AIG 2013 Annual Report Download - page 124

strategy to reduce our overall loss reserve development risk. This transaction covers potentially volatile U.S.-related
asbestos exposures. It does not, however, cover asbestos accounts that we believe have already been reserved to
their limit of liability or certain other ancillary asbestos exposure assumed by AIG Property Casualty subsidiaries.
Upon the closing of this transaction, but effective as of January 1, 2011, we ceded the bulk of AIG Property
Casualty’s net domestic asbestos liabilities to NICO under a retroactive reinsurance agreement with an aggregate
limit of $3.5 billion. Within this aggregate limit, NICO assumed collection risk for existing third-party reinsurance
recoverable associated with these liabilities. AIG Property Casualty paid NICO approximately $1.67 billion as
consideration for this cession and NICO assumed approximately $1.82 billion of net U.S. asbestos liabilities. As a
result of this transaction, AIG Property Casualty recorded a deferred gain of $150 million in the second quarter of
2011, which is being amortized into income over the settlement period of the underlying claims.
Under retroactive reinsurance arrangements any recoveries for development associated with the ceded losses are
not recognized immediately; rather this development increases or decreases the deferred gain, and is amortized into
income as described above. During 2013, we recognized approximately $87 million of adverse loss development that
was ceded under this reinsurance arrangement, which was partially offset by $15 million of deferred gain
amortization. Prior years’ amounts were immaterial. This development, net of the deferred gain amortization, is being
reported in Other income/expense, consistent with the way we manage the business and assess performance and is
therefore excluded from net losses incurred and our loss ratios to avoid distortion related to our ongoing insurance
business.
The following table presents the estimate of the gross and net IBNR included in the Liability for unpaid
claims and claims adjustment expense, relating to asbestos and environmental claims:
Asbestos $ 3,193 $ 37 $ 3,685 $ 239
Environmental 75 35 57 28
Combined $ 3,268 $ 72 $ 3,742 $ 267
* Net IBNR includes the reduction due to the NICO reinsurance transaction of $1,284 million, $1,310 million and $1,414 million as of
December 31, 2013, 2012 and 2011, respectively. A significant part of the reduction in IBNR in 2012 is due to the reclassification of estimated
liabilities on a retained account from IBNR to case reserves.
The following table presents a summary of asbestos and environmental claims count activity:
Claims at beginning of year 5,443 3,782 9,225 4,933 4,087 9,020
Claims during year:
Opened 226 222 448 141 207 348
Settled (254) (179) (433) (183) (83) (266)
Dismissed or otherwise
resolved(a) (185) (2,211) (2,396) (289) (429) (718)
Other(b) – – – 841 – 841
Claims at end of year 5,230 1,614 6,844 5,443 3,782 9,225
(a) The number of environmental claims dismissed or otherwise resolved, increased substantially during 2012 as a result of AIG Property Casualty’s
determination that certain methyl tertiary-butyl ether (MTBE) claims presented no further potential for exposure since these underlying claims were
resolved through dismissal, settlement, or trial for all of the accounts involved. All of these accounts were fully reserved at the account level and
included adequate reserves for those underlying individual claims that contributed to the actual losses. These individual claim closings, therefore,
had no impact on AIG Property Casualty’s environmental reserves.
(b) Represents an administrative change to the method of determining the number of open claims, which had no effect on carried reserves.
The following table presents AIG’s survival ratios for asbestos and environmental claims at December 31, 2013, 2012
and 2011. The survival ratio is derived by dividing the current carried loss reserve by the average payments for the
three most recent calendar years for these claims. Therefore, the survival ratio is a simplistic measure estimating the
Survival Ratios — Asbestos and Environmental
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AIG 2013 Form 10-K106
ITEM 7 / RESULTS OF OPERATIONS / LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE
2013 2012 2011
December 31,
(in millions) Gross Net*Gross Net*Gross Net*
$ 3,190 $ 16
94 51
$ 3,284 $ 67
2013 2012 2011
As of or for the Years
Ended December 31, Asbestos Environmental Combined Asbestos Environmental Combined Asbestos Environmental Combined
5,230 1,614 6,844
83 306 389
(194) (154) (348)
(439) (249) (688)
–––
4,680 1,517 6,197
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