AIG 2014 Annual Report Download - page 149

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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(representing approximately 95 percent of all open reported claims) and used the refined analysis to inform our judgment of
the ultimate loss cost for claims that have not yet been reported using a frequency/severity approach for these accident years.
This approach was deemed to be most suitable for injured workers whose medical conditions had largely stabilized (i.e., at
least 9 to 10 years have elapsed since the date of injury). The reserves for accident years 2004 and subsequent (13 percent of
total case and IBNR reserves for this class) were determined using traditional methods.
Natural Catastrophes
During 2014, we experienced favorable property catastrophe prior year development of $102 million in our U.S. and Canada
business, primarily due to several U.S. events in accident year 2013. We also experienced favorable property catastrophe prior
year loss reserve development of $77 million from our international property class of business.
During 2013, we experienced adverse development from Storm Sandy totaling $108 million, or 5.4 percent of the 2012
estimate. This development resulted from higher severities on a small number of large and complex commercial claims driven
by a number of factors including the extensive damage caused to properties in the downtown New York metropolitan area.
During 2012, we experienced favorable development from the Tohoku Catastrophe in Japan due to commercial claim
severities being less than previously reserved.
International Casualty
During 2014, 2013 and 2012, we had $67 million, $40 million, and $46 million of favorable development, respectively. The
favorable development in each year is due to lower than expected loss emergence in many classes and countries outside the
U.S., with the majority from various countries in the EMEA region.
Personal Insurance
During 2014, we experienced favorable loss reserve development of $16 million from Natural Catastrophes, primarily related to
Storm Sandy. The remaining $61 million of favorable development is primarily from Homeowners, International Accident &
Health and U.S. Warranty.
Mortgage Guaranty
Mortgage Guaranty business includes domestic first liens (93 percent of total reserves) and small run-off books in second
liens, student loans and international.
During 2014, we recognized $104 million of favorable prior year loss reserve development driven in part by steady increases in
year-over-year first lien cure rates, a reflection of the improved economic environment, and in part by favorable frequency
trends and recoveries in second lien claims. Partially offsetting these improvements were upward trends in severity,
particularly for older (pre-2012) accident periods.
During 2013, we recognized $30 million of adverse prior year loss reserve development due to unfavorable emergence of
overturns of prior claim cancellations and increased severity estimates in first liens, partially offset by favorable frequency in
student loans and a reduction in the unallocated loss adjustment expense reserve.
During 2012, we recognized $78 million of favorable prior year loss reserve development due to higher than expected
cancellation rates on first lien legacy claims, combined with improving frequency trends and strong recoveries in second lien
claims.
See Item 7. MD&A — Critical Accounting Estimates — Liability for Unpaid Losses and Loss Adjustment Expenses for further
discussion of our loss reserving process.
See Commercial Insurance and Consumer Personal Insurance Results herein for further discussion of net loss development.