AIG 2014 Annual Report Download - page 140

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES

123
The following table presents the components of AIG’s gross loss reserves by major lines of business on a U.S.
statutory basis*:
At December 31,
(in millions) 2014 2013
Other liability occurrence (including asbestos and environmental) $ 19,444 $ 21,023
International 16,932 17,126
Workers' compensation (net of discount) 14,914 15,390
Other liability claims made 10,051 10,645
Property 3,515 4,111
Auto liability 2,237 2,581
Products liability 1,439 1,463
Medical malpractice 1,626 1,714
Mortgage guaranty / credit 1,008 1,348
Accident and health 1,271 1,378
Commercial multiple peril 1,886 1,886
Aircraft 1,402 1,276
Fidelity/surety 504 538
Other 1,031 1,068
Tota l $ 77,260 $ 81,547
* Presented by lines of business pursuant to statutory reporting requirements as prescribed by the NAIC.
Gross loss reserves represent the accumulation of estimates of ultimate losses, including estimates for IBNR and loss
expenses, less estimated salvage and subrogation and applicable discount. The Non-Life Insurance Companies regularly
review and update the methods and assumptions used to determine loss reserve estimates and to establish the resulting
reserves. Any adjustments resulting from this review are reflected in pre-tax operating income. Because loss reserve estimates
are subject to the outcome of future events, changes in estimates are unavoidable given that loss trends vary and time is often
required for changes in trends to be recognized and confirmed. Reserve changes that increase prior years’ estimates of
ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease
prior years’ estimates of ultimate cost are referred to as favorable development. See MD&A Critical Accounting Estimates –
Details of the Loss Reserving Process.
Net loss reserves represent gross loss reserves reduced by reinsurance recoverable, net of an allowance for unrecoverable
reinsurance.
The following table presents the components of net loss reserves:
December 31,  
(in millions) 2014 2013
Gross loss reserves before reinsurance and discount $ 80,337 $ 85,102
Less: discount (3,077) (3,555)
Gross loss reserves, net of discount, before reinsurance 77,260 81,547
Less: reinsurance recoverable* (15,648) (17,231)
Net liability for unpaid losses and loss adjustment expenses $ 61,612 $ 64,316
* Includes $1.5 billion and $1.6 billion of reinsurance recoverable under a retroactive reinsurance agreement at December 31, 2014 and 2013, respectively.
Gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from
policyholders of approximately $12.4 billion and $12.0 billion at December 31, 2014 and 2013, respectively. These recoverable
amounts are related to certain policies with high deductibles (in excess of high dollar amounts retained by the insured through
self-insured retentions, deductibles, retrospective programs, or captive arrangements; each referred to generically as
“deductibles”), primarily for U.S. commercial casualty business, where the Non-Life Insurance Companies manage and pay the
entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the claim. At December 31,
2014 and 2013, the Non-Life Insurance Companies held collateral totaling $9.4 billion and $9.0 billion, respectively, for these
deductible recoverable amounts, consisting primarily of letters of credit and assets in trusts.