was approximately $3.85 billion. The
accident year emergence can be seen by comparing the
respective development in 2005 for each column’s loss reserve
in the table that follows. Loss development patterns utilized to
test the reserves generally rely on the actual historical loss
development patterns of prior accident years for each class of
business. See also Management’s Discussion and Analysis of
Financial Condition and Results of Operations for further
discussion of loss development in 2005.
AIG m Form 10-K 7