AIG 2010 Annual Report Download - page 316

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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) 2010 2009 2008
Balance, beginning of year:
Liability for unpaid claims and claims adjustment expense $ 85,386 $ 89,258 $ 85,500
Reinsurance recoverable (17,487) (16,803) (16,212)
Total 67,899 72,455 69,288
Foreign exchange effect (126) 1,416 (2,113)
Acquisitions(a) 1,538 --
Dispositions(b) (87) (9,657) (269)
Losses and loss expenses incurred(c):
Current year 24,074 27,354 34,516
Prior years, other than accretion of discount(d) 4,182 2,771 118
Prior years, accretion of discount (181) 313 317
Total 28,075 30,438 34,951
Losses and loss expenses paid(c):
Current year 9,873 11,079 13,204
Prior years 15,919 15,673 16,240
Total 25,792 26,752 29,444
Activity of discontinued operations -(1) 42
Balance, end of year:
Net liability for unpaid claims and claims adjustment expense 71,507 67,899 72,455
Reinsurance recoverable 19,644 17,487 16,803
Total $ 91,151 $ 85,386 $ 89,258
(a) Represents the acquisition of Fuji on March 31, 2010.
(b) Transatlantic was deconsolidated in 2009, 21st Century and HSB were sold in 2009, and Unibanco was sold in 2008.
(c) Includes amounts related to dispositions through the date of disposition.
(d) In 2010, includes $1.1 billion, $793 million and $1.5 billion related to excess casualty, excess workers’ compensation and asbestos, respectively.
In 2009, includes $1.5 billion, $956 million and $151 million related to excess casualty, excess workers’ compensation and asbestos, respectively.
Discounting of Reserves
At December 31, 2010, net loss reserves reflect a loss reserve discount of $3.22 billion, including tabular and
non-tabular calculations based upon the following assumptions.
• 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.
300 AIG 2010 Form 10-K