AIG 2011 Annual Report Download - page 196

Class of Business Loss Cost Trend Loss Development Factor
Excess Workers’ Compensation
Loss costs were trended at six percent per Excess workers’ compensation is an extremely
annum. After reviewing actual industry loss trends long-tail class of business, with a much greater
for the past ten years, in AIG’s judgment, it is than normal uncertainty as to the appropriate loss
reasonably likely that actual loss cost trends development factors for the tail of the loss
applicable to the year-end 2011 loss reserve development. After evaluating the historical loss
review for excess workers’ compensation will development factors for prior accident years since
range five percent lower or higher than this the 1980s as well as the development over the
estimated loss trend. past several years of the ground up claim
projections utilized to help select the loss
development factors in the tail for this class of
business, in AIG’s judgment, it is reasonably
likely that actual loss development for excess
workers’ compensation could increase the current
reserves by up to approximately $1.3 billion or
decrease them by approximately $850 million.
Primary Workers’ Compensation
The loss cost trend assumption is not believed Generally, AIG’s actual historical workers’
to be material with respect to AIG’s loss reserves. compensation loss development factors would be
This is primarily because AIG’s actuaries are expected to provide a reasonably accurate
generally able to use loss development projections predictor of future loss development. However,
for all but the most recent accident year’s workers’ compensation is a long-tail class of
reserves, so there is limited need to rely on loss business, and AIG’s business reflects a very
cost trend assumptions for primary workers’ significant volume of losses, particularly in recent
compensation business. accident years. After evaluating the actual
historical loss development since the 1980s for
this business, in AIG’s judgment, it is reasonably
likely that actual loss development factors will fall
within the range of approximately 3.4 percent
below to 7.2 percent above those actually utilized
in the year-end 2011 loss reserve review.
See Results of Operations — Segment Results — Chartis Operations — Liability for Unpaid Claims and Claims
Adjustment Expense herein for additional information on AIG’s reserve for unpaid claims and claims adjustment
expenses.
182 AIG 2011 Form 10-K