AIG 2015 Annual Report Download - page 135

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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Net Loss Development
In determining the loss development from prior accident years, we consider and evaluate inputs from many sources, including
actual claims data, the performance of prior reserve estimates, observed industry trends, our internal peer review processes
(including challenges and recommendations from our Enterprise Risk Management group) as well as the views of third party
actuarial firms. We use these inputs to improve our evaluation techniques, and to analyze and assess the change in estimated
ultimate loss for each accident year by class of business. Our analyses produce a range of indications from various methods,
from which we select our best estimate.
We analyze and evaluate the change in estimated ultimate loss for each accident year by class of business. For example, if
loss emergence for a class of business is different than expected for certain accident years, we examine the indicated effect
such emergence would have on the reserves of that class of business. In some cases, the lower or higher than expected
emergence may result in no clear change in the ultimate loss estimate for the accident years in question, and no adjustment
would be made to the reserves for the class of business. In other cases, the lower or higher than expected emergence may
result in a change, either favorable or unfavorable. As appropriate, we make adjustments in response to the difference
between the actual and expected loss emergence for each accident year. As part of our reserving process, we also consider
notices of claims received with respect to emerging and/or evolving issues, in particular those related to complex, claims-
related class action litigation and latent exposure claims. Our analyses and conclusions about prior year reserves also help
inform our judgments about the current accident year loss and loss adjustment expense ratio selected (Commercial: 66.2
points; Consumer: 54.0 points; Mortgage Guaranty: 25.1 points) and the current year’s addition to reserves.
In 2015 and 2014, we recognized $4.1 billion and $703 million of adverse development, respectively, driven in each period by
adverse loss development in Commercial Property Casualty and Run-off Insurance Lines partially offset by Consumer
Personal Insurance and Mortgage Guaranty business. In 2013, we recognized $557 million of adverse development primarily
due to the adverse prior year loss reserve development in Commercial Property Casualty, Mortgage Guaranty business and
Run-off Insurance Lines, partially offset by Consumer Personal Insurance.
See Results of Operations — Commercial Insurance and Results of Operations — Consumer Personal Insurance Results
herein for further discussion of net loss development.
The following is a discussion of the primary reasons for the development in 2015, 2014 and 2013 of those classes of business
that experienced significant prior accident year development during the three-year period. See MD&A — Critical Accounting
Estimates for a description of our loss reserving process, basis for selections and sensitivities to certain assumptions.
Commercial Property Casualty
In 2015, the Commercial Property Casualty adverse prior year loss reserve development of $3.5 billion was driven by Excess
Casualty, Primary Casualty, Environmental, Financial Lines, Healthcare and International Excess Casualty, partially offset by
Property excluding natural catastrophes and Natural catastrophes.
In 2014, the Commercial Property Casualty adverse prior year loss reserve development of $655 million was driven by Primary
Casualty, Environmental, International Financial Lines, and Healthcare, partially offset by Natural catastrophes, International
Primary Casualty and International Commercial Property.
In 2013, the Commercial Property Casualty adverse prior year loss reserve development of $355 million was driven by Primary
Casualty, International Financial Lines, Environmental, and Healthcare, partially offset by Excess Casualty, Financial Lines,
and Natural catastrophes.
Excess Casualty – U.S. & Canada
The excess casualty class presents unique challenges for estimating the liability for unpaid losses. Our policies tend to attach
at a high layer above underlying policies, usually issued by other insurance companies, which can limit our access to relevant
information to help inform our judgments. Our insureds are generally required to provide us with notice of claims that exceed a