AIG 2013 Annual Report Download - page 209

We generally use either loss development methods or IBNR Where a factor is used, it generally represents a percent of
factor methods to set reserves for short-tail classes such as earned premium or other exposure measure. The factor is
property coverages. determined based on prior accident year experience. For
example, the IBNR for a class of property coverage might be
expected to approximate 20 percent of the latest year’s
earned premium. The factor is continually reevaluated in light
of emerging claim experience as well as rate changes or other
factors that could affect the adequacy of the IBNR factor
being employed.
Business written by AIG Property Casualty internationally We maintain a database of detailed historical premium and
includes both long-tail and short-tail classes of business. For loss transactions in original currency for business written by
long-tail classes of business, the actuarial methods used are AIG Property Casualty internationally. This allows our
comparable to those described above. However, the majority actuaries to determine the current reserves without any
of business written by AIG Property Casualty internationally is distortion from changes in exchange rates over time. Our
short-tail, high frequency and low severity in nature. For this actuaries segment the international data by region, country or
business, loss development methods are generally employed class of business as appropriate to determine an optimal
to test the loss reserves. balance between homogeneity and credibility. The techniques
developed by our U.S. actuaries for certain commercial
classes of business are increasingly applied to our
International portfolios where the experience volume and data
segmentation is comparable to that of the U.S. portfolios. Our
actuaries work closely with the claims departments in each of
our major International locations to determine the most
appropriate methodology and assumptions.
We determine reserves for legal defense and cost We generally determine reserves for adjuster loss adjustment
containment loss adjustment expenses for each class of expenses based on calendar year ratios of adjuster expenses
business by one or more actuarial or structural driver paid to losses paid for the particular class of business. We
methods. The methods generally include development generally determine reserves for other unallocated loss
methods comparable to those described for loss development adjustment expenses based on the ratio of the calendar year
methods. The development could be based on either the paid expenses paid to overall losses paid. This determination is
loss adjustment expenses or the ratio of paid loss adjustment generally done for all classes of business combined, and
expenses to paid losses, or both. Other methods include the reflects costs of home office claim overhead as a percent of
utilization of expected ultimate ratios of paid loss expense to losses paid. We may supplement our judgments with an
paid losses, based on actual experience from prior accident analysis of loss and legal expense mix change and detailed
years or from similar classes of business. discussions with the claims department on the methods used
to allocate the costs of the claims initiatives to new and
in-force business and to different classes and sub-classes of
business.
We conduct special analyses in response to major These analyses may include a combination of approaches,
catastrophes and severe losses to estimate our gross and net including modeling estimates, ground-up claim analysis, loss
loss and loss expense liability from those events. evaluation reports from on-site field adjusters, and market
share estimates.
Loss Adjustment Expenses
Catastrophes and Severe Losses
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AIG 2013 Form 10-K 191
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
Other Short-Tail Classes
International
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Class of Business or Category and Actuarial Method Application of Actuarial Method