AIG 2015 Annual Report Download - page 297

ITEM 8 / NOTE 12. INSURANCE LIABILITIES
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general liability and umbrella auto liability, primarily for U.S. risks. We reacted to the adverse emergence by updating our
assumptions about loss severity, loss development patterns, and expected loss ratios for the most recent accident years.
 Primary Casualty – U.S. & Canada experienced $1.1 billion of adverse development. $540 million related to workers’
compensation policies with risk sharing features to reflect estimated increased losses and reduced expectations of future
recoveries from our insureds through these risk-sharing features. Risk-sharing features, include high deductibles, self-
insured retentions or retrospective rating features. We also experienced adverse development of $146 million in primary
general liability due to adverse emergence of claims in the construction sector; $144 million in primary auto liability due to
observed increases in both the frequency and severity of claims; $100 million for future claim handling expenses related to
existing loss reserves, and $100 million in workers’ compensation for coverages sold to government contractors in U.S.
and non U.S. military installations as a result of adverse loss emergence in recent accident years.
 Financial Lines – U.S. & Canada experienced $579 million of adverse development related to development of several
reported claims above expectations, in D&O and professional liability principally related to accident years 2006 through
2010.
 Run-off insurance lines experienced $727 million of adverse development largely driven by $281 million in asbestos and
environmental for accident years 1986 & prior and $272 million of other run-off. Reasons for this development are as
follows:
 Asbestos coverage has been excluded from AIG policies commencing in 1985. Most of AIG’s asbestos reserves are
ceded to National Indemnity Company (NICO) under a retrospective reinsurance arrangement entered into in 2011.
However, certain asbestos-related exposures are not subject to the NICO agreement, including asbestos exposures
for which we have negotiated fixed payment schedules, and third party reinsurance assumed policies. The reported
claim activity on the assumed claims has increased in the last year. As a result, we modified certain of our loss-
reserve-related assumptions to better reflect this AIG-specific experience as well as consideration of recent industry-
wide trends regarding expanding coverage theories for liability. As a result, we increased our 2015 reserves by $164
million and by $117 million for Asbestos and Environmental, respectively.
 Run-off lines experienced $272 million of adverse development based on updated assumptions about future loss
development.
In 2014, the increase in prior years’ loss reserves of $703 million included $550 million, $124 million, $182 million, $109 million,
and $(102) million related to Primary Casualty – U.S. & Canada, Asbestos and environmental (1986 and prior), Financial Lines
– International, Healthcare, and Natural Catastrophes – U.S. & Canada, respectively.
In 2013, the increase in prior years’ loss reserves of $557 million includes $498 million, $238 million, $(144) million, and $(54)
million related to Primary Casualty – U.S. & Canada, Asbestos and environmental (1986 and prior), Excess Casualty – U.S. &
Canada, and Healthcare, respectively.
Asbestos and Environmental Run-off Reserves
At December 31, 2015 and 2014, our net liability for unpaid loss and loss adjustment expenses included $722 million and $573
million, respectively, for asbestos and environmental-related claims (net of reinsurance, including retroactive reinsurance). We
cede the bulk of AIG Property Casualty’s net domestic asbestos liabilities under a 2011 retroactive reinsurance agreement with
National Indemnity Company (NICO) with an aggregate limit of $3.5 billion. Reinsurance recoverables related to this
agreement are $1.8 billion and $1.5 billion, respectively, at December 31, 2015 and 2014, respectively. Under retroactive
reinsurance accounting, contractual gains are deferred and amortized into income over the settlement period of the underlying
reinsured claims. During 2015, 2014 and 2013, we recognized approximately $233 million, $0 and $72 million, respectively, of
additional recoveries under the NICO agreement for which the income statement benefit was deferred. The expense related to
this increase in the deferred gain liability is reported in Other income/expense and is therefore excluded from net losses
incurred.