AIG 2014 Annual Report Download - page 152

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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Asbestos and Environmental Reserves
Loss Reserve Estimates - Asbestos and Environmental
We consider a number of factors and recent experience, in addition to the results of both external and internal analyses, to
estimate asbestos and environmental loss reserves. Nonetheless, we believe that significant uncertainty remains as to our
ultimate liability for asbestos and environmental claims, which is due to several factors, including:
• the long latency period between asbestos exposure and disease manifestation, leading to the potential for involvement of
multiple policy periods for individual claims;
• claims filed under the non-aggregate premises or operations section of general liability policies;
• the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• diverging legal interpretations; and
• the difficulty in estimating the allocation of remediation cost among various parties with respect to environmental claims.
In 2014, both the retained accounts and retroceded account ground-up reviews for asbestos were updated. As a result, we
decreased gross undiscounted asbestos loss reserves by $6 million and increased net undiscounted asbestos loss reserves
by $64 million. The net undiscounted increase reflects a buyout settlement on a retained account as well as a reduction in
estimated ceded loss reserves (prior to the retroactive reinsurance retrocession). For environmental, we increased gross
environmental reserves by $140 million and net environmental reserves by $60 million as a result of top-down actuarial
analyses performed during the year as well as development on a number of large accounts.
In 2013, we completed a ground-up review of all our remaining retained accounts for asbestos. In addition, a subsidiary of the
retrocessionaire for our retroactive reinsurance contract completed a ground-up asbestos study for the largest accounts it
assumed. As a result, we increased gross asbestos loss reserves by $169 million and net asbestos loss reserves by $6 million.
The net reserve increase also reflects a small amount of estimated uncollectible reinsurance. A significant portion of these loss
reserves will be recoverable under our retroactive reinsurance arrangement. For environmental, we increased gross
environmental reserves by $98 million and net environmental reserves by $61 million as a result of top-down actuarial
analyses performed during the year as well as development on a number of large accounts.
In 2012, after considering recent experience compared to the results of our most recent ground-up analysis, as well as all of
the above factors related to uncertainty, no adjustment to gross and net asbestos reserves was recognized. Additionally in
2012, a moderate amount of incurred loss pertaining to the asbestos loss reserve discount is reflected in the table below and is
related to the reserves not subject to our retroactive reinsurance agreement. Upon completion of a top-down analysis
performed for environmental in the fourth quarter of 2012, we concluded that the $150 million gross reserve strengthening and
$75 million net reserve strengthening recognized in the first half of 2012 was adequate.
In addition to the U.S. asbestos and environmental reserve amounts shown in the tables below, the Non - Life Insurance
Companies also have asbestos reserves relating to foreign risks written by non-U.S. entities of $132 million gross and $105
million net as of December 31, 2014. The asbestos reserves relating to non-U.S. risks written by non-U.S. entities were $134
million gross and $108 million net as of December 31, 2013.