AIG 2008 Annual Report Download - page 103

• The increase in the volume of claims by currently unimpaired plaintiffs;
• Claims filed under the non-aggregate premises or operations section of general liability policies;
• The number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• Diverging legal interpretations; and
• With respect to environmental claims, the difficulty in estimating the allocation of remediation cost among
various parties.
After carefully considering the results of the ground-up analysis, which AIG updates on an annual basis, as
well as all of the above factors, including the recent report year experience, AIG increased its gross asbestos
reserves by $200 million and increased its net asbestos reserves by $30 million. Additionally, during 2008 an
amount of adverse incurred loss development pertaining to asbestos was reflected which was primarily attributed to
several large defendants, the effect of which was largely offset by one large favorable settlement.
Upon completion of the environmental top-down report year analysis performed in the fourth quarter of 2008,
no adjustment to gross and net reserves was recognized. Additionally, during 2008 a moderate amount of favorable
gross incurred loss development pertaining to environmental was reflected which was primarily attributable to
recent favorable experience which was fully insured, resulting in no favorable net development on environmental
net reserves.
A summary of reserve activity, including estimates for applicable IBNR, relating to asbestos and
environmental claims separately and combined 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.
Gross Net Gross Net Gross Net
2008 2007 2006
As of or for the Years Ended December 31,
(In millions)
Asbestos:
Liability for unpaid claims and claims adjustment
expense at beginning of year ................. $3,864 $1,454 $4,523 $1,889 $4,501 $1,840
Losses and loss expenses incurred*.............. 273 53 96 5 572 267
Losses and loss expenses paid*................. (694) (307) (755) (440) (550) (218)
Liability for unpaid claims and claims adjustment
expense at end of year ....................... $3,443 $1,200 $3,864 $1,454 $4,523 $1,889
Environmental:
Liability for unpaid claims and claims adjustment
expense at beginning of year ................. $ 515 $ 237 $ 629 $ 290 $ 969 $ 410
Losses and loss expenses incurred*.............. (44) (2) 10 13 (231) (59)
Losses and loss expenses paid*................. (54) (41) (124) (66) (109) (61)
Liability for unpaid claims and claims adjustment
expense at end of year ....................... $ 417 $ 194 $ 515 $ 237 $ 629 $ 290
Combined:
Liability for unpaid claims and claims adjustment
expense at beginning of year ................. $4,379 $1,691 $5,152 $2,179 $5,470 $2,250
Losses and loss expenses incurred*.............. 229 51 106 18 341 208
Losses and loss expenses paid*................. (748) (348) (879) (506) (659) (279)
Liability for unpaid claims and claims adjustment
expense at end of year ....................... $3,860 $1,394 $4,379 $1,691 $5,152 $2,179
*All amounts pertain to policies underwritten in prior years, primarily to policies issued in 1984 and prior.
AIG 2008 Form 10-K 97
American International Group, Inc., and Subsidiaries