AIG 2015 Annual Report Download - page 21

ITEM 1 / BUSINESS
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Eight years later 54,332 56,424 64,517
Nine years later 56,516 59,208
Ten years later 58,703
Remaining Reserves (Undiscounted) 13,021 15,946 18,099 19,619 23,289 26,124 29,853 35,529 41,638 50,603
Remaining Discount 1,454 1,610 1,776 1,942 2,091 2,257 2,429 2,594 2,778 2,966
Remaining Reserves $ 11,567 $ 14,336 $16,323 $17,677 $21,198 $23,867 $27,424 $ 32,935 $ 38,860 $47,637
Net Liability, End of Year $ 59,586 $ 64,894 $71,717 $75,029 $70,554 $74,724 $74,008 $ 72,028 $ 67,871 $64,689 $63,751
Reinsurance Recoverable, End of Year 19,693 17,369 16,212 16,803 17,487 19,644 20,320 19,209 17,231 15,648 14,339
Gross Liability, End of Year 79,279 82,263 87,929 91,832 88,041 94,368 94,328 91,237 85,102 80,337 $78,090
Re-estimated Net Liability 71,724 75,154 82,616 86,177 79,319 79,573 79,050 76,897 72,296 68,808
Re-estimated Reinsurance Recoverable 24,800 20,981 19,392 18,850 18,633 16,758 18,403 18,894 17,183 14,289
Re-estimated Gross Liability 96,524 96,135 102,008 105,027 97,952 96,331 97,453 95,791 89,479 83,097
Cumulative Gross
Redundancy (Deficiency) $ (17,245) $ (13,872) $(14,079) $(13,195) $(9,911) $(1,963) $(3,125) $ (4,554) $ (4,377) $(2,760)
(a) During 2009, we deconsolidated Transatlantic Holdings, Inc. and sold 21st Century Insurance Group and HSB Group, Inc. The sales and
deconsolidation are reflected in the table above as a reduction in December 31, 2009 net reserves of $9.7 billion and as an $8.6 billion increase in paid
losses for the years 2000 through 2008 to remove the reserves for these divested entities from the ending balance.
(b) The increase in Net Reserves Held from 2009 to 2010 is partially due to the $1.7 billion in Net Reserves Held by Fuji Fire, which was acquired in
2010. The decrease in 2011 is due to the cession of asbestos reserves described in Item 7. MD&A — Insurance Reserves – Non-Life Insurance
Companies— Asbestos and Environmental (1986 and prior).
The Liability for unpaid losses and loss adjustment expenses as reported in our Consolidated Balance Sheet at December 31,
2015 differs from the total reserves reported in the annual statements filed with state insurance departments and, when
applicable, with foreign regulatory authorities primarily for the following reasons:
• Reserves for certain foreign operations are not required or permitted to be reported in the United States for statutory
reporting purposes, including contingency reserves for catastrophic events;
• Statutory practices in the United States require reserves to be shown net of applicable reinsurance recoverable; and
• Unlike statutory financial statements, our consolidated liability for unpaid losses and loss adjustment expenses excludes
the effect of intercompany transactions.
Gross loss reserves are calculated without reduction for reinsurance recoverable and represent the accumulation of estimates
for reported losses and IBNR, net of estimated salvage and subrogation. We review the adequacy of established gross loss
reserves in the manner previously described for net loss reserves. A reconciliation of activity in the Liability for unpaid losses
and loss adjustment expenses is included in Note 12 to the Consolidated Financial Statements.
For further discussion of asbestos and environmental reserves, see Item 7. MD&A — Insurance Reserves – Non-Life
Insurance Companies— Asbestos and Environmental (1986 and prior).
REINSURANCE ACTIVITIES
Reinsurance is used primarily to manage overall capital adequacy and mitigate the insurance loss exposure related to certain
events such as natural and man-made catastrophes.
Our subsidiaries operate worldwide primarily by underwriting and accepting risks for their direct account on a gross basis and
reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those risks exceed the
desired retention level. In addition, as a condition of certain direct underwriting transactions, we are required by clients, agents
or regulation to cede all or a portion of risks to specified reinsurance entities, such as captives, other insurers, local reinsurers
and compulsory pools.