AIG 2015 Annual Report Download - page 141

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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During 2014, we updated our analyses of Excess Workers compensation using a range of scenarios and methodologies and
determined that our carried reserves were adequate after recognizing $20 million of favorable prior year development as a
result of claim settlements and commutations of assumed reinsurance business, as well as reflecting changes in estimates in
our loss mitigation strategies. We commuted several large assumed reinsurance agreements in 2014 and reduced the
reserves faster than was previously expected as a result of our proactive management by the run-off unit.
During 2013, we updated our analysis of Excess Workers’ Compensation reserves and determined that no changes to our
carried reserves were needed. We also updated our analysis of underlying claims cost drivers used in 2012 through accident
year 2004, discussed in more detail below.
As noted above, we write loss sensitive business within our primary casualty portfolio. We recognized (return) additional
premiums on loss sensitive business of $(49) million, $105 million and $89 million in 2015, 2014 and 2013, respectively, which
entirely offset development in that business.
For the year ended December 31, 2015, we incurred reinsurance reinstatement premiums of $(4) million, compared to $(2)
million and $27 million for 2014 and 2013, respectively.
See MD&A — Critical Accounting Estimates — Liability for Unpaid Losses and Loss Adjustment Expenses for further
discussion of our loss reserving process.
See Commercial Insurance and Consumer Personal Insurance Results herein for further discussion of net loss development.
The following table summarizes development, (favorable) or unfavorable, of incurred losses and loss adjustment
expenses for prior years, net of reinsurance, by accident year:
Years Ended December 31,
(in millions) 2015 2014 2013
Prior accident year development by accident year:
Accident Year
2014 $ 397 $ - $ -
2013 396 (283) -
2012 488 (59) (181)
2011 296 37 217
2010 277 12 (350)
2009 188 31 157
2008 231 8(1)
2007 48 (113) -
2006 103 64 (75)
2005 90 105 61
2004 and prior (see table below) 1,605 901 729
Total prior year unfavorable development $ 4,119 $ 703 $ 557
Net Loss Development by Accident Year
For 2015, the adverse development in accident years 2011 through 2014 was driven by significantly greater actual versus
expected loss emergence for primary and excess Auto Liability, Financial Lines and Healthcare. Individual large claims in the
non-Auto Excess Casualty and International Casualty books along with deterioration in specific large accounts in the
government contractors workers’ compensation portfolio were concentrated in these most recent accident years. The impact
of revised loss expectations based on emergence in earlier accident years also contributed to the adverse development for
Excess Casualty and Financial Lines in this period. In addition, our updated assumptions for bad-faith claims and unallocated
loss adjustment expenses disproportionately impacted these years. Accident years 2005 through 2010 were largely impacted
by updated loss development selections in Financial Lines and revised estimates on expected future recoveries from risk-
sharing policies in the Primary Casualty portfolio. For accident years 2004 and prior, the adverse development was driven by