AIG 2012 Annual Report Download - page 300

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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
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The liability for unpaid claims and claims adjustment expense represents the accumulation of estimates of unpaid
claims, including estimates for claims incurred but not reported and claim adjustments expenses, less applicable
discount for future investment income. We continually review and update the methods used to determine loss reserve
estimates and to establish the resulting reserves. Any adjustments resulting from this review are currently reflected in
pre-tax income. Because these estimates are subject to the outcome of future events, changes in estimates are
common given that loss trends vary and time is often required for changes in trends to be recognized and confirmed.
Reserve changes that increase previous estimates of ultimate cost are referred to as unfavorable or adverse
development or reserve strengthening. Reserve changes that decrease previous estimates of ultimate cost are
referred to as favorable development.
The following table presents the reconciliation of activity in the Liability for unpaid claims and claims
adjustment expense:
Liability for unpaid claims and claims adjustment expense, beginning of year $ 91,151 $ 85,386
Reinsurance recoverable (19,644) (17,487)
Net liability for unpaid claims and claims adjustment expense, beginning of
year 71,507 67,899
Foreign exchange effect 353 (126)
Acquisitions(a) – 1,538
Dispositions – (87)
Changes in net loss reserves due to NICO transaction (1,703) –
Total 70,157 69,224
Losses and loss expenses incurred(b):
Current year 27,931 24,455
Prior years, other than accretion of discount(c) 195 4,182
Prior years, accretion of discount 34 (562)
Total 28,160 28,075
Losses and loss expenses paid(b):
Current year 11,534 9,873
Prior years 15,958 15,919
Total 27,492 25,792
Balance, end of year:
Net liability for unpaid claims and claims adjustment expense 70,825 71,507
Reinsurance recoverable 20,320 19,644
Total $ 91,145 $ 91,151
(a) Represents the acquisition of Fuji on March 31, 2010.
(b) Includes amounts related to dispositions through the date of disposition.
(c) In 2012, includes $262 million, $46 million and $326 million related to excess casualty, commercial specialty workers’ compensation and
environmental, respectively. In 2011, includes $(414) million, $145 million and $413 million related to excess casualty, commercial specialty workers’
compensation and environmental, respectively. In 2010, includes $1.1 billion, $793 million and $1.5 billion related to excess casualty, excess
workers’ compensation and asbestos, respectively.
The net adverse development includes loss-sensitive business, for which we recognized a $54 million, $172 million
and $8 million loss-sensitive premium adjustment for the years ended December 31, 2012, 2011 and 2010,
respectively.
The 2010 net adverse loss development for prior accident years primarily relates to the asbestos, excess casualty,
excess workers’ compensation and primary workers’ compensation. Further, this charge primarily relates to accident
years 2007 and prior (accident years before the financial crisis in 2008) and a significant amount relates to accident
2005 and prior (accident years prior to the start of the managed reduction in these long-tail lines of business). In
2010, the reserve charges were primarily due to long-tail lines of business which have been reduced since 2006. In
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AIG 2012 Form 10-K 283
Years Ended December 31,
(in millions) 2012 2011 2010
$ 91,145
(20,320)
70,825
757
–
(11)
90
71,661
25,385
421
(63)
25,743
9,297
19,325
28,622
68,782
19,209
$ 87,991
ITEM 8 / NOTE 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