AIG 2009 Annual Report Download - page 192

American International Group, Inc., and Subsidiaries
other divisions. All reinsurance program structures, domestic and international, reflect the reinsurance programs in
place as of January 31, 2010. The values provided were based on 100-year return period losses, which have a one
percent likelihood of being exceeded in any single year. Thus, the model projects that there is a one percent
probability that AIG could incur in any year losses in excess of the modeled amounts for these perils. Losses include
loss adjustment expenses and the net values include reinstatement premiums.
At December 31, 2009 Net of 2010
Net of 2010 Reinsurance, Percent of
(in millions) Gross Reinsurance After Tax Total Equity
Natural Peril:
Earthquake $ 6,932 $ 3,530 $ 2,294 2.3%
Tropical Cyclone*$ 7,384 $ 4,299 $ 2,794 2.8%
* Includes hurricanes, typhoons and European Windstorms.
Gross earthquake and tropical cyclone modeled losses decreased $973 million and $214 million, respectively,
compared to 2008, while net losses decreased $951 million and $219 million, respectively, compared to 2008. These
decreases are primarily due to decreases in AIG’s exposure and increases in U.S. catastrophe reinsurance.
In addition to the return period loss, AIG evaluates potential single event earthquake and hurricane losses that may
be incurred. The single events utilized are a subset of potential events identified and utilized by Lloyd’s (see Lloyd’s
Realistic Disaster Scenarios, Scenario Specifications, April 2006) and referred to as Realistic Disaster Scenarios (RDS).
The purpose of this analysis is to utilize these RDS to provide a reference frame and place into context the model
results. However, it is important to note that the specific events used for this analysis do not necessarily represent the
worst case loss that AIG could incur from this type of an event in these regions. The losses associated with the RDS
are included in the following table.
Single-event modeled property and workers’ compensation losses to AIG’s worldwide portfolio of risk for key
geographic areas are set forth below. Gross values represent AIG’s liability after the application of policy limits and
deductibles, and net values represent losses after reinsurance is applied; the net losses also include reinsurance
reinstatement premiums. Both gross and net losses include loss adjustment expenses.
At December 31, 2009
Net of 2010
(in millions) Gross Reinsurance
Natural Peril:
Miami Hurricane $ 7,996 $ 3,725
San Francisco Earthquake $ 6,732 $ 2,599
Los Angeles Earthquake $ 6,650 $ 2,909
Gulf Coast Hurricane $ 5,357 $ 3,074
Northeast Hurricane $ 4,429 $ 2,651
Japanese Earthquake $ 1,066 $ 477
European Windstorm $ 425 $ 301
Japanese Typhoon $ 282 $ 139
AIG also monitors key international property risks utilizing modeled statistical return period losses. Based on these
simulations, the 100-year return period loss for Japanese Earthquake is $610 million gross and $283 million net; the
100-year return period loss for European Windstorm is $675 million gross and $464 million net; and the 100-year
return period loss for Japanese Typhoon is $504 million gross and $325 million net.
ACTUAL RESULTS IN ANY PERIOD ARE LIKELY TO VARY, PERHAPS MATERIALLY, FROM THE
MODELED SCENARIOS, AND THE OCCURRENCE OF ONE OR MORE SEVERE EVENTS COULD HAVE
A MATERIAL ADVERSE EFFECT ON AIG’S FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
LIQUIDITY.
AIG 2009 Form 10-K 184