AIG 2013 Annual Report Download - page 191

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perils worldwide are higher than the industry benchmark in the case of more likely events, and lower in the case of
tail events.
AIG Property Casualty Natural Catastrophe exposure vs. Industry benchmark*, worldwide net aggregate
exceedance probability as a percentage of AIG Property Casualty statutory surplus:
5.3%
12.1%
21.3%
7.2%
12.8%
17.5%
1-in-10 1-in-100 1-in-250
Benchmark
AIG PC
Return Period
* Benchmark referenced is from the Moody’s P&C rating Methodology Update, May 2013.
AIG Property Casualty utilizes industry-recognized catastrophe models and applies its proprietary modeling processes
and assumptions to arrive at loss estimates. The use of different methodologies and assumptions could materially
change the projected losses. Since there is no industry standard for assumptions and preparation of insured data for
use in models, modeled losses may not be comparable to estimates made by other companies.
Also, the modeled results are based on the assumption that all reinsurers fulfill their obligations to us under the terms
of the reinsurance arrangements. However, reinsurance recoverable may not be fully collectible. In particular, the use
of catastrophe bonds may not provide commensurate levels of protection compared to traditional reinsurance
transactions. Some catastrophe bond transactions may be based on an industry loss index rather than on actual
losses incurred by us, which would result in residual risk. Therefore, these estimates are inherently uncertain and
may not accurately reflect our exposure to these events.
Our 2014 catastrophe reinsurance program includes coverage for natural catastrophes and some coverage for
terrorism events. It consists of a large North American occurrence cover (without reinstatement) to protect against a
large U.S. loss, and a worldwide aggregate cover to protect against multiple smaller losses. The attachment point for
this reinsurance program is at $3 billion.
Actual results in any period are likely to vary, perhaps materially, from the modeled scenarios. The occurrence of one
or more severe events could have a material adverse effect on our financial condition, results of operations and
liquidity. See also Item 1A. Risk Factors — Reserves and Exposures for additional information.
We actively monitor terrorism risk and manage exposures to losses from terrorist attacks. We have set risk limits
based on modeled losses from certain terrorism attack scenarios. Terrorism risks are modeled using third-party
vendor models and various terrorism attack models and scenarios. Adjustments are made to account for vendor
model gaps and the nature of AIG Property Casualty exposures. Examples of modeled scenarios are conventional
bombs of different sizes, anthrax attacks and nuclear attacks.
Our largest terrorism exposures are in New York City, and estimated losses are largely driven by the Property and
Workers’ Compensation lines of business. At our largest exposure location, modeled losses for a five-ton bomb
attack net of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) and reinsurance
recoveries are estimated to be $3.3 billion as of September 30, 2013. We also have smaller terrorism exposure in
Canadian cities and in London.
Terrorism Risk
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AIG 2013 Form 10-K 173
ITEM 7 / ENTERPRISE RISK MANAGEMENT
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