AIG 2009 Annual Report Download - page 105

American International Group, Inc., and Subsidiaries
Due to this uncertainty, it is not possible to determine the future development of asbestos and environmental claims
with the same degree of reliability as with other types of claims. Such future development will be affected by the extent
to which courts continue to expand the intent of the policies and the scope of the coverage, as they have in the past, as
well as by the changes in Superfund and waste dump site coverage and liability issues. If the asbestos and
environmental reserves develop deficiently, such deficiency could have an adverse effect on AIG’s future results of
operations for an individual reporting period.
With respect to known asbestos and environmental claims, AIG established over two decades ago specialized toxic
tort and environmental claims units, which investigate and adjust all such asbestos and environmental claims. These
units evaluate these asbestos and environmental claims utilizing a claim-by-claim approach that involves a detailed
review of individual policy terms and exposures. Because each policyholder presents different liability and coverage
issues, AIG generally evaluates exposure on a policy-by-policy basis, considering a variety of factors such as known
facts, current law, jurisdiction, policy language and other factors that are unique to each policy. Quantitative
techniques have to be supplemented by subjective considerations, including management judgment. Each claim is
reviewed at least semi-annually utilizing the aforementioned approach and adjusted as necessary to reflect the current
information.
In both the specialized and dedicated asbestos and environmental claims units, AIG actively manages and pursues
early resolution with respect to these claims in an attempt to mitigate its exposure to the unpredictable development
of these claims. AIG attempts to mitigate its known long-tail environmental exposures by utilizing a combination of
proactive claim-resolution techniques, including policy buybacks, complete environmental releases, compromise
settlements, and, when appropriate, litigation.
With respect to asbestos claims handling, AIG’s specialized claims staff operates to mitigate losses through
proactive handling, supervision and resolution of asbestos cases. Thus, while AIG has resolved all claims with respect
to miners and major manufacturers (Tier One), its claims staff continues to operate under the same proactive
philosophy to resolve claims involving accounts with products containing asbestos (Tier Two), products containing
small amounts of asbestos, companies in the distribution process, and parties with remote, ill-defined involvement in
asbestos (Tiers Three and Four). Through its commitment to appropriate staffing, training, and management
oversight of asbestos cases, AIG seeks to mitigate its exposure to these claims.
To determine the appropriate loss reserve as of December 31, 2009 for its asbestos and environmental exposures,
AIG performed a series of top-down and ground-up reserve analyses. In order to ensure it had the most
comprehensive analysis possible, AIG engaged a third-party actuary to assist in a review of these exposures, including
ground-up estimates for asbestos reserves consistent with the 2005 through 2008 reviews as well as a top-down report
year projection for environmental reserves. Ground-up analyses take into account policyholder-specific and claim-
specific information that has been gathered over many years from a variety of sources. Ground-up studies can thus
more accurately assess the exposure to AIG’s layers of coverage for each policyholder, and hence for all policyholders
in the aggregate, provided a sufficient sample of the policyholders can be modeled in this manner.
In order to ensure its ground-up analysis was comprehensive, AIG staff produced the information required at policy
and claim level detail for nearly 800 asbestos defendants. This represented over 95 percent of all accounts for which
AIG had received any claim notice of any amount pertaining to asbestos exposure. AIG did not set any minimum
thresholds, such as amount of case reserve outstanding, or paid losses to date, that would have served to reduce the
sample size and hence the comprehensiveness of the ground-up analysis. The results of the ground-up analysis for
each significant account were examined by AIG’s claims staff for reasonableness, for consistency with policy coverage
terms, and any claim settlement terms applicable. Adjustments were incorporated accordingly. The results from the
universe of modeled accounts, which as noted above reflects the vast majority of AIG’s known exposures, were then
utilized to estimate the ultimate losses from accounts or exposures that could not be modeled and to determine an
appropriate provision for unreported claims.
AIG conducted a comprehensive analysis of reinsurance recoverability to establish the appropriate asbestos and
environmental reserve net of reinsurance. AIG determined the amount of reinsurance that would be ceded to
insolvent reinsurers or to commuted reinsurance contracts for both reported claims and for IBNR. These amounts
97 AIG 2009 Form 10-K