AIG 2009 Annual Report Download - page 92

American International Group, Inc., and Subsidiaries
• $200 million from claims involving MTBE, a gasoline additive, primarily on excess casualty business within
Commercial Insurance from accident years 2000 and prior; and
• continued emergence of latent claims such as construction defect, product aggregate, and pharmaceutical
related exposures, as well as higher than expected large loss activity (see Net Loss Development by Class of
Business below).
The adverse development relating to excess casualty was offset by favorable development of:
• $660 million from business written by Lexington Insurance Company, including healthcare, catastrophic
casualty, casualty and program businesses; and
• $430 million from Financial Services divisions within Commercial Insurance, including D&O and related
management liability business.
The favorable development of $339 million on loss sensitive business was offset by adverse development from other
classes including primary workers compensation as well as reserves relating to reinsurance commutations and to
asbestos.
AIG’s total net loss development from prior accident years for 2008, including Noncore businesses, was adverse by
$118 million. Mortgage Guaranty contributed approximately $177 million of overall adverse development in 2008,
with $159 million relating to accident year 2007.
2007 Net Loss Development
In 2007, General Insurance net loss development from prior accident years was favorable by approximately
$657 million, excluding approximately $327 million from accretion of loss reserve discount. The overall favorable
development of $657 million consisted of favorable development of:
• $305 million pertaining to the D&O and related management liability classes of business within Commercial
Insurance;
• $286 million pertaining to Foreign General, primarily relating to financial lines and excess casualty lines; and
• $194 million pertaining to healthcare business within Commercial Insurance.
In 2007, most classes of AIG’s business continued to experience favorable development for accident years 2004
through 2006.
The favorable development was partially offset by adverse development of:
• $300 million from primary workers’ compensation business within Commercial Insurance; and
• $73 million pertaining to excess casualty business within Commercial Insurance.
AIG’s total net loss development from prior accident years for 2007, including Noncore businesses, was favorable by
$656 million. The noncore business prior year development included adverse development of $88 million from
Transatlantic and favorable development of $25 million from Mortgage Guaranty.
Net Loss Development by Class of Business
The following is a discussion of the primary reasons for the development in 2009, 2008 and 2007 for those classes of
business that experienced significant prior accident year developments during the three-year period. See Asbestos and
Environmental Reserves below for a further discussion of asbestos and environmental reserves and development.
Excess Casualty: Excess Casualty reserves experienced significant adverse loss development in 2009 and 2008,
following relatively minor adverse development in 2007. However, all three years exhibited significant adverse
development from accident years 2002 and prior. The increase in loss costs resulted primarily from medical inflation,
which increased the economic loss component of tort claims, advances in medical care, which extended the life span of
severely injured claimants, and larger jury verdicts, which increased the value of severe tort claims. An additional
factor affecting AIG’s excess casualty experience in recent years has been the exhaustion of underlying primary
AIG 2009 Form 10-K 84