AIG 2011 Annual Report Download - page 185

provided were based on 100-year return period losses, which have a one percent likelihood of being exceeded in
any single year. Losses include loss adjustment expenses and the net values include reinstatement premiums.
Net of 2012
At December 31, 2011 Net of 2012 Reinsurance, Percent of
(in millions) Gross Reinsurance After Tax Total Equity
Natural Peril:
Earthquake $ 6,810 $ 4,101 $ 2,666 3.05%
Tropical Cyclone*$ 8,495 $ 5,215 $ 3,389 3.88%
* Includes hurricanes, typhoons and European windstorms.
Gross earthquake and tropical cyclone modeled losses increased $511 million and $1.6 billion, respectively,
compared to 2010, while net losses increased $406 million and $809 million, respectively, compared to 2010. These
increases in both gross and net losses are primarily due to Risk Management Solutions (RMS) model changes,
blending multiple model results (RMS, AIR Worldwide Corporation (AIR) and EQECAT, Inc.), data
completeness and the implementation of a data quality index.
In addition to the return period loss, AIG evaluates potential single event earthquake and hurricane losses that
may be incurred. The single events utilized are a subset of potential events identified and utilized by Lloyd’s (see
Lloyd’s Realistic Disaster Scenarios, Scenario Specifications, January 2012) and referred to as Realistic Disaster
Scenarios (RDS). The purpose of this analysis is to utilize these RDS to provide a reference frame and place into
context the model results. However, it is important to note that the specific events used for this analysis do not
necessarily represent the worst case loss that AIG could incur from this type of an event in these regions. The
losses associated with the RDS are included in the following table.
Single-event modeled property and workers’ compensation losses to AIG’s worldwide portfolio of risk for key
geographic areas are set forth below. Gross values represent AIG’s liability after the application of policy limits
and deductibles and net values represent losses after reinsurance is applied. The net losses also include
reinsurance reinstatement premiums. Both gross and net losses include loss adjustment expenses.
At December 31, 2011 Net of 2012
(in millions) Gross Reinsurance
Natural Peril:
Northeast Hurricane $ 4,070 $ 2,726
Gulf Coast Hurricane $ 5,475 $ 3,135
Los Angeles Earthquake $ 6,216 $ 3,157
San Francisco Earthquake $ 6,364 $ 3,810
Miami Hurricane $ 4,977 $ 2,136
Japanese Earthquake $ 1,455 $ 680
European Windstorm $ 1,033 $ 502
Japanese Typhoon $ 992 $ 447
AIG also monitors key international property risks utilizing industry recognized natural catastrophe models.
Based on the occurrence exceedance probabilities, the 100-year return period loss for Japanese Earthquake is
$976 million gross and $514 million net; the 100-year return period loss for European Windstorm is $967 million
gross and $612 million net; and the 100-year return period loss for Japanese Typhoon is $1.4 billion gross and
$680 million net.
ACTUAL RESULTS IN ANY PERIOD ARE LIKELY TO VARY, PERHAPS MATERIALLY, FROM THE
MODELED SCENARIOS, AND THE OCCURRENCE OF ONE OR MORE SEVERE EVENTS COULD
HAVE A MATERIAL ADVERSE EFFECT ON AIG’S FINANCIAL CONDITION, RESULTS OF
OPERATIONS AND LIQUIDITY.
AIG 2011 Form 10-K 171