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ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................The following table presents the rollforward of net loss reserves:Years Ended December 31,(in millions)2012 2011 2010Net liability for unpaid claims and claims adjustment expense at beginning of year $ 70,825 $ 71,507 $ 67,899Foreign exchange effect 757 353 (126)Acquisitions (a) – – 1,538Dispositions (b) (11) – (87)Change due to NICO reinsurance transaction 90 (1,703) –Losses and loss expenses incurred:Current year, undiscounted 25,385 27,931 24,455Prior years, undiscounted (c) 421 195 4,182Change in discount (63) 34 (562)Losses and loss expenses incurred 25,743 28,160 28,075Losses and loss expenses paid:Current year 9,297 11,534 9,873Prior years 19,325 15,958 15,919Losses and loss expenses paid 28,622 27,492 25,792Net liability for unpaid claims and claims adjustment expense at end of year $ 68,782 $ 70,825 $ 71,507(a) Represents the acquisition of Fuji on March 31, 2010.(b)Includes amounts related to dispositions through the date of disposition.(c) See tables below for details of prior year development by business unit, accident year and major class of business.The following tables summarize development, (favorable) or unfavorable, of incurred losses and lossexpenses for prior years, net of reinsurance:Years Ended December 31,(in millions) 2012 2011 2010Prior accident year development by accident year:Accident Year2011 $ (162) $ – $ –2010 (75) 402 –2009 (45) 117 (61)2008 (150) (294) 2862007 157 (172) 5282006 (20) (273) 1992005 112 (164) 1132004 33 (16) 1342003 13 13 732002 and prior 558 582 2,910Total $ 421 $ 195 $ 4,182..................................................................................................................................................................................................................................AIG 2012 Form 10-K 91