AIG 2013 Annual Report Download - page 207

We generally use a combination of loss development methods Loss development methods are used for the more mature
and expected loss ratio methods for professional liability accident years. Greater weight is given to expected loss ratio
classes of business. methods in the more recent accident years. Reserves are
tested separately for claims made classes and classes written
Frequency/severity methods are used in pricing and on occurrence policy forms. Further segmentations are made
profitability analyses for some classes of professional liability; in a manner believed to provide an appropriate balance
however, for loss reserve adequacy testing, the need to between credibility and homogeneity of the data.
ensure sufficient credibility generally results in segmentations
that are not sufficiently homogenous to utilize frequency/
severity methods.
We also use claim department projections of the ultimate
value of each reported claim to supplement and inform the
standard actuarial approaches.
We use expected loss ratio methods for all accident years for The expected loss ratios and loss development assumptions
catastrophic casualty business. This class of business used are based upon the results of prior accident years for
consists of casualty or financial lines coverage that attach in this business as well as for similar classes of business written
excess of very high attachment points; thus the claims above lower attachment points. The business can be written
experience is marked by very low frequency and high severity. on a claims-made or occurrence basis. We use ground-up
Because of the limited number of claims, loss development claim projections provided by our claims staff to assist in
methods are not relied upon. developing the appropriate reserve.
We generally use a combination of loss development methods Expected loss ratio methods are used to determine the loss
and expected loss ratio methods for aviation exposures. reserves for the latest accident year. We also use ground-up
Aviation claims are not very long-tail in nature; however, they claim projections provided by our claims staff to assist in
are driven by claim severity. Thus a combination of both developing the appropriate reserve.
development and expected loss ratio methods are used for all
but the latest accident year to determine the loss reserves.
Frequency/severity methods are not employed due to the high
severity nature of the claims and different mix of claims from
year to year.
We generally use frequency/severity methods and loss For many classes of business, greater reliance is placed on
development methods for domestic personal auto classes. frequency/severity methods as claim counts emerge quickly
for personal auto and allow for more immediate analysis of
resulting loss trends and comparisons to industry and other
diagnostic metrics.
We generally use loss development methods for fidelity Expected loss ratio methods are also given weight for the
exposures for all but the latest accident year. For surety more recent accident years. For the latest accident year they
exposures, we generally use the same method as for short-tail may be given 100 percent weight.
classes (discussed below).
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AIG 2013 Form 10-K 189
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
Professional Liability
Catastrophic Casualty
Aviation
Personal Auto
Fidelity/Surety
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Class of Business or Category and Actuarial Method Application of Actuarial Method