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ITEM 7 / CRITICAL ACCOUNTING ESTIMATES.....................................................................................................................................................................................Class of Business Loss Cost Trend Loss Development FactorPrimary Workers’ CompensationThe loss cost trend assumption is not believed to Generally, our actual historical workers’be material with respect to our loss reserves. This compensation loss development factors would beis primarily because our actuaries are generally expected to provide a reasonably accurateable to use loss development projections for all predictor of future loss development. However,but the most recent accident year’s reserves, so workers’ compensation is a long-tail class ofthere is limited need to rely on loss cost trend business, and our business reflects a veryassumptions for primary workers’ compensation significant volume of losses, particularly in recentbusiness.accident years. After evaluating the actualhistorical loss development since the 1980s forthis business, in our judgment, it is reasonablylikely that actual loss development factors will fallwithin the range of approximately 3.1 percentbelow to 6.9 percent above those actually utilizedin the year-end 2012 loss reserve review......................................................................................................................................................................................................................Excess Workers’ CompensationLoss costs were trended at six percent per Excess workers’ compensation is an extremelyannum. After reviewing actual industry loss trends long-tail class of business, with a much greaterfor the past ten years, in our judgment, it is than normal uncertainty as to the appropriate lossreasonably likely that actual loss cost trends development factors for the tail of the lossapplicable to the year-end 2012 loss reserve development. After evaluating the historical lossreview for excess workers’ compensation will development factors for prior accident years sincerange five percent lower or higher than this the 1980s as well as the development over theestimated loss trend.past several years of the ground up claimprojections utilized to help select the lossdevelopment factors in the tail for this class ofbusiness, in our judgment, it is reasonably likelythat actual loss development for excess workers’compensation could increase the current reservesby up to approximately $1.3 billion or decreasethem by approximately $850 million........................................................................................................................................................................................................................................................................................................................................................................................................................................................188 AIG 2012 Form 10-K