AIG 2014 Annual Report Download - page 38

ITEM 1 / BUSINESS
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Remaining Reserves (Undiscounted) 10,787 13,513 16,932 19,549 21,366 25,950 29,652 34,748 42,306 50,829
Remaining Discount 1,342 1,474 1,632 1,797 1,978 2,143 2,309 2,516 2,701 2,888
Remaining Reserves $ 9,445 $ 12,039 $15,300 $17,752 $19,388 $23,807 $27,343 $ 32,232 $ 39,605 $47,941
Net Liability, End of Year $ 48,806 $ 59,586 $64,894 $71,717 $75,030 $70,554 $74,724 $ 74,008 $ 72,028 $67,871 $64,689
Reinsurance Recoverable, End of Year 14,624 19,693 17,369 16,212 16,803 17,487 19,644 20,320 19,209 17,231 15,648
Gross Liability, End of Year 63,430 79,279 82,263 87,929 91,833 88,041 94,368 94,328 91,237 85,102 $80,337
Re-estimated Net Liability 66,162 70,029 73,356 80,770 84,100 77,054 77,031 76,212 73,571 68,574
Re-estimated Reinsurance Recoverable 21,765 24,548 20,819 19,317 18,793 18,634 16,709 18,456 19,065 17,221
Re-estimated Gross Liability 87,927 94,577 94,175 100,087 102,893 95,688 93,740 94,668 92,636 85,795
Cumulative Gross
Redundancy (Deficiency) $ (24,497) $ (15,298) $(11,912) $(12,158) $(11,060) $(7,647) $628 $ (340) $ (1,399) $(693)
(a) During 2009, we deconsolidated Transatlantic Holdings, Inc. and sold 21st Century Insurance Group and HSB Group, Inc. The sales and
deconsolidation are reflected in the table above as a reduction in December 31, 2009 net reserves of $9.7 billion and as an $8.6 billion increase in paid
losses for the years 2000 through 2008 to remove the reserves for these divested entities from the ending balance.
(b) The increase in Net Reserves Held from 2009 to 2010 is partially due to the $1.7 billion in Net Reserves Held by Fuji Fire, which was acquired in
2010. The decrease in 2011 is due to the cession of asbestos reserves described in Item 7. MD&A — Insurance Reserves – Non-Life Insurance
Companies— Asbestos and Environmental Reserves.
The Liability for unpaid losses and loss adjustment expenses as reported in our Consolidated Balance Sheet at December 31,
2014 differs from the total reserves reported in the annual statements filed with state insurance departments and, when
applicable, with foreign regulatory authorities primarily for the following reasons:
• Reserves for certain foreign operations are not required or permitted to be reported in the United States for statutory
reporting purposes, including contingency reserves for catastrophic events;
• Statutory practices in the United States require reserves to be shown net of applicable reinsurance recoverable; and
• Unlike statutory financial statements, our consolidated liability for unpaid losses and loss adjustment expenses excludes
the effect of intercompany transactions.
Gross loss reserves are calculated without reduction for reinsurance recoverable and represent the accumulation of estimates
for reported losses and IBNR, net of estimated salvage and subrogation. We review the adequacy of established gross loss
reserves in the manner previously described for net loss reserves. A reconciliation of activity in the Liability for unpaid losses
and loss adjustment expenses is included in Note 13 to the Consolidated Financial Statements.
For further discussion of asbestos and environmental reserves, see Item 7. MD&A — Insurance Reserves – Non-Life
Insurance Companies— Asbestos and Environmental Reserves.
REINSURANCE ACTIVITIES
Reinsurance is used primarily to manage overall capital adequacy and mitigate the insurance loss exposure related to certain
events such as natural and man-made catastrophes.
Our subsidiaries operate worldwide primarily by underwriting and accepting risks for their direct account on a gross basis and
reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those risks exceed the
desired retention level. In addition, as a condition of certain direct underwriting transactions, we are required by clients, agents
or regulation to cede all or a portion of risks to specified reinsurance entities, such as captives, other insurers, local reinsurers
and compulsory pools.
Over the last several years, the Non-Life Insurance Companies revised the ceded reinsurance framework and strategy to
improve capital management and support our global product line risk and profitability objectives. As a result of adopting the
revised framework and strategy, many individual reinsurance contracts were consolidated into more efficient global programs
and reinsurance ceded to third parties in support of risk and capital management objectives has decreased for the full year