AIG 2015 Annual Report Download - page 200

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Class of Business or Category and Actuarial Method Application of Actuarial Method
Workers’ Compensation
We generally use a combination of loss development
methods and expected loss ratio methods for workers’
compensation. We segment the data by state and
industry class to the extent that meaningful differences
are determined to exist.
For guaranteed cost business, expected loss ratio
methods generally are given significant weight only in
the most recent accident year. Workers’ compensation
claims are generally characterized by high frequency,
low severity, and relatively consistent loss development
from one accident year to the next. We historically have
been a leading writer of workers’ compensation, and
thus have sufficient volume of claims experience to use
development methods. We generally segregate
California (CA) business from other business in
evaluating workers’ compensation reserves.
Commencing in 2012, we segmented out New York (NY)
from the other states to reflect its different development
pattern and changing percentage of the mix by state. We
also revised our assumptions to reflect changes in our
claims management activities. Certain classes of
workers’ compensation, such as construction and
business written in excess of a deductible, are also
evaluated separately. Expected loss ratio methods for
business written in excess of a deductible may be given
significant weight in the five or more most recent
accident years. Additionally, we write a number of very
large accounts which include workers’ compensation
coverage. These accounts are generally individually
priced by our actuaries, and to the extent appropriate,
the indicated losses based on the pricing analysis may
be used to record the initial estimated loss reserves for
these accounts.