AIG 2011 Annual Report Download - page 112

Class of Business or Category and Actuarial Method Application of Actuarial Method
Excess Workers’ Compensation
AIG generally uses a combination of loss development Loss development methods are given the greater weight for
methods and expected loss ratio methods for excess workers’ mature accident years. Expected loss ratio methods are given
compensation. the greater weight for the more recent accident years. Excess
workers’ compensation is an extremely long-tail class of
business, with loss emergence extending for decades.
Therefore there is limited credibility in the reported losses for
many of the more recent accident years. For the mature
accident years, AIG’s actuaries use claims projections
provided by AIG claims staff to help determine the loss
development factors for this class of business.
General Liability
AIG generally uses a combination of loss development For certain classes of business with sufficient loss volume,
methods and expected loss ratio methods for primary general loss development methods may be given significant weight for
liability or products liability classes. all but the most recent one or two accident years, whereas for
smaller or more volatile classes of business, loss development
methods may be given limited weight for the five or more
most recent accident years. Expected loss ratio methods would
be used for the more recent accident years for these classes.
The loss experience for primary general liability business is
generally reviewed at a level that is believed to provide the
most appropriate data for reserve analysis. For example,
primary claims made business is generally segregated from
business written on an occurrence policy form. Additionally,
certain subclasses, such as construction, are generally reviewed
separately from business in other subclasses. For example, in
the case of environmental liability, AIG’s actuaries use claim
projections provided by AIG claims staff for long-duration
policies. Due to the fairly long-tail nature of general liability
business, and the many subclasses that are reviewed
individually, there is less credibility in the reported losses and
increased reliance on expected loss ratio methods.
Commercial Automobile Liability
AIG generally uses loss development methods for all but Expected loss ratio methods are generally given significant
the most recent accident year for commercial automobile weight only in the most recent accident year.
classes of business.
Healthcare
AIG generally uses a combination of loss development The largest component of the healthcare business consists
methods and expected loss ratio methods for healthcare of coverage written for hospitals and other healthcare
classes of business. facilities. Reserves for excess coverage are tested separately
from those for primary coverage. For primary coverages, loss
Frequency/severity methods are sometimes used for pricing development methods are generally given the majority of the
certain healthcare accounts or business. However, in testing weight for all but the latest three accident years, and are given
loss reserves the business is generally combined into larger some weight for all years other than the latest accident year.
groupings to enhance the credibility of the loss experience. For excess coverages, expected loss methods are generally
The frequency/severity methods that are applicable in pricing given all the weight for the latest three accident years, and are
may not be appropriate for reserve testing. also given considerable weight for accident years prior to the
latest three years. For other classes of healthcare coverage, an
analogous weighting between loss development and expected
loss ratio methods is used. The weights assigned to each
method are those that are believed to result in the best
combination of responsiveness and stability.
98 AIG 2011 Form 10-K