Question

U.S.-based American International Group Inc. (AIG) is one of the world’s largest insurance companies, offering property-casualty, life insurance, and retirement services to customers in more than 130 countries. In its 2010 10-K report to the SEC, it discloses the following information on the loss reserves created for claims originating in 2000:
(In millions)
Net Reserves Held in 2000: ... $ 26,971

Cumulative net liability paid as of:
One year later ......... $ 9,709
Two years later......... 17,149
Three years later......... 21,930
Four years later......... 26,090
Five years later......... 29,473
Six years later ......... 32,421
Seven years later ......... 34,660
Eight years later ......... 36,497
Nine years later ......... 38,943
Ten years later .........40,153

Net reserves for 2000 re-estimated as of:
One year later......... $ 26,979
Two years later......... 30,696
Three years later.........32,732
Four years later......... 36,210
Five years later......... 41,699
Six years later ......... 43,543
Seven years later......... 44,475
Eight years later......... 45,767
Nine years later......... 47,682
Ten years later ......... 50,422

Net Redundancy (Deficiency) .........$ (23,451)
Was the initial estimate for loss reserves originating in 2000 too low or too high? How has the firm updated its estimate of this obligation over time? What percentage of the original liability remains outstanding for 2000 claims at the end of 2010? As a financial analyst, what questions would you have for the CFO on its 2000 liability?



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  • CreatedFebruary 11, 2015
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