AIG 2008 Annual Report Download - page 276

11. Liability for unpaid claims and claims adjustment expense and Future policy benefits for life and
accident and health insurance contracts and policyholder contract deposits
The reconciliation of activity in the liability for unpaid claims and claims adjustment expense was as
follows:
2008 2007 2006
Years Ended December 31,
(In millions)
At beginning of year:
Liability for unpaid claims and claims adjustment expense . . . $ 85,500 $ 79,999 $ 77,169
Reinsurance recoverable ............................. (16,212) (17,369) (19,693)
Total ............................................. 69,288 62,630 57,476
Foreign exchange effect ............................... (2,113) 955 741
Acquisitions and dispositions(a) ......................... (269) 317 55
Losses and loss expenses incurred:
Current year ...................................... 35,085 30,261 27,805
Prior years, other than accretion of discount(b) ............ 118 (656) (53)
Prior years, accretion of discount . . . ................... 317 327 300
Total ............................................. 35,520 29,932 28,052
Losses and loss expenses paid:
Current year ...................................... 13,440 9,684 8,368
Prior years ....................................... 16,531 14,862 15,326
Total ............................................. 29,971 24,546 23,694
At end of year:
Net liability for unpaid claims and claims adjustment
expense ....................................... 72,455 69,288 62,630
Reinsurance recoverable ............................. 16,803 16,212 17,369
Total ............................................. $ 89,258 $ 85,500 $ 79,999
(a) Reflects the closing balance with respect to Unibanco divested in the fourth quarter of 2008 and the opening
balance with respect to the acquisitions of Wu
¨Ba and the Central Insurance Co., Ltd. in 2007 and 2006,
respectively.
(b) Includes $88 million and $181 million in 2007 and 2006, respectively, for the general reinsurance operations of
Transatlantic and, $7 million, $64 million and $103 million of losses incurred in 2008, 2007 and 2006,
respectively, resulting from the 2005 and 2004 catastrophes.
Discounting of Reserves
At December 31, 2008, AIG’s overall General Insurance net loss reserves reflect a loss reserve discount of
$2.57 billion, including tabular and non-tabular calculations. The tabular workers’ compensation discount is
calculated using a 3.5 percent interest rate and the 1979-81 Decennial Mortality Table. The non-tabular workers’
compensation discount is calculated separately for companies domiciled in New York and Pennsylvania, and
follows the statutory regulations for each state. For New York companies, the discount is based on a five percent
interest rate and the companies’ own payout patterns. For Pennsylvania companies, the statute has specified
discount factors for accident years 2001 and prior, which are based on a six percent interest rate and an industry
payout pattern. For accident years 2002 and subsequent, the discount is based on the payout patterns and investment
yields of the companies.
270 AIG 2008 Form 10-K
American International Group, Inc., and Subsidiaries
Notes to Consolidated Financial Statements — (Continued)