AIG 2015 Annual Report Download - page 143

ITEM 7 / INSURANCE RESERVES / NON-LIFE INSURANCE COMPANIES
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• Update of the loss development patterns used for U.S. Primary Casualty including loss development patterns used in
guaranteed cost workers’ compensation for NY and CA construction class of business and updates to the loss development
patterns for business written on excess of deductible exposures in workers’ compensation, general liability and the
commercial auto classes of business which collectively accounted for approximately $660 million across the three years;
• Update of the Environmental run-off portfolio’s losses following the 2012 comprehensive claims review that provided a more
refined approach for the development of actuarial estimates for toxic tort claims (which were found to have a distinctly
lengthier loss development pattern than other general liability claims in the environmental portfolio) as well as a more
appropriate methodology for incorporating case reserving based estimates of ultimate loss costs for complex claims
involving environmental remediation and/or from policies with high policy limits (greater than $5 million per policy). These
updates which commenced in 2012 and have been applied in each subsequent year, accounted for approximately $385
million;
• Update of our net retained asbestos and environmental exposure from 1986 and prior which accounted for approximately
$472 million ($238 million environmental and $234 million asbestos) across the three years;
• Commutations in the three-year period ending December 31, 2015, accounted for approximately $146 million. These
commutations serve to reduce the uncertainty in AIG’s required reserves; and
• Update of the assumptions for future loss development for the run-off insurance lines, primarily for coverages we have not
written in at least five years, accounted for approximately $272 million of the All Other total amount of $461 million across
the three years.
During the period 2013 to 2015, we completed refinements of our reserving methodologies for U.S. mass tort, toxic tort,
retained asbestos, environmental and other specific large losses. We also conducted extensive additional studies to
corroborate our judgments for our U.S. primary workers compensation and excess workers’ compensation classes of business.
Further, we refined our loss reserving methodologies for our U.S. Excess Casualty class of business and our U.S. Primary
Casualty class of business written over excess of deductible exposures where loss development patterns may lengthen if
client retentions increase over time. Collectively, the reserves for the aforementioned classes of business or loss exposures
account for the majority of the remaining net loss reserves for accident years 2004 and prior.
Asbestos and Environmental Reserves
Loss Reserve Estimates - Asbestos and Environmental
We consider a number of factors and recent experience, in addition to the results of both external and internal analyses, to
estimate asbestos and environmental loss reserves. Nonetheless, we believe that significant uncertainty remains as to our
ultimate liability for asbestos and environmental claims, which is due to several factors, including:
• the long latency period between asbestos exposure and disease manifestation, leading to the potential for involvement of
multiple policy periods for individual claims;
• claims filed under the non-aggregate premises or operations section of general liability policies;
• the number of insureds seeking bankruptcy protection and the effect of prepackaged bankruptcies;
• diverging legal interpretations; and
• the difficulty in estimating the allocation of remediation cost among various parties with respect to environmental claims.
In 2015, as in prior years, both the retained accounts and retroceded accounts ground-up reviews for asbestos were updated.
As a result, we increased gross undiscounted asbestos incurred losses by $13 million and increased net undiscounted
asbestos incurred losses by $164 million. The net undiscounted change reflects an increase primarily due to third party
assumed reinsurance exposures. With the gross incurred loss increase less than the net incurred loss increase, the resulting
ceded incurred losses were reduced. For environmental, we increased gross environmental incurred losses by $214 million
and net environmental incurred losses by $117 million as a result of top-down actuarial analyses performed during the year, as
well as development on a large sediment site.