AIG 2011 Annual Report Download - page 99

while the underwriting expenses increased as a result of certain expenses related to corporate initiatives and
expense allocations of AIG Parent.
2010 and 2009 Comparison
For the year 2010 compared to 2009, the increase in claims and claim adjustment expenses incurred relates to
net prior year adverse loss development in 2010.
The overall increase in underwriting expenses relates to increases for strategic Chartis initiatives, including
global accounting and claims system implementations, Solvency II and certain other legal entity restructuring
initiatives.
For a discussion of Investing and other results for Chartis Other, see Chartis Results — Chartis Investing and
Other Results.
Liability for Unpaid Claims and Claims Adjustment Expense
The following discussion of the consolidated liability for unpaid claims and claims adjustment expenses (loss
reserves) presents loss reserves for Chartis as well as the loss reserves pertaining to the Mortgage Guaranty
reporting unit, which is reported in AIG’s Other operations category.
The following table presents the components of AIG’s gross loss reserves by major lines of business on a
statutory basis*:
At December 31,
(in millions) 2011 2010
Other liability occurrence $ 22,526 $ 23,583
International 17,726 16,583
Workers’ compensation 17,420 17,683
Other liability claims made 11,216 11,446
Property 6,165 3,846
Auto liability 3,081 3,337
Mortgage guaranty credit 3,046 4,220
Products liability 2,416 2,377
Medical malpractice 1,690 1,754
Accident and health 1,553 1,444
Commercial multiple peril 1,134 1,006
Aircraft 1,020 1,149
Fidelity/surety 786 934
Other 1,366 1,789
Total $ 91,145 $ 91,151
* Presented by lines of business pursuant to statutory reporting requirements as prescribed by the National Association of Insurance
Commissioners.
AIG’s gross loss reserves represent the accumulation of estimates of ultimate losses, including estimates for
IBNR and loss expenses. The methods used to determine loss reserve estimates and to establish the resulting
reserves are continually reviewed and updated. Any adjustments resulting from this review are currently reflected
in pre-tax income. Because loss reserve estimates are subject to the outcome of future events, changes in estimates
are unavoidable given that loss trends vary and time is often required for changes in trends to be recognized and
confirmed. Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or
adverse development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost
are referred to as favorable development.
The net loss reserves represent loss reserves reduced by reinsurance recoverables, net of an allowance for
unrecoverable reinsurance and applicable discount for future investment income.
AIG 2011 Form 10-K 85