AIG 2012 Annual Report Download - page 197

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Class of Business or Category and Actuarial Method Application of Actuarial Method
We generally use a combination of loss development methods Expected loss ratio methods are given more weight in the two
and expected loss ratio methods for D&O and related most recent accident years, whereas loss development
management liability classes of business. methods are given more weight in more mature accident
years. For the year-end 2012 loss reserve review, claims
Frequency/severity methods are generally not used in isolation projections for accident years 2011 and prior were used.
for these classes as the overall losses are driven by large These classes of business reflect claims made coverage, and
losses more than by claim frequency. Severity trends have losses are characterized by low frequency and high severity.
varied significantly from accident year to accident year and
care is required in analyzing these trends by claim type. We
also give weight to claim department ground-up projections of
ultimate loss on a claim by claim basis as these may be more
predictive of ultimate loss values especially for older accident
years.
We generally use a combination of loss development methods Expected loss ratio methods generally are given significant
and expected loss ratio methods for workers’ compensation. weight only in the most recent accident year. Workers’
We segment the data by state and industry class to the extent compensation claims are generally characterized by high
that meaningful differences are determined to exist. frequency, low severity, and relatively consistent loss
development from one accident year to the next. We
historically have been a leading writer of workers’
compensation, and thus have sufficient volume of claims
experience to use development methods. We generally
segregate California business from other business in
evaluating workers’ compensation reserves. In 2012, we
segmented out New York from the other states to reflect its
different development pattern and changing percentage of the
mix by state. We also revised our assumptions to reflect
changes in our claims management activities. Certain classes
of workers’ compensation, such as construction, are also
evaluated separately. Additionally, we write a number of very
large accounts which include workers’ compensation
coverage. These accounts are generally priced by our
actuaries, and to the extent appropriate, the indicated losses
based on the pricing analysis may be used to record the initial
estimated loss reserves for these accounts.
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AIG 2012 Form 10-K180
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D&O and Related Management Liability Classes of Business
Workers’ Compensation
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES