AIG 2010 Annual Report Download - page 124

American International Group, Inc., and Subsidiaries
At year-end 2010, AIG considered a number of factors and recent experience in addition to the results of the
respective top-down and ground-up analyses performed for asbestos and environmental reserves. AIG considered
the significant uncertainty that remains as to AIG’s ultimate liability relating to asbestos and environmental claims.
This uncertainty is due to several factors including:
• The long latency period between asbestos exposure and disease manifestation and the resulting potential
for involvement of multiple policy periods for individual claims;
• Claims filed under the non-aggregate premises or operations section of general liability policies;
• The number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• Diverging legal interpretations; and
• With respect to environmental claims, the difficulty in estimating the allocation of remediation cost among
various parties.
After carefully considering the results of the ground-up analysis, which AIG updates on an annual basis, as well
as all of the above factors, including the recent report year experience, AIG increased its gross asbestos reserves
by $2.6 billion and increased its net asbestos reserves by $1.2 billion in 2010. Additionally, during 2010
$389 million gross and $160 million net of adverse incurred loss development pertaining to asbestos was reflected,
which was primarily attributed to several large accounts.
Upon completion of the environmental top-down report year analysis performed in the fourth quarter of 2010, a
moderate adjustment to gross and net reserves was recognized.
The following table provides a summary of reserve activity, including estimates for applicable IBNR, relating to
asbestos and environmental claims separately and combined:
2010 2009 2008
As of or for the Year Ended December 31,
(in millions) Gross Net Gross Net Gross Net
Asbestos:
Liability for unpaid claims and claims adjustment
expense at beginning of year $ 3,236 $ 1,151 $ 3,443 $ 1,200 $ 3,864 $ 1,454
Dispositions (17) (8) (84) (21) - -
Losses and loss expenses incurred* 2,940 1,317 482 151 273 53
Losses and loss expenses paid* (633) (237) (605) (179) (694) (307)
Liability for unpaid claims and claims adjustment
expense at end of year $ 5,526 $ 2,223 $ 3,236 $ 1,151 $ 3,443 $ 1,200
Environmental:
Liability for unpaid claims and claims adjustment
expense at beginning of year $ 338 $ 159 $ 417 $ 194 $ 515 $ 237
Dispositions (27) (10) (37) (7) - -
Losses and loss expenses incurred* 23 24 2 4 (44) (2)
Losses and loss expenses paid* (94) (46) (44) (32) (54) (41)
Liability for unpaid claims and claims adjustment expense
at end of year $ 240 $ 127 $ 338 $ 159 $ 417 $ 194
Combined:
Liability for unpaid claims and claims adjustment
expense at beginning of year $ 3,574 $ 1,310 $ 3,860 $ 1,394 $ 4,379 $ 1,691
Dispositions (44) (18) (121) (28) - -
Losses and loss expenses incurred* 2,963 1,341 484 155 229 51
Losses and loss expenses paid* (727) (283) (649) (211) (748) (348)
Liability for unpaid claims and claims adjustment expense
at end of year $ 5,766 $ 2,350 $ 3,574 $ 1,310 $ 3,860 $ 1,394
* All amounts pertain to policies underwritten in prior years, primarily to policies issued in 1984 and prior years.
108 AIG 2010 Form 10-K