2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
2007 Annual Report - AIG.com
You also want an ePaper? Increase the reach of your titles
YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.
American International Group, Inc. and Subsidiaries<br />
transfer of unearned premium reserves to DBG related to the estimates and to establish the resulting reserves are continually<br />
Richmond <strong>com</strong>mutation, accounting for 4 percent of the increase reviewed and updated by management. Any adjustments resulting<br />
in 2006 <strong>com</strong>pared to 2005.<br />
therefrom are reflected in operating in<strong>com</strong>e currently. Because<br />
The loss ratio decreased 3.1 points in 2006 <strong>com</strong>pared to loss reserve estimates are subject to the out<strong>com</strong>e of future<br />
2005, as the absence of significant catastrophes in 2006 events, changes in estimates are unavoidable given that loss<br />
resulted in a decrease in the loss ratio of 2.8 points. The loss trends vary and time is often required for changes in trends to be<br />
ratio also decreased due to rate increases and lower current year recognized and confirmed. Reserve changes that increase previlosses<br />
by Ascot on its U.S. book of business and lower asbestos ous estimates of ultimate cost are referred to as unfavorable or<br />
and environmental reserve increases. These declines were par- adverse development or reserve strengthening. Reserve changes<br />
tially offset by lower favorable loss development from prior<br />
that decrease previous estimates of ultimate cost are referred to<br />
accident years and adverse development on 2005 hurricanes. as favorable development.<br />
The expense ratio increased 1.8 points in 2006 <strong>com</strong>pared to Estimates for mortgage guaranty insurance losses and loss<br />
2005 due to a $59 million out of period adjustment for adjustment expense reserves are based on notices of mortgage<br />
amortization of deferred advertising costs and a premium reduc- loan delinquencies and estimates of delinquencies that have been<br />
tion of $61 million related to reconciliation remediation activities, incurred but have not been reported by loan servicers, based<br />
in aggregate accounting for 0.7 points of the increase in the upon historical reporting trends. Mortgage Guaranty establishes<br />
expense ratio. The expense ratio also increased due to growth in reserves using a percentage of the contractual liability (for each<br />
consumer business lines, which have higher acquisition expenses delinquent loan reported) that is based upon past experience<br />
but historically lower loss ratios.<br />
regarding certain loan factors such as age of the delinquency,<br />
Net investment in<strong>com</strong>e increased $540 million in 2006<br />
dollar amount of the loan and type of mortgage loan. Because<br />
<strong>com</strong>pared to 2005 primarily due to a $424 million out of period mortgage delinquencies and claims payments are affected prima-<br />
UCITS adjustment.<br />
rily by macroeconomic events, such as changes in home price<br />
appreciation, interest rates and unemployment, the determination<br />
Reserve for Losses and Loss Expenses<br />
of the ultimate loss cost requires a high degree of judgment. <strong>AIG</strong><br />
believes it has provided appropriate reserves for currently delin-<br />
The following table presents the <strong>com</strong>ponents of the<br />
quent loans. Consistent with industry practice, <strong>AIG</strong> does not<br />
General Insurance gross reserve for losses and loss<br />
establish a reserve for loans that are not currently delinquent, but<br />
expenses (loss reserves) as of December 31, <strong>2007</strong> and<br />
that may be<strong>com</strong>e delinquent in future periods.<br />
2006 by major lines of business on a statutory <strong>Annual</strong><br />
At December 31, <strong>2007</strong>, General Insurance net loss reserves<br />
Statement basis (a) :<br />
increased $6.66 billion from 2006 to $69.29 billion. The net loss<br />
(in millions) <strong>2007</strong> 2006 (b) reserves represent loss reserves reduced by reinsurance recoverable,<br />
net of an allowance for unrecoverable reinsurance and<br />
Other liability occurrence $20,580 $19,327<br />
Workers <strong>com</strong>pensation 15,568 13,612<br />
applicable discount for future investment in<strong>com</strong>e.<br />
Other liability claims made 13,878 12,513 The following table classifies the <strong>com</strong>ponents of the<br />
Auto liability 6,068 6,070 General Insurance net loss reserve by business unit as of<br />
International 7,036 6,006<br />
December 31, <strong>2007</strong> and 2006:<br />
Property 4,274 5,499<br />
Reinsurance 3,127 2,979 (in millions) <strong>2007</strong> 2006<br />
Medical malpractice 2,361 2,347 DBG (a) $47,392 $44,119<br />
Products liability 2,416 2,239 Transatlantic 6,900 6,207<br />
Accident and health 1,818 1,693 Personal Lines (b) 2,417 2,440<br />
Commercial multiple peril 1,900 1,651 Mortgage Guaranty 1,339 460<br />
Aircraft 1,623 1,629 Foreign General Insurance (c) 11,240 9,404<br />
Fidelity/surety 1,222 1,148<br />
Total Net Loss Reserve $69,288 $62,630<br />
Mortgage Guaranty/Credit 1,426 567<br />
Other 2,203 2,719 (a) At December 31, <strong>2007</strong> and 2006, respectively, DBG loss reserves<br />
include approximately $3.13 billion and $3.33 billion ($3.34 billion and<br />
Total $85,500 $79,999<br />
$3.66 billion, respectively, before discount), related to business written<br />
(a) Presented by lines of business pursuant to statutory reporting<br />
by DBG but ceded to AIRCO and reported in AIRCO’s statutory filings.<br />
requirements as prescribed by the National Association of Insurance<br />
DBG loss reserves also include approximately $590 million and<br />
Commissioners.<br />
$535 million related to business included in AIUO’s statutory filings at<br />
December 31, <strong>2007</strong> and 2006, respectively.<br />
(b) Allocations among various lines were revised based on the <strong>2007</strong><br />
presentation.<br />
(b) At December 31, <strong>2007</strong> and 2006, respectively, Personal Lines loss<br />
reserves include $894 million and $861 million related to business<br />
<strong>AIG</strong>’s gross reserve for losses and loss expenses represents ceded to DBG and reported in DBG’s statutory filings.<br />
the accumulation of estimates of ultimate losses, including<br />
(c) At December 31, <strong>2007</strong> and 2006, respectively, Foreign General<br />
Insurance loss reserves include approximately $3.02 billion and<br />
estimates for incurred but not yet reported reserves (IBNR) and<br />
$2.75 billion related to business reported in DBG’s statutory filings.<br />
loss expenses. The methods used to determine loss reserve<br />
<strong>AIG</strong> <strong>2007</strong> Form 10-K 47