AIG 2011 Annual Report Download - page 118

considers all relevant information and produces as accurate an estimate as possible. During its 2010 loss
reserve review, the third-party actuary recommended, and AIG agreed, that such changes be made to certain
assumptions and model parameters.
AIG completed a top-down report year projection as well as a market share projection of its indicated asbestos
and environmental loss reserves. These projections consist of a series of tests performed separately for asbestos
and for environmental exposures.
For asbestos, these tests project the losses expected to be reported over the next 16 years, i.e., from 2012
through 2027, based on the actual losses reported through 2011 and the expected future loss emergence for these
claims. Three scenarios were tested, with a series of assumptions ranging from more optimistic to more
conservative.
For environmental claims, an analogous series of frequency/severity tests are produced. Environmental claims
from future report years (i.e., IBNR) are projected out five years, i.e., through the year 2016.
At year-end 2011, AIG considered a number of factors and recent experience in addition to the results of the
respective top-down and ground-up analyses performed for asbestos and environmental reserves. AIG considered
the significant uncertainty that remains as to AIG’s ultimate liability relating to asbestos and environmental claims.
This uncertainty is due to several factors including:
• the long latency period between asbestos exposure and disease manifestation and the resulting potential for
involvement of multiple policy periods for individual claims;
• claims filed under the non-aggregate premises or operations section of general liability policies;
• the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• diverging legal interpretations; and
• with respect to environmental claims, the difficulty in estimating the allocation of remediation cost among
various parties.
After AIG carefully considered the recent experience compared to the results of the 2010 ground-up analysis as
well as all of the above factors, no adjustment to gross and net asbestos reserves was recognized in 2011.
Additionally in 2011, a moderate amount of incurred loss pertaining to the asbestos loss reserve discount is
reflected in the table below and is primarily related to the reserves subject to the NICO reinsurance agreement.
Upon completion of the environmental top-down report year analysis performed in the fourth quarter of 2011, a
moderate adjustment to gross and net reserves was recognized.
104 AIG 2011 Form 10-K