AIG 2013 Annual Report Download - page 223

High loss deductible policies A type of commercial insurance policy where we pay the full claim and then seek
reimbursement from the insured for the deductible. Losses are retained by the insured up to a specified deductible
amount (usually $25,000 or more per claim, subject to individual state approval) and we insure the claims in excess
of the deductible. Generally, the total claims (including the deductible portion) are managed and paid by us as part of
a loss control program, and we are reimbursed the deductible amount by the insured. In the case of unpaid claims,
we make estimates of the deductible portion of claims reported to us, and reduce our loss reserves accordingly. In
most cases, we obtain collateral in the form of cash, letters of credit or other funding arrangements to secure the
amounts of uncollected deductibles.
IBNR Incurred But Not Reported Estimates of claims that have been incurred but not reported to us.
LAE Loss Adjustment Expenses The expenses of settling claims, including legal and other fees and the portion of
general expenses allocated to claim settlement costs.
Loss Ratio Claims and claims adjustment expenses incurred divided by net premiums earned. Claims adjustment
expenses are directly attributed to settling and paying claims of insureds and include, but are not limited to, legal
fees, adjuster’s fees, and claims department personnel costs.
Loss Recognition Related to Unrealized Appreciation (Depreciation) of Investments An adjustment to DAC and
future policy benefits for long-duration traditional products, equal to the adjustments that would be required if fixed
maturity and equity securities available for sale had been sold at their stated aggregate fair value and the proceeds
reinvested at current yields, and such reinvestment would not be sufficient to recover DAC and meet policyholder
obligations (also referred to as ‘‘shadow loss recognition’’). The change in this adjustment, net of tax, is included with
the change in net unrealized appreciation (depreciation) of investments that is credited or charged directly to Other
comprehensive income (loss).
Loss reserve development The increase or decrease in incurred claims and claims adjustment expenses as a
result of the re-estimation of claims and claims adjustment expense reserves at successive valuation dates for a
given group of claims.
Loss reserves Liability for unpaid claims and claims adjustment expense. The estimated ultimate cost of settling
claims relating to insured events that have occurred on or before the balance sheet date, whether or not reported to
the insurer at that date.
LTV Loan-to-Value Ratio Principal amount of loan amount divided by appraised value of collateral securing the loan.
Master netting agreement An agreement between two counterparties who have multiple derivative contracts with
each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment,
in a single currency, in the event of default on or upon termination of any one contract.
Net premiums written Represent the sales of an insurer, adjusted for reinsurance premiums assumed and ceded,
during a given period. Net premiums earned are the revenue of an insurer for covering risk during a given period.
Net premiums written are a measure of performance for a sales period while Net premiums earned are a measure of
performance for a coverage period. From the period in which the premiums are written until the period in which they
are earned, the amount is presented as Unearned premium reserves in the Consolidated Balance Sheets.
Noncontrolling interest The portion of equity ownership in a consolidated subsidiary not attributable to the
controlling parent company.
Other Operations — Pre-tax operating income (loss): pre-tax income (loss) excluding certain legal reserves
(settlements) related to legacy crisis matters, (gain) loss on extinguishment of debt, Net realized capital (gains)
losses, net loss (gain) on sale of divested businesses and properties, change in benefit reserves and DAC, VOBA,
and SIA related to net realized capital (gains) losses and income from divested businesses, including Aircraft
Leasing.
Policy fees An amount added to a policy premium, or deducted from a policy cash value or contract holder account,
to reflect the cost of issuing a policy, establishing the required records, sending premium notices and other related
expenses.
Pool A reinsurance arrangement whereby all of the underwriting results of the pool members are combined and then
shared by each member in accordance with its pool participation percentage. Our members in the admitted lines pool
are licensed to write standard lines of business by the individual state departments of insurance, and the policy forms
and rates are regulated by those departments. Our members in the surplus lines pool provide policyholders with
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AIG 2013 Form 10-K 205
GLOSSARY
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