AIG 2013 Annual Report Download - page 115

The following table presents the components of AIG Property Casualty’s loss reserve discount included
above:
2012
Commercial
Insurance Other Total
U.S. workers’ compensation:
Tabular $ 588 $ 213 $ 801
Non-tabular 1,953 441 2,394
Asbestos –51 51
Total reserve discount $ 2,541 $ 705 $ 3,246
See Note 12 to the Consolidated Financial Statements for additional information on discounting of loss reserves.
The following table presents the net reserve discount benefit (charge):
2012 2011
Commercial Commercial
Insurance Other Total Insurance Other Total
Change in loss reserve discount – current
accident year $ 348 $ – $ 348 $ 342 $ – $ 342
Change in loss reserve discount – prior year
development 100 (13) 87 24 (44) (20)
Accretion of reserve discount (348) (24) (372) (326) (30) (356)
Net reserve discount benefit (charge) $ 100 $ (37) $ 63 $ 40 $ (74) $ (34)
We discount loss reserves, in a manner consistent with rates and factors approved or prescribed by state regulatory
authorities. Effective for the fourth quarter of 2013, our Pennsylvania regulator approved use of a consistent discount
rate (U.S. Treasury rate plus a liquidity premium) for all of our workers’ compensation reserves in our Pennsylvania-
domiciled companies, as well as our use of updated payout patterns specific to our primary and excess workers’
compensation portfolios. Prior to this change, workers’ compensation reserves held by a Pennsylvania-domiciled
insurer were discounted as follows: i) for loss reserves associated with accident year 2001 and prior accident years,
a prescribed discount factor based on a rate of 6 percent and industry payout patterns, were applied, ii) for loss
reserves associated with accident year 2002 and subsequent accident years, a rate of 4.25 percent and our own
payout patterns were applied; and iii) for a portion of loss reserves comprising excess workers’ compensation
reserves that were assumed into Pennsylvania-domiciled insurers from New York-domiciled insurers during 2011, we
applied New York discounting rules, which include a prescribed rate of 5 percent on case reserves only (no
discounting of IBNR reserves). The new discount rates more closely approximate the expected risk-adjusted yield on
the underlying invested assets over the expected payout periods.
As a result of these changes, the total net discount for workers’ compensation reserves increased by $427 million.
This amount was partially offset by normal accretion expense of $100 million (associated with maturing reserves
partially offset by discounts applied to newly established reserves) for a full year net benefit of $327 million. The net
benefit consisted of a $322 million reduction within the Commercial Insurance operating segment, primarily from
application of a lower discount rate on primary workers’ compensation reserves, and a benefit of $649 million in
Other, primarily from increased payout patterns specific to excess workers’ compensation reserves (as opposed to
the prescribed discount factors), which were only partially offset by the lower U.S. Treasury-based discount rates. In
addition, this amount was offset by $18 million of amortization of asbestos reserves.
In addition, commencing January 1, 2014, we will be merging our two internal pooling arrangements into one pool,
and will be changing the participation percentages of the pool members. We expect that this will result in an
additional workers’ compensation loss reserve discount benefit of approximately $100 million to be recorded during
the first quarter of 2014. As a result of the participation percentages and domiciliary states of the participants of the
combined pool, a portion of the workers’ compensation reserves currently held net in New York subsidiaries and
discounted pursuant to New York discounting rules, will be transferred to Lexington Insurance Company (Lexington),
Discounting of Reserves
..................................................................................................................................................................................................................................
AIG 2013 Form 10-K 97
ITEM 7 / RESULTS OF OPERATIONS / LIABILITY FOR UNPAID CLAIMS AND CLAIMS ADJUSTMENT EXPENSE
2013
CommercialDecember 31,
(in millions) Insurance Other Total
$ 597 $ 201 $ 798
1,622 1,102 2,724
–3333
$ 2,219 $ 1,336 $ 3,555
2013
CommercialYears Ended December 31,
(in millions) Insurance Other Total
$ 175 $ – $ 175
(249) 707 458
(248) (76) (324)
$ (322) $ 631 $ 309
..................................................................................................................................................................................
............................................................................................................................................................................................