AIG 2008 Annual Report Download - page 104

The gross and net IBNR included in the liability for unpaid claims and claims adjustment expense,
relating to asbestos and environmental claims separately and combined were estimated as follows:
Gross Net Gross Net Gross Net
2008 2007 2006
At December 31,
(In millions)
Asbestos........................ $2,301 $ 939 $2,701 $1,145 $3,270 $1,469
Environmental ................... 249 99 325 131 378 173
Combined....................... $2,550 $1,038 $3,026 $1,276 $3,648 $1,642
A summary of asbestos and environmental claims count activity was as follows:
Asbestos Environmental Combined Asbestos Environmental Combined Asbestos Environmental Combined
2008 2007 2006
As of or for the Years Ended December 31,
Claims at beginning of
year. . . ............ 6,563 7,652 14,215 6,878 9,442 16,320 7,293 9,873 17,166
Claims during year:
Opened ............ 639 1,065 1,704 656 937 1,593 643 1,383 2,026
Settled . ............ (219) (207) (426) (150) (179) (329) (150) (155) (305)
Dismissed or otherwise
resolved . . . ....... (1,203) (1,836) (3,039) (821) (2,548) (3,369) (908) (1,659) (2,567)
Claims at end of year . . . . . 5,780 6,674 12,454 6,563 7,652 14,215 6,878 9,442 16,320
Survival Ratios — Asbestos and Environmental
The following table presents AIG’s survival ratios for asbestos and environmental claims at December 31,
2008, 2007 and 2006. The survival ratio is derived by dividing the current carried loss reserve by the average
payments for the three most recent calendar years for these claims. Therefore, the survival ratio is a simplistic
measure estimating the number of years it would be before the current ending loss reserves for these claims would
be paid off using recent year average payments. The December 31, 2008 survival ratio is lower than the ratio at
December 31, 2007 because the more recent periods included in the rolling average reflect higher claims payments.
In addition, AIG’s survival ratio for asbestos claims was negatively affected by the favorable settlement described
above, as well as several similar settlements during 2007. These settlements reduced gross and net asbestos survival
ratios at December 31, 2008 by approximately 1.1 years and 2.4 years, respectively, and reduced gross and net
asbestos survival ratios at December 31, 2007 by approximately 1.3 years and 2.6 years, respectively. Many factors,
such as aggressive settlement procedures, mix of business and level of coverage provided, have a significant effect
on the amount of asbestos and environmental reserves and payments and the resultant survival ratio. Moreover, as
discussed above, the primary basis for AIG’s determination of its reserves is not survival ratios, but instead the
ground-up and top-down analysis. Thus, caution should be exercised in attempting to determine reserve adequacy
for these claims based simply on this survival ratio.
AIG’s survival ratios for asbestos and environmental claims, separately and combined, were based upon
a three-year average payment and were as follows:
Years Ended December 31, Gross Net
2008
Survival ratios:
Asbestos ........................................................ 5.2 3.7
Environmental .................................................... 4.4 3.5
Combined ....................................................... 5.1 3.7
98 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries