AIG 2014 Annual Report Download - page 203

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Class of Business or Category and Actuarial Method Application of Actuarial Method
Workers’ Compensation
We generally use a combination of loss development
methods and expected loss ratio methods for workers’
compensation. We segment the data by state and
industry class to the extent that meaningful differences
are determined to exist.
For guaranteed cost business, expected loss ratio
methods generally are given significant weight only in
the most recent accident year. Workers’ compensation
claims are generally characterized by high frequency,
low severity, and relatively consistent loss development
from one accident year to the next. We historically have
been a leading writer of workers’ compensation, and
thus have sufficient volume of claims experience to use
development methods. We generally segregate
California (CA) business from other business in
evaluating workers’ compensation reserves. In 2012, we
segmented out New York (NY) from the other states to
reflect its different development pattern and changing
percentage of the mix by state. We also revised our
assumptions to reflect changes in our claims
management activities. Certain classes of workers’
compensation, such as construction and business
written in excess of a deductible, are also evaluated
separately. Expected loss ratio methods for business
written in excess of a deductible may be given significant
weight in the five or more most recent accident years.
Additionally, we write a number of very large accounts
which include workers’ compensation coverage. These
accounts are generally individually priced by our
actuaries, and to the extent appropriate, the indicated
losses based on the pricing analysis may be used to
record the initial estimated loss reserves for these
accounts.