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ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................The following table provides a summary of reserve activity, including estimates for applicable IBNR, relatingto asbestos and environmental claims:As of or for the Years Ended December 31,2012 2011 2010(in millions) Gross Net Gross Net Gross NetAsbestos:Liability for unpaid claims and claims adjustment expense at beginning ofyear $ 5,226 $ 537 $ 5,526 $ 2,223 $ 3,236 $ 1,151Change in net loss reserves due to retroactive reinsurance:Paid losses recoverable under retroactive reinsurance contracts – 111 – 111 – –Re-estimation of amounts recoverable under retroactive reinsurancecontracts (a) – (21) – (1,814) – –Change in net loss reserves due to retroactive reinsurance – 90 – (1,703) – –Dispositions (10) (10) – – (17) (8)Loss and loss expenses incurred:Prior years, undiscounted 1 1 2 2 3,326 1,479Change in discount 83 37 190 74 (386) (162)Losses and loss expenses incurred (b) 84 38 192 76 2,940 1,317Losses and loss expenses paid (b) (404) (228) (492) (236) (633) (237)Other changes – – – 177 – –Liability for unpaid claims and claims adjustment expense at end of year $ 4,896 $ 427 $ 5,226 $ 537 $ 5,526 $ 2,223Environmental:Liability for unpaid claims and claims adjustment expense at beginning ofyear $ 204 $ 119 $ 240 $ 127 $ 338 $ 159Dispositions (1) (1) – – (27) (10)Losses and loss expenses incurred 150 75 33 27 23 24Losses and loss expenses paid (44) (30) (69) (35) (94) (46)Liability for unpaid claims and claims adjustment expense at end of year $ 309 $ 163 $ 204 $ 119 $ 240 $ 127Combined:Liability for unpaid claims and claims adjustment expense at beginning ofyear $ 5,430 $ 656 $ 5,766 $ 2,350 $ 3,574 $ 1,310Change in net loss reserves due to retroactive reinsurance:Paid losses recoverable under retroactive reinsurance contracts – 111 – 111 – –Re-estimation of amount recoverable under retroactive reinsurancecontracts – (21) – (1,814) – –Change in net loss reserves due to retroactive reinsurance – 90 – (1,703) – –Dispositions (11) (11) – – (44) (18)Losses and loss expenses incurred:Undiscounted 151 76 35 29 3,349 1,503Change in discount 83 37 190 74 (386) (162)Losses and loss expenses incurred 234 113 225 103 2,963 1,341Losses and loss expenses paid (448) (258) (561) (271) (727) (283)Other changes – – – 177 – –Liability for unpaid claims and claims adjustment expense at end of year $ 5,205 $ 590 $ 5,430 $ 656 $ 5,766 $ 2,350(a) Re-estimation of amounts recoverable under retroactive reinsurance contracts includes effect of changes in reserve estimates and changes indiscount. Additionally, the 2011 Net amount includes the effect on net loss reserves of the initial cession to NICO.(b)These amounts exclude benefit from retroactive reinsurance.Transfer of Domestic Asbestos LiabilitiesOn June 17, 2011, we completed a transaction under which the bulk of AIG Property Casualty’s net domesticasbestos liabilities were transferred to NICO, a subsidiary of Berkshire Hathaway, Inc. This was part of our ongoingstrategy to reduce our overall loss reserve development risk. This transaction covers potentially volatile U.S.-relatedasbestos exposures. It does not, however, cover asbestos accounts that we believe have already been reserved totheir limit of liability or certain other ancillary asbestos exposure assumed by AIG Property Casualty subsidiaries...................................................................................................................................................................................................................................AIG 2012 Form 10-K 97
ITEM 7 / RESULTS OF OPERATIONS.....................................................................................................................................................................................Upon the closing of this transaction, but effective as of January 1, 2011, we ceded the bulk of AIG PropertyCasualty’s net domestic asbestos liabilities to NICO under a retroactive reinsurance agreement with an aggregatelimit of $3.5 billion. Within this aggregate limit, NICO assumed collection risk for existing third-party reinsurancerecoverable associated with these liabilities. AIG Property Casualty paid NICO approximately $1.67 billion asconsideration for this cession and NICO assumed approximately $1.82 billion of net U.S. asbestos liabilities. As aresult of this transaction, AIG Property Casualty recorded a deferred gain of $150 million in the second quarter of2011, which is being amortized into income over the settlement period of the underlying claims.The following table presents the estimate of the gross and net IBNR included in the Liability for unpaidclaims and claims adjustment expense, relating to asbestos and environmental claims:December 31,2012 2011 2010(in millions) Gross Net * Gross Net * Gross NetAsbestos $ 3,193 $ 37 $ 3,685 $ 239 $ 4,520 $ 1,964Environmental 75 35 57 28 93 38Combined $ 3,268 $ 72 $ 3,742 $ 267 $ 4,613 $ 2,002* Net IBNR includes the reduction due to the NICO reinsurance transaction of $1,310 million and $1,414 million as of December 31, 2012 and2011, respectively. A significant part of the reduction in IBNR in 2012 is due to the reclassification of estimated liabilities on a retained account fromIBNR to case reserves.The following table presents a summary of asbestos and environmental claims count activity:As of or for the Years2012 2011 2010Ended December 31, Asbestos Environmental Combined Asbestos Environmental Combined Asbestos Environmental CombinedClaims at beginningof year 5,443 3,782 9,225 4,933 4,087 9,020 5,417 5,994 11,411Claims during year:Opened 226 222 448 141 207 348 502 354 856Settled (254) (179) (433) (183) (83) (266) (247) (125) (372)Dismissed orotherwiseresolved (a) (185) (2,211) (2,396) (289) (429) (718) (739) (2,136) (2,875)Other (b) – – – 841 – 841 – – –Claims at end ofyear 5,230 1,614 6,844 5,443 3,782 9,225 4,933 4,087 9,020(a) The number of environmental claims dismissed or otherwise resolved, increased substantially during 2012 as a result of AIG PropertyCasualty’s determination that certain methyl tertiary-butyl ether (MTBE) claims presented no further potential for exposure since these underlyingclaims were resolved through dismissal, settlement, or trial for all of the accounts involved. All of these accounts were fully reserved at the accountlevel and included adequate reserves for those underlying individual claims that contributed to the actual losses. These individual claim closings,therefore, had no impact on AIG Property Casualty’s environmental reserves.(b)Represents an administrative change to the method of determining the number of open claims, which had no effect on carried reserves.Survival Ratios – Asbestos and EnvironmentalThe following table presents AIG’s survival ratios for asbestos and environmental claims at December 31, 2012, 2011and 2010. The survival ratio is derived by dividing the current carried loss reserve by the average payments for thethree most recent calendar years for these claims. Therefore, the survival ratio is a simplistic measure estimating thenumber of years it would take before the current ending loss reserves for these claims would be paid off using recentyear average payments.Many factors, such as aggressive settlement procedures, mix of business and level of coverage provided, have asignificant effect on the amount of asbestos and environmental reserves and payments and the resulting survivalratio. Additionally, we primarily base our determination of these reserves based on ground-up and top-downanalyses, and not on survival ratios...................................................................................................................................................................................................................................98 AIG 2012 Form 10-K
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American International Group, Inc.2
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KEY FACTS & FIGURES52,000+ $65.7 bi
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■We said we would return to profi
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Financial HighlightsYears Ended Dec
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~63,000AIG EMPLOYEES AROUND THE WOR
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$115.1 millionAVERAGE CLAIMS PAID E
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$10,000MAXIMUM DONATION MADE BY AIG
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American International Group, Inc.F
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AMERICAN INTERNATIONAL GROUP, INC.A
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ITEM 7 / GLOSSARY..................
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ITEM 7 / GLOSSARY..................
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ITEM 7A / QUANTITATIVE AND QUALITAT
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ITEM 8 / INDEX TO FINANCIAL STATEME
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AMERICAN INTERNATIONAL GROUP, INC.C
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ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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PART II............................
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PART IV............................
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SignatureTitle/s/ ARTHUR C. MARTINE
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ExhibitNumber Description Location(
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Condensed Financial Information of
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Notes to Condensed Financial Inform
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Supplementary Insurance Information
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Valuation and Qualifying AccountsFo
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Subsidiaries of RegistrantExhibit 2
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Percentageof VotingSecuritiesJurisd
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CERTIFICATIONSI, Robert H. Benmosch
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CERTIFICATIONExhibit 32In connectio
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SECURITIES REGISTERED PURSUANT TO S
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American International Group, Inc.1
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