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ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................With respect to known environmental claims, we established over two decades ago a specialized environmentalclaims unit, which investigates and adjusts all such environmental claims. This unit evaluates environmental claimsutilizing a claim-by-claim approach that involves a detailed review of individual policy terms and exposures. Becauseeach policyholder presents different liability and coverage issues, we generally evaluate exposure on apolicy-by-policy basis, considering a variety of factors such as known facts, current law, jurisdiction, policy languageand other factors that are unique to each policy. Quantitative techniques must be supplemented by subjectiveconsiderations, including management judgment. Each claim is reviewed at least semi-annually utilizing theaforementioned approach and adjusted as necessary to reflect the current information.The environmental claims unit also actively manages and pursues early resolution with respect to these claims in anattempt to mitigate its exposure to the unpredictable development of these claims. We attempt to mitigate our knownlong-tail environmental exposures through a combination of proactive claim-resolution techniques, including policybuybacks, complete environmental releases, compromise settlements, and, when appropriate, litigation.Known asbestos claims are managed in a similar manner. Over two decades ago we established a specialized toxictort claims unit, which historically investigated and adjusted all such asbestos claims. As part of the above mentionedNICO transaction, effective January 1, 2011, NICO assumed responsibility for claims handling related to the majorityof AIG’s domestic asbestos liabilities.The following is a discussion of actuarial methods applied by major class of business:Class of Business or Category and Actuarial MethodApplication of Actuarial MethodExcess CasualtyWe generally use a combination of loss development methods Expected loss ratio methods are generally used for at leastand expected loss ratio methods for excess casualty classes. the three latest accident years, due to the relatively lowcredibility of the reported losses. The loss experience isFrequency/severity methods are generally not used in isolationgenerally reviewed separately for lead umbrella classes andto determine ultimate loss costs as the vast majority offor other excess classes, due to the relatively shorter tail forreported claims do not result in claim payment. (However,lead umbrella business. Automobile-related claims arefrequency/severity methods assist in the regular monitoring ofgenerally reviewed separately from non-auto claims, due tothe adequacy of carried reserves to support incurred but notthe shorter-tail nature of the automobile-related claims. Claimsreported claims). In addition, the average severity variesrelating to certain latent exposures such as constructionsignificantly from accident year to accident year due to largedefects or exhaustion of underlying product aggregate limitslosses which characterize this class of business, as well asare reviewed separately due to the unique emergencechanging proportions of claims which do not result in a claimpatterns of losses relating to these claims. The expected losspayment. In order to gain more stability in the projection, theratios used for recent accident years are based on theclaims amenable to loss development methods are analyzedprojected ultimate loss ratios of prior years, adjusted for ratein two layers: the layer capped at $10 million and the layerchanges, estimated loss cost trends and all other changesabove $10 million. The expected loss ratio for the layer abovethat can be quantified.$10 million is derived from the expected relationship betweenthe layers, reflecting the attachment point and limit byDuring 2012, we also completed a third party review of certainaccident year.insureds exposed to a specific class of toxic tort claims. Thatreview considered the prior claims history for each insuredIn addition, we leverage case reserving based methodologiesaccount, AIG’s exposed limits and the insured’s role with thefor complex claims/ latent exposures such as those involvingspecific toxicant reviewed as well as a legal analysis of thetoxic tort and other claims accumulations.exposures presented by these claims........................................................................................................................................................................................................................................................................................................................................................................................................................................................AIG 2012 Form 10-K 179
ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................Class of Business or Category and Actuarial MethodApplication of Actuarial MethodD&O and Related Management Liability Classes of BusinessWe generally use a combination of loss development methods Expected loss ratio methods are given more weight in the twoand expected loss ratio methods for D&O and relatedmost recent accident years, whereas loss developmentmanagement liability classes of business.methods are given more weight in more mature accidentyears. For the year-end 2012 loss reserve review, claimsFrequency/severity methods are generally not used in isolationprojections for accident years 2011 and prior were used.for these classes as the overall losses are driven by largeThese classes of business reflect claims made coverage, andlosses more than by claim frequency. Severity trends havelosses are characterized by low frequency and high severity.varied significantly from accident year to accident year andcare is required in analyzing these trends by claim type. Wealso give weight to claim department ground-up projections ofultimate loss on a claim by claim basis as these may be morepredictive of ultimate loss values especially for older accidentyears......................................................................................................................................................................................................................Workers’ CompensationWe generally use a combination of loss development methods Expected loss ratio methods generally are given significantand expected loss ratio methods for workers’ compensation. weight only in the most recent accident year. Workers’We segment the data by state and industry class to the extent compensation claims are generally characterized by highthat meaningful differences are determined to exist.frequency, low severity, and relatively consistent lossdevelopment from one accident year to the next. Wehistorically have been a leading writer of workers’compensation, and thus have sufficient volume of claimsexperience to use development methods. We generallysegregate California business from other business inevaluating workers’ compensation reserves. In 2012, wesegmented out New York from the other states to reflect itsdifferent development pattern and changing percentage of themix by state. We also revised our assumptions to reflectchanges in our claims management activities. Certain classesof workers’ compensation, such as construction, are alsoevaluated separately. Additionally, we write a number of verylarge accounts which include workers’ compensationcoverage. These accounts are generally priced by ouractuaries, and to the extent appropriate, the indicated lossesbased on the pricing analysis may be used to record the initialestimated loss reserves for these accounts........................................................................................................................................................................................................................................................................................................................................................................................................................................................180 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 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG............
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG PROPERTY CA
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ITEM 1 / BUSINESS / AIG LIFE AND RE
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS / OTHER OPERATION
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1 / BUSINESS..................
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ITEM 1A / RISK FACTORS.............
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ITEM 1B / UNRESOLVED STAFF COMMENTS
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ITEM 5 / MARKET FOR REGISTRANT’S
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 6 / SELECTED FINANCIAL DATA...
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ITEM 7 / MANAGEMENT’S DISCUSSION
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ITEM 7 / USE OF NON-GAAP MEASURES..
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ITEM 7 / EXECUTIVE SUMMARY.........
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ITEM 7 / RESULTS OF OPERATIONS.....
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ITEM 7 / LIQUIDITY AND CAPITAL RESO
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Page 213 and 214: ITEM 7 / GLOSSARY..................
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Page 217 and 218: ITEM 7A / QUANTITATIVE AND QUALITAT
Page 219 and 220: ITEM 8 / INDEX TO FINANCIAL STATEME
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Page 227 and 228: ITEM 8 / NOTE 1. BASIS OF PRESENTAT
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Page 241 and 242: ITEM 8 / NOTE 3. SEGMENT INFORMATIO
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Page 245 and 246: ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 4. DIVESTED BUSINESSE
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ITEM 8 / NOTE 5. BUSINESS COMBINATI
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ITEM 8 / NOTE 6. FAIR VALUE MEASURE
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ITEM 8 / NOTE 7. INVESTMENTS.......
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ITEM 8 / NOTE 8. LENDING ACTIVITIES
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ITEM 8 / NOTE 9. REINSURANCE.......
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 10. DEFERRED POLICY A
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 11. VARIABLE INTEREST
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ITEM 8 / NOTE 12. DERIVATIVES AND H
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ITEM 8 / NOTE 13. LIABILITY FOR UNP
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ITEM 8 / NOTE 14. VARIABLE LIFE AND
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 15. DEBT OUTSTANDING.
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ITEM 8 / NOTE 16. CONTINGENCIES, CO
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ITEM 8 / NOTE 17. TOTAL EQUITY.....
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ITEM 8 / NOTE 18. NONCONTROLLING IN
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ITEM 8 / NOTE 19. EARNINGS (LOSS) P
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ITEM 8 / NOTE 20. STATUTORY FINANCI
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 21. SHARE-BASED COMPE
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ITEM 8 / NOTE 22. EMPLOYEE BENEFITS
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ITEM 8 / NOTE 24. INCOME TAXES.....
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ITEM 8 / NOTE 26. QUARTERLY FINANCI
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ITEM 8 / NOTE 27. INFORMATION PROVI
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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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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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Percentageof VotingSecuritiesJurisd
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CONSENT OF INDEPENDENT REGISTERED P
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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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