AIG 2013 Annual Report Download - page 53

Our consolidated results of operations, liquidity, financial condition and ratings are subject to the effects of
natural and man-made catastrophic events. Events such as hurricanes, windstorms, flooding, earthquakes, acts of
terrorism, explosions and fires, cyber crimes, product defects, pandemic and other highly contagious diseases, mass
torts and other catastrophes have adversely affected our business in the past and could do so in the future. In
addition, we recognize the scientific consensus that climate change is a reality of increasing concern, indicated by
higher concentrations of greenhouse gases, a warming atmosphere and ocean, diminished snow and ice, and sea
level rise. We understand that climate change potentially poses a serious financial threat to society as a whole, with
implications for the insurance industry in areas such as catastrophe risk perception, pricing and modeling
assumptions. Because there is significant variability associated with the impacts of climate change, we cannot predict
how physical, legal, regulatory and social responses may impact our business.
Such catastrophic events, and any relevant regulations, could expose us to:
• widespread claim costs associated with property, workers’ compensation, A&H, business interruption and mortality
and morbidity claims;
• loss resulting from a decline in the value of our invested assets;
• limitations on our ability to recover deferred tax assets;
• loss resulting from actual policy experience that is adverse compared to the assumptions made in product pricing;
• declines in value and/or losses with respect to companies and other entities whose securities we hold and
counterparties we transact business with and have credit exposure to, including reinsurers, and declines in the
value of investments; and
• significant interruptions to our systems and operations.
Catastrophic events are generally unpredictable. Our exposure to catastrophes depends on various factors, including
the frequency and severity of the catastrophes, the rate of inflation and the value and geographic concentration of
insured property and people. Vendor models and proprietary assumptions and processes that we use to manage
catastrophe exposure may prove to be ineffective due to incorrect assumptions or estimates.
In addition, legislative and regulatory initiatives and court decisions following major catastrophes could require us to
pay the insured beyond the provisions of the original insurance policy and may prohibit the application of a
deductible, resulting in inflated catastrophe claims.
For further details on potential catastrophic events, including a sensitivity analysis of our exposure to certain
catastrophes, see Item 7. MD&A — Enterprise Risk Management — Insurance Operations Risks — AIG Property
Casualty Key Insurance Risks.
Insurance liabilities are difficult to predict and may exceed the related reserves for losses and loss
expenses. We regularly review the adequacy of the established Liability for unpaid claims and claims adjustment
expense and conduct extensive analyses of our reserves during the year. Our loss reserves, however, may develop
adversely. Estimation of ultimate net losses, loss expenses and loss reserves is a complex process, particularly for
long-tail casualty lines of business. These include, but are not limited to, general liability, commercial automobile
liability, environmental, workers’ compensation, excess casualty and crisis management coverages, insurance and
risk management programs for large corporate customers and other customized structured insurance products, as
well as excess and umbrella liability, D&O and products liability.
While we use a number of analytical reserve development techniques to project future loss development, reserves
may be significantly affected by changes in loss cost trends or loss development factors that were relied upon in
setting the reserves. These changes in loss cost trends or loss development factors could be due to difficulties in
predicting changes, such as changes in inflation, the judicial environment, or other social or economic factors
affecting claims. Any deviation in loss cost trends or in loss development factors might not be identified for an
extended period of time after we record the initial loss reserve estimates for any accident year or number of years.
For a further discussion of our loss reserves, see Item 7. MD&A — Results of Operations — Segment Results —
AIG Property Casualty Operations — Liability for Unpaid Claims and Claims Adjustment Expense and Critical
RESERVES AND EXPOSURES
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AIG 2013 Form 10-K 35
ITEM 1A / RISK FACTORS
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