AIG 2013 Annual Report Download - page 204

We generally use a combination of loss development methods These classes of business reflect claims made coverage, and
and expected loss ratio methods for D&O and related losses are characterized by low frequency and high severity.
management liability classes of business. Expected loss ratio methods are given more weight in the two
most recent accident years, whereas loss development
Frequency/severity methods are generally not used in isolation methods are given more weight in more mature accident
for these classes as the overall losses are driven by large years. For the year-end 2013 loss reserve review, claims
losses more than by claim frequency. Severity trends have projections for accident years 2012 and prior were used.
varied significantly from accident year to accident year and
care is required in analyzing these trends by claim type. We
also give weight to claim department ground-up projections of
ultimate loss on a claim by claim basis as these may be more
predictive of ultimate loss values especially for older accident
years.
We generally use a combination of loss development methods Expected loss ratio methods generally are given significant
and expected loss ratio methods for workers’ compensation. weight only in the most recent accident year. Workers’
We segment the data by state and industry class to the extent compensation claims are generally characterized by high
that meaningful differences are determined to exist. frequency, low severity, and relatively consistent loss
development from one accident year to the next. We
historically have been a leading writer of workers’
compensation, and thus have sufficient volume of claims
experience to use development methods. We generally
segregate California business from other business in
evaluating workers’ compensation reserves. In 2012, we
segmented out New York from the other states to reflect its
different development pattern and changing percentage of the
mix by state. We also revised our assumptions to reflect
changes in our claims management activities. Certain classes
of workers’ compensation, such as construction, are also
evaluated separately. Additionally, we write a number of very
large accounts which include workers’ compensation
coverage. These accounts are generally individually priced by
our actuaries, and to the extent appropriate, the indicated
losses based on the pricing analysis may be used to record
the initial estimated loss reserves for these accounts.
D&O and Related Management Liability Classes of Business
Workers’ Compensation
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AIG 2013 Form 10-K186
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Class of Business or Category and Actuarial Method Application of Actuarial Method