AIG 2009 Annual Report Download - page 91

American International Group, Inc., and Subsidiaries
In determining the loss development from prior accident years, AIG conducts analyses to determine the change in
estimated ultimate loss for each accident year for each class of business. For example, if loss emergence for a class of
business is different than expected for certain accident years, the actuaries examine the indicated effect such
emergence would have on the reserves of that class of business. In some cases, the higher or lower than expected
emergence may result in no clear change in the ultimate loss estimate for the accident years in question, and no
adjustment would be made to the reserves for the class of business for prior accident years. In other cases, the higher
or lower than expected emergence may result in a larger change, either favorable or unfavorable, than the difference
between the actual and expected loss emergence. Such additional analyses were conducted for each class of business,
as appropriate, in 2009 to determine the loss development from prior accident years for 2009. As part of its reserving
process, AIG also considers notices of claims received with respect to emerging issues, such as those related to the
U.S. mortgage and housing market.
2009 Net Loss Development
In 2009, General Insurance net loss development from prior accident years, excluding $313 million from accretion
of loss reserve discount, was adverse by approximately $2.76 billion due to adverse development of:
• $1.51 billion relating to excess casualty business within Commercial Insurance, related to accident years 2006
and prior. This adverse development was primarily attributable to continued loss emergence in accident years
2002 and prior and increased loss emergence in accident years 2004 to 2006 significantly in excess of the
historical loss emergence pattern for this class of business, resulting in AIG increasing its loss development
assumptions for excess casualty business (see Net Loss Development by Class of Business below);
• $956 million pertaining to excess workers’ compensation within Commercial Insurance. In 2009, Commercial
Insurance experienced an emergence of losses on accident years 1999 and prior. In response to this
development, AIG conducted an additional actuarial study analyzing the development patterns emanating from
the AIG claims staff projections of expected ultimate cost for each open claim. This analysis resulted in AIG
increasing its loss development assumptions for this long-tail class of business (see Net Loss Development by
Class of Business below); and
• $151 million pertaining to asbestos claims from accident years 2002 and prior, primarily relating to Commercial
Insurance.
AIG’s total net loss development from prior accident years for 2009, including Noncore businesses, was adverse by
approximately $2.8 billion. Mortgage Guaranty accounted for approximately $38 million of adverse development,
relating primarily to its international business.
2008 Net Loss Development
In 2008, General Insurance net loss development from prior accident years was favorable by approximately
$39 million, including approximately $339 million of favorable development relating to loss sensitive business in the
first three months of 2008 (which was offset by an equal amount of negative earned premium development), and
excluding approximately $317 million from accretion of loss reserve discount. Excluding both the favorable
development relating to loss sensitive business and accretion of loss reserve discount, General Insurance net loss
development from prior accident years in 2008 was adverse by approximately $300 million. The overall favorable
development of approximately $39 million consisted of adverse development of:
• $1.1 billion from excess casualty business within Commercial Insurance which reflected:
• higher than expected emergence for accident years 2002 and prior, and to a lesser extent accident years 2003
and 2004 (see Net Loss Development by Class of Business below);
83 AIG 2009 Form 10-K