AIG 2014 Annual Report Download - page 308

ITEM 8 / NOTE 16. CONTINGENCIES, COMMITMENTS AND GUARANTEES

291
complaint on May 16, 2014. On October 31, 2014, AIG and NYDFS entered into a Consent Order, whereby AIG agreed to pay
$35 million and dismiss the federal lawsuit in exchange for NYDFS’s agreement to discontinue its inquiry.
On May 12, 2010, a complaint was filed under seal in the Southern District of New York by an individual (Relator) seeking to
assert claims on behalf of the United States against AIG under the False Claims Act. The Relator filed also under seal a first
amended complaint on July 28, 2011. The complaint and the first amended complaint were initially filed and maintained under
seal while the United States considered whether to intervene in the action, and on or about October 29, 2013, after the United
States declined to intervene, the District Court ordered the complaint be unsealed 30 days after the entry of the order. The
case, however, was not unsealed until May 9, 2014. The Relator thereafter served his second amended complaint on AIG on
May 23, 2014. The second amended complaint alleges that AIG made false statements relevant to the valuation of two of its
former subsidiaries, ALICO and American International Assurance Limited (AIA), in connection with agreements under which
interests in those subsidiaries were transferred to the FRBNY in exchange for a $25 billion decrease in the amount owed to the
FRBNY under the FRBNY Credit Facility. Specifically, it alleges that AIG falsely told the federal government that ALICO and
AIA had the licenses they needed to conduct their business and were in compliance with applicable laws and regulations. AIG
moved to dismiss the Relator’s second amended complaint on December 22, 2014.
As previously disclosed in prior quarters, a state regulatory agency has requested additional information relating to the
unwinding of a position on which we realized gains of $196 million for the year ended December 31, 2014.
Legal Reserves
We recorded increases in our legal reserve liability of $507 million and $391 million in the years ended December 31, 2014
and 2013, respectively.
Other Contingencies
Liability for unpaid losses and loss adjustment expenses
Although we regularly review the adequacy of the established Liability for unpaid losses and loss adjustment expenses, there
can be no assurance that our loss reserves will not develop adversely and have a material adverse effect on our results of
operations. Estimation of ultimate net losses, loss expenses and loss reserves is a complex process, particularly for long-tail
casualty lines of business, which include, but are not limited to, general liability, commercial automobile liability, environmental,
workers’ compensation, excess casualty and crisis management coverages, insurance and risk management programs for
large corporate customers and other customized structured insurance products, as well as excess and umbrella liability,
directors and officers and products liability. Generally, actual historical loss development factors are used to project future loss
development. However, there can be no assurance that future loss development patterns will be the same as in the past.
Moreover, any deviation in loss cost trends or in loss development factors might not be identified for an extended period of
time subsequent to the recording of the initial loss reserve estimates for any accident year. Reserves with respect to a number
of years may be significantly affected by changes in loss cost trends or loss development factors that were relied upon in
setting the reserves. These changes in loss cost trends or loss development factors could be attributable to changes in global
economic conditions, changes in the legal, regulatory, judicial and social environment, changes in medical cost trends (for
example, inflation, intensity and utilization of medical services), underlying policy pricing, terms and conditions, and claims
handling practices.