AIG 2014 Annual Report Download - page 204

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Class of Business or Category and Actuarial Method Application of Actuarial Method
In 2014, we refined the segmentation of business written
in excess of a deductible by analyzing loss development
separately for each layer/deductible size group. We also
updated our tail factor selections in CA and NY and our
loss development factors in the Construction class.
Each of these segments appears to have been impacted
by specific structural changes in the portfolio. For CA
business, our tail factor increases were in response to
changing long-term medical development patterns. In
NY, there has been a lengthening of the period between
the date of accident and the classification of non-
scheduled permanent partial injuries. We completed a
review of claim emergence and payouts for our top six
states in workers’ compensation and concluded that NY
and CA were the main states where the loss
development patterns had materially changed since our
last review. For excess of large deductible business, we
updated our analyses to consider the impact of changes
in the mix of retentions that has occurred over time as
the data by retention band was becoming more credible.
Lastly, for the Construction class, we noted that the
construction sector has experienced a comparatively
slow recovery in payroll levels. As a result of the
diminished employment opportunities in this industry
sector, injured workers may experience limited return-to-
work opportunities, which moderate the shortening of
claim duration that normally accompanies a labor market
recovery.
In 2014, we also enhanced our analysis by considering
our best estimate expectations of inflation (principally,
the PCE Deflator for Health Care Services) and loss cost
trends and we also reflected the impacts of
enhancements in our claim management and loss
mitigation activities, such as opioid drug management,
fraud investigation and medical management.