|AIG EXPECTS TO RECORD $4.1 BILLION NET CHARGE IN FOURTH QUARTER 2010 TO STRENGTHEN LOSS RESERVES ASSOCIATED WITH LONG-TAIL LINES IN P&C BUSINESS|
NEW YORK, Feb 09, 2011 -- American International Group, Inc. (AIG) announced today that, following completion of its annual comprehensive loss reserve review, it expects to record a $4.1 billion charge, net of $446 million in discount and loss sensitive business premium adjustments, for the fourth quarter of 2010 to strengthen loss reserves in its Chartis property and casualty insurance subsidiaries.
In addition, AIG announced that it has entered into a letter agreement with the U.S. Department of the Treasury permitting AIG to retain $2.0 billion of the net cash proceeds from the recently closed sale of AIG Star Life Insurance Co. Ltd and AIG Edison Life Insurance Company. AIG will use these proceeds, and other funds, to support the capital of Chartis insurance subsidiaries in connection with the loss reserve strengthening. As a result, AIG expects that the Chartis insurance companies' statutory surplus will remain largely unaffected.
The strengthening to Chartis loss reserves reflects adverse development on prior accident years in classes of business with long reporting tails. Four classes - asbestos, excess casualty, excess workers' compensation, and primary workers' compensation - comprise approximately 80 percent of the total charge. The majority of the strengthening relates to development in accident years 2005 and prior.
The total reserve strengthening represents approximately six percent of AIG's total general insurance net liability for unpaid claims and claims adjustment expense of $63.7 billion reported at September 30, 2010.
At the end of every year, Chartis conducts a comprehensive review of its net loss reserves, which represent the accumulation of estimates for reported losses (case basis reserves) and provisions for losses incurred but not reported (IBNR), both reduced by applicable reinsurance recoverable and the discount for future investment income, where permitted. These detailed reviews are conducted for each class of business for each subsidiary, and thus consist of hundreds of individual analyses.
The purpose of these reviews is to confirm the appropriateness of the reserves carried by each of the individual subsidiaries, and therefore of AIG's overall carried reserves. With the assistance of third party actuaries, AIG's actuarial teams assess the potential implications of new data and new and emerging trends, a process that allows for better, more refined analyses and judgments regarding the level of estimated loss reserves.
As a result of the 2010 year end loss reserve review, AIG strengthened loss reserves approximately $4.6 billion before discount (approximately $4.1 billion net of discount) primarily in four classes of business as follows:
In addition to the above classes, AIG also strengthened reserves in its construction/commercial risk and national accounts classes of business by approximately $820 million before discount. The construction and commercial risks, while separate classes of business, consist primarily of certain primary workers' compensation and general liability coverages, and thus the experience in the workers' compensation lines identified in the distinct classes above also affected these lines. For the 2010 year end loss reserve review of the construction and commercial risks classes, AIG determined it was appropriate to modify its loss development assumptions to provide greater weight to emerging adverse experience in the more recent accident years and increased its loss reserves by approximately $420 million in the fourth quarter of 2010. For the national accounts business, the 2010 year end review of Chartis loss data led to the conclusion that reserves for older accident years required strengthening. As a result, reserves for this class of business were strengthened by approximately $400 million. Various other classes comprised the remaining $240 million of reserve strengthening.
Partially offsetting the reserve strengthening was $446 million of loss reserve discount and loss sensitive business premium adjustments, including approximately $120 million of reserve discount for the asbestos class; approximately $300 million of reserve discount for the various workers' compensation classes discussed above; and an additional premium accrual of $26 million on certain loss sensitive policies.
This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements reflect AIG's current views with respect to future events and are based on assumptions and are subject to risks and uncertainties, including completion of the year end audit process. Except for AIG's ongoing obligation to disclose material information as required by federal securities laws, it does not intend to provide an update concerning any future revisions to any forward-looking statements to reflect events or circumstances occurring after the date hereof.
American International Group, Inc. (AIG) is a leading international insurance organization with operations in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the United States. AIG common stock is listed on the New York Stock Exchange, as well as the stock exchanges in Ireland and Tokyo.
SOURCE: American International Group, Inc.
American International Group, Inc.