AIG 2007 Annual Report Download - page 61

American International Group, Inc. and Subsidiaries
changes in currency rates. See also Note 1(ff) to Consolidated $41.21 billion at December 31, 2007. This increase from the
Financial Statements. original estimate would generally result from a combination of a
Management reviews the adequacy of established loss number of factors, including reserves being settled for larger
reserves utilizing a number of analytical reserve development amounts than originally estimated. The original estimates will also
techniques. Through the use of these techniques, management is be increased or decreased as more information becomes known
able to monitor the adequacy of AIG’s established reserves and about the individual claims and overall claim frequency and
determine appropriate assumptions for inflation. Also, analysis of severity patterns. The redundancy (deficiency) depicted in the
emerging specific development patterns, such as case reserve table, for any particular calendar year, presents the aggregate
redundancies or deficiencies and IBNR emergence, allows man- change in estimates over the period of years subsequent to the
agement to determine any required adjustments. calendar year reflected at the top of the respective column
The ‘‘Analysis of Consolidated Losses and Loss Expense heading. For example, the redundancy of $672 million at Decem-
Reserve Development’’ table presents the development of net ber 31, 2007 related to December 31, 2006 net losses and loss
losses and loss expense reserves for calendar years 1997 expense reserves of $62.72 billion represents the cumulative
through 2007. Immediately following this table is a second table amount by which reserves in 2006 and prior years have
that presents all data on a basis that excludes asbestos and developed favorably during 2007.
environmental net losses and loss expense reserve development. The bottom of each table below presents the remaining
The opening reserves held are shown at the top of the table for undiscounted and discounted net loss reserve for each year. For
each year end date. The amount of loss reserve discount included example, in the table that excludes asbestos and environmental
in the opening reserve at each date is shown immediately below losses, for the 2002 year end, the remaining undiscounted
the reserves held for each year. The undiscounted reserve at reserves held as of December 31, 2007 are $13.57 billion, with
each date is thus the sum of the discount and the reserve held. a corresponding discounted net reserve of $12.57 billion.
The upper half of the table presents the cumulative amounts The reserves for net losses and loss expenses with respect to
paid during successive years related to the undiscounted opening Transatlantic and 21st Century are included only in consolidated
loss reserves. For example, in the table that excludes asbestos net losses and loss expenses commencing with the year ended
and environmental losses, with respect to the net losses and loss December 31, 1998, the year they were first consolidated in AIG’s
expense reserve of $24.83 billion as of December 31, 2000, by financial statements. Reserve development for these operations is
the end of 2007 (seven years later) $33.05 billion had actually included only for 1998 and subsequent periods. Thus, the
been paid in settlement of these net loss reserves. In addition, presentation for 1997 and prior year ends is not fully comparable
as reflected in the lower section of the table, the original to that for 1998 and subsequent years in the tables below.
undiscounted reserve of $26.12 billion was reestimated to be
AIG 2007 Form 10-K 7