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ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................Class of Business or Category and Actuarial MethodApplication of Actuarial MethodProfessional LiabilityWe generally use a combination of loss development methodsand expected loss ratio methods for professional liabilityclasses of business.Frequency/severity methods are used in pricing andprofitability analyses for some classes of professional liability;however, for loss reserve adequacy testing, the need toensure sufficient credibility generally results in segmentationsthat are not sufficiently homogenous to utilize frequency/severity methods.Loss development methods are used for the more matureaccident years. Greater weight is given to expected loss ratiomethods in the more recent accident years. Reserves aretested separately for claims made classes and classes writtenon occurrence policy forms. Further segmentations are madein a manner believed to provide an appropriate balancebetween credibility and homogeneity of the data.We also use claim department projections of the ultimatevalue of each reported claim to supplement and inform thestandard actuarial approaches......................................................................................................................................................................................................................Catastrophic CasualtyWe use expected loss ratio methods for all accident years for The expected loss ratios and loss development assumptionscatastrophic casualty business. This class of businessused are based upon the results of prior accident years forconsists of casualty or financial lines coverage that attach in this business as well as for similar classes of business writtenexcess of very high attachment points; thus the claimsabove lower attachment points. The business can be writtenexperience is marked by very low frequency and high severity. on a claims-made or occurrence basis. We use ground-upBecause of the limited number of claims, loss development claim projections provided by our claims staff to assist inmethods are not used.developing the appropriate reserve......................................................................................................................................................................................................................AviationWe generally use a combination of loss development methods Expected loss ratio methods are used to determine the lossand expected loss ratio methods for aviation exposures.reserves for the latest accident year.Aviation claims are not very long-tail in nature; however, theyare driven by claim severity. Thus a combination of bothdevelopment and expected loss ratio methods are used for allbut the latest accident year to determine the loss reserves.Frequency/severity methods are not employed due to the highseverity nature of the claims and different mix of claims fromyear to year......................................................................................................................................................................................................................Personal AutoWe generally use frequency/severity methods and lossFor many classes of business, greater reliance is placed ondevelopment methods for domestic personal auto classes. frequency/severity methods as claim counts emerge quicklyfor personal auto and allow for more immediate analysis ofresulting loss trends and comparisons to industry and otherdiagnostic metrics......................................................................................................................................................................................................................Fidelity/SuretyWe generally use loss development methods for fidelityExpected loss ratio methods are also given weight for theexposures for all but the latest accident year. For suretymore recent accident years. For the latest accident year theyexposures, we generally use the same method as for short-tail may be given 100 percent weight.classes (discussed below)........................................................................................................................................................................................................................................................................................................................................................................................................................................................AIG 2012 Form 10-K 183