AIG 2015 Annual Report Download - page 132

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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* In 2015, $1.2 billion of loss reserves for certain environmental liability, healthcare, casualty, and specialty coverages, previously reported in Commercial
Casualty and Specialty lines of business, were transferred to other run-off insurance lines.
Discounting of Reserves
The following table presents the components of loss reserve discount included above:
December 31, 2015 2014
Run-off Run-off
Property Insurance Property Insurance
(in millions) Casualty Lines Total Casualty Lines Total
U.S. workers' compensation:
Tabular $ 635 $218 $853 $ 623 $ 229 $ 852
Non-tabular 1,542 746 2,288 1,525 689 2,214
Asbestos - 7 7 - 11 11
Total reserve discount $ 2,177 $971 $3,148 $ 2,148 $ 929 $ 3,077
The following table presents the net reserve discount benefit (charge):
Years Ended December 31, 2015 2014 2013
Run-off Run-off Run-off
Property Insurance Property Insurance Property Insurance
(in millions) Casualty Lines Total Casualty Lines Total Casualty Lines Total
Current accident year $ 182 $ - $ 182 $ 189 $ - $ 189 $ 175 $ -
$
175
Accretion and other
adjustments to prior
year discount (262) (74) (336) (145) (235) (380) (225) 102 (123)
Effect of interest rate
changes 148 77 225 (225) (172) (397) (272) 529 257
Effect of re-pooling - - - 110 - 110 - - -
Net reserve discount
benefit (charge) 68 371 (71) (407) (478) (322) 631 309
Amount transferred to run-off
insurance lines (39) 39 ---- - --
Net change in total reserve
discount $ 29 $ 42 $71 $ (71)$ (407)$ (478) $ (322)$ 631
$
309
Comprised of:
U.S. Workers'
compensation $ 29 $ 46 $75 $ (71)$ (385)$ (456) $ (322)$ 649
$
327
Asbestos $ - $ (4)$(4) $ - $ (22)$ (22) $ - $ (18)
$
(18)
U.S. Workers’ Compensation
The Non-Life Insurance Companies discount certain workers’ compensation reserves in accordance with practices prescribed
or permitted by New York, Pennsylvania and Delaware. New York rules generally do not permit non-tabular discounting on
IBNR and prescribe a fixed 5 percent discount rate for application to case reserves. Pennsylvania permits non-tabular
discounting of IBNR and, commencing in 2013, approved variable discount rates determined using risk-free rates based on the
U.S. Treasury forward yield curve plus a liquidity margin, applicable to IBNR and case reserves. Delaware has permitted
discounting on the same basis as the Pennsylvania domiciled companies.
The net increase in workers’ compensation discount in 2015 of $75 million was partially due to the increase in forward yield
curve rates used for discounting under the prescribed or permitted practices. The increase in the forward yield curve
component of the discount rates resulted in a $225 million increase in the loss reserve discount, as Treasury rates generally
increased along the payout pattern horizon in 2015. In addition, the effects of the discount attributable to newly established