AIG 2010 Annual Report Download - page 63

American International Group, Inc., and Subsidiaries
the Europe Region net written premiums at levels consistent with 2010. Far East growth in 2011 is expected to be
attributable to the full-year inclusion of the Fuji Fire & Marine Insurance Company Limited (Fuji) results of
operations, compared to only six months for 2010. Further, in connection with this purchase, Chartis recognized
certain net intangible liabilities. The amortization of these net intangible liabilities is expected to continue to have
a beneficial impact on the 2011 expense ratio.
On February 10, 2011, Chartis announced an all-cash tender offer for the 45.3 percent of outstanding Fuji
shares that it does not already own, as well as outstanding stock acquisition rights. The announced offering period
began February 14, 2011 and is expected to close on March 24, 2011. Following the completion of the tender
offer, Chartis intends to take any additional steps necessary to acquire all remaining shares in Fuji. The cost for
all outstanding shares not currently held and related transaction fees is estimated at $590 million and will be
funded from available cash within Chartis’ insurance companies.
This transaction is consistent with Chartis’ strategy to diversify its portfolio of businesses on both a geographic
and product line basis and is intended to strengthen Chartis’ position in the consolidating Japanese market, while
enabling Fuji to benefit from Chartis’ global operational resources and financial strength.
Following completion of its annual comprehensive loss reserve review, Chartis recorded a $4.2 billion reserve
charge, net of $435 million in discount and loss sensitive business premium adjustments, for the fourth quarter of
2010 to strengthen loss reserves, reflecting adverse development on prior accident years in classes of business with
long reporting tails. Four classes — asbestos, excess casualty, excess workers’ compensation, and primary workers’
compensation — comprise approximately 80 percent of the total charge. The majority of the strengthening relates
to development in accident years 2005 and prior. These adjustments reflect management’s current best estimate of
the ultimate value of the underlying claims. These liabilities are necessarily subject to the impact of future changes
in claim severity and frequency, as well as numerous other factors. Although AIG believes that these estimated
liabilities are reasonable, because of the extended period of time over which such claims are reported and settled,
the subsequent development of these liabilities in future periods may not conform to the assumptions inherent in
their determination and, accordingly, may vary materially from the amounts previously recorded. To the extent
actual emerging loss experience varies from the current assumptions used to determine these liabilities, they will
be adjusted to reflect actual experience. Such adjustments, to the extent they occur, will be reported in the period
recognized. AIG continues to monitor these liabilities and will take active steps to mitigate future adverse
development.
Australia has suffered a series of catastrophic floods in 2010 and 2011. Chartis recorded a catastrophe loss in
the fourth quarter of 2010 of $139 million and anticipates significant claims from the 2011 floods.
On April 20, 2010, an explosion on the Deepwater Horizon offshore drilling rig, operating in the Gulf of
Mexico off the coast of Louisiana, resulted in a fire that led to the sinking of the rig and subsequent oil spill. AIG
continues to monitor the casualty exposure to Deepwater Horizon and believes that carried loss reserves at
December 31, 2010 are adequate to cover estimated losses attributable to this event. However, AIG’s claims
estimates may change over time, as the forensic investigation is incomplete, and litigation is in its early stages.
SunAmerica
SunAmerica intends in 2011 to expand its distribution capabilities, reposition its excess cash and liquidity,
maintain a strong statutory surplus, pro-actively manage expenses and increase dividends paid to AIG Parent.
SunAmerica intends to improve net investment income results in 2011 by investing its excess cash and liquid
assets into longer-term higher-yielding securities to improve spreads, while actively managing credit and liquidity
risks. However, acquiring higher-yielding investments that otherwise meet SunAmerica’s investment criteria in the
current low interest rate environment is expected to remain challenging.
SunAmerica’s fixed annuity business is affected by the interest rate environment in several ways. The primary
effects are fluctuations in sales volumes related to the absolute level of interest rates and the relative steepness of
the yield curve. In low interest rate environments, new sales of fixed annuities tend to be lower as consumers see
AIG 2010 Form 10-K 47