AIG 2013 Annual Report Download - page 114

AIG’s gross loss reserves represent the accumulation of estimates of ultimate losses, including estimates for incurred
but not reported (IBNR) and loss expenses, less applicable discount for future investment income. We regularly
review and update the methods and assumptions used to determine loss reserve estimates and to establish the
resulting reserves. Any adjustments resulting from this review are reflected in pre-tax operating 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 prior years’ estimates of ultimate cost are referred to as unfavorable or adverse development or reserve
strengthening. Reserve changes that decrease prior years’ estimates of ultimate cost are referred to as favorable
development.
The net loss reserves represent loss reserves reduced by estimated salvage and subrogation, reinsurance
recoverable, net of an allowance for unrecoverable reinsurance, and applicable discount for future investment
income.
The following table presents the components of net loss reserves:
Gross loss reserves before reinsurance and discount $ 91,237
Less: discount (3,246)
Gross loss reserves, net of discount, before reinsurance 87,991
Less: reinsurance recoverable*(19,209)
Net liability for unpaid claims and claims adjustment expense $ 68,782
* Includes $1.6 billion of reinsurance recoverable under a retroactive reinsurance agreement at both December 31, 2013 and 2012.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due
from policyholders of approximately $12.0 billion and $11.7 billion at December 31, 2013 and 2012, respectively.
These recoverable amounts are related to certain policies with high deductibles (primarily for U.S. commercial
casualty business) where we manage and pay the entire claim on behalf of the insured and are reimbursed by the
insured for the deductible portion of the claim. At December 31, 2013 and 2012, we held collateral totaling
$9.0 billion and $8.3 billion, respectively, for these deductible recoverable amounts, consisting primarily of letters of
credit and trust agreements.
The following table classifies the components of net loss reserves by business unit:
AIG Property Casualty:
Commercial Insurance
Casualty $ 35,958
Financial lines 10,116
Specialty 6,259
Property 4,783
Total Commercial Insurance(a) 57,116
Consumer Insurance
Personal lines 3,735
Accident and health 1,857
Total Consumer Insurance 5,592
Other(a)(b) 4,241
Total AIG Property Casualty 66,949
Other Operations – Mortgage Guaranty 1,833
Net liability for unpaid claims and claims adjustment expense $ 68,782
(a) The 2012 amounts have been revised to conform the presentation of the total discount. The impact of this revision was an increase to
Commercial Insurance of $654 million and a corresponding decrease to Other of $654 million, with no income statement or balance sheet impact.
(b) Excludes future policyholder benefits of $3.5 billion.
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AIG 2013 Form 10-K96
ITEM 7 / RESULTS OF OPERATIONS / LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE
December 31,
(in millions) 2013 2012
$ 85,102
(3,555)
81,547
(17,231)
$ 64,316
December 31,
(in millions) 2013 2012
$ 35,179
9,607
5,385
4,229
54,400
3,350
1,804
5,154
3,475
63,029
1,287
$ 64,316
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