AIG 2006 Annual Report Download - page 87

American International Group, Inc. and Subsidiaries
catastrophe-related losses incurred in 2005 and 2004 and for the The following table classifies the components of the
purchase of the Royal & Sun Alliance branch operations. General Insurance net loss reserves by business unit as
of December 31, 2006 and 2005.
Reserve for Losses and Loss Expenses (in millions) 2006 2005
The following table presents the components of the DBG(a) $43,998 $40,782
General Insurance gross reserve for losses and loss Transatlantic 6,207 5,690
expenses (loss reserves) as of December 31, 2006 and Personal Lines(b) 2,440 2,578
2005 by major lines of business on a statutory Annual Mortgage Guaranty 460 340
Statement basis*: Foreign General(c) 9,525 8,086
Total Net Loss Reserve $62,630 $57,476
(in millions) 2006 2005
Other liability occurrence $19,156 $18,116 (a) At December 31, 2006 and 2005, respectively, DBG loss reserves
include approximately $3.33 billion and $3.77 billion ($3.66 billion and
Workers compensation 13,465 11,630 $4.26 billion, respectively, before discount), related to business written
Other liability claims made 12,394 12,447 by DBG but ceded to AIRCO and reported in AIRCO’s statutory filings.
Property 6,663 7,217 DBG loss reserves also include approximately $535 million and
Auto liability 5,931 6,569 $407 million related to business included in AIUO’s statutory filings at
December 31, 2006 and 2005, respectively.
International 5,810 4,939
Reinsurance 2,960 2,886 (b) At December 31, 2006 and 2005, respectively, Personal Lines loss
reserves include $861 million and $878 million related to business
Medical malpractice 2,308 2,363 ceded to DBG and reported in DBG’s statutory filings.
Products liability 2,168 1,937
(c) At December 31, 2006 and 2005, respectively, Foreign General loss
Accident and health 1,649 1,678 reserves include approximately $2.87 billion and $2.15 billion related
Commercial multiple peril 1,621 1,359 to business reported in DBG’s statutory filings.
Aircraft 1,562 1,844
The DBG net loss reserve of $44.0 billion is comprised
Fidelity/surety 1,127 1,072
Other 3,185 3,112 principally of the business of AIG subsidiaries participating in the
American Home/National Union pool (11 companies) and the
Total $79,999 $77,169
surplus lines pool (Lexington, Starr Excess Liability Insurance
* Presented by lines of business pursuant to statutor y reporting require- Company and Landmark Insurance Company).
ments as prescribed by the National Association of Insurance Commis- Beginning in 1998, DBG ceded a quota share percentage of its
sioners (NAIC).
other liability occurrence and products liability occurrence busi-
AIG’s gross reserve for losses and loss expenses represents ness to AIRCO. The quota share percentage ceded was 40 per-
the accumulation of estimates of ultimate losses, including IBNR cent in 1998, 65 percent in 1999, 75 percent in 2000 and 2001,
and loss expenses. The methods used to determine loss reserve 50 percent in 2002 and 2003, 40 percent in 2004, 35 percent in
estimates and to establish the resulting reserves are continually 2005 and 20 percent in 2006 and covered all business written in
reviewed and updated by management. Any adjustments resulting these years for these lines by par ticipants in the American Home/
therefrom are reflected in operating income currently. Because National Union pool. In 1998 the cession reflected only the other
loss reserve estimates are subject to the outcome of future liability occurrence business, but in 1999 and subsequent years
events, changes in estimates are unavoidable given that loss included products liability occurrence. AIRCO’s loss reserves
trends vary and time is often required for changes in trends to be relating to these quota share cessions from DBG are recorded on
recognized and confirmed. Reserve changes that increase previ- a discounted basis. As of year-end 2006, AIRCO carried a
ous estimates of ultimate cost are referred to as unfavorable or discount of approximately $330 million applicable to the $3.66
adverse development or reserve strengthening. Reserve changes billion in undiscounted reserves it assumed from the American
that decrease previous estimates of ultimate cost are referred to Home/National Union pool via this quota share cession. AIRCO
as favorable development. also carries approximately $467 million in net loss reserves
At December 31, 2006, General Insurance net loss reserves relating to Foreign General insurance business. These reserves
increased $5.15 billion from 2005 to $62.63 billion. The net loss are carried on an undiscounted basis.
reserves represent loss reserves reduced by reinsurance recover- Beginning in 1997, the Personal Lines division ceded a
ables, net of an allowance for unrecoverable reinsurance and percentage of all business written by the companies participating
applicable discount for future investment income. in the personal lines pool to the American Home/National Union
pool. As noted above, the total reserves carried by participants in
the American Home/National Union pool relating to this cession
amounted to $861 million as of year-end 2006.
The companies participating in the American Home/National
Union pool have maintained a participation in the business written
by AIU for decades. As of year-end 2006, these AIU reserves
carried by participants in the American Home/National Union pool
amounted to approximately $2.87 billion. The remaining Foreign
Form 10-K 2006 AIG 37