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ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................Class of Business or Category and Actuarial MethodApplication of Actuarial MethodGeneral LiabilityWe generally use a combination of loss development methods For certain classes of business with sufficient loss volume,and expected loss ratio methods for primary general liability or loss development methods may be given significant weight forproducts liability classes. We also supplement the standard all but the most recent one or two accident years. For smalleractuarial techniques by using evaluations of the ultimateor more volatile classes of business, loss developmentlosses on unusual claims or claim accumulations by external methods may be given limited weight for the five or moreexperts on those classes of claims. The segmentation of the most recent accident years. Expected loss ratio methods aredata reflects state differences, industry classes, deductible/ used for the more recent accident years for these classes.non-deductible programs and type of claim.The loss experience for primary general liability business isgenerally reviewed at a level that is believed to provide themost appropriate data for reserve analysis. Additionally,certain sub-classes, such as construction, are generallyreviewed separately from business in other subclasses. Dueto the fairly long-tail nature of general liability business, andthe many subclasses that are reviewed individually, there isless credibility given to the reported losses and increasedreliance on expected loss ratio methods for recent accidentyears......................................................................................................................................................................................................................Commercial Automobile LiabilityWe generally use loss development methods for all but the Expected loss ratio methods are generally given significantmost recent accident year for commercial automobile classes weight only in the most recent accident year.of business......................................................................................................................................................................................................................HealthcareWe generally use a combination of loss development methods The largest component of the healthcare business consists ofand expected loss ratio methods for healthcare classes of coverage written for hospitals and other healthcare facilities.business.We test reserves for excess coverage separately from thosefor primary coverage. For primary coverages, lossFrequency/severity methods are sometimes used for pricingdevelopment methods are generally given the majority of thecertain healthcare accounts or business. However, in testingweight for all but the latest three accident years, and areloss reserves the business is generally combined into largergiven some weight for all years other than the latest accidentgroupings to enhance the credibility of the loss experience.year. For excess coverages, expected loss methods areWe also supplement the standard actuarial techniques bygenerally given all the weight for the latest three accidentusing evaluations of the ultimate losses on unusual claims by years, and are also given considerable weight for accidentexperts on those classes of claims.years prior to the latest three years. For other classes ofhealthcare coverage, an analogous weighting between lossdevelopment and expected loss ratio methods is used. Theweights assigned to each method are those that are believedto result in the best combination of responsiveness andcredibility........................................................................................................................................................................................................................................................................................................................................................................................................................................................182 AIG 2012 Form 10-K