AIG 2015 Annual Report Download - page 203

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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Class of Business or Category and Actuarial Method Application of Actuarial Method
General Liability
We generally use a combination of loss development
methods and expected loss ratio methods for primary
general liability or products liability classes. We also
supplement the standard actuarial techniques by using
evaluations of the ultimate losses on unusual claims or
claim accumulations by external specialists on those
classes of claims. The segmentation of the data
reflects state differences, industry classes,
deductible/non-deductible programs and type of claim.
For certain classes of business with sufficient loss
volume, loss development methods may be given
significant weight for all but the most recent one or two
accident years. For smaller or more volatile classes of
business and excess of a large deductible business,
loss development methods may be given limited
weight for the five or more most recent accident years.
Expected loss ratio methods are used for the more
recent accident years for these classes. The loss
experience for primary general liability business is
generally reviewed at a level that is believed to provide
the most appropriate data for reserve analysis.
Additionally, certain sub-classes, such as construction
defect, are generally reviewed separately from
business in other subclasses. For other sub-classes,
such as Environmental, we utilize the claim analysts’
claim projections for incurred but not enough reported
(IBNER) and actuarial methods to calculate pure IBNR.
Commencing in 2014, we continued to refine our loss
reserving techniques for the domestic primary casualty
classes of business and adopted further
segmentations based on our analysis of the differing
emerging loss patterns for certain classes of insureds.
Due to the fairly long-tail nature of general liability
business, and the many subclasses that are reviewed
individually, there is less credibility given to the
reported losses and increased reliance on expected
loss ratio methods for recent accident years.
Commercial Automobile Liability
We generally use loss development methods for all but
the most recent accident year for commercial
automobile liability classes of business.
Expected loss ratio methods are generally given
significant weight only in the most recent accident year,
except for excess of large deductible business, in
which expected loss ratio methods may receive weight
for several accident years. In 2015, the impact of the
increase in frequency of severe claims was projected
in the accident years where it was most prevalent. The
resulting increase in ultimate loss projections and loss
ratios for those years impacted subsequent years
through loss development factors and prior expected
loss ratio assumptions.