AIG 2006 Annual Report Download - page 100

American International Group, Inc. and Subsidiaries
Management’s Discussion and Analysis of
Financial Condition and Results of Operations Continued
A summary of reserve activity, including estimates for applicable IBNR, relating to asbestos and environmental claims
separately and combined at December 31, 2006, 2005 and 2004 appears in the table below. The vast majority of such
claims arise from policies written in 1984 and prior years. The current environmental policies that AIG underwrites on a
claims-made basis have been excluded from the table below.
2006 2005 2004
(in millions) Gross Net Gross Net Gross Net
Asbestos:
Reserve for losses and loss expenses at beginning of year $4,441 $1,840 $2,559 $1,060 $1,235 $ 386
Losses and loss expenses incurred(a) 571 267 2,207(b) 903(b) 1,595(b) 772(b)
Losses and loss expenses paid(a) (548) (218) (325) (123) (271) (98)
Reserve for losses and loss expenses at end of year $4,464 $1,889 $4,441 $1,840 $2,559 $1,060
Environmental:
Reserve for losses and loss expenses at beginning of year $ 926 $ 410 $ 974 $ 451 $ 789 $ 283
Losses and loss expenses incurred(a) (232) (59) 47(c) 27(c) 314(c) 234(c)
Losses and loss expenses paid(a) (106) (61) (95) (68) (129) (66)
Reserve for losses and loss expenses at end of year $ 588 $ 290 $ 926 $ 410 $ 974 $ 451
Combined:
Reserve for losses and loss expenses at beginning of year $5,367 $2,250 $3,533 $1,511 $2,024 $ 669
Losses and loss expenses incurred(a) 339 208 2,254(d) 930(d) 1,909(d) 1,006(d)
Losses and loss expenses paid(a) (654) (279) (420) (191) (400) (164)
Reserve for losses and loss expenses at end of year $5,052 $2,179 $5,367 $2,250 $3,533 $1,511
(a) All amounts pertain to policies underwritten in prior years, primarily to policies issued in 1984 and prior.
(b) Includes increases to gross losses and loss expense reserves of $2.0 billion and $1.2 billion in the fourth quarter of 2005 and 2004, respectively,
and increases to net losses and loss expense reserves of $843 million and $650 million for the fourth quarter of 2005 and 2004, respectively.
(c) Includes increases to gross losses and loss expense reserves of $56 million and $250 million in the fourth quarter of 2005 and 2004, respectively,
and increases to net losses and loss expense reserves of $30 million and $200 million for the fourth quarter of 2005 and 2004, respectively.
(d) Includes increases to gross losses and loss expense reserves of $2.0 billion and $1.5 billion in the fourth quarter of 2005 and 2004, respectively,
and increases to net losses and loss expense reserves of $873 million and $850 million for the fourth quarter of 2005 and 2004, respectively.
As indicated in the table above, asbestos loss payments increased significantly in 2006 compared to the prior years, primarily as a
result of payments pertaining to settlements that had been negotiated in earlier periods.
The gross and net IBNR included in the reserve for losses and loss expenses, relating to asbestos and environmental
claims separately and combined, at December 31, 2006, 2005 and 2004 were estimated as follows:
2006 2005 2004
(in millions) Gross Net Gross Net Gross Net
Asbestos $3,212 $1,469 $3,401 $1,465 $2,033 $ 876
Environmental 340 173 586 266 606 284
Combined $3,552 $1,642 $3,987 $1,731 $2,639 $1,160
A summary of asbestos and environmental claims count activity for the years ended December 31, 2006, 2005 and
2004 was as follows:
2006 2005 2004
Asbestos Environmental Combined Asbestos Environmental Combined Asbestos Environmental Combined
Claims at beginning of year 7,293 9,873 17,166 7,575 8,216 15,791 7,474 8,852 16,326
Claims during year:
Opened 643 1,383 2,026 854 5,253* 6,107 909 2,592 3,501
Settled (150) (155) (305) (67) (219) (286) (100) (279) (379)
Dismissed or otherwise
resolved (908) (1,659) (2,567) (1,069) (3,377) (4,446) (708) (2,949) (3,657)
Claims at end of year 6,878 9,442 16,320 7,293 9,873 17,166 7,575 8,216 15,791
* The opened claims count increased substantially during 2005 compared to 2004 because a court ruling led AIG to repor t separate opened claims for
previously pending cases relating to alleged MTBE exposures that AIG previously had counted in the aggregate as only a single claim on the assumption
that the cases would be consolidated into a single federal court proceeding.
50 AIG 2006 Form 10-K