AIG 2011 Annual Report Download - page 111

The following is a discussion of actuarial methods applied by major class of business:
Class of Business or Category and Actuarial Method Application of Actuarial Method
Excess Casualty
AIG generally uses a combination of loss development Expected loss ratio methods are generally used for at least
methods and expected loss ratio methods for excess casualty the three latest accident years, due to the relatively low
classes. credibility of the reported losses. The loss experience is
generally reviewed separately for lead umbrella classes and for
Frequency/severity methods are generally not used in other excess classes, due to the relatively shorter tail for lead
isolation as the vast majority of reported claims do not result umbrella business. Automobile-related claims are generally
in a claim payment. In addition, the average severity varies reviewed separately from non-auto claims, due to the
significantly from accident year to accident year due to large shorter-tail nature of the automobile-related claims. Claims
losses which characterize this class of business, as well as relating to certain latent exposures such as construction
changing proportions of claims which do not result in a claim defects or exhaustion of underlying product aggregate limits
payment. are reviewed separately due to the unique emergence patterns
of losses relating to these claims. The expected loss ratios
used for recent accident years are based on the projected
ultimate loss ratios of prior years, adjusted for rate changes,
estimated loss cost trends and all other changes that can be
quantified.
D&O and Related Management Liability Classes of Business
AIG generally uses a combination of loss development Expected loss ratio methods are given more weight in the
methods and expected loss ratio methods for D&O and two most recent accident years, whereas loss development
related management liability classes of business. methods are given more weight in more mature accident
years. In addition to these traditional actuarial methods,
Frequency/severity methods are generally not used in AIG’s actuaries used ground-up claim projections provided by
isolation for these classes as the overall losses are driven by AIG claims staff as a benchmark for determining the
large losses more than by claim frequency. Severity trends indicated ultimate losses for all accident years other than the
have varied significantly from accident year to accident year most recent accident year. For the year-end 2011 loss reserve
and care is required in analyzing these trends by claim type. review, claims projections for accident years 2010 and prior
were used. These classes of business reflect claims made
coverage, and losses are characterized by low frequency and
high severity. Thus, the claim projections can produce an
overall indicator of the ultimate loss exposure for these classes
by identifying and estimating all large losses.
Workers’ Compensation
AIG generally uses a combination of loss development Expected loss ratio methods generally are given significant
methods and expected loss ratio methods for workers’ weight only in the most recent accident year. Workers’
compensation. compensation claims are generally characterized by high
frequency, low severity, and relatively consistent loss
development from one accident year to the next. AIG
historically has been a leading writer of workers’
compensation, and thus has sufficient volume of claims
experience to use development methods. AIG generally
segregates California business from other business in
evaluating workers’ compensation reserves. Certain classes of
workers’ compensation, such as construction, are also
evaluated separately. Additionally, AIG writes a number of
very large accounts which include workers’ compensation
coverage. These accounts are generally priced by AIG
actuaries, and to the extent appropriate, the indicated losses
based on the pricing analysis may be used to record the initial
estimated loss reserves for these accounts.
AIG 2011 Form 10-K 97