AIG 2009 Annual Report Download - page 291

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. 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 following table presents the reconciliation of activity in the Liability for unpaid claims and claims adjustment
expense:
Years Ended December 31,
(in millions) 2009 2008 2007
Balance, beginning of year:
Liability for unpaid claims and claims adjustment expense $ 89,258 $85,500 $ 79,999
Reinsurance recoverable (16,803) (16,212) (17,369)
Total 72,455 69,288 62,630
Foreign exchange effect 1,416 (2,113) 955
Acquisitions(a) -- 317
Dispositions(b) (9,657) (269) -
Losses and loss expenses incurred(c):
Current year 27,359 35,085 30,261
Prior years, other than accretion of discount(d) 2,771 118 (656)
Prior years, accretion of discount 313 317 327
Total 30,443 35,520 29,932
Losses and loss expenses paid(c):
Current year 11,082 13,440 9,684
Prior years 15,676 16,531 14,862
Total 26,758 29,971 24,546
Balance, end of year:
Net liability for unpaid claims and claims adjustment expense 67,899 72,455 69,288
Reinsurance recoverable 17,487 16,803 16,212
Total $ 85,386 $89,258 $ 85,500
(a) Represents the opening balance with respect to the acquisition of W¨ uBa in 2007.
(b) Transatlantic was deconsolidated during the second quarter of 2009, 21st Century was sold in the third quarter of 2009; HSB was sold during the first
quarter of 2009, and Unibanco was sold in the fourth quarter of 2008.
(c) Includes amounts related to dispositions through the date of disposition.
(d) In 2009, includes $1.51 billion, $956 million and $151 million related to excess casualty, excess workers’ compensation and asbestos, respectively.
Discounting of Reserves
At December 31, 2009, net loss reserves reflect a loss reserve discount of $2.66 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. Certain other liability occurrence and products
liability occurrence business in AIRCO that was written by Commercial Insurance is discounted based on the yield of
Department of the Treasury securities ranging from one to twenty years and the Commercial Insurance payout pattern
for this business. The discount is comprised of the following: $669 million — tabular discount for workers’
compensation in Commercial Insurance; $1.9 billion — non-tabular discount for workers’ compensation in
283 AIG 2009 Form 10-K