AIG 2014 Annual Report Download - page 295

ITEM 8 / NOTE 12. GOODWILL
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278
Net goodwill 1,184 291 - 1,475
Increase (decrease) due to:
Acquisition -28 - 28
Other (49) - -(49)
Balance at December 31, 2014:
Goodwill - gross 2,401 2,530 -4,931
Accumulated impairments (1,266) (2,211) -(3,477)
Net goodwill $1,135 $319 $ - $ 1,454
13. INSURANCE LIABILITIES
Liability for Unpaid Losses and Loss Adjustment Expenses
The liability for unpaid losses and loss adjustment expenses represents the accumulation of estimates of unpaid claims,
including estimates for claims incurred but not reported and claim adjustments expenses, less applicable discount for future
investment income. We continually review and update the methods used to determine loss reserve estimates and to establish
the resulting reserves. Any adjustments resulting from this review are reflected currently in pre-tax income. Because these
estimates are subject to the outcome of future events, changes in estimates are common given that loss trends vary and time
is often required for changes in trends to be recognized and confirmed. Reserve changes that increase previous estimates of
ultimate cost are referred to as unfavorable or adverse development or reserve strengthening. Reserve changes that decrease
previous estimates of ultimate cost are referred to as favorable development.
Our gross loss reserves before reinsurance and discount are net of contractual deductible recoverable amounts due from
policyholders of approximately $12.4 billion and $12.0 billion at December 31, 2014 and 2013, respectively. These recoverable
amounts are related to certain policies with high deductibles (primarily for U.S. commercial casualty business) where we
manage and pay the entire claim on behalf of the insured and are reimbursed by the insured for the deductible portion of the
claim. At December 31, 2014 and 2013, we held collateral totaling $9.4 billion and $9.0 billion, respectively, for these
deductible recoverable amounts, consisting primarily of letters of credit and trust agreements.
The following table presents the reconciliation of activity in the Liability for unpaid losses and loss adjustment
expenses:
Years Ended December 31,
(in millions) 2014 2013 2012
Liability for unpaid losses and loss adjustment expenses, beginning of year $81,547 $ 87,991 $ 91,145
Reinsurance recoverable (17,231) (19,209) (20,320)
Net liability for unpaid losses and loss adjustment expenses, beginning of year 64,316 68,782 70,825
Foreign exchange effect(a) (1,061) (617) (90)
Dispositions - (79) (11)
Changes in net loss reserves due to retroactive asbestos reinsurance transaction 141 22 90
Tota l 63,396 68,108 70,814
Losses and loss adjustment expenses incurred:
Current year 21,279 22,171 25,385
Prior years, excluding discount(b) 703 557 421
Prior years, discount charge (benefit) 478 (309) (63)
Tota l 22,460 22,419 25,743
Losses and loss adjustment expenses paid(c):
Current year 6,358 7,431 8,450
Prior years 17,886 18,780 19,325
Tota l 24,244 26,211 27,775
Balance, end of year:
Net liability for unpaid losses and loss adjustment expenses 61,612 64,316 68,782
Reinsurance recoverable 15,648 17,231 19,209
Tota l $77,260 $ 81,547 $ 87,991