AIG 2013 Annual Report Download - page 212

The loss cost trend assumption is not Generally, our actual historical workers’
believed to be material with respect to compensation loss development factors
our loss reserves. This is primarily would be expected to provide a
because our actuaries are generally reasonably accurate predictor of future
able to use loss development loss development. However, workers’
projections for all but the most recent compensation is a long-tail class of
accident year’s reserves, so there is business, and our business reflects a
limited need to rely on loss cost trend very significant volume of losses,
assumptions for primary workers’ particularly in recent accident years.
compensation business. After evaluating the actual historical
loss development since the 1980s for
this business, in our judgment, it is
reasonably likely that actual loss
development factors will fall within the
range of approximately 4.5 percent
below to 6.2 percent above those
actually utilized in the year-end 2013
loss reserve review.
Loss costs were trended at six percent Excess workers’ compensation is an
per annum. After reviewing actual extremely long-tail class of business,
industry loss trends for the past ten with a much greater than normal
years, in our judgment, it is reasonably uncertainty as to the appropriate loss
likely that actual loss cost trends development factors for the tail of the
applicable to the year-end 2013 loss loss development. After evaluating the
reserve review for excess workers’ historical loss development factors for
compensation will range five percent prior accident years since the 1980s as
lower or higher than this estimated loss well as the development over the past
trend. several years of the ground up claim
projections utilized to help select the
loss development factors in the tail for
this class of business, in our judgment,
it is reasonably likely that actual loss
development for excess workers’
compensation could increase the
current reserves by up to
approximately $1.3 billion or decrease
them by approximately $850 million.
Primary Workers’ Compensation
Excess Workers’ Compensation
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AIG 2013 Form 10-K194
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Class of Business Loss Cost Trend Loss Development Factor