AIG 2011 Annual Report Download - page 100

The following table classifies the components of net loss reserves by business unit:
Years Ended December 31,
(in millions) 2011 2010
Chartis:
Commercial Insurance $ 58,625 $ 57,324
Consumer Insurance 5,362 5,030
Other*3,992 5,720
Total Chartis 67,979 68,074
Other operations – Mortgage Guaranty 2,846 3,433
Net liability for unpaid claims and claims adjustment expense at end of $ 70,825 $ 71,507
* In 2011, the net loss reserves reflect the cession under the June 17, 2011 transaction with National Indemnity Company (NICO) of $1.7 billion.
See Liability for Unpaid Claims and Claims Adjustment Expense — Asbestos and Environmental Reserve for additional discussion of the
NICO transaction.
Discounting of Reserves
At December 31, 2011, net loss reserves reflect a loss reserve discount of $3.18 billion, including tabular and
non-tabular calculations. The tabular workers’ compensation discount is calculated using a 3.5 percent interest rate
and the 1979 - 81 Decennial Mortality Table. The non-tabular workers’ compensation discount is calculated
separately for companies domiciled in New York and Pennsylvania, and follows the statutory regulations for each
state. For New York companies, the discount is based on a five percent interest rate and the companies’ own
payout patterns. For Pennsylvania companies, the statute has specified discount factors for accident years 2001 and
prior, which are based on a six percent interest rate and an industry payout pattern. For accident years 2002 and
subsequent, the discount is based on the payout patterns and investment yields of the companies. Beginning in
2011, a portion of these discounted reserves were ceded to a new Pennsylvania domiciled AIG subsidiary.
However, this had no impact on the calculation of the overall discount. Certain other asbestos business that was
written by Chartis is discounted based on the investment yields of the companies and the payout pattern for this
business. The discount consists of the following: $777 million — tabular discount for workers’ compensation in the
U.S. and Canada operations of Chartis and $2.32 billion — non-tabular discount for workers’ compensation in the
U.S. and Canada operations of Chartis; and $88 million — non-tabular discount for asbestos for Chartis.
Results of the Reserving Process
AIG believes that its net loss reserves are adequate to cover net losses and loss expenses as of December 31,
2011. While AIG regularly reviews the adequacy of established loss reserves, there can be no assurance that AIG’s
ultimate loss reserves will not develop adversely and materially exceed AIG’s loss reserves as of December 31,
2011. In the opinion of management, such adverse development and resulting increase in reserves are not likely to
have a material adverse effect on AIG’s consolidated financial condition, although such events could have a
material adverse effect on AIG’s consolidated results of operations for an individual reporting period. See
Item 1A. Risk Factors — Casualty Insurance Reserves.
86 AIG 2011 Form 10-K