AIG 2015 Annual Report Download - page 207

ITEM 7 / CRITICAL ACCOUNTING ESTIMATES
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207
Class of Business or Category and Actuarial Method Application of Actuarial Method
Other Short-Tail Classes
For non-catastrophe business, frequency/severity
methods, loss development methods, and IBNR factor
methods are used alone or in combination to set
reserves for short-tail classes such as Commercial
Property, Personal Property, and Accident & Health
coverages.
IBNR factor methods are used, when the nature of
losses are low frequency/high severity. The IBNR
factors, when applied to earned premium, generate the
ultimate expected losses (or other exposure measure)
yet to be reported. The factors are determined based
on prior accident quarters’ loss costs adjusted to reflect
current cost levels and the historical emergence of
those loss costs. The factors are continually
reevaluated to reflect emerging claim experience, rate
changes or other factors that could affect the adequacy
of the IBNR factor being employed.
International
Business written by the Non-Life Insurance Companies
internationally includes both long-tail and short-tail
classes of business. For long-tail classes of business,
the actuarial methods used are comparable to those
described above. However, the majority of business
written by the Non-Life Insurance Companies
internationally is short-tail, high frequency and low
severity in nature. For this business, loss development
methods are generally employed to test the loss
reserves.
We maintain a database of detailed historical premium
and loss transactions in original currency for business
written by the Non-Life Insurance Companies
internationally. This allows our actuaries to determine
the current reserves without any distortion from
changes in exchange rates over time. Our actuaries
segment the international data by region, country or
class of business as appropriate to determine an
optimal balance between homogeneity and credibility.
The techniques developed by our U.S. actuaries for
certain commercial classes of business are
increasingly applied to our International portfolios
where the experience volume and data segmentation
is comparable to that of the U.S. portfolios. Our
actuaries work closely with the claims departments in
each of our major International locations to determine
the most appropriate methodology and assumptions.