AIG 2009 Annual Report Download - page 130

American International Group, Inc., and Subsidiaries
These accounting estimates require the use of assumptions about matters, some of which are highly uncertain at the
time of estimation. To the extent actual experience differs from the assumptions used, AIG’s financial condition and
results of operations would be directly affected.
The major categories for which assumptions are developed and used to establish each critical accounting estimate
are highlighted below.
AIG’s Ability to Continue as a Going Concern
When assessing AIG’s ability to continue as a going concern, management must make judgments and estimates
about the following:
• the marketability of assets to be disposed of and the timing and amount of related cash proceeds to be used to
repay indebtedness;
• the planned sales of significant subsidiaries;
• plans to raise new funds or refinance debt;
• the commitment of the U.S. government to continue to work with AIG to maintain its ability to meet its
obligations as they come due;
• the retention of key employees;
• projections of future profitability and the timing and amount of cash flows from operating activities;
• the funding needs of regulated subsidiaries;
• AIG’s ability to comply with debt covenants and its agreements with the Department of the Treasury and the
Trust;
• plans to restructure operations and reduce expenditures;
• the effects of ratings agency actions on collateral requirements and other contractual conditions; and
• the future regulatory, business, credit, and competitive environments in which AIG operates around the world.
These factors, individually and collectively, will have a significant effect on AIG’s ability to generate sufficient cash
to repay indebtedness as it becomes due and profitably operate its businesses as it executes its restructuring initiatives.
Liability for Unpaid Claims and Claims Adjustment Expenses (General Insurance):
•Loss trend factors: used to establish expected loss ratios for subsequent accident years based on premium rate
adequacy and the projected loss ratio with respect to prior accident years.
•Expected loss ratios for the latest accident year: in this case, accident year 2009 for the year-end 2009 loss reserve
analysis. For low-frequency, high-severity classes such as excess casualty, expected loss ratios generally are
utilized for at least the three most recent accident years.
•Loss development factors: used to project the reported losses for each accident year to an ultimate amount.
•Reinsurance recoverable on unpaid losses: the expected recoveries from reinsurers on losses that have not yet
been reported and/or settled.
For discussion of sensitivity analysis on the reserve for unpaid claims and claims adjustment expenses, see Results of
Operations — Segment Results — General Insurance Operations — Liability for Unpaid Claims and Claims
Adjustment Expense.
AIG 2009 Form 10-K 122