AIG 2014 Annual Report Download - page 154

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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related asbestos exposures. It does not, however, cover asbestos accounts that we believe have already been reserved to
their limit of liability or certain other ancillary asbestos exposure assumed by AIG Property Casualty subsidiaries.
Upon the closing of this transaction, but effective as of January 1, 2011, we ceded the bulk of AIG Property Casualty’s net
domestic asbestos liabilities to NICO under a retroactive reinsurance agreement with an aggregate limit of $3.5 billion. Within
this aggregate limit, NICO assumed collection risk for existing third-party reinsurance recoverable associated with these
liabilities. AIG Property Casualty paid NICO approximately $1.67 billion as consideration for this cession and NICO assumed
approximately $1.82 billion of net U.S. asbestos liabilities. As a result of this transaction, AIG Property Casualty recorded a
deferred gain of $150 million in the second quarter of 2011, which is being amortized into income over the settlement period of
the underlying claims.
Under retroactive reinsurance arrangements any recoveries for development associated with the ceded losses are not
recognized immediately; rather this development increases or decreases the deferred gain, and is amortized into income as
described above. During 2013, we recognized approximately $86 million of adverse loss development that was ceded under
this reinsurance arrangement, which was partially offset by $15 million of deferred gain amortization. This development, net of
the deferred gain amortization, is being reported in Other income/expense, consistent with the way we manage the business
and assess performance and is therefore excluded from net losses incurred and our loss ratios to avoid distortion related to
our ongoing insurance business.
The following table presents the estimate of the gross and net IBNR included in the Liability for unpaid losses and
loss adjustment expenses, relating to asbestos and environmental claims:
December 31
,
2014 2013 2012
(in millions) Gross Net
*
Gross Net
*
Gross Net
*
Asbestos $2,363 $79 $ 3,190 $ 16 $ 3,193 $ 37
Environmental 157 87 94 51 75 35
Combined $ 2
,
520 $166
$
3
,
284
$
67
$
3
,
268
$
72
* Net IBNR includes the reduction due to the NICO reinsurance transaction of $803 million, $1,284 million and $1,310 million as of December 31, 2014, 2013
and 2012, respectively.
The following table presents a summary of asbestos and environmental claims count activity:
As of or for the Years 2014 2013 2012
Ended December 31, Asbestos Environmental Combined Asbestos Environmental Combined Asbestos Environmental Combined
Claims at be
g
innin
g
of
y
ea
r
4,680 1,517 6,197 5,230 1,614 6,844 5,443 3,782 9,225
Claims during year:
Opened 130 126 256 83 306 389 226 222 448
Settled (216) (163) (379) (194) (154) (348) (254) (179) (433)
Dismissed or otherwise
resolved(a) (545) (240) (785) (439) (249) (688) (185) (2,211) (2,396)
Other(b) - - - - - - - - -
Claims at end of year 4,049 1,240 5,289 4,680 1,517 6,197 5,230 1,614 6,844
(a) The number of environmental claims dismissed or otherwise resolved, increased substantially during 2012 as a result of Non-Life Insurance Companies
determination that certain methyl tertiary-butyl ether (MTBE) claims presented no further potential for exposure since these underlying claims were resolved
through dismissal, settlement, or trial for all of the accounts involved. All of these accounts were fully reserved at the account level and included adequate
reserves for those underlying individual claims that contributed to the actual losses. These individual claim closings, therefore, had no impact on Non-Life
Insurance Companies environmental reserves.
(b) Represents an administrative change to the method of determining the number of open claims, which had no effect on carried reserves.
Survival Ratios — Asbestos and Environmental
The following table presents AIG’s survival ratios for asbestos and environmental claims at December 31, 2014, 2013 and
2012. The survival ratio is derived by dividing the current carried loss reserve by the average payments for the three most
recent calendar years for these claims. Therefore, the survival ratio is a simplistic measure estimating the number of years it
would take before the current ending loss reserves for these claims would be paid off using recent year average payments.
Many factors, such as aggressive settlement procedures, mix of business and level of coverage provided, have a significant
effect on the amount of asbestos and environmental reserves and payments and the resulting survival ratio. Additionally, we
primarily base our determination of these reserves based on ground-up and top-down analyses, and not on survival ratios.